[ G.R. No. 4394. April 26, 1909 ] 13 Phil. 504
[ G.R. No. 4394. April 26, 1909 ]
FRANCISCO T. FIGUERAS, PLAINTIFF AND APPELLEE, VS. ROCHA & CO., SOCIEDAD EN COMANDITA, DEFENDANT AND APPELLANT. D E C I S I O N
CARSON, J.:
This is an appeal from a judgment of the Court of First Instance in Manila in an action brought to recover the amount which it is alleged plaintiff was entitled to withdraw from the firm of Carman & Co., upon the occasion of his retirement from that firm. Rocha & Co. was made defendant in this action, because soon after plaintiff’s retirement from Carman & Co., and prior to the institution of these proceedings, Rocha & Co. took over the business of Carman & Co., arid expressly assumed all its debts and obligations. Judgment was rendered in the lower court in favor of the plaintiff for the sum of P44,969.90, and from that judgment defendant company appealed, and brings the case here by its duly certified bill of exceptions. There is no serious dispute as to the material facts in the case, the solution of the questions involved resting largely upon the proper construction of the articles of partnership under which Carman & Co. was organized. On December 5,1898, a partnership known as a “sociedad mercantil en comandita” was organized under the firm name of “Carman y Compañia” of which the socios colectivos y gerentes (directing partners) were Dickerson M. Carman, Francisco T. Figueras, and Jose Vidal (later substituted by one Felix Fanlo); and the comanditarios (unofficial partners) various persons whose names it is not necessary to set out. The only provisions of the articles of partnership which are of any importance in the discussion of this case are contained in the fifth, sixth, seventh, eighth, ninth, tenth, eleventh, and thirteenth articles, which are as follows:
“Fifth. The capital of the company shall be seventy-nine thousand pesos, the estimated value of the property above described, contributed by the partners as follows: Dickerson Miller Carman, five thousand pesos; Jose” Vidal y Prat, ten thousand pesos; Francisco Testagorda Figueras, ten thousand pesos; Venancio Balbas y Ageo, twenty-seven thousand pesos; Robert Wemyss Brown, two thousand pesos; Harry Davis Campbell Jones, five thousand pesos; Felix Fanlo y Aznar, twelve thousand pesos; Archibald Stewart, two thousand pesos; John Kennedy, five thousand pesos; Walter A. Fitton, one thousand pesos. “Sixth. The period of duration of the company shall be ten years from the date of execution of this instrument. Any partner shall have the ngnt to withdraw from the company at any time, on six ‘months’ notice to the other partners, and from date of such notice his participation in the profits of the company shall cease his share in the capital (capital impuesto) of the company shall from that date bear interest only at the current market rate. The share (capital) of the Withdrawing partner shall be paid to him in the following manner: One-fourth upon his giving the aforesaid notice of withdrawal, one-fourth six months after said notice, one-fourth, twelve, and one-fourth eighteen months thereafter; but the company may at its option make such payments within shorter periods. “Seventh. No partner shall have a right to transfer to a third person his interest in the company without the approval and consent of the other partners; and such other partners shall in that event have a preferential right to, acquire the same. “Eighth. For the purpose of ascertaining the financial condition of the company, a general balance of the business of the same shall be taken on the 30th day of June and on the 31st day of December of each year. “Ninth. From the profits and earnings of the company ten per cent shall be set aside as a reserve fund, which said ten per cent shall be deposited or invested as may be determined by the partners at the meetings to he held for the purpose of approving the semi-annual balances. “Tenth.-There shall also be set aside from the said profits and earnings a sum equal to ten per cent of t£e value of the property of the company, as a sinking fund for the depreciation of the property of the company, having for its object the preservation and renewal of said property. “Eleventh.-The net profits and earnings of the company (after deducting the expenses of administration, allowance for depreciation of property, reserve fund and other general expenses) shall be distributed among the partners in proportion to the capital contributed by them respectively. Should the net profits to be distributed among the limited partners exceed twenty-five per cent of the value of the capital of the company, any amount in excess thereof shall be distributed among the directing and unofficial partners as follows: One-half among the directing partners, share and share alike, and the other half among the directing and unofficial partners in accordance with the amounts of capital contributed by them respectively.
* * * * * *
“Thirteenth. There shall be considered as general expenses such as relate to the administration of the company and as may be incurred in and for the exclusive benefit of the business of the same.”
