G.R. No.

L-19689 April 4, 1923

PHILIPPINE NATIONAL BANK, plaintiff-appellant,
vs.
WELCH, AIRCHIL! " CO., INC., defendant-appellee.
Quintin Paredes for appellant.
Ross and Lawrence for appellee.
#TREET, J.:
By this action the plaintiff, the Philippine National Bank, seeks to recover of the defendant,
Welch, Fairchild & Co., Inc., the sum of !"#,$$$, %ith interest from &ay !', !(!), *ein+ part
of the proceeds of certain insurance effected in the year !(!) upon a ship called the Benito
Juarez and collected *y the defendant after said ship had *een lost at sea. ,pon hearin+ the cause
the trial -ud+e a*solved the defendant from the complaint and the plaintiff appealed.
In the first half of the year !(!), a corporation , kno%n as .a Compa/0a Naviera, Inc, %as
or+ani1ed in &anila under the la%s of the Philippine Islands, for the purpose of en+a+in+ in the
*usiness of marine shippin+. 2mon+ its shareholders %as Welch, Fairchild & Co., another
corporation or+ani1ed under the la%s of these Islands and havin+ its principal place of *usiness
in the City of &anila. 3f the shares of .a Compa/0a Naviera, Welch, Fairchild & Co, su*scri*ed
for 4"# shares of the par value of P!$$ each.
2s .a Compa/0a Naviera %as an entirely ne% enterprise in the shippin+ %orld, it %as necessary
for it to ac5uire a proper complement of vessels and ade5uate e5uipment and as shippin+ values
in those days %ere hi+h, the company did not have sufficient ready capital to meet all the
re5uirements. Its officials therefore in &ay, !(!), applied to the Philippine National Bank for a
loan of !"#,$$$. %ith %hich to purchase a *oat called Benito Juarez, %hich had *een found on
the market in the ,nited 6tates. 7he necessary credit appears to have *een e8tended *y the *ank
in the form of a loan for !"#,$$$, to run for one year from &ay !', !(!). Nevertheless, o%in+
to delay in the delivery of the vessel, the money %as not then delivered and %as not actually
advanced *y the *ank until several months later, as %ill presently appear.
It appears that Welch, Fairchild & Co. Was not num*ered amon+ the ori+inal promoters of .a
Compa/0a Naviera, *ut its interests are to a considera*le e8tent involved in the +eneral shippin+
conditions in the Islands and it looked %ith a friendly eye upon the ne% enterprise. &oreover, the
mercantile ramifications of Welch, Fairchild, & Co. appear to *e e8tensive9 and its friendly
offices %ere freely e8erted in *ehalf of .a Compa/0a Naviera, not only throu+h Welch & Co., the
correspondent of the defendant in 6an Francisco, *ut also throu+h &r. :eo. ;. Fairchild, the
president of Welch, Fairchild & Co. %ho left &anila for the ,nited 6tates in &arch of the year
!(!) and remained in that country for more than a year. ,pon this visit to the ,nited 6tates &r.
Fairchild %as kept advised as to certain needs of .a Compa/0a Naviera, and he acted for it in
important matters re5uirin+ attention in the ,nited 6tates. In particular it %as throu+h the efforts
of himself and of <ud+e <ames =oss, as attorney, that the consent of the proper authorities in
Washin+ton, >. C., %as o*tained for the transfer of the Benito Juarez to Philippine re+istry.
