HENRY W. PEABODY & COMPANY, PLAINTIFF AND APPELLANT, VS. J. F. BROMFIELD AND JAMES ROSS, DEFENDANTS AND APPELLEES.

This action was instituted by the plaintiff, Henry W. Peabody & Company,
in the Court of First Instance of the city of Manila, to recover a sum of money
of the two defendants named in the caption hereof. From a judgment dismissing
the action the plaintiff has appealed.

The liability which is sought to be established is based upon a document
(Exhibit B) purporting to be a contract of guaranty signed by the two defendants
herein, J. F. Bromfield and James Ross, also by Edward B. Bruce, the latter not
being included as a defendant in this action.

At the time when the document in question was executed, the Commercial
Vehicle Company, a corporation organized under the laws of the Philippine
Islands, was engaged in the business of selling automobiles and automobile
supplies in the city of Manila, its purchases being made in the United States
through the plaintiff, Henry W. Peabody & Company, a partnership having its
office in the city of New York. The capital resources of the Commercial Vehicle
Company were apparently inadequate for the business it was conducting, and it
was compelled to rely upon the credit extended to it by the plaintiff. In the
year 1912, the officials in charge of the affairs of the Vehicle Company were
informed by the plaintiff that their capital must be increased to P50,000, or
the plaintiff would exercise its right, under the contract then existing between
the two parties, to curtail the credit which the plaintiff had been
extending.

It should be explained here that the house of Henry W. Peabody & Company
was then represented in Manila, by its agent P. M. Scott, and the latter
occupied the position of local manager at all times during the period when the
matters here under consideration were being transacted. In the original
contract, dated November 11,1911, by which Henry W. Peabody & Company
undertook to purchase and forward merchandise to the Commercial Vehicle Company,
it was provided that the plaintiff’s local manager should be a member of the
board of directors of the Commercial Vehicle Company and should have the right
to determine whether orders given by the Commercial Vehicle Company for goods
shipped from the United States were from responsible people. In conformity with
this provision Scott became a member of the board of directors of the Commercial
Vehicle Company, attended its meetings upon all occasions, and consulted with
the other directors about the company’s business. In order to qualify him in
this respect one share of the stock of the Commercial Vehicle Company was issued
to him, and in July, 1912, when the stock issue was increased he subscribed for
common shares of the Vehicle Company in the sum of P2,000 and for preferred
shares of the same company in a like amount. The evidence shows that the taking
of these shares in the name of P. M. Scott was a mere formality and that the
real subscriber, or party in interest, was the house of Henry W. Peabody &
Company itself. This clearly appears in a letter written on July 29, 1917, by
Scott to Bradlee, manager of the home office in New York City, wherein Scott
says: “As I do not desire to become personally interested I have taken up these
shares in the interest of Henry W. Peabody & Company.”

With reference to the relation of P. M. Scott to the home office of Henry W.
Peabody & Company it is further to be observed that, as manager in this
city, he exercised plenary authority in the conduct of the affairs of this
branch; and so far as the facts pertinent to this lawsuit are concerned, it must
be considered that Henry W. Peabody & Company in Manila and P. M. Scott are
one an4 the same. The home office did not interfere in any way with his
management, and Scott exercised in this city, throughout the transactions which
are now under scrutiny, all the powers of a vice-principal.

After the plaintiff had, as above stated, notified the management of the
Commercial Vehicle Company that its capital must be increased, several of the
individuals principally interested in the affairs of the latter company
discussed the matter among themselves and arrived at the conclusion that the
necessary capital could not be raised by an increase of stock. The meeting of
the board of directors at which this conclusion was announced and accepted
occurred apparently in July, 1912. There were present on this occasion, of the
board of directors, Edward B. Bruce, J. F. Bromfield, James Ross, and P. M.
Scott, the latter in representation of Henry W. Peabody & Company. This
conclusion having been reached it was of course realized by all present that, if
Henry W. Peabody & Company should remain firm and discontinue or curtail its
credit, the Commercial Vehicle Company would have to be liquidated. In
contemplation of this eventuality, Clark, the company’s auditor and accountant,
was called upon to make a statement to the board as to its financial condition.
He said that the company’s affairs were in an excellent shape and that it could
then be liquidated at a profit.

