[ G.R. No. 25400. January 14, 1927 ] 49 Phil. 857
[ G.R. No. 25400. January 14, 1927 ]
THE PHILIPPINE NATIONAL BANK, PLAINTIFF AND APPELLEE, VS. THE PHILIPPINE VEGETABLE OIL CO., INC., DEFENDANT AND APPELLEE. PHIL. C. WHITAKER, INTERVENOR AND APPELLANT. D E C I S I O N
MALCOLM, J.:
This appeal involves the legal right of the Philippine National Bank to obtain a judgment against the Philippine Vegetable Oil Co., Inc., for P15,812,454, and to foreclose a mortgage on the property of the Philippine Vegetable Oil Co., Inc., for P17,000,000, and the legal right of Phil. C. Whitaker as intervenor to obtain a judgment declaring the mortgage which the Philippine National Bank seeks to foreclose to be without force and effect, requiring an accounting from the Philippine National Bank of the sales of the property and assets of the Philippine Vegetable Oil Co., Inc., and ordering the Philippine Vegetable Oil Co., Inc., and the Philippine National Bank to pay him the sum of P4,424,418.37. In 1920, the Philippine Vegetable Oil Co., Inc., which will hereafter be called the Vegetable Oil Company, found itself in financial straits. It was in debt to the extent of approximately P30,000,000. The Philippine National Bank was the largest creditor. The Vegetable Oil Company owed the bank P17,000,000. Over P13,000,000 were due the other creditors. The Philippine National Bank was secured principally by a real and chattel mortgage for P3,500,000. On January 10, 1921, the Vegetable Oil Company executed another chattel mortgage in favor of the bank on its vessels Tankerville and H. S. Everett to guarantee the payment of sums not to exceed P4,000,000. This was the precarious situation which in the latter part of 1920 and the early part of 1921 confronted the Vegetable Oil Company, its General Manager Phil. C. Whitaker, the Philippine National Bank, and the various creditors of the Vegetable Oil Company, Bankruptcy was imminent. On January 1, 1921, Mr. Whitaker made his first offer to pledge certain private properties to secure the creditors of the Oil Company (Intervenor’s Exhibit 1). In February of the same year, a creditors’ meeting was held. At the instance of Mr. Whitaker but inspired to such action by the bank, a receiver for the Vegetable Oil Company was appointed by the Court of First Instance of Manila on March 11, 1921. (Case No. 19644, Court of First Instance of Manila.) During the period when a receiver was in control of the property of the Vegetable Oil Company, a number of events occurred. The first was the agreement perfected by the Vegetable Oil Company, Mr. Whitaker, and some of the creditors of the Oil Company on June 27, 1921, whereby the creditors transferred to Mr. Whitaker a part of their claims against the Vegetable Oil Company in consideration of the execution by Mr. Whitaker of a trust deed of his property. The Philippine National Bank was not a direct party to the agreement although the officials of the bank had full knowledge of its accomplishment and the general manager of the bank placed his O. K. at the end of the final draft. (Intervenor’s Exhibit 10.) The next move of the bank was to obtain a new mortgage from the Vegetable Oil Company on February 20, 1922. Shortly thereafter, on February 28, 1922, the receivership for the Vegetable Oil Company was terminated. The bank suspended the operation of the Vegetable Oil Company in May, 1922, and. definitely closed the Oil Company’s plant on August 14, 1922. Out of the foregoing facts which are not in dispute and others which are in dispute, arose the action of the Philippine National Bank of May 7, 1924, to foreclose its mortgage on the property of the Vegetable Oil Company. The Vegetable Oil Company on its part countered with certain special defenses which need not be described and with the interposition of a counterclaim for P6,000,000. Phil. C. Whitaker presented a complaint in intervention. The judgment rendered was in favor of the plaintiff and against the defendant which was ordered to pay the sum of P15,787,454.54, representing the liquidation between the plaintiff and the defendant, with legal interest beginning with May 8, 1923, together with P25,000 attorney’s fees, and costs, with the addition of the usual order to foreclose the mortgage. The counterclaim of the defendant and the complaint in intervention were dismissed. The trial judge in his decision announced and answered three questions, viz: (1) Whether the execution of the mortgage, Exhibit A of the plaintiff, was the free act of the defendant; (2) whether this mortgage was null and without force because at the time of its execution all the property of the defendant was under the control of a receiver appointed by the court and neither the approval of the receiver nor of the court had been obtained; and (3) whether the plaintiff had failed to comply with the contract, that it was alleged to have celebrated with the defendant and the intervenor, that it would furnish funds to the defendant so that it could continue operating its factory. Much the same analysis of the issues is made by the intervenor as appellant. The first error, in relation with the sixth error of the assignment of errors, concerns the holding that the mortgage, Exhibit A, has been legally and validly executed by the Philippine