G.R. No. 19689. April 04, 1923
PHILIPPINE NATIONAL BANK, PLAINTIFF AND APPELLANT, VS. WELCH, FAIRCHILD & CO., INC., DEFENDANT AND APPELLEE.
STREET, J.:
of the defendant, Welch, Fairchild & Co., Inc., the sum of $125,000, with
interest from May 17, 1918, being part of the proceeds of certain insurance
effected in the year 1918 upon a ship called the Benito Juarez and
collected by the defendant after said ship had been lost at sea. Upon hearing
the cause the trial judge absolved the defendant from the complaint and the
plaintiff appealed.
In the first half of the year 1918, a corporation, known as La CompaƱia
Naviera, Inc., was organized in Manila under the laws of the Philippine Islands,
for the purpose of engaging in the business of marine shipping. Among its
shareholders was Welch, Fairchild & Co., another corporation organized under
the laws of these Islands and having its principal place of business in the City
of Manila. Of the shares of La CompaƱia Naviera, Welch, Fairchild & Co.
subscribed for 325 shares of the par value of P100 each.
As La CompaƱia Naviera was an entirely new enterprise in the shipping world,
it was necessary for it to acquire a proper complement of vessels and adequate
equipment, and as shipping values in those days were high, the company did not
have sufficient ready capital to meet all its requirements. Its officials
therefore in May, 1918, applied to the Philippine National Bank for a loan of
$125,000, with which to purchase a boat called Benito Juarez, which had
been found on the market in the United States. The necessary credit appears to
have been extended by the bank in the form of a loan for $125,000, to run for
one year from May 17, 1918. Nevertheless, owing to delay in the delivery of the
vessel, the money was not then delivered and was not actually advanced by the
bank until several months later, as will presently appear.
It appears that Welch, Fairchild & Co. was not numbered among the
original promoters of La CompaƱia Naviera, but its interests are to a
considerable extent involved in the general shipping conditions in the Islands
and it looked with a friendly eye upon the new enterprise. Moreover, the
mercantile ramifications of Welch, Fairchild & Co. appear to be extensive;
and its friendly offices were freely exerted in behalf of La CompaƱia Naviera,
not only through Welch & Co., the correspondent of the defendant in San
Francisco, but also through Mr. Geo. H. Fairchild, the president of Welch,
Fairchild & Co., who left Manila for the United States in March of the year
1918 and remained in that country for more than a year. Upon this visit to the
United States Mr. Fairchild was kept advised as to certain needs of La CompaƱia
Naviera, and he acted for it in important matters requiring attention in the
United States. In particular it was through the efforts of himself and of Judge
James Ross, as attorney, that the consent of the proper authorities in
Washington, D. C., was obtained for the transfer of the Benito Juarez to
Philippine registry.
In August, 1918, the Benito Juarez was on the California coast, and
after the approval of its transfer to Philippine registry had been obtained,
steps were taken for the delivery of the vessel to the agents of the purchaser
in San Francisco at the price of $125,000, as agreed; and it was understood that
the delivery of the purchase money would be made by the Anglo-London and Paris
National Bank, in San Francisco, as agent of the Philippine National Bank,
contemporaneously with the delivery to it of the bill of sale and the policy of
insurance on the vessel. It developed, however, that the vessel needed repairs
before it could be dispatched on its voyage to the Orient; and it became
impracticable to deliver the bill of sale and insurance policy to the bank in
San Francisco at the time the money was needed to effect the transfer. Being
advised of this circumstance, and fearing that a hitch might thus occur in the
negotiations, Welch, Fairchild & Co., in Manila, addressed a letter on
August 8,1918, to the Philippine National Bank, requesting it to cable its
correspondent in San Francisco to release the money and make payment for the
vessel upon application by Welch & Co., without requiring the delivery of
the bill of sale or policy of insurance, “in which event,” the letter
continued, “the CompaƱia Naviera will deliver to you here the bill of sale
also the insurance policy covering the voyage to Manila.” In a letter
bearing date of August 10, 1918, also addressed to the Philippine National Bank,
La CompaƱia Naviera, Inc. confirmed this request and authorized the bank to send
the cablegram necessary to give it effect.