The company purchased the lighterage business of Dominguez & Co. paying the vendor, in addition to the price set upon its vessels, a further sum of 20,000 pesos for the good will of its business. The business for which the company was organized was carried on at a large profit by Carman & Co., until it was taken over by the defendant company on or about the 14th of February, 1904, the new company as suming all the obligations of the old. New vessels were purchased during this period, and extensive repairs and improvements were placed on the old vessels purchased of Dominguez & Co., and at the close of each semester the accounts of the company were balanced, and profits distributed among the partners, by crediting their respective shares to their individual accounts. On January 25 and 29, 1904, plaintiff gave notice in writing of his intention and desire to avail, himself of the privilege of retiring from the company as authorized in the sixth clause of the articles of partnership; and on February 4, 1904, in reply to a letter received from Carman & Co., he agreed to accept payment of the amount due him on severing his connection with the company in four equal installments, the first payable on the first day of the following July, the remaining installments at intervals of six months thereafter, the total amount to bear interest at the rate of 6 per cent until paid, on condition that his separation from the company be agreed to have taken effect as of January 31, 1904, and that he be relieved of all responsibility for the operations of the company thereafter; the company to make an inventory as of that date for the determination of the amount which he was entitled to withdraw. To this proposition the company acceded, and this action has its origin in the dispute which thereafter arose as to the amount which plaintiff was entitled to receive on the date of his withdrawal. On March 29,1904, Carman & Co. furnished the plaintiff with the following extract from an inventory purporting to show the condition of the business on the 31st day of January, 1904: Special inventory, January 31, 1904.
ASSETS.
Cash on hand this date
$776.49
Lighterage plant …………………………………
123,444.36
Transportation material……………………………
880.00
Office furniture ……………….:……………….
1,278.00
Premium on business (good will)…………………….
20,000.00
Amortization of shares, balance in our favor..
21,500.00
Varadero (dry dock) of Malabon …………………….
8,000.00
Outstanding credits: accounts pending collection, including 2 per cent, $5,623.71 …………………………………
16,699.14
Suspense account, balance in our favor………………
16,026.49
Spanish Filipino Bank, balance in our favor………….
2,455.00
Hongkong Bank, balance in our favor ………………..
7,108.46
Collector ot Customs, balance in our favor ………….
10,772.28
Repairs-material in stock …………………………
1,500.00
$230,440.22
Special inventory, January 31, 1904-Continued.
LIABILITIES V. Balbas, account-current (as directing partner), balance in his favor …………………………..
$25,000.00
F. Fanlo, account-current (as directing partner), balance in his favor……………………………
12,000.00
F. T. Figueras, account-current (as directing partner), balance in his favor……………………………
12,000.00
T. Kennedy, account-current, balance in his favor ……………………………………….
5,000.00
Reserve fund, credit balance ……………………
31,700.00
Amortization of material, credit balance …………
50,630.73
V. Balbas, account-current, earnings, balance in his favor…………………………………..
33,659.50
F. Fanlo, account-current, earnings, balance in hisfavor………………………………………
16,158.03
F. T. Figueras, account-current, earnings, balance in his favor…………………………………………
16,158.03
T. Kennedy, account-current, earnings, balance in his favor…………………………………………
6,731.90
F. Fanlo, account-current, balance in his favor
7,724.73
A. Torres, accountrcurrent (as directing partner), balance in his favor …………………………..
6,000.00
A. Torres, account-current, earnings, balance in his favor…………………………………..
4,114.54
Outstanding obligations ………………………..
4,695,85
F. T. Figueras, account-current, balance in his favor…………………………………………
363,94
Profit and loss (2.33 per cent)…………………….:………………….
