[ G.R. No. 2101. November 15, 1906 ] 6 Phil. 680
[ G.R. No. 2101. November 15, 1906 ]
ELEANOR ERICA STRONG AND RICHARD P. STRONG, PLAINTIFFS AND APPELLEES, VS. FRANCISCO GUTIERREZ REPIDE, DEFENDANT AND APPELLANT.[1] D E C I S I O N
TRACEY, J.:
This action was brought to recover 800 shares of the capital stock of the Philippine Sugar Estates Development Company, Limited, an anonymous society formed to hold the Dominican friar lands.
The shares were the property of one of the plaintiffs, Mrs. Strong, as part of the estate of her first husband, and we shall for clearness hereinafter apply the word plaintiff to her alone. They were purchased by the defendant through a broker who dealt with her agent, one Jones, who had the script in his possession and who made the sale without the knowledge of the plaintiff. The defendant was a director, was the managing agent, and was in his own right the majority stockholder of the society.
The plaintiff proceeds on two theories:
First. That her agent had no power to sell or deliver her stock in the Philippine Sugar Estates Development Company, Limited; and
Second. That its sale, through her agent, was procured by fraud on the part of the defendant.
The script was payable to bearer and had, ever since its issue, been in the possession of Jones, who was acting gratuitously as agent for the plaintiff, not only under a written power special in terms to collect money but also as general agent managing all her business under a parol employment, the precise terms of which are not in evidence. He held other securities for the plaintiff and had on one prior occasion, at least, without special instruction, sold other of her stocks, understanding that the act was within the scope of his general agency.
By article 1712 of the Civil Code the nature of general and special powers is defined. Article 1713 reads:
“An agency stated in general terms only includes acts of administration. In order to compromise, alienate, mortgage, or to execute any other act of strict ownership an express mandate is required.”
Such a mandate may be either oral or written, may stand by itself or may be included in the general power, the one vital thing being that the right to sell shall be express or shall be a necessary ingredient of the power that is expressed. (Fuzier-Herman Repertoire, Title “Mandat,” arts. 153, 166, 167, 175, 176.) The only express commission in evidence to dispose of this or any stock is found in an interview between the plaintiff and Jones on the Luneta, in Manila, before this negotiation, in which she told him, speaking of her shares, “not to part with them until I got their face value.” This bald statement is the only evidence on this point. If in its negative form it is sufficient to constitute an express or special power to sell, it can not be severed from the limitation as to price bound up in the same sentence with it; the limitation is as much a parcel of the grant as if both had been found in one written instrument, and one part can not be given effect without the other, unless one part only was brought to the knowledge of the defendant. There is no claim that he ever heard of this conversation. The sale was, in fact, made at a price much under par. While, however, thus in themselves barred from operating as constating terms of a grant of power, yet the words have their effect as evidence of a preexisting power understood between the parties, to which they plainly refer. In our judgment, however, even when taken in connection with the other facts in the case, they do not sufficiently define the power. The sale by Jones of other stock at another time, his possession of the shares, and the reference of the broker to him by the plaintiff’s husband add force to those words. But all these things fail to reveal the terms of the preexisting power; it may have been general or special, it may have been express, but on the other hand it may have been, as indicated by the evidence, merely assumed by the plaintiff and Jones to follow as a matter of course, from his general power of administration. This would lead to the very assumption prohibited by article 1713. It is also apparent that the general management of the plaintiff’s property did not necessitate incidentally the sale of stock. We fail to find, therefore, proof of an effective power given Jones to dispose of this stock. The difficulty with this branch of the case is the scantiness of the evidence; the documents have been destroyed and the declarations of the parties are brief, and it would be impossible to imply an express power from them without assuming facts of which no sufficient evidence exists.
These principles are established in the civil law of Europe, as well as the common law of America, that acts of agents, beyond the limitation of their power, are null; that third persons deal with them at their peril and are bound to inquire as to the extent of the power of the agent with whom they contract; that where neither the actual power nor the appearance of it, for which the principal is responsible, exists, a third party is not protected without such inquiry. In this case the defendant is not shown to have made any inquiry whatever, but apparently relied unquestioningly upon Jones’s assumption of authority and took his risk in so doing.
It is urged, however, that we should apply the doctrine known in American jurisprudence as “estoppel,” whereby a party creating an appearance of fact which is not true is held bound by that appearance as against another person who has acted on the faith of it. A similar doctrine finds place in the civil law. By article 1989 of the French Code, corresponding with article 1719 of our Civil Code, it is provided that an agent can not do anything beyond the limit of his power. In commenting upon this law, Dalloz, after laying down the admitted proposition that the acts of an agent beyond his limited powers are null, states three qualifications whereby the principal is held bound:
First. Where his acts have contributed to deceive a third person in good faith;
Second. Where the limitations upon the power created by him could not have been known by a third person; and
Third. Where he has placed in the hands of the agent instruments signed by him in blank. (Jurisprudence Generale, vol. 10, title “Mandat,” art. 142.)
