[G.R. No. 35840. March 31, 1933.]
FRANCISCO BASTIDA, plaintiff-appellee, vs.
MENZI & CO., INC., J. M. MENZI and P. C. SCHLOBOHM, defendants. MENZI &
CO., INC., appellant.
Romualdez Brothers and Harvey &
O'Brien, for appellant.
Jose M. Casal, Alberto Barretto and Gibbs
& McDonough, for appellee.
SYLLABUS
1. CONTRACT OF EMPLOYMENT; RELATIONSHIP
BETWEEN EMPLOYER AND EMPLOYEE; COPARTNERSHIP. — The relationship established
between the defendant corporation and the plaintiff by their contract was not
that of partners, but that of employer and employee, whereby the plaintiff was
to receive 35 per cent of the net profits of the fertilizer business of the
defendant corporation in compensation for his services of supervising the
mixing of the fertilizers. Neither the provisions of the contract nor the
conduct of the parties prior or subsequent to its execution justified the
finding that it was a contract of copartnership.
2. ID.; ID.; ID. — The trial court relied
on article 116 of the Code of Commerce, which provides that articles of
association by which two or more persons obligate themselves to place in a
common fund any property, industry, or any of these things, in order to obtain
profit, shall be commercial, no matter what its class may be, provided it has
been established in accordance with the provisions of that Code; but in the
case at bar there was no common fund, that is, a fund belonging to the parties
as joint owners or partners. Instead of receiving a fixed salary or a fixed
salary and a small percentage of the net profits, the plaintiff was to receive
35 per cent of the net profits as compensation for his services. It is now well
settled that the old rule that sharing profits as profits made one a partner is
overthrown. (Mechem, second edition, p. 89.)
3. ID.; ID.; ID. — It is nowhere stated in
Exhibit A that the parties were establishing a partnership or intended to
become partners. Great stress is laid by the trial judge and plaintiff's
attorneys on the fact that in the sixth paragraph of said exhibit the phrase
"en sociedad con" is used in providing that defendant corporation
shall not engage in the business of prepared fertilizers except in association
with the plaintiff (en sociedad con). The fact is that en sociedad con, as there
used, merely means en reunion con or in association with, and does not carry
the meaning of "in partnership with". Although the word
"associated" may be related etymologically to the Spanish word
"socio", meaning partner, it does not in its common acceptation imply
any partnership relation.
4. PLEADINGS; ADMISSIBILITY AS EVIDENCE. —
"Where amended pleadings have been filed, allegations in the original
pleadings are held admissible, but in such case the original pleadings can have
no effect, unless formally offered in evidence." (Jones on Evidence, sec.
273; Lucido vs. Calupitan, 27 Phil., 148.)
D E C I S I O N
VICKERS, J p:
This is an appeal by Menzi & Co., Inc.,
one of the defendants, from a decision of the Court of First Instance of
Manila. The case was tried on the amended complaint dated May 26, 1928 and
defendants' amended answer thereto of September 1, 1928. For the sake of
clearness, we shall incorporate herein the principal allegations of the
parties.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I
That the defendant J. M. Menzi, together
with his wife and daughter, owns ninety-nine per cent (99%) of the capital
stock of the defendant Menzi & Co., Inc., that the plaintiff has been
informed and therefore believes that the defendant J. M. Menzi, his wife and
daughter, together with the defendant P. C. Schlobohm and one Juan Seiboth,
constitute the board of directors of the defendant, Menzi & Co., Inc.;
II
That on April 27, 1922, the defendant Menzi
& Co., Inc., through its president and general manager, J. M. Menzi, under
the authority of the board of directors, entered into a contract with the
plaintiff to engage in the business of exploiting prepared fertilizers, as
evidenced by the contract marked Exhibit A, attached to the original complaint
as a part thereof, and likewise made a part of the amended complaint, as if it
were here copied verbatim;
III
That in pursuance of said contract,
plaintiff and defendant Menzi & Co., Inc., began to manufacture prepared
fertilizers, the former superintending the work of actual preparation, and the
latter, through defendants J. M. Menzi and P. C. Schlobohm, managing the
business and opening an account entitled "FERTILIZERS" on the books
of the defendant Menzi & Co., Inc., where all the accounts of the partnership
business were supposed to be kept; the plaintiff had no participation in the
making of these entries, which where wholly in the defendants' charge, under
whose orders every entry was made;
IV
That according to paragraph 7 of the
contract Exhibit A, the defendant Menzi & Co., Inc., was obliged to render
annual balance sheets to the plaintiff upon the 30th day of June of each year;
that the plaintiff had no intervention in the preparation of these yearly
balances, nor was he permitted to have any access to the books of account; and
when the balance sheets were shown him, he, believing in good faith that they
contained the true statement of the partner ship business, and relying upon the
good faith of the defendants, Menzi & Co., Inc., J. M. Menzi, and P. C.
Schlobohm, accepted and signed them, the last balance sheet having been
rendered in the year 1926;
V
That by reason of the foregoing facts and
especially those set forth in the preceding paragraph, the plaintiff was kept
in ignorance of the defendants' acts relating to the management of the
partnership funds, and the keeping of accounts, until he was informed and so
believes and alleges, that the defendants had conspired to conceal from him the
true status of the business, and to his damage and prejudice made false entries
in the books of account and in the yearly balance sheets, the exact nature and
amount of which it is impossible to ascertain, even after the examination of
the books of the business, due to the defendants' refusal to furnish all the
books and data required for the purpose, and the constant obstacles they have
placed in the way of the examination of the books of account and vouchers;
VI
That when the plaintiff received the
information mentioned in the preceding paragraph, he demanded that the
defendants permit him to examine the books and vouchers of the business, which
were in their possession, in order to ascertain the truth of the alleged false
entries in the books and balance sheets submitted for his approval, but the
defendants refused, and did not consent to the examination until after the
original complaint was filed in this case; but up to this time they have
refused to furnish all the books, data, and vouchers necessary for a complete
and accurate examination of all the partnership's accounts; and
VII
That as a result of the partial examination
of the books of account of the business, the plaintiff has, through his
accountants, discovered that the defendants, conspiring and confederating
together, presented to the plaintiff during the period covered by the
partnership contract false and incorrect accounts,
(a) For having included therein undue
interest;
(b) For having entered, as a charge to
fertilizers, salaries and wages which should have been paid and were in fact
paid by the defendant Menzi & Co., Inc.;
(c) For having collected from the
partnership the income tax which should have been paid for its own account by
Menzi & Co., Inc.;
(d) For having collected, to the damage and
prejudice of the plaintiff, commissions on the purchase of materials for the
manufacture of fertilizers;
(e) For having appropriated, to the damage
and prejudice of the plaintiff, the profits obtained from the sale of
fertilizers belonging to the partnership and bought with its own funds; and
(f) For having appropriated to themselves
all rebates for freight insurance, taxes, etc., upon materials for fertilizer
bought abroad, no entries of said rebates having been made on the books to the
credit of the partnership.
Upon the strength of the facts set out in
this first cause of action, the plaintiff prays the court:
1. To prohibit the defendants, each and
every one of them, from destroying and concealing the books and papers of the
partnership constituted between the defendant Menzi & Co., Inc., and the
plaintiff.
2. To summon each and every defendant to
appear and give a true account of all facts relating to the partnership between
the plaintiff and the defendant Menzi & Co., Inc., and of each and every
act and transaction connected with the business of said partnership from the
beginning to April 27, 1927, and a true statement of all merchandise of
whatever description, purchased for said partnership, and of all the
expenditures and sales of every kind, together with the true amount thereof,
besides the sums received by the partnership from every source together with
their exact nature, and a true and complete account of the vouchers for all
sums paid by the partnership, and of the salaries paid to its employees;
3. To declare null and void the yearly balances
submitted by the defendants to the plaintiff from 1922 to 1926, both inclusive;
4. To order the defendants to give a true
statement of all receipts and disbursements of the partnership during the
period of its existence, besides granting the plaintiff any other remedy that
the court may deem just and equitable.
