mead vs mccullough corpo.docx

7/21/2019 mead vs mccullough corpo.docx

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This action was originally brought by Charles W. Mead against Edwin C. McCullough,

Thomas L. Hartigan, Frank E. Green, and Frederick H. Hilbert. Mead has died since the

commencement o the action and the case is now going orward in the name o his

administrator as !lainti.

The com!laint contains three causes o action, which are substantially as ollows" The irst,or salary# the second, or !roits# and the third, or the $alue o the !ersonal eects alleged

to ha$e been let Mead and sold by the deendants.

% &oint and se$eral &udgment was rendered by deault against each and all o the deendants

or the sum o '(,)*+.- gold. The deendant McCullough alone ha$ing made a!!lication to

ha$e this &udgment set aside, the court granted this motion, $acating the &udgment as to him

only, the &udgment as to the other three deendants remaining undisturbed.

%t the new trial, which took !lace some two or three years later and ater the death o Mead,

the &udgment was rendered u!on merits, dismissing the case as to the irst and secondcauses o action and or the sum o '-,++ gold in the !lainti/s a$or on the third cause o

action. From this &udgment both !arties a!!ealed and ha$e !resented se!arate bills o

e0ce!tions. 1o a!!eal was taken by the deendant McCullough rom the ruling o the court

denying a reco$ery on his cross com!laint.

2n March -*, -3+, the !lainti 4Mead will be reerred to as the !lainti in this o!inion

unless it is otherwise stated5 and the deendant organi6ed the 78hili!!ine Engineering and

Construction Com!any,9 the incor!orators being the only stockholders and also the

directors o said com!any, with general ordinary !owers. Each o the stockholders !aid into

the com!any ',+++ Me0ican currency in cash, with the e0ce!tion o Mead, who turnedo$er to the com!any !ersonal !ro!erty in lieu o cash.

:hortly ater the organi6ation, the directors held a meeting and elected the !lainti as

general manager. The !lainti held this !osition with the com!any or nine months, when he

resigned to acce!t the !osition o engineer o the Canton and :hanghai ;ailway Com!any.

<nder the organi6ation the com!any began business about %!ril -, -+.

The contract and work undertaken by the com!any during the management o Mead were

the wrecking contract with the 1a$y =e!artment at Ca$ite or the raising o the :!anish

shi!s sunk by %dmiral =ewey# the contract or the construction o certain warehouses or

the >uartermaster de!artment# the construction o a whar at Fort Mc?inley or the

Go$ernment# The su!er$ision o the construction o the 8aciic 2riental Trading Com!any/s

warehouse# and some other odd &obs not s!eciically set out in the record.

:hortly ater the !lainti let the 8hili!!ine @slands or China, the other directors, the

deendants in this case, held a meeting on =ecember ), -3+(, or the !ur!ose o

discussing the condition o the com!any at that time and determining what course to



!ursue. They did on that date enter into the ollowing contract with the deendant

McCullough, to wit"

For $alue recei$ed, this contract and all the rights and interests o the 8hili!!ine

Engineering and Construction Com!any in the same are hereby assigned to E. C.

McCullough o Manila, 8. @.

4:gd.5 E. C. McC<LL2<GH,

President, Philippine Engineering and

Construction Company.

4:gd.5 F. E. G;EE1, Treasurer .

4:gd.5 TH2M%: L. H%;T@G%1, Secretary.

The contract reerred to in the oregoing document was known as the wrecking contract with

the na$al authorities.

2n the Ath o the same month, McCullough e0ecuted and signed the ollowing

instrumental"

For $alue recei$ed, and ha$ing the abo$e assignment rom my associates in the 8hili!!ine

Engineering and Construction Com!any, @ hereby transer my right, title, and interest in the

within contract, with the e0ce!tion o one si0th, which @ hereby retain, to ;. W. Brown, H. =.

C. ones, ohn T. Macleod, and T. H. Twentyman.

The assignees o the wrecking contract, including McCullough, ormed was not known as

the 7Manila :al$age %ssociation.9 This association !aid to McCullough '-*,+++ Me0ican

Currency cash or the assignment o said contract. @n addition to this !ayment, McCulloughretained a oneDsi0th interest in the new com!any or association.

The !lainti insists that he was recei$ed as general manager o the irst com!any a salary

which was not to be less than '(,*++ gold 4which amount he was recei$ing as city engineer

at the time o the cor!oration o the com!any5, !lus + !er cent o the net !roits which

might be deri$ed rom the business# while McCullough contends that the !lainti was to

recei$e only his necessary e0!enses unless the com!any made a !roit, when he could

recei$e '(,*++ !er year and + !er cent o the !roits. The contract entered into between

the board o directors and the !laintis as to the latter/s salary was a $erbal one. The

!lainti testiied that this contract was unconditional and that his salary, which was i0ed at'(,*++ gold, was not de!endent u!on the success o the com!any, but that his share o the

!roits was to necessarily de!end u!on the net income. 2n the other hand, McCullough,

Green and Hilbert testiy that the salary o the !lainti was to be determined according to

whether or not the com!any was successul in its o!erations# that i the com!any made

gains, he was to recei$e '(,*+++ gold, and a !ercentage, but that i the com!any did not

make any !roits, he was to recei$e only his necessary li$ing e0!enses.



@t is strongly urged that the !lainti would not ha$e acce!ted the management o the

com!any u!on such conditions, as he was recei$ing rom the city o Manila a salary o

'(,*++ gold. This argument is not only answered by the !ositi$e and direct testimony o

three o the deendants, but also by the circumstances under which this com!any was

organi6ed and !rinci!al ob&ect, which was the raising o the :!anish shi!s. The !lainti !utno money into the organi6ation, the deendants !ut but little" &ust suicient to get the work o

raising the wrecks under way. This $enture was a risky one. %ll the members o the

com!any reali6ed that they were undertaking a most diicult and e0!ensi$e !ro&ect. @ they

were successul, handsome !roits would be reali6ed# while i they were unsuccessul, all

the e0!enses or the hiring o machinery, launches, and labor would be a total loss. The

!lainti was in com!lete charge and control o this work and was to recei$e, according to

the great !re!onderance o the e$idence, in case the com!any made no !roits, suicient

amount to co$er his e0!enses, which included his room, board, trans!ortation, etc. The

deendants were to urnish money out o their own !ri$ate unds to meet these e0!enses, as

the original 'A,+++ Me0ican currency was soon e0hausted in the work thus undertaken. :o

the contract entered into between the directors and the !lainti as to the latter/s salary was

a contingent one.

@t is admitted that the !lainti recei$ed '-,*++ gold or his ser$ices, and whether he is

entitled to recei$e an additional amount de!ends u!on the result o the second cause o

action.

The second cause o action is more diicult to determine. 2n this !oint counsel or the

!lainti has iled a $ery able and e0hausti$e brie, dealing !rinci!ally with the acts.

