G.R. No. 20721. October 12, 1923

STATEMENT

As a result of negotiations between them, A. G. Moody, who was then the owner
of the Camera Supply Company, wrote F. A. Thompson, the brother of the
plaintiff, the following letter:

“CAMERA SUPPLY COMPANY

“MANILA

“October 18, 1919.

“Mr. F. A. THOMPSON
	“c/o Thompson Commercial Co.
		“Manila, P. I.

“MY DEAR THOMPSON:

“Re your brother as per our conversation on several recent occasions. If he
were on the spot at this time I would make him a proposition along these lines:
I would pay him a salary of P400 a month and during my absence would put him in
charge of the business and as a bonus would pay him 10 per cent of the net
profits which have not been less than P26,000 annually for three years. I would
figure this bonus from the first of January 1920. I expect to go to the States
not later than July 1st next year and sooner if I can possibly arrange my
affairs.

“The position I offer should be permanent, if he renders such service as I
know he is capable of, altho I am not making this feature a part of the
contract. But, I do not expect to remain in the Islands more than two
consecutive years in the future and will need a man to take charge
indefinitely.

“I will incorporate the Cebu and Manila concerns on the first of January and
Aronson will be in command of both but his Cebu business has grown to such
proportions that he will be able to spend little or no time here.

“If you wish to cable your brother a proposition such as I have outlined I
will hold the position open for 30 days pending a cable reply and if acceptable
to him will hold the proposition open until the 1st of January, 1920.

“I will thank you to take the matter up with him immediately and request an
early reply.

         “Very truly yours,

“A. G. MOODY”

The plaintiff accepted the proposition. Being without funds, Moody let him
have P1,000, and he obtained from his brother about P2,000 with which money
plaintiff and his family came from the United States to Manila, and he entered
the employ of Moody. Later, it was arranged that, in addition to his salary of
P400 per month, the plaintiff should draw P100 per month on account of his share
of the net profits, and that the amount thus paid him should be deducted from
his pro rata share of the net profits when they were ascertained and determined.
Moody went to the United States and later returned and organized the defendant
corporation. As a result of differences between them, the plaintiff was
discharged on January 24, 1921, and on March 1, 1921, filed his complaint in
this action, alleging the execution of the contract and the performance of his
duties, and that on January 24, 1921, he was wrongfully discharged, and “that
plaintiff has received his fixed salary at the rate of P400 a month during the
term of his service in the said business, but has not received his participation
in the net profits of the same which exceed the sum of P100,000 for the period
of plaintiff’s employment, or any accounting therefor, notwithstanding his
demand for such accounting and the payment of the balance found due him
thereon.” Plaintiff prays for an accounting during the period from January 1,
1920, to January 24, 1921, and that the defendant be required to pay him 10 per
cent of the net profits of the business during that time.

For an amended answer, the defendant admits paragraphs 1 and 2, and denies
the allegations of paragraph 3, except that the parties “mutually agreed that
the plaintiff would take charge of the said business of the said Moody in the
City of Manila at a fixed salary of P400 a month,” and further alleges that at
the time the contract was made, Moody was contemplating a trip to America, after
the plaintiff had become familiar with the business, and that the purpose of the
contract was to have a reliable person to take charge of his business while he
was absent. It is then alleged that Moody left for America about the middle of
the year 1920, leaving the plaintiff in charge of the business, subject to the
control of H. Aronson of Cebu; that during the year 1920, plaintiff took from
the funds of the defendant P316; that about January 10, 1921, he took from, and
converted to his own use, funds of the defendant in the sum of P1,905.60, by
reason of which he was discharged.

As a counterclaim, it is then alleged that the plaintiff misappropriated
P2,221.60 of the defendant’s money, and that he overdrew his salary in the sum
of P1,200 to be repaid out of the profits; that about January 1, 1920, Moody
advanced the plaintiff the sum of P1,000 to be repaid out of the profits of the
business, and defendant prays that plaintiff, through his actions and conduct,
be declared to have forfeited any right to participate in the profits, and that
it have judgment against him for P4,421.60.

After hearing the evidence upon such issues, the trial court rendered
judgment for the plaintiff for P2,862, with legal interest from March 1, 1921,
the date of the filing of the complaint, with costs, from which both parties
appeal, the plaintiff contending that the lower court erred as to the term for
which plaintiff is entitled to his bonus of 10 per cent of the net profits, in
holding that he was legally discharged, in not holding that he had a right to
prorate in the net profits to January 24, 1921, in finding that the net profits
for the year 1921, was P38,154 instead of P97,591, in failing to render judgment
for the plaintiff for the sum of P8,343.10 with interest, and in denying his
motion for a new trial.

The defendant contends that the trial court erred in rendering judgment for
the plaintiff, in denying defendant’s motion for a new trial, in holding that
plaintiff was entitled to share in the net profits, and that plaintiff is
entitled to be reimbursed for his travelling expenses from America to Manila,
and in denying the counterclaim of the defendant.

JOHNS, J.:

Contracts of this nature are very productive of law suits.