In 2u+ust, !(!), the Benito Juarez %as on the California coast, and after the approval of its
transfer to Philippine re+istry had *een o*tained, steps %ere taken for the delivery of the vessel
to the a+ents of the purchaser in 6an Francisco at the price of !"#,$$$, as a+reed9 and it %as
understood that the delivery of the purchase money %ould *e made *y the 2n+lo-.ondon and
Paris National Bank, in 6an Francisco, as a+ent of the Philippine National Bank,
contemporaneously %ith the delivery to it of the *ill of sale and the policy of insurance of the
vessel. It developed, ho%ever, that the vessel needed repairs *efore it could *e dispatched on its
voya+e to the 3rient9 and it *ecame impractica*le to deliver the *ill of sale and insurance policy
to the *ank in 6an Francisco at the time the money %as needed to effect the transfer. Bein+
advised of this circumstance, and fearin+ that a hitch mi+ht thus occur in the ne+otiations, Welch,
Fairchild & Co., in &anila, addressed a letter on 2u+ust ), !(!), to the Philippine National
Bank, re5uestin+ it to ca*le its correspondent in 6an Francisco to release the money and make
payment for the vessel upon application *y Welch & Co., %ithout re5uirin+ the delivery of the
*ill of sale or policy of insurance, "in which event," the letter continued, "the Compaa !aviera
will deliver to "ou here the #ill of sale also the insurance polic" coverin$ the vo"a$e to %anila."
In a letter *earin+ date of 2u+ust !$, !(!), also addressed to the Philippine National Bank, .a
Compa/0a Naviera, Inc. confirmed this re5uest and authori1ed the *ank to send the ca*le+ram
necessary to +ive it effect.
In response to these communications the Philippine National Bank, on 2u+ust !?, sent a
ca*le+ram to its correspondent in 6an Francisco authori1in+ payment of the purchase price of the
Benito Juarez, %ithout the production of either *ill of sale or insurance policy. ,nder these
circumstances the vessel %as delivered and money paid over %ithout the production or delivery
of the documents mentioned.
2fter the repair of the Benito Juarez had *een accomplished it %as insured *y Welch & Co. to
the value of !#$,$$$ and %as dispatched, in Novem*er, !(!), on its voya+e to the Philippine
Islands. 3n >ecem*er 4, !(!), the vessel encountered a storm off the Island of &olokai, in the
;a%aiian +roup, and *ecame a total loss.
When the insurance %as taken out to cover the voya+e to &anila, no policy %as issued *y any
insurer9 *ut the insurance %as placed *y Welch & Co. of 6an Francisco, upon the instructions of
Welch, Fairchild & Co., as a+ents of the Compa/0a Naviera, and it %as taken out in the ordinary
course of *usiness to protect the interests of all parties concerned.
2s %ould naturally happen in an insurance of this amount, the risk %as distri*uted amon+ several
companies, some in remote centers9 and it %as many months *efore Welch & Co., of 6an
Francisco, had collected the full amount due from the insurers. ;o%ever, as the money came to
the hands of Welch & Co., of 6an Francisco, it %as remitted *y draft or tele+raphic transfer to
Welch, Fairchild & Co. in &anila9 and in this manner practically the full amount for %hich the
Benito Juarez had *een insured %as transmitted to &anila *y the last days of <une, !(!(.
2s %as perhaps *ut natural under the circumstances, the Philippine National Bank appears to
have e8hi*ited no concern a*out its loan of !"#,$$$ to .a Compa/0a Naviera, or a*out the
proceeds of the insurance on the Benito Juarez, until after the period of credit allo%ed *y the
*ank on the loan to .a Compa/0a Naviera had e8pired, that is to say, after &ay !', !(!(. 2 short
%hile after this date, an incident occurred upon %hich the attorneys for the defendant in this case
have placed +reat emphasis, and it is this@ In the latter part of the month aforesaid Welch & Co.,
havin+ collected !4,$$$ upon account of the insurance on the Benito Juarez, attempted to remit
it *y tele+raphic transfer to Welch, Fairchild & Co. in &anila, *ut *y some mistake or other, the
money %as remitted to the Philippine National Bank in Ne% Aork, and it %as not until a*out a
month later that authority %as received *y the Philippine National Bank in &anila to pay to
Welch, Fairchild & Co. the sum of !4,$$$ upon account of said insurance.
