Tuesday, March 20, 2012

Woodhouse vs. Halili [93 PHIL 527 # L-4811. July 31, 1953]

Facts: The Plaintiff entered into an agreement with the defendant for the establishment of a partnership for bottling and distribution of Mission soft drinks. Before the partnership was actually established the defendant required the plaintiff to secure an exclusive franchise for the said venture. In behalf of the said partnership and upon obtaining the said exclusive franchise the defendant stipulated to pay the plaintiff 30% of the profits. The plaintiff sought to obtain the said exclusive franchise but was only given a temporary one, subject only to 30 days. The parties then proceeded with the signing of the agreement. The partnership was still not initiated, only the agreement to work with each other, with the plaintiff as manager and the defendant as financer, was established. 

Together the two parties went to the US to formally sign the contract of franchise with Mission Dry Corporation. The defendant then found out about the temporary franchise right given to the plaintiff, different from the exclusive franchise rights they stipulated in their contract. 

When the operations of the business began he was paid P 2,000 and was allowed the use of a car. But in the next month, the pay was decreased to P 1,000 and the car was withdrawn from him. 

The plaintiff demanded the execution of the partnership, but the defendant excused himself, saying that there was no hurry to do so. The Court of First Instance ordered the defendant to render an accounting of the profits and to pay the plaintiff 15% of such amount. It also held that execution of the contract of partnership cannot be enforced upon the defendant and that fraud as alleged by the defendant was also not proved. Hence the present action. 


(1) Whether the representation of the plaintiff in saying that he had exclusive franchise rights rather than the actual temporary right he possessed invalidated the contract 

(2) Whether the court may compel the defendant to execute the contract of partnership between the parties 

(3) What will be the amount of damages to be paid to the plaintiff? 

Held: The Decision of the Court of First Instance is affirmed with modification. 

Fraud was undoubtedly employed by the plaintiff to secure the consent of the defendant to enter into the contract with him by representing himself as holder of exclusive franchise rights when in fact he only holds a temporary franchise right good for 30 days. The fraud employed was not such as to render the contract null and void but only such as to hold the plaintiff liable for damages. Such fraud is merely incidental (dolo incidental) and not the causal fraud (dolo causante) that is detrimental to a contract. It does not invalidate the contract since fraud was only employed to secure the 30% stipulated share from the partnership. 

The parties cannot be compelled to enter into a contract of partnership. The law recognizes the liberty of an individual to do or not to do an act. The action falls within Acto Personalisimo (a very personal act) which courts may not compel compliance. 

The 15% that the Trial court ordered the defendant to pay the plaintiff is deemed to be the appropriate and reasonable. Such amount was the spontaneous reaction of the defendant upon knowledge of the misrepresentation of the plaintiff and amounts to the virtual modification of their contract.

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