EXHIBIT A
"CONTRATO
que se celebra entre los Sres. Menzi y
Compañía, de Manila, como Primera Parte, y D. Francisco Bastida, también de
Manila, como Segunda Parte, bajo las siguientes
"CONDICIONES
"1.a El objeto de este contrato es la
explotacion del negocio de Abonos e Fertilizantes Preparados, para diversas
aplicaciones agrícolas;
"2.a La duracion de este contrato sera
de cinco años, a contar desde la fecha de su firma;
"3.a La Primera Parte se compromete a
facilitar la ayuda financiera necesaria para el negocio;
"4.a La Segunda Parte se compromete a
poner su entero tiempo y toda su experiencia a la disposicion del negocio;
"5.a La Segunda Parte no podra,
directa o indirectamente, dedicarse por sí sola ni en sociedad con otras
personas, o de manera alguna no sea con la Primera Parte, al negocio de Abonos,
simples o preparados, o de materia alguna que se aplique comunmente a la
fertilizacion de suelos y plantas, durante la vigencia de este contrato, a
menos que obtenga autorizacion expresa de la Primera Parte para ello;
"6.a La Primera Parte no podra
dedicarse, por sí sola ni en sociedad o combinacion con otras personas o
entidades, ni de otro modo que en sociedad con la Segunda Parte, al negocio de
Abonos o Fertilizantes preparados, ya sean ellos importados, ya preparados en
las Islas Filipinas; tampoco podra dedicarse a la venta o negocio de materias o
productos que tengan aplicacion como fertilizantes, o que se usen en la composicion
de fertilizantes o abonos, si ellos son productos de suelo de la manufactura
filipinos, pudiendo sin embargo vender o negociar en materias fertilizantes
simples importados de los Estados Unidos o del Extranjero;
"7.a La Primera Parte se obliga a ceder
y a hacer efectivo a la Segunda Parte el 35 por ciento (treinta y cinco por
ciento) de las utilidades netas del negocio de abonos, liquidables el 30 de
junio de cada año;
"8.a La Primera Parte facilitara a la
Segunda, mensualmente, la cantidad de P300 (trescientos pesos), a cuenta de su
parte de beneficios;
"9.a Durante el año 1923 la Primera
Parte concedera a la Segunda permiso para que éste se ausente de Filipinas por
un período de tiempo que no exceda de un año, sin menoscabo para los derechos
de la Segunda Parte con arreglo a este contrato.
"En testimonio de lo cual firmanos el
presente en la Ciudad de Manila, I. F., a veintisiete de abril de 1922.
"MENZI & CO., INC.
"Por (Fdo.) J. MENZI
"General Manager
"Primera Parte
"(Fdo.) F. BASTIDA
"Segunda Parte
"MENZI & CO., INC.
"(Fdo.) MAX KAEGI
"Acting Secretary"
Defendants denied all the allegations of
the amended complaint, except the formal allegations as to the parties, and as
a special defense to the first cause of action alleged:
1. That the defendant corporation, Menzi
& Co., Inc., has been engaged in the general merchandise business in the
Philippine Islands since its organization in October, 1921, including the
importation and sale of all kinds of goods, wares, and merchandise, and
especially simple fertilizers and fertilizer ingredients, and as a part of that
business, it has been engaged since its organization in the manufacture and
sale of prepared fertilizers for agricultural purposes, and has used for that
purpose trade-marks belonging to it;
2. That on or about November, 1921, the
defendant, Menzi & Co., Inc., made and entered into an employment agreement
with the plaintiff, who represented that he had had much experience in the
mixing of fertilizers, to superintend the mixing of the ingredients in the
manufacture of prepared fertilizers in its fertilizer department and to obtain
orders for such prepared fertilizers subject to its approval, for a
compensation of 50 per cent of the net profits which it might derive from the
sale of the fertilizers prepared by him, and that said Francisco Bastida worked
under said agreement until April 27, 1922, and received the compensation agreed
upon for his services; that on the said 27th of April, 1922, the said Menzi
& Co., Inc., and the said Francisco Bastida made and entered into the
written agreement, which is marked Exhibit A, and made a part of the amended
complaint in this case, whereby they mutually agreed that the employment of the
said Francisco Bastida by the said Menzi & Co., Inc., in the capacity
stated, should be for a definite period of five years from that date and under
the other terms and conditions stated therein, but with the understanding and
agreement that the said Francisco Bastida should receive as compensation for his
said services only 35 per cent of the net profits derived from the sale of the
fertilizers prepared by him during the period of the contract instead of 50 per
cent of such profits, as provided in his former agreement; that the said
Francisco Bastida was found to be incompetent to do anything in relation to its
said fertilizer business with the exception of over-seeing the mixing of the
ingredients in the manufacture of the same, and on or about the month of
December, 1922, the defendant, Menzi & Co., Inc., in order to make said
business successful, was obliged to and actually did assume the full management
and direction of said business;
3. That the accounts of the business of the
said fertilizer department of Menzi & Co., Inc., were duly kept in the regular
books of its general business, in the ordinary course thereof, up to June 30,
1923, and that after that time and during the remainder of the period of said
agreement, for the purpose of convenience in determining the amount of
compensation due to the plaintiff under his agreement, separate books of
account for its said fertilizer business were duly kept in the name of 'Menzi
& Co., Inc., Fertilizer', and used exclusively for that purpose, and it was
mutually agreed between the said Francisco Bastida and the said Menzi &
Co., Inc., that the yearly balances for the determination of the net profits of
said business due to the said plaintiff as compensation for his services under
said agreement would be made as of December 31st, instead of June 30th of each
year, during the period of said agreement; that the accounts of the business of
its said fertilizer department, as recorded in its said books, and the vouchers
and records supporting the same, for each year of said business have been duly
audited by Messrs, Page & Co., certified public accountants, of Manila,
who, shortly after the close of business at the end of each year up to and
including the year 1926, have prepared therefrom a manufacturing and profit and
loss account and balance sheet, showing the status of said business and the
share of the net profits pertaining to the plaintiff as his compensation under
said agreement; that after the said manufacturing and profit and the loss
account and balance sheet for each year of the business of its said fertilizer
department up to and including the year 1926, had been prepared by the said
auditors and certified by them, they were shown to and examined by the
plaintiff, and duly accepted, and approved by him, with full knowledge of their
contents, and as evidence of such approval, he signed his name on each of them,
as shown on the copies of said manufacturing and profit and loss account and
balance sheet for each year up to and including the year 1926, which are
attached to the record of this case, and which are hereby referred to and made
a part of this amended answer, and in accordance therewith, the said plaintiff
has actually received the portion of the net profits of its said business for
those years pertaining to him for his services under said agreement; that at no
time during the course of said fertilizer business and the liquidation thereof
has the plaintiff been in any way denied access to the books and records
pertaining thereto, but on the contrary, said books and records have been
subject to his inspection and examination at any time during business hours,
and even since the commencement of this action, the plaintiff and his
accountants, Messrs. Haskins & Sells, of Manila, have been going over and
examining said books and records for months and the defendant, Menzi & Co.,
Inc., through its officers, have turned over to said plaintiff and his
accountant the books and records of said business and even furnished them
suitable accommodations in its own office to examine the same;
4. That prior to the termination of the
said agreement, Exhibit A, the defendant, Menzi & Co., Inc., duly notified
the plaintiff that it would not under any conditions renew his said agreement
or continue his said employment with it after its expiration, and after the
termination of said agreement of April 27, 1927, the said Menzi & Co.,
Inc., had the certified public accountants, White, Page & Co., audit the
accounts of the business of its said fertilizer department for the four months
of 1927 covered by plaintiff's agreement and prepare a manufacturing and profit
and loss account and balance sheet of said business showing the status of said
business at the termination of said agreement, a copy of which was shown to and
explained to the plaintiff; that at that time there where accounts receivable
to be collected for business covered by said agreement of over P100,000, and
there was guano, ashes, fine tobacco and other fertilizer ingredients on hand
of over P75,000, which had to be disposed of by Menzi & Co., Inc., or
valued by the parties, before the net profits of said business for the period
of the agreement could be determined; that Menzi & Co., Inc., offered to
take the face value of said accounts and the cost value of the other properties
for the purpose of determining the profits of said business for that period,
and to pay to the plaintiff at that time his proportion of such profits on that
basis, which the plaintiff refused to accept, and being disgruntled because the
said Menzi & Co., Inc., would not continue him in its service, the said
plaintiff commenced this action, including therein not only Menzi & Co.,
Inc., but also its managers J. M. Menzi and P. C. Schlobohm, wherein he
knowingly make various false and malicious allegations against the defendants;
that since that time the said Menzi & Co., Inc., has been collecting the
accounts receivable and disposing of the stocks on hand, and there is still on
hand old stock of approximately P25,000, which it has been unable to dispose of
up to this time; that as soon as possible a final liquidation and accounting of
the net profits of the business covered by said agreement for the last four
months thereof will be made and the share thereof appertaining to the plaintiff
will be paid to him; that the plaintiff has been informed from time to time as
to the status of the disposition of such properties, and he and his auditors
have fully examined the books and records of said business in relation thereto.
