06 Arnold v. Willets and Patterson, Ltd., 44 Phils. 634 (1923)

8/10/2019 06 Arnold v. Willets and Patterson, Ltd., 44 Phils. 634 (1923)

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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-20214 March 17, 1923

G. C. ARNOLD,plaintiff-appellant,vs.WLLTS ! PATTERSON, LTD.,defendant-appellee.

Fisher, DeWitt, Perkins and Brady for appellant.Ross and Lawrence for appellee.

STATEMENT

Fo a nu!be of "eas pio to the ti!es alle#ed in the co!plaint, the plaintiff $as in the e!plo" of the%ntenational Ban&in# Copoation of Manila, and it is conceded that he is a co!petent ande'peienced business !an. (ul" )*, *+*, C. . illits and %. /. Patteson $ee patnes doin#business in San Fancisco, Califonia, unde the na!e of illits 0 Patteson. The plaintiff $as then inSan Fancisco, and as a esult of ne#otiations the plaintiff and the fi! enteed into a $itten contact,&no$n in the ecod as E'hibit A, b" $hich the plaintiff $as e!plo"ed as the a#ent of the fi! in thePhilippine %slands fo cetain puposes fo the peiod of five "eas at a !ini!u! sala" of 1233 pe!onth and tavellin# e'penses. The plaintiff etuned to Manila and enteed on the discha#e of hisduties unde the contact. As a esult of plaintiff4s e!plo"!ent and the $old $a conditions, thebusiness of the fi! in the Philippines ve" apidl" inceased and #e$ be"ond the fondest hopes ofeithe pat". A dispute aose bet$een the plaintiff and the fi! as to the constuction of E'hibit A as tothe a!ount $hich plaintiff should eceive fo his sevices. Mean$hile Patteson etied fo! the fi!

and illits beca!e the sole o$ne of its assets. Fo convenience of opeation and to seve his o$npupose, illits o#ani5ed a copoation unde the la$s of Califonia $ith its pincipal office at SanFancisco, in and b" $hich he subscibed fo, and beca!e the e'clusive o$ne of all the capital stoc&e'cept a fe$ shaes fo o#ani5ation puposes onl", and the na!e of the fi! $as used as the na!eof the copoation. A shot ti!e afte that illits ca!e to Manila and o#ani5ed a copoation hee&no$n as illits 0 Patteson, /td., in and to $hich he a#ain subscibed fo all of the capital stoc&e'cept the no!inal shaes necessa" to 6ualif" the diectos. %n le#al effect, the San Fanciscocopoation too& ove and ac6uied all of the assets and liabilities of the Manila copoation. At theti!e that illits $as in Manila and $hile to all intents and puposes he $as the sole o$ne of thestoc& of copoations, thee $as a confeence bet$een hi! and the plaintiff ove the disputedconstuction of E'hibit A. As a esult of $hich anothe instu!ent, &no$n in the ecod as E'hibit B,$as pepaed in the fo! of a lette $hich the plaintiff addessed to illits at Manila on Nove!be *3,

*+*+, the pupose of $hich $as to !oe cleal" define and specif" the co!pensation $hich theplaintiff $as to eceive fo his sevices. illits eceived and confi!ed this lette b" si#nin# the na!eof illits 0 Patteson, B" C.d. illits. At the ti!e both copoations $ee le#all" o#ani5ed, and theeis nothin# in the copoate !inutes to sho$ that E'hibit B $as eve fo!all" atified o appoved b"eithe copoation. Afte its o#ani5ation, the Manila copoation e!plo"ed a e#ula accountant$hose dut" it $as to audit the accounts of the co!pan" and ende financial state!ents both fo theuse of the local ban&s and the local and paent copoations at San Fancisco. Fo! ti!e to ti!e andin the odina" couse of business such state!ents of account $ee pepaed b" the accountant anddul" fo$aded to the ho!e office, and a!on# othe thin#s $as a state!ent of (ul" )*, *+2*, sho$in#


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that thee $as due and o$in# the plaintiff unde E'hibit B the su! of P*3,277.83. A shot ti!epevious to that date, the San Fancisco copoation beca!e involved in financial touble, and all of itsassets $ee tuned ove to a 9ceditos4 co!!ittee.9 hen this state!ent $as eceived, the 9ceditos4co!!ittee9 i!!ediatel" potested its allo$ance. An atte!pt $as !ade $ithout success to ad:ust the!atte on a fiendl" basis and $ithout liti#ation. (anua" *3, *+22, the plaintiff bou#ht this action toecove fo! the defendant the su! of P*3,277.83 $ith le#al inteest and costs, and $itten

instu!ents &no$n in the ecod as E'hibits A and B $ee attached to, and !ade a pat of, theco!plaint.