The negotiation for this stock was opened with a written inquiry from defendant’s agent, through a broker named Sloane, whether the shares were for sale. In reply, in a letter written by plaintiff’s husband, he was referred to Jones, with whom he was directed to consult “as he had the shares in his possession.” The letters were not produced and it is not clear whether the inquiry was addressed to the plaintiff or to her husband. The latter testified that it was made known to her, but not so the fact of the reference to Jones.
In all this there is nothing at variance with either theory; while the reference may have been made with a view to a sale, it was not inconsistent with the office of Jones as the general administrator and the adviser of the plaintiff, and is by the plaintiff’s husband stated to have been a direction to consult and not to negotiate. Had the defendant made inquiry, as was incumbent on him, as to the extent of the agent’s powers, he might not have been enlightened by Jones, who understood that his general administrative authority covered a sale; had he, however, required the production of the existing written power of attorney from the plaintiff, that, upon inspection, would have been sufficient to send him for further assurance to the grantor of the power and no misunderstanding could have arisen. The defendant knew who the principal in the case was, as he commissioned his agent to buy this particular stock for him, and the broker thereupon applied to the plaintiffs. For these reasons we can not find in the proofs either acts contributing to deceive the defendant or limitations upon the power of the attorney which could not have been made known to him. Nor do we discover the third qualification of the general rule stated by Dalloz. In the commentators and jurisprudence of the civil law it is uniformly required that to bring this doctrine into operation the instrument to be negotiated shall be signed in blank by the owner. (Fuzier-Herman, title “Mandat,” 712.)
In this instance the securities, although payable to bearer and negotiable, were not signed in blank; the distinction is obvious, the reason for the rule resting in the fact of the signature expressing an affirmative intention on the part of the owner that the agent shall have the disposition of the securities. Where the instrument is by its terms at the outset payable to bearer there is no such expression of intention and the possession of such an instrument is consistent with the mere power of management. Moreover, the defendant was aware that Jones had long had these shares of stock in his possession for the purpose of voting at meetings of shareholders, consequently the defense of estoppel fails.
It is also contended that the defendant was protected in his purchase by the provisions of the Code of Commerce. This stock was, pursuant to the charter of the company, payable to bearer and was therefore transferable by delivery. (Code of Commerce, arts. 165 and 545). The third subdivision of article 545 provides in relation to such securities:
“They are not subject to restitution if negotiated on exchange, with the intervention of a licensed agent, and, where there is no such agent, with the intervention of a notary public or a person discharging his duties, or a commercial broker.”
The effect of this provision is to confirm the title and transfer of even lost or stolen securities, except where the owner protects himself by the procedure provided in a subsequent article of the code.
We may take judicial notice of the fact that there is no “exchange” in the Philippine Islands, as indeed is plain from the various articles of the Spanish Code of Commerce, specifically made applicable to these Islands. There is high authority, as well as cogent reason for the construction of this article which enables a commercial broker to act wherever there is no exchange. (See opinion of the supreme court of justice, May 30, 1895, Gaceta de Madrid, September 10, 1895.)
Sloane, through whom this sale was made, testified that he was a general broker and kept books under the Code of Commerce. There is no proof that he had ever held a commercial license, or that there was in Manila or in the Islands any association of commercial brokers that could have licensed him as such. The office is a technical one of special power and privilege created under Title VI of Book First of the Code of Commerce, calling for strict proof of the conditions of its existence. Even if the character of this broker had been given him by a proper license under the Spanish system, the evidence fails to show it. There is nothing before us requiring us to declare the present effect of this article of the code.
Although our conclusion on this branch of the case entitles the plaintiffs to recover, we deem it opportune to consider the second cause of action, based upon the affirmative conduct of the defendant, alleged to be fraudulent. The Civil Code provides that consent gained by deceit shall be void (art. 1265) and that there is deceit when by “insidious machinations” a person is induced to execute a contract (art. 1269).
The machinations with which the defendant is charged consist in the suppression of his identity while negotiating for the stock and when paying for it and also of his intention as majority stockholder in the company to close the negotiation then pending with the Government for the sale of the friar lands owned by the company. The prospect of such a sale would have materially affected the price of the stock. This negotiation and the defendant’s management of it in behalf of the vendors was known to Jones and had been for some time a matter of public notoriety and newspaper comment in the Islands.
Neither the plaintiff nor her agent applied to the defendant for information or communicated with him in any way. Nor is the defendant shown to have put forth statements, either in public or in private, for the purpose of influencing the sale.
In the action of the defendant we find nothing not permissible as against a holder of stock for sale, unless a peculiar duty on his part arose by reason of his office in the association, which was an anonymous society formed in the year 1900 under the Code of Commerce. He was its managing director and conducted these transactions without formal authorization by his society but after informal discussion at the director’s meeting. He was also in person the holder of a large majority of the stock, thus not only controlling the negotiations with the Government through all its stages but also its ultimate result by his own vote in the shareholders’ meeting.