Vegetable Oil Co., Inc. The second, third, fourth, and fifth errors, in relation with the sixth error of the assignment of errors, concern the holding that the Philippine National Bank had not bound itself to finance the operation of the Philippine Vegetable Oil Co., Inc. In this later connection, the main point at issue between the Philippine National Bank and Phil. C. Whitaker as disclosed by the amended answer of the Philippine National Bank to the complaint in intervention, and the opening sentence of the memorandum for intervenor-appellant filed in this court, is whether the Philippine National Bank ever made any contract binding the bank to provide the necessary operating capital to the Philippine Vegetable Oil Co., Inc., and whether Mr. Whitaker has established his right to recover damages from the bank by reason of the latter’s alleged refusal to finance the operation of the Philippine Vegetable Oil Co., Inc. It results, therefore, in the appeal dividing into two main subjects, the first, the validity of the Philippine" National Bank-Philippine Vegetable Oil Co., Inc., mortgage of February 20, 1922, and the second, the alleged agreement of the Philippine National Bank to finance the Philippine Vegetable Oil Co., Inc. These two topics we propose to discuss separately and in order. Parenthetically, it may be said that our mode of approach will be to sweep aside technicalities and to resolve in a broad and liberal manner the various perplexing questions which are before the court.
I. Validity of the Philippine National Bank—Philippine Vegetable Oil Co., Inc., mortgage of February 20,1922.
At the outset, the appellee challenges the right of Phil. C. Whitaker as intervenor to ask that the mortgage contract executed by the Vegetable Oil Company be declared null and void. Appellee is right as to the premises. The Vegetable Oil Company is the defendant. The corporation has not appealed. At the same time, it is evident that Phil. C. Whitaker was one of the largest individual stockholders of the Vegetable Oil Company, and was until the inauguration of the receivership, exercising control over and dictating the policy of that company. Out of twentyeight thousand shares of the Vegetable Oil Company, Mr. Whitaker was the owner of 5,893 fully paid shares of the par value of P100 each. He it was who asked for the appointment of the receiver. He it was who was the leading figure in the negotiations between the Vegetable Oil Company, the Philippine National Bank, and the other creditors. He it was who pledged his own property to the extent of over P4,000,000 in an endeavor to assist in the rehabilitation of the Vegetable Oil Company. He is injuriously affected by the mortgage. In truth, Mr. Whitaker is more vitally interested in the outcome of this case than is the Vegetable Oil Company. Conceivably if the mortgage had been the free act of the Vegetable Oil Company, it could not be heard to allege its own fraud, and only a creditor could take advantage of the fraud to intervene to avoid the conveyance. We find no merit in appellee’s objection and pass on to consider the main question on its merits. The mortgage, Exhibit A, was executed on February 20, 1922, by “Philippine Vegetable Oil Co., Inc., By E. G. Abry, Secretary-Treasurer” “Philippine National Bank By E. W. Wilson, General Manager.” E. G. Abry, according to his testimony, was employed as secretary-treasurer of the Vegetable Oil Company after a conference with Mr. Wilson and continued in this position during the period when the Vegetable Oil Company was under the control either of a receiver or of the bank. The other signature to the instrument was that of E. W. Wilson, General Manager of the Philippine National Bank. At this time, E. W. Wilson and Miguel Cuaderno, a Director of the Philippine National Bank, were serving as Directors of the Vegetable Oil Company. Messrs. Wilson and Cuaderno were elected to these places after Mr. Wilson had on July 26, 1921, in a letter to Mr. Whitaker relative to the reorganization of the Vegetable Oil Company, suggested the resignation of two members of the Board of Directors so that the bank might “have rather a close working relationship with the Philippine Vegetable Oil Co.” (Intervenor’s Exhibit 4). The resolution of the Board of Directors of September 2, 1921, naming Messrs. Wilson and Cuaderno “to represent the Philippine National Bank in the Board of Directors of the Philippine Vegetable Oil Co. as members thereof” did so with the understanding “that neither one of them has any interest other than that of the bank’s in the Philippine Vegetable Oil Co., and that in accepting these directorships they are doing it solely for the bank.” According to the testimony of Major Randall, Mr. Wilson became President of the Vegetable Oil Company on September 12, 1921. It has been said that the mortgage was executed on February 20, 1922. That is undeniable. The allegation of the plaintiff’s complaint is “That the defendant, on the 20th day of February, 1922, duly executed to the plaintiff a mortgage.” The mortgage in question recites: “THIS MORTGAGE, executed at the City of Manila, Philippine Islands, this twentieth day of February, nineteen hundred and twenty-two.” However, the mortgage was not ratified before a notary public until