SECOND CAUSE OF ACTION
As a second cause of action plaintiff
alleged:
I. That the plaintiff hereby reproduces
paragraphs I, II, III, IV, and V of the first cause of action.
II. That the examination made by the
plaintiff's auditors of some of the books of the partnership that were
furnished by the defendants disclosed the fact that said defendants had charged
to "purchase" of the business, undue interest, the amount of which
the plaintiff is unable to determine as he has never had at his disposal the
books and vouchers necessary for that purpose, and especially, owing to the fact
that the partnership constituted between the plaintiff and the defendant Menzi
& Co., Inc., never kept its own cash book, but that it funds were
maliciously included in the private funds of the defendant entity, neither was
there a separate BANK ACCOUNT of the partnership, such account being included
in the defendant's bank account.
III. That from the examination of the
partnership books as aforesaid, the plaintiff estimates that the partnership
between himself and the defendant Menzi & Co., Inc., has been defrauded by
the defendants by way of interest in an amount of approximately P184,432.51, of
which 35 per cent, or P64,551.38, belongs to the plaintiff exclusively.
Wherefore, the plaintiff prays the court to
render judgment ordering the defendants jointly and severally to pay him the
sum of P64,551.38, or any amount which may finally appear to be due and owing
from the defendants to the plaintiff upon this ground, with legal interest from
the filing of the original complaint until payment.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer;
2. That under the contract of employment,
Exhibit A, of the amended complaint, the defendant, Menzi & Co., Inc., only
undertook and agreed to facilitate financial aid in carrying on the said
fertilizer business, as it had been doing before the plaintiff was employed
under the said agreement; that the said defendant, Menzi & Co., Inc., in
the course of the said business of its fertilizer department, opened letters of
credit through the banks of Manila, accepted and paid drafts drawn upon it
under said letters of credit, and obtained loans and advances of moneys for the
purchase of materials to be used in mixing and manufacturing its fertilizers
and in paying the expenses of said business; that such drafts and loans
naturally provided for interest at the banking rate from the dates thereof
until paid, as is the case in all such business enterprises, and that such
payments of interest as were actually made on such drafts, loans and advances
during the period of the said employment agreement constituted legitimate
expenses of said business under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff
alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of action.
II. That under the terms of the contract
Exhibit A, neither the defendants J. M. Menzi and P. C. Schlobohm, nor the
defendant Menzi & Co., Inc., had a right to collect for itself or
themselves any amount whatsoever by way of salary for services rendered to the
partnership between the plaintiff and the defendant, inasmuch as such services
were compensated with the 65% of the net profits of the business constituting
their share.
III. That the plaintiff has, on his own
account and with his own money, paid all the employees he has placed in the
service of the partnership, having expended for their account, during the
period of the contract, over P88,000, without ever having made any claim upon
the defendants for this sum because it was included in the compensation of 35
per cent which he was to receive in accordance with the contract Exhibit A.
IV. That the defendants J. M. Menzi and P.
C. Schlobohm, not satisfied with collecting undue and excessive salaries for
themselves, have made the partnership, or the fertilizer business, pay the
salaries of a number of the employees of the defendant Menzi & Co., Inc.,
V. That under this item of undue salaries
the defendants have appropriated P43,920 of the partnership funds, of which 35
per cent, or P15,372 belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to
render judgment ordering the defendants to pay jointly and severally to the
plaintiff the amount of P15,372, with legal interest from the date of the
filing of the original complaint until the date of payment.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer;
2. That the defendant, Menzi & Co.,
Inc., through its manager, exclusively managed and conducted its said
fertilizer business, in which the plaintiff was to receive 35 per cent of the
net profits as compensation for his services, as hereinbefore alleged, from on
or about January 1, 1923, when its other departments had special experienced
Europeans in charge thereof, who received not only salaries but also a
percentage of the net profits of such departments; that its said fertilizer
business, after its manager took charge of it, became very successful, and
owing to the large volume of business transacted, said business required great
deal of time and attention, and actually consumed at least one-half of the time
of the manager and certain employees of Menzi & Co., Inc., in carrying it
on; that the said Menzi & Co., Inc., furnished office space, stationery and
other incidentals, for said business, and had its employees perform the duties
of cashiers, accountants, clerks, messengers, etc., for the same, and for that
reason the said Menzi & Co., Inc., charged each year, from and after 1922,
as expenses of said business, which pertained to the fertilizer department, as
certain amount as salaries and wages to cover the proportional part of the
overhead expenses of Menzi & Co., Inc.; that the same method is followed in
each of the several departments of the business of Menzi & Co., Inc., that
each and every year from and after 1922, a just proportion of said overhead
expenses were charged to said fertilizer departments and entered on the books
thereof, with the knowledge and consent of the plaintiff, and included in the
auditors' reports, which were examined, accepted and approved by him, and he is
now estopped from saying that such expenses were not legitimate and just
expenses of said business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff
alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of action.
II. That the defendant Menzi & Co.,
Inc., through the defendants J. M. Menzi and P. C. Schlobohm, has paid, with
the funds of the partnership between the defendant entity and the plaintiff,
the income tax due from said defendant entity for the fertilizer business,
thereby defrauding the partnership in the amount of P10,361.72 of which 35 per
cent belongs exclusively to the plaintiff, amounting to P3,626.60.
III. That the plaintiff has, during the
period of the contract, paid with his own money the income tax corresponding to
his share which consists in 35 per cent of the profits of the fertilizer
business, expending about P5,000 without ever having made any claim for
reimbursement against the partnership, inasmuch as it has always been
understood among the partners that each of them would pay his own income tax.