Fo ans$e, the defendant ad!its the fo!al pats of the co!plaint, the e'ecution of E'hibit A anddenies each and eve" othe alle#ation, e'cept as specificall" ad!itted, and alle#es that $hat is&no$n as E'hibit B $as si#ned b" illits $ithout the authoit" of the defendant copoation o the fi!of illits 0 Patteson, and that it is not an a#ee!ent $hich $as eve enteed into $ith the plaintiff b"the defendant o the fi!, and, as a sepaate defense and counteclai!, it alle#es that on the )3th of(une, *+23, thee $as a balance due and o$in# the plaintiff fo! the defendant unde the contactE'hibit A of the su! of P;,7


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sala" of 1


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%//%TS 0 PATTERS?N

B" S#d.D C@AS. . %//%TS

Thee is no dispute about an" of the follo$in# facts> That at the inception C.. illits and %. /.Patteson constituted the fi! of illits 0 Patteson doin# business in the Cit" of San Fancisco thatlate Patteson etied fo! the fi!, and illits ac6uied all of his inteests and theeafte continuedthe business unde the na!e and st"le of illits 0 Patteson that the oi#inal contact E'hibit A $as!ade bet$een the plaintiff and the old fi! at San Fancisco on (ul" )*, *+*, to cove a peiod offive "eas fo! that date that plaintiff enteed upon the discha#ed of his duties and continued hissevices in the Philippine %slands to so!eone fo the peiod of five "eas that on Nove!be *3, *+*+,and as a esult of confeences bet$een illits and the plaintiff, E'hibit B $as addessed and si#nedin the !anne and fo! above stated in the Cit" of Manila. A shot ti!e pio to that date illitso#ani5ed a copoation in San Fancisco, in the State of Califonia, $hich too& ove and ac6uied allof the assets of the fi!4s business in Califonia then bein# conducted unde the na!e and st"le ofillits 0 Patteson that he subscibed fo all of the capital stoc& of the copoation, and that in tuthand in fact he $as the o$ne of all of its capital stoc&. Afte this $as done he caused a ne$copoation to be o#ani5ed unde the la$s of the Philippine %slands $ith pincipal office at Manila,

$hich too& ove and ac6uied all the business and assets of the fi! of illits 0 Patteson in thePhilippine %slands, in and to $hich, in le#al effect, he subscibed fo all of its capital stoc&, and $asthe o$ne of all of its stoc&. Afte both copoations $ee o#ani5ed the above lette $as dafted andsi#ned. The plaintiff contends that the si#nin# of E'hibit B in the !anne and unde the conditions in$hich it $as si#ned, and thou#h the subse6uent acts and conduct of the paties, $as atified and, inle#al effect, beca!e and is no$ bindin# upon the defendant.

%t $ill be noted that E'hibit B $as e'ecuted in Manila, and that at the ti!e it $as si#ned b" illits, he$as to all intents and puposes the le#al o$ne of all the stoc& in both copoations. %t also appeasfo! the evidence that the paent copoation at San Fancisco too& ove and ac6uied all of theassets and liabilities of the local copoation at Manila. That afte it $as o#ani5ed the Manilacopoation &ept sepaate ecods and account boo&s of its o$n, and that fo! ti!e to ti!e financial

state!ents $ee !ade and fo$aded to the ho!e office, fo! $hich it conclusivel" appeas thatplaintiff $as basin# his clai! fo sevices upon E'hibit A, as it $as !odified b" E'hibit B. That at noti!e afte E'hibit B $as si#ned $as thee eve an" dispute bet$een plaintiff and illits as to theco!pensation fo plaintiff4s sevices. That is to sa", as bet$een the plaintiff and illits, E'hibit B $asappoved, follo$ed and at all ti!es in foce and effect, afte it $as si#ned Nove!be *3, *+*+. %tappeas fo! an anal"sis of E'hibit B that it $as fo the !utual inteest of both paties. Fo! a s!allbe#innin#, the business $as then in a ve" flouishin# conditions and #o$in# fast, and the pofits$ee ve" la#e and $ee unnin# into bi# !one".

A!on# othe thin#s, E'hibit A povided> 9aD That the net pofits fo! said coconut oil business shallbe divided in e6ual shaes bet$een the said paties heeto #D that Anold should eceive abo&ea#e of * pe cent fo! all puchases and sales of !echandise, e'cept fo the account of thecoconut !ills cD that the net pofits fo! all othe business should be divided in e6ual half shaesbet$een the paties heeto.9

=nde the above povisions, the plaintiff !i#ht $ell contend that he $as entitled to one-half of all thepofits and a bo&ea#e of * pe cent fo! all puchases and sales, e'cept those fo the account ofthe coconut oil !ills, $hich unde the volu!e of business then e'istin# $ould un into a ve" la#esu! of !one". %t $as fo such eason and afte pesonal confeences bet$een the!, and to settle alldisputed 6uestions, that E'hibit B $as pepaed and si#ned.