At the time plaintiff was in the United States, and the defendant was in
Manila and the owner of the Camera Supply Company. The defendant wanted to make
a trip to the United States, and to that end and for that purpose desired to
obtain the services of a competent man with whom he could entrust his business.
The contract between them was largely based upon the letter in question
abovequoted. On the strength of that letter, the plaintiff left his home in the
United States and came to Manila, and took charge of the business. Apparently,
he was without any funds, and Moody advanced him P1,000 for his traveling
expenses, and the plaintiff obtained the balance of his expenses for the trip
from his brother.

The result largely depends upon what was the actual contract which was made
between them. Although both parties may have contemplated that the employment
was more or less permanent, yet, the time is not specified, and is not of the
essence of the contract. Although under the circumstances the law might imply a
reasonable time, yet, upon its face, the defendant had a legal right to, and
did, terminate the contract on January 24, 1921. The contract is somewhat
ambiguous; yet, we construe it to mean that the plaintiff is entitled to 10 per
cent of the net profits during the period of his employment, or to his share of
the net profits from January 1, 1921, to January 24, 1921. Upon that point, we
agree with the plaintiff.

Except as to the item of travelling and personal expenses of Mr. Moody in his
visit to the United States, the trial court based its finding of the amount of
the net profits on the report of Henry Hunter Bayne & Co., chartered
accountants. As shown by their report, the net profits of the business for the
year 1920, was P38,154. In making this report, the accountants included an item
of P4,627 for the personal and travelling expenses of Mr. Moody on his visit to
the United States. That item was not allowed by the trial court, among other
things, for the reason that Mr. Moody had said that he would not make a charge
against the company for that expense. Upon that point we agree with the trial
court.

Among other items, which the accountants found should be deducted, was P6,855
for the “Goodwill of the New Corporation: balance written off to close account.”
In our opinion, that was error, and the amount of that item should not be
deducted from the net profits.

The plaintiff vigorously protests against the allowance of P47,052 for the
deterioration and depreciation of stock on hand on December 31, 1920.

In Words and Phrases, volume 5, page 4781, it is said:

“The term ‘net profits’ means the surplus left after deducting for all
losses. * * *

” ‘Net profits,’ as used in a contract providing that a party should receive
a sum equal to one-third of the net profits, means the gain which accrues on an
investment after deducting expenses and losses. They define themselves, and mean
what shall remain as the clear gain of any business, after deducting the capital
invested in the business, the losses incurred in its conducting, and the losses
sustained in its prosecution. * * *

“The ‘net profits’ of an adventure do not mean what is made over the loss,
expenses, and interest on the amount invested. The term includes simply the gain
that accrues on an investment after deducting the loss and expenses of the
business.”

In other words, the words “net profits,” as used in the contract, should be
construed to include the decreased value of the stock on hand on January 1,
1921, as compared with the invoice value of the stock on January 1, 1920.

If there had been an increase in the value of the stock, the plaintiff would
be entitled to the benefit of the increase, and it must follow that he should be
charged with the decrease.

It is a matter of common knowledge that there was a heavy depreciation in the
market value of all kinds of goods during that period. The thirty-one per cent
depreciation found: by the accountants is fair and reasonable to the
plaintiff.

As we analyze the record, the amount of the net profits in which the
plaintiff is entitled to his 10 per cent is P49,636, or P4,963.60 for the year
1920. He is also entitled to his share of 10 per cent on that amount from
January 1, 1921, to January 24, 1921, or the further sum of P316.40, making a
total of P5,280, which the plaintiff should receive as his share of the net
profits during the period of his employment. During this period he received P100
a month for twelve months, under an agreement that the amount received should be
deducted from his share of the net profits. He also admits that about January
10, 1921, he took from, and out of, the funds of the company the sum of
P1,905.60, claiming that amount was due him as the balance for, and on account
of, travelling expenses from the United States to Manila, the total amount of
which was P3,105.60, P1,000 of which he received from Mr. Moody.

It will be noted that nothing is said in the contract about the travelling
expenses of the plaintiff from the United States to Manila, and upon that point,
the testimony is not clear or convincing, and is indefinite and uncertain. It is
very apparent that the gross amount claimed for travelling expenses includes the
expenses of both the plaintiff and his family, and that the P1,000, which Moody
advanced, would about cover the personal traveling expenses of the plaintiff
himself. In the absence of some contract, express or implied, the defendant
should not be required to pay the travelling expenses of plaintiff’s family, and
there is no satisfactory testimony that Mr. Moody or the defendant ever agreed
to pay the travelling expenses of plaintiff’s family as one of the
considerations of the contract. In fact, the agreement to pay the P1,000 is
largely founded upon the fact that Moody advanced the amount at the time.

All things considered, we are of the opinion that the plaintiff ought not to
be charged for the P1,000, which he received from Moody. The net result is this:
that the plaintiff is entitled to P5,280 as his share of the net profits during
the period of his employment. Of this amount, he has received, and should be
charged with, P1,200 as an advance out of his percentage, and the further sum of
P1,905.60, which he admits that he took from the funds of the defendant and
applied on travelling expenses, making a total of P3,105.60, leaving a balance
of P2,374.40 due and owing the plaintiff at the time he was discharged.

The judgment of the lower court will be modified, and one will be entered
here in favor of the plaintiff and against the defendant for the sum of
P2,374.40, with interest from the 1st of March, 1921, at the rate of 6 per cent
per annum. Neither party to recover costs in this court. So
ordered.

Johnson, Malcolm, Avanceña, Villamor, and Romualdez,
JJ., concur.