Wherefore, the plaintiff prays the court to
order the defendants jointly and severally to pay the plaintiff the sum of
P3,626.60, with legal interest from the date of the filing of the original
complaint until its payment.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer;
2. That under the Income Tax Law Menzi
& Co., Inc., was obliged to and did make return to the Government of the
Philippine Islands each year during the period of the agreement, Exhibit A, of
the income of its whole business, including its fertilizer department; that the
proportional share of such income taxes found to be due on the business of the
fertilizer department was charged as a proper and legitimate expense of that
department, in the same manner as was done in the other departments of its
business; that inasmuch as the agreement with the plaintiff was an employment
agreement, he was requested to make his own return under the Income Tax Law and
to pay his own income taxes, instead of having them paid at the source, as
might be done under the law, so that he would be entitled to the personal
exemptions allowed by the law; that the income taxes paid by the said Menzi
& Co., Inc., pertaining to the business of the fertilizer department and
charged to that business, were duly entered on the books of that department,
and included in the auditors' reports hereinbefore referred to, which reports
were examined, accepted and approved by the plaintiff, with full knowledge of
their contents, and he is now estopped from saying that such taxes are not a
legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff
alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of action.
II. That the plaintiff has discovered that
the defendant Menzi & Co., Inc., had been receiving, during the period of
the contract Exhibit A, from foreign firms selling fertilizing material, a
secret commission equivalent to 5 per cent of the total value of the purchases
of fertilizing material made by the partnership constituted between the
plaintiff and the defendant Menzi & Co., Inc., and that said 5 per cent
commission was not entered by the defendants in the books of the business, to
the credit and benefit of the partnership constituted between the plaintiff and
the defendant, but to the credit of the defendant Menzi & Co., Inc., which
appropriated it to itself.
III. That the exact amount, or even the
approximate amount of the fraud thus suffered by the plaintiff cannot be
determined, because the entries referring to these items do not appear in the
partnership books, although the plaintiff believes and alleges that they do
appear in the private books of the defendant Menzi & Co., Inc., which the
latter has refused to furnish, notwithstanding the demands made therefor by the
auditors and the lawyers of the plaintiff.
IV. That taking as basis the amount of the
purchases of some fertilizing material made by the partnership during the first
four years of the contract Exhibit A, the plaintiff estimates that this 5 per
cent commission collected by the defendant Menzi & Co., Inc., to the damage
and prejudice of the plaintiff, amounts to P127,375.77 of which 35 per cent
belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to
order the defendants to pay jointly and severally to the plaintiff the amount
of P44,581.52, or the exact amount owed upon this ground, after both parties
have adduced their evidence upon the point.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer;
2. That the defendant, Menzi & Co.,
Inc., did have during the period of said agreement Exhibit A, and has now what
is called a "Propaganda Agency Agreement" with the Deutsches
Kalesyndikat, G. M. B., of Berlin, which is a manufacturer of potash, by virtue
of which the said Menzi & Co., Inc., was to receive for its propaganda work
in advertising and bringing about sales of its potash a commission of 5 per
cent on all orders of potash received by it from the Philippine Islands; that
during the period of said agreement, Exhibit A, orders were sent to said
concern for potash, through C. Andre & Co., of Hamburg, as the agent of the
said Menzi & Co., Inc., upon which the said Menzi & Co., Inc., received
a 5 per cent commission, amounting in all to P2,222.32 for the propaganda work
which it did for said firm in the Philippine Islands; that said commissions
were not in any sense discounts of the purchase price of said potash, and have
no relation to the fertilizer business of which the plaintiff was to receive a
share of the net profits for his services, and consequently were not credited
to that department;
3. That in going over the books of Menzi
& Co., Inc., it has been found that there are only two items of
commissions, which were received from the United Supply Co., of San Francisco,
in the total sum of $66.51, which, through oversight, were not credited on the
books of the fertilizer department of Menzi & Co., Inc., but due allowance
has now been given to that department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff
alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V, of the first cause of action.
II. That the defendant Menzi & Co.,
Inc., in collusion with and through the defendants J. M. Menzi and P. C.
Schlobohm and their assistants, has tampered with the books of the business
making fictitious transfers in favor of the defendant Menzi & Co., Inc., of
merchandise belonging to the partnership, purchased with the latter's money,
and deposited in its warehouses, and then sold by Menzi & Co., Inc., to
third persons, thereby appropriating to itself the profits obtained from such
resale.
III. That it is impossible to ascertain the
amount of the fraud suffered by the plaintiff in this respect as the real
amount obtained from such sales can only be ascertained from an examination of
the private books of the defendant entity, which the latter has refused to
permit notwithstanding the demand made for the purpose by the auditors and the
lawyers of the plaintiff, and no basis of computation can be established, even
approximately, to ascertain the extent of the fraud sustained by the plaintiff
in this respect, by merely examining the partnership books.
Wherefore, the plaintiff prays the court to
order the defendants J. M. Menzi and P. C. Schlobohm, to make a sworn statement
as to all the profits received from the sale to third persons of the
fertilizers pertaining to the partnership, and the profits they have
appropriated, ordering them jointly and severally to pay 35 per cent of the net
amount, with legal interest from the filing of the original complaint until the
payment thereof.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer:
2. That under the express terms of the
employment agreement, Exhibit A, the defendant, Menzi & Co., Inc., had the
right to import into the Philippine Islands in the course of its fertilizer
business and sell for its exclusive account and benefit simple fertilizer
ingredients; that the only materials imported by it and sold during the period
of said agreement were simple fertilizer ingredients, which had nothing
whatever to do with the business of mixed fertilizers, of which the plaintiff
was to receive a share of the net profits as a part of his compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff
alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of action.
II. That during the existence of the
contract Exhibit A, the defendant Menzi & Co., Inc., for the account of the
partnership constituted between itself and the plaintiff, and with the latter's
money, purchased from several foreign firms various simple fertilizing material
for the use of the partnership.
III. That in the paid invoices for such
purchases there are charged, besides the cost price of the merchandise, other
amounts for freight, insurance, duty, etc., some of which were not entirely
thus spent and were later credited by the selling firms to the defendant Menzi
& Co., Inc.
IV. That said defendant Menzi & Co.,
Inc., through and in collusion with the defendants J. M. Menzi and P. C.
Schlobohm upon receipt of the credit notes remitted by the selling firms of
fertilizing material, for rebates upon freight, insurance, duty, etc., charged
in the invoice but not all expended, did not enter them upon the books to the
credit of the partnership constituted between the defendant and the plaintiff,
but entered or had them entered to the credit of Menzi & Co., Inc., thereby
defrauding the plaintiff of 35 per cent of the value of such reductions.
V. That the total amount, or even the
approximate amount of this fraud cannot be ascertained without an examination
of the private books of Menzi & Co., Inc., which the latter has refused to
permit notwithstanding the demand to this effect made upon them by the auditors
and the lawyers of the plaintiff.
Wherefore, the plaintiff prays the court to
order the defendants J. M. Menzi and P. C. Schlobohm, to make a sworn statement
as to the total amount of such rebates, and to sentence the defendants to pay
to the plaintiff jointly and severally 35 per cent of the net amount.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer:
2. That during the period of said
employment agreement, Exhibit A, the defendant, Menzi & Co., Inc., received
from its agent, C. Andre & Co., of Hamburg, certain credits pertaining to
the fertilizer business in the profits of which the plaintiff was interested,
by way of refunds of German Export Taxes, in the total sum of P1,402.54; that
all of said credits were duly noted on the books of the fertilizer department
as received, but it has just recently been discovered that through error an
additional sum of P216.22 was credited to said department, which does not
pertain to said business in the profits of which the plaintiff is interested.
EIGHTH CAUSE OF ACTION
As eight cause of action, plaintiff
alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of action.