@t is urged that the net !roits accruing to the com!any ater the com!letion o all the

contracts 4e0ce!t the sal$age contract5 made beore the !lainti resigned as manager and

u! to the time the sal$age contract was transerred to McCullough and rom him to the new

com!any, amounted to '*,A.( gold. This conclusion is reached, according to the

memorandum o counsel or the !lainti which a!!ears on !ages (A and (3 o the record, in

the ollowing manner"

8roits rom the construction o

warehouses or the Go$ernment

',3.*)

8roits rom the construction o the wall at

Fort Mc?inley

*++.++

8roits rom the ins!ection o the

construction o the 8. 2. T. warehouse

-,+++.++



8roits obtained rom the !ro&ects

4according to Mead/s calculations5

-,+++.++

Total 3,).*)

@n this same memorandum, the e0!ense or the o!eration o the com!any during Mead/s

management, consisting o rents, the hire o one muchacho, the !ublication o $arious

notices, the salary o an engineer or our months, and !lainti/s salary or nine months,

amounts to '(,A().- gold. This amount, deducted rom the sum total o !roits, lea$es

'*,A.( gold.

Counsel or the !lainti, in order to show conclusi$ely as they assert that the com!any, ater !aying all e0!enses and indebtedness, had a considerable balance to its credit, calls

attention to E0hibit ?. This balance reads as ollows"

%bstract co!y o ledger 1o. (, olios D. 8hili!!ine Engineering and Construction

Com!any.

Then ollow the debits and credits, with a balance in a$or o the com!any o '-+,A.))

Me0ican currency. This account !ur!orts to co$er the !eriod rom uly -, -3+, to %!ril -,

-3+(. Ledger 1o. (, abo$e mentioned, is that the deendant McCullough and not one o the

books o the com!any.

@t was this e0hibit that the lower court based its conclusion when it ound that on anuary

*, -3+(, ater making the transer o the sal$age contract to McCullough, the com!any was

in debt ',A.(+ gold. The balance o '-+,A.)) Me0ican currency deducted rom the

'-,)(3.)+ Me0ican currency 4McCullough/s losses in the Manila :al$age %ssociation5

lea$es ',A.(+ <nited :tates currency at the then e0isting rate o e0change. @n E0hibit ?,

McCullough charged himsel with the '-*,+++ Me0ican currency which he recei$ed rom his

associates in the new com!any, but did not credit himsel with the '-,)(3.)+ Me0ican

currency, losses in said com!any, or the reason that on %!ril -, -3+(, said losses had not

occurred. @t must be borne in mind that E0hibit ? is an abstract rom a ledger.The deendant McCullough, in order to show in detail his transactions with the old com!any,

!resented E0hibits - and . These accounts read as ollows"

=etailed account o the recei!ts and disbursements o E. C. McCullough and the 8hili!!ine

Engineering and Construction Com!any.



Then ollow the debits and credits. These two accounts co$er the !eriod rom March *

-3+, to une 3, -3+*. %ccording to E0hibit 1o. -, the old com!any was indebted to

McCullough in the sum o '-),3-A.* Me0ican currency, and according to E0hibit 1o. he

indebtedness amounted to ',(*A.-* Me0ican currency. The debits and credits in these two

e0hibits are e0actly the same with the ollowing e0ce!tions# @n E0hibit 1o. -, McCulloughcredits himsel with the '-+,+++ Me0ican currency 4the amount borrowed rom the bank and

de!osited with the admiral as a guarantee or the aithul !erormance o the sal$age

contract5# while in E0hibit 1o. he credits himsel with this '-+,+++ and at the same time

charges himsel with this amount. @n the same e0hibit 41o. 5 he credits himsel with

'-,)(3.)+ Me0ican currency, his losses in the new com!any, recei$ed rom said com!any.

Eliminating entirely rom these two e0hibits the '-+,+++ Me0ican currency, the '-*,+++

Me0ican currency, and the '-,(3.)+ Me0ican currency, the balance shown in McCullough/s

a$or is e0actly the same in both e0hibits. This balance amounts to '),3-A.* Me0ican

currency.

%ccording to McCullough/s accounts in E0hibits - and the !roits deri$ed rom the

construction o the Go$ernment warehouse amounted to '),++*.+ gold, while the !lainti

contends that these !roits amounted to ',3.*) gold. The !lainti, during his

management o the old com!any, made a contract with the Go$ernment or the construction

o the warehouse and commenced work. %ter he resigned and let or China, McCullough

took charge o and com!leted the said warehouse. McCullough gi$es a com!lete, detailed

statements o e0!ress or the com!letion o this work, showing the dates, to whom !aid, and

or what !ur!ose. He also gi$es the $arious amounts he recei$ed rom the Go$ernment with

the amounts o the recei!t o the same. 2n the irst e0amination, McCullough testiied thatthe total amount recei$ed rom the Go$ernment or the construction o these warehouse

was '-,-( gold. The case was sus!ended or the !ur!ose o e0amination the records o

the %uditor and the >uarter master, to determine the e0act amount !aid or this work. %s a

result o this e0amination, the $ouchers show an additional amount o about '*,+++ gold,

!aid in checks. These checks show that the same were endorsed by the !lainti and

collected by him rom the Hongkong and :hanghai Banking Cor!oration. This money was

not handled by McCullough and as it was collected by the !lainti, it must be !resumed, in

the absence o !roo, that it was disbursed by him. McCullough did not charge himsel with

the ',*+++ gold, alleged to ha$e been !roits rom the construction o the wall at Fort

Mc?inley, the ins!ection o the construction o the 8. 2. T. warehouse, and other !ro&ects.

This work was done under the management o the !lainti and it is not shown that the

!roits rom these contracts e$er reached the hands o McCullough. McCullough was not

the treasurer o the com!any at that time. The other items which the !lainti insist that

McCullough had no right to credit himsel with are the ollowing"



=ate To whom !aid. %mount 4Me0.

currency5.

an. (+,-3+( Green ',+++.++

Feb. ,

-3+(

McCullough -,(++.++

Feb. ,

-3+(

Green -,+.3

Feb. -3,

-3+*

8. 2. T. Co.

note

,(.A+

May (,

-3+*

Hilbert -,A*.+

une 3,

-3+*

Hartigan -,*.++

McCullough says that these amounts re!resents cash borrowed rom the e$idence !arties

to carry on the o!erations o the old com!any while it was trying to raise the sunken$essels. There is no !roo to the contrary, and McCullough/s testimony on this !oint is

strongly corroborated by the act that the work done by the com!any in attem!ting to raise

theses $essels was it irst undertaking. The com!any had made no !roits while that work

was going on under the management o the !lainti, but its e0!enses greatly e0ceeded that

o the original 'A,+++ Me0ican currency. @t was necessary to borrow money to continue that

work. These amounts, ha$ing been borrowed, were outstanding debts when McCullough

took charge or the !ur!ose o com!leting the warehouses and winding u! the business o

the old com!any. These amounts do not re!resent !ayments or reunds o the original

ca!ital. McCullough did not credit himsel with any amount or his ser$ices or su!er$ising

the com!letion o the warehouses, nor or li>uidating or winding u! the com!any/s aairs.

