G.R. No. 2296. November 10, 1905

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5 Phil. 242

[ G.R. No. 2296. November 10, 1905 ]




On the 11th day of April, 1901, Walter A. Fitton, as one of the
parties thereto, and Rafael Reyes, Enrique Brias, Cosine Churruca, and
Jose Rosales, who then composed the administrative council of the
anonymous partnership called the Street Car Company of the Philippines,
entered into the following contract before a notary public:

“That by virtue of a proposal made and presented by Mr. Fitton to the manager of the Street Car Company of the Philippines[1]
regarding the purchase of the shares of the above company, which
proposal was accepted in principle, the above mentioned (Reyes, Brias,
Churruca, and Rosales) have agreed to perfect the present contract in
order that the engagement entered into by the parties be acknowledged
in an effective way; and to this purpose they grant this escritura on the following terms and under the following conditions.

Walter A. Fitton binds himself to acquire two-thirds at least of the
shares of the Street Car Company of the Philippines, as well as the
founders’ shares binding himself to pay the sums of one hundred and
fifty pesos, Mexican, for each of the former, and fifty pesos, Mexican,
for each of the latter transferred to his name.

“Second. The
members who compose the administrative council of the above company
bind themselves to take the proper steps and to obtain from the
shareholders of the said company the transfer of their shares in favor
of Mr. Fitton agreeing hereby to do so regarding the shares owned by
them in their names, or of the persons or corporations represented by

“Third. Walter A, Fitton binds himself to deposit in
the Chartered Bank of India, Australia, and China a guarantee for the
sum of thirty thousand pesos, Mexican, as security of the proposal
above stated and for the safety of the shareholders of the company.

The conditions of this contract will be valid for the period of two
months from this date, after which, should Mr. Fitton not take charge,
for any reason, of the two-thirds of the shares and founder’s stock of
the Street Car Company, he will lose every right on the security
deposited, which will be transferred to the above company; should Mr.
Fitton be unable to acquire during the said term of two months the
two-thirds of the above shares and founder’s stock for causes depending
on the shareholders’ will, he will be at liberty to withdraw the above

“And fifth. For the fulfillment of the provisions
of the contract above stated, the parties bind themselves in the most
solemn form, appointing this city of Manila by mutual agreement for all
judicial and extrajudicial acts that may arise from this contract.”

A written guaranty for the security of the stockholders was
deposited in the Chartered Bank, in accordance with the provisions of
article 3 of the contract. The capital stock of the company was
represented by 3,500 shares of 500 pesetas each. There were also 1,050
cedulas. On the 4th day of June Rafael Reyes, as the representative of
the company, notified Fitton in writing that there were on that day
deposited, for the purpose of being turned over to him under the
conditions of the contract, the following shares and cedulas:

  Shares Cedulas
Manila 1,500 612
Madrid 1,620 438
Total 3,120 1,050

On the 12th day of June, the day after the two months mentioned in
the contract had expired, Reyes again notified Fitton in writing that
the number of shares and cedulas deposited at his disposition were:

  Shares Cedulas
Manila 1,577 612
Madrid 1,620 438
Total 3,197 1,050

On the 14th of June, 1901, Fitton wrote to Reyes the following letter:

Managing Director of the
     “Street Car Company, present

Sir: I beg to acknowledge the receipt of your favor dated 12th instant,
and ask you to excuse me for having failed to reply yesterday as I was
rather indisposed and very busy, as I am also now, I take note of what
you state in your letter, and I regret to inform you that, although I
am in communication by cable with the persons interested, I have to ask
you for an extension of time, as you may grant me easily a week more. I
must point out to you that in any case the Hongkong branch must fulfill
its guarantee of $30,000, Mexican, should they be unable to perform the
pending contract.”

On the next day Reyes notified Fitton that the administrative
council had decided to grant him an extension until the 22d day of the
then month of June. On the 25th day of June Fitton wrote to Reyes the
following letter:

“MANILA, 25th June, 1901.

Director of the
     “Street Car
Company of the Philippines, present

Sir:In view of the importance of the purchase of the concern of the
street car system of the Philippines, and in consideration of the
difficulty of arranging with the interested persons the purchase of the
above concern by telegraphic correspondence, I have decided to
interview the same personally, in order to settle this matter finally,
for which purpose I hope you will consider as extended the term fixed
in the escritura granted by the representatives of that company and myself before the notary, Mr. Barrera, up to October 31st next.