II. That on or about April 21, 1927, that
is, before the expiration of the contract Exhibit A of the complaint, the
defendant Menzi & Co., Inc., acting as manager of the fertilizer business
constituted between said defendant and the plaintiff, entered into a contract
with the Compañía General de Tabacos de Filipinas for the sale to said entity
of three thousand tons of fertilizers of the trade mark "Corona No.
1", at the rate of P111 per ton, f. o. b. Bais, Oriental Negros, to be delivered,
as they were delivered, according to information received by the plaintiff,
during the months of November and December, 1927, and January, February, March,
and April, 1928.
III. That both the contract mentioned above
and the benefits derived therefrom, which the plaintiff estimates at P90,000,
Philippine currency, belongs to the fertilizer business constituted between the
plaintiff and the defendant, of which 35 per cent, or P31,500, belongs to said
plaintiff.
IV. That notwithstanding the expiration of
the partnership contract Exhibit A, on April 27, 1927, the defendants have not
rendered a true accounting of the profits obtained by the business during the
last four months thereof, as the proposed balance submitted to the plaintiff
was incorrect with regard to the inventory of merchandise, transportation
equipment, and the value of the trade marks, for which reason such proposed
balance did not represent the true status of the business of the partnership on
April 30, 1927.
V. That the proposed balance submitted to
the plaintiff with reference to the partnership operations during the last four
months of its existence, was likewise incorrect, inasmuch as it did not include
the profit realized or to be realized from the contract entered into with the
Compañía General de Tabacos de Filipinas, notwithstanding the fact that this
contract was negotiated during the existence of the partnership, and while the
defendant Menzi & Co., Inc., was the manager thereof.
VI. That the defendant entity now contends
that the contract entered into with the Compañía General de Tabacos de
Filipinas belongs to it exclusively, and refuses to give the plaintiff his
share consisting in 35 per cent of the profits produced thereby.
Wherefore, the plaintiff prays the
honorable court to order the defendants to render a true and detailed account
of the business during the last four months of the existence of the
partnership, i. e., from January 1, 1927 to April 27, 1927, and to sentence
them likewise to pay the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer;
2. That the said order for 3,000 tons of
mixed fertilizer, received by Menzi & Co., Inc., from the Compañía General
de Tabacos de Filipinas on April 21, 1927, was taken by it in the regular
course of its fertilizer business, and was to be manufactured and delivered in
December, 1927, and up to April, 1928; that the employment agreement of the
plaintiff expired by its own terms on April 27, 1927, and he has not been in
any way in the service of the defendant, Menzi & Co., Inc., since that
time, and he cannot possibly have any interest in the fertilizers manufactured
and delivered by the said Menzi & Co., Inc., after the expiration of his
contract for any service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff
alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of action.
II. That during the period of the contract
Exhibit A, the partnership constituted thereby registered in the Bureau of
Commerce and Industry the trade marks "CORONA NO. 1", "CORONA
NO. 2", "ARADO", and "HOZ", the plaintiff and the defendant
having by their efforts succeeded in making them favorably known in the market.
III. That the plaintiff and the defendant,
laboring jointly, have succeeded in making the fertilizing business a
prosperous concern to such an extent that the profits obtained from the
business during the five years it has existed, amount to approximately
P1,000,000, Philippine currency.
IV. That the value of the good-will and the
trade marks of a business of this nature amounts to at least P1,000,000, of
which sum 35 per cent belongs to the plaintiff, or, P350,000.
V. That at the time of the expiration of
the contract Exhibit A, the defendant entity, notwithstanding and in spite of
the plaintiff's insistent opposition, has assumed the charge of liquidating the
fertilizing business, without having rendered a monthly account of the state of
the liquidation, as required by law, thereby causing the plaintiff damages.
VI. That the damages sustained by the
plaintiff, as well as the amount of his share in the remaining property of the
business, after its expiration, are wholly unknown to the plaintiff, and may
only be truly and correctly ascertained by compelling the defendants J. M.
Menzi and P. C. Schlobohm to declare under oath and explain to the court in
detail the sums obtained from the sale of the remaining merchandise, after the
expiration of the partnership contract.
VII. That after the contract Exhibit A had
expired, the defendant continued to use for its own benefit the good-will and
trade marks belonging to the partnership, as well as its transportation
equipment and other machinery, thereby indicating its intention to retain such
good-will, trade marks, transportation equipment and machinery, for the
manufacture of fertilizers, by virtue of which the defendant is bound to pay
the plaintiff 35 per cent of the value of said property.
VIII. That the true value of the
transportation equipment and machinery employed in the preparation of the
fertilizers amounts to P20,000, 35 per cent of which amounts to P7,000.
IX. That the plaintiff has repeatedly
demanded that the defendant entity render a true and detailed account of the
state of the liquidation of the partnership business, but said defendant has
ignored such demands, so that the plaintiff does not, at this date, know
whether the liquidation of the business has been finished, or what the status
of it is at present.
Wherefore, the plaintiff prays the
Honorable Court:
"1. To order the defendants J. M.
Menzi and P. C. Schlobohm to render a true and detailed account of the status
of the business in liquidation, that is, from April 28, 1927, until it is
finished, ordering all the defendants to pay the plaintiff jointly and
severally 35 per cent of the net amount.
"2. To order the defendants to pay the
plaintiff jointly and severally the amount of P350,000, which is 35 per cent of
the value of the goodwill and the trade marks of the fertilizer business;
"3. To order the defendants to pay the
plaintiff jointly and severally the amount of P7,000, which is 35 per cent of
the value of the transportation equipment and machinery of the business; and
"4. To order the defendants to pay the costs of this trial, and further,
to grant any other remedy that this Honorable Court may deem just and
equitable."
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer;
2. That the good-will, if any, of the said
fertilizer business of the defendant, Menzi & Co., Inc., pertains
exclusively to it, and the plaintiff can have no interest therein of any nature
under his said employment agreement; that the trade-marks mentioned by the
plaintiff in his amended complaint, as a part of such good-will, belonged to
and have been used by the said Menzi & Co., Inc., in its fertilizer
business from and since its organization, and the plaintiff can have no rights
to or interest therein under his said employment agreement; that the
transportation equipment pertains to the fertilizer department of Menzi &
Co., Inc., and whenever it has been used by the said Menzi & Co., Inc., in
its own business, due and reasonable compensation for its use has been allowed
to said business; that the machinery pertaining to the said fertilizer business
was destroyed by fire in October, 1926, and the value therefor in the sum of
P20,000 was collected from the Insurance Company, and the plaintiff has been
given credit for 35 per cent of that amount; that the present machinery used by
Menzi & Co., Inc., was constructed by it, and the costs thereof was not
charged to the fertilizer department, and the plaintiff has no right to have it
taken into consideration in arriving at the net profits due to him under his
said employment agreement.