We think that the amount o '),3-A.* Me0ican currency, balance in McCullough/s a$or u!

to this !oint, re!resents a air, e>uitable, and &ust settlement.

:o ar we ha$e reerred to the 8hili!!ine Engineering and Construction Com!any as the

7com!any,9 without any attem!t to deine its legal status.



The !lainti and deendants organi6ed this com!any with a ca!ital stock o '-++,+++

Me0ican currency, each !aying in on the organi6ation ',+++ Me0ican currency. The

remainder, '3,+++, according to the articles o agreement, were to be oered to the !ublic in

shares o '-++ Me0ican currency, each. The names o all the organi6ers a!!ear in the

articles o agreement, which articles were duly inscribed in the commercial register. The!ur!ose or which this organi6ation was aected were to engage in general engineering and

construction work, and o!erating under the name o the 78hili!!ine Engineering and

Construction Com!any.9 during its acti$e e0istence, it engaged in the business o attem!ting

to rise the sunken :!anish leet, constructing under contract warehouses and a whar or

the <nited :tates Go$ernment, su!er$ising the construction o a warehouse or a !ri$ate

irm, and some assay work. @t was, thereore, an industrial ci$il !artnershi!, as distinguished

rom a commercial one# a ci$il !artnershi! in the mercantile orm, an anonymous

!artnershi! legally constituted in the city o Manila.

The articles o agreement a!!eared in a !ublic document and were duly inscribed in thecommercial register. To the e0tent o this inscri!tion the cor!oration !artook o the form o a

mercantile one and as such must be go$erned by %rticles -*- to -) o the Code o

Commerce, in so ar as these !ro$isions are not in conlict with the Ci$il Code 4%rt. -+,

Ci$il Code5# but the direct and !rinci!al law a!!licable is the Ci$il Code. Those !ro$isions o

the Code o Commerce are a!!licable subsidiary.

This !artnershi! or stock com!any 4sociedad anonima5 u!on the e0ecution o the !ublic

instrument in which its articles o agreement a!!ear, and the contribution o unds and

!ersonal !ro!erty, became a &uridical !erson an artiicial being, in$isible, intangible and

e0isting only in contem!lation o law with the !ower to hold, buy, and sell !ro!erty, and touse and be sued a cor!oration not a general co!artnershi! nor a limited

co!artnershi!. 4%rts. (, (A,-* o the Ci$il Code# Com!ania %gricola de <ltimar $s. ;eyes

et al., ) 8hil. ;e!., # and Chie ustice Marshall/s deinition o a cor!oration, - <. :., *-A.5

The inscribing o its articles o agreement in the commercial register was not necessary to

make it a &uridical !erson a cor!oration. :uch inscri!tion only o!erated to show that it

!artook o the orm o a commercial cor!oration. 4Com!ania %gricola de <ltimar $s. ;eyes

et al., supra.5

=id a ma&ority o the stockholders, who were at the same time a ma&ority o the directors o

this cor!oration, ha$e the !ower under the law and its articles o agreement, to sell or

transer to one o its members the assets o said cor!oration

@n the irst article o the statutes o incor!oration it is stated that by $irtue o a !ublic

document the organi6ers, whose names are gi$en in ull, agreed to orm

a sociedad anonima. %rticle @@ !ro$ides that the organi6ers should be the directors and

administrators until the second general meeting, and until their successors were duly



elected and installed. The third !ro$ides that the sociedad should run or ninetyDnine years

rom the date o the e0ecution o its articles o agreement. %rticle @ sets orth the ob&ect or

!ur!ose o the organi6ation. %rticle makes the ca!ital '-++,+++ Me0ican currency, di$ided

into one thousand shares at '-++ Me0ican currency each. %rticle @ !ro$ides that each

shareholder should be considered as a coDowner in the assets o the com!any and entitledto !artici!ate in the !roits in !ro!ortion to the amount o his stock. %rticle @@ i0ed the time

o holding general meetings and the manner o calling s!ecial meetings o the stockholders.

%rticle @@@ !ro$ides that the board o directors shall be elected annually. %rticle @I !ro$ides

or the iling o $acancies in the board o directors. %rticle I !ro$ides that 7the board o

directors shall elect the oicers o the sociedad and ha$e under is charge the administration

o the said sociedad .9 %rticle I@" 7@n all the >uestions with reerence to the administration o

the aairs o the sociedad , it shall be necessary to secure the unanimous $ote o the board

o directors, and at least three o said board must be !ro$ides that all o the stock, e0ce!t

that which was di$ided among the organi6ers should remain in the treasury sub&ect to the

dis!osition o the board o directors. %rticle I@@@ reads" 7@n all the meetings o the

stockholders, a ma&ority $ote o the stockholders !resent shall be necessary to determine

any >uestion discussed.9 The ourteenth articles authori6es the board o directors to ado!t

such rules and regulations or the go$ernment o the sociedad as it should deem !ro!er,

which were not in conlict with its statutes.

When the sale or transer heretoore mentioned took !lace, there were !resent our

directors, all o whom ga$e their consent to that sale or transer. The !lainti was then about

and his e0!ress consent to make this transer or sale was not obtained. He was, beore

lea$ing, one o the directors in this cor!oration, and although he had resigned as manager,he had not resigned as a director. He acce!ted the !osition o engineer o the Canton and

:hanghai ;ailway Com!any, knowing that his duties as such engineer would re>uire his

whole time and attention and !re$ent his returning to the 8hili!!ine @slands or at least a

year or more. The new !osition which he acce!ted in China was incom!atible with his

!osition as director in the 8hili!!ine Engineering and Construction Com!any, a cor!oration

whose s!here o o!erations was limited to the 8hili!!ine @slands. These acts are suicient

to constitute an abandoning or $acating o his !osition as director in said cor!oration. 4-+

Cyc., )-.5 Conse>uently, the transer or sale o the cor!oration/s assets to one o its

members was made by the unanimous consent o all the directors in the cor!oration at that

time.

There were only i$e stockholders in this cor!oration at any time, our o whom were the

directors who made the sale, and the other the !lainti, who was absent in China when the

said sale took !lace. The sale was, thereore, made by the unanimous consent o ourDiths

o all the stockholders. <nder the articles o incor!oration, the stockholders and directors



had general ordinary !owers. There is nothing in said articles which e0!ressly !rohibits the

sale or transer o the cor!orate !ro!erty to one o the stockholders o said cor!oration.

@s there anything in the law which !rohibits such a sale or transer To determine this

>uestion, it is necessary to e0amine, irst, the !ro$isions o the Ci$il Code, and second,

those !ro$isions 4%rt. -*- to -)5 o the Code o Commerce.

%rticles -++ to -+A o the Ci$il Code deal with the manner o dissol$ing a cor!oration.

There is nothing in these articles which e0!ressly or im!liedly !rohibits the sale o cor!orate

!ro!erty to one o its members, nor a dissolution o a cor!oration in this manner. 1either is

there anything in %rticles -*- to -) o the Code o Commerce which !rohibits the

dissolution o a cor!oration by such sale or transer.