In response to these communications the Philippine National Bank, on August
14, sent a cablegram to its correspondent in San Francisco authorizing payment
of the purchase price of the Benito Juarez, without the production of
either bill of sale or insurance policy. Under these circumstances the vessel
was delivered and money paid over without the production or delivery of the
documents mentioned.
After the repair of the Benito Juarez had been accomplished it was
insured by Welch & Co. to the value of $150,000 and was dispatched, in
November, 1918, on its voyage to the Philippine Islands. On December 3, 1918,
the vessel encountered a storm off the Island of Molokai, in the Hawaiian group,
and became a total loss.
When the insurance was taken out to cover the voyage to Manila, no policy was
issued by any insurer; but the insurance was placed by Welch & Co. of San
Francisco, upon the instructions of Welch, Fairchild & Co., as agents of the
CompaƱia Naviera, and it was taken out in the ordinary course of business to
protect the interests of all parties concerned.
As would naturally happen in an insurance of this amount, the risk was
distributed among several companies, some in remote centers; and it was many
months before Welch & Co., of San Francisco, had collected the full amount
due from the insurers. However, as the money came to the hands of Welch &
Co., of San Francisco, it was remitted by draft or telegraphic transfer to
Welch, Fairchild & Co. in Manila; and in this manner practically the full
amount for which the Benito Juarez had been insured was transmitted to
Manila by the last days of June, 1919.
As was perhaps but natural under the circumstances, the Philippine National
Bank appears, to have exhibited no concern about its loan of $125,000 to La
CompaƱia Naviera, or about the proceeds of the insurance on the Benito
Juarez, until after the period of credit allowed by the bank on the loan to
La CompaƱia Naviera had expired, that is to say, after May 17, 1919. A short
while after this date, an incident occurred upon which the attorneys for the
defendant in this case have placed great emphasis, and it is this: In the latter
part of the month aforesaid Welch & Co., having collected $13,000 upon
account of the insurance on the Benito Juarez, attempted to remit it by
telegraphic transfer to Welch, Fairchild & Co. in Manila, but by some
mistake or other, the money was remitted to the Philippine National Bank in New
York, and it was not until about a month later that authority was received by
the Philippine National Bank in Manila to pay to Welch, Fairchild & Co. the
sum of $13,000 upon account of said insurance.
When the authority for the transfer of this credit reached the Philippine
National Bank, the attention of the bank officials was drawn to the fact that
the transfer related to money forming part of the proceeds of the insurance on
the Benito Juarez, and they at first determined to intercept the transfer
and withhold the credit from Welch, Fairchild & Co., on the ground that the
money belonged to the bank. This claim on the part of the bank was of course
based on the letter of Welch, Fairchild & Co. dated August 8, 1918, in which
the promise had been held out that, if the bank would advance the purchase money
of the Benito Juarez without requiring the concurrent delivery of the
policy of insurance, said policy would be delivered later by La CompaƱia Naviera
in Manila. When the determination of the bank’s officials to withhold the money
was communicated to Welch, Fairchild & Co., a strong protest was made, and
its attorney came at once to the bank to interview its president. As a result of
this interview the president of the bank receded from his position about the
matter, and an order was made that the money should be passed to the credit of
Welch, Fairchild & Co., as was done on July 23, 1919. A day or two later the
bank further credited the account of Welch, Fairchild & Co. with the sum of
P119.65, as interest on the money during the time it had been withheld.
In the course of the interview above alluded to, not only did the attorney of
Welch, Fairchild & Co. call the attention of the president of the bank to
the doubtful propriety of its act in intercepting a remittance of money which
had been confided to its agent in San Francisco for transmission to Welch,
Fairchild & Co. in Manila, but he also pointed out that Welch, Fairchild
& Co. had acted throughout merely in the capacity of agent for La CompaƱia
Naviera, and he therefore insisted that Welch, Fairchild & Co. was not
legally bound by the promise made by it in the letter of August 8, 1918, to the
effect that the policy of insurance would be delivered to the bank in Manila by
La CompaƱia Naviera; and this contention was urged with such force that the
president of the bankāwho was not a lawyerāacknowledged himself vanquished, and
in the end said that he must have been mistaken in his contention and that the
attorney was right.