     “Awaiting your reply, I remain,

          “Yours faithfully,”

The extension asked for in this letter was granted on the condition
that, in place of the written guaranty then deposited with the
Chartered Bank, Fitton deposit with the company itself 30,000 pesos in
cash, for the security of the stockholders. This money was so deposited
in cash with the company. On the 7th of September, 1901, Fitton
executed a general power of attorney to T. E. Sansom. On the 18th of
October, 1901, Sansom, as the agent of Fitton, wrote to Reyes the
following letter:

Director of the
Street Car Company of the Philippines, present.

“Dear Sir:Referring to the escritura
executed by us on April 11th last about the purchase of the two-thirds
of the shares of the Street Car Company, I am informed that nearly the
half of those shares are still in Madrid, and therefore it will be
impossible for you to deliver to me the above two-thirds of the shares
before November 1st next.

“Kindly return to me the thirty thousand pesos deposited by me to your favor on July 3d last.

“I am, dear sir, yours faithfully,

“WALTER A. FITTON,                                   
“By T. E. SANSOM,                                             
Acting Agent of the Chartered Bank of India,                    
“Australia amd China, his attorney”                    

On the 19th of October Reyes notified Sansom in writing that the
company held at the disposition of Fitton more than two-thirds of the
stock and cedulas of the company. On the 28th of October Sansom, as the
attorney in fact of Fitton, assigned to the plaintiff all his rights in
the 30,000 pesos deposited with the company. No consideration is stated
in this document to have been paid by the plaintiff for the transfer.

On the 31st of October, 1901, defendant, by a notary, caused a
demand to be made on plaintiff as attorney in fact for Fitton for the
fulfillment of the contract. In answer to this notarial demand
plaintiff stated that he was not the attorney in fact of Fitton. This
action was commenced by the plaintiff as the assignee of Fitton on the
8th of November, 1901, The prayer of the complaint was that the
plaintiff recover the 30,000 pesos deposited with the defendant, and
20,000 pesos as damages. The court below rendered judgment in favor of
the plaintiff for 35,030 pesos, Mexican currency, which it reduced to
Philippine pesos, and ordered judgment for P31,000 of the latter. The
defendant has brought the case here by bill of exceptions.

The court below based its decision upon the ground that there was no
consideration for the contract between Fitton and the company; that all
of the obligations were upon Fitton’s part; that the other parties to
the contract bound themselves to do nothing, and that the contract was
therefore void.

We do not think that this view of the contract can be sustained.
Without considering the fact that the persons signing the contract
agreed to do what they could to get the other stockholders of the
company to transfer their stock to Fitton, it is sufficient to say that
by the second paragraph of the contract the four directors bound
themselves to at once deliver to Fitton the stock which they possessed,
at the price named in the contract. It is very clear that upon the day
following the contract, or at any time within two months from the 11th
of April, Fitton had the right to demand of these four directors the
delivery to him of all the stock in the company owned by them, and that
upon such a demand having been made it would have been the duty of the
directors, under the contract, to have delivered to him such stock.
During the two months named the directors had no power to sell the
stock to anyone else. If the price of the stock during that time had
advanced and they had sold it to third persons, Fitton could
unquestionably have maintained an action against them to recover
damages for such sale. In other words, there was a binding contract on
the part of the directors to deliver to Fitton at any time within two
months, at the price named, the stock which they held. This was a
sufficient consideration.

It is said in the brief of the appellee in this court that there is
no evidence in the case that the four directors owned any stock in the
company. The action was tried in the court below upon an agreed
statement of facts, signed by the parties, and it is true that in this
agreed statement of facts it is not stated how much, if any, of the
stock in Manila was owned by the directors. However, the articles of
incorporation of the company are expressly made a part of the agreed
statement of facts. From these articles of incorporation it appears
that no one could be a member of the administrative council of the
company without depositing fifty shares of stock in the treasury of the
company, and that the stock so deposited should not be returned so long
as the owners thereof remained directors of the company. This is
sufficient to show that Reyes and his associates, at the time the
contract was signed, owned at least 200 shares of the stock of the

The plaintiff claims the right to recover on the ground that the
stock, or a part of it, was not physically in Manila at the time the
second extension granted to Fitton expired; that it was the obligation
of the defendant to deliver this stock to Fitton in Manila, and not
having done so, it violated the terms of the contract and lost the
right to retain the 30,000 pesos deposited with it.

