Germann & Co. vs. Donaldson, Sim & Co.

The formal validity of contracts is tested by the laws of the country where they are executed. An agency instrument executed abroad by a foreigner upon another foreigner, though not authenticated with the formalities required by domestic law, is valid if executed with the formalities required by the law of the place of execution. Furthermore, a general power of attorney expressly authorizing the agent to "exact the payment" of sums of money "by legal means" includes the power to institute suits for their recovery, as this is an act of administration rather than an act of strict ownership.

The plaintiff, Germann & Co., was a commercial business owned by Max Leonard Tornow, a German citizen residing in Berlin, with a branch in Manila. The defendants, Donaldson, Sim & Co., were parties to a charter party with the plaintiff, from which a claim for freight arose. The dispute concerned the validity and scope of a power of attorney executed in Germany by Tornow in favor of Fernando Kammerzell, a fellow German citizen residing in Manila, which was the basis of the plaintiff's attorney's authority to bring suit.

The action was brought by Germann & Co. against Donaldson, Sim & Co. to recover a sum claimed to be due for freight under a charter party. The suit was instituted by virtue of a general power for suits executed in Manila on October 27, 1900, by Fernando Kammerzell, which purported to be a substitution in favor of several attorneys of powers conferred upon Kammerzell in an instrument executed in Berlin, Germany, on February 5, 1900, by Max Leonard Tornow, the sole owner of the business carried on in Berlin and Manila under the name of Germann & Co. The instrument executed in Manila was authenticated by a notary with the formalities required by domestic laws, but the instrument executed in Berlin was not so authenticated. Both Tornow and Kammerzell were citizens of Germany, with Tornow residing in Berlin and Kammerzell in Manila.

The defendants claimed that the original power was invalid under Article 1280, No. 5, of the Civil Code, which provides that powers for suits must be contained in a public instrument. No claim was made that the document was not executed with the formalities required by German law. The defendants further claimed that the original power could not be construed as conferring upon Kammerzell authority to institute or defend suits, relying on Article 1713 of the Civil Code, which provides that an agency stated in general terms only includes acts of administration, and that an express commission is required to compromise, alienate, mortgage, or execute any other act of strict ownership.

The instrument executed by Tornow constituted Kammerzell his "true and lawful attorney with full power to enter the firm name of Germann & Co. in the Commercial Registry of the city of Manila as a branch of the house of Germann & Co. in Berlin," with the purpose of investing said attorney with full legal powers to direct and administer a branch of the general commercial business of importation and exportation. The instrument authorized Kammerzell to make contracts of lease, employ assistants, sign documents and obligations connected with the business, take charge of receipt and delivery of merchandise, sign receipts for sums of money, collect them, and "exact their payment by legal means," and in general execute all acts and things necessary for the perfect carrying on of the business.

• Formal Validity of the Power: The plaintiff's counsel argued that the provisions of the domestic law requiring powers for suits to be in a public instrument were not applicable to the case of an agency conferred by one foreigner upon another in an instrument executed in the country of which both were citizens.
• Scope of Authority: The plaintiff's counsel argued that the instrument contained an explicit grant of power broad enough to authorize the bringing of the present action, even assuming the applicability of the domestic law as claimed by the defendants.

• Formal Validity of the Power: The defendants claimed that the original power was invalid under Article 1280, No. 5, of the Civil Code, which provides that powers for suits must be contained in a public instrument.
• Scope of Authority: The defendants claimed that the original power could not be construed as conferring upon Kammerzell authority to institute or defend suits, relying on Article 1713 of the Civil Code, which provides that an agency stated in general terms only includes acts of administration, and that an express commission is required for acts of strict ownership.

• Formal Validity of the Power: Whether the original power of attorney executed in Berlin, not authenticated with the formalities required by domestic law, is valid.
• Scope of Authority: Whether the original power of attorney conferred upon Kammerzell authority to institute the present suit.

• Formal Validity of the Power: Yes. The general principle that the formal validity of contracts is to be tested by the laws of the country where they are executed applies, pursuant to Article 11 of the Civil Code.
• Scope of Authority: Yes. The instrument contained an explicit grant of power broad enough to authorize the bringing of the present action, even assuming the applicability of the domestic law as claimed by the defendants.

• Formal Validity of the Power: The Court saw no reason why the general principle that the formal validity of contracts is to be tested by the laws of the country where they are executed should not apply, citing Article 11 of the Civil Code. Since no claim was made that the document was not executed with the formalities required by German law, the original power was valid notwithstanding the lack of authentication with the formalities required by domestic law.