One alternative, however, had been suggested, and was already to some extent
under consideration. This was that a few responsible persons interested in the
success of the Commercial Vehicle Company should sign a contract of guaranty,
holding Henry W. Peabody & Company harmless in case the Commercial Vehicle
Company should prove unable to satisfy any debt which it might contract with the
former.

When Clarke, at the meeting above mentioned, informed the directors that the
business of the Commercial Vehicle Company was in a promising condition and
could be liquidated at a profit, one of the directors interested exclusively in
the Commercial Vehicle Company, speaking for all three, observed that it would
be better to liquidate than for them to give a guaranty of the tenor above
stated. Upon this Scott said that he saw no reason why this should be done, as
his company—Henry W. Peabody & Company—merely desired something that would
serve in lieu of an increased capitalization. One of the three, Bruce,
Bromfield, or Ross, thereupon said to Scott that, if this were so, he (Scott)
would probably have no objection to becoming a party to such a guaranty himself.
Scott assented and after some further conversation it was agreed that the four,
to wit, Bruce, Bromfield, Ross, and Scott, would sign the guaranty. That Scott
made this agreement is proved not only by the testimony of Ross but also by a
letter written a few days later by Scott himself to Bradlee, to his own house in
New York City. In this letter, dated July 29, 1912, Scott says:

“* * * For our own protection I have arranged a personal guarantee in the
terms of the enclosed agreement to reimburse H. W. P. & Co. all loss
resultant from their financing this business, to which will be attached the
signature of the majority of stockholders—their individual positions warranting
this a good security for any reasonable amount. To bring this about they
required me to take a personal interest in the Company by purchasing shares to
the value of P2,000 preferred stock of the Company; an additional P5,000 being
subscribed by present members of the Company, thereby increasing the capital
from P10,000 to P19,000 and having the articles of incorporation altered tc
allow for this increase. My name therefore will appear as one of the guarantors
to H. W. P. & Co., but as I do no1 desire to become personally interested
have taken up thes< shares in the interest of H. W. P. & Co. * * *.”

It is furthermore noteworthy that, although Scott appeared in court as a
witness for the plaintiff, he did not deny making the agreement to sign the
guaranty. It is therefore to be considered that the making of this agreement is
as fully and satisfactorily demonstrated as if its existence had been formally
admitted in court by the adverse party.

The proof shows that the labor of drafting the contract of guaranty, in
pursuance of the mutual agreement which had been made, was assigned to Bruce.
Accordingly, Bruce drew up the document in question and, after it had been
signed by the three gentlemen whose names appear thereon forwarded it on August
5, 1912, with a note to Scott couched in the following terms:

“Dear Scott:

“I enclose herewith the guarantee of the account of the Commercial Vehicle
Company with Henry W. Peabody & Company, which has been signed by Bromfield,
Ross and myself.

“Faithfully yours.
“Edward B. Bruce.”

The material portion of the guaranty itself is as follows:

“Whereas, the undersigned are stockholders in the Commercial Vehicle Company,
which company has entered into an arrangement with Henry W. Peabody &
Company, by the terms of which said Henry W. Peabody has undertaken to finance
the said Company, as provided in a certain agreement entered into between said
Henry W. Peabody and the Commercial Vehicle Company, under date of November 11,
1911:

* * * * * * *

“Now, therefore in consideration of the promises, the undersigned hereby,
jointly and severally, bind themselves to reimburse Henry W. Peabody &
Company for any loss which said company shall incur by reason of the business
done by said company for the Commercial Vehicle Company in purchasing
automobiles and automobile supplies for the Commercial Vehicle Company,
extending drafts and rendering other accommodations in accordance with the terms
of said contract.

“This guarantee shall remain in full force and effect as to all business
transacted up to January 1, 1915.

“In witness whereof the undersigned have executed this instrument, this 22
day of July, 1912.