The articles o incor!oration must include"

000 000 000

The submission to the $ote o the ma&ority o the meeting o members, duly called and held,

o such matters as may !ro!erly be brought beore the same. 41o. -+, art. -*-, Code o

Commerce.5

%rticle I@@@ o the cor!oration/s statutes e0!ressly !ro$ides that 7in all the meetings o the

stockholders, a ma&ority $ote o the stockholders !resent shall be necessary to determine

any >uestion discussed.9

The sale or transer to one o its members was a matter which a ma&ority o the stockholders

could $ery !ro!erly consider. But it is said that i the acts and resolutions o a ma&ority o the

stockholders in a cor!oration are binding in e$ery case u!on the minority, the minority wouldbe com!letely wi!ed out and their rights would be wholly at the mercy o the abuses o the

ma&ority.

Generally s!eaking, the $oice o a ma&ority o the stockholders is the law o the cor!oration,

but there are e0ce!tions to this rule. There must necessarily be a limit u!on the !ower o

the ma&ority. Without such a limit the will o the ma&ority would be absolute and irresistible

and might easily degenerate into an arbitrary tyranny. The reason or these limitations is that

in e$ery contract o !artnershi! 4and a cor!oration can be something undamental and

unalterable which is beyond the !ower o the ma&ority o the stockholders, and which

constitutes the rule controlling their actions. this rule which must be obser$ed is to be oundin the essential com!acts o such !artnershi!, which ga$e ser$ed as a basis u!on which the

members ha$e united, and without which it is not !robable that they would ha$e entered not

the cor!oration. 1otwithstanding these limitations u!on the !ower o the ma&ority o the

stockholders, their 4the ma&ority/s5 resolutions, when !assed in good aith and or a &ust

cause, deser$e careul consideration and are generally binding u!on the minority.



Ei0ala, in his work entitled 7@nstituciones del =erecho Mercantil de Es!aJa,9 s!eaking o

sociedades anonimas, says"

The resolutions o the boards !assed by a ma&ority $ote are $alid . . . and authority or

!assing such resolutions is unlimited, !ro$ided that the original contract is not broken by

them, the !artnershi! unds not de$oted to oreign !ur!oses, or the !artnershi!stransormed, or changes made which are against !ublic !olicy or which inringe u!on the

rights o third !ersons.

The :u!reme Court o :!ain, in its decision dated une (+, -AAA, said"

@n order to be $alid and binding u!on dissenting members, it s an indis!ensable re>uisite

that resolutions !assed by a general meeting o stockholders conorm absolutely to the

contracts and conditions o the articles o the association, which are to be strictly construed.

That resolutions !assed within certain limitations by a ma&ority o the stockholders o a

cor!oration are binding u!on the minority, is thereore recogni6ed by the :!anishauthorities.

Power of private corporation to alienate property . This !ower o absolute alienability o

cor!orate !ro!erty a!!lies es!ecially to !ri$ate cor!orations that are established solely or

the !ur!ose o trade or manuacturing and in which he !ublic has no direct interest. While

this !ower is s!oken o as belonging to the cor!oration it must be obser$ed that the

authorities !oint out that the trustees or directors o a cor!oration do not !ossess the !ower

to dis!ose o the cor!orate !ro!erty so as to $irtually end the e0istence o the cor!oration

and !re$ent it rom carrying on the business or which it was incor!orated. 4Thom!son on

Cor!oration, second edition, sec. )-, and cases cited thereunder.5

Power to dispose of all property . Where there are no creditors, and no stockholder

ob&ects, a cor!oration, as against all other !ersons but the state, may sell and dis!ose o all

its !ro!erty. The state in its so$ereign ca!acity may >uestion the !ower o the cor!oration to

do so, but with these e0ce!tions such as a sale is $oid. % rule o general a!!lication is that a

cor!oration o a !urely !ri$ate business character, one which owes no s!ecial duty to the

!ublic, and is not gi$en the right o eminent domain, where e0igencies o its business

re>uire it or when the circumstances are such that it can no longer continue the business

with !roit, may sell and dis!ose o all its !ro!erty, !ay its debts, di$ide the remaining assets

and wind u! the aairs o the cor!oration. 4 Id ., sec. )-.5

When directors or officers may dispose of all the property . @t is within the dominion o the

managing oicers and agents o the cor!oration to dis!ose o all the cor!orate !ro!erty

under certain circumstances# and this may be done without reerence to the assent or

authority o the stockholders. This dis!osition o the !ro!erty may be tem!orarily by lease,

or !ermanently by absolute con$eyance. But it can only be done in the course o the



cor!orate business and or the urtherance o the !ur!oses o the incor!oration. The board

o directors !ossess this !ower when the cor!oration becomes in$ol$ed and by reason o its

embarrassed or insol$ent condition is unable either to !ay its debts or to secure ca!ital and

unds or the urther !rosecution o its enter!rise, and es!ecially where creditors are

!ressing their claims and demands and are threatening to or ha$e instituted actions toenorce their claims. This !ower o the directors to alienate the !ro!erty is conceded where

it is regarded as o im!erati$e necessity. 4@., sec. )-A, and case cited.5

When majority stocholder may dispose of all corporate property . %nother rule that

!ermits a ma&ority o the stockholders to dis!ose o all the cor!orate !ro!erty and wind u!

the business, is where the cor!oration has became insol$ent, and the dis!osition o the

!ro!erty is necessary to !ay the debt# or where rom any cause the business is a ailure,

and the best interest o the cor!oration and all the stockholders re>uire it, then the ma&ority

ha$e clearly the !ower to dis!ose o all the !ro!erty e$en as against the !rotests o a

minority. @t would be a harsh rule that could !ermit one stockholder, or any minority o thestockholders, to hold the ma&ority to their in$estment where the continuation o the business

would be at a loss and where there was no !ros!ect or ho!e that the enter!rise could be

made !roitable. The rule as stated by some courts is that the ma&ority stockholders may

dis!ose o the !ro!erty when &ust cause e0ists# and this &ust cause is usually deined to be

the un!roitableness o the business and where its continuation would be ruinous to the

cor!oration and against the interest o stockholders. 4 Id ., sec. )), and cases cited.5

1othing is better settled in the law o cor!orations than the doctrine that a cor!oration has

the same ca!acity and !ower as a natural !erson to dis!ose o the con$ey its !ro!erty, real

or !ersonal, !ro$ided it does not do so or a !ur!ose which is oreign to the ob&ects or which it was created, and !ro$ided, urther, it $iolates no charter or statutory restriction, on

rule o law based u!on !ublic !olicy. . . .This !ower need not be e0!ressly conerred u!on a

cor!oration by its charter. @t is im!lied as an incident to its ownershi! o !ro!erty, unless

there is some clear restriction in this charter or in some statute. 4Clark and Marshall/s

8ri$ate Cor!orations, sec. -*, and cases cited.5

% !urely !ri$ate business cor!oration, like a manuacturing or trading com!any, which is not

gi$en the right o eminent domain, and which owes no s!ecial duties to the !ublic, may

certainly sell and con$ey absolutely the whole o its !ro!erty, when the e0igencies o its

business re>uire it to do so, or when the circumstances are such that it can no longer

!roitably continue its business, !ro$ided the transaction is not in raud o the rights o

creditors, or in $iolation o charter or statutory restrictions. %nd, by the weight o authority,

this may be done a ma&ority o the stockholders against the dissent o the minority. 4 Id ., sec.