• Scope of Authority: The Court declined to pass upon the question of whether the domestic law provisions on agency were applicable to an agency conferred by one foreigner upon another in an instrument executed in the country of which both were citizens, since it was clearly of the opinion that the instrument contained an explicit grant of a power broad enough to authorize the bringing of the present action, even assuming the applicability of the domestic law. The Court reasoned that the institution of a suit to collect a claim accruing in the ordinary course of the plaintiff's business did not properly belong to the class of acts described in Article 1713 of the Civil Code as acts "of strict ownership," but rather was something necessarily a part of the mere administration of such a business. Even if regarded as an act of strict ownership, the Court found that it was expressly and specially authorized by the clause conferring the power to "exact the payment" of sums of money "by legal means," which must mean the power to exact the payment of debts due the concern by means of the institution of suits for their recovery. Any doubt as to the meaning of this language was removed by a consideration of the general scope and purpose of the instrument, pursuant to Article 1286 of the Civil Code, since the main object of the instrument was to make Kammerzell the manager of the Manila branch with the same general authority which his principal would himself possess if personally directing it.

• Lex loci celebrationis (formal validity of contracts) — The formal validity of contracts is to be tested by the laws of the country where they are executed. The Court applied this principle to uphold the validity of a power of attorney executed in Germany, notwithstanding its lack of authentication with the formalities required by domestic law, since no claim was made that it was not executed with the formalities required by German law.

• Acts of administration vs. acts of strict ownership in agency — Under Article 1713 of the Civil Code, an agency stated in general terms only includes acts of administration, while acts of strict ownership require an express commission. The Court held that the institution of a suit to collect a claim accruing in the ordinary course of business is an act of administration, not an act of strict ownership, since it only incidentally involves a power to dispose of the title to property.

• Interpretation of powers of attorney according to general scope and purpose — Pursuant to Article 1286 of the Civil Code, the meaning of a clause in an instrument is to be considered in light of the general scope and purpose of the instrument. The Court applied this principle to interpret the power to "exact the payment" of sums of money "by legal means" as including the power to institute suits for their recovery, given the instrument's main object of making the agent the manager of the business with the same general authority as the principal.

• "We see no reason why the general principle that the formal validity of contracts is to be tested by the laws of the country where they are executed should not apply. (Civil Code, art. 11.)" — This passage establishes the controlling conflict-of-laws principle that the formal validity of the power of attorney is governed by the law of the place of execution, which is the ratio decidendi for the first issue.

• "We should not be inclined to regard in institution of a suit like the present, which appears to be brought to collect a claim accruing in the ordinary course of the plaintiff's business, as properly belonging to the class of acts described in article 1713 of the Civil Code as acts 'of strict ownership.' It seems rather to be something which is necessarily a part of the mere administration of such a business as that described in the instrument in question and only incidentally, if at all, involving a power to dispose of the title to property." — This passage defines the distinction between acts of administration and acts of strict ownership under Article 1713, holding that suing to collect a business debt is an act of administration.

• "This must mean the power to exact the payment of debts due the concern by means of the institution of suits for their recovery. If there could be any doubt as to the meaning of this language taken by itself, it would be removed by a consideration of the general scope and purpose of the instrument in which it occurs. (See Civil Code, art. 1286.)" — This passage articulates the Court's interpretation of the express grant of power to "exact payment by legal means" as authorizing the institution of suits, and applies the principle of interpreting language in light of the instrument's general purpose.

• Article 11, Civil Code — Provides that the formal validity of contracts is to be tested by the laws of the country where they are executed. The Court applied this provision to uphold the validity of the power of attorney executed in Germany.
• Article 1280, No. 5, Civil Code — Provides that powers for suits must be contained in a public instrument. The Court considered this provision in the defendants' objection but found it inapplicable because the formal validity of the instrument was governed by German law.
• Article 1286, Civil Code — Provides that the meaning of a clause in an instrument is to be considered in light of the general scope and purpose of the instrument. The Court applied this provision to interpret the power to "exact the payment" of sums of money "by legal means" as including the power to institute suits.
• Article 1713, Civil Code — Provides that an agency stated in general terms only includes acts of administration, and that an express commission is required to compromise, alienate, mortgage, or execute any other act of strict ownership. The Court held that the institution of a suit to collect a claim in the ordinary course of business is an act of administration, not an act of strict ownership.

Arellano, C.J., Torres, Cooper, Willard, and Mapa, JJ., concurred.