Did his knowledge of what was being done and what would be done incapacitate him in dealing with a fellow-stockholder not so enlightened? Was he in duty bound to disclose either his information or his intentions or even his identity?
On this point counsel have discussed quite fully the American cases on corporation law. The question has been answered in conflicting senses in the United States. In two decisions cited by the appellee it has been held that a director and majority stockholder must disclose his information to another stockholder before buying stock from him; that such information is an asset of the company and that the relation of a director to a member of the company is that of trustee, not only in respect of corporate property directly under his control but also of the individual stock in the hands of the member. (Oliver vs. Oliver, 118 Ga., 362; 45 S. E. Reporter, 232; Stewart vs. Harris, supreme court of Kansas, 77 Pacific Reporter, 277.)
Such does not appear to be the older doctrine, which is quite to the contrary. The cases are collected in Deaderick vs. Wilson (55 Tenn., 108), and in Commissioners vs. Tippicanoe Co. (44 Ind., 509).
In Smith vs. Hurd (12 Metcalf, 371) the Massachusetts court denied the legal privity of directors with shareholders.
In Slee vs. Bloom (20 Johns (N. Y.), 669) it was ruled that they are not trustees for the individual stockholders.
In Rothmiller vs. Stein (143 N. Y., 581) directors were held liable for false information as to solvency furnished inquirers who, in reliance on it, had foreborne to sell their stock to advantage. The duty of a director and the qualification of the rule “caveat emptor” are laid down in the opinion of Judge Peckham.
In Ritchie vs. McMullen (79 Fed. Rep., 522), northern Ohio circuit, Judge Taft rested the liability of a director to a shareholder, not upon his general duty as director but upon the special relation, on the facts before him, as pledgee of the stock, creating a privity between them. In reviewing an English decision where the company managers had conspired to conceal facts in order to effect the purchase of the plaintiff’s stock, Judge Taft says:
“In the case cited the liability arose because of the relation between the corporate managers and stockholders of vendees and vendor of the stock. In the case at bar it arises because of the relation between the corporate managers and the stockholders of pledgee and pledgor of the stock.”
These American cases are instructive as throwing light on the controversy over the duty of corporate managers to members, but the litigation before us must be controlled by the principles of our own civil jurisprudence. While up to a recent date we have had no private corporations, so termed in our statutes, we have their likeness in anonymous societies or partnerships. The essential concept of a corporation is a legal entity endowed with succession of membership and merging in itself the primary individual liability and right of the associates. All of these qualities are possessed by anonymous societies. Individual liability is completely extinguished; the membership is determined by ownership of stock and the managers, are chosen by stockholders. They are declared to be mandatories of the society (Code of Commerce, 156), and they are also responsible to the individual stockholders (Dalloz, Societe, arts. 1499 and 1539). But nowhere do we find their responsibility extended beyond the corporate property actually under their control. It is not suggested that they owe any duty to the members in respect to their individual stock, which is fully recognized as separate property, whose character and transmission is provided for in laws peculiar to it. This appears to be the limit of their responsibility under the law governing this case. Article 1459 of the Civil Code reads:
“The following persons can not acquire by purchase, even at public or judicial auction, neither in person nor by an agent:
“1. The tutor or protutor, the goods of the person or persons who are under his tutelage.
“2. Mandatories, the property with the administration or alienation of which they have been charged.” (See Manresa’s Commentary on this article, vol. 10, p. 100.)
Their accountability is thus expressly confined to property “with the administration or alienation of which they are charged.” They are not charged with the administration or alienation of the shares in the hands of members and in respect to them they are not mandatories and hold no trust relation to the owners.
The members have no title to the corporate property as such, which, on the contrary, is distinct from the shares held by them. The right of the associate in a society is only in effect the right to an interest remaining after liquidation and not an actual and active ownership in the objects which compose the social property. (Fuizier-Herman Societe, art. 502; see also arts. 475 and 505.)
Consequently the defendant violated no duty in not communicating to the plaintiff his purpose in buying her shares and has been shown guilty of no fraud.
It is not entirely clear from the evidence whether the claim of the defendant that he bought the plaintiff’s stock not in his own right but in behalf of his brother in Spain, to whom it was forwarded, has been abandoned or not. It appears to be assumed and was conceded by counsel on argument that the purchase was made for himself and it has been so treated in this opinion. If, however, the purchase was for the benefit of his brother, that might affect any obligation that he might have been under arising out of the office of administrator of the society, but it could not avoid the failure of title to the stock by reason of a lack of power in the agent who undertook to sell it. Knowledge on the part of the defendant would have bound his principal under such a general commission.
The judgment of the Court of First Instance is affirmed on the first ground stated, although not on the second. After the expiration of twenty days let judgment be entered in accordance herewith. So ordered.
Torres and Willard, JJ., concur. Johnson, J., concurs in the result. Carson, J., disqualified.