-+, and cases cited.5



The abo$e citations are taken rom the works o the most eminent writers on cor!oration

law. The citation o cases in su!!ort o the rules herein announced are too numerous to

insert.

From these authorities it a!!ears to be well settled, irst, that a !ri$ate cor!oration, which

owes no s!ecial duty to the !ublic and which has not been gi$en the right o eminentdomain, has the absolute right and !ower as against the whole world e0ce!t the state, to

sell and dis!ose o all o its !ro!erty# second, that the board o directors, has the !ower,

without reerence to the assent or authority o the stockholders, when the cor!oration is in

ailing circumstances or insol$ent or when it can no longer continue the business with !roit,

and when it is regarded as an im!erati$e necessity# third, that a ma&ority o the stockholders

or directors, e$en against the !rotest o the minority, ha$e this !ower where, rom any

cause, the business is a ailure and the best interest o the cor!oration and all the

stockholders re>uire it.

May oicer or directors o the cor!oration !urchase the cor!orate !ro!erty The authorities

are not uniorm on this >uestion, but on the general !ro!osition whether a director or an

oicer may deal with the cor!oration, we think the weight o authority is that he may.

4Merrick $s. 8eru Coal Co., - @ll., )# Harts et al. $s. Brown et al., @ll., # TwinDLick

2il Com!any $s. Marbury, 3- <.:., *A# Whitwell $s, Warner, + t., )*# :mith $s.

Lansing, 1.K., *+# City o :t. Louis $s. %le0ander, ( Mo., )A(# Beach et al $s. Miller,

-(+ @ll., -.5

While a cor!oration remains sol$ent, we can see no reason why a director or oicer, by the

authority o a ma&ority o the stockholders or board o managers, may not deal with the

cor!oration, loan it money or buy !ro!erty rom it, in like manner as a stranger. :o long as a

!urely !ri$ate cor!oration remains sol$ent, its directors are agents or trustees or the

stockholders. They owe no duties or obligations to others. But the moment such a

cor!oration becomes insol$ent, its directors are trustees o all the creditors, whether they

are members o the cor!oration or not, and must manage its !ro!erty and assets with strict

regard to their interest# and i they are themsel$es creditors while the insol$ent cor!oration

is under their management, they will not be !ermitted to secure to themsel$es by

!urchasing the cor!orate !ro!erty or otherwise any !ersonal ad$antage o$er the other

creditors. 1e$ertheless, a director or oicer may in good aith and or an ade>uate

consideration !urchase rom a ma&ority o the directors or stockholders the !ro!erty e$en o

an insol$ent cor!oration, and a sale thus made to him is $alid and binding u!on the minority.

4Beach et al. $s. Miller, supra# TwinDLick 2il Com!any $s. Marbury, supra# =rury $s. Cross,

Wall., 33# Curran $s. :tate o %rkansas, -* How., (+)# ;ichards $s. 1ew Ham!shire

@nsurance Com!any, )( 1. H., (# Morawet6 on Cor!orations 4irst edition5, sec. *3#



Haywood $s. Lincoln Lumber Com!any et al., ) Wis., (3# 8ort $s. ;ussels, ( @nd., +#

Li!!incott $s. :haw Carriage Com!any, - Fed. ;e!., *.5

@n the case o the TwinDLick 2il Com!any $s. Marbury, supra, the com!laint was a

cor!oration organi6ed under the laws o West irginia, engaged in the business o raising

and selling !etroleum. @t became $ery much embarrassed and a note was gi$en secured bya deed o trust, con$eying all the !ro!erty rights, and ranchise o the cor!oration to William

Thomas to secure the !ayment o said note, with the usual !ower o sale in deault o

!ayment. The !ro!erty was sold under the deed o trust# was bought in by deendant/s

agent or his beneit, and con$eyed to him the same year. The deendant was at the time o

these transactions a stockholder and director in the com!any. %t the time the deendant/s

money became due there was no a!!arent !ossibility o the cor!oration/s !aying it at any

time. The cor!oration was then insol$ent. The !ro!erty was sold by the trustee and bough in

by the deendant at a air and o!en sale and at a reasonable !rice. The sale and !urchase

was the only mode let to the deendant to make his money. The court said"

That a director o a &ointDstock cor!oration occu!ies one o those iduciary relations where

his dealings with the sub&ectDmatter o his trust or agency, and with the beneiciary or !arty

whose interest is conided to his care, is $iewed with &ealousy by the courts, and may be set

aside on slight grounds, is a doctrine ounded on the soundest morality, and which has

recei$ed the clearest recognition in this court and others. 4?oehler $s. @ron., Black, -*#

=rury $s. Cross, Wall., 33# ;.;. Co. $s. Magnay, * Bea$., *A# Cumberland Co $s.

:herman, (+ Barb., **(# Homan :. Coal Co. $s. Cumberland Co., - Md., )*.5 The

general doctrine, howe$er, in regard to contracts o this class, is, not that they are

absolutely $oid, but that they are $oidable at the election o the !arty whose interest hasbeen so re!resented by the !arty claiming under it. We say, this is the general rule# or there

may be cases where such contracts would be $oid ab initio# as when an agent to sell buys

o himsel, and by his !ower o attorney con$eys to himsel that which he was authori6ed to

sell. But e$en here, acts which amount t a ratiication by the !rinci!al may $alidate the sale.

The !resent case is not one o that class. While it is true that the deendant, a s a director o

the cor!oration, was bound by all those rules o conscientious airness which courts o

e>uity ha$e im!osed as the guides or dealing in such cases, it can not be maintained that

any rule orbids one director among se$eral rom loaning money to the cor!oration when the

money is needed, and the transaction is o!en, and otherwise ree rom blame. 1o ad&udged

case has gone so ar as this. :uch a doctrine, while it would aord little !rotection to the

cor!oration against actual raud or o!!ression, would de!ri$e it o the air o those most

interested in gi$ing aid &udiciously, and best >ualiied to &udge o the necessity o that aid,

and o the e0tent to which it may saely be gi$en.



There are in such a transaction three distinct !arties whose interest is aected by it# namely,

the lender, the cor!oration, and the stockholders o the cor!oration.

