Date post: | 10-Feb-2016 |
Category: |
Documents |
Upload: | ronhuman14 |
View: | 216 times |
Download: | 0 times |
THIRD DIVISION PHILEX MINING G.R. No. 148187CORPORATION,Petitioner, Present:
Ynares-Santiago, J. (Chairperson),- versus - Carpio Morales, *
Chico-Nazario,Nachura, and,Reyes, JJ.
COMMISSIONER OFINTERNAL REVENUE, Promulgated:
Respondent.April 16, 2008
x ---------------------------------------------------------------------------------------- x
DECISION YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision[1] of the Court of Appeals in CA-G.R. SP No. 49385, which affirmed the
Decision[2] of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the April 3, 2001 Resolution[3] denying the motion for
reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement[4] with Baguio Gold Mining
Company (Baguio Gold) for the former to manage and operate the latters mining claim, known as the Sto. Nino mine, located in Atok and
Tublay, Benguet Province. The parties agreement was denominated as Power of Attorney and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from time to time may be required by the MANAGERS within the said 3-year period, for use in the MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for internal audit purposes, as the owners account in the Sto. Nino PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino PROJECT, shall be added to such owners account. 5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the Sto. Nino PROJECT, in accordance with the following arrangements: (a) The properties shall be appraised and, together with the cash, shall be carried by the Sto. Nino PROJECT as a special fund to be known as the MANAGERS account. (b) The total of the MANAGERS account shall not exceed P11,000,000.00, except with prior approval of the PRINCIPAL; provided, however, that if the compensation of the MANAGERS as herein provided cannot be paid in cash from the Sto. Nino PROJECT, the amount not so paid in cash shall be added to the MANAGERS account. (c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the desire of the PRINCIPAL to extend to the MANAGERS the benefit of subsequent appreciation of property, upon a projected termination of this Agency, the ratio which the MANAGERS account has to the owners account will be determined, and the corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims, shall be transferred to the MANAGERS, except that such transferred assets shall not include mine development, roads, buildings, and similar property which will be valueless, or of slight value, to the MANAGERS. The MANAGERS can, on the other hand, require at their option that property originally transferred by them to the Sto. Nino PROJECT be re-transferred to them. Until such assets are transferred to the MANAGERS, this Agency shall remain subsisting.
x x x x 12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto. Nino PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on their compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECT after deduction therefrom of the MANAGERS compensation.
x x x x 16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future, may incur other obligations in favor of the MANAGERS. This Power of Attorney has been executed as security for the payment and satisfaction of all such obligations of the PRINCIPAL in favor of the MANAGERS and as a means to fulfill the same. Therefore, this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS account. After all obligations of the PRINCIPAL in favor of the MANAGERS have been paid and satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36-month notice to the MANAGERS. 17. Notwithstanding any agreement or understanding between the PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may withdraw from this Agency by giving 6-month notice to the PRINCIPAL. The MANAGERS shall not in any manner be held liable to the PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d) hereof shall be operative in case of the MANAGERS withdrawal.
x x x x[5]
In the course of managing and operating the project, Philex Mining made advances of cash and property in accordance with paragraph 5 of the
agreement. However, the mine suffered continuing losses over the years which resulted to petitioners withdrawal as manager of the mine
on January 28, 1982 and in the eventual cessation of mine operations on February 20, 1982.[6]
Thereafter, on September 27, 1982, the parties executed a Compromise with Dation in Payment[7] wherein Baguio Gold admitted an
indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay the same in three segments by first assigning Baguio Golds
tangible assets to petitioner, transferring to the latter Baguio Golds equitable title in its Philodrill assets and finally settling the remaining
liability through properties that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an Amendment to Compromise with Dation in Payment[8] where the parties determined that
Baguio Golds indebtedness to petitioner actually amounted to P259,137,245.00, which sum included liabilities of Baguio Gold to other creditors
that petitioner had assumed as guarantor. These liabilities pertained to long-term loans amounting to US$11,000,000.00 contracted by Baguio
Gold from the Bank of America NT & SA and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two segments by first assigning
its tangible assets for P127,838,051.00 and then transferring its equitable title in its Philodrill assets for P16,302,426.00. The parties then
ascertained that Baguio Gold had a remaining outstanding indebtedness to petitioner in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness of Baguio Gold by charging
P112,136,000.00 to allowances and reserves that were set up in 1981 and P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross income the amount of P112,136,000.00 as loss on settlement of
receivables from Baguio Gold against reserves and allowances.[9] However, the Bureau of Internal Revenue (BIR) disallowed the amount as
deduction for bad debt and assessed petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a bad debt deduction were satisfied, to
wit: (a) there was a valid and existing debt; (b) the debt was ascertained to be worthless; and (c) it was charged off within the taxable year
when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio Gold. The bad debt deduction
represented advances made by petitioner which, pursuant to the management contract, formed part of Baguio Golds pecuniary obligations to
petitioner. It also included payments made by petitioner as guarantor of Baguio Golds long-term loans which legally entitled petitioner to be
subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible losses, it became evident that it would not be able to recover the
advances and payments it had made in behalf of Baguio Gold. For a debt to be considered worthless, petitioner claimed that it was neither
required to institute a judicial action for collection against the debtor nor to sell or dispose of collateral assets in satisfaction of the debt. It is
enough that a taxpayer exerted diligent efforts to enforce collection and exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of legal and factual basis. It held that the alleged debt was not
ascertained to be worthless since Baguio Gold remained existing and had not filed a petition for bankruptcy; and that the deduction did not
consist of a valid and subsisting debt considering that, under the management contract, petitioner was to be paid fifty percent (50%) of the
projects net profit.[10]
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. The
assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax in the amount of P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent Commissioner of
Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency interest due computed from February 10, 1995, which is the date after the 20-day grace period given by the respondent within which petitioner has to pay the deficiency amount x x x up to actual date of payment.
SO ORDERED.[11]
The CTA rejected petitioners assertion that the advances it made for the Sto. Nino mine were in the nature of a loan. It instead
characterized the advances as petitioners investment in a partnership with Baguio Gold for the development and exploitation of the Sto. Nino
mine. The CTA held that the Power of Attorney executed by petitioner and Baguio Gold was actually a partnership agreement. Since the
advanced amount partook of the nature of an investment, it could not be deducted as a bad debt from petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio Gold could not be allowed as a
bad debt deduction. At the time the payments were made, Baguio Gold was not in default since its loans were not yet due and
demandable. What petitioner did was to pre-pay the loans as evidenced by the notice sent by Bank of America showing that it was merely
demanding payment of the installment and interests due. Moreover, Citibank imposed and collected a pre-termination penalty for the pre-
payment.
The Court of Appeals affirmed the decision of the CTA.[12] Hence, upon denial of its motion for reconsideration,[13] petitioner took this
recourse under Rule 45 of the Rules of Court, alleging that:
I.The Court of Appeals erred in construing that the advances made by Philex in the management of the Sto. Nino Mine pursuant to the Power of Attorney partook of the nature of an investment rather than a loan.
II.The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino Mine indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine notwithstanding the clear absence of any intent on the part of Philex and Baguio Gold to form a partnership.
III.The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding the Compromise Agreement and the Amended Compromise Agreement when it construed the nature of the advances made by Philex.
IV.The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts write-off.[14]
Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should not only rely on the Power
of Attorney, but also on the subsequent Compromise with Dation in Payment and Amended Compromise with Dation in Payment that the
parties executed in 1982. These documents, allegedly evinced the parties intent to treat the advances and payments as a loan and establish a
creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the Power of Attorney is the instrument that is material in determining the true nature of the
business relationship between petitioner and Baguio Gold. Before resort may be had to the two compromise agreements, the parties
contractual intent must first be discovered from the expressed language of the primary contract under which the parties business relations
were founded. It should be noted that the compromise agreements were mere collateral documents executed by the parties pursuant to the
termination of their business relationship created under the Power of Attorney. On the other hand, it is the latter which established the juridical
relation of the parties and defined the parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be considered as a subsequent or contemporaneous act that is
reflective of the parties true intent. The compromise agreements were executed eleven years after the Power of Attorney and merely laid out a
plan or procedure by which petitioner could recover the advances and payments it made under the Power of Attorney. The parties entered into
the compromise agreements as a consequence of the dissolution of their business relationship. It did not define that relationship or indicate its
real character.
An examination of the Power of Attorney reveals that a partnership or joint venture was indeed intended by the parties. Under a
contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention
of dividing the profits among themselves.[15] While a corporation, like petitioner, cannot generally enter into a contract of partnership unless
authorized by law or its charter, it has been held that it may enter into a joint venture which is akin to a particular partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been
generally understood to mean an organization formed for some temporary purpose. x x x It is in fact hardly distinguishable from the partnership, since their elements are similar community of interest in the business, sharing of profits and losses, and a mutual right of control. x x x The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. x x x This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. x x x It would seem therefore that under Philippine law, a joint venture is a form of partnership and should be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. x x x (Citations omitted) [16]
Perusal of the agreement denominated as the Power of Attorney indicates that the parties had intended to create a partnership and
establish a common fund for the purpose.They also had a joint interest in the profits of the business as shown by a 50-50 sharing in the income
of the mine.
Under the Power of Attorney, petitioner and Baguio Gold undertook to contribute money, property and industry to the common
fund known as the Sto. Nio mine.[17] In this regard, we note that there is a substantive equivalence in the respective contributions of the parties
to the development and operation of the mine. Pursuant to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to
contribute equally to the joint venture assets under their respective accounts. Baguio Gold would contribute P11Munder its owners account
plus any of its income that is left in the project, in addition to its actual mining claim. Meanwhile, petitioners contribution would consist of
itsexpertise in the management and operation of mines, as well as the managers account which is comprised of P11M in funds and property
and petitioners compensation as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold because it did not bind
itself to contribute money or property to the project; that under paragraph 5 of the agreement, it was only optional for petitioner to transfer
funds or property to the Sto. Nio project (w)henever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NIO MINE.[18]
The wording of the parties agreement as to petitioners contribution to the common fund does not detract from the fact that
petitioner transferred its funds and property to the project as specified in paragraph 5, thus rendering effective the other stipulations of the
contract, particularly paragraph 5(c) which prohibits petitioner from withdrawing the advances until termination of the parties business
relations. As can be seen, petitioner became bound by its contributions once the transfers were made. The contributions acquired an obligatory
nature as soon as petitioner had chosen to exercise its option under paragraph 5.
There is no merit to petitioners claim that the prohibition in paragraph 5(c) against withdrawal of advances should not be taken as
an indication that it had entered into a partnership with Baguio Gold; that the stipulation only showed that what the parties entered into was
actually a contract of agency coupled with an interest which is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an interest of a
third party that depends upon it, or the mutual interest of both principal and agent.[19] In this case, the non-revocation or non-withdrawal under
paragraph 5(c) applies to the advances made by petitioner who is supposedly the agent and not the principal under the contract. Thus, it
cannot be inferred from the stipulation that the parties relation under the agreement is one of agency coupled with an interest and not a
partnership.
Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was one of agency and not
a partnership. Although the said provision states that this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the MANAGERS account, it does not necessarily follow that the parties entered into an agency contract
coupled with an interest that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the Power of Attorney was not to confer a power in favor of petitioner to contract
with third persons on behalf of Baguio Gold but to create a business relationship between petitioner and Baguio Gold, in which the former was
to manage and operate the latters mine through the parties mutual contribution of material resources and industry. The essence of an agency,
even one that is coupled with interest, is the agents ability to represent his principal and bring about business relations between the latter and
third persons.[20] Where representation for and in behalf of the principal is merely incidental or necessary for the proper discharge of ones
paramount undertaking under a contract, the latter may not necessarily be a contract of agency, but some other agreement depending on the
ultimate undertaking of the parties.[21]
In this case, the totality of the circumstances and the stipulations in the parties agreement indubitably lead to the conclusion that a
partnership was formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by petitioner under the
agreement. Paragraph 5 (d) thereof provides that upon termination of the parties business relations, the ratio which the MANAGERS account
has to the owners account will be determined, and the corresponding proportion of the entire assets of the STO. NINO MINE, excluding the
claims shall be transferred to petitioner.[22] As pointed out by the Court of Tax Appeals, petitioner was merely entitled to a proportionate return
of the mines assets upon dissolution of the parties business relations. There was nothing in the agreement that would require Baguio Gold to
make payments of the advances to petitioner as would be recognized as an item of obligation or accounts payable for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the Sto. Nio mine upon
termination, a provision that is more consistent with a partnership than a creditor-debtor relationship. It should be pointed out that in a
contract of loan, a person who receives a loan or money or any fungible thing acquires ownership thereof and is bound to pay the creditor an
equal amount of the same kind and quality.[23] In this case, however, there was no stipulation for Baguio Gold to actually repay petitioner the
cash and property that it had advanced, but only the return of an amount pegged at a ratio which the managers account had to the owners
account.
In this connection, we find no contractual basis for the execution of the two compromise agreements in which Baguio Gold
recognized a debt in favor of petitioner, which supposedly arose from the termination of their business relations over the Sto. Nino mine. The
Power of Attorney clearly provides that petitioner would only be entitled to the return of a proportionate share of the mine assets to be
computed at a ratio that the managers account had to the owners account. Except to provide a basis for claiming the advances as a bad debt
deduction, there is no reason for Baguio Gold to hold itself liable to petitioner under the compromise agreements, for any amount over and
above the proportion agreed upon in the Power of Attorney.
Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of millions of pesos to another
corporation with neither security, or collateral, nor a specific deed evidencing the terms and conditions of such loans. The parties also did not
provide a specific maturity date for the advances to become due and demandable, and the manner of payment was unclear. All these point to
the inevitable conclusion that the advances were not loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is the fact that it would receive 50% of the net profits as
compensation under paragraph 12 of the agreement. The entirety of the parties contractual stipulations simply leads to no other conclusion
than that petitioners compensation is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the receipt by a person of a share in the profits of a business is prima
facie evidence that he is a partner in the business. Petitioner asserts, however, that no such inference can be drawn against it since its share in
the profits of the Sto Nio project was in the nature of compensation or wages of an employee, under the exception provided in Article 1769 (4)
(b).[24]
On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who will be paid wages pursuant to
an employer-employee relationship. To begin with, petitioner was the manager of the project and had put substantial sums into the venture in
order to ensure its viability and profitability. By pegging its compensation to profits, petitioner also stood not to be remunerated in case the
mine had no income. It is hard to believe that petitioner would take the risk of not being paid at all for its services, if it were truly just an
ordinary employee.
Consequently, we find that petitioners compensation under paragraph 12 of the agreement actually constitutes its share in the net
profits of the partnership. Indeed, petitioner would not be entitled to an equal share in the income of the mine if it were just an employee of
Baguio Gold.[25] It is not surprising that petitioner was to receive a 50% share in the net profits, considering that the Power of Attorney also
provided for an almost equal contribution of the parties to the St. Nino mine. The compensation agreed upon only serves to reinforce the
notion that the parties relations were indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioners advances as investments in a partnership known as the Sto. Nino
mine. The advances were not debts of Baguio Gold to petitioner inasmuch as the latter was under no unconditional obligation to return the
same to the former under the Power of Attorney. As for the amounts that petitioner paid as guarantor to Baguio Golds creditors, we find no
reason to depart from the tax courts factual finding that Baguio Golds debts were not yet due and demandable at the time that petitioner paid
the same. Verily, petitioner pre-paid Baguio Golds outstanding loans to its bank creditors and this conclusion is supported by the evidence on
record.[26]
In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions for income tax purposes
partake of the nature of tax exemptions and are strictly construed against the taxpayer, who must prove by convincing evidence that he is
entitled to the deduction claimed.[27] In this case, petitioner failed to substantiate its assertion that the advances were subsisting debts of
Baguio Gold that could be deducted from its gross income. Consequently, it could not claim the advances as a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed the
decision of the Court of Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the
deficiency tax on its 1982 income in the amount of P62,811,161.31, with 20% delinquency interest computed from February 10, 1995, which is
the due date given for the payment of the deficiency income tax, up to the actual date of payment.
SO ORDERED.
G.R. No. 174978 July 31, 2013
SALLY YOSHIZAKI, Petitioner, vs.JOY TRAINING CENTER OF AURORA, INC., Respondent.
D E C I S I O N
BRION, J.:
We resolve the petition for review on certiorari1 filed by petitioner Sally Yoshizaki to challenge the February 14, 2006 Decision2 and the October 3, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 83773.
The Factual Antecedents
Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a non-stock, non-profit religious educational institution. It was the registered owner of a parcel of land and the building thereon (real properties) located in San Luis Extension Purok No. 1, Barangay Buhangin, Baler, Aurora. The parcel of land was designated as Lot No. 125-L and was covered by Transfer Certificate of Title (TCT) No. T-25334.4
On November 10, 1998, the spouses Richard and Linda Johnson sold the real properties, a Wrangler jeep, and other personal properties in favor of the spouses Sally and Yoshio Yoshizaki. On the same date, a Deed of Absolute Sale5 and a Deed of Sale of Motor Vehicle6 were executed in favor of the spouses Yoshizaki. The spouses Johnson were members of Joy Training’s board of trustees at the time of sale. On December 7, 1998, TCT No. T-25334 was cancelled and TCT No. T-260527 was issued in the name of the spouses Yoshizaki.
On December 8, 1998, Joy Training, represented by its Acting Chairperson Reuben V. Rubio, filed an action for the Cancellation of Sales and Damages with prayer for the issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction against the spouses Yoshizaki and the spouses Johnson before the Regional Trial Court of Baler, Aurora (RTC).8 On January 4, 1999, Joy Training filed a Motion to Amend Complaint with the attached Amended Complaint. The amended complaint impleaded Cecilia A. Abordo, officer-in-charge of the Register of Deeds of Baler, Aurora, as additional defendant. The RTC granted the motion on the same date.9
In the complaint, Joy Training alleged that the spouses Johnson sold its properties without the requisite authority from the board of directors.10 It assailed the validity of a board resolution dated September 1, 199811 which purportedly granted the spouses Johnson the authority to sell its real properties. It averred that only a minority of the board, composed of the spouses Johnson and Alexander Abadayan, authorized the sale through the resolution. It highlighted that the Articles of Incorporation provides that the board of trustees consists of seven members, namely: the spouses Johnson, Reuben, Carmencita Isip, Dominador Isip, Miraflor Bolante, and Abelardo Aquino.12
Cecilia and the spouses Johnson were declared in default for their failure to file an Answer within the reglementary period.13 On the other hand, the spouses Yoshizaki filed their Answer with Compulsory Counterclaims on June 23, 1999. They claimed that Joy Training authorized the spouses Johnson to sell the parcel of land. They asserted that a majority of the board of trustees approved the resolution. They maintained that the actual members of the board of trustees consist of five members, namely: the spouses Johnson, Reuben, Alexander, and Abelardo. Moreover, Connie Dayot, the corporate secretary, issued a certification dated February 20, 199814 authorizing the spouses Johnson to act on Joy Training’s behalf. Furthermore, they highlighted that the Wrangler jeep and other personal properties were registered in the name of the spouses Johnson.15 Lastly, they assailed the RTC’s jurisdiction over the case. They posited that the case is an intra-corporate dispute cognizable by the Securities and Exchange Commission (SEC).16
After the presentation of their testimonial evidence, the spouses Yoshizaki formally offered in evidence photocopies of the resolution and certification, among others.17 Joy Training objected to the formal offer of the photocopied resolution and certification on the ground that they were not the best evidence of their contents.18 In an Order19 dated May 18, 2004, the RTC denied the admission of the offered copies.
The RTC Ruling
The RTC ruled in favor of the spouses Yoshizaki. It found that Joy Training owned the real properties. However, it held that the sale was valid because Joy Training authorized the spouses Johnson to sell the real properties. It recognized that there were only five actual members of the board of trustees; consequently, a majority of the board of trustees validly authorized the sale. It also ruled that the sale of personal properties was valid because they were registered in the spouses Johnson’s name.20
Joy Training appealed the RTC decision to the CA.
The CA Ruling
The CA upheld the RTC’s jurisdiction over the case but reversed its ruling with respect to the sale of real properties. It maintained that the present action is cognizable by the RTC because it involves recovery of ownership from third parties.
It also ruled that the resolution is void because it was not approved by a majority of the board of trustees. It stated that under Section 25 of the Corporation Code, the basis for determining the composition of the board of trustees is the list fixed in the articles of incorporation. Furthermore, Section 23 of the Corporation Code provides that the board of trustees shall hold office for one year and until their successors are elected and qualified. Seven trustees constitute the board since Joy Training did not hold an election after its incorporation.
The CA did not also give any probative value to the certification. It stated that the certification failed to indicate the date and the names of the trustees present in the meeting. Moreover, the spouses Yoshizaki did not present the minutes that would prove that the certification had been issued pursuant to a board resolution.21 The CA also denied22 the spouses Yoshizaki’s motion for reconsideration, prompting Sally23 to file the present petition.
The Petition
Sally avers that the RTC has no jurisdiction over the case. She points out that the complaint was principally for the nullification of a corporate act. The transfer of the SEC’s original and exclusive jurisdiction to the RTC24 does not have any retroactive application because jurisdiction is a substantive matter.
She argues that the spouses Johnson were authorized to sell the parcel of land and that she was a buyer in good faith because she merely relied on TCT No. T-25334. The title states that the spouses Johnson are Joy Training’s representatives.
She also argues that it is a basic principle that a party dealing with a registered land need not go beyond the certificate of title to determine the condition of the property. In fact, the resolution and the certification are mere reiterations of the spouses Johnson’s authority in the title to sell the real properties. She further claims that the resolution and the certification are not even necessary to clothe the spouses Johnson with the authority to sell the disputed properties. Furthermore, the contract of agency was subsisting at the time of sale because Section 108 of Presidential Decree No. (PD) 1529 requires that the revocation of authority must be approved by a court of competent jurisdiction and no revocation was reflected in the certificate of title.25
The Case for the Respondent
In its Comment26 and Memorandum,27 Joy Training takes the opposite view that the RTC has jurisdiction over the case. It posits that the action is essentially for recovery of property and is therefore a case cognizable by the RTC. Furthermore, Sally is estopped from questioning the RTC’s jurisdiction because she seeks to reinstate the RTC ruling in the present case.
