Philippine Supreme Court Jurisprudence

Philippine Supreme Court Jurisprudence > Year 1914 > February 1914 Decisions > G.R. No. 7967 February 6, 1914 - PORT BANG LUMBER CO. v. EXPORT & IMPORT LUMBER CO.

026 Phil 602:



[G.R. No. 7967. February 6, 1914. ]

PORT BANG LUMBER CO., Plaintiff-Appellee, v. EXPORT AND IMPORT LUMBER CO., Defendant-Appellant.

Gibbs, McDonough & Blanco, for Appellant.

Bruce, Lawrence, Ross & Block, for Appellee.


1. CONTRACTS PROCURED BY FRAUD. — Plaintiff and defendant entered into an oral agreement by virtue of which defendant undertook to secure and plaintiff to fill a very profitable contract for the delivery of lumber, the parties to "do the business together" and "on joint account." Defendant secured the contract, and by means of false and misleading statements as to the terms on which it had secured the contract, induced the plaintiff to agree in writing to fill the contract on terms much less advantageous than those under which it was to be filled in accordance with the oral contract. Held, That the written contract was procured by fraud and that the plaintiff was not bound thereby.

2. ID.; OBLIGATION ARISING FROM AN ORAL AGREEMENT. — Held, That the oral agreement under which the parties undertook to secure and fill the contract for joint account imposed an obligation on both parties to treat each other with the utmost good faith in all matters relating thereto.

3. ID.; PRESENT CASE DISTINGUISHED. — The case at bar distinguished from an ordinary action seeking annulment or rescission of a simple contract of purchase and sale on the ground of concealment or misrepresentation by one of the parties of facts touching the anticipated profits or the purpose or objects inducing such party to execute the contract.

4. ID.; INTRODUCTION OF ORAL EVIDENCE TO VARY CONTRACTS. — The rule forbidding the introduction of oral evidence to vary or modify the unambiguous terms of a written instrument does not preclude the admission of oral evidence tending to establish an allegation that one of the parties was induced to execute the written contract by the false and fraudulent representations of the other.



The facts in this case, as disclosed by the evidence and found by the trial judge, are substantially as follows:chanrob1es virtual 1aw library

