Woodhouse v. Halili

G.R. No. L-4811, 31 July 1953

FACTS:

On November 29, 1947, plaintiff Woodhouse entered into a written agreement with defendant Halili stating among others that: 1) that they shall organize a partnership for the bottling and distribution of Missionsoft drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefore; 2) that plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership and 3) that the plaintiff was to receive 30 per cent of the net profits of the business. Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles, California, that he had interested a prominent financier (defendant herein) in the business, who was willing to invest half a milliondollars in the bottling and distribution of the said beverages, and requested, in order that he may close the deal with him, that the right to bottle and distribute be granted him for a limited time under the condition that it will finally be transferred to the corporation. Pursuant to this request, plaintiff was given “a thirty days’ option on exclusive bottling and distribution rights for the Philippines”. The contract was finally signed by plaintiff on December 3, 1947.

When the bottling plant was already in operation, plaintiff demanded of defendant that the said partnership papers be executed. Defendant Halili gave excuses and would not execute said agreement, thus the complaint by the plaintiff. Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits  and 3)share thereof of 30 percent with 4) damages in the amount of P200,000. The Defendant on the other hand claims that: 1) the defendant’s consent to the agreement, was secured by the representation of plaintiff that he was the owner, or was about to become owner of an exclusive bottling franchise, which representation was false, and that plaintiff did not secure the franchise but was given to defendant himself 2) that defendant did not fail to carry out his undertakings, but that it was plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive franchise to the partnership, but plaintiff failed to do so with a 4) counterclaim for P200,00 as damages.

The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that the 2) execution of contract cannot be enforced upon parties. Lastly, the 3) fraud was not proved.

ISSUE:

  1. Whether or Not plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages.
  2. Whether or Not false representation, if it existed, annuls the agreement to form the partnership.

RULING:

  1. Plaintiff did make false representation and this can be seen through his letter to Mission Dry Corporation asking for the latter to grant him temporary franchise so he could settle the agreement with defendant. The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement “to secure the Mission Dry franchise for and in behalf of the proposed partnership.” The existence of this provision in the final agreement does not militate against plaintiff having represented that he had the exclusive franchise; it rather strengthens belief that he did actually make the representation. The defendant believed, or was made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred to the name of the partnership, and that, upon its dissolution or termination, the same shall be reassigned to the plaintiff. Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive franchise, was to reduce, as he himself testified, plaintiff’s participation in the net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff actually made him believe that he (plaintiff) was the exclusive grantee of the franchise.
  2. In consequence, Article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud the causal fraud, which may be ground for the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable for damages only. The Supreme Court has held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente) inducement to the making of the contract. The record abounds with circumstances indicative of the fact that the principal consideration, the main cause that induced defendant to enter into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership. The original draft prepared by defendant’s counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant. But if plaintiff was guilty of a false representation, this was not the causal consideration, or the principal inducement, that led plaintiff to enter into the partnership agreement. On the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the share of 30 per cent granted him in the net profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive franchise to the partnership.

Having arrived at the conclusion that the contract cannot be declared null and voidmay the agreement be carried out or executed? The SC finds no merit in the claim of plaintiff that the partnership was already a fait accompli from the time of the operation of the plant, as it is evident from the very language of the agreement that the parties intended that the execution of the agreement to form a partnership was to be carried out at a later date. , The defendant may not be compelled against his will to carry out the agreement nor execute the partnership papers. The law recognizes the individual’s freedom or liberty to do an act he has promised to do, or not to do it, as he pleases.

 * Case digest by Neah Hope L. Bata, LLB-1, Andres Bonifacio Law School, SY 2017-2018

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