Joy Training maintains that it did not authorize the spouses Johnson to sell its real properties. TCT No. T-25334 does not specifically grant the authority to sell the parcel of land to the spouses Johnson. It further asserts that the resolution and the certification should not be given any probative value because they were not admitted in evidence by the RTC. It argues that the resolution is void for failure to comply with the voting requirements under Section 40 of the Corporation Code. It also posits that the certification is void because it lacks material particulars.
The Issues
The case comes to us with the following issues:
1) Whether or not the RTC has jurisdiction over the present case; and
2) Whether or not there was a contract of agency to sell the real properties between Joy Training and the spouses Johnson.
3) As a consequence of the second issue, whether or not there was a valid contract of sale of the real properties between Joy Training and the spouses Yoshizaki.
Our Ruling
We find the petition unmeritorious.
The RTC has jurisdiction over disputes concerning the application of the Civil Code
Jurisdiction over the subject matter is the power to hear and determine cases of the general class to which the proceedings before a court belong.28 It is conferred by law. The allegations in the complaint and the status or relationship of the parties determine which court has jurisdiction over the nature of an action.29 The same test applies in ascertaining whether a case involves an intra-corporate controversy.30
The CA correctly ruled that the RTC has jurisdiction over the present case. Joy Training seeks to nullify the sale of the real properties on the ground that there was no contract of agency between Joy Training and the spouses Johnson. This was beyond the ambit of the SEC’s original and exclusive jurisdiction prior to the enactment of Republic Act No. 8799 which only took effect on August 3, 2000. The determination of the existence of a contract of agency and the validity of a contract of sale requires the application of the relevant provisions of the Civil Code. It is a well-settled rule that "disputes concerning the application of the Civil Code are properly cognizable by courts of general jurisdiction."31 Indeed, no special skill requiring the SEC’s technical expertise is necessary for the disposition of this issue and of this case.
The Supreme Court may review questions of fact in a petition for review on certiorari when the findings of fact by the lower courts are conflicting
We are aware that the issues at hand require us to review the pieces of evidence presented by the parties before the lower courts. As a general rule, a petition for review on certiorari precludes this Court from entertaining factual issues; we are not duty-bound to analyze again and weigh the evidence introduced in and considered by the lower courts. However, the present case falls under the recognized exception that a review of the facts is warranted when the findings of the lower courts are conflicting.32 Accordingly, we will examine the relevant pieces of evidence presented to the lower court.
There is no contract of agency between Joy Training and the spouses Johnson to sell the parcel of land with its improvements
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter." It may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral. However, it must be written when the law requires a specific form.33 Specifically, Article 1874 of the Civil Code provides that the contract of agency must be written for the validity of the sale of a piece of land or any interest therein. Otherwise, the sale shall be void. A related provision, Article 1878 of the Civil Code, states that special powers of attorney are necessary to convey real rights over immovable properties.
The special power of attorney mandated by law must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the authorized act. We unequivocably declared in Cosmic Lumber Corporation v. Court of Appeals34 that a special power of attorneymust express the powers of the agent in clear and unmistakable language for the principal to confer the right upon an agent to sell real estate. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document. The purpose of the law in requiring a special power of attorney in the disposition of immovable property is to protect the interest of an unsuspecting owner from being prejudiced by the unwarranted act of another and to caution the buyer to assure himself of the specific authorization of the putative agent.35
In the present case, Sally presents three pieces of evidence which allegedly prove that Joy Training specially authorized the spouses Johnson to sell the real properties: (1) TCT No. T-25334, (2) the resolution, (3) and the certification. We quote the pertinent portions of these documents for a thorough examination of Sally’s claim. TCT No. T-25334, entered in the Registry of Deeds on March 5, 1998, states:
A parcel of land x x x is registered in accordance with the provisions of the Property Registration Decree in the name of JOY TRAINING CENTER OF AURORA, INC., Rep. by Sps. RICHARD A. JOHNSON and LINDA S. JOHNSON, both of legal age, U.S. Citizen, and residents of P.O. Box 3246, Shawnee, Ks 66203, U.S.A.36(emphasis ours)
On the other hand, the fifth paragraph of the certification provides:
Further, Richard A. and Linda J. Johnson were given FULL AUTHORITY for ALL SIGNATORY purposes for the corporation on ANY and all matters and decisions regarding the property and ministry here. They will follow guidelines set forth according to their appointment and ministerial and missionary training and in that, they will formulate and come up with by-laws which will address and serve as governing papers over the center and corporation. They are to issue monthly and quarterly statements to all members of the corporation.37 (emphasis ours)
The resolution states:
We, the undersigned Board of Trustees (in majority) have authorized the sale of land and building owned by spouses Richard A. and Linda J. Johnson (as described in the title SN No. 5102156 filed with the Province of Aurora last 5th day of March, 1998. These proceeds are going to
pay outstanding loans against the project and the dissolution of the corporation shall follow the sale. This is a religious, non-profit corporation and no profits or stocks are issued.38 (emphasis ours)
The above documents do not convince us of the existence of the contract of agency to sell the real properties. TCT No. T-25334 merely states that Joy Training is represented by the spouses Johnson. The title does not explicitly confer to the spouses Johnson the authority to sell the parcel of land and the building thereon. Moreover, the phrase "Rep. by Sps. RICHARD A. JOHNSON and LINDA S. JOHNSON"39 only means that the spouses Johnson represented Joy Training in land registration.
The lower courts should not have relied on the resolution and the certification in resolving the case.1âwphi1 The spouses Yoshizaki did not produce the original documents during trial. They also failed to show that the production of pieces of secondary evidence falls under the exceptions enumerated in Section 3, Rule 130 of the Rules of Court.40 Thus, the general rule – that no evidence shall be admissible other than the original document itself when the subject of inquiry is the contents of a document – applies.41
Nonetheless, if only to erase doubts on the issues surrounding this case, we declare that even if we consider the photocopied resolution and certification, this Court will still arrive at the same conclusion.
The resolution which purportedly grants the spouses Johnson a special power of attorney is negated by the phrase "land and building owned by spouses Richard A. and Linda J. Johnson."42 Even if we disregard such phrase, the resolution must be given scant consideration. We adhere to the CA’s position that the basis for determining the board of trustees’ composition is the trustees as fixed in the articles of incorporation and not the actual members of the board. The second paragraph of Section 2543 of the Corporation Code expressly provides that a majority of the number of trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business.
Moreover, the certification is a mere general power of attorney which comprises all of Joy Training’s business.44Article 1877 of the Civil Code clearly states that "an agency couched in general terms comprises only acts of administration, even if the principal should state that he withholds no power or that the agent may execute such acts as he may consider appropriate, or even though the agency should authorize a general and unlimited management."45
The contract of sale is unenforceable
Necessarily, the absence of a contract of agency renders the contract of sale unenforceable;46 Joy Training effectively did not enter into a valid contract of sale with the spouses Yoshizaki. Sally cannot also claim that she was a buyer in good faith. She misapprehended the rule that persons dealing with a registered land have the legal right to rely on the face of the title and to dispense with the need to inquire further, except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry.47 This rule applies when the ownership of a parcel of land is disputed and not when the fact of agency is contested.
At this point, we reiterate the established principle that persons dealing with an agent must ascertain not only the fact of agency, but also the nature and extent of the agent’s authority.48 A third person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of attorney, or the instructions as regards the agency.49 The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover on his own peril the authority of the agent.50 Thus, Sally bought the real properties at her own risk; she bears the risk of injury occasioned by her transaction with the spouses Johnson.
WHEREFORE, premises considered, the assailed Decision dated February 14, 2006 and Resolution dated October 3, 2006 of the Court of Appeals are hereby AFFIRMED and the petition is hereby DENIED for lack of merit.
SO ORDERED.
SECOND DIVISION
SPOUSES FERNANDO
and LOURDES VILORIA,
Petitioners,
- versus -
CONTINENTAL AIRLINES, INC.,
Respondent.
G.R. No. 188288
Present:
CARPIO, J.,
Chairperson,
PEREZ,
SERENO,
REYES, and
BERNABE, JJ.
Promulgated:
January 16, 2012
x------------------------------------------------------------------------------------x
DECISION
REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009 Decision1 of the Special Thirteenth
Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586 entitled “Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc.,” the
dispositive portion of which states:
WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding US$800.00 or its peso equivalent at the time of payment, plus legal rate of interest from 21 July 1997 until fully paid, [P]100,000.00 as moral damages, [P]50,000.00 as exemplary damages, [P]40,000.00 as attorney’s fees and costs of suit to plaintiffs-appellees is herebyREVERSED and SET ASIDE.
Defendant-appellant’s counterclaim is DENIED.
Costs against plaintiffs-appellees.
SO ORDERED.2
On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a Decision, giving due course to the complaint
for sum of money and damages filed by petitioners Fernando Viloria (Fernando) and Lourdes Viloria (Lourdes), collectively called Spouses
Viloria, against respondent Continental Airlines, Inc. (CAI). As culled from the records, below are the facts giving rise to such complaint.
On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife, Lourdes, two (2) round trip
airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines. Fernando purchased the tickets at US$400.00
each from a travel agency called “Holiday Travel” and was attended to by a certain Margaret Mager (Mager). According to Spouses Viloria,
Fernando agreed to buy the said tickets after Mager informed them that there were no available seats at Amtrak, an intercity passenger train
service provider in the United States. Per the tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to San
Diego on August 21, 1997.
Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August 6, 1997. Mager informed
him that flights to Newark via Continental Airlines were already fully booked and offered the alternative of a round trip flight via Frontier Air.
Since flying with Frontier Air called for a higher fare of US$526.00 per passenger and would mean traveling by night, Fernando opted to request
for a refund. Mager, however, denied his request as the subject tickets are non-refundable and the only option that Continental Airlines can
offer is the re-issuance of new tickets within one (1) year from the date the subject tickets were issued. Fernando decided to reserve two (2)
seats with Frontier Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station where he saw an Amtrak
station nearby. Fernando made inquiries and was told that there are seats available and he can travel on Amtrak anytime and any day he
pleased. Fernando then purchased two (2) tickets for Washington, D.C.
From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling her that she had misled them
into buying the Continental Airlines tickets by misrepresenting that Amtrak was already fully booked. Fernando reiterated his demand for a
refund but Mager was firm in her position that the subject tickets are non-refundable.
Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a refund and alleging that Mager
had deluded them into purchasing the subject tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had been referred to the
Customer Refund Services of Continental Airlines at Houston, Texas.4
In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a refund and advised him that he may take
the subject tickets to any Continental ticketing location for the re-issuance of new tickets within two (2) years from the date they were issued.
Continental Micronesia informed Fernando that the subject tickets may be used as a form of payment for the purchase of another Continental
ticket, albeit with a re-issuance fee.5
On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to have the subject tickets replaced
by a single round trip ticket to Los Angeles, California under his name. Therein, Fernando was informed that Lourdes’ ticket was non-
transferable, thus, cannot be used for the purchase of a ticket in his favor. He was also informed that a round trip ticket to Los Angeles was
US$1,867.40 so he would have to pay what will not be covered by the value of his San Diego to Newark round trip ticket.