That Fitton might fail to carry out the contract on his part was
something that was foreseen by the directors. For that reason they
required the deposit of 30,000 pesos and they not only required this
deposit, but they expressly stated in the contract the circumstances
under which Fitton should have the right to withdraw it. Those terms
are found in paragraph 4 of the contract, and to our mind the
determination of this case rests entirely upon the construction to be
given to said paragraph 4. This is not an action brought by the
defendant to recover damages against Fitton for failure to fulfill the
contract. We do not think it necessary to determine just what the
obligations of the directors or the defendant were under the contract.
We do not think it necessary to determine whether they were bound to
deliver the actual shares of stock to Fitton in Manila or not. It would
seem, however, difficult to find anywhere in the contract any
obligation of that kind. The contract requires Fitton to buy the stock,
to acquire it. It nowhere imposes in terms any obligation upon the
directors or the defendant to seek out Fitton and deliver stock to him.
It would seem that they fulfilled their part of the contract when they
did what they could to secure the consent of the other stockholders of
the company to the terms of the contract, and when they held themselves
ready at all times, as they did, to turn over to Fitton the shares
actually owned by themselves. It is, however, not necessary to decide
this question. The question to be decided is, What was the reason for
Fitton’s failure to comply with his contract? Did the fact that some of
the shares of stock were not actually in Manila have anything to do
with this failure? If it did, if the reasons why Fitton did not comply
with his contract and pay the money was because the stock was not in
Manila, then the plaintiff might perhaps be entitled to recover. But
if, on the other hand, the.fact that the stock was not in Manila had
nothing whatever to do with Fitton’s failure, if he would not have
complied with his contract had the stock been in Manila, if his failure
to take over the stock was due entirely to some other cause, then the
plaintiff can not recover.

Paragraph 4 says that if Fitton fails for any reason whatever to
take over the stock, he shall lose all right to the 30,000 pesos,
unless the reason depended upon the will of the stockholders, and the
only question in the case is, Did the will of the stockholders have
anything to do with Fitton’s failure to buy the stock ? No one reading
the record in this case can come to any other than one conclusion in
that respect. It is apparent that the single and only reason why Fitton
did not buy was because he did not have the money with which to make
the purchase. It is also apparent that the fact that part of the stock
was in Madrid and not in Manila had nothing to do with his failure.
When he asked for the first extension, in June, he then knew that part
of the stock was in Madrid. He said nothing about the necessity of
having the stock in Manila. When he asked for another extension of
three months in his letters of the 28th of June and the 3d of July he
made no mention of this matter. No offer of any kind was ever made by
Fitton or Sansom, his agent, or the plaintiff to pay any sum of money
whatever for any of these shares of stock. They never in any way
offered to comply with the contract, and the question as to where the
stock should be, whether in Madrid or Manila, was never presented by
anyone until the 18th day of October, twelve days before the extension
expired, at which time Sansom, when he knew that it was too late for
the company to get the stock here, required a return of the deposit on
the ground that it would be impossible for the defendant to fulfill its
contract. It appeared from the agreed statement of facts that some of
this stock was deposited in the Bank of Castile, in Madrid, to be
turned over upon the payment of certain money, and that it could not be
delivered until that money was paid. There is nothing in the case to
show but that the defendant, if it had known in time that it was
necessary to have the stock in Manila instead of Madrid, might not have
procured the actual transfer of the shares to this capital, making a
deposit or giving security that either their value or the shares
themselves would be returned to Madrid. But the company was given no
such opportunity. Sansom waited until it was too late for the company
to comply with his requirement, and even then made no offer of any kind
to fulfill the contract. He did not then make any tender of money.

We hold, as has been said before, that the provisions of paragraph 4
of this contract must govern; that if the reason why Fitton did not buy
the stock did not depend upon the will of the stockholders, the
plaintiff can not recover; that the real reason why he did not buy the
stock was because he did not have the money to pay for it; that this
reason did not depend upon the will of the stock- holders, and that
consequently the plaintiff can not recover.

The judgment of the court below is reversed, and after the
expiration of twenty days judgment should be entered in accordance
herewith, and the case remanded to the court below, with directions to
that court to enter judgment in favor of the defendant, with costs. No
costs will be allowed to either party in this court. So ordered.

Arellano, C. J., Torres, Johnson, and Carson, JJ., concur.

[1] Compaña de Tranvias de Filipinas.

Date created: April 28, 2014


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