March 8, 1922, and was not recorded in the registry of property until March 21, 1922. To add one more date, it will be recalled that the receivership ended on February 28, 1922. In. other words, as partially interpretative of the situation, the mortgage was executed by the Philippine National Bank, through its General Manager, and another corporation before the termination of the receivership of the said corporation, but was not acknowledged or recorded until after the termination of the receivership. In the complaint of Phil. C. Whitaker filed in the Court of First Instance of Manila in which it was prayed that a receiver be appointed to take charge of the Philippine Vegetable Oil Co., Inc., it was alleged “that the largest individual creditor of said corporation is the Philippine National Bank, the indebtedness to which amounts to approximately P16,000,000, a portion of which indebtedness is secured by mortgage on the major part of the assets of the corporation.” The order of the court appointing a receiver contained a similar recital. The Philippine National Bank held the mortgage mentioned, and possibly two others not mentioned, when the receivership proceedings were initiated. It must be evident to all that the Philippine National Bank could legally secure no new mortgage by the accomplishment of documents between its officials and the officials of the Vegetable Oil Company while the property of the latter company was in custodia legis. The Vegetable Oil Company was then inhibited absolutely from giving a mortgage on its property. The receiver was not a party to the mortgage. The court had not authorized the receiver to consent to the execution of a new mortgage. Whether the court could have done so is doubtful, but that it would have thus consented is hardly debatable, considering that it would desire to protect the rights of all the creditors and not the rights of one particular creditor. The legal conclusion is axiomatic. (Code of Civil Procedure, secs. 173 et seq., Compañia General de Tabacos vs. Gauzon and Pomar [1911], 20 Phil., 261.) To all this the appellee as well as the trial court have answered that while it is true that the document was executed on February 20, 1922, at a time when the properties of the mortgagor were under receivership, the mortgage was not acknowledged before a notary public until March 8, 1922, after the, court had determined that the necessity for a receiver no longer existed. But the additional fact remains that while the mortgage could not have been executed without the dissolution of the receivership, such dissolution was apparently secured through representations made to the court by counsel for the bank that the bank would continue to finance the operations of the Vegetable Oil Company (See testimony of Judge Simplicio del Rosario). Instead of so doing, the bank within less than two months after the mortgage was recorded, withdrew its support from the Vegetable Oil Company, and in effect closed its establishment. Also it must not be forgotten that the hands of other creditors were tied pursuant to the creditors’ agreement of June 27, 1921. To place emphasis on the outstanding facts, it must be repeated that the mortgage was executed while a receiver was in charge of the Vegetable Oil Company. A mortgage accomplished at such a time by the corporation under receivership and a creditor would be a nullity. The mortgage was definitely perfected subsequent to the lifting of the receivership pursuant to implied promises that the bank would continue to operate the Vegetable Oil Company. It was then accomplished when the Philippine National Bank was a dominating influence in the affairs of the Vegetable Oil Company. On the one hand was the Philippine National Bank in person. On the other hand was the Philippine National Bank by proxy. Under such circumstances, it would be unconscionable to allow the bank, after the hands of the other creditors were tied, virtually to appropriate to itself all the property of the Vegetable Oil Company. Whether we consider the action taken as not expressing the free will of the Vegetable Oil Company, or as disclosing undue influence on the part of the Philippine National Bank in procuring the mortgage, or as constituting deceit under the civil law, or whether we go still further and classify the facts as constructive fraud, the result is the same. The mortgage is clearly voidable. The setting aside of the mortgage of February 20, 1922, will not necessarily result in the Philippine National Bank being left without security. It is our understanding that before the receivership was thought of, the bank was the holder of three mortgages on the property of the Vegetable Oil Company, the first dated April 11, 1919, for an uncertain amount; the second, dated November 18, 1920, for P3,500,000; and the third, dated January 10, 1921, for P4,000,000. These mortgages remain in effect and may be foreclosed. Addressing ourselves directly to the first two questions discussed in the decision of the trial court and to the first and sixth errors assigned by the intervenor as appellant, we rule that the Philippine National Bank-Philippine Vegetable Co., Inc., mortgage of February 20, 1922, has not been legally executed by the Philippine Vegetable Oil Co., Inc.