In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer wished to have them
replaced. In addition to the dubious circumstances under which the subject tickets were issued, Fernando claimed that CAI’s act of charging him
with US$1,867.40 for a round trip ticket to Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to use Lourdes’
ticket, breached its undertaking under its March 24, 1998 letter.6
On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to refund the money they used in
the purchase of the subject tickets with legal interest from July 21, 1997 and to pay P1,000,000.00 as moral damages, P500,000.00 as
exemplary damages and P250,000.00 as attorney’s fees.7
CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the subject tickets are non-refundable;
(b) Fernando cannot insist on using the ticket in Lourdes’ name for the purchase of a round trip ticket to Los Angeles since the same is non-
transferable; (c) as Mager is not a CAI employee, CAI is not liable for any of her acts; (d) CAI, its employees and agents did not act in bad faith as
to entitle Spouses Viloria to moral and exemplary damages and attorney’s fees. CAI also invoked the following clause printed on the subject
tickets:
3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier’s conditions of carriage and related regulations which are made part hereof (and are available on application at the offices of carrier), except in transportation between a place in the United States or Canada and any place outside thereof to which tariffs in force in those countries apply.8
According to CAI, one of the conditions attached to their contract of carriage is the non-transferability and non-refundability of the
subject tickets.
The RTC’s Ruling
Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria are entitled to a refund in view
of Mager’s misrepresentation in obtaining their consent in the purchase of the subject tickets.9 The relevant portion of the April 3, 2006
Decision states:
Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in presenting to plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to travel via AMTRAK, but defendant’s agent
misled him into purchasing Continental Airlines tickets instead on the fraudulent misrepresentation that Amtrak was fully booked. In fact, defendant Airline did not specifically denied (sic) this allegation.
Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline tickets on Ms. Mager’s misleading misrepresentations. Continental Airlines agent Ms. Mager further relied on and exploited plaintiff Fernando’s need and told him that they must book a flight immediately or risk not being able to travel at all on the couple’s preferred date. Unfortunately, plaintiffs spouses fell prey to the airline’s and its agent’s unethical tactics for baiting trusting customers.”10
Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s agent, hence, bound by her bad faith and
misrepresentation. As far as the RTC is concerned, there is no issue as to whether Mager was CAI’s agent in view of CAI’s implied recognition of
her status as such in its March 24, 1998 letter.
The act of a travel agent or agency being involved here, the following are the pertinent New Civil Code provisions on agency:
Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.
Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
As its very name implies, a travel agency binds itself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. This court takes judicial notice of the common services rendered by travel agencies that represent themselves as such, specifically the reservation and booking of local and foreign tours as well as the issuance of airline tickets for a commission or fee.
The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21, 1997 were no different from those offered in any other travel agency. Defendant airline impliedly if not expressly acknowledged its principal-agent relationship with Ms. Mager by its offer in the letter dated March 24, 1998 – an obvious attempt to assuage plaintiffs spouses’ hurt feelings.11
Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the subject tickets within two (2)
years from their date of issue when it charged Fernando with the amount of US$1,867.40 for a round trip ticket to Los Angeles and when it
refused to allow Fernando to use Lourdes’ ticket. Specifically:
Tickets may be reissued for up to two years from the original date of issue. When defendant airline still charged plaintiffs spouses US$1,867.40 or more than double the then going rate of US$856.00 for the unused tickets when the same were presented within two (2) years from date of issue, defendant airline exhibited callous treatment of passengers.12
The Appellate Court’s Ruling
On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held liable for Mager’s act in the absence of
any proof that a principal-agent relationship existed between CAI and Holiday Travel. According to the CA, Spouses Viloria, who have the
burden of proof to establish the fact of agency, failed to present evidence demonstrating that Holiday Travel is CAI’s agent. Furthermore,
contrary to Spouses Viloria’s claim, the contractual relationship between Holiday Travel and CAI is not an agency but that of a sale.
Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing agent of Holiday Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from this premise, they contend that Continental Airlines should be held liable for the acts of Mager. The trial court held the same view.
We do not agree. By the contract of agency, a person binds him/herself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. The elements of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for him/herself; and (4) the agent acts within the scope of his/her authority. As the basis of agency is representation, there must be, on the part of the principal, an actual intention to appoint, an intention naturally inferable from the principal’s words or actions. In the same manner, there must be an intention on the part of the agent to accept the appointment and act upon it. Absent such mutual intent, there is generally no agency. It is likewise a settled rule that persons dealing with an assumed agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature
and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it. Agency is never presumed, neither is it created by the mere use of the word in a trade or business name. We have perused the evidence and documents so far presented. We find nothing except bare allegations of plaintiffs-appellees that Mager/Holiday Travel was acting in behalf of Continental Airlines. From all sides of legal prism, the transaction in issue was simply a contract of sale, wherein Holiday Travel buys airline tickets from Continental Airlines and then, through its employees, Mager included, sells it at a premium to clients.13
The CA also ruled that refund is not available to Spouses Viloria as the word “non-refundable” was clearly printed on the face of the
subject tickets, which constitute their contract with CAI. Therefore, the grant of their prayer for a refund would violate the proscription against
impairment of contracts.
Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the higher amount of US$1,867.40 for a
round trip ticket to Los Angeles. According to the CA, there is no compulsion for CAI to charge the lower amount of US$856.00, which Spouses
Viloria claim to be the fee charged by other airlines. The matter of fixing the prices for its services is CAI’s prerogative, which Spouses Viloria
cannot intervene. In particular:
It is within the respective rights of persons owning and/or operating business entities to peg the premium of the services and items which they provide at a price which they deem fit, no matter how expensive or exhorbitant said price may seem vis-à-vis those of the competing companies. The Spouses Viloria may not intervene with the business judgment of Continental Airlines.14
The Petitioners’ Case
In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the latter’s reversal of the RTC’s April 3,
2006 Decision allegedly lacks factual and legal bases. Spouses Viloria claim that CAI acted in bad faith when it required them to pay a higher
amount for a round trip ticket to Los Angeles considering CAI’s undertaking to re-issue new tickets to them within the period stated in their
March 24, 1998 letter. CAI likewise acted in bad faith when it disallowed Fernando to use Lourdes’ ticket to purchase a round trip to Los Angeles
given that there is nothing in Lourdes’ ticket indicating that it is non-transferable. As a common carrier, it is CAI’s duty to inform its passengers
of the terms and conditions of their contract and passengers cannot be bound by such terms and conditions which they are not made aware of.
Also, the subject contract of carriage is a contract of adhesion; therefore, any ambiguities should be construed against CAI. Notably, the
petitioners are no longer questioning the validity of the subject contracts and limited its claim for a refund on CAI’s alleged breach of its
undertaking in its March 24, 1998 letter.
The Respondent’s Case
In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated by its willingness to issue new tickets to them
and to credit the value of the subject tickets against the value of the new ticket Fernando requested. CAI argued that Spouses Viloria’s sole
basis to claim that the price at which CAI was willing to issue the new tickets is unconscionable is a piece of hearsay evidence – an
advertisement appearing on a newspaper stating that airfares from Manila to Los Angeles or San Francisco cost US$818.00.15 Also, the
advertisement pertains to airfares in September 2000 and not to airfares prevailing in June 1999, the time when Fernando asked CAI to apply
the value of the subject tickets for the purchase of a new one.16 CAI likewise argued that it did not undertake to protect Spouses Viloria from
any changes or fluctuations in the prices of airline tickets and its only obligation was to apply the value of the subject tickets to the purchase of
the newly issued tickets.
With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions on the subject tickets and that the terms and
conditions that are printed on them are ambiguous, CAI denies any ambiguity and alleged that its representative informed Fernando that the
subject tickets are non-transferable when he applied for the issuance of a new ticket. On the other hand, the word “non-refundable” clearly
appears on the face of the subject tickets.
CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-agency relationship exists between
them. As an independent contractor, Holiday Travel was without capacity to bind CAI.
Issues
To determine the propriety of disturbing the CA’s January 30, 2009 Decision and whether Spouses Viloria have the right to the reliefs
they prayed for, this Court deems it necessary to resolve the following issues:
a. Does a principal-agent relationship exist between CAI and Holiday Travel?
b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the acts of Holiday
Travel’s agents and employees such as Mager?
c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, can the representation of Mager as
to unavailability of seats at Amtrak be considered fraudulent as to vitiate the consent of Spouse Viloria in the
purchase of the subject tickets?
d. Is CAI justified in insisting that the subject tickets are non-transferable and non-refundable?
e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by Fernando?
f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of the subject tickets
in the purchase of new ones when it refused to allow Fernando to use Lourdes’ ticket and in charging a higher
price for a round trip ticket to Los Angeles?
This Court’s Ruling
I. A principal-agent relationship exists between CAI and Holiday Travel.
With respect to the first issue, which is a question of fact that would require this Court to review and re-examine the evidence
presented by the parties below, this Court takes exception to the general rule that the CA’s findings of fact are conclusive upon Us and our
jurisdiction is limited to the review of questions of law. It is well-settled to the point of being axiomatic that this Court is authorized to resolve
questions of fact if confronted with contrasting factual findings of the trial court and appellate court and if the findings of the CA are
contradicted by the evidence on record.17
According to the CA, agency is never presumed and that he who alleges that it exists has the burden of proof. Spouses Viloria, on
whose shoulders such burden rests, presented evidence that fell short of indubitably demonstrating the existence of such agency.
We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial that Holiday Travel is one of its agents.
Furthermore, in erroneously characterizing the contractual relationship between CAI and Holiday Travel as a contract of sale, the CA failed to
apply the fundamental civil law principles governing agency and differentiating it from sale.
In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the nature of an agency and spelled out the essential
elements thereof:
Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one party, called the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself, and (4) the agent acts within the scope of his authority.
Agency is basically personal, representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself."19
Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second elements are present as CAI
does not deny that it concluded an agreement with Holiday Travel, whereby Holiday Travel would enter into contracts of carriage with third
persons on CAI’s behalf. The third element is also present as it is undisputed that Holiday Travel merely acted in a representative capacity and it
is CAI and not Holiday Travel who is bound by the contracts of carriage entered into by Holiday Travel on its behalf. The fourth element is also
present considering that CAI has not made any allegation that Holiday Travel exceeded the authority that was granted to it. In fact, CAI
consistently maintains the validity of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that Mager was not guilty
of any fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to enter into contracts of carriage on its behalf is easily
discernible from its February 24, 1998 and March 24, 1998 letters, where it impliedly recognized the validity of the contracts entered into by
Holiday Travel with Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not
deny that Holiday Travel is its authorized agent.
Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it gave Holiday Travel the power and authority to
conclude contracts of carriage on its behalf. As clearly extant from the records, CAI recognized the validity of the contracts of carriage that
Holiday Travel entered into with Spouses Viloria and considered itself bound with Spouses Viloria by the terms and conditions thereof; and this
constitutes an unequivocal testament to Holiday Travel’s authority to act as its agent. This Court cannot therefore allow CAI to take an
altogether different position and deny that Holiday Travel is its agent without condoning or giving imprimatur to whatever damage or prejudice
that may result from such denial or retraction to Spouses Viloria, who relied on good faith on CAI’s acts in recognition of Holiday Travel’s
authority. Estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall an innocent party due to its
injurious reliance, the failure to apply it in this case would result in gross travesty of justice.20 Estoppel bars CAI from making such denial.
As categorically provided under Article 1869 of the Civil Code, “[a]gency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.”
Considering that the fundamental hallmarks of an agency are present, this Court finds it rather peculiar that the CA had branded the
contractual relationship between CAI and Holiday Travel as one of sale. The distinctions between a sale and an agency are not difficult to
discern and this Court, as early as 1970, had already formulated the guidelines that would aid in differentiating the two (2) contracts.
