January 14, 1927 | Malcolm | Contracts covered by Statute of Frauds how ratified
PLAINTIFF-APPELLEE: The Philippine National Bank
DEFENDANT-APPELLEE: The Philippine Vegetable Oil Company, Inc.
INTERVENOR-APPELLANT: Phil Whitaker
DOCTRINE: The broad view is that the Statute of Frauds applies only to agreements not to be performed on either
side within a year from the making thereof. Agreements to be fully performed on one side within the year are taken
out of the operation of the statute. In this case, as Whitakers theory proceeds on the assumption that he has
entirely performed his part of the agreement, equity would argue that all evidence be admitted to prove the alleged
agreement. Surely since the Statute of Frauds was enacted for the purpose of preventing frauds, it should not be
made the instrument to further them.
FACTS:
1. In 1920, PVO, on the brink of insolvency, owed
its creditors P30M.
a. PNB was its largest creditor. The P17M
debt to the bank was secured principally
by two chattel mortgages for P3.5M and
P4M, respectively.
2. In 1921, Whitaker, as general manager of PVO,
offered to pledge his private properties to
secure the creditors. At his instance, a receiver
for the company was also appointed by the
court.
3. During the period of receivership (March 11,
1921 Feb. 28, 1922), several important
events took place:
a. Between PVO and its creditors =
creditors transferred part of their
claims against the company to
Whitaker in consideration of a trust
deed of Ws property
b. Between PNB and PVO = bank obtained
a new mortgage from the company
(Feb. 20 mortgage)
4. Receivership terminated shortly thereafter. The
bank suspended the companys operation in
May 1922, and closed its plant in August 1922.
5. PNB sought judicial foreclosure of its mortgage
on the PVOs property.
a. Trial court ruled in favor of PNB;
ordered PVO to pay P15,787,454 and
other costs.
6. The trial courts decision resolved three
questions: (1) whether execution of the
mortgage was the free act of PVO; (2) whether
this mortgage was null and without force
because at the time of its execution, PVOs
properties were under receivership; and (3)
whether PNB failed to comply with its
undertaking to furnish funds to PVO for the
latter to continue operating.
ISSUES:
1. Whether the new/latest mortgage was valid
NO (voidable)
2. Whether PNB obligated itself to furnish the
necessary operating capital to PVO NO
RULING: PNB entitled to money judgment for P14M
with legal interest against PVO. Case remanded.
RATIO:
1. PNB could not legally secure a new mortgage
by
the
accomplishment
of
documents
between its officers and the officers of PVO