II. Alleged agreement of the Philippine National Bank to finance the Philippine Vegetable Oil Co., Inc.
Before it need be decided if the intervenor has a right to recover damages from either the plaintiff or the defendant because of the plaintiff’s refusal to finance the operations of the defendant, it must be determined if the Philippine National Bank ever entered into any valid agreement by which it bound itself to provide the necessary operating capital of the Philippine Vegetable Oil Co., Inc. The question presents both legal and factual aspects. The legal inquiry relates to the applicability or non-applicability of the Statute of Frauds as found in section 335 of our Code of Civil Procedure. The question of fact goes on the assumption that the oral evidence can be received without violating the Statute of Frauds and then, of course, comes down to the weighing of the evidence. The broad view is that the Statute of Frauds applies only to agreements not to be performed on either side within a year from the making thereof. Agreements to be fully performed on one side within the year are taken out of the operation of the statute. As intervenor’s theory proceeds on the assumption that Mr. Whitaker has entirely performed his part of the agreement, equity would argue that all evidence be admitted to prove the alleged agreement. Surely since the Statute of Frauds was enacted for the purpose of preventing frauds, it should not be made the instrument to further them. As preliminary to a presentation of the evidence, it is well to have an understanding of the applicable law. The Charter of the Philippine National Bank, Act No. 2612, section 20, as amended by Act No. 2938, provides that “The General Manager of the Bank, shall, among others, have the following powers and duties: * * * (b) To make, with the advice and consent of the board of directors, all contracts on behalf of the said bank and to enter into all necessary obligations by this Act required or permitted.” Predicated on our general liberal point of view, we feel free to take into consideration the applicable law although no special defense to this effect was interposed by the Philippine National Bank to intervenor’s complaint Let us now look into the evidence in detail. We may properly begin with the applicable resolutions of the Board of Directors of the Philippine National Bank. In the minutes of the Board of Directors of the Philippine National Bank of October 4, 1921, is found the following: “Philippine Vegetable Oil Co.—On motion of Director Westerhouse, duly seconded, the following resolution was adopted by the Board: Be it resolved, that the General Manager be, and he is, hereby authorized to finance the operation of the Philippine Vegetable Oil Co. under the Receivership to the extent of P500,000 to be secured by copra and oil and to be further secured by P500,000 pledged by Phil. C. Whitaker in his creditor’s agreement.” Under date of October 28, 1921, is found the following: “The following additional loans with which to buy more copra were approved by the Board, at the recommendation of the Oil Factory Committee. Philippine Vegetable Oil Co. F. W. Carpenter, Receiver, P. V. O., P200,000.” Under date of December 5, 1921, is found the following: “After a long discussion and careful deliberation, and on motion of Director Westerhouse, duly seconded by Director Seaver, the following was unanimously approved by the Board: To protect the large investments of the Bank, it is the sense of the Board of Directors to continue financing the operation under receivership of the Philippine Vegetable Oil Co., the Philippine Manufacturing Co., the Cristobal Oil Co., and the Santa Ana Oil Mills, in as modest and economical way as is consistent with prevailing conditions, the General Manager to report and secure the approval of the Board for necessary credits from time to time, and that the Board also recommends that the Oil Committee continue studying the advisability of financing the operation of other oil mills indebted to the Bank.” Other portions of the minutes of the Board of Directors disclose that the Board authorized advances to the Vegetable Oil Company to the extent of more than P1,000,000. Logically, our review of the evidence should stop here. No contract entered into by the General Manager of the Bank would be valid unless made with the advice and consent of its Board of Directors. What the Board of Directors had decreed was that the Vegetable