(Sgd.) “Edward B. Bruce.
(Sgd.) “J. F. Bromfield.
(Sgd.)
“James Ross.”

Upon receiving this document, Scott appears to have put it away, without
signing it himself; and it remained in his possession until produced two years
later at the time demand was made upon the guarantors for the performance of the
obligation expressed therein. The record fails to show that Scott sent any
written communication acknowledging the receipt of this document to Bruce; and
it can be surmised that he wished to reflect upon whether to put his own name
upon it. In the end—if not at once—he evidently decided not to do so. It is
possible that Scott may have imagined that his participation in the contract was
waived by the failure of Bruce, in his note of transmissal, to mention as a
condition of the liability of the signatory parties that Scott himself should
also sign. At any rate, it is so contended here in behalf of the plaintiff on
this appeal; and one of the questions to be decided in this case is whether or
not the delivery of the guaranty to Scott in the manner above stated operated as
a waiver of the requirement of his signature.

Leaving this question for later discussion, we proceed with the narrative of
subsequent events in the history of the Commercial Vehicle Company. This in
brief is a story of commercial disaster. Even at the time the guaranty was made
the company apparently was not as prosperous as its auditor had reported; and,
at any rate, in the next two years the company lost heavily. Under date of June
19, 1914, Henry W. Peabody & Company, by Scott, addressed a letter to Bruce,
Ross, and Bromfield, as signatory parties to the contract of guaranty, in which,
among other things, it was said:

“In view of the fact that a serious loss in the account of the Commercial
Vehicle Co. is quite inevitable and cannot be averted, we are obliged to have
recourse upon you on the terms of your undertaking of July 22, 1912, and to make
demand upon you for the amount due from the said company, which the latter has
been unable to pay. * * *

“We draw your attention to former letters addressed to Mr. E. B. Bruce on
this subject, and would ask that you kindly arrange to cover the balance due to
us and subsequent interest on or before July 1, 1914, or make some definite
arrangement in regard to payment.

“Our head office writes that the fact of your inability to collect the
outstanding accounts of the Commercial Vehicle Co. is no reason that we should
await payment due to us, and we therefore request that you take prompt action in
regard to this matter.”

No written reply seems to have been made to this communication, and Scott
again wrote upon July 31, 1914, calling attention to the fact that no attention
had apparently been paid to his prior demand, and he added: “I have received
further instructions from our head office to press for payment, and unless terms
of settlement are arranged prior to August 10th I shall be reluctantly compelled
to adopt other methods of procedure.”

In reply to this, the three gentlemen, Ross, Bruce, and Bromfield, on August
3, 1914, addressed a letter signed by all of them to Henry W. Peabody &
Company, in which they observed that they had no desire to interpose any legal
objection to the enforcement of the undertaking, but they at the same time
called attention to the abnormal financial conditions which had supervened in
the Philippine Islands as a consequence of the outbreak of the European War, and
said that it was absolutely impossible for them at once to raise the amount,
about P46,000, which Henry W. Peabody & Company demanded. They also stated
that there were some large outstanding accounts due to the Commercial Vehicle
Company and that every effort was being made to get these assets in. “We
believe,” the letter continued, “that if a reasonable time is allowed for this
purpose, a substantial amount can be realized. We therefore make the following
proposition: that six months be allowed us to effect the collection of as many
of these accounts as possible, the proceeds to be applied in reduction of your
account. In view of all the circumstances connected with this transaction, we
submit to you that a fair and equitable adjustment of this matter would be to
reduce your account to an amount which will reimburse your firm for all sums
actually paid out on account of the Commercial Vehicle Company. If the above
propositions meet with your approval we will, at the expiration of the six
months period above referred to, each give you a note for one third of the
balance due you, payable at a time to be arranged with your representative.”