When the authority for the transfer of this credit reached the Philippine National Bank, the
attention of the *ank officials %as dra%n to the fact that the transfer related to money formin+
part of the proceeds of the insurance on the Benito Juarez, and they at first determined to
intercept the transfer and %ithout the credit from Welch, Fairchild & Co., on the +round that the
money *elon+ed to the *ank. 7his claim on the part of the *ank %as of course *ased on the letter
of Welch, Fairchild & Co. dated 2u+ust ), !(!), in %hich the promise had *een held out that, if
the *ank %ould advance the purchase money of the Benito Juarez %ithout re5uirin+ the
concurrent delivery of the policy of insurance, said policy %ould *e delivered later *y .a
Compa/0a Naviera in &anila. When the determination of the *ankBs officials to %ithhold the
money %as communication to Welch, Fairchild & Co., a stron+ protest %as made, and its
attorney came at once to the *ank to intervie% its president. 2s a result of this intervie% the
president of the *ank receded from his position a*out the matter, and an order %as made that the
money should *e passed to the credit of Welch, Fairchild & Co., as %as done on <uly "4, !(!(. 2
day or t%o later the *ank further credited the account of Welch, Fairchild & Co. %ith the sum of
P!!(.C#, as interest on the money durin+ the time it had *een %ithheld.
In the course of the intervie% a*ove alluded to, not only did the attorney of Welch, Fairchild &
Co, call the attention of the president of the *ank to the dou*tful propriety of its act in
interceptin+ a remittance of money %hich had *een confined to its a+ent in 6an Francisco for
transmission to Welch, Fairchild & Co. in &anila, *ut he also pointed out that Welch, Fairchild
& Co. had acted throu+hout merely in the capacity of a+ent for .a Compa/0a Naviera, and he
therefore insisted that Welch, Fairchild & Co. %as not le+ally *ound *y the promise made *y it in
the letter of 2u+ust ), !(!), to the effect that the policy of insurance %ould *e delivered to the
*ank in &anila *y .a Compa/0a Naviera9 and this contention %as ur+ed %ith such force that the
president of the *ank D %ho %as not a la%yer D ackno%led+ed himself van5uished, and in the
end said that he must have *een mistaken in his contention and that the attorney %as ri+ht.
6hortly after this incident the *ank %hich had permitted .a Compa/0a Naviera to *ecome
inde*ted to it upon inade5uate security to the e8tent of nearly a million pesos *e+an to take steps
lookin+ to the *etterment of its position in relation %ith said company. 7o this end, on 2u+ust "),
!(!(, it %ent throu+h the *arren formality of makin+ demand upon .a Compa/0a Naviera for the
delivery of the insurance policies on the Benito Juarez, *ut %as informed *y .a Compa/0a
Naviera that it had never received any policy of insurance upon the Benito Juarez as the vessel
had *een insured in 6an Francisco *y Welch, Fairchild & Co. in *ehalf of .a Compa/0a Naviera.
2 little later the *ank caused .a Compa/0a Naviera to e8ecute pled+es to the *ank upon three
steamers *elon+in+ to said company as security for its inde*tedness to the *ank. 7hereafter
matters %ere permitted to drift until it *ecame apparent that .a Compa/0a Naviera %as insolvent9
and on >ecem*er (, !(!(, the *ank made formal demand upon Welch, Fairchild & Co, for the
delivery of the insurance policy for !"#,$$$ on the Benito Juarez, *asin+ its demand on the
letter of Welch, Fairchild & Co. of 2u+ust ), !(!), already mentioned.
2s the *ank officials already kne% that the insurance had *een collected many months
previously *y Welch, Fairchild & Co., it is evident that the makin+ of demand for delivery of a
policy for !"#,$$$ %as a mere formula *y %hich the *ank intended to plant a contention that
the proceeds of the insurance, to the e8tent of !"#,$$$, *elon+ed to it. 7o this demand Welch,
Fairchild & Co. responded %ith a ne+ative.
&ean%hile, %hat had *ecome of the proceeds of the insurance upon the Benito JuarezE 7hat
money, as %e have already seen, came to the hands of Welch, Fairchild & Co. in &anila and has
there rested, havin+ *een applied *y Welch, Fairchild & Co. in part satisfaction of inde*tedness
incurred *y .a Compa/0a Naviera to it. 7his disposition of the insurance money %as made *y
Welch, Fairchild & Co. %ith the tacit approval of .a Compa/0a Naviera, the credits *ein+
notified to the latter *y the former as the remittances %ere received to &anila and entered in the
accounts of *oth companies accordin+ly.