$1,397.03
231,887.25
231,837.25
At the trial below, both plaintiff and defendant company undertook to ascertain the amount the plaintiff was entitled to withdraw from the company from this statement of the condition of the company at the date of his withdrawal. Plaintiff contends that he was entitled to receive the sum of 12,000 pesos appearing therein, which represents the amount of capital he brought into the business; 16,158.03 pesos, the amount of his share of the earnings of the company as shown by the statement; 363.94 pesos, the amount to the credit of his account-current and further his proportionate share of the amounts which appear in the statement as “reserve fund” and “amortization of material” fund. Defendant company denies the claim of plaintiff to any share in the “reserve fund” or the “amortization of material” fund, and contends that plaintiff was entitled to withdraw no more than the amount of his capital, profits, and credit on account-current, as shown in the statement, after deducting therefrom his proportionate share of the amounts which appear in the list of assets as “premium on business (good will)” and “amortization of shares.” The evidence of record discloses that the item of 123,444.46 pesos against the words “lighterage plant” includes the original cost price (with a small percentage added by agreement of the parties) of the lighterage vessels purchased from Dominguez & Co., to which is added the cost price of various vessels purchased since that date and the cost price of improvements put upon these vessels; that the item of 20,000 pesos against the words “premium on business (good will)” is the amount paid by the company to Dominguez & Co. for the good will of their business; that the item 21,500 pesos against the words “amortization of shares” is the amount paid by the company out of funds of the company for certain shares of some of the original partners who withdrew from the company; that the items set out after the names of the various partners, with the words “account-current (as directing partner)” added, represent the amount of capital originally invested in the company by the respective partners; that the items set out after the names of the partners, with the word “earnings” added, represent the estimated earnings which the respective partners were entitled to have credited to their accounts on the 31st of January, 1904; that the item of 50,630.73 pesos against the words “amortization of material” represents the estimated accumulations in the amortization fund provided for in clause 10 of the articles of agreement; and that the item of 31,700 pesos against the words “reserve fund” represents the estimated accumulations in that fund provided for in clause 9. The other items contained in the statement explain themselves and need not be examined separately. With this explanation of the various items contained in the statement, its meaning may be expressed in language stripped of its bookkeeping form, as follows: The sum total of earnings of the company for distribution on the 31st of January, 1904 (which is the sum total of the various items on the list of liabilities set against the names of the various partners with the word “earnings” annexed), is the result obtained by deducting the total amount of the other so-called liabilities (consisting of debts due by the company represented by bills payable or on current account; the capital originally invested in the company, which was applied to the purchase of original plant and good will; and the estimated amount which under the articles of partnership it was agreed should be placed in the reserve fund and the fund for amortization of plant) from the total amount of the so-called assets (consisting of cash on hand and on deposit; debts due the company; the cost price of plant on hand at organization and of plant acquired since organization; the cost price of good will; and the cost price of stock of the company bought with the funds of the company). Except as to one or two items, which need not be considered for the present, there is no genuine dispute as to the correctness of the amounts set out in the statement under the various subheads, and both parties appear to accept it as a full and complete statement of the condition of the company, upon which their respective claims may be adjudicated. It will be seen, however, that it does not furnish all the necessary information from which the real earnings of the company can be ascertained, because the value of plant and good will is shown at its cost price, notwithstanding the fact that in the very nature of things the real value of vessels and other plant used in a lighterage business and of the good will of such a business must, year after year, vary widely from the cost price. But in view of the acquiescence of the parties; and since the statement was furnished in the usual way by the company as a basis for the settlement of plaintiff’s, claims at the request of plaintiff, who himself had been a member of the junta directiva (directing board) and well knew the method adopted by the company in preparing such statements; and since depreciation in the value of the property of the company appears to have been anticipated and provided for by the clauses of the articles of partnership directing the setting aside of a reserve fund and a fund for the amortization of materials; we are of opinion that for the purpose of estimating the amount of earnings of the company to which the plaintiff was entitled on severing his connection with the company, the entry of the property of the company upon the statement at its cost price may be regarded as the method agreed upon by the parties under the terms of the articles of agreement. We shall, therefore, confine ourselves strictly to an examination of the respective contentions of the parties as to the propriety of entering certain specified items among the assets and liabilities of the company, in an inventory prepared for the purpose of ascertaining the profits available for distribution among the partners at the date of the preparation of the inventory. The defendant company insists that the items entered in the list of assets under the head of prima de negocio (good will) and “amortization of shares” should be stricken out, because, as it is alleged, they represent imaginary and fictitious assets. We can not agree with this contention. The “good will” of a business is frequently one of its most valuable assets. The business men who organized Carman & Co. did not hesitate to pay 20,000 pesos for the good will of the business they took over, and the magnificent return which that company was able to make on the money invested by its organizers conclusively demonstrated that the business which they bought was a most valuable one, and that far from being a loss, or an investment in an “imaginary and fictitious asset,” the 20,000 