VICENTE SABALVARO vs. ERLANGER & GALINGER, INC and WM. H.

ANDERSON,
S. FELDSTEIN, H. N. SALET, WM. WOLFF, F.C. HAGEDORN, and W. H. RENNOLDS

G.R. No. L-43045 August 17, 1937

FACTS:

Vicente Sabalvaro (plaintiff) became an employee of the Erlanger & Galinger

Corporation (defendant) in 1920. Feldstein, as the Vice-President of the defendant
Corporation, offer for sale 3 shares of the Corporation to plaintiff Sabalvaro. These 3
shares of the Corporation will be paid by plaintiff Sabalvaro from the dividends of
said shares since Sabalvaro could not afford at the time to buy the shares since it
cost P500 per share. Sabalvaro executed a promissory note in favor of the
Corporation for the payment of the shares in piecemeal upon received of the
dividends. In 1923, the defendant Corporation increased the salaries of its employees.
But for plaintiff Sabalvaro, the respondent corporation instead cancelled Sabalvaro’s
obligation to complete payment of the shares under the promissory note as an
equivalent amount of increase of his salary. Thereafter, Anderson and Feldstein, as
the majority stockholders of the Corporation, offered plaintiff Sabalvaro an option to
buy 7 shares of the Corporation. The sale of the 7 shares of the Corporation was
with several conditions contained in a signed document as their agreement. Among
the conditions, it was agreed that there shall be 7% interest earnings in addition to
the dividends earned from the shares. Plaintiff Sabalvaro was able to pay in
piecemeal the value of the 7 shares with dividends earned by the 7 shares. When Mr.
Sabalvaro left the corporation, he asked the Corporation and its officers to buy the
10 shares he has previously acquired from the Corporation and pay the 7 per cent of
the value of said 7 shares as interest during the year 1932. Such request was denied
except that he was given the authority to sell to whomsoever he wished the 7 shares
out of the 10 shares which he had in the Corporation. This compelled palintiff
Sabalvaro to file a case against the defendants where the lower court ruled in favor
of the Corporation.

Issues:

(1) Is the defendant corporation or its officer, who are the other defendants, under
obligation to purchase from the plaintiff his 10 shares of stock in the corporation,
with the same dividends earned by said shares after the plaintiff’s separation from
defendant corporation?

(2) Is the defendant corporation under obligation to pay to the plaintiff an amount
equivalent to 7 per cent of the value of his said ten share of stock, as interest during
the year 1932?

RULING:

(1) Is the defendant corporation or its officer, who are the other defendants, under
obligation to purchase from the plaintiff his 10 shares of stock in the corporation,
with the same dividends earned by said shares after the plaintiff’s separation from
defendant corporation?

The answer is NO. The 7 shares which plaintiff acquired were made with conditions
different from that 3 shares he acquired. A contract should not be construed as
including things and cases different from those with respect to which the persons
interested intended to contract (art. 1283, Civil Code).
The assignment of the 3 shares to plaintiff was made through mere liberality, as a
present, according to said document, without being subject to any condition and
without any obligation on the part of Feldstein to buy back said shares from plaintiff,
either during his stay in the service of the defendant corporation or after his
separation there from.

It should be borne in mind that said shares were not purchased by the plaintiff with
his own money but with the dividend or profits earned by the same. In other words,
if he remains in the service, he obtains the benefit of earning the dividends of the
shares in question which really did not cost him anything, and he certainly received
such dividends from the time the certificates covering said shares were issued to him
until his separation from the service.

With respect to the 7 shares, the only thing to which the defendant corporation
bound itself upon affixing its signature on the sale, was to approve or disapprove the
transfer or transfers which the plaintiff might wish to make of his 7 shares in favor of
persons not connected with the corporation and to pay him interest at 7 per cent
per annum on the purchase price thereof plus such dividends as the board of
directors might authorize which dividends the board has approved. There is nothing
to indicate that the defendant corporation or the officers thereof, that is, the other
defendants, or its employees, are under obligation to purchase the shares of the
plaintiff after his separation from the service.

The fact that on previous occasions the defendant corporation voluntarily and
spontaneously purchased the shares of some other officers and stockholders thereof,
who had separated from its service, does not permit the inference that the
understanding had between it and the plaintiff was that it would purchase the latter's
as soon as he left its service. The clear terms of a contract should never be the
subject matter of interpretation. Their true meaning must be enforced as it is to be
presumed that the contradicting parties know their scope and effects. Construction
and interpretation should not be resorted to where it is necessary and where it is
possible to apply the terms of a contract, because to do so would result in making
precisely a new contract between the parties

THIS IS NOW Art. 1372. However general the terms of a contract may be, they
shall not be understood to comprehend things that are distinct and cases that
are different from those upon which the parties intended to agree. (1283)

(2) Is the defendant corporation under obligation to pay to the plaintiff an amount
equivalent to 7 per cent of the value of his said ten share of stock, as interest during
the year 1932?

RULING:

The answer is NO. The plaintiff, in the agreement executed in 1932, expressly and
formally renounced the stipulated interest of 7 per cent per annum corresponding to
said year, that is, from January 1st to December 31st, thereby relieving the defendant
corporation of the obligation to pay it to him. The plaintiff signed said document
with absolute freedom and as voluntarily as did the others who signed it; that no
threat or pressure of any kind on the part of anybody intervened in the execution
thereof, and that the payment of interest ceased due to the fact that the economic
conditions of the defendant corporation no longer permitted it. The argument that
the plaintiff signed the document in question for fear of being dismissed from the
corporation, which fear was unfounded because it does not appear that he has been
intimidated by somebody, does not prove that his consent was obtained by means
of intimidation; and if he were to allege that it was for fear of incurring the
displeasure of his employers that he signed the document in question, the answer
would be the provision of article 1267 of the Civil Code that: "Fear of displeasing
persons to whom obedience and respect are due shall not annul a contract."

This is now Art. 1335. There is violence when in order to wrest consent, serious
or irresistible force is employed.

There is intimidation when one of the contracting parties is compelled by a

reasonable and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse, descendants
or ascendants, to give his consent.

To determine the degree of intimidation, the age, sex and condition of the
person shall be borne in mind.

A threat to enforce one's claim through competent authority, if the claim is just
or legal, does not vitiate consent. (1267a)