The directors are the oicers or agents o the cor!oration, and re!resent the interests o the

abstract legal entity, and o those who own the shares o its stock. 2ne o the ob&ects o

creating a cor!oration by law is to enable it to make contracts# and these contracts may bemade with its stockholders as well as with others. @n some classes o cor!orations, as in

mutual insurance com!anies, the main ob&ect o the act o the incor!oration is to enable the

com!any to make contracts which its stockholders, or with !ersons who become

stockholders by the $ery act o making the contract o insurance. @t is $ery true, that as a

stockholder, in making a contract o any kind with the cor!oration o which he is a member,

is in some sense dealing with a creature o which he is a !art, and holds a common interest

with the other stockholders, who, with him, constitute the whole o that artiicial entity, he is

!ro!erly held to a larger measure o candor and good aith than i he were not a

stockholder. :o, when the lender is a director, charged, with others, with the control andmanagement o the aairs o the cor!oration, re!resenting in this regard the aggregated

interest o all the stockholders, his obligation, i he becomes a !arty to a contract with the

com!any, to candor and air dealing, is increased in the !recise degree that his

re!resentati$e character has gi$en him !ower and control deri$ed rom the conidence

re!osed in him by the stockholders who a!!ointed him their agent. @ he should be a sole

director, or one o a smaller number $ested with certain !owers, this obligation would be still

stronger, and his acts sub&ect to more se$ere scrutiny, and their $alidity determined by more

rigid !rinci!les o morality, and reedom rom moti$es o selishness. %ll this alls ar short,

howe$er, o holding that no such contract can be made which will be $alid# . . . .@n the case o Hancock $s. Holbrook et al. 4)+ La. %nn., *(5, the court said"

%s a strictly legal >uestion, the right o a board o directors o a cor!oration to a!!ly it

!ro!erty to the !ayment o its debts, and the right o the ma&ority o stockholders !resent at

a meeting called or the !ur!ose to ratiy such action and to dissol$e the cor!oration, can

not be >uestioned.

But were such action is taken at the instance, and through the inluence o the !resident o

the cor!oration, and were the debt to which the !ro!erty is a!!lied is one or which he is

himsel !rimarily liable, and s!ecially where he subse>uently ac>uires, in his !ersonal right,

the !ro!erty thus dis!osed o, such circumstances undoubtedly sub&ect his acts to se$ere

scrutiny, and oblige him to establish that he acted with the utmost candor and airDdealing

or the interest o the cor!oration, and without taint o selish moti$e.

The sale or transer o the cor!orate !ro!erty in the case at bar was made by three directors

who were at the same time a ma&ority o stockholders. @ a ma&ority o the stockholders ha$e

a clear and a better right to sell the cor!orate !ro!erty than a ma&ority o the directors, then



it can be said that a ma&ority o the stockholders made this sale or transer to the deendant

McCullough.

What were the circumstances under which said sale was made The cor!oration had been

going rom bad to worse. The work o trying to raise the sunken :!anish leet had been or

se$eral months abandoned. The cor!oration under the management o the !lainti hadentirely ailed in this undertaking. @t had broken its contract with the na$al authorities and the

'-+,+++ Me0ican currency de!osited had been coniscated. @t had no money. @t was

considerably in debt. @t was a losing concern and a inancial ailure. To continue its

o!eration meant more losses. :uccess was im!ossible. The cor!oration was ci$illy dead

and had !assed into the limbo o utter insol$ency. The ma&ority o the stockholders or

directors sold the assets o this cor!oration, thereby relie$ing themsel$es and the !lainti o

all res!onsibility. This was only the wise and sensible thing or them to do. They acted in

!erectly good aith and or the best interests o all the stockholders. 7@t would be a harsh

rule that would !ermit one stockholder, or any minority o stockholders to hold a ma&ority totheir in$estment where a continuation o the business would be at a loss and where there

was no !ros!ect or ho!e that the enter!rise would be !roitable.9

The abo$e sets orth the condition o this insol$ent cor!oration when the deendant

McCullough !ro!osed to the ma&ority o stockholders to take o$er the assets and assume all

res!onsibility or the !ayment o the debts and the com!letion o the warehouses which had

been undertaken. The assets consisted o oice urniture o a $alue o less than 8)++, the

uncom!leted contract or the construction o the Go$ernment warehouses, and the wrecking

contract. The liabilities amounted to at least '-3,)*.) Me0ican currency. '3,)*.)

Me0ican currency o this amount re!resented borrowed money, and '-+,+++ Me0icancurrency was the de!osit with the na$al authorities which had been coniscated and which

was due the bank. McCullough/s !roits on the warehouse contract amounted to almost

enough to the !ay the amounts which the cor!oration had borrowed rom its members. The

wrecking contract which had been broken was o no $alue to the cor!oration or the reason

that the na$al authorities absolutely reused to ha$e anything urther to do with the

8hili!!ine Engineering and Construction Com!any. They 4the na$al authorities5 had

declined to consider the !etition o the cor!oration or an e0tension in which to raise the

:!anish leet, and had also reused to reconsider their action in coniscating the de!osit.

They did agree, howe$er, that i the deendant McCullough would organi6e a newassociation, that they would gi$e the new concern an e0tension o time and would

reconsider the >uestion o oreiture o the amount de!osited. <nder these circumstances

and conditions, McCullough organi6ed the Manila :al$age Com!any, sold i$eDsi0th o this

wrecking contract to the new com!any or '-*,+++ Me0ican currency and retained oneDsi0th

as his share o the stock in the new concern. The Manila :al$age com!any !aid to the bank

the '-+,+++ Me0ican currency which had been borrowed to de!osit with the na$al



authorities, and began o!erations. %ll o the '-+,+++ Me0ican currency so de!osited was

reund to the new com!any e0ce!t 8,+++. The new association ailed and McCullough, by

reason o this ailure, lost o$er '-,+++ Me0ican currency. These acts show that

McCullough acted in good aith in !urchasing the old cor!oration/s assets, and that he

certainly !aid or the same a $aluable consideration.But counsel or the !lainti say" 7The board o directors !ossessed only ordinary !owers o

administration 4%rticle I o the %rticles o incor!oration5, which in no manner em!owered it

either to transer or to authori6e the transer o the assets o the com!any to McCullough

4art. -(, Ci$il Code# decisions o the su!reme court o :!ain o %!ril , -A, and uly A,

-3+(5.9

%rticle I o the articles o incor!oration abo$e reerred to !ro$ides that the board o

directors shall elect the oicers o the cor!oration and 7ha$e under its charge the

administration o the said cor!oration.9 %rticles I@ reads" 7@n all the >uestions with reerence

to the administration o the aairs o the cor!oration, it shall be necessary to secure the

unanimous $ote o the board o directors, and at least three o said board must be !resent

in order to constitute a legal meeting.9 @t will be noted that article I statute a legal meeting.9

@t will be noted that %rticle I !laced the administration o the aairs o the cor!oration in the

hands o the board o directors. @ %rticle I@ had been omitted, it is clear that under the rules

which go$ern business o that character, and in $iew o the act that beore the !lainti let

this country and abandoned his oice as director, there were only i$e directors in the

cor!oration, then three would ha$e been suicient to constitute a >uorum and could !erorm

all the duties and e0ercise all the !owers conerred u!on the board under this article. @t

would not ha$e been necessary to obtain the consent o all three o such members whichconstituted the >uorum in order that a solution aecting the administration o the cor!oration

should be binding, as two $otes a ma&ority o the >uorum would ha$e been suicient

or this !ur!ose. 4Buell $s. Buckingham Co., - @owa, A)# ?ent. Com., 3(# Cahill $s.