pesos invested in the “good will” of that business was an extremely profitable transaction for the purchasers. It does not definitely appear from the record whether the good will of the business in the hands of Carman & Co. had increased or diminished in value on the date of the inventory, but this item is set down therein at its cost price, in the same manner as is the original cost price of the lighterage plant, and we think the same reasons which justify the entry of plant at its cost price justify the entry of “good will” at its cost price. In any event, the defendant company has no ground for complaint upon that score, for, if, as counsel for defendant company intimates, the “good will” of the company has depreciated, it was to cover just such losses that the reserve fund was created, and the defendant company, properly, as we believe, denies plaintiff’s claim to any participation therein. As to the item under the head of “amortization of shares,” the contention of defendant company is clearly without foundation. This amount was paid out of funds of Carman & Co. for shares held in that company by various persons. If it had not been so expended, these funds would be available for distribution as profits, The company now holds these shares of their equivalent, and the semiannual dividends of each of the partners are proportionately increased by that fact. Manifestly the company is not entitled to retain for itself the benefits accruing from an investment of the earnings of the company, not specifically prescribed in the articles of partnership, and at the same time deny to the outgoing partner his share of the profits invested therein. Plaintiff’s claims to a share in the reserve fund and the fund for the amortization or depreciation of material present more difficulty. We think, however, that adopting, as we do, the construction which appears to have been placed upon the above-cited articles of partnership by the parties thereto, including the plaintiff himself prior to his withdrawal from the company, these claims must be denied. In accordance with the terms of the articles of partnership, these funds were to be created from earnings or gross profits of the business, and plaintiff insists that, as such, he is entitled to share therein upon his withdrawal from the company. In our opinion, however, the above-cited articles of partnership limited the rights of a partner who withdraws prior to the termination of the ten-year limit therein set out to the withdrawal of his original capital (capital impuesto) and the profits to which at the time of his withdrawal he is entitled under the provisions of article 11, and that the exercise of his option to resign carries with it his surrender of all claims to such amount as is carried in these funds in conformity with the provisions of articles 9 and 10. Clearly, it was not the intention of the organizers of the company to permit one of its members to withdraw at his pleasure, and force the company to a liquidation of its business and to the payment of such amount as the outgoing partner would be entitled to receive if the business of the company were wound up as of that date. Such a concession would have been fatal to its stability, and would have placed all of the partners at the mercy of any one partner who desired its dissolution. In section 6, which provides for the voluntary withdrawal of a partner, we find no provision for the payment to the withdrawing partner of anything but his original capital (capital impuesto), which is provided for with considerable detail, and yet the partners must have anticipated that at such time there would be in existence funds in which the retiring partner would be entitled to participate if he continued in the company until the end of the term for which it was organized. Without a clear and express agreement in the articles of partnership, authorizing a retiring partner to withdraw earnings which had gone into the reserve funds, we do not think we would be justified in reading into those articles authority so to do, for such a construction would go far to defeat the purpose for which it may be assumed these funds were set aside. The object for which such funds are usually and properly set aside is to protect an enterprise against violent fluctuations in business, unanticipated and unavoidable losses and other untoward incidents of like character. To this end all the parties agree, that in those years wherein the business shows a profit they will lay aside a certain percentage to meet future contingencies, each partner waiving his individual right to receive his portion thereof, until the enterprise is completed. It is a sort of insurance against misfortune, and manifestly the purpose in view would be defeated in large measure were each member of the enterprise at liberty to withdraw at will, and take with him funds set aside in a season of prosperity to tide over possible seasons of adversity. Far from securing to the retiring partners the privilege so to do, the articles of partnership appear to have contemplated the withdrawal by such partners of no more than their original capital (capital impuesto) together with any profits which at the time of withdrawal they are entitled to have credited to their account, and clause 11 carefully provides against the distribution of profits without first laying aside the amounts which it was agreed should be placed in the funds in question. But plaintiff contends that no such amount as that credited to the so-called fund for the “amortization of material” would be found therein, if it had been duly applied to the “preservation or renewal” (conservacion o renovacion) of the plant, in accordance with the provisions of clause 10 of the articles of partnership. It appears from the evidence of record that an amount even larger than that credited to this fund was expended in repairs upon the vessels and lighters used by Carman & Co., and plaintiff insists that had the amount credited to this fund been applied to these repairs, that amount would have been left free for distribution as profits. It must be admitted that the language of clause 10 of the articles of partnership, which provides for the creation of this fund, taken by itself, may be construed so as to furnish some ground for this contention. But we think, nevertheless, that construing this article together with the context, in the light of all the circumstances surrounding the execution of the instrument; and keeping in mind the construction given to the articles of partnership by the parties thereto, both at the time of its execution and throughout the period when Carman & Co. was engaged in business, it must be held that this fund (referred to in clause 11 as a discount on account of “depreciation of material” or plant) really represented the estimated depreciation in the cost price of the plant, and was intended to be