7o e8plain the situation %hich had thus arisen *et%een the t%o companies, further reference is
here necessary to matters that had taken place durin+ the precedin+ year. 2s %e have already
stated, Welch, Fairchild & Co. had assisted .a Compa/0a Naviera in effectin+ the purchase and
transfer of the Benito Juarez to Philippine re+istry. In addition to this, Welch, Fairchild & Co.
advanced in 6an Francisco several thousands of pesos necessary for the repair and e5uipment of
that vessel prior to its departure for the Philippine Islands9 and the incurrin+ of these e8penses
e8plain %hy insurance %as taken out to the e8tent of !#$,$$$ instead of !"#,$$$, the latter
sum *ein+ merely the item of cost price. But the friendly offices of Welch, Fairchild & Co. %ere
not limited to the fore+oin+ matters, and said company rendered practically the same service
%ith respect to other vessels %hich %ere purchased for .a Compa/0a Naviera, %ith the result that
the advances made *y Welch, Fairchild & Co., *e+innin+ in the autumn of !(!), steadily
mounted in the course of succeedin+ months and in the end ran up into the hundreds of
thousands of pesos. 3ne particular incident, most disastrous to the latter company, consisted in
the operation *y it, durin+ several months in !(!(, of the &an Pedro, one of the vessels
*elon+in+ to .a Compa/0a Naviera, under contract %ith the latter company.
7he result of these e8penditures and advances of money *y Welch, Fairchild & Co. %as that the
inde*tedness of .a Compa/0a Naviera to Welch, Fairchild & Co. mounted steadily durin+ the
year !(!(, and said inde*tedness %as *y no means li5uidated *y the application to it of the
insurance money from the Benito Juarez. In this connection %e note the follo%in+ de*it *alances
char+ed on the *ooks of Welch, Fairchild & Co. a+ainst the .a Compa/0a Naviera as the same
appear *y monthly statements from Novem*er 4$, !(!), to 6eptem*er 4$, !(!(9 and it %ill *e
remem*ered that these are the *alances appearin+ after credit had *een +iven for the collections
of the insurance money. 6aid de*it *alances for the months stated are as follo%s@ ,pon
Novem*er 4$, !(!), P4,C'#.'!9 upon >ecem*er 4!, !(!), P4$,C"'9 upon <anuary "#, !(!(,
P(4,(C!.?(9 upon Fe*ruary "', !(!(, P!?#,!4$.')9 upon &arch 4$, !(!(, P!?C,4'$.CC9 upon
2pril "(, !(!(, P!?),#?"."#9 upon &ay 4$, !(!(, P!#4,$C$.!49 upon <une 4$, !(!(,
P!4(,#4!."'9 upon <uly 4!, !(!(, P!C),'"?9 upon 2u+ust 4!, !(!(, P!C(,(4".?!9 upon
6eptem*er 4$, !(!(, P!)#,C#!.'4.
7he fore+oin+ statement of facts makes comprehensi*le the contentions upon %hich the defense
to the present action is *ased9 and these contentions may *e stated in the follo%in+ propositions@
First, that, inasmuch as Welch, Fairchild & Co. acted e8clusively in the character of a+ent for .a
Compa/0a Naviera in the purchase of the Benito Juarez, no o*li+ation enforci*le a+ainst it %as
created *y the letter of 2u+ust ), !(!), and as a conse5uence the *ank should look e8clusively to
.a Compa/0a Naviera, as principal, for indemnification for any loss resultin+ from the failure of
said company to deliver the insurance policy, or policies, on the Benito Juarez, or the proceeds
thereof, to the *ank9 secondly, that, even supposin+ that the letter of 2u+ust ), !(!), created any
o*li+ation that the defendant %as *ound to respect, nevertheless the *ank %aived and a*andoned
any ri+ht that it may have had upon the facts stated9 and, thirdly and finally, that, *y reason of the
delay of the *ank and its a*andonment of its claim a+ainst the defendant, in relation %ith the
pre-udice there*y incurred *y the defendant, the *ank is estopped to assert any ri+ht that it may
have had in the premises.