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The ecod ecites that 9the defendant ad!its that fo! (ul" )*, *+* to (ul" )*, *+2*, the plaintifffaithfull" pefo!ed all the duties incu!bent upon hi! unde his contact of e!plo"!ent, it bein#undestood, ho$eve, that this ad!ission does not include an ad!ission that the plaintiff placed apope intepetation upon his i#ht to e!uneation unde said contact of e!plo"!ent.9

%t bein# ad!itted that the plaintiff $o&ed 9unde his contact of e!plo"!ent9 fo the peiod of five

"eas, the 6uestion natuall" aises, fo $ho! $as he $o&in# @is contact $as !ade $ith theoi#inal fi! of illits 0 Patteson, and that fi! $as dissolved and it ceased to e'ist, and all of itsassets $ee !e#ed in, and ta&en ove b", the paent copoation at San Fancisco. %n the ve" natueof thin#s, afte the copoation $as fo!ed, the plaintiff could not and did not continue to $o& fo thefi!, and, "et, he continued his e!plo"!ent fo the full peiod of five "eas. Fo $ho! did he $o&afte the patneship $as !e#ed in the copoation and ceased to e'ist

%t is ve" appaent that, unde the conditions then e'istin#, the si#nin# of E'hibit B $as fo the !utualinteests of both paties, and that if the contact E'hibit A $as to be enfoced accodin# to its te!s,that Anold !i#ht $ell contend fo a !uch la#e su! of !one" fo his sevices. %n tuth and in factillits and both copoations eco#ni5ed his e!plo"!ent and accepted the benefits of his sevices.@e continued his e!plo"!ent and endeed his sevices afte the copoation $ee o#ani5ed and

E'hibit B $as si#ned :ust the sa!e as he did befoe, and both copoations eco#ni5ed and acceptedhis sevices. Althou#h the plaintiff $as pesident of the local copoation, the testi!on" is conclusivethat both of the! $ee $hat is &no$n as a one !an copoation, and illits, as the o$ne of all of thestoc&, $as the foce and do!inant po$e $hich contolled the!. Afte E'hibit B $as si#ned it $aseco#ni5ed b" illits that the plaintiff4s sevices $ee to be pefo!ed and !easued b" its te! andpovisions, and thee neve $as an" dispute bet$een plaintiff and illits upon that 6uestion.

The contoves" fist aose afte the copoation $as in financial touble and the appoint!ent of $hatis &no$n in the ecod as a 9ceditos4 co!!ittee.9 Thee is no clai! o petense that thee $as an"faud o collusion bet$een plaintiff and illits, and it is ve" appaent that E'hibit B $as to the !utualinteest of both paties. %t is ele!enta" la$ that if E'hibit B is a bindin# contact bet$een the plaintiffand illits and the copoations, it is e6uall" bindin# upon the ceditos4 co!!ittee. %t $ould not have

an" hi#he o bette le#al i#ht than the copoation itself, and could not !a&e an" defense $hich itcould not !a&e. %t is ve" si#nificant that the clai! o defense $hich is no$ inteposed b" theceditos4 co!!ittee $as neve !ade o asseted at an" pevious ti!e b" the defendant, and that itneve $as !ade b" illits, and it is ve" appaent that if he had e!ained in contol of thecopoation, it $ould neve have !ade the defense $hich is no$ !ade b" the ceditos4 co!!ittee.The ecod is conclusive that at the ti!e he si#ned E'hibit B, illits $as, in le#al effect, the o$neand holde of all the stoc& in both copoations, and that he appoved it in thei inteest, and to potectthe! fo! the plaintiff havin# and !a&in# a !uch la#e clai! unde E'hibit A. As a !atte of fact, itappeas fo! the state!ent of M. /a&in, the accountant, in the ecod that if plaintiff4s cause ofaction $as no$ founded upon E'hibit A, he $ould have a clai! fo !oe than P*3,333.

Tho!pson on Copoations, 2d ed., vol. %, section *3, sa"s>

The poposition that a copoation has an e'istence sepaate and distinct fo! its !e!beshiphas its li!itations. %t !ust be noted that this sepaate e'istence is fo paticula puposes. %t!ust also be e!e!beed that thee can be no copoate e'istence $ithout pesons toco!pose it thee can be no association $ithout associates. This sepaate e'istence is to acetain e'tent a le#al fiction. heneve necessa" fo the inteests of the public o fo thepotection o enfoce!ent of the i#hts of the !e!beship, couts $ill dise#ad this le#alfiction and opeate upon both the copoation and the pesons co!posin# it.