The dispositive part of the decision of the
trial court is as follows:
"Wherefore, let judgment be entered:
"(a) Holding that the contract entered
into by the parties, evidenced by Exhibit A, is a contract of general regular
commercial partnership, wherein Menzi & Co., Inc., was the capitalist, and
the plaintiff, the industrial partner;
"(b) Holding that the plaintiff, by
the mere fact of having signed and approved the balance sheets, Exhibits C to
C-8, is not estopped from questioning the statements of accounts therein contained;
"(c) Ordering Menzi & Co., Inc.,
upon the second ground of action, to pay the plaintiff the sum of P60,385.67
with legal interest from the date of the filing of the original complaint until
paid;
"(d) Dismissing the third cause of
action; "(e) Ordering Menzi & Co., Inc., upon the fourth cause of
action, to pay the plaintiff the sum of P3,821.41, with legal interest from the
date of the filing of the original complaint until paid;
"(f) Dismissing the fifth cause of
action;
"(g) Dismissing the sixth cause of
action;
"(h) Dismissing the seventh cause of
action;
"(i) Ordering the defendant Menzi
& Co., Inc., upon the eighth cause of action, to pay the plaintiff the sum
of P6,578.38 with legal interest from January 1, 1929, the date of the
liquidation of the fertilizer business, until paid;
"(j) Ordering Menzi & Co., Inc.,
upon the ninth cause of action to pay the plaintiff the sum of P196,709.20 with
legal interest from the date of the filing of the original complaint until
paid;
"(k) Ordering the said defendant
corporation, in view of the plaintiff's share of the profits of the business
accruing from January 1, 1927 to December 31, 1928, to pay the plaintiff 35 per
cent of the net balance shown in Exhibits 51 and 51-A, after deducting the item
of P2,410 for income tax, and any other sum charged for interest under the
entry 'Purchases';
"(l) Ordering the defendant
corporation, in connection with the final liquidation set out in Exhibits 52
and 52-A, to pay the plaintiff the sum of P17,463.54 with legal interest from
January 1, 1929, until fully paid;
"(m) Dismissing the case with
reference to the other defendants, J. M. Menzi and P. C. Schlobohm; and
"(n) Menzi & Co., Inc., shall pay
the costs of the trial."
The appellant makes the following assignments
of error:
"I. The trial court erred in finding
and holding that the contract Exhibit A constitutes a regular collective
commercial copartnership between the defendant corporation, Menzi & Co.,
Inc., and the plaintiff, Francisco Bastida, and not a contract of employment.
"II. The trial court erred in finding
and holding that the defendant, Menzi & Co., Inc., had wrongfully charged
to the fertilizer business in question the sum of P10,918.33 as income taxes
partners' balances, foreign drafts, local drafts, and on other credit balances
in the sum of P172,530.49, and that 35 per cent thereof, or the sum of
P60,385.67, with legal interest thereon from the date of filing his complaint,
corresponds to the plaintiff.
"III. The trial court erred in finding
and holding that the defendant, Menzi & Co., Inc., had wrongfully charged
to the fertilizer business in question the sum of P10,918.33 as income taxes
for the years 1923, 1924, 1925 and 1926, and that the plaintiff is entitled to
35 per cent thereof, or the sum of P3,821.41, with legal interest thereon from
the date of filing his complaint, and in disallowing the item of P2,410 charged
as income tax in the liquidation in Exhibits 51 and 51-A for the period from
January 1 to April 27, 1927.
"IV. The trial court erred in refusing
to find and hold under the evidence in this case that the contract, Exhibit A
was during the whole period thereof considered by the parties and performed by
them as a contract of employment in relation to the fertilizer business of the
defendant, and that the accounts of said business were kept by the defendant,
Menzi & Co., Inc., on that theory with the knowledge and consent of the
plaintiff, and that at the end of each year for five years a balance sheet and
profit and loss statement of said business were prepared from the books of
account of said business on the same theory and submitted to the plaintiff, and
that each year said balance sheet and profit and loss statement were examined,
approved and signed by said plaintiff and he was paid the amount due him under
said contract in accordance therewith with full knowledge of the manner in
which said business was conducted and the charges for interest and income taxes
made against the same and that by reason of such facts, the plaintiff is now
estopped from raising any question as to the nature of said contract or the
propriety of such charges.
"V. The trial court erred in finding
and holding that the plaintiff, Francisco Bastida, is entitled to 35 per cent
of the net profits in the sum of P18,795.38 received by the defendant, Menzi
& Co., Inc., from its contract with the Compañía General de Tabacos de
Filipinas, or the sum of P6,578.38, with legal interest thereon from January 1,
1929, the date upon which the liquidation of said business was terminated.
"VI. The trial court erred in finding
and holding that the value of the good-will of the fertilizer business in
question was P562,312, and that the plaintiff, Francisco Bastida, was entitled
to 35 per cent of such valuation, or the sum of P196,709.20, with legal
interest thereon from the date of filing his complaint.
"VII. The trial court erred in
rendering judgment in favor of the plaintiff and against the defendant, Menzi
& Co., Inc., (a) on the second cause of action, for the sum of P60,385.67,
with legal interest thereon from the date of filing the complaint; (b) on the
fourth cause of action, for the sum of P3,821.41, with legal interest thereon
from the date of filing the complaint; (c) on the eighth cause of action, for
the sum of P6,578.38, with legal interest thereon from January 1, 1929; and (d)
on the ninth cause of action, for the sum of P196,709.20, with legal interest
thereon from the date of filing the original complaint; and (e) for the costs
of the action, and in not approving the final liquidation of said business,
Exhibits 51 and 51-A and 52 and 52-A, as true and correct, and entering
judgment against said defendant only for the amounts admitted therein as due
the plaintiff with legal interest, with the costs against the plaintiff.
"VIII. The trial court erred in
overruling the defendants' motion for a new trial."
It appears from the evidence that the
defendant corporation was organized in 1921 for the purpose of importing and
selling general merchandise, including fertilizers and fertilizer ingredients.
It acquired through John Bordman and the Menzi-Bordman Co. the good-will,
trade-marks, business, and other assets of the old German firm of Behn, Meyer
& Co., Ltd., including its fertilizer business with its stocks and
trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this
fertilizer business from 1910 until that firm was taken over by the Alien
Property Custodian in 1917. Among the trade-marks thus acquired by the
appellant were those known as the "ARADO", "HOZ", and
"CORONA". They were registered in the Bureau of Commerce and Industry
in the name of Menzi & Co. The trade-marks "ARADO" and
"HOZ" had been used by Behn, Meyer & Co., Ltd., in the sale of
its mixed fertilizers, and the trade-mark "CORONA" had been used in
its other business. The "HOZ" trade-mark was used by John Bordman and
the Menzi-Bordman Co. in the continuation of the fertilizer business that had
belonged to Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was
divided into several different departments, each of which was in charge of a
manager, who received a fixed salary and a percentage of the profits. The
corporation had to borrow money or obtain credits from time to time and to pay
interest thereon. The amount paid for interest was charged against the
department concerned, and the interest charges were taken into account in
determining the net profits of each department. The practice of the corporation
was to debit or credit each department with interest at the bank rate on its
daily balance. The fertilizer business of Menzi & Co., Inc., was carried on
in accordance with this practice under the "Sundries Department"
until July, 1923, and after that as a separate department.
In November, 1921, the plaintiff, who had
had some experience in mixing and selling fertilizer, went to see Toehl, the
manager of the sundries department of Menzi & Co., Inc., and told him that
he had a written contract with the Philippine Sugar Centrals Agency for 1,250
tons of mixed fertilizers, and that he could obtain other contracts, including
one from the Calamba Sugar Estates for 450 tons, but that he did not have the
money to buy the ingredients to fill the order and carry on the business. He
offered to assign to Menzi & Co., Inc., his contract with the Philippine
Sugar Centrals Agency and to supervise the mixing of the fertilizer and to
obtain other orders for fifty per cent of the net profits that Menzi & Co.,
Inc., might derive therefrom. J. M. Menzi, the general manager of Menzi &
Co., accepted plaintiff's offer. Plaintiff assigned to Menzi & Co., Inc.,
his contract with the Sugar Centrals Agency, and the defendant corporation
proceeded to fill the order. Plaintiff supervised the mixing of the fertilizer.
On January 10, 1922 the defendant corporation
at plaintiff's request gave him the following letter, Exhibit B:
"MANILA, 10 de enero de 1922
"Sr. FRANCISCO BASTIDA
"Manila
"MUY SR. NUESTRO: Interim formalizamos
el contrato que, en principio, tenemos convenido para la explotacion del negocio
de abono y fertilizantes, por la presente venimos en confirmar su derecho de 50
por ciento de las utilidades que se deriven del contrato obtenido por Vd. de la
Philippine Sugar Centrals (por 1250 tonel.) y del contrato con la Calamba Sugar
Estates, así como de cuantos contratos se cierren con compradores de abonos
preparados antes de la formalizacion definitiva de nuestro contrato mutuo, lo
que hacemos para garantía y seguridad de Vd.