We are of the opinion that all of these contentions are untena*le and that the plaintiff *ank has a
clear ri+ht of action a+ainst the defendant, in no%ise affected adversely *y any of the
considerations su++ested. ,pon the first point, %hile it is true that an a+ent %ho acts for a
revealed principal in the makin+ of a contract does not *ecome personally *ound to the other
party in the sense that an action can ordinarily *e maintained upon such contract directly a+ainst
the a+ent Fart. !'"#, Civ. CodeG, yet that rule clearly does not control this case9 for even
concedin+ that the o*li+ation created *y the letter of 2u+ust ), !(!), %as directly *indin+ only
on the principal, and that in la% the a+ent may stand apart therefrom. yet it is manifest upon the
simplest principles of -urisprudence that one %ho has intervened in the makin+ of a contract in
the character of a+ent cannot *e permitted to intercept and appropriate the thin+ %hich the
principal is *ound to deliver, and there*y make performance *y the principal impossi*le. 7he
a+ent in any event must *e precluded from doin+ any positive act that could prevent performance
on the part of his principal. 7his much, ordinary +ood faith to%ards the other contractin+ party
re5uires. 7he situation *efore us in effect is one %here, not%ithstandin+ the promise held out
-ointly *y principal and a+ent in the letters of 2u+ust ) and !$, !(!), the t%o have conspired to
make an application of the proceeds of the insurance entirely contrary to the tenor of said letters.
7his cannot *e permitted.
7he idea on %hich %e here proceed can perhaps *e made more readily apprehensi*le from
another point of vie%, %hich is this@ By virtue of the promise contained in the letter of 2u+ust ),
!(!), the *ank *ecame the e5uita*le o%ner of the insurance effected on the Benito Juarez to the
e8tent necessary to indemnify the *ank for the money advanced *y it, in reliance upon that
promise, for the purchase of said vessel9 and this ri+ht of the *ank must *e respected *y all
persons havin+ due notice thereof, and most of all *y the defendant %hich took out the insurance
itself in the interest of the parties then concerned, includin+ of course the *ank. 7he defendant
therefore cannot no% *e permitted to i+nore the ri+ht of the *ank and appropriate the insurance
to the pre-udice of the *ank, even thou+h the act *e done %ith the consent of its principal.
2s to the ar+ument founded upon the delay of the *ank in assertin+ its ri+ht to the insurance
money, it is enou+h to say that mere delay unaccompanied *y acts sufficient to create an
e5uita*le estoppel does not destroy le+al ri+hts, *ut such delay as occurred here is in part
e8plained *y the fact that the loan to .a Compa/0a Naviera did not mature till &ay !', !(!(, and
a demand for the surrender of the proceeds of the insurance *efore that date %ould have seemed
premature. Besides, it is to *e *orne in mind that most of the insurance %as not in fact collected
until in <une of !(!(. It is true that in the month of &arch previous a*out P#$,$$$ of this
insurance had *een remitted to &anila for Welch, Fairchild & Co. throu+h the plaintiff *ank, and
the *ank, %e assume, took notice of the source of the remittance. ;o%ever, its failure then to
assert its claim to the money is not a matter of le+itimate criticism, since the loan %as not then
due. 2fter &ay !', !(!(, the situation %as some%hat different9 and as %e have already seen, the
*ank %as not slo% in assertin+ its ri+ht to the remittance that came throu+h the *ank in <une to
Welch, Fairchild & Co., consistin+ of !4,$$$ of the proceeds of this insurance.