In Commissioner of Internal Revenue v. Constantino,21 this Court extrapolated that the primordial differentiating consideration between the two
(2) contracts is the transfer of ownership or title over the property subject of the contract. In an agency, the principal retains ownership and
control over the property and the agent merely acts on the principal’s behalf and under his instructions in furtherance of the objectives for
which the agency was established. On the other hand, the contract is clearly a sale if the parties intended that the delivery of the property will
effect a relinquishment of title, control and ownership in such a way that the recipient may do with the property as he pleases.
Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency, tested under the following criterion:
“The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on Sales, 1.” (Salisbury v. Brooks, 94 SE 117, 118-119)22
As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is a sale is certainly confounding,
considering that CAI is the one bound by the contracts of carriage embodied by the tickets being sold by Holiday Travel on its behalf. It is
undisputed that CAI and not Holiday Travel who is the party to the contracts of carriage executed by Holiday Travel with third persons who
desire to travel via Continental Airlines, and this conclusively indicates the existence of a principal-agent relationship. That the principal is
bound by all the obligations contracted by the agent within the scope of the authority granted to him is clearly provided under Article 1910 of
the Civil Code and this constitutes the very notion of agency.
II. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agent’s employees if it has been established by preponderance of evidence that the principal was also at fault or negligent or that the principal exercise control and supervision over them.
Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is liable for the fault or negligence of Holiday
Travel’s employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al.,23 CAI argues that it cannot be held liable for the actions of the
employee of its ticketing agent in the absence of an employer-employee relationship.
An examination of this Court’s pronouncements in China Air Lines will reveal that an airline company is not completely exonerated
from any liability for the tort committed by its agent’s employees. A prior determination of the nature of the passenger’s cause of action is
necessary. If the passenger’s cause of action against the airline company is premised onculpa aquiliana or quasi-delict for a tort committed by
the employee of the airline company’s agent, there must be an independent showing that the airline company was at fault or negligent or has
contributed to the negligence or tortuous conduct committed by the employee of its agent. The mere fact that the employee of the airline
company’s agent has committed a tort is not sufficient to hold the airline company liable. There is no vinculum juris between the airline
company and its agent’s employees and the contractual relationship between the airline company and its agent does not operate to create a
juridical tie between the airline company and its agent’s employees. Article 2180 of the Civil Code does not make the principal vicariously liable
for the tort committed by its agent’s employees and the principal-agency relationship per se does not make the principal a party to such tort;
hence, the need to prove the principal’s own fault or negligence.
On the other hand, if the passenger’s cause of action for damages against the airline company is based on contractual breach
or culpa contractual, it is not necessary that there be evidence of the airline company’s fault or negligence. As this Court previously stated
in China Air Lines and reiterated in Air France vs. Gillego,24 “in an action based on a breach of contract of carriage, the aggrieved party does not
have to prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its
non-performance by the carrier.”
Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent misrepresentation is clearly one of tort or quasi-delict,
there being no pre-existing contractual relationship between them. Therefore, it was incumbent upon Spouses Viloria to prove that CAI was
equally at fault.
However, the records are devoid of any evidence by which CAI’s alleged liability can be substantiated. Apart from their claim that
CAI must be held liable for Mager’s supposed fraud because Holiday Travel is CAI’s agent, Spouses Viloria did not present evidence that CAI was
a party or had contributed to Mager’s complained act either by instructing or authorizing Holiday Travel and Mager to issue the said
misrepresentation.
It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and conditions of the subject
contracts, which Mager entered into with them on CAI’s behalf, in order to deny Spouses Viloria’s request for a refund or Fernando’s use of
Lourdes’ ticket for the re-issuance of a new one, and simultaneously claim that they are not bound by Mager’s supposed misrepresentation for
purposes of avoiding Spouses Viloria’s claim for damages and maintaining the validity of the subject contracts. It may likewise be argued that
CAI cannot deny liability as it benefited from Mager’s acts, which were performed in compliance with Holiday Travel’s obligations as CAI’s
agent.
However, a person’s vicarious liability is anchored on his possession of control, whether absolute or limited, on the tortfeasor.
Without such control, there is nothing which could justify extending the liability to a person other than the one who committed the tort. As this
Court explained in Cangco v. Manila Railroad Co.:25
With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for the legislature to elect — and our Legislature has so elected — to limit such liability to cases in which the person upon whom such an obligation is imposed is morally culpable or, on the contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral culpability, so as to include responsibility for the negligence of those persons whose acts or omissions are imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil Code has elected to limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having failed to exercise due care in one's own acts, or in having failed to exercise due care in the selection and control of one's agent or servants, or in the control of persons who, by reasons of their status, occupy a position of dependency with respect to the person made liable for their conduct.26 (emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by preponderant evidence. The
existence of control or supervision cannot be presumed and CAI is under no obligation to prove its denial or nugatory assertion. Citing Belen v.
Belen,27 this Court ruled in Jayme v. Apostol,28 that:
In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment relationship. The defendant is under no obligation to prove the negative averment. This Court said:
“It is an old and well-settled rule of the courts that the burden of proving the action is upon the plaintiff, and that if he fails satisfactorily to show the facts upon which he bases his claim, the defendant is under no obligation to prove his exceptions. This [rule] is in harmony with the provisions of Section 297 of the Code of Civil Procedure holding that each party must prove his own affirmative allegations, etc.”29 (citations omitted)
Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s employees or that CAI was equally at fault, no
liability can be imposed on CAI for Mager’s supposed misrepresentation.
III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are not entitled to a refund. Mager’s statement cannot be considered a causal fraud that would justify the annulment of the subject contracts that would oblige CAI to indemnify Spouses Viloria and return the money they paid for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through
fraud, the contract is considered voidable and may be annulled within four (4) years from the time of the discovery of the fraud. Once a
contract is annulled, the parties are obliged under Article 1398 of the same Code to restore to each other the things subject matter of the
contract, including their fruits and interest.
On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent to the subject contracts was
supposedly secured by Mager through fraudulent means, it is plainly apparent that their demand for a refund is tantamount to seeking for an
annulment of the subject contracts on the ground of vitiated consent.
Whether the subject contracts are annullable, this Court is required to determine whether Mager’s alleged misrepresentation
constitutes causal fraud. Similar to the dispute on the existence of an agency, whether fraud attended the execution of a contract is factual in
nature and this Court, as discussed above, may scrutinize the records if the findings of the CA are contrary to those of the RTC.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must
be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract.30 In Samson v. Court of
Appeals,31 causal fraud was defined as “a deception employed by one party prior to or simultaneous to the contract in order to secure the
consent of the other.”32
Also, fraud must be serious and its existence must be established by clear and convincing evidence. As ruled by this Court in Sierra v.
Hon. Court of Appeals, et al.,33 mere preponderance of evidence is not adequate:
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties.
To quote Tolentino again, the “misrepresentation constituting the fraud must be established by full, clear, and convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each case should be considered, taking into account the personal conditions of the victim.”34
After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria has not been satisfactorily
established as causal in nature to warrant the annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and
convincing evidence that Mager’s statement was fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed available
seats at Amtrak for a trip to New Jersey on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew about this; and
(c) that she purposely informed them otherwise.
This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an Amtrak had assured him of the
perennial availability of seats at Amtrak, to be wanting. As CAI correctly pointed out and as Fernando admitted, it was possible that during the
intervening period of three (3) weeks from the time Fernando purchased the subject tickets to the time he talked to said Amtrak employee,
other passengers may have cancelled their bookings and reservations with Amtrak, making it possible for Amtrak to accommodate them.
Indeed, the existence of fraud cannot be proved by mere speculations and conjectures. Fraud is never lightly inferred; it is good faith that is.
Under the Rules of Court, it is presumed that "a person is innocent of crime or wrong" and that "private transactions have been fair and
regular."35 Spouses Viloria failed to overcome this presumption.
IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject contracts.
Even assuming that Mager’s representation is causal fraud, the subject contracts have been impliedly ratified when Spouses Viloria
decided to exercise their right to use the subject tickets for the purchase of new ones. Under Article 1392 of the Civil Code, “ratification
extinguishes the action to annul a voidable contract.”
Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right.
Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of the
contract; or by acceptance and retention of benefits flowing therefrom.36
Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Spouses Viloria likewise asked for a
refund based on CAI’s supposed bad faith in reneging on its undertaking to replace the subject tickets with a round trip ticket from Manila to
Los Angeles.
In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on contractual breach. Resolution, the
action referred to in Article 1191, is based on the defendant’s breach of faith, a violation of the reciprocity between the parties37 and in Solar
Harvest, Inc. v. Davao Corrugated Carton Corporation,38 this Court ruled that a claim for a reimbursement in view of the other party’s failure to
comply with his obligations under the contract is one for rescission or resolution.
However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2) inconsistent remedies. In
resolution, all the elements to make the contract valid are present; in annulment, one of the essential elements to a formation of a contract,
which is consent, is absent. In resolution, the defect is in the consummation stage of the contract when the parties are in the process of
performing their respective obligations; in annulment, the defect is already present at the time of the negotiation and perfection stages of the
contract. Accordingly, by pursuing the remedy of rescission under Article 1191, the Vilorias had impliedly admitted the validity of the subject
contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or obligations under it and at
the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions.39
V. Contracts cannot be rescinded for a slight or casual breach.
CAI cannot insist on the non-transferability of the subject tickets.
Considering that the subject contracts are not annullable on the ground of vitiated consent, the next question is: “Do Spouses Viloria
have the right to rescind the contract on the ground of CAI’s supposed breach of its undertaking to issue new tickets upon surrender of the
subject tickets?”
Article 1191, as presently worded, states:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfilment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it refused to apply the value of
Lourdes’ ticket for Fernando’s purchase of a round trip ticket to Los Angeles and in requiring him to pay an amount higher than the price fixed
by other airline companies.
In its March 24, 1998 letter, CAI stated that “non-refundable tickets may be used as a form of payment toward the purchase of
another Continental ticket for $75.00, per ticket, reissue fee ($50.00, per ticket, for tickets purchased prior to October 30, 1997).”
Clearly, there is nothing in the above-quoted section of CAI’s letter from which the restriction on the non-transferability of the
subject tickets can be inferred. In fact, the words used by CAI in its letter supports the position of Spouses Viloria, that each of them can use the
ticket under their name for the purchase of new tickets whether for themselves or for some other person.
Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject tickets for the purchase of a
round trip ticket between Manila and Los Angeles that he was informed that he cannot use the ticket in Lourdes’ name as payment.
Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from a plain reading of the provision printed
on the subject tickets stating that “[t]o the extent not in conflict with the foregoing carriage and other services performed by each carrier are
subject to: (a) provisions contained in this ticket, x x x (iii) carrier’s conditions of carriage and related regulations which are made part hereof
(and are available on application at the offices of carrier) x x x.” As a common carrier whose business is imbued with public interest, the exercise
of extraordinary diligence requires CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the terms and conditions
governing their contract of carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of carriage to impute knowledge
on its passengers of and demand compliance with a certain condition or undertaking that is not clearly stipulated. Since the prohibition on
transferability is not written on the face of the subject tickets and CAI failed to inform Spouses Viloria thereof, CAI cannot refuse to apply the
value of Lourdes’ ticket as payment for Fernando’s purchase of a new ticket.
CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only a casual breach.
Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. The general rule is that rescission
of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the
very object of the parties in making the agreement.40 Whether a breach is substantial is largely determined by the attendant circumstances.41
While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the purchase of a new ticket is unjustified as
the non-transferability of the subject tickets was not clearly stipulated, it cannot, however be considered substantial. The endorsability of the
subject tickets is not an essential part of the underlying contracts and CAI’s failure to comply is not essential to its fulfillment of its undertaking
to issue new tickets upon Spouses Viloria’s surrender of the subject tickets. This Court takes note of CAI’s willingness to perform its principal
obligation and this is to apply the price of the ticket in Fernando’s name to the price of the round trip ticket between Manila and Los Angeles.
CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial payment as the case may be for the purchase of any ticket, albeit
under her name and for her exclusive use. In other words, CAI’s willingness to comply with its undertaking under its March 24, 1998 cannot be
doubted, albeit tainted with its erroneous insistence that Lourdes’ ticket is non-transferable.
Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for the fact that their agreement
failed to consummate and no new ticket was issued to Fernando. Spouses Viloria have no right to insist that a single round trip ticket between
Manila and Los Angeles should be priced at around $856.00 and refuse to pay the difference between the price of the subject tickets and the
amount fixed by CAI. The petitioners failed to allege, much less prove, that CAI had obliged itself to issue to them tickets for any flight anywhere
in the world upon their surrender of the subject tickets. In its March 24, 1998 letter, it was clearly stated that “[n]on-refundable tickets may be
used as a form of payment toward the purchase of another Continental ticket”42 and there is nothing in it suggesting that CAI had obliged itself
to protect Spouses Viloria from any fluctuation in the prices of tickets or that the surrender of the subject tickets will be considered as full
payment for any ticket that the petitioners intend to buy regardless of actual price and destination. The CA was correct in holding that it is CAI’s
right and exclusive prerogative to fix the prices for its services and it may not be compelled to observe and maintain the prices of other airline
companies.43
The conflict as to the endorsability of the subject tickets is an altogether different matter, which does not preclude CAI from fixing
the price of a round trip ticket between Manila and Los Angeles in an amount it deems proper and which does not provide Spouses Viloria an
excuse not to pay such price, albeit subject to a reduction coming from the value of the subject tickets. It cannot be denied that Spouses Viloria
had the concomitant obligation to pay whatever is not covered by the value of the subject tickets whether or not the subject tickets are
transferable or not.
There is also no showing that Spouses Viloria were discriminated against in bad faith by being charged with a higher rate. The only
evidence the petitioners presented to prove that the price of a round trip ticket between Manila and Los Angeles at that time was only $856.00
is a newspaper advertisement for another airline company, which is inadmissible for being “hearsay evidence, twice removed.” Newspaper
clippings are hearsay if they were offered for the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court of Appeals,:44
[N]ewspaper articles amount to “hearsay evidence, twice removed” and are therefore not only inadmissible but without any probative value at all whether objected to or not, unless offered for a purpose other than proving the truth of the matter asserted. In this case, the news article is admissible only as evidence that such publication does exist with the tenor of the news therein stated.45 (citations omitted)
The records of this case demonstrate that both parties were equally in default; hence, none of them can seek judicial redress for the
cancellation or resolution of the subject contracts and they are therefore bound to their respective obligations thereunder. As the 1st sentence
of Article 1192 provides:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (emphasis supplied)
Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of Fernando’s round trip ticket is offset
by Spouses Viloria’s liability for their refusal to pay the amount, which is not covered by the subject tickets. Moreover, the contract between
them remains, hence, CAI is duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their surrender of the subject
tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the value of the subject tickets.
This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:
Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. x x x.47
Another consideration that militates against the propriety of holding CAI liable for moral damages is the absence of a showing that
the latter acted fraudulently and in bad faith. Article 2220 of the Civil Code requires evidence of bad faith and fraud and moral damages are
generally not recoverable in culpa contractual except when bad faith had been proven.48The award of exemplary damages is likewise not
warranted. Apart from the requirement that the defendant acted in a wanton, oppressive and malevolent manner, the claimant must prove his
entitlement to moral damages.49
WHEREFORE, premises considered, the instant Petition is DENIED.
SO ORDERED.
THIRD DIVISION
PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented by Mother and Attorney-in-Fact VIRGINIA CASTILLA),
Petitioners,
- versus - COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA OCAMPO, EUFEMIA SAN AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTIN-McCRAE, MILAGROS SAN AGUSTIN-FORTMAN, MINERVA SAN AGUSTIN-ATKINSON, FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN, ISABELITA SAN AGUSTIN-LUSTENBERGER and VIRGILIO SAN AGUSTIN,
Respondents.
G.R. No. 160346 Present: CARPIO MORALES, J.,*
CHICO-NAZARIO,**
Acting Chairperson,VELASCO, JR.,NACHURA, andPERALTA, JJ. Promulgated: August 25, 2009
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
For our resolution is a petition for review on certiorari assailing the April 23, 2003 Decision[1] and October 8, 2003 Resolution[2] of the Court of
Appeals (CA) in CA-G.R. CV No. 59426. The appellate court, in the said decision and resolution, reversed and set aside the January 14, 1998
Decision[3] of the Regional Trial Court (RTC), which ruled in favor of petitioners.
The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to acquire a 246-square meter parcel of land situated
in Barangay Anos, Los Baos, Laguna and covered by Original Certificate of Title (OCT) No. O-(1655) 0-15.[4] Agatona Genil died on September 13,
1990 while Pedro San Agustin died on September 14, 1991. Both died intestate, survived by their eight (8) children: respondents Eufemia, Raul,
Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of Undivided Shares[5] conveying in favor of petitioners (the
Pahuds, for brevity) their respective shares from the lot they inherited from their deceased parents for P525,000.00.[6] Eufemia also signed the
deed on behalf of her four (4) other co-heirs, namely: Isabelita on the basis of a special power of attorney executed on September 28, 1991,
[7] and also for Milagros, Minerva, and Zenaida but without their apparent written authority.[8] The deed of sale was also not notarized.[9]
On July 21, 1992, the Pahuds paid P35,792.31 to the Los Baos Rural Bank where the subject property was mortgaged.[10] The bank issued a
release of mortgage and turned over the owners copy of the OCT to the Pahuds.[11] Over the following months, the Pahuds made more
payments to Eufemia and her siblings totaling to P350,000.00.[12] They agreed to use the remaining P87,500.00[13] to defray the payment for
taxes and the expenses in transferring the title of the property.[14] When Eufemia and her co-heirs drafted an extra-judicial settlement of estate
to facilitate the transfer of the title to the Pahuds, Virgilio refused to sign it.[15]
On July 8, 1993, Virgilios co-heirs filed a complaint[16] for judicial partition of the subject property before the RTC of Calamba, Laguna. On
November 28, 1994, in the course of the proceedings for judicial partition, a Compromise Agreement [17] was signed with seven (7) of the co-
heirs agreeing to sell their undivided shares to Virgilio forP700,000.00. The compromise agreement was, however, not approved by the trial
court because Atty. Dimetrio Hilbero, lawyer for Eufemia and her six (6) co-heirs, refused to sign the agreement because he knew of the
previous sale made to the Pahuds.[18]
On December 1, 1994, Eufemia acknowledged having received P700,000.00 from Virgilio.[19] Virgilio then sold the entire property to spouses
Isagani Belarmino and Leticia Ocampo (Belarminos) sometime in 1994. The Belarminos immediately constructed a building on the subject
property.
Alarmed and bewildered by the ongoing construction on the lot they purchased, the Pahuds immediately confronted Eufemia who confirmed to
them that Virgilio had sold the property to the Belarminos.[20] Aggrieved, the Pahuds filed a complaint in intervention[21] in the pending case for
judicial partition.
After trial, the RTC upheld the validity of the sale to petitioners. The dispositive portion of the decision reads:
WHEREFORE, the foregoing considered, the Court orders:
1. the sale of the 7/8 portion of the property covered by OCT No. O (1655) O-15 by the plaintiffs as heirs of deceased Sps. Pedro San Agustin and Agatona Genil in favor of the Intervenors-Third Party plaintiffs as valid and enforceable, but obligating the Intervenors-Third Party plaintiffs to complete the payment of the purchase price of P437,500.00 by paying the balance of P87,500.00 to defendant Fe (sic) San Agustin Magsino. Upon receipt of the balance, the plaintiff shall formalize the sale of the 7/8 portion in favor of the Intervenor[s]-Third Party plaintiffs;
2. declaring the document entitled Salaysay sa Pagsang-ayon sa Bilihan (Exh. 2-a) signed by plaintiff Eufemia
San Agustin attached to the unapproved Compromise Agreement (Exh. 2) as not a valid sale in favor of defendant Virgilio San Agustin;
3. declaring the sale (Exh. 4) made by defendant Virgilio San Agustin of the property covered by OCT No. O
(1655)-O-15 registered in the names of Spouses Pedro San Agustin and Agatona Genil in favor of Third-party defendant Spouses Isagani and Leticia Belarmino as not a valid sale and as inexistent;
4. declaring the defendant Virgilio San Agustin and the Third-Party defendants spouses Isagani and Leticia
Belarmino as in bad faith in buying the portion of the property already sold by the plaintiffs in favor of the Intervenors-Third Party Plaintiffs and the Third-Party Defendant Sps. Isagani and Leticia Belarmino in constructing the two-[storey] building in (sic) the property subject of this case; and
5. declaring the parties as not entitled to any damages, with the parties shouldering their respective
responsibilities regarding the payment of attorney[]s fees to their respective lawyers.
No pronouncement as to costs. SO ORDERED.[22]
Not satisfied, respondents appealed the decision to the CA arguing, in the main, that the sale made by Eufemia for and on behalf of
her other co-heirs to the Pahuds should have been declared void and inexistent for want of a written authority from her co-heirs. The CA
yielded and set aside the findings of the trial court. In disposing the issue, the CA ruled:
WHEREFORE, in view of the foregoing, the Decision dated January 14, 1998, rendered by the Regional Trial Court of Calamba, Laguna, Branch 92 in Civil Case No. 2011-93-C for Judicial Partition is hereby REVERSED and SET ASIDE, and a new one entered, as follows: (1) The case for partition among the plaintiffs-appellees and appellant Virgilio is now considered closed and terminated;
(2) Ordering plaintiffs-appellees to return to intervenors-appellees the total amount they received from the latter, plus
an interest of 12% per annum from the time the complaint [in] intervention was filed on April 12, 1995 until actual payment of the same;
(3) Declaring the sale of appellant Virgilio San Agustin to appellants spouses, Isagani and Leticia Belarmino[,] as valid
and binding;
(4) Declaring appellants-spouses as buyers in good faith and for value and are the owners of the subject property. No pronouncement as to costs. SO ORDERED.[23]
Petitioners now come to this Court raising the following arguments:
I. The Court of Appeals committed grave and reversible error when it did not apply the second paragraph of Article 1317 of the New Civil Code insofar as ratification is concerned to the sale of the 4/8 portion of the subject property executed by respondents San Agustin in favor of petitioners;
II. The Court of Appeals committed grave and reversible error in holding that respondents spouses Belarminos are
in good faith when they bought the subject property from respondent Virgilio San Agustin despite the findings of fact by the court a quo that they were in bad faith which clearly contravenes the presence of long line of case laws upholding the task of giving utmost weight and value to the factual findings of the trial court during appeals; [and]
III. The Court of Appeals committed grave and reversible error in holding that respondents spouses Belarminos
have superior rights over the property in question than petitioners despite the fact that the latter were prior in possession thereby misapplying the provisions of Article 1544 of the New Civil Code.[24]
The focal issue to be resolved is the status of the sale of the subject property by Eufemia and her co-heirs to the Pahuds. We find the
transaction to be valid and enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.