"MENZI & CO.
"Por (Fdo.) W. TOEHL"
Menzi & Co., Inc., continued to carry
on its fertilizer business under this arrangement with the plaintiff. It
ordered ingredients from the United States and other countries, and the
interest on the drafts for the purchase of these materials was charged to the
business as a part of the cost of the materials. The mixed fertilizers were
sold by Menzi & Co., Inc., between January 19 and April 1, 1922 under its
"CORONA" brand. Menzi & Co., Inc., had only one bank account for
its whole business. The fertilizer business had no separate capital. A
fertilizer account was opened in the general ledger, and interest at the rate
charged by the Bank of the Philippine Islands was debited or credited to that
account on the daily balances of the fertilizer business. This was in
accordance with appellant's established practice, to which the plaintiff
assented.
On or about April 24, 1922 the net profits
of the business carried on under the oral agreement were determined by Menzi
& Co., Inc., after deducting interest charges, proportional part of
warehouse rent and salaries and wages, and the other expenses of said business,
and the plaintiff was paid some twenty thousand pesos in full satisfaction of
his share of the profits.
Pursuant to the aforementioned verbal
agreement, confirmed by the letter, Exhibit B, the defendant corporation on
April 27, 1922 entered into a written contract with the plaintiff, marked
Exhibit A, which is the basis of the present action.
The fertilizer business was carried on by
Menzi & Co., Inc., after the execution of Exhibit A in practically the same
manner as it was prior thereto. The intervention of the plaintiff was limited
to supervising the mixing of the fertilizers in Menzi & Co.'s, Inc.,
bodegas.
The trade-marks used in the sale of the
fertilizer were registered in the Bureau of Commerce & Industry in the name
of Menzi & Co., Inc., and the fees were paid by that company. They were not
charged to the fertilizer business, in which the plaintiff was interested. Only
the fees for registering the formulas in the Bureau of Science were charged to
the fertilizer business, and the total amount thereof was credited to this
business in the final liquidation on April 27, 1927.
On May 3, 1924 the plaintiff made a
contract with Menzi & Co., Inc., to furnish it all the stems and scraps of
tobacco that it might need for its fertilizer business either in the Philippine
Islands or for export to other countries. This contract is referred to in the
record as the "Vastago Contract". Menzi & Co., Inc., advanced the
plaintiff large sums of money for buying and installing machinery, paying the
salaries of his employees, and other expenses in performing his contract.
White, Page & Co., certified public
accountants, audited the books of Menzi & Co., Inc., every month, and at
the end of each year they prepared a balance sheet and a profit and loss
statement of the fertilizer business. These statements were delivered to the
plaintiff for examination, and after he had had an opportunity of verifying
them he approved them without objection and returned them to Menzi & Co.,
Inc. Plaintiff collected from Menzi & Co., Inc., as his share or 35 per
cent of the net profits of the fertilizer business the following amounts:
1922 P1,874.73
1923 30,212.62
1924 101,081.56
1925 35,665.03
1926 27,649.98
—————
Total P196,483.92
To this amount must be added plaintiff's
share of the net profits from January 1 to April 27, 1927, amounting to
P34,766.87, making a total of P231,250,79.
Prior to the expiration of the contract,
Exhibit A, the manager of Menzi & Co., Inc., notified the plaintiff that
the contract for his services would not be renewed.
When plaintiff's contract expired on April
27, 1927, the fertilizer department of Menzi & Co., Inc., had on hand
materials and ingredients and two Ford trucks of the book value of
approximately P75,000, and accounts receivable amounting to P103,000. There
were claims outstanding and bills to pay. Before the net profits could be
finally determined, it was necessary to dispose of the materials and equipment,
collect the outstanding accounts, and pay the debts of the business. The
accountants for Menzi & Co., Inc., prepared a balance sheet and a profit
and loss statement for the period from January 1 to April 27, 1927 as a basis
of settlement, but the plaintiff refused to accept it, and filed the present
action.
Menzi & Co., Inc., then proceeded to
liquidate the fertilizer business in question. In October, 1927 it proposed to
the plaintiff that the old and damaged stocks on hand having a book value of P40,000,
which the defendant corporation had been unable to dispose of, be sold at
public or private sale, or divided between the parties. The plaintiff refused
to agree to this. The defendant corporation then applied to the trial court for
an order for the sale of the remaining property at public auction, but
apparently the court did not act on the petition.
The old stocks were taken over by Menzi
& Co., Inc., and the final liquidation of the fertilizer business was
completed in December, 1928, and a final balance sheet and a profit and loss
statement were submitted to the plaintiff during the trial. During the
liquidation the books of Menzi & Co., Inc., for the whole period of the
contract in question were reaudited by White, Page & Co., certain errors of
bookkeeping were discovered by them. After making the corrections they found
the balance due the plaintiff to be P21,633.20.
Plaintiff employed a certified public
accountant, Vernon Thompson, to examine the books and vouchers of Menzi &
Co. Thompson assumed the plaintiff and Menzi & Co., Inc., to be partners,
and that Menzi & Co., Inc., was obliged to furnish free of charge all the
capital the partnership should need. He naturally reached very different
conclusions from those of the auditors of Menzi & Co., Inc.
We come now to a consideration of
appellant's assignments of error. After considering the evidence and the
arguments of counsel, we are unanimously of the opinion that under the facts of
this case the relationship established between Menzi & Co. and the
plaintiff by the contract, Exhibit A, was not that of partners, but that of
employer and employee, whereby the plaintiff was to receive 35 per cent of the
net profits of the fertilizer business of Menzi & Co., Inc., in
compensation for his services of supervising the mixing of the fertilizers.
Neither the provisions of the contract nor the conduct of the parties prior or
subsequent to its execution justified the finding that it was a contract of
copartnership. Exhibit A, as appears from the statement of facts, was in effect
a continuation of the verbal agreement between the parties, whereby the
plaintiff worked for the defendant corporation for one-half of the net profits
derived by the corporation from certain fertilizer contracts. Plaintiff was paid
his share of the profits from those transactions after Menzi & Co., Inc.,
had deducted the same items of expense which he now protests. Plaintiff never
made any objection to defendant's manner of keeping the accounts or to the
charges. The business was continued in the same manner under the written
agreement, Exhibit A, and for four years the plaintiff never made any
objection. On the contrary he approved and signed every year the balance sheet
and the profit and loss statement. It was only when plaintiff's contract was
about to expire and the defendant corporation had notified him that it would
not renew it that the plaintiff began to make objections.
The trial court relied on article 116 of
the Code of Commerce, which provides that articles of association by which two
or more persons obligate themselves to place in a common fund any property,
industry, or any of these things, in order to obtain profit, shall be
commercial, no matter what its class may be, provided it has been established
in accordance with the provisions of this Code; but in the case at bar there
was no common fund, that is, a fund belonging to the parties as joint owners or
partners. The business belonged to Menzi & Co., Inc. The plaintiff was
working for Menzi & Co., Inc. Instead of receiving a fixed salary or a
fixed salary and a small percentage of the net profits, he was to receive 35
per cent of the net profits as compensation for his services. Menzi & Co.,
Inc., was to advance him P300 a month on account of his participation in the profits.
It will be noted that no provision was made for reimbursing Menzi & Co.,
Inc., in case there should be no net profits at the end of the year. It is now
well settled that the old rule that sharing profits as profits made one a
partner is overthrown. (Mechem, second edition, p. 89.)