The plaintiff company was the owner of a sawmill and logging plant near Port Banga, Mindanao, and the defendant company was engaged in the lumber trade in the city of Manila. The two companies had been doing business together for some time, having had dealings with each other aggregating upwards of P100,000. They were on the most cordial terms, and no formal written agreements were ever made between them, their business being transacted orally or by exchange of letters and telegrams, the relations of the two companies finally becoming so intimate that a consolidation of their interests was under consideration. Such were the conditions when in December, 1909, F. P. Williamson, the vice-president of the plaintiff company, met in Manila and discussed the terms and conditions of a lumber contract which Payne believed he could secure in China on a profitable basis. The order that Payne had in view was a very important one, being for a special grade and size of pagatpat logs, destined for use in the construction of the mausoleum of the late Emperor Kuang Hsu of China. The matter of available woods was discussed, the conversation culminating in an arrangement to "do the business together." In March, 1910, Williamson and Payne again met at the office of the defendant company in Manila, Payne having just returned from China, where he had gone for the purpose of securing the contract which had formerly been discussed. At this meeting Payne produced a telegram from parties in China calling for logs of certain large dimensions, which he stated could be somewhat reduced. The matter was then discussed in detail, Payne proposing that he would secure the order if the plaintiff company would furnish the logs, and holding out as an inducement that if this contract could be secured and filled other valuable contracts would follow. The former conversation in which it had been tentatively arranged to "do the business together" was referred to, and the interview terminated in a definite and clear-cut oral agreement to undertake the business "on joint account," the defendant company to obtain the contract, secure the best possible price, and arrange for financial assistance, while the plaintiff was to furnish the logs through its Mindanao plant. Williamson returned to Zamboanga, and his company at once commenced the preliminary work of locating and getting out the timber. Payne was successful in securing the China order, and on May 6 executed in the name of his company a contract with the China Import and Export Lumber Company, Limited (Exhibit A), whereby he agreed to furnish to the said China company about 40,000 cubic feet of pagatpat logs of certain specified dimensions and in accordance with other conditions set forth in the contract, at the price of 90 cents United States gold, or P1.80 Philippine currency, per cubic foot. Very soon after the execution of this contract with the China company — about he middle or the end of May — Payne went to Zamboanga and at once began machinations by means of which he succeeded in inducing the plaintiff company to modify the original joint account agreement and enter into a much less advantageous contract, which his attached to the record, marked Exhibit B. He began by suggesting a written agreement, something theretofore unheard of in the dealing between the two companies, giving as his reason for desiring a contract in writing that "the China people had required him to sign." Payne grossly misrepresented the facts as to the terms of the contract with the China company, and repeatedly assured the officers of the plaintiff company that he had been unable to secure a better price for the logs than 55 centavos per cubic foot. Several conversations were had on this subject between Payne and the representatives of the plaintiff company, in which the original joint account agreement was repeatedly referred to and Payne’s false statements as to the price obtained by him from the China company many times reiterated, until finally the representatives of the plaintiff company, relying upon Payne’s false and fraudulent representations, consented to the proposed modification, which was subsequently reduced to writing in the form of a contract of purchase and sale dated June 10, 1910 (Exhibit B). The plaintiff company proceeded in good faith to carry out the contract, cut and transported the logs to tide water at the point agreed upon, and, upon the arrival of the steamer chartered by the China company, entered immediately upon the work with a sufficient force of laborers and adequate equipment, but was seriously hindered and delayed by the defective tackle and equipment carried by the ship. The loading was, however, finally completed, the cargo delivered to its consignee in China, and the agreed price, less certain deductions, paid to the defendant company. The contract lacked but little of completion — was, indeed, practically completed — when Williamson, in the course of a conversation with Seitz, the representative of the China company, became cognizant of the fraud that had been practiced upon him by Payne. He at once taxed Payne with his deceit, and gave notice of his intention to rescind the fraudulently obtained contract, but permitted the few remaining logs to be placed on board the steamship, and immediately caused this action to be brought, the complaint having been filed in the Court of First Instance of the Moro Province on November 14, 1910, the day on which the loading of the steamer was completed — this being the day upon which the alleged fraud was discovered. Payne’s only reply to Williamson’s charges of fraud and demands for redress was that "he stood upon the written contract."cralaw virtua1aw library

The trial judge, upon this finding of facts, rendered judgment in favor of the plaintiff company for the sum of P35,140.23, that being the balance due it, as found by him, after annulling the written contract and allowing it a half share in the net profits of the enterprise.

The principal questions, and as we think, practically the only questions raised by this appeal are questions of fact. Does the evidence sustain the finding of the trial judge that Payne and Williamson had an oral agreement or understanding that their respective companies would undertake, on joint account, to procure and fill the contract for the delivery of certain lumber; that thereafter, Payne, having secured the contract, grossly deceived Williamson as to the terms and conditions under which he secured the contract, and led him to believe that the price to be paid for the lumber under the contract was 55 centavos per cubic foot, when the fact was that the price was 90 cents, or P1.80; that by means of these false statements and misrepresentations of fact Payne induced Williamson to execute a written contract wherein he expressly obligated his company to perform its part of the joint undertaking for a fixed price, much less than that which it would be entitled to receive under the agreement to secure and fill the contract for "joint account;" and that the plaintiff company did in fact deliver the lumber in substantial compliance with the terms of the written contract, and at the same time in substantially the manner and form contemplated in the original oral agreement touching the procurement and filling of the lumber contract on joint account?