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%n the sa!e section, the autho 6uotes fo! a decision in

hile of couse a copoation cannot atif" a contact $hich is stictl" $ltra vires, and $hich itin the fist instance could not have !ade, it !a" b" atification ende bindin# on it a contact,enteed into on its behalf b" its offices o a#ents $ithout authoit". As a #eneal ule suchatification need not be !anifested b" an" voted o fo!al esolution of the copoation o beauthenticated b" the copoate seal no hi#he de#ee of evidence is e6uisite in establishin#atification on the pat of a copoation, than is e6uisite in sho$in# an antecedentauthoi5ation.

' ' ' ' ' ' ' ' '

SEC. . The assent o appoval of a copoation to acts done on its account !a" be infeedin the sa!e !anne that the absent of a natual peson !a" be, and it is $ell settled that$hee a copoation $ith full &no$led#e of the unauthoi5ed act of its office o a#entsac6uiesces in and consents to such acts, it theeb" atifies the!, especiall" $hee theac6uiescence esults in pe:udice to a thid peson.

' ' ' ' ' ' ' ' '

SEC. +. So, $hen, in the usual couse of business of a copoation, an office has beenallo$ed in his official capacit" to !ana#e its affai, his authoit" to epesent the copoation!a" be infeed fo! the !anne in $hich he has been pe!itted b" the diectos to tansactits business.

SEC. 8. %n accodance $ith a $ell-&no$n ule of the la$ of a#enc", notice to copoateoffices o a#ents $ithin the scope o appaent scope of thei authoit" is attibuted to thecopoation.


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SEC. 7. As a #eneal ule, if a copoation $ith &no$led#e of its a#ents unauthoi5ed acteceived and en:o"s the benefits theeof, it i!pliedl" atifies the unauthoi5ed act if it is onecapable of atification b" paol.

%n its aticle on copoations, Copus (uis, in section 22


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%t appeas fo! the state!ent pepaed b" accountant /a&in founded upon E'hibit B that the plaintiffis entitled to ecove P*3,277.83. %t is ve" appaent that his state!ent $as based upon theassu!ption that thee $as a net pofit of P*;3,333 on the 833 tons of oil, of $hich the plaintiff $asentitled to one-half.

%n the absence of an" othe poof, $e have the i#ht to assu!e that the 833 tons of oil $as $oth the

a!ount $hich the defendant paid fo the! at the ti!e of the puchase o P);3 pe ton, and the ecodsho$s that the defendant too& and no$ has the possession of all of the oil secue the pa"!ent of thepice at $hich it $as sold. @ence, the pofit on the deal to the defendant at the ti!e of the sale $oulda!ount to the diffeence bet$een $hat the defendant paid fo the oil and the a!ount $hich iteceived fo the oil at the ti!e it sold the oil. %t appeas that at the ti!e of the sale the defendant onl"eceived P*38,333 in cash, and that it too& and accepted the po!isso" notes of Cu5 0 Tan Chon#Sa", the puchases, fo P78,333 !oe $hich have been collected and !a" neve be. @ence, it !ustfollo$ that the a!ount evidence b" the notes cannot no$ be dee!ed o teated as pofits on the dealand cannot be until such ti!es as the notes ae paid.

The :ud#!ent of the lo$e cout is evesed, and a !one" :ud#!ent $ill be enteed hee in favo ofthe plaintiff and a#ainst the defendant fo the su! of P;,827.83, $ith theeon at the ate of pe

cent pe annu! fo! the *3th da" of (anua", *+22. %n addition theeto, :ud#!ent $ill be endeeda#ainst the defendant in substance and to the effect that the plaintiff is the o$ne of an undivided one-half inteest in the po!isso" notes fo P78,333 $hich $ee e'ecuted b" Cu5 0 Tan Chon# Sa", as apat of the puchase pice of the oil, and that he is entitled to have and eceive one-half of all thepoceeds fo! the notes o eithe of the!, and that also he have :ud#!ent a#ainst the defendant focosts. So odeed.

%ra$llo, !. &., 'treet, (alcol", %vance)a, *strand, and Ro"$alde+, &&., conc$r.

$oo%&o%'(

*State e rel.vs. Standad ?il Co.

20) Ar&o*+ . W**'%( a&+ Pa%%'r(o&, L%+., 44 Ph*(. 34 /1923)

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06 Arnold v. Willets and Patterson, Ltd., 44 Phils. 634 (1923)