GUTIERREZ HERMANOS, PLAINTIFF AND APPELLANT, VS. ORIA HERMANOS & CO., DEFENDANT AND APPELLANT.

Gutierrez Hermanos versus Oria Hermanos and Company

The Case

This is a commercial litigation between two merchant firms. Gutierrez Hermanos, a Manila mercantile house, sued Oria Hermanos and Company, a commercial concern based in Laoang, Samar, to collect the balance of a mutual current account that had run between them for about nine years. Oria Hermanos answered with cross complaints and counterclaims, demanding that Gutierrez Hermanos render a general account supported by vouchers of all the business transacted, and claiming various sums for alleged overcharges, unpaid insurance, and lost profits. The case matters because it fixes the rule on when a commission agent may be compelled to render a detailed account to its principal, and on the effect of a principal's approval of periodic statements of account.

Procedural History

Gutierrez Hermanos filed its written complaint in the Court of First Instance of Manila. Oria Hermanos answered with four cross complaints and six counterclaims. Gutierrez Hermanos demurred to certain paragraphs of the answer and asked that others be made more specific. The court overruled the demurrer but ordered Oria Hermanos to make its allegations more specific in the second, third, and fourth cross complaints and the first counterclaim, and Oria Hermanos filed an amended answer in compliance.

After hearing, the trial court, through Judge S. del Rosario, rendered judgment. It sentenced Oria Hermanos to pay Gutierrez Hermanos the sum of 147,204.28 pesos with interest at eight per cent per annum from June 30, 1909, after deducting whatever balances should result in favor of Oria Hermanos from the accounts to be rendered. It also ordered Gutierrez Hermanos to render accounts supported by vouchers as to the articles in which fraud, deceit, or error had been proven, to return certain internal revenue tax collections, and to pay 1,812 pesos with interest. It absolved Gutierrez Hermanos from the demand for a rendition of accounts concerning hemp and copra, and from the first, third, fourth, fifth, and sixth counterclaims.

Both parties excepted to the judgment and moved for a reopening of the case and a new trial. Their motions were overruled, and the bills of exceptions were approved and forwarded to the Supreme Court, which heard the case on appeal.

Facts

From May 1, 1900, Gutierrez Hermanos and Oria Hermanos and Company maintained commercial relations. These relations gave rise to a mutual current account bearing interest at eight per cent, kept under the name of Oria Hermanos and Company on the books of Gutierrez Hermanos. Gutierrez Hermanos acted as commission agent for Oria Hermanos, receiving hemp, copra, rice, and other goods for sale on commission, and also purchasing goods and forwarding them to Samar.

Gutierrez Hermanos sent semiannual general accounts to Oria Hermanos. Over the nine years of their dealings, Oria Hermanos gave seventeen approvals of account, sometimes without comment and sometimes after objections that were explained. On January 11, 1909, Gutierrez Hermanos transmitted an abstract of the account as of December 31, 1908, showing a balance in its favor of 144,473.78 pesos. Oria Hermanos approved that abstract by letter dated March 9, 1909.

On May 25, 1909, Gutierrez Hermanos notified Oria Hermanos that the current account would be closed within thirty days and that any debit balance should then be paid. On June 30, 1909, it sent the statement of account up to that date, showing a balance of 147,204.28 pesos. Oria Hermanos made no objection to that statement but refused to pay. Gutierrez Hermanos then sued. Oria Hermanos countered that it had never waived its right to demand, upon the final closing of the account, a general and complete account duly supported by vouchers, and that Gutierrez Hermanos had failed to render one.

Issues

• Whether or not Oria Hermanos and Company is entitled to compel Gutierrez Hermanos to render a general and complete account, supported by vouchers, covering all the business transacted between the firms from May 1, 1900, to June 30, 1909.
• Whether or not the trial court could lawfully determine the net amount owed on the current account before deciding whether such a general account must first be rendered.
• Whether or not the approvals given by Oria Hermanos to the periodic statements of account barred it from later demanding the general account agreed upon.

Applicable Provisions

The decision turns on the agreement of the parties as to the rendition of accounts. The Court states the governing principle in these words:

Had the agreement between the parties been recorded with all its conditions in some instrument, it would have appeared whether Gutierrez Hermanos actually bound itself to present to Oria Hermanos and Company, besides the semiannual accounts rendered, a general account comprising all the business undertaken between 1900 and June, 1909.

This bears on the case because the obligation to render a general account, if it exists, rests on the agreement of the parties, and the record must show what that agreement was.

Ruling

On the first issue, the Court held that the rendition of a general account supported by vouchers is a necessary preliminary matter. It reasoned that notwithstanding the proof of the certainty and reality of the debt as a balance of the current account, it is impossible to determine the net amount claimed until it is first decided whether a general account should be rendered, comprehensive of the business transacted in the different commercial articles and of the mercantile relations between both firms from May 1, 1900, to June 30, 1909, and whether Gutierrez Hermanos is indebted to Oria Hermanos and in what amount.

On the second issue, the Court held that the amount of the claim cannot be finally fixed until the rendition of accounts is resolved. Even on the supposition that Gutierrez Hermanos is obliged to make a general rendition of accounts, it is evident that until it be known whether it is or is not indebted to Oria Hermanos, and in what amount as disclosed by the account rendered, it cannot be decided whether it is entitled to collect the whole amount claimed in the complaint. Only in view of the result of the rendition of accounts can it be lawfully established whether Gutierrez Hermanos is a creditor and for how much.

On the third issue, the Court examined whether the approvals of the semiannual accounts amounted to a waiver of the right to demand the general account. It noted that the agreement between the parties was not recorded with all its conditions in any instrument, so that it did not appear whether Gutierrez Hermanos had bound itself, besides the semiannual accounts, to present a general account covering all the business from 1900 to June 1909. The Court therefore directed that this question be resolved on the evidence of the agreement and the accounts rendered.

Doctrine

A commission agent who has bound itself to render a general and complete account, supported by vouchers, upon the final closing of the current account with its principal, may be compelled to render that account before the net balance in its favor can be finally determined. The approval by the principal of periodic or semiannual abstracts of account does not by itself establish that the principal waived its right to demand the general account stipulated for the final closing, where the agreement of the parties is not recorded in a single instrument and its terms must be ascertained from the evidence. The rendition of accounts is a condition precedent to the final ascertainment of the debt, and the court cannot fix the net amount owed until it is first decided whether such an account must be rendered and what it discloses.

Disposition

The Supreme Court resolved the appeal by holding that the rendition of a general account supported by vouchers must first be determined, and that the net amount owed on the current account cannot be fixed until that question is settled, with the case disposed of accordingly on the basis of the agreement between the parties.

Remember This

The one line to memorize is that the rendition of a general account supported by vouchers is a condition precedent to the final determination of the balance of a current account between a commission agent and its principal. Examiners use this case in agency and commercial law to test whether approval of periodic statements of account amounts to a waiver of the right to demand a final, voucher-supported account.