Topic: Obligations of Partners; Loyalty/Fiduciary Duty; Art 1807

Hanlon v Hausserman and Beam

No. 14617. February 18, 1920
Street J.

Plaintiff and appellee: R. Y. HANLON

Defendants and appellants: JOHN W. HAUSSERMANN and A. W. BEAM,
Intervener: GEORGE C. SELLNER

Facts:
 Defendants Hausserman and Beam were shareholders and officers of Benguet Consolidated
Mining Company, a corporation organized in 1903.
 The company had a capital stock of $1 million with $1/share, wherein 501,000 shares remained
as unissued stock.
 In 1911, the company was without working capital and credit to rebuild its milling plant that was
completely destroyed by high water.
 In October 1913, plaintiff Hanlon, an experienced mining engineer, presented a proposition to the
company’s board of directors to rehabilitate the company.
 The proposal was approved and a contract between the company (through its vice president
Hausserman and secretary Beam) and Hanlon was executed.
 One of the terms in the contract was for Hanlon to pay the company the sum of P75,000 in cash
as contribution to the project.
 With no money to contribute, Hanlon asked defendants Hausserman and Beam, and Sellner (a
businessman in Manila) for assistance. The defendants agreed to find $25,000 while Sellner
agreed to advance P50,000. Their agreement was reduced to writing.
 Hanlon, Hausserman, Beam and Sellner agreed to raise the money within 6 months by obtaining
subscriptions to shares of the mining company (from the 501,000 unissued stock). It was
stipulated in their agreement that the failure of one to perform within the stipulated period would
discharge the others.
 Sellner defaulted in his part. Thereafter, Hausserman and Beam, who considered themselves
released from the Hanlon project, presented a new plan for the rehabilitation of the company.
 The new plan was adopted, and defendants succeeded in raising the price of the stock of the
company and made large profits.
Where the problem started:
 Hanlon sued Hausserman and Beam for his share in the profits. Plaintiff claimed that defendants
were able to profit by unjustly appropriating his labor and ideas from their contract.
 The defendants denied plaintiff’s allegations.

Issue:
Whether defendants are accountable to plaintiff as a fiduciary for the profits?

Ruling:
No.
After the termination of an agency, partnership, or joint adventure the party who stood in the
fiduciary relation to the other is free to act in his own interest with respect to the same subject-matter,
provided he has done nothing to lay a foundation for an undue advantage to himself during the
continuance of the relation. To act as fiduciary of another does not necessarily imply the creation of a
permanent disability in the fiduciary to act for himself in regard to the same subject matter.
In the present case, defendants acted in good faith for the accomplishment of the common
purpose and to the full extent of their obligation during the continuance of their contract, which would
have been consummated if it were not for the fault of others. With this, and being discharged of their
obligations from the Hanson project, defendants can act in their own interest with regard to the
rehabilitation of the company.
Moreover, being officers and shareholders of the company, defendants did not acquire any special
knowledge of the mine or of the feasibility of its reconstruction by reason of their relation with Hanlon
which they did not already have. The fact of their having been formerly associated with Hanlon certainly
did not preclude them from making use of the information which they possessed as stockholders and
officers of the mining company long before they came into contact with him.
Therefore, defendants are not accountable to the plaintiff.

Doctrine:

After the termination of an agency, partnership, or joint adventure the party who stood in
the fiduciary relation to the other is free to act in his own interest with respect to the same subject-
matter, provided he has done nothing to lay a foundation for an undue advantage to himself during
the continuance of the relation. To act as fiduciary of another does not necessarily imply the
creation of a permanent disability in the fiduciary to act for himself in regard to the same subject
matter.