The letter does not explain what the circumstances were which, in the opinion
of the authors of the letter, made it fair and equitable for Henry W. Peabody
& Company to reduce the amount of their claim. Other evidence, however,
adduced in the case supplies the explanation, which is, that, when the original
contract was made, the necessity for Henry W. Peabody & Company to extend
its credit to the Commercial Vehicle Company had been considered; and it was the
contention of Bruce and his associates that the commissions which Henry W.
Peabody & Company were allowed under the contract were substantially larger
than would have been justified if it had been understood that a personal
guaranty would be given to secure Henry W. Peabody & Company from any
possible loss.

The offer of adjustment contained in the letter of August 3, 1914, was
rejected by Henry W. Peabody & Company; and as Ross and Bromfield remained
obdurate, this action was in consequence instituted against them on June 30,
1916, to recover the sum of P31,582.62, with interest. Their defense is based on
the failure of Scott personally to sign the guaranty. As against this, it is
insisted for the plaintiff that the contract sued upon is complete in its terms
and that the delivery of the contract made by Bruce on August 5, 1912, was an
absolute and unconditional delivery to Henry W. Peabody & Company.

The proper solution of the problem requires us to consider, first, and
chiefly, the effect of the agreement made in July, 1912, when four men present
at the meeting of the board of directors of the Commercial Vehicle Company
mutually agreed to sign the contract in question. In making that agreement Scott
was acting for his principal, Henry W. Peabody & Company; and when the
situation is examined it will be seen that its effect was substantially the same
as if it had been agreed that Henry W. Peabody & Company should, jointly
with the other guarantors, carry one fourth the risk of any loss that might
result from the extension of its credit to the Commercial Vehicle Company. The
circumstance that the object in view was to be effected by Scott putting his
personal name to the contract of guaranty is of no significance, for he himself
immediately informed his principal in his letter of July 29, 1912, that although
his name would appear as one of the guarantors he had no desire to become
personally liable.

It was evidently in the interest of Henry W. Peabody & Company to secure
the substitution of a responsible personal guaranty in place of the unsecured
obligation of the Commercial Vehicle Company. Furthermore, by the arrangement
which was in contemplation, the prior contract was continued in force by which
the house of Henry W. Peabody & Company was entitled to the same commissions
as before, and the necessity of liquidating the business of the Commercial
Vehicle Company, then apparently in a prosperous condition, was avoided. It is
possible that in the opinion of Scott the equity of the situation justified some
concession from Henry W. Peabody & Company; and the making of the agreement
by which his company was to bear one fourth of the risk incident to the future
business of the Commercial Vehicle Company, down to January 1, 1915, appears to
have been reasonable and judicious- No pretense can be made that his action in
so agreeing was beyond the scope of his authority; but even so, it is clear that
his principal, after receiving Scott’s letter of July 29, 1912, must have
acquiesced in the course which he proposed to pursue.

The original agreement between the parties being such as we have described,
it is manifest that said agreement could not reach the state of a completed
contract until the written document should be signed by each of the four who had
agreed to put their names upon it; and when the three gentlemen whose names
appear thereon as guarantors, had affixed their respective signatures, the
contract, though externally perfect, was still incomplete, and it could only be
completed by the addition of a fourth signature, to-wit, the name of P. M.
Scott. The intention of the parties as revealed in their agreement, was that the
words “the undersigned,” appearing in the contract, should comprehend four
persons; and the contract naturally could not operate in this sense until it
should have passed into the hands of Scott and been signed by him.

Such being the situation, the contract was, as we have seen, dispatched on
August 5, 1912, to Scott by Bruce with a simple note of transmission in which
nothing is said about Scott’s signature being required. The most natural
interpretation of this act is that it was intended to place the contract in
Scott’s hands that it might be completed, and kept by him as the agent of the
plaintiff for the purposes shown on its face. Scott knew that the agreement, in
the form in which it was transmitted to him was incomplete and would remain so
until his name should be put upon it. By failing, under these circumstances, to
sign, he most undoubtedly placed his principal, Henry W. Peabody & Company
in such a position that it cannot enforce this contract; for it is obvious that
there is a lack of essential agreement in its creation, the document submitted
being admittedly different from the agreement which was in fact made. It is
undoubtedly the duty of the courts to lend their assistance to the enforcement
of any contract which has been honestly made; and evasions are not to be
tolerated. But it is to be remembered the performance of the obligations of a
contract is a duty incumbent on both parties; and where it appears, as here,
that the agent of the plaintiff, through whose activities the contract was
procured, has evaded the obligation which he proposed to assume, the enforcement
of the contract is wholly out of the question.