Oil Company be financed under the receivership to the extent of P500,000, a sum which was later increased. The Board not alone specified the amounts of the loans but cautiously added that the General Manager “report and secure the approval of the Board for necessary credits from time to time.” There was no indication in any action taken by the Board of Directors that it had ever consented to an agreement for practically unlimited backing of the Vegetable Oil Company, or that it had ratified any such promise made by its General Manager. Out of consideration for the parties, however, we will go further and will examine the remaining evidence. Passing in review intervenor’s exhibits, we first notice Mr. Whitaker’s letter to the Hongkong and Shanghai Banking Corporation of January 1, 1921. He there confirms his undertaking to assume an obligation to pledge and mortgage specified personal holdings. The offer is made “contingent upon its acceptance by the other unsecured creditors * * *. A further condition to the foregoing offer is that the banks parties to the proposed arrangement supply, subject to the approval of their representatives on the Board of Directors of the P. V. O. Co., funds sufficient to enable the P. V. O. Co., to continue its operations during the full term for which my personal secured undertaking remains in effect.” The condition named related to all the banks and not to the Philippine National Bank, (Intervenor’s Exhibit 1.) The trust deed by Mr. Whitaker in favor of H. C. Sanford makes the purposes and uses among others “To secure the Philippine National Bank against such losses as it may sustain, not exceeding a total of P500,000, on such sums as it shall, from time to time and within three years from July 1, 1921, advance to the Philippine Vegetable Oil Company to enable the latter to resume business and continue the manufacture of vegetable oil.” This recital is specific as to P500,000 and is general as to further advances, and is made in a document to which the Philippine National Bank was not a party. (Intervenor’s Exhibit 2.) The creditors’ agreement is of similar tenor. (Intervenor’s Exhibit 3.) One of the paragraphs in the preamble of the power of attorney from the Roman Catholic Archbishop of Manila to Phil. C. Whitaker mentioned that Mr. Whitaker “has also arranged with the Philippine National Bank for the funds necessary to enable said Oil Company to resume its business and continue in the manufacture of vegetable oil.” Although this proxy may have been procured at the instance of the Philippine National Bank, yet obviously it did not bind the officials of the bank. (Intervenor’s Exhibit 5.) The letter of Mr. Wilson as General Manager of the Philippine National Bank of June 8, 1921, addressed to Mr. Whitaker stated: “I see no good reason why you should use your property to secure unsecured obligations, and not provide for the operation of the plant.” Merely a friendly warning, (Intervenor’s Exhibit 8.) Mr. Wilson’s letter to Mr. Whitaker of April 19, 1923, stated: “The agreement you refer to enabled the Bank to put its securities in first-class shape. In order to do this, however, it was necessary for it to furnish certain money for operating the plant, and an additional mortgage was executed. * * * It is my judgment that it was good business for the Philippine National Bank to operate the plant as long as it had the P500,000 guarantee. However, the bank put into the undertaking a great deal more money than it originally intended. Then, too, the guarantee was not as good as we thought, because the first lien on the property was not being paid off as rapidly as we thought it would be.” Here was merely an expression of gratification regarding the additional mortgage and emphasis on the P500,000 guarantee. (Intervenor’s Exhibit 7.) We discover nothing further of interest in the exhibits. The only oral testimony in point is that given by A. D. Gibbs and Phil. C. Whitaker. Mr. Gibbs, testifying as to a meeting of the creditors of the Vegetable Oil Company, said: “Mr. Wilson stated in substance that if the negotiations which were then pending between Mr. Whitaker and the other creditors, whereby the other creditors were to refrain from throwing the P. V. O. Co. into, insolvency or from bringing action against it, could be carried out, that his bank would finance the P. V. O. Co., and keep it in operation.” Mr. Whitaker, testifying as to the same meeting, said: “Mr. Wilson stated