used not for the purpose of keeping up ordinary repairs, but as a sort of sinking fund to balance the anticipated depreciation in the value of the plant. Unlike the reserve fund, which could be deposited or invested in any way the majority of shareholders at the semiannual meetings might deem proper, this fund, set aside on account of the anticipated “depreciation of the property” of the company, had for its sole object the “preservation and renewal” thereof, and under the articles of partnership could properly be applied for that purpose and no other. There can be no doubt of the wisdom of this provision, for the business of the company was at all times subjected to partial or total disruption by the partial or total loss of its small fleet of vessels in one of the baguios which so frequently, play havoc with the shipping in Manila Bay, or in some other unavoidable accident; and the plant was peculiarly subject to losses resulting from the depreciation of the value of the vessels as they became old and unseaworthy. But the expenditure of this fund on ordinary repairs would defeat the wise purpose for which it was originally intended, for in the common experience of men, the mere placing of repairs, as distinguished from improvements, on vessels such as those used by the company, could not preserve them against the depreciation resulting from the lapse of years, nor protect them from the risk of accident and loss to which they are exposed. As a matter of fact the company does not appear to have kept these funds separate and intact as originally contemplated, but an amount of money greater than that which, under the articles, should have been placed in these funds, was invested in new plant and improvements, and the estimated amount of these funds entered on the books as a liability. The plaintiff has no complaint on that score, however, as he himself was a socio colectivo y gerente (directing partner) during practically the entire period of the operations of Carman & Co.; and indeed the investment in additional plant and improvements may in a certain sense be regarded, first, as such an investment of the reserve fund as was authorized under clause 9 of the articles, and, second, as an application of the “amortization of material” fund for the purpose of “preserving and renewing” the property of the company such as was contemplated in clause 10 of said articles. If the investment of funds, properly belonging to the “reserve” and “amortization of material” funds, in additional plant and improvements be treated as a substantial though informal compliance with the provisions of the articles, it is manifest that in the general statement of the affairs of the company, from which the profits for distribution are to be estimated, the estimated amount of such funds was properly entered as a liability of the company. Throughout the whole period of its existence, Carman & Co., of which the plaintiff was a socio colectivo y gerente (directing partner), appears to have treated the amount, which under the articles of partnership should have been placed in these funds, as a “liability” of the company; in making repairs, as distinguished from improvements, the company appears to have made use of its available funds on hand, treating repairs as necessary expenses incident to the management and conduct of the business; the amount of these repairs does not appear to have been charged against the fund for “amortization of material,” and on the contrary, that fund seems to have been treated as in reality in the nature of an estimated offset for depreciation of cost price of plant and improvements, these items having been carried on the books of the company without variation throughout the period of its existence; and no objection appears to have been made to the company’s system of bookkeeping until after plaintiff had withdrawn therefrom. It appears, furthermore, that other partners withdrew from the company prior to plaintiff’s withdrawal (including D. M. Carman who gave his name to the company and who, like the plaintiff, was a socio colectivo y gerente), and that at the time of the withdrawal of these partners, the interest which they were permitted to withdraw was based on the books of the company, kept in accordance with the general plan above indicated, and that there was no recognition of a claim on the part of the former retiring partners of a share in the “reserve fund” or the fund for the “amortization of material.” These facts are, of course, by no means conclusive, but they are strongly suggestive of the construction placed by the contracting parties themselves on the articles of partnership under which they were organized and of the intention of the parties in entering into the agreement. We can not say that the articles of partnership are not capable of construction so as to give a different result from that at which we have arrived, but we think the construction we have given them best accords with the intention of the contracting parties, interpreting them more especially in accordance with the provisions of article 1282 of the Civil Code, which is as follows:
“ART. 1282. In order to judge as to the intention of the contracting parties, attention must principally be paid to their acts, contemporaneous and subsequent to the contract.”
We conclude, therefore, that the plaintiff is entitled to the amounts set opposite his name on the list of liabilities of the company above set out, to wit, $12,000, Mexican currency, original capital, $16,158.03, Mexican currency, earnings, $363.94, Mexican currency, account-current, and no more, and that he is entitled to judgment therefor, with interest at the rate of 6 per cent per annum from the 1st day of February, 1904, subject, however, to the following deductions: First. A deduction of $9,453.75, Mexican currency, paid August 2, 1904, together with the appropriate incidental deduction of interest charges. Second. A further deduction of his admitted share of losses in December, 1903, and January, 1904, overlooked in the original statement, amounting to $454.80, Mexican currency. Third. A further deduction of P500, Philippine currency, to which, accepting the findings of the trial court in this regard, we hold the defendant company is entitled on account of damages resulting from the unlawful appointment of a receiver on the application of the plaintiff. Twenty days from the date of this decision let judgment be entered reversing the judgment of the trial court without costs to either party in this instance, and ten days thereafter let the record be returned to the court below, where judgment will be entered for the equivalent in Philippine currency, at the rate of exchange on the day of such judgment, of the amount in Mexican currency to which plaintiff is entitled as above indicated. So ordered. Torres and Mapa, JJ., concur. Willard, J., concurs in the result.