Nor is there anything in the circumstances of the case which preclude the
guarantors from making this defense. It can not be successfully maintained that
the signatory parties have waived the personal participation of Scott in the
contract of guaranty by the unconditional note of transmittal. It is true that
in this note Bruce had the delicacy not to remind Scott of the obligation he was
under to sign the paper; and considering the fact that Bruce was speaking for
parties whose business could be forced into liquidation on any day by Scott, it
is not surprising that the writer of the letter refrained from using peremptory
language. There is nothing whatever in this communication to show that the three
signatory parties intended to depart in any respect from the agreement which had
in fact been made; and it must be considered that the act of delivering the
document to Scott was an act done in pursuance of the original agreement. It was
impossible for the contract to be completed until Scott should sign, and the
physical delivery of the document to him was necessary to that end. Delivery,
under such circumstances as these, did not perfect the contract, nor make it any
more complete than it had already been.

The case has been chiefly argued as if it turned exclusively upon the
question of delivery. But in the making of any contract there is something
antecedent to the final delivery of the document and even more important. It is
the fundamental requisite of the approximation of the contracting minds in the
act of agreement. The consent of the parties is an essential requisite in a
contract (article 1261, Civil Code), and there is no consent until their minds
meet in mutual agreement. If a document is produced, and it is admitted that it
does not express the agreement of the parties, it can have no legal effect,
however perfect it may be upon its face. The contract before us fails to express
the agreement of the parties by placing on three men a burden which was intended
to be borne by four.

Of course, if the parties who signed this guaranty had, by the manner of
delivery or any other act, intentionally and deliberately led Scott to act on
the assumption that they hstd excused him from signing, they could not in this
or in any other action be permitted to take advantage of his failure to sign.
(Section 333, Code of Civil Procedure.) There is, however, nothing in the record
to show that Scott was in any wise misled on this point. On the contrary, it is
more probable that his retention of the contract, without revealing his failure
to sign, had the effect of misleading the other parties to their possible
prejudice.

Much reliance is placed by the attorneys for the appellant upon American and
English decisions in which the doctrine of delivery in escrow is applied; and we
entirely agree with the proposition that the delivery which was made by Bruce on
August 5, 1912, was not a delivery in escrow. It was, we think, an unconditional
delivery made pursuant to the tenor of the original agreement, and the delivery
was made in order that the contract might be completed. If Scott had put his
name on the paper before locking it up in his safe, no further delivery could,
of course, have ever been made. Speaking retrospectively, in such case, any
court would have said that delivery occurred when Bruce transmitted the document
to Scott. But a contract may fail for lack of essential agreement even though
the external act of delivery is accomplished; and such is our opinion in the
case” now before us. It is not delivery which is here lacking; the trouble lies
in the incompleteness of the execution. The inference which the appellant
insists should be drawn from the fact that the delivery of the instrument was
effected without any express reservation therefore fails.

We are not unmindful of the fact that many cases can be cited as authority
for the proposition that a creditor in whose favor a contract of guaranty, or
bond, is executed is not bound by a reservation, made without knowledge of such
creditor, by the guarantor or surety, upon placing his signature on the
document, to the effect that he will not be bound unless some other person
should sign in a similar capacity. In such case the creditor, not being
cognizant of such reservation, cannot be affected by it. This well-known rule
cannot operate in a case where, as here, the party in whose favor the instrument
was executed was cognizant of the condition upon which the guarantors signed and
agreed that the contract should be signed up in the manner contemplated.

Although the case has been argued chiefly on the point of delivery, the
appellant also relies on the proposition that extrinsic evidence is not
admissible to vary the terms of the guaranty by showing that there was an
anterior agreement by virtue of which the liability of the three signatory
parties was dependent on the addition of the signature of Scott as one of the
guarantors. The rule that, generally speaking, extrinsic evidence is not
admissible to vary the terms of a written contract is not open to question.
Nevertheless, it must be remembered that this rule is concerned with evidence
which, if admitted, would contradict the obligation expressed in a contract the
existence of which is admitted or proved. It has no application to conditions
and stipulations which are antecedent to the existence of the contract and on
the faith of which the supposed contract is executed. (10 Ruling Case Law,
1038.) Or, as it is commonly expressed, a separate or collateral stipulation is
admissible in evidence, though it relates to the same subject matter as the
written contract, provided it does not contradict or vary the terms of such
contract. (Opus citat, pp. 1033 et seq.) In the case now before us the
stipulation that Scott should sign the contract in question in no wise varied
any term of the guaranty in question. The making of said stipulation operated
rather as one of the inducements which caused the others to sign.

The attorney for the appellant further insists that the letter of August 3,
1914, (Exhibit G) from which we have already quoted, contains an admission by
Ross, Bruce, and Bromfield of their liability on the contract in question.
Certainly, if the defendants herein had denied their signatures to the contract,
the letter referred to would have furnished sufficient proof that they signed
it. But that is not in dispute, and the question is whether the supposed
contract of guaranty created a legal liability. Upon this point it is evident
that if the execution and delivery of the contract in the manner already
considered did not create legal liability the letter could not have such effect.
The trial judge excluded the letter from consideration on the ground that, as
appears on its face, it was intended merely as an offer of compromise. Whether
admitted or rejected, it can in our opinion have no effect upon the
determination of the lawsuit.

A question has been asked as to whether it would be possible to allow a
recovery in favor of the plaintiff to the extent to which the defendants herein
would have been liable if Scott had signed the guaranty. This suggestion
contemplates performance by Scott and the enforcement of the obligation as thus
reformed or completed. Apart from the fact that no such relief is sought by
either litigant, it is apparent that the facts involved supply no basis for any
such equitable adjustment of liability. The plaintiff neither asks nor offers to
do equity. It stands upon its legal rights under the supposed contract, and is
met by a defense based on the assertion that no contract was made. The case
must, in our opinion, be determined on the issue thus defined. In this
connection it should be observed that by the terms of the contract in question
the liability of the parties was solidary and not apportionable.

But the further question may be asked; Cannot the court ignore the written
contract as incomplete and yet permit recovery upon the oral contract made by
the four individuals who agreed to become guarantors? The impossibility of such
a course must be apparent when it is considered that the parties to the
preliminary negotiation intended that a contract should be executed as the
formal repository of their agreement. It was, indeed, necessary that their
agreement should be reduced to writing in order to satisfy that provision of the
law which says that a promise to answer for the debt or default of another shall
be unenforceable unless reduced to writing and subscribed by the party to be
charged. (Section 335, subsection 2, Code of Civil Procedure.) It is therefore
evident that the parties could not have intended that any contract should exist
except that which should be executed in accordance with this intention. Their
purpose, as we have seen, failed of effect because the agent of the plaintiff,
himself one of the proposed guarantors, refrained from performing the act which
would have made him liable with the other signatory parties. The necessary
consequence, in our opinion, is that no action can be maintained by the
plaintiff either on the preliminary verbal agreement or the imperfect contract
which failed of effect.

It is no doubt true that if the three gentlemen who signed the contract
(Exhibit B) had so desired, they could, upon learning of Scott’s failure to sign
the document, have forced him to sign it or return it to them; and this could
have been accomplished by legal action, supposing that the parties could have
had access to his letter file and have obtained the communication to Bradlee in
which the making of the agreement is admitted in writing. We are unable,
however, to see that this circumstance strengthens the case of the plaintiff
company as against them.

From what has been said it is apparent that the trial court committed no
error in absolving the defendants. The judgment appealed from is accordingly
affirmed, with costs. So ordered.

Torres, Johnson, Araullo, Malcolm, and Avanceña, JJ.,
concur.