Tan Senguan & Co., Inc. vs. Philippine Trust Company

A trustee that contracts in its own name is personally liable on the contract absent an express stipulation that only the trust estate is liable; the mere designation of "trustee" after its name does not limit that liability. The additional P10,000 became due because all properties of the Mindoro Sugar Company were sold at public auction, as shown by the certificate of sale.

Philippine Trust Company acted as trustee under a deed of trust dated December 21, 1917, by which the Mindoro Sugar Company conveyed its real estate, franchises, and personal property to Philippine Trust Company to protect bonds issued by Mindoro Sugar and purchased by Philippine Trust Company as trustee. Tan Senguan & Co., Inc. held a judgment against the Mindoro Sugar Company. These relationships formed the backdrop for the parties' subsequent agreement concerning that judgment.

On September 21, 1923, Tan Senguan & Co., Inc., named in the agreement as Tan Sen Guan & Co., secured a judgment for P21,426 against the Mindoro Sugar Company. Philippine Trust Company was the trustee of the Mindoro Sugar Company. Under a deed of trust dated December 21, 1917, the Mindoro Sugar Company had conveyed its real estate, franchises, and personal property to Philippine Trust Company as trustee to protect certain bonds issued by the Mindoro Sugar Company and purchased by Philippine Trust Company as trustee, and legal title to those properties stood in Philippine Trust Company as trustee.

On June 27, 1924, Tan Sen Guan & Co. and Philippine Trust Company entered into an agreement. The agreement recited that Tan Sen Guan & Co. desired to convey to Philippine Trust Company as such trustee the amount of the judgment against the Mindoro Sugar Company, and that Philippine Trust Company offered satisfactory consideration therefor. Tan Sen Guan & Co. assigned, conveyed, transferred, and sold to Philippine Trust Company, Trustee, the full amount of the judgment against the Mindoro Sugar Company, together with all rights thereto, with Philippine Trust Company, Trustee, thereafter to have the full use and benefit of the judgment to the same extent and in the same manner as if originally entered in its favor.

The agreement contained several covenants. Upon signing, Philippine Trust Company, Trustee, was to pay Tan Sen Guan & Co. P5,000. Should the Mindoro Sugar Company be sold, assigned, or its ownership transferred in any manner to any person or entity, including Philippine Trust Company, Trustee, itself, Philippine Trust Company, Trustee, was to pay Tan Sen Guan & Co. an additional P10,000 immediately upon perfection of the sale or transfer and irrespective of the amount paid for it. If any other creditor of the Mindoro Sugar Company obtained payment of a greater proportion than the price paid to Tan Sen Guan & Co.—P15,000 for a debt of P21,426, or 70%—Philippine Trust Company, Trustee, was to pay whatever sum was necessary so that Tan Sen Guan & Co. received an amount equal, in proportion to its claim, to that received by the other creditor. If the Mindoro Sugar Company were sold to a person or entity paying nothing, or paying creditors an amount equal to or less than 70% of their claims, or if the creditors from whatever source obtained payment equal to or less than 70% of their claims, Philippine Trust Company, Trustee, would pay the additional P10,000 only upon the sale or transfer of the Mindoro Sugar Company. The agreement was signed by Philippine Trust Company, Trustee for Mindoro Sugar Co., through W.D. Clifford, Vice-President, and by Tan Sen Guan & Company, through Chua Cho Ching, Manager.

On November 4, 1929, pursuant to a notice of sale marked Exhibit C, Modesto Manahan, Justice of the Peace of the Municipality of San Jose, Province of Mindoro, sold at public auction to the Roman Catholic Archbishop of Manila, a corporation sole, all the properties belonging to the Mindoro Sugar Company which appears described in the certificate of sale marked Exhibit D, executed by Manahan in favor of the Archbishop. The defendant claimed that the omission of a comma between the words "Mindoro Sugar Company" and the words "which appear described" showed that only a portion of the Mindoro Sugar Company's properties were sold.

Tan Senguan & Co., Inc. brought suit in the Court of First Instance of Manila for P10,000 based on the agreement. After trial on an agreed statement of facts entered into by the respective attorneys, the trial court found that it had not been proved that all the properties of the Mindoro Sugar Company had been sold.

• Trustee's Personal Liability: Petitioner argued that the lower court erred in holding that respondent was not personally responsible for the claim based on the deed of assignment because respondent had executed the same as Trustee of the properties of the Mindoro Sugar Company.
• Sale of All Properties: Petitioner argued that the lower court erred in holding that it had not been stipulated that all the properties of the Mindoro Sugar Company were sold at public auction to the Roman Catholic Archbishop of Manila.

• Trustee Capacity: Respondent maintained that it was bound only as trustee and not as an individual under the contract, as reflected in the trial court's first ground for absolution.
• Partial Sale Due to Punctuation: Respondent claimed that the omission of a comma between "Mindoro Sugar Company" and "which appear described" in the stipulation of facts showed that only a portion of the Mindoro Sugar Company's properties were sold, so the condition for the additional P10,000 had not occurred.

