CHARLES F. WOODHOUSE v. FORTUNATO F. HALILI, GR No.

L-4811, 1953-07-31
Facts:
plaintiff entered into a written agreement with the defendant, the most
important provisions of which are (1) that they shall organize a partnership for
the bottling and distribution of Mission soft drinks, plaintiff to act as industrial
partner or manager, and the defendant as a capitalist, furnishing the capital
necessary therefor; (2) that the defendant was to decide matters of general
policy regarding the business, while the plaintiff was to attend to the operation
and development of the... bottling plant; (3) that the plaintiff was to secure the
Mission Soft Drinks franchise for and in behalf of the proposed partnership; and
(4) that the plaintiff was to receive 30 per cent of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry
Corporation of Los Angeles, California that he had interested a prominent
financier (defendant herein) in the business, who was willing to invest half a
million dollars in the bottling and distribution of the said beverages, and
requested, in order that he may close the deal with him, that the right to bottle
and distribute be granted him for a limited time under the condition that it will
finally be transferred to the corporation plaintiff was given "a thirty days' option
on exclusive bottling and distribution rights for the Philippines"
The contract was finally signed by plaintiff on December 3, 1947.
On that day plaintiff and defendant went to the United States, and on December
10, 1947, a franchise agreement (Exhibit V) was entered into between the
Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse,
granting defendant the exclusive right, license, and authority to produce, bottle,
distribute, and sell Mission beverages in the Philippines. The... plaintiff and the
defendant thereafter returned to the Philippines.
When the bottling plant was already in operation, plaintiff demanded of defendant that the
partnership papers be executed. Defendant Halili gave excuses and would not execute said
agreement, thus the complaint by the plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits and
3)share thereof of 30 percent with 4) damages in the amount of P200,000. The Defendant on the
other hand claims that: 1) the defendant’s consent to the agreement, was secured by the
representation of plaintiff that he was the owner, or was about to become owner of an exclusive
bottling franchise, which representation was false, and that plaintiff did not secure the franchise
but was given to defendant himself 2) that defendant did not fail to carry out his undertakings,
but that it was plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive
franchise to the partnership, but plaintiff failed to do so with a 4) counterclaim for P200,00 as
damages.
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that the 2)
execution of contract cannot be enforced upon parties. Lastly, the 3) fraud wasn’t proved
trial court found that it is improbable that defendant was never shown the letter,
granting plaintiff the option; that defendant would not have gone to the United
States without knowing what authority plaintiff had fraud is never presumed and
must be proved; that the parties were represented by attorneys, and that if any
party thereto... got the worse part of the bargain, this fact alone would not
invalidate the agreement. On this appeal the defendant, as appellant, insists
that plaintiff did represent to the defendant that he had an exclusive franchise,
when as a matter of fact, at the time of its... execution, he no longer had it as
the same had expired, and that, therefore, the consent of the defendant to the
contract was vitiated by fraud and it is, consequently, null and void.
ISSUES

1. WON plaintiff falsely represented that he had an exclusive franchise to bottle Mission
beverages
2. WON false representation, if it existed, annuls the agreement to form the partnership

HELD

1. Yes. Plaintiff did make false representations and this can be seen through his letters to Mission
Dry Corporation asking for the latter to grant him temporary franchise so that he could settle the
agreement with defendant. The trial court reasoned, and the plaintiff on this appeal argues, that
plaintiff only undertook in the agreement “to secure the Mission Dry franchise for and in behalf
of the proposed partnership.” The existence of this provision in the final agreement does not
militate against plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. The defendant believed, or was
made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was also
agreed upon that the franchise was to be transferred to the name of the partnership, and that,
upon its dissolution or termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not
have the exclusive franchise, was to reduce, as he himself testified, plaintiff’s participation in the
net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff
actually made him believe that he(plaintiff) was the exclusive grantee of the franchise.

2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil)
fraud, the causal fraud, which may be ground for the annulment of a contract, and the incidental
deceit, which only renders the party who employs it liable for damages only. The Supreme Court
has held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente) inducement to the making of the contract.
The record abounds with circumstances indicative of the fact that the principal consideration, the
main cause that induced defendant to enter into the partnership agreement with plaintiff, was the
ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for
the partnership. The original draft prepared by defendant’s counsel was to the effect that plaintiff
obligated himself to secure a franchise for the defendant. But if plaintiff was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement. On the other hand, this supposed ownership of
an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the
share of 30 per cent granted him in the net profits of the partnership business. Defendant agreed
to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive
franchise to the partnership.
Having arrived at the conclusion that the contract cannot be declared null and void, may the
agreement be carried out or executed? The SC finds no merit in the claim of plaintiff that the
partnership was already a fait accompli from the time of the operation of the plant, as it is
evident from the very language of the agreement that the parties intended that the execution of
the agreement to form a partnership was to be carried out at a later date. , The defendant may not
be compelled against his will to carry out the agreement nor execute the partnership papers. The
law recognizes the individual’s freedom or liberty to do an act he has promised to do, or not to
do it, as he pleases.

Dispostive Postion: With modification above indicated, the judgment appealed from is
hereby affirmed.