?alama6oo Mutual @nsurance Com!any, =oug. 4Mich.5, -)# :argent $s. Webster, -(

Met., )3# In re @nsurance Com!any, Wend., *3-# E! parte Wilco0, Cow., )+# id ., *,

note a.5

@t might a!!ear on irst e0amination that the organi6ers o this cor!oration when they

asserted the irst !art o %rticle I@ intended that no resolution aecting the administration o

the aairs should be binding u!on the cor!oration unless the unanimous consent o the

entire board was irst obtained# but the reading o the last !art o this same article shows

clearly that the said organi6ers had no such intention, or they said" 7%t least three o said

board must be !resent in order to constitute a legal meeting.9 1ow, i three constitute a legal

meeting, three were suicient to transact business, three constituted the >uorum, and,



under the abo$eDcited authorities, two o the three would be suicient to !ass binding

resolutions relating to the administration o the cor!oration.

@ the clause 7ha$e under in charge and administer the aairs o the cor!oration9 reers to

the ordinary business transactions o the cor!oration and does not include the !ower to sell

the cor!orate !ro!erty and to dissol$e the cor!oration when it becomes insol$ent achange we admit organic and undamental then the ma&ority o the stockholders in whom

the ultimate and controlling !ower lies must surely ha$e the !ower to do so.

%rticle --( o the Ci$il Code reads"

%n agency stated in general terms only includes acts o administration.

@n order to com!romise, alienate, mortgage, or e0ecute any other act o strict ownershi! an

e0!ress commission is re>uired.

This %rticle a!!ears in title 3, cha!ter - o the Ci$il Code, which deals with the character,

orm, and kind o agency. 1ow, were the !ositions o Hilbert, Green, Hartigan, and

McCullough that the agents within the meaning o the article abo$e >uoted when the assets

o the cor!oration were transerred or sold to McCullough @ so, it would a!!ear rom said

article that in order to make the sale $alid, an e0!ress commission would be re>uired. This

!ro$ision o law is based u!on the broad !rinci!les o sound reason and !ublic !olicy. There

is a maniest im!ro!riety in allowing the same !erson to act as the agent o the seller and to

become himsel the buyer. @n such cases, there arises so oten a conlict between duty and

interest. 7The wise !olicy o the law !ut the sting o a disability into the tem!tation, as a

deensi$e wea!on against the strength o the danger which lies in the situation.9

Hilbert, Green, and Hartigan were not only all creditors at the time the sale or transer o the

assets o the insol$ent cor!oration was made, but they were also directors and

stockholders. @n addition to being a creditor, McCullough sustained the cor!oration the

double relation o a stockholder and !resident. The !lainti was only a stockholder. He

would ha$e been a creditor to the e0tent o his un!aid salary i the cor!oration had been a

!roitable instead o a losing concern.

But as we ha$e said when the sale or transer under consideration took !lace, there were

three directors !resent, and all $oted in a$or o making this sale. @t was not necessary or

the !resident, McCullough, to $ote. There was a >uorum without him" a >uorum o thedirectors, and at the same time a ma&ority o the stockholders.

% cor!oration is essentially a !artnershi!, e0ce!t in orm. 7The directors are the trustees or

managing !artners, and the stockholders are the cestui "ue trust and ha$e a &oint interest in

all the !ro!erty and eects o the cor!oration.9 48er Walworth, Ch., in ;obinson $s. :mith, (

8aige, , (# * idem, +# :lee $s. Bloom, -3 ohns., )3# Hoyt $s. Thom!son, - :eld.,

(+.5



The 8hili!!ine Engineering and Construction Com!any was an artiicial !erson, owning its

!ro!erty and necessarily acting by its agents# and these agents were the directors.

McCullough was then an agent or a trustee, and the stockholders the !rinci!al. 2r say 4as

cor!oration was insol$ent5 that he was an agent or trustee and the creditors were the

beneiciaries. This being the true relation, then the rules o the law 4%rt. --( o the Ci$ilCode5 a!!licable to sales and !urchases by agents and trustees would not a!!ly to the

!urchase in >uestion or the reason that there was a >uorum without McCullough, and or

the urther reason that an oicer or director o a cor!oration, being an agent o an artiicial

!erson and ha$ing a &oint interest in the cor!orate !ro!erty, is not such an agent as that

treated o in %rticle --( o the Ci$il Code.

%gain, McCullough did not re!resent the cor!oration in this transaction. @t was re!resented

by a >uorum o the board o directors, who were at the same time a ma&ority o the

stockholders. 2rdinarily, McCullough/s duties as !resident were to !reside at the meetings,

rule on >uestions o order, $ote in case o a tie, etc. He could not ha$e $oted in thistransaction because there was no tie.

The acts o Hilbert, Green, Hartigan, and McCullough in this transaction, in $iew o the

relations which they bore to the cor!oration, are sub&ect to the most se$ere scrutiny. They

are obliged to establish that they acted with the utmost candor and air dealing or the

interest o the cor!oration, and without taint moti$es. We ha$e sub&ected their conduct to

this test, and, under the e$idence, we belie$e it has saely emerged rom the ordeal.

Transaction which only accom!lish &ustice, which are done in good aith and o!erate legal

in&ury to no one, lack the characteristics o raud and are not to be u!set because the

relations o the !arties gi$e rise to sus!icions which are ully cleared away. 4Hancock $s.

Holbrook, supra.5

We thereore conclude that the sale or transer made by the >uorum o the board o

directors a ma&ority o the stockholders is $alid and binding u!on the ma&orityDthe

!lainti. This conclusion is not in $iolation o the articles o incor!oration o the 8hili!!ine

Engineering and Construction Com!any. 1or do we here announce a doctrine contrary to

that announced by the :u!reme Court o :!ain in its decisions dated %!ril , -A, and uly

A, -3+(.

%s to the third cause o action, it is insisted" First, that the court erred in holding thedeendant McCullough res!onsible or the !ersonal eects o the !lainti# and second, that

the court erred in inding that the eects let by the !lainti were worth 8,)++.

%s we ha$e said, the !lainti was the manager o the 8hili!!ine Engineering Com!any rom

%!ril -, -3+, u! to anuary -, -3+(. :ometimes during the !re$ious month o =ecember he

resigned to acce!t a !osition in China, but did not lea$e Manila until about anuary +. He



remained in Manila about twenty days ater he se$ered his connection with the com!any.

He li$ed in rooms in the same building which was rented by the com!any and were the

com!any had its oices. When he started or China he let his !ersonal eects in those

rooms, ha$ing turned the same o$er to one 8aulsen. Testiying on this !oint the !lainti

said". To whom did you turn o$er these !ersonal eects on lea$ing here %. To Mr. 8aulsen.

