G.R. No. 27026 , July 13, 1927
GEORGE C. ARNOLD, plaintiff-appellee, vs. INTERNATIONAL BANKING CORPORATION, defendant-appellant.

FACTS

George C. Arnold, the manager of Willits & Patterson, Ltd., had a contract with the corporation entitling him to one-half of its profits. The corporation became heavily indebted to the International Banking Corporation (defendant). To secure the debt, the corporation and the bank entered into a contract on September 7, 1920, whereby the corporation assigned all its assets, contracts, and proceeds from sales to the bank as security. The bank financed the corporation’s operations and collected all proceeds, applying them to the debt. Arnold, as president of the corporation, executed this contract and subsequently acted as superintendent of operations under it. The bank later paid Arnold P30,000 upon his severance from operations. Arnold sued the bank, claiming it wrongfully applied to the corporation’s debt his one-half share of profits from specific transactions that occurred after the September 7, 1920 contract.

ISSUE

Whether the International Banking Corporation is liable to account directly to Arnold for his alleged one-half share of the profits from transactions governed by the September 7, 1920 contract between the bank and Willits & Patterson, Ltd.

RULING

No. The Supreme Court reversed the lower court’s decision and dismissed the complaint. The bank is not directly liable to Arnold for the profits claimed. Arnold, by his own actions as president of the corporation in executing the September 7, 1920 contract and by his subsequent conduct in operating under it with full knowledge of its terms, is estopped from asserting his personal profit-sharing claim against the bank. The contract of September 7, 1920 created a new arrangement where all proceeds were assigned to the bank as security for its advances. Arnold’s rights under his old profit-sharing agreement with the corporation could not be enforced against the bank, which was dealing with the corporation under the new, distinct contract. The P30,000 payment was deemed a liberal compensation for his services under the new bank-corporation contract, not an admission of liability for his share of profits under the old agreement.