Also, under Article 1878,[25] a special power of attorney is necessary for an agent to enter into a contract by which the ownership of
an immovable property is transmitted or acquired, either gratuitously or for a valuable consideration. Such stringent statutory requirement has
been explained in Cosmic Lumber Corporation v. Court of Appeals:[26]
[T]he authority of an agent to execute a contract [of] sale of real estate must be conferred in writing and must give him specific authority, either to conduct the general business of the principal or to execute a binding contract containing terms and conditions which are in the contract he did execute. A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required by law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. For the principal to confer the right upon an agent to sell real estate, a power of attorney must so express the powers of the agent in clear and unmistakable language. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document.[27]
In several cases, we have repeatedly held that the absence of a written authority to sell a piece of land is, ipso jure, void,[28] precisely
to protect the interest of an unsuspecting owner from being prejudiced by the unwarranted act of another.
Based on the foregoing, it is not difficult to conclude, in principle, that the sale made by Eufemia, Isabelita and her two brothers to
the Pahuds sometime in 1992 should be valid only with respect to the 4/8 portion of the subject property. The sale with respect to the 3/8
portion, representing the shares of Zenaida, Milagros, and Minerva, is voidbecause Eufemia could not dispose of the interest of her co-heirs in
the said lot absent any written authority from the latter, as explicitly required by law. This was, in fact, the ruling of the CA.
Still, in their petition, the Pahuds argue that the sale with respect to the 3/8 portion of the land should have been deemed ratified
when the three co-heirs, namely: Milagros, Minerva, and Zenaida, executed their respective special power of attorneys[29] authorizing Eufemia
to represent them in the sale of their shares in the subject property.[30]
While the sale with respect to the 3/8 portion is void by express provision of law and not susceptible to ratification,[31] we
nevertheless uphold its validity on the basis of the common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite special power of attorney to dispose of the 3/8
portion of the property. Initially, in their answer to the complaint in intervention,[32] Eufemia and her other co-heirs denied having sold their
shares to the Pahuds. During the pre-trial conference, however, they admitted that they had indeed sold 7/8 of the property to the Pahuds
sometime in 1992.[33] Thus, the previous denial was superseded, if not accordingly amended, by their subsequent admission. [34] Moreover, in
their Comment,[35] the said co-heirs again admitted the sale made to petitioners.[36]
Interestingly, in no instance did the three (3) heirs concerned assail the validity of the transaction made by Eufemia to the Pahuds on
the basis of want of written authority to sell. They could have easily filed a case for annulment of the sale of their respective shares against
Eufemia and the Pahuds. Instead, they opted to remain silent and left the task of raising the validity of the sale as an issue to their co-heir,
Virgilio, who is not privy to the said transaction. They cannot be allowed to rely on Eufemia, their attorney-in-fact, to impugn the validity of the
first transaction because to allow them to do so would be tantamount to giving premium to their sisters dishonest and fraudulent deed.
Undeniably, therefore, the silence and passivity of the three co-heirs on the issue bar them from making a contrary claim.
It is a basic rule in the law of agency that a principal is subject to liability for loss caused to another by the latters reliance upon a
deceitful representation by an agent in the course of his employment (1) if the representation is authorized; (2) if it is within the implied
authority of the agent to make for the principal; or (3) if it is apparently authorized, regardless of whether the agent was authorized by him or
not to make the representation.[37]
By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to believe that they have indeed clothed Eufemia
with the authority to transact on their behalf. Clearly, the three co-heirs are now estopped from impugning the validity of the sale from
assailing the authority of Eufemia to enter into such transaction.
Accordingly, the subsequent sale made by the seven co-heirs to Virgilio was void because they no longer had any interest over the
subject property which they could alienate at the time of the second transaction. [38] Nemo dat quod non habet. Virgilio, however, could still
alienate his 1/8 undivided share to the Belarminos.
The Belarminos, for their part, cannot argue that they purchased the property from Virgilio in good faith. As a general rule, a
purchaser of a real property is not required to make any further inquiry beyond what the certificate of title indicates on its face. [39] But the rule
excludes those who purchase with knowledge of the defect in the title of the vendor or of facts sufficient to induce a reasonable and prudent
person to inquire into the status of the property.[40] Such purchaser cannot close his eyes to facts which should put a reasonable man on guard,
and later claim that he acted in good faith on the belief that there was no defect in the title of the vendor. His mere refusal to believe that such
defect exists, or his obvious neglect by closing his eyes to the possibility of the existence of a defect in the vendors title, will not make him an
innocent purchaser for value, if afterwards it turns out that the title was, in fact, defective. In such a case, he is deemed to have bought the
property at his own risk, and any injury or prejudice occasioned by such transaction must be borne by him.[41]
In the case at bar, the Belarminos were fully aware that the property was registered not in the name of the immediate transferor,
Virgilio, but remained in the name of Pedro San Agustin and Agatona Genil.[42] This fact alone is sufficient impetus to make further inquiry and,
thus, negate their claim that they are purchasers for value in good faith.[43] They knew that the property was still subject of partition
proceedings before the trial court, and that the compromise agreement signed by the heirs was not approved by the RTC following the
opposition of the counsel for Eufemia and her six other co-heirs.[44] The Belarminos, being transferees pendente lite, are deemed buyers in mala
fide,and they stand exactly in the shoes of the transferor and are bound by any judgment or decree which may be rendered for or against
the transferor.[45] Furthermore, had they verified the status of the property by asking the neighboring residents, they would have been able to
talk to the Pahuds who occupy an adjoining business establishment [46] and would have known that a portion of the property had already been
sold. All these existing and readily verifiable facts are sufficient to suggest that the Belarminos knew that they were buying the property at their
own risk.
WHEREFORE, premises considered, the April 23, 2003 Decision of the Court of Appeals as well as its October 8, 2003 Resolution in
CA-G.R. CV No. 59426, areREVERSED and SET ASIDE. Accordingly, the January 14, 1998 Decision of Branch 92 of the Regional Trial Court of
Calamba, Laguna is REINSTATED with theMODIFICATION that the sale made by respondent Virgilio San Agustin to respondent spouses Isagani
Belarmino and Leticia Ocampo is valid only with respect to the 1/8 portion of the subject property. The trial court is ordered to proceed with
the partition of the property with dispatch.
SO ORDERED.
SECOND DIVISION
YUN KWAN BYUNG,Petitioner,
- versus - PHILIPPINE AMUSEMENT AND GAMING CORPORATION,Respondent.
G.R. No. 163553 Present: CARPIO, J., Chairperson,CARPIO MORALES,*
LEONARDO-DE CASTRO,**
DEL CASTILLO, andABAD, JJ. Promulgated: December 11, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
D E C I S I O N CARPIO, J.:
The Case
Yun Kwan Byung (petitioner) filed this Petition for Review[1]assailing the Court of Appeals Decision[2]dated 27 May 2003 in CA-G.R. CV No. 65699
as well as the Resolution[3]dated 7 May 2004 denying the Motion for Reconsideration. In the assailed decision, the Court of Appeals (CA)
affirmed the Regional Trial Courts Decision[4]dated6 May 1999. The Regional Trial Court of Manila, Branch 13 (trial court), dismissed petitioners
demand against respondent Philippine Amusement and Gaming Corporation (PAGCOR) for the redemption of gambling chips.
The Facts
PAGCOR is a government-owned and controlled corporation tasked to establish and operate gambling clubs and casinos as a means to promote
tourism and generate sources of revenue for the government. To achieve these objectives, PAGCOR is vested with the power to enter into
contracts of every kind and for any lawful purpose that pertains to its business. Pursuant to this authority, PAGCOR launched its Foreign
Highroller Marketing Program (Program). The Program aims to invite patrons from foreign countries to play at the dollar pit of designated
PAGCOR-operated casinos under specified terms and conditions and in accordance with industry practice.[5]
The Korean-based ABS Corporation was one of the international groups that availed of the Program. In a letter-agreement dated 25 April 1996 (Junket Agreement), ABS Corporation agreed to bring in foreign players to play at the five designated gaming tables of the Casino Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino Filipino). The relevant stipulations of the Junket Agreement state:
1. PAGCOR will provide ABS Corporation with separate junket chips. The junket chips
will be distinguished from the chips being used by other players in the gaming tables.ABS Corporation will distribute these junket chips to its players and at the end of the playing period, ABS Corporation will collect the junket chips from its players and make an accounting to the casino treasury.
2. ABS Corporation will assume sole responsibility to pay the winnings of its foreign
players and settle the collectibles from losing players.
3. ABS Corporation shall hold PAGCOR absolutely free and harmless from any
damage, claim or liability which may arise from any cause in connection with the Junket Agreement.
5. In providing the gaming facilities and services to these foreign players, PAGCOR is entitled to receive from ABS
Corporation a 12.5% share in the gross winnings of ABS Corporation or 1.5 million US dollars, whichever is
higher, over a playing period of 6 months. PAGCOR has the option to extend the period.[6]
Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came to the Philippines four times to play for high stakes at
the Casino Filipino.[7]Petitioner claims that in the course of the games, he was able to accumulate gambling chips worth US$2.1 million.
Petitioner presented as evidence during the trial gambling chips with a face value of US$1.1 million. Petitioner contends that when he
presented the gambling chips for encashment with PAGCORs employees or agents, PAGCOR refused to redeem them.[8]
Petitioner brought an action against PAGCOR seeking the redemption of gambling chips valued at US$2.1 million. Petitioner claims that he won
the gambling chips at the Casino Filipino, playing continuously day and night. Petitioner alleges that every time he would come to Manila,
PAGCOR would extend to him amenities deserving of a high roller. A PAGCOR official who meets him at the airport would bring him to Casino
Filipino, a casino managed and operated by PAGCOR. The card dealers were all PAGCOR employees, the gambling chips, equipment and
furnitures belonged to PAGCOR, and PAGCOR enforced all the regulations dealing with the operation of foreign exchange gambling pits.
Petitioner states that he was able to redeem his gambling chips with the cashier during his first few winning trips. But later on, the casino
cashier refused to encash his gambling chips so he had no recourse but to deposit his gambling chips at the Grand Boulevard Hotels deposit
box, every time he departed from Manila.[9]
PAGCOR claims that petitioner, who was brought into the Philippines by ABS Corporation, is a junket player who played in the dollar pit
exclusively leased by ABS Corporation for its junket players. PAGCOR alleges that it provided ABS Corporation with distinct junket chips. ABS
Corporation distributed these chips to its junket players. At the end of each playing period, the junket players would surrender the chips to ABS
Corporation. Only ABS Corporation would make an accounting of these chips to PAGCORs casino treasury.[10]
As additional information for the junket players playing in the gaming room leased to ABS Corporation, PAGCOR posted a notice written in English and Korean languages which reads:
NOTICE
This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR, the former is solely accountable for all PLAYING CHIPS wagered on the tables. Any financialARRANGEMENT/TRANSACTION between PLAYERS and ABS shall only be binding upon said PLAYERS and ABS.[11]
PAGCOR claims that this notice is a standard precautionary measure[12]to avoid confusion between junket players of ABS Corporation and
PAGCORs players.
