G.R. No. L-11362; January 24, 1918
H. L. KRIEDT, plaintiff-appellant, vs. E. C. McCULLOUGH & CO., defendant-appellee.

FACTS:
The plaintiff, H. L. Kriedt, entered into a contract with the defendant, E. C. McCullough & Co., to operate its printing plant. The contract stipulated that Kriedt would receive a monthly salary plus one-fourth of the net proceeds of the printing business, after deducting all expenses, including his salary, and “after deducting ten per cent (10%) of the gross receipts of said printing business, said ten per cent (10%) to belong to the party of the first part.” A dispute arose upon the termination of their relations regarding the interpretation of “gross receipts.” The defendant’s printing plant primarily served its own wholesale mercantile department. In internal bookkeeping, when materials (e.g., paper) were sent from the wholesale department to the printing department, their cost was charged to the printing department. When the finished printed products were returned, the printing department credited back not only the value of the work done but also the original cost of the materials. This practice inflated the “gross receipts” of the printing department on the books. Kriedt argued that including the value of materials in “gross receipts” was improper and sought to recover an additional sum based on a lower deduction of ten percent. The defendant maintained that its established accounting practice, which was known to Kriedt from prior dealings, governed the interpretation.

ISSUE:
Whether the term “gross receipts” in the contract should be interpreted according to the defendant’s established accounting practice, which included the value of materials transferred internally, or according to the plaintiff’s contention that such internal transfers should be excluded.

RULING:
The Supreme Court affirmed the judgment of the lower court in favor of the defendant. The Court held that the plaintiff was bound by the interpretation placed upon the term “gross receipts” by the defendant, as evidenced by the established accounting practice of the company. The contract was ambiguous as it did not define “gross receipts.” The practice of including the value of materials in gross receipts had been in effect before and during the plaintiff’s prior contract with the defendant (in which he was one of four contractors), and he had operated under that interpretation without objection. By acquiescing to this practice at the time of contracting and throughout the performance of the agreement, the plaintiff adopted the defendant’s interpretation. The Court emphasized that the plaintiff had a duty to clarify the term at the time of signing if he disagreed, and his failure to do so, coupled with his subsequent acquiescence, precluded him from contesting it later. Therefore, the deduction of ten percent was correctly computed based on the defendant’s bookkeeping method, and the plaintiff was not entitled to the additional sum claimed.

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