Hanlon vs. Haussermann and Beam

The obligation under a joint adventure agreement containing a mutual and concurrent condition is extinguished upon the failure of one party to perform their part of the obligation, discharging the other parties from their correlative duties.

The Benguet Consolidated Mining Company's milling plant was destroyed, leaving it without capital or credit. In 1913, Hanlon, an engineer, proposed a rehabilitation plan. To finance it, Hanlon, Sellner, and defendants Haussermann and Beam (who were company directors) entered into a profit-sharing agreement to raise P75,000 by selling stock.

• Filed in the Court of First Instance (trial court).
• The trial court rendered judgment in favor of Hanlon and Sellner, ordering the defendants to surrender 24,000 shares each and pay dividends.
• Defendants appealed directly to the Supreme Court (as was permissible at the time).

• Hanlon contracted with the mining company (Exhibit B) to rehabilitate it in exchange for 501,000 shares, contingent on him paying P75,000 into the company treasury within six months.
• Hanlon, Sellner, Haussermann, and Beam signed a separate agreement (Exhibit A) to collaborate. Sellner agreed to raise P50,000, and Haussermann/Beam agreed to raise P25,000 from the sale of designated stock blocks.
• The agreement contained a clause (Paragraph II(d)) stating that if either party failed to raise their portion within six months, the obligation of the other party would be discharged.
• Sellner failed to raise his P50,000. The six-month period elapsed without the full P75,000 being raised.
• The defendants then organized a new financing plan with a different financier (Sendres/Bank of the Philippine Islands), which succeeded. They received 96,000 shares as promoters' profits.
• Hanlon and Sellner sued, claiming a share of these new profits as co-adventurers.

• The defendants, as fiduciaries in a joint adventure, could not appropriate the profits of the venture for themselves.
• The defendants also defaulted on their obligation to raise P25,000 and thus could not take advantage of Sellner's default.
• The original contract between Hanlon and the mining company (Exhibit B) remained in force because it lacked a resolutory clause and required judicial rescission.
• Beam, acting as Hanlon's attorney-in-fact, used information and subscriptions obtained during the original venture for the new scheme.

• The joint adventure agreement (Exhibit A) was terminated by the express resolutory condition upon Sellner's default, discharging them from all obligations.
• After termination, they were free to pursue other financing arrangements for the company, to which they owed fiduciary duties as directors.
• They did not use any confidential information or assets from the original venture; they simply used their pre-existing knowledge as company officers.

• Procedural Issues: N/A
• Substantive Issues:
  1. Whether the joint adventure agreement (Exhibit A) was terminated by Sellner's failure to raise his share of the capital.
  2. Whether the defendants, after such termination, were liable to share profits from a new, separate venture they subsequently undertook.

• Procedural: N/A
• Substantive:
  1. Yes. The agreement contained a clear resolutory condition (Paragraph II(d)). Sellner's failure to perform his concurrent obligation within the fixed period automatically discharged Haussermann and Beam from their obligations under the contract.
  2. No. Once the joint adventure was terminated by the fulfillment of the resolutory condition, the defendants were free to act. They did not breach any fiduciary duty because they did not appropriate any property or opportunity belonging to the joint adventure. The new venture was a distinct transaction undertaken after the old agreement had lapsed.

• Resolutory Condition (Article 1114, Civil Code) — An obligation is extinguished when a condition consisting of the happening of a future and uncertain event is fulfilled. Here, the failure of Sellner to pay within six months was the stipulated resolutory condition that terminated the contract.
• Fiduciary Duty in Joint Adventures — While joint adventurers owe each other the utmost good faith, this duty ends with the termination of the adventure. After termination, parties are free to pursue their own interests, provided they do not unfairly exploit assets or opportunities derived from the former relationship.
• Concurrent and Mutual Conditions — When promises in a contract are mutual and concurrent, the failure of one party to perform their obligation discharges the other party from their correlative duty.

• "This is a typical case of a resolutory condition under the civil law. The contract expressly provides that upon the happening of a future and uncertain negative event, the obligation created by the agreement shall cease to exist."
• "After the termination of an agency, partnership, or joint adventure, each of the parties is free to act in his own interest, provided he has done nothing during the continuance of the relation to lay a foundation for an undue advantage to himself."
• "The obtaining of capital was fundamentally necessary before the project could be proceeded with; and it was obvious enough that, if the parties should fail to raise the money, the whole scheme must collapse like a stock of cards."

• Ocejo, Perez & Co. vs. International Banking Corporation (37 Phil. 631) — Distinguished. That case involved a completed sale of goods where title had passed, requiring judicial rescission. The present case involved a purely executory bilateral contract where the failure to pay the price (raise capital) prevented the obligation to deliver shares from ever arising.
• Lind vs. Webber (36 Nev., 623) — Cited with approval for its statement on the fiduciary nature of joint adventures, but the SC found it inapplicable because the adventure in question had terminated.

• Civil Code Article 1114 — In conditional obligations, the acquisition of rights and the extinguishment thereof shall depend upon the event constituting the condition.
• Civil Code Article 1117 — If the condition consists in the happening of an event within a fixed period, the obligation shall be extinguished once the period elapses without the event occurring.
• Civil Code Article 1283 — Cited for the canon of interpretation that particular provisions control over general ones.