PAGCOR argues that petitioner is not a PAGCOR player because under PAGCORs gaming rules, gambling chips cannot be brought outside the
casino. The gambling chips must be converted to cash at the end of every gaming period as they are inventoried every shift. Under PAGCORs
rules, it is impossible for PAGCOR players to accumulate two million dollars worth of gambling chips and to bring the chips out of the casino
premises.[13]
Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation and refused to encash the gambling chips, petitioner
filed a complaint for a sum of money before the trial court.[14]PAGCOR filed a counterclaim against petitioner. Then, trial ensued.
On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner appealed the trial courts decision to the CA. On 27 May 2003, the CA affirmed the appealed decision. On 27 June 2003, petitioner moved for reconsideration which was denied on 7 May 2004. Aggrieved by the CAs decision and resolution, petitioner elevated the case before this Court.
The Ruling of the Trial Court
The trial court ruled that based on PAGCORs charter,[15]PAGCOR has no authority to lease any portion of the gambling tables to a private party
like ABS Corporation. Section 13 of Presidential Decree No. 1869 or the PAGCORs charter states:
Sec. 13. Exemptions -
x x x
(4) Utilization of Foreign Currencies The Corporation shall have the right and authority, solely and exclusively in connection with the operations of the casino(s), to purchase, receive, exchange and disburse foreign exchange, subject to the following terms and conditions:
(a) A specific area in the casino(s) or gaming pit shall be put up solely and exclusively for players and patrons utilizing foreign currencies;
(b) The Corporation shall appoint and designate a duly accredited commercial bank agent of the Central Bank, to handle, administer and manage the use of foreign currencies in the casino(s);
(c) The Corporation shall provide an office at casino(s) exclusively for the employees of the designated bank, agent of the Central Bank, where the Corporation shall maintain a dollar account which will be utilized exclusively for the above purpose and the casino dollar treasury employees;
(d) Only persons with foreign passports or certificates of identity (for Hong Kong patron only) duly issued by the government or country of their residence will be allowed to play in the foreign exchange gaming pit;
(e) Only foreign exchange prescribed to form part of the Philippine International Reserve and the following foreign exchange currencies: Australian Dollar, Singapore Dollar, Hong Kong Dollar, shall be used in this gaming pit;
(f) The disbursement, administration, management and recording of foreign exchange currencies used in the casino(s) shall be carried out in accordance with existing foreign exchange regulations, and periodical reports of the transactions in such foreign exchange currencies by the Corporation shall be duly recorded and reported to the Central Bank thru the designated Agent Bank; and
(g) The Corporation shall issue the necessary rules and regulations for the guidance and information of players qualified to participate in the foreign exchange gaming pit, in order to make certain that the terms and conditions as above set forth are strictly complied with.
The trial court held that only PAGCOR could use foreign currency in its gaming tables. When PAGCOR accepted only a fixed portion of the dollar
earnings of ABS Corporation in the concept of a lease of facilities, PAGCOR shared its franchise with ABS Corporation in violation of the
PAGCORs charter. Hence, the Junket Agreement is void. Since the Junket Agreement is not permitted by PAGCORs charter, the mutual rights
and obligations of the parties to this case would be resolved based on agency and estoppel.[16]
The trial court found that the petitioner wanted to redeem gambling chips that were specifically used by ABS Corporation at its gaming tables.
The gambling chips come in distinctive orange or yellow colors with stickers bearing denominations of 10,000 or 1,000. The 1,000 gambling
chips are smaller in size and the words no cash value marked on them. The 10,000 gambling chips do not reflect the no cash value sign. The
senior treasury head of PAGCOR testified that these were the gambling chips used by the previous junket operators and PAGCOR merely
continued using them. However, the gambling chips used in the regular casino games were of a different quality.[17]
The trial court pointed out that PAGCOR had taken steps to warn players brought in by all junket operators, including ABS Corporation, that
they were playing under special rules. Apart from the different kinds of gambling chips used, the junket players were confined to certain gaming
rooms. In these rooms, notices were posted that gambling chips could only be encashed there and nowhere else. A photograph of one such
notice, printed in Korean and English, stated that the gaming room was exclusively operated by ABS Corporation and that ABS Corporation was
solely accountable for all the chips wagered on the gaming tables. Although petitioner denied seeing this notice, this disclaimer has the effect of
a negative evidence that can hardly prevail against the positive assertions of PAGCOR officials whose credibility is also not open to doubt. The
trial court concluded that petitioner had been alerted to the existence of these special gambling rules, and the mere fact that he continued to
play under the same restrictions over a period of several months confirms his acquiescence to them. Otherwise, petitioner could have simply
chose to stop gambling.[18]
In dismissing petitioners complaint, the trial court concluded that petitioners demand against PAGCOR for the redemption of the gambling
chips could not stand. The trial court stated that petitioner, a stranger to the agreement between PAGCOR and ABS Corporation, could not
under principles of equity be charged with notice other than of the apparent authority with which PAGCOR had clothed its employees and
agents in dealing with petitioner. Since petitioner was made aware of the special rules by which he was playing at the Casino Filipino, petitioner
could not now claim that he was not bound by them. The trial court explained that in an unlawful transaction, the courts will extend equitable
relief only to a party who was unaware of all its dimensions and whose ignorance of them exposed him to the risk of being exploited by the
other. Where the parties enter into such a relationship with the opportunity to know all of its ramifications, as in this case, there is no room for
equitable considerations to come to the rescue of any party. The trial court ruled that it would leave the parties where they are.[19]
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the four errors assigned by petitioner.
First, petitioner maintains that he was never a junket player of ABS Corporation. Petitioner also denies seeing a notice that certain gaming
rooms were exclusively operated by entities under special agreement.[20]
The CA ruled that the records do not support petitioners theory. Petitioners own testimony reveals that he enjoyed special accommodations at
the Grand Boulevard Hotel. This similar accommodation was extended to players brought in by ABS Corporation and other junket operators.
Petitioner cannot disassociate himself from ABS Corporation for it is unlikely that an unknown high roller would be accorded choice
accommodations by the hotel unless the accommodation was facilitated by a junket operator who enjoyed such privilege.[21]
The CA added that the testimonies of PAGCORs employees affirming that notices were posted in English and Korean in the gaming areas are
credible in the absence of any convincing proof of ill motive. Further, the specified gaming areas used only special chips that could be bought
and exchanged at certain cashier booths in that area.[22]
Second, petitioner attacks the validity of the contents of the notice. Since the Junket Agreement is void, the notice, which was issued pursuant
to the Junket Agreement, is also void and cannot affect petitioner.[23]
The CA reasoned that the trial court never declared the notice valid and neither did it enforce the contents thereof. The CA emphasized that it
was the act of cautioning and alerting the players that was upheld. The trial court ruled that signs and warnings were in place to inform the
public, petitioner included, that special rules applied to certain gaming areas even if the very agreement giving rise to these rules is void.[24]
Third, petitioner takes the position that an implied agency existed between PAGCOR and ABS Corporation.[25]
The CA disagreed with petitioners view. A void contract has no force and effect from the very beginning. It produces no effect either against or
in favor of anyone. Neither can it create, modify or extinguish the juridical relation to which it refers. Necessarily, the Junket Agreement, being
void from the beginning, cannot give rise to an implied agency. The CA explained that it cannot see how the principle of implied agency can be
applied to this case. Article 1883[26]of the Civil Code applies only to a situation where the agent is authorized by the principal to enter into a
particular transaction, but instead of contracting on behalf of the principal, the agent acts in his own name.[27]
The CA concluded that no such legal fiction existed between PAGCOR and ABS Corporation. PAGCOR entered into a Junket Agreement to lease
to ABS Corporation certain gaming areas. It was never PAGCORs intention to deal with the junket players. Neither did PAGCOR intend ABS
Corporation to represent PAGCOR in dealing with the junket players. Representation is the basis of agency but unfortunately for petitioner
none is found in this case.[28]
The CA added that the special gaming chips, while belonging to PAGCOR, are mere accessories in the void Junket Agreement with ABS
Corporation. In Article 1883, the phrase things belonging to the principal refers only to those things or properties subject of a particular
transaction authorized by the principal to be entered into by its purported agent. Necessarily, the gambling chips being mere incidents to the
void lease agreement cannot fall under this category.[29]
The CA ruled that Article 2152[30]of the Civil Code is also not applicable. The circumstances relating to negotiorum gestio are non-existent to
warrant an officious manager to take over the management and administration of PAGCOR.[31]
Fourth, petitioner asks for equitable relief.[32]
The CA explained that although petitioner was never a party to the void Junket Agreement, petitioner cannot deny or feign blindness to the
signs and warnings all around him. The notices, the special gambling chips, and the separate gaming areas were more than enough to alert him
that he was playing under different terms. Petitioner persisted and continued to play in the casino. Petitioner also enjoyed the perks extended
to junket players of ABS Corporation. For failing to heed these signs and warnings, petitioner can no longer be permitted to claim equitable
relief. When parties do not come to court with clean hands, they cannot be allowed to profit from their own wrong doing.[33]
The IssuesPetitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding the doctrine of implied agency, or
agency by estoppel;
2. Whether the CA erred in using intent of the contracting parties as the test for creation of agency, when such is not relevant
since the instant case involves liability of the presumed principal in implied agency to a third party; and
3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of the agent, ABS Corporation.
[34]
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling
Gambling is prohibited by the laws of the Philippines as specifically provided in Articles 195 to 199 of the Revised Penal Code, as amended.
Gambling is an act beyond the pale of good morals,[35]and is thus prohibited and punished to repress an evil that undermines the social, moral,
and economic growth of the nation.[36] Presidential Decree No. 1602 (PD 1602),[37]which modified Articles 195-199 of the Revised Penal Code
and repealed inconsistent provisions,[38]prescribed stiffer penalties on illegal gambling.[39]
As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is that stipulated under Presidential Decree No. 1869,
which gave PAGCOR its franchise to maintain and operate gambling casinos. The issue then turns on whether PAGCOR can validly share its
franchise with junket operators to operate gambling casinos in the country. Section 3(h) of PAGCORs charter states:
Section 3. Corporate Powers. - The Corporation shall have the following powers and functions, among others:
x x x
h) to enter into, make, perform, and carry out contracts of every kind and for any lawful purpose pertaining to the
business of the Corporation, or in any manner incident thereto, as principal, agent or otherwise, with any person, firm,
association, or corporation.
x x x
The Junket Agreement would be valid if under Section 3(h) of PAGCORs charter, PAGCOR could share its gambling franchise with
another entity. In Senator Jaworski v. Phil. Amusement and Gaming Corp., [40]the Court discussed the extent of the grant of the legislative
franchise to PAGCOR on its authority to operate gambling casinos:
A legislative franchise is a special privilege granted by the state to corporations. It is a privilege of public concern which cannot be exercised at will and pleasure, but should be reserved for public control and administration, either by the government directly, or by public agents, under such conditions and regulations as the government may impose on them in the interest of the public. It is Congress that prescribes the conditions on which the grant of the franchise may be made. Thus the manner of granting the franchise, to whