PNB v Welch, Fairchild & Co., Inc.
Delivery of the purchase money
4 April 1923 | Street, J. | Topic: Obligations
and liabilities of agents to third parties
DOCTRINE: An agent who obligates his
principal to deliver specific property to a
third party may not thereafter, to the
prejudice of such third party, appropriate and
apply the same property, or its proceeds, to
the payment of debts owing by the principal
to the agent; and the circumstance that the
principal assents to such application of the
property does not alter the case.
FACTS:
(1918) La Compania Naviera Inc was
organized in Manila, engaged in the business
of marine shipping.
Welch, Fairchild & Co (WFC) is one
of its shareholders, with 325 shares
La Compania was a new enterprise in the
shipping world and needed to acquire a
proper complement of vessels and adequate
equipment.
Shipping values were high, the
company did not have sufficient
capital prompting its officials to
apply a loan to the PNB to purchase
a boat called Benito Juarez being
sold in the US.
The loan was for $125,000 to run for one
year from May 17, 1918.
The delivery of the vessel was
delayed, the money was not
delivered and was not advanced by
PNB until several months later.
Geo Fairchild, president of WFC, visited US
and was kept advised as to the certain needs
of La Compania, even acting for it in
important matters requiring attention in the
US. It was through his efforts and of Judge
James Ross that the consent of the proper
authorities in Washington, was obtained for
the transfer of the Benito Juarez to Philippine
registry.
(Aug 1918) Steps were taken for the delivery
of the vessel to the agents of the purchaser
in San Francisco.
would be made by the Anglo-
London and Paris National Bank in
San Francisco, as agent of PNB
together with the delivery of the bill
of sale and the policy insurance.
However, the vessel needed repairs before it
could be dispatched.
WFC, Fairchild & Co. in Manila wrote
to PNB requesting it to cable its
correspondent in San Francisco to
release the money and pay for the
vessel without requiring the
delivery of the bill of sale or policy
of insurance. The letter was
confirmed by La Compania.
PNB sent a cablegram to its correspondent
authorizing the payment of the purchase
price without the production of the bill of sale
or insurance policy. Vessel was then
delivered.
Benito Juarez was insured by WFC. On its
way to the Philippines, the vessel
encountered a storm off Hawaii and became
a total loss.
When the insurance was taken out to cover
the voyage, no policy was issued by any
insurer; but the insurance was placed by
WFC of San Francisco, as agents of the
Compania and it was taken out in the
ordinary course of business to protect the
interests of all parties.
It was many months before WFC had
collected the full amount due from the
insurers. The full amount for which the
Benito Juarez had been insured was
transmitted to Manila by the last days of June
1919.
Instead of remitting $13,000 to WFC Manila,
it was mistakenly transferred to PNB in New
York and only about a month later that
authority was received by PNB Manila to pay
WFC $13,000 upon account of the insurance.
It was this mistake that aroused the attention
of the bank officials. They wanted to
intercept the $13,000-transfer on the ground
that the money belonged to the bank.
This was based on the letter of WFC
promising that if the bank would
advance the purchase money of
the vessel without requiring the
concurrent delivery of the policy
insurance, the same would be
delivered by La Compania.
The money was withheld gaining an
interest of P119.65, later credited
to the account of WFC.
WFC pointed out that it acted merely in the
capacity of agent for La Compania and that it
was not legally bound by the promise made
in the letter to the effect that the policy
insurance would be delivered to the bank in
Manila by La Compania to which the PNB
president acquiesced.
(Aug 28, 1919) PNB made a demand upon La
Compania for the delivery of the insurance
policy but was informed that no insurance
policy was received as the vessel had been
insured in San Francisco by WFC in behalf of
La Compania.
PNB then caused La Compania to
execute pledged upon three
streamers as security for its
indebtedness.
When it became apparent that La
Compania was insolvent, the bank
made formal demand upon WFC for
the delivery of the insurance policy
based on the earlier letter by WFC.
Meanwhile, the proceeds of the insurance
upon the Benito Juarez was with WFC Manila
having applied by WFC in part satisfaction of
indebtedness incurred by La Compania to it.
This disposition of the insurance money was
made by WFC with the tacit approval of La
Compania.
ISSUE: W/N WFC is liable to PNB
RATIO:
Although an agent who acts for a revealed
principal in the making of a contract does not
become personally bound to the other party
in the sense that an action can ordinarily be
maintained upon such contract directly
against the agent, such rule cannot be
applied in this case. Even though the
obligation created by the August 1918 letter
was directly binding only on the principal,
and that in law, the agent may stand apart
therefrom, it is manifest that one who has
intervened in the making of a contract in the
character of agent cannot be permitted to
intercept and appropriate the thing which the
principal is bound to deliver and thereby
make performance by the principal
impossible.
Notwithstanding the promise held out jointly
by principal and agent in the letters, the two
have conspired to make an application of the
proceeds of the insurance entirely contrary
to the tenor of the letters. By virtue of the
promise contained in the letter of August 8,
1918, the bank became the equitable owner
of the insurance effected on the Benito
Juarez to the extent necessary to indemnify
the bank for the money advanced by it, in
reliance upon that promise, for the purchase
of said vessel; and this right of the bank
must be respected by all persons having due
notice thereof, and most of all by the
defendant which took out the insurance itself
in the interest of the parties then concerned,
including of course the bank. The defendant
therefore cannot now be permitted to ignore
the right of the bank and appropriate the
insurance to the prejudice of the bank, even
though the act be done with the consent of
its principal
Judgment appealed from is reversed.
Judgment entered in favor of the plaintiff to
recover from the defendant.
DISSENT | Malcolm, J.
Judgment should be affirmed. There is no
contractual relation between WFC and PNB
with respect to the money in question.