Shortly after this incident the bank which had permitted La CompaƱia Naviera
to become indebted to it upon inadequate security to the extent of nearly a
million pesos began to take steps looking to the betterment of its position in
relation with said company. To this end, on August 28, 1919, it went through the
barren formality of making demand upon La CompaƱia Naviera for the delivery of
the insurance policies on the Benito Juarez, but was informed by La
CompaƱia Naviera that it had never, received any policy of insurance upon the
Benito Juarez as the vessel had been insured in San Francisco by Welch,
Fairchild & Co. in behalf of La CompaƱia Naviera. A little later the bank
caused La CompaƱia Naviera to execute pledges to the bank upon three steamers
belonging to said company as security for its indebtedness to the bank.
Thereafter matters were permitted to drift until it became apparent that La
CompaƱia Naviera was insolvent; and on December 9, 1919, the bank made formal
demand upon Welch, Fairchild & Co. for the delivery of the insurance policy
for $125,000 on the Benito Juarez, basing its demand on the letter of
Welch, Fairchild & Co. of August 8, 1918, already mentioned.
As the bank officials already knew that the insurance had been collected many
months previously by Welch, Fairchild & Co., it is evident that the making
of demand for delivery of a policy for $125,000 was a mere formula by which the
bank intended to plant a contention that the proceeds of the insurance, to the
extent of $125,000, belonged to it. To this demand Welch, Fairchild & Co.
responded with a negative.
Meanwhile, what had become of the proceeds of the insurance upon the
Benito Juarez? That money, as we have already seen, came to the hands of
Welch, Fairchild & Co. in Manila and has there rested, having been applied
by Welch, Fairchild & Co. in part satisfaction of indebtedness incurred by
La CompaƱia Naviera to it. This disposition of the insurance money was made by
Welch, Fairchild & Co. with the tacit approval of La CompaƱia Naviera, the
credits being notified to the latter by the former as the remittances were
received in Manila and entered in the accounts of both companies
accordingly.
To explain the situation which had thus arisen between the two companies,
further reference is here necessary to matters that had taken place during the
preceding year. As we have already stated, Welch, Fairchild & Co. had
assisted La CompaƱia Naviera in effecting the purchase and transfer of the
Benito Juarez to Philippine registry. In addition to this, Welch,
Fairchild & Co. advanced in San Francisco several thousands of pesos
necessary for the repair and equipment of that vessel prior to its departure for
the Philippine Islands; and the incurring of these expenses explain why
insurance was taken out to the extent of $150,000 instead of $125,000, the
latter sum being merely the item of cost price. But the friendly offices of
Welch, Fairchild & Co. were not limited to the foregoing matters, and said
company rendered practically the same service with respect to other vessels
which were purchased for La Compania Naviera, with the result that the advances
made by Welch, Fairchild & Co., beginning in the autumn of 1918, steadily
mounted in the course of succeeding months and in the end ran up into the
hundreds of thousands of pesos. One particular incident, most disastrous to the
latter company, consisted in the operation by it, during several months in 1919,
of the San Pedro, one of the vessels belonging to La CompaƱia Naviera,
under contract with the latter company.
The result of these expenditures and advances of money by Welch, Fairchild
& Co. was that the indebtedness of La CompaƱia Naviera to Welch, Fairchild
& Co. mounted steadily during the year 1919, and said indebtedness was by no
means liquidated by the application to it of the insurance money from the
Benito Juarez. In this connection we note the following debit balances
charged on the books of Welch, Fairchild & Co. against the La CompaƱia
Naviera as the same appear by monthly statements from November 30, 1918, to
September 30, 1919; and it will be remembered that these are the balances
appearing after credit had been given for the collections of the insurance
money. Said debit balances for the months stated are as follows: Upon November
30, 1918, P3,675.71; upon December 31, 1918, P30,627; upon January 25, 1919,
P93,961.49; upon February 27, 1919, P145,130.78; upon March 30, 1919,
P146,370.66; upon April 29, 1919, P148,542.25; upon May 30, 1919, P153,060.13;
upon June 30, 1919, P139,531.27; upon July 31, 1919, P168,724; upon August 31,
1919, P169,932.41; upon September 30, 1919, P185,651.73.