• Personal Liability of Trustee: Whether the Philippine Trust Company is personally responsible for the claim of Tan Senguan & Co., Inc. based on the deed of assignment despite having executed the same as Trustee of the properties of the Mindoro Sugar Company.
• Sale of All Properties: Whether it was stipulated or proved that all the properties of the Mindoro Sugar Company were sold at public auction to the Roman Catholic Archbishop of Manila, thereby triggering the additional P10,000 obligation under paragraph 2 of the agreement.

• Personal Liability of Trustee: Yes. The Philippine Trust Company is personally liable on the contract despite contracting as trustee, because no express stipulation limited liability to the trust estate and the judgment was expressly assigned to it without the trustee designation.
• Sale of All Properties: Yes. The condition in paragraph 2 occurred; all properties of the Mindoro Sugar Company were sold at public auction, as shown by Exhibit D, and the omission of a comma did not control the interpretation of the stipulation.

• Personal Liability of Trustee: The contract usually referred to Philippine Trust Company as trustee, but the deed of trust (Exhibit A) gave it no authority to enter into a contract such as Exhibit B. Philippine Trust held legal title to Mindoro Sugar's properties only to protect bondholders; it was not authorized to manage Mindoro Sugar's affairs or contract in its behalf. Even if the trust indenture had authorized the contract, Philippine Trust Company in its individual capacity would still be responsible because there was no express stipulation that the trust estate, and not the trustee, should be liable. The Court cited 26 R.L.C. 1316-1318, 39 Cyc. 338, and 47 Am. Dig., sec. 300. Moreover, the "Wherefore" clause assigned the judgment in favor of the Philippine Trust Company, not the Philippine Trust Company, trustee. Thus, appellant could proceed directly against Philippine Trust Company on its contract and had no claim against either Mindoro Sugar Company or the trust estate.
• Sale of All Properties: The question whether all properties were sold was not controlled by the insertion or omission of a comma in the stipulation of facts. The relative pronoun "which" is descriptive, not restrictive; "that" would have been used for a restrictive meaning. In any event, interpretation did not need to rely on punctuation or grammar because Exhibit D showed that all properties transferred to appellee as trustee were included in the sale. The sale included all real and personal properties held by the sugar company, even accounts receivable; only standing crops were reserved, and it was reasonable to presume they had also been sold between the sale by the justice of the peace and the institution of the action. Where real estate, personal property including animals, and all bills receivable were sold, it would be a forced construction of Exhibit B to hold that the assets of Mindoro Sugar Company had not been sold. The trial court therefore erred in holding that the condition in paragraph 2 had not taken place.

• Personal Liability of a Trustee Contracting in Its Own Name — A trustee that enters into a contract is personally liable on that contract unless the contract expressly stipulates that only the trust estate is liable. The mere addition of "trustee" to the party's name does not exempt the trustee from personal liability. In this case, Philippine Trust Company was held personally liable because the contract contained no express stipulation limiting liability to the trust estate and the judgment was assigned to it without the trustee designation.
• Interpretation of Stipulations and Relative Pronouns — The relative pronoun "which" is descriptive rather than restrictive; the word "that" is used for a restrictive relative clause. However, punctuation and grammar do not control interpretation where the attached documents and the record show the parties' true intent. Applied here, the omission of a comma did not establish that only a portion of Mindoro Sugar Company's properties were sold, because Exhibit D showed all properties were included in the sale.
• Fulfillment of a Condition Precedent — A contractual obligation conditioned on the sale or transfer of a company arises when the company's assets are in fact sold or transferred. The sale of all real and personal properties, including accounts receivable, at public auction satisfied the condition in paragraph 2 of the agreement, entitling Tan Senguan & Co., Inc. to the additional P10,000.

• "But even if the contract had been authorized by the trust indenture, the Philippine Trust Company in its individual capacity would still be responsible for the contract as there was no express stipulation that the true estate and not the true trustee should be held liable on the contract in question." — States the ratio decidendi on the personal liability of a trustee contracting in its own name.
• "Not only is there no express stipulation that the trustee should not be held responsible but in the "Wherefore" clause of the contract, the judgment was expressly assigned in favor of the Philippine Trust Company, not the Philippine Trust Company, trustee." — Reinforces that the assignment ran to the trustee individually, supporting direct liability.
• "An examination of any of the standard dictionaries will show that the relative pronoun "which" is descriptive and not restricted. If a restrictive relative pronoun were desired, the word "that" should have been used." — Defines the grammatical rule used to reject the argument that a comma omission limited the sale to part of the properties.
• "Where the real estate, the personal property including animals, and all the bills receivable are sold, it would be a forced construction of the contract Exhibit B to hold that the assets of the Mindoro Sugar Company had not been sold." — States the conclusion that the condition for the additional P10,000 had been fulfilled.

Malcolm, Villa-Real, Imperial, and Butte, JJ., concurred.