G.R. No. 39883; March 21, 1934
Odus C. Horney, plaintiff-appellant, vs. The Southern Transport & Trading Co., defendant-appellant. Manila Finance & Discount Corporation, defendant-appellee.

FACTS

Plaintiff Odus C. Horney entered into a written contract with defendant Southern Transport & Trading Co. (STTC) for a two-year lease of the vessel Barracuda (later renamed Southern Messenger). The contract contained a clause (Article 5) obliging STTC to purchase the vessel for P15,000 at the lease’s end, with Horney having the option to be paid in cash or in STTC stock at par. During the lease, rentals were paid, either by STTC or its apparent parent corporation, Manila Finance & Discount Corporation (MFDC). After the lease expired, STTC refused to purchase the vessel, arguing the purchase clause was ultra vires as it was unauthorized by its board of directors. The trial court held STTC liable for the purchase price but denied Horney’s claim for monthly rentals from the lease expiration until suit was filed. Both parties appealed. Evidence showed MFDC actively directed STTC’s affairs, including resolutions to dispose of the fishing business and attempts to cancel the lease, and ultimately instructed Horney to retake possession of the vessel.

ISSUE

1. Whether STTC is liable on the purchase obligation despite its ultra vires defense.
2. Whether MFDC can be held jointly and severally liable with STTC.
3. What is the proper measure of damages for STTC’s failure to pay the purchase price.

RULING

1. Yes. STTC is liable. The defense of ultra vires is unavailing. Horney acted in good faith, and STTC, having enjoyed the full benefits of the contract (possession and use of the vessel for two years) and having its own attorneys draft the contract, is estopped from repudiating the authority of its officer who executed it.
2. Yes. MFDC is jointly and severally liable. The evidence established that MFDC, as the apparent parent corporation with identical directors, actively directed STTC’s affairs, including the decisions leading to the breach of contract. By its active interference, MFDC is equally responsible for damages suffered by Horney.
3. The proper measure of damages for failure to pay the purchase price is legal interest, not the rental value of the boat. The trial court’s judgment was modified to impose joint and several liability on STTC and MFDC for the P15,000 purchase price with 6% interest from September 1, 1931, until paid. The denial of claimed monthly rentals was affirmed.

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