The foregoing statement of facts makes comprehensible the contentions upon
which the defense to the present action is based; and these contentions may be
stated in the following propositions: First, that, inasmuch as Welch, Fairchild
& Co. acted exclusively in the character of agent for La CompaƱia Naviera in
the purchase of the Benito Juarez, no obligation enforcible against it
was created by the letter of August 8, 1918, and as a consequence the bank
should look exclusively to La CompaƱia Naviera, as principal, for
indemnification for any loss resulting from the failure of said company to
deliver the insurance policy, or policies, on the Benito Juarez, or the
proceeds thereof, to the bank; secondly, that, even supposing that the letter of
August 8, 1918, created any obligation that the defendant was bound to respect,
nevertheless the bank waived and abandoned any right that it may have had upon
the facts stated; and, thirdly and finally, that, by reason of the delay of the
bank and its abandonment of its claim against the defendant, in relation with
the prejudice thereby incurred by the defendant, the bank is estopped to assert
any right that it may have had in the premises.
We are of the opinion that all of these contentions are untenable and that
the plaintiff bank has a clear right of action against the defendant, in nowise
affected adversely by any of the considerations suggested. Upon the first point,
while it is true that an agent who acts for a revealed principal in the making
of a contract does not become personally bound to the other party in the sense
that an action can ordinarily be maintained upon such contract directly against
the agent (art. 1725, Civ. Code), yet that rule clearly does not control this
case; for even conceding that the obligation created by the letter of August 8,
1918, was directly binding only on the principal, and that in law the agent may
stand apart therefrom, yet it is manifest upon the simplest principles of
jurisprudence that one who has intervened in the making of a contract in the
character of agent cannot be permitted to intercept and appropriate the thing
which the principal is bound to deliver, and thereby make performance by the
principal impossible. The agent in any event must be precluded from doing any
positive act that could prevent performance on the part of his principal. This
much, ordinary good faith towards the other contracting party requires. The
situation before us in effect is one where, notwithstanding the promise held out
jointly by principal and agent in the letters of August 8 and 10, 1918, the two
have conspired to make an application of the proceeds of the insurance entirely
contrary to the tenor of said letters. This cannot be permitted.
The idea on which we here proceed can perhaps be made more readily
apprehensible from another point of view, which is this: By virtue of the
promise contained in the letter of August 8, 1918, the bank became the equitable
owner of the insurance effected on the Benito Juarez to the extent
necessary to indemnify the bank for the money advanced by it, in reliance upon
that promise, for the purchase of said vessel; and this right of the bank must
be respected by all persons having due notice thereof, and most of all by the
defendant which took out the insurance itself in the interest of the parties
then concerned, including of course the bank. The defendant therefore cannot now
be permitted to ignore the right of the bank and appropriate the insurance to
the prejudice of the bank, even though the act be done with the consent of its
principal.
As to the argument founded upon the delay of the bank in asserting its right
to the insurance money, it is enough to say that mere delay unaccompanied by
acts sufficient to create an equitable estoppel does not destroy legal rights,
but such delay as occurred here is in part explained by the fact that the loan
to La CompaƱia Naviera did not mature till May 17, 1919, and a demand for the
surrender of the proceeds of the insurance before that date would have seemed
premature. Besides, it is to be borne in mind that most of the insurance was not
in fact collected until in June of 1919. It is true that in the month of March
previous about P50,000 of this insurance had been remitted to Manila for Welch,
Fairchild & Co. through the plaintiff bank, and the bank, we assume, took
notice of the source of the remittance. However, its failure then to assert its
claim to the money is not a matter of legitimate criticism, since the loan was
not then due. After May 17, 1919, the situation was somewhat different; and as
we have already seen, the bank was not slow in asserting its right to the
remittance that came through the bank in June to Welch, Fairchild & Co.,
consisting of $13,000 of the proceeds of this insurance.
This brings us to consider the legal effect of the incident which culminated
on July 23, 1919, when the bank abandoned its previous position with regard to
this remittance and passed the money to the credit of the defendant, with
interest upon the same during the time payment had been withheld. The most, we
think, that can fairly be said about that incident is that the bank president
admitted himself to be a convert to the proposition advanced by the attorney for
the defendant to the effect that as the defendant had merely acted as agent for
La CompaƱia Naviera in the matter, the bank must look exclusively to La CompaƱia
Naviera for the fulfilment of the promise about the insurance money. As a
statement of legal doctrine that proposition was, as we have already shown, a
mistake; but of course it would have been a matter of indifference if La
CompaƱia Naviera had remained solvent. One consideration that must have operated
on the mind of the president of the bank in releasing this money was that it had
been remitted in ordinary course of exchange through the bank to the defendant,
which was an entirely responsible party; and even though the bank may have had
the power to intercept the remittance, the president may have considered that
the commercial integrity of the institution in matters of exchange was perhaps
worth more than could be gained by an obstinate insistence on its right to this
money. There is no evidence whatever that the president of the bank assumed to
release the defendant from any obligation which might have been incurred by
virtue of the letter of August 8, 1918.
From intimations contained in the testimony of some of the witnesses
presented by the defendant it might be inferred that at some time or another an
understanding had been reached between the bank and the defendant company by
which it was agreed that the defendant should make advances of money to La
CompaƱia Naviera and that it might look to the proceeds of the insurance on the
Benito Juarez to reimburse itself for those outlays. No such agreement
with the bank or any official of the bank is alleged in the defendant’s answer;
and as one reads the testimony submitted by the defendant this hearsay
suggestion continually flits away, until it becomes apparent that no such
agreement was made. That there was some such understanding between the defendant
and La CompaƱia Naviera is highly probable, but to that understanding the bank
clearly was not a party.
It is insisted, however, that the attitude of the bank has been such that the
defendant has been misled to its prejudice, in that not only did it give large
credit to La CompaƱia Naviera for sums to be recouped from this insurance money
but that in reliance upon its right to that money it refrained from taking the
steps that it might have taken to save itself from loss; and in this connection
it is suggested that but for the incident in July, 1919, when the bank waived
its claim to the $13,000 remitted through it to Welch, Fairchild & Co., the
defendant would have sought and would have been able to get additional security
in the form of mortgages or pledges of one or more vessels belonging to La
CompaƱia Naviera.
The proof in our opinion shows little or no tangible basis for these
contentions; and so far as we can see not one dollar was ever advanced by the
defendant to La CompaƱia Naviera upon the faith of any request, promise, or
representation of the bank in that behalf extended; and it should be noted that
the large losses incurred by the defendant for advances to that concern after
July 23, 1919, were mostly incurred in the desperate effort to retrieve its
position by operating the San Pedro. The suggestion that, but for the
misleading attitude of the bank, the defendant would have been able to obtain
additional security loses much of its force when it is considered that upon
December 31, 1921, the defendant’s books still showed unsecured indebtedness
against La Compania Naviera to the amount of nearly P50,000. The idea that, but
for the attitude assumed by the bank, the defendant would have materially
bettered its position, is a speculation too remote to affect the issue of this
action.
In the light of what has been said, it becomes necessary to reverse, as we
hereby do reverse, the judgment appealed from; and judgment will be entered in
favor of the plaintiff to recover of the defendant the sum of P250,000, with
lawful interest from May 31, 1921, the date of the filing of the complaint. No
special pronouncement will be made as to costs. So ordered.
Araullo, C.J., AvanceƱa, Villamor, Ostrand, and Romualdez, JJ.,
concur.
Mr. Justice Johns voted for reversal but he was absent at the time of the
promulgation of the decision, and his signature therefore does not appear signed
to the opinion of the court.
|
(Sgd.) MANUEL ARAULLO |
||
| Chief Justice |
||
DISSENTING
MALCOLM, J.:
In my opinion judgment should be affirmed,
for the reason that no contractual relation ever existed between Welch,
Fairchild & Co., Inc., and the Philippine National Bank with respect to the
funds in question.