It is nowhere stated in Exhibit A that the
parties were establishing a partnership or intended to become partners. Great
stress is laid by the trial judge and plaintiff's attorneys on the fact that in
the sixth paragraph of Exhibit A the phrase "en sociedad con" is used
in providing that defendant corporation shall not engage in the business of
prepared fertilizers except in association with the plaintiff (en sociedad
con). The fact is that en sociedad con as there used merely means en reunion
con or in association with, and does not carry the meaning of "in
partnership with".
The trial judge found that the defendant
corporation had not always regarded the contract in question as an employment
agreement, because in its answer to the original complaint it stated that
before the expiration of Exhibit A it notified the plaintiff that it would not
continue associated with him in said business. The trial judge concluded that
the phrase "associated with", used by the defendant corporation,
indicated that it regarded the contract, Exhibit A, as an agreement of
copartnership.
In the first place, the complaint and
answer having been superseded by the amended complaint and the answer thereto,
and the answer to the original complaint not having been presented in evidence
as an exhibit, the trial court was not authorized to take it into account.
"Where amended pleadings have been filed, allegations in the original
pleadings are held admissible, but in such case the original pleadings can have
no effect, unless formally offered in evidence." (Jones on Evidence, sec.
273; Lucido vs. Calupitan, 27 Phil., 148.)
In the second place, although the word
"associated" may be related etymologically to the Spanish word
"socio", meaning partner, it does not in its common acceptation imply
any partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit
A, whereby the defendant corporation obligated itself to pay to the plaintiff
35 per cent of the net profits of the fertilizer business, to advance to him
P300 a month on account of his share of the profits, and to grant him
permission during 1923 to absent himself from the Philippines for not more than
one year are utterly incompatible with the claim that it was the intention of
the parties to form a copartnership. Various other reasons for holding that the
parties were not partners are advanced in appellant's brief. We do not deem it
necessary to discuss them here. We merely wish to add that in the Vastago
contract, Exhibit A, the plaintiff clearly recognized Menzi & Co., Inc., as
the owners of the fertilizer business in question.
As to the various items of expense rejected
by the trial judge, they were in our opinion proper charges and erroneously
disallowed, and this would be true even if the parties had been partners.
Although Menzi & Co., Inc., agreed to furnish the necessary financial aid
for the fertilizer business, it did not obligate itself to contribute any fixed
sum as capital or to defray at its own expense the cost of securing the
necessary credit. Some of the contentions of the plaintiff and his expert
witness Thompson are so obviously without merit as not to merit serious
consideration. For instance, they objected to the interest charges on draft for
materials purchased abroad. Their contention is that the corporation should
have furnished the money to purchase these materials for cash, overlooking the
fact that the interest was added to the cost price, and that the plaintiff was
not prejudiced by the practice complained of. It was also urged, and this seems
to us the height of absurdity, that the defendant corporation should have
furnished free of charge such financial assistance as would have made it
unnecessary to discount customers' notes, thereby enabling the business to reap
the interest. In other words, the defendant corporation should have enabled the
fertilizer department to do business on a credit instead of a cash basis.
The charges now complained of, as we have
already stated, are the same as those made under the verbal agreement, upon the
termination of which the parties made a settlement; the charges in question
were acquiesced in by the plaintiff for years, and it is now too late for him
to contest them. The decision of this court in the case of Kriedt vs. E. C.
McCullough & Co. (37 Phil., 474), is in point:
"1. CONTRACTS; INTERPRETATION;
CONTEMPORANEOUS ACTS OF PARTIES. — Acts done by the parties to a contract in
the course of its performance are admissible in evidence upon the question of
its meaning, as being their own contemporaneous interpretation of its terms.
"2. ID.; ID.; ACTION OF PARTIES UNDER
PRIOR CONTRACT. — In an action upon a contract containing a provision of
doubtful application it appeared that under a similar prior contract the
parties had, upon the termination of said contract, adjusted their rights and
made a settlement in which the doubtful clause had been given effect in
conformity with the interpretation placed thereon by one of the parties. Held:
That this action of the parties under the prior contract could properly be
considered upon the question of the interpretation of the same clause in the
later contract.
"3. ID.; ID.; ACQUIESCENCE. — Where
one of the parties to a contract acquiesces in the interpretation placed by the
other upon a provision of doubtful application, the party so acquiescing is
bound by such interpretation.
"4. ID.; ID.; ILLUSTRATION. — One of
the parties to a contract, being aware at the time of the execution thereof
that the other placed a certain interpretation upon a provision of doubtful
application, nevertheless proceeded, without raising any question upon the
point, to perform the services which he was bound to render under the contract.
Upon the termination of the contract by mutual consent a question was raised as
to the proper interpretation of the doubtful provision. Held: That the party
raising such question had acquiesced in the interpretation placed upon the
contract by the other party and was bound thereby."
The trial court held that the plaintiff was
entitled to P6,578.38 or 35 per cent of the net profits derived by Menzi &
Co., Inc., from its contract for fertilizers with the Tabacalera. This finding
in our opinion is not justified by the evidence. This contract was obtained by
Menzi & Co., Inc., shortly before plaintiff's contract with the defendant
corporation expired. Plaintiff tried to get the Tabacalera contract for
himself. When this contract was filled, plaintiff had ceased to work for Menzi
& Co., Inc., and he has no right to participate in the profits derived
therefrom.
Appellant's sixth assignment of error is
that the trial court erred in finding the value of the good-will of the
fertilizer business in question to be P562,312, and that the plaintiff was
entitled to 35 per cent thereof of P196,709.20. In reaching this conclusion the
trial court unfortunately relied on the opinion of the accountant, Vernon
Thompson, who assumed, erroneously as we have seen, that the plaintiff and
Menzi & Co., Inc., were partners; but even if they had been partners there
would have been no good-will to dispose of. The defendant corporation had a
fertilizer business before it entered it entered into any agreement with the
plaintiff; plaintiff's agreement was for a fixed period, five years, and during
that time the business was carried on in the same of Menzi & Co., Inc., and
in Menzi & Co.'s warehouses and after the expiration of plaintiff's
contract Menzi & Co., Inc., continued its fertilizer business, as it had a
perfect right to do. There was really nothing to which any good-will could
attach. Plaintiff maintains, however, that the trade-marks used in the
fertilizer business during the time that he was connected with it acquired
great value, and that they have been appropriated by the appellant to its own
use. That seems to be the only basis of the alleged good-will, to which a
fabulous valuation was given. As we have seen, the trademarks were not new.
They had been used by Behn, Meyer & Co. in its business for other goods and
one of them for fertilizer. They belonged to Menzi & Co., Inc., and were
registered in its name; only the expense of registering the formulas in the
Bureau of Science was charged to the business in which the plaintiff was
interested. These trademarks remained the exclusive property of Menzi &
Co., and the plaintiff had no interest therein on the expiration of his contract.
The balance due the plaintiff, as appears
from Exhibit 52, s P21,633.20. We are satisfied by the evidence that said
balance is correct.
For the foregoing reasons, the decision
appealed from is modified and the defendant corporation is sentenced to pay the
plaintiff twenty-one thousand, six hundred and thirty-three pesos and twenty
centavos (P21,633.20), with legal interest thereon from the date of the filing
of the complaint or June 17, 1927, without a special finding as to costs.
Street, Villamor and Villa-Real, JJ.,
concur.
Hull, J., Participated in this case, but on
account of his absence on leave at the time of the promulgation of the decision
he authorized to certify that he voted to odify the decision of the trial court
as appears in the foregoing decision of this court. — Villamor, J., Presiding.
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