These findings are all supported by the clear, definite, and unequivocal testimony of the witnesses called by the plaintiff, and although a formal contradiction by the manager of the defendant company of the testimony in this regard was read into the record by consent of counsel, we find noting therein which would justify us in disturbing the conclusions of fact as found by the trial judge, who saw and heard the witnesses testify. As was said in the case of United States v. Benitez (18 Phil. Rep., 513): "A careful and discriminating trial judge has unequaled advantages to determine the relative credibility of opposing witnesses. In accordance with the rule so often laid down, this court will not interfere with the judgment of the trial court in passing upon the credibility of the opposing witnesses, unless there appears in the record some fact or circumstance of weight and influence which has been overlooked or the significance of which has been misinterpreted."cralaw virtua1aw library

Accepting the facts thus found, it needs no extended discussion of the law or the facts to sustain the ruling of the trial judge wherein he declined to permit the defendant company "to stand on the written contract" and thus profit by an agreement which the plaintiff company was induced to execute by the false and fraudulent misrepresentation of material and controlling facts by the agent of the defendant company. It is sufficient to say that the question here involved is not the annulment or rescission of a simple contract of purchase and sale on the ground of concealment or misrepresentation by one of the parties of facts touching the anticipated profits or the purposes or objects inducing such party to execute the contract. Alleged misrepresentations or concealment of facts of this nature will not ordinarily be sufficient to justify the rescission of a simple contract of purchase and sale, because in such cases there is, as a rule, no obligation on the purchaser to furnish such information and because further the vendor in such cases will rarely be able to establish that he was induced to enter upon the contract by such misrepresentations or concealment’s of fact, he, as a rule, having no interest whatever in the prospective profits of the purchaser or the purposes or objects which induce the purchaser to enter upon the contract. (Mecham on Sales, Chap. VI, sec. 1, and cases there cited.) In the case at bar, however, the relation of confidence which existed between the parties, and the oral agreement under which they undertook to secure and fill the Chinese contract for joint account were such as to impose an obligation on both the parties to treat each other with the utmost good faith in all matters relating thereto. In making false and misleading statements as to the terms of the contract with the Chinese company, as to the prices secured thereunder, and as to the prospective profits to be anticipated therefrom, the manager of the defendant company was seeking not merely to induce the manager of the plaintiff company to execute a contract of purchase and sale at the lowest possible price, but to induce him at the same time to forego any rights which he might have acquired under the oral agreement to secure and fill the contract on joint account, and to induce him to accept, in lieu of a half share in the profits, a price per foot for the lumber much less than that to which he would have been entitled under the oral agreement.

Much is aid in the brief of the appellant as to the alleged error committed by the court below in admitting and considering the evidence touching the oral agreement, and the statements made by the parties prior to and at the time when the written contract was executed. Many authorities are cited in support of the proposition that oral testimony is not admissible to vary or to modify the plain and unequivocal terms of a written instrument. But it is to be observed that there is no question here as to the meaning and intent of the written contract, and no attempt on the part of the plaintiff to deny its execution, or to place a different construction upon its terms than that given to it by the defendant. The contention of the plaintiff company is that the written contract was in fact executed, but that its execution was procured by the false and fraudulent representations of the manager of the defendant company, and should not therefore be held to bind the plaintiff company. All the evidence as to oral agreements, understandings, or representations made at the time of the execution of the written contract or prior thereto which tends to sustain the charge of fraud in procuring its execution was properly admitted, and as we hold, this evidence fully sustains the findings of the trial judge as to the existence of fraud in the execution of the contract.

What has been said sufficiently disposes of the principal issues involved in this appeal, and in regard to the remaining contentions of appellant it must suffice to say that we think they are satisfactorily disposed of in the decision of the court below.

The judgment entered by the trial court should therefore be, and is hereby, affirmed, with the costs of this instance against the Appellant.

Arellano, C.J., Trent and Araullo, JJ., concur.

Moreland, J., dissents.

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