7his *rin+s us to consider the le+al effect of the incident %hich culminated on <uly "4, !(!(,
%hen the *ank a*andoned its previous position %ith re+ard to this remittance and passed the
money to the credit of the defendant, %ith interest upon the same durin+ the time payment had
*een %ithheld. 7he most, %e think, that can fairly *e said a*out that incident is that the *ank
president admitted himself to *e a convert to the proposition advanced *y the attorney for the
defendant to the effect that as the defendant had merely acted as a+ent for .a Compa/0a Naviera
in the matter, the *ank must look e8clusively to .a Compa/0a Naviera for the fulfillment of the
promise a*out the insurance money. 2s a statement of le+al doctrine that proposition %as, as %e
have already sho%n, a mistake9 *ut of course it %ould have *een a matter of indifference if .a
Compa/0a Naviera had remained solvent. 3ne consideration that must have operated on the mind
of the president of the *ank in releasin+ this money %as that it had *een remitted in ordinary
course of e8chan+e throu+h the *ank to the defendant, %hich %as an entirely responsi*le party9
and even thou+h the *ank may have had the po%er to intercept the remittance, the president may
have considered that the commercial inte+rity of the institution in matters of e8chan+e %as
perhaps %orth more than could *e +ained *y an o*stinate insistence on its ri+ht to this money.
7here is no evidence %hatever that the president of the *ank assumed to release the defendant
from any o*li+ation %hich mi+ht have *een incurred *y virtue of the letter of 2u+ust ), !(!).
From intimations contained in the testimony of some of the %itnesses presented *y the defendant
it mi+ht *e inferred that at some time or another an understandin+ had *een reached *et%een the
*ank and the defendant company *y %hich it %as a+reed that the defendant should make
advances of money to .a Compa/0a Naviera and that it mi+ht look to the proceeds of the
insurance on the Benito Juarez to reim*urse itself for those outlays. No such a+reement %ith the
*ank or any official of the *ank is alle+ed in the defendantBs ans%er9 and as one reads the
testimony su*mitted *y the defendant this hearsay su++estion continually flits a%ay, until it
*ecomes apparent that no such a+reement %as made. 7hat there %as some such understandin+
*et%een the defendant and .a Compa/0a Naviera is hi+hly pro*a*le, *ut to that understandin+
the *ank clearly %as not a party.
It is insisted, ho%ever, that the attitude of the *ank has *een such that the defendant has *een
misled to its pre-udice, in that only did it +ive lar+e credit to .a Compa/0a Naviera for sums to
*e recouped from this insurance money *ut that in reliance upon its ri+ht to that money it
refrained from takin+ the steps that it mi+ht have taken to save itself from loss9 and in this
connection it is su++ested that *ut for the incident in <uly, !(!(, %hen the *ank %aived its claim
to the !4,$$$ remitted throu+h it to Welch, Fairchild & Co., the defendant %ould have sou+ht
and %ould have *een a*le to +et additional security in the form of mort+a+es or pled+es of one or
more vessels *elon+in+ to .a Compa/0a Naviera.
7he proof in our opinion sho%s little or no tan+i*le *asis for these contentions9 and so far as %e
can see not one dollar %as ever advanced *y the defendant to .a Compa/0a Naviera upon the
faith of any re5uest, promise, or representation of the *ank in that *ehalf e8tended9 and it should
*e noted that the lar+e losses incurred *y the defendant for advances to that concern after <uly
"4, !(!(, %ere mostly incurred in the desperate effort to retrieve its position *y operatin+ the
&an Pedro. 7he su++estion that, *ut for the misleadin+ attitude of the *ank, the defendant %ould
have *een a*le to o*tain additional security loses much of its force %hen it is considered that
upon >ecem*er 4!, !("!, the defendantBs *ook still sho%ed unsecured inde*tedness a+ainst .a
Compa/0a Naviera to the amount of nearly P#$,$$$. 7he idea that, *ut for the attitude assumed
*y the *ank, the defendant %ould have materially *ettered its position, is a speculation too
remote to affect the issue of this action.
In the li+ht of %hat has *een said, it *ecomes necessary to reverse, as %e here*y do reverse, the
-ud+ment appealed from9 and -ud+ment %ill *e entered in favor of the plaintiff to recover of the
defendant the sum of P"#$,$$$, %ith la%ful interest from &ay 4!, !("!, the date of the fillin+ of
the complaint. No special pronouncement %ill *e made as to costs. 6o ordered.