that he had looked into the affairs of the P. V. O. as far as the short time he had had permitted, and that the P. V. O. had evidently made good money in the past and if allowed to resume would make good again in the future, that the P. N. B., as the largest creditor, contemplated financing a resumption of the company’s operations if the company could be kept out of insolvency.” Giving to this testimony its broadest effect, we still discover no definite agreement binding on the bank but only a general intimation proffered by the General Manager of the Bank in conference that his bank contemplated financing the operations of the Vegetable Oil company. That is all the evidence, documentary and oral, at all pertinent to the issue. We are clear that taking it entirely into consideration it discloses no binding promise, tacit or express, made by the Philippine National Bank to continue indefinitely its backing of the Vegetable Oil Company. Mr. Whitaker was in no way personally responsible for any part of the obligations of the Vegetable Oil Company. Nevertheless, he signed the creditors’ agreement. That was a praiseworthy act. We sympathize with him in the situation in which he finds himself. The various creditors have a large amount of his property. The Philippine National Bank has taken over the assets of the Vegetable Oil Company. The latter company has ceased operations. Mr. Whitaker has not made himself the successor in interest of the Vegetable Oil Company and so cannot recover from it in these proceedings. But sympathy cannot be transmuted into legal authoritativeness. If Mr. Whitaker has any other remedy, that is for him to determine. Here we cannot give him redress for he has not made out his case except insofar as he has been successful in overturning the last mortgage of the Philippine National Bank on the property of the Vegetable Oil Company.
III. Result
We announce the following conclusions: (1) Plaintiff is entitled to a money judgment against the defendant for P14,183,679.37 with legal interest thereon beginning with May 8,1924. Exhibit C-1 shows that after May 6, 1924, when Exhibit B-1 was formulated, two further payments were made on the promissory note for P16,869,975.59, which further reduced the principal from P15,760,312.85 as totalled in Exhibit B-1 to P14,183,679.37 as evidenced by Exhibit C-1. As interest has already been charged up to May 7, 1924, legal interest should begin to run from that date instead of from May 8, 1923, as fixed by the trial court. (2) The Philippine National Bank-Philippine Vegetable Oil Co., Inc., mortgage of February 20, 1922, has not been legally executed by the Philippine Vegetable Oil Co., Inc., and consequently cannot be given effect. But the prior mortgages held by the Philippine National Bank of April 11, 1919, November 18, 1920, and January 10, 1921, remain in force and may be foreclosed. (3) The Philippine National Bank will obviously have a preferred claim when the three mortgages above mentioned shall be foreclosed. The remainder of the assets of the Philippine Vegetable Oil Co., Inc., if any, should then be applied to the payment pro rata of the unsecured claims, among them that of Mr. Whitaker and the unsecured part of the debt to the Philippine National Bank. Intervenor Whitaker is entitled to an accounting of the proceeds of the Vegetable Oil Company’s properties caused to be sold by the Philippine National Bank and of the business operations of the Vegetable Oil Company since March 11, 1921. (4) Intervenor Whitaker has failed to establish an agreement binding the Philippine National Bank to provide the necessary operating capital to the Vegetable Oil Company, and so is not entitled to recover damages from the Philippine National Bank. Nor can intervenor Whitaker recover P4,424,418.37 from the Vegetable Oil Company since he is not the legatee of the assets of that company. The trial judge accordingly committed no error in dismissing intervenor’s complaint. (5) No pronouncement is made with reference to intervenor Whitaker’s possible rights in connection with the creditors’ agreement since that agreement is not here in question and the parties thereto are not before the court. The case will be remanded to the lower court for the entry of judgment and further proceedings as herein indicated. Judgment affirmed in part and reversed in part, without special finding as to costs in either instance. Ostrand, Johns, Romualdez, and Villa-Real, JJ., concur.