. Ha$e you demanded !ayment o this sum Nreerring to the $alue o his !ersonal eectsO

%. 2n lea$ing or China @ ga$e Mr. Haussermann !ower o attorney to re!resent me in

this case and demand !ayment.

. 8lease state whether or not you ha$e an in$entory o these eects. %. @ had an

in$entory which was in my !ossession but it was lost when the com!any took all o the

books and carried them away rom the oice.

. Can you gi$e a list or a !artial list o your eect %. @ remember some o the items.There was a com!lete bedroom set, two marble tables, one glass bookcase, chairs, all o

the household eects @ used when @ was li$ing in the Botanical Garden as city engineer, one

theodolite, which @ bought ater commencing work with the com!any.

. How much do you estimate to be the total reasonable $alue o these eects %. The

total would not be less than '-,++ gold.

Counsel or the !lainti, on !age * o their brie, say"

Mr. McCullough, in his testimony 4!!. (3 and )+5 admits ull knowledge o and !artici!ation

in the remo$al and sale o the eects and states that he took the !roceeds and consideredthem !art o the assets o the com!any. He urther admits that Mr. Haussermann made a

demand or the !roceeds o Mr. Mead/s !ersonal eects 4!. ))5.

McCullough/s testimony, reerred by the counsel, is as ollows"

. %t the time Mr. Mead let or China, in the building where the oice was and in the oice,

there were let some o the !ersonal eects o Mr. Mead. What do you know about these

eects, a list o which is E0hibit B %. 1othing a!!earing in this E0hibit B was ne$er

deli$ered to the 8hili!!ine Engineering and Construction Com!any, according to my list.

. =o you know what became o these eects %. 1o, sir. @ ha$e no idea. @ ne$er sawthem. @ ne$er heard these eects talked about. @ only heard something said about certain

eects which Mr. Mead had in his li$ing room.

. =o you know what became o the bed o Mr. Mead %. @ know there were eects, such

as a bed, washstand, chairs, table, and other things, which are used in a li$ing room, and

that they were in Mr. Mead/s room. These eects were sent to the warehouse o the 8aciic

2riental Trading Com!any, together with the oice urniture. We had to $acate the building



where the oices were and we had to take out e$erything therein. These things were

de!osited in the warehouse o the 8aciic 2riental Trading Com!any and were inally sold

by that com!any and the money turned o$er to me.

. How much %. 8)3.3.

. What did you do with this money %. @ took it and considered it !art o the assets o

the com!any. %ll o the other eects o the oice were sold at the same time and brought

8().-.

. =id Mr. Mead lea$e anyone in charge o his eects when he let Manila %. @ think he

let 8aulsen in charge, but 8aulsen did not take these eects, so when we $acated the

oice we had to mo$e them.

. =id 8aulsen continue occu!ying the li$ing room where these eects were and did he use

these eects %. @ do not know because @ was in the oice or three months beore we

$acated.

. =on/t you know that it is a act that Mr. Haussermann, as re!resentati$e o Mr. Mead,

demanded o you and the com!any the !ayment o the salary which was due Mr. Mead and

the $alue o his !ersonal eects %. Kes, sir.

%s to the $alue o these !ersonal eects, Hartigan, testiying as witness or the deendant,

said"

@ think the !ersonal eects were sold or 8*+. His !ersonal eects consisted o ordinary

articles, such as a !erson would use who had to be going rom one !lace to another all the

time, as Mr. Mead. @ know that all those eects were sold or less than 8-++, i @ am notmistaken.

The oregoing is the material testimony with reerence to the deendant McCullough/s

res!onsibility and the $alue o the !ersonal eects o the !lainti.

McCullough was a member o the com!any and was res!onsible as such or the rents

where the oices were located. The com!any had no urther use or the building ater the

!lainti resigned. The $acating o the building was the !ro!er thing to do. The oice

urniture was remo$ed and stored in a !lace where it cost nothing or rents. When Hilbert,

member o the com!any, went to the oice to remo$e the com!any/s oice urniture, he

ound no one in charge o the !lainti/s !ersonal eects. He took them and stored them in

the same !lace and later sold them, together with the oice urniture, and turned the entire

amount o$er to deendant McCullough.

8aulsen, in whose charge Mead let his eects, a!!arently took no interest in caring or

them. Was the com!any to lea$e Mead/s !ersonal eects in that building and take the

chances o ha$ing to continue to !ay rents, solely on account o the !lainti/s !ro!erty



remaining there The com!any had reason to belie$e that it would ha$e to continue !aying

these rents, as they had rented the building and authori6ed the !lainti to occu!y rooms

therein.

The !lainti knew when he let or China that he would be away a long time. He had

acce!ted a !osition o im!ortance, and which he knew would re>uire his !ersonal attention.He did not gather u! his !ersonal eects, but let them in the room in charge o 8aulsen.

8aulsen took no interest in caring or them, but a!!arently let these eects to take care o

themsel$es. The !lainti did not e$en carry with him an in$entory o these eects, but

attem!ted on the trial to gi$e a list o them and did gi$e a !artial list o the things he let in

his room# but it is not shown that all this things were there when Herbert remo$ed the oice

urniture and some o the !lainti/s eects. The act that the !lainti remained in Manila

some twenty days ater resigning and ne$er cared or his own eects but let them in the

!ossession o an irres!onsible !erson, shows e0treme negligence on his !art. He e0hibited

a reckless indierence to the conse>uences o lea$ing his eects in the lease !remises.The law im!oses on e$ery !erson the duty o using ordinary care against in&ury or damages.

What constitutes ordinary care de!ends u!on the circumstances o each !articular case

and the danger reasonably to be a!!rehended.

McCullough did not ha$e anything !ersonally to do with these eects at any time. He only

acce!ted the money which Herbert turned o$er to him. He, !ersonally, did not contribute in

any way whatsoe$er to the loss o the !ro!erty, neither did he as a member o the

cor!oration do so.

The !lainti ga$e an estimate o the $alue o the eects which he let in his rooms and

!laced this $alue at 8,)++. He did not gi$e a com!lete list o the eects so let, neither did

he gi$e the $alue o a single item se!arately. The !lainti/s testimony is so indeinite and

uncertain that i t is im!ossible to determine with any degree o certainty &ust what these

!ersonal eects consisted o and their $alues, es!ecially when we take into consideration

the signiicant act that these eects were abandoned by 8aulsen. 2n the other hand, w

ha$e beore us the !ositi$e testimony o Hilbert as to the amount recei$ed or the !lainti/s

!ersonal eects, the testimony o Hartigan that the same were sold or less than 8-++, and

the testimony o McCullough as to the amount turned o$er to him by Herbert.

:o we conclude that the great !re!onderance o e$idence as to the $alue o these eects is

in the a$or o the contention o the deendant. Their $alue thereore be i0ed at 8)3.3.

For these reasons the &udgment a!!ealed rom as to the irst and second causes o action

is hereby airmed. udgment a!!ealed rom as to the third cause o action is reduced to

8)3.3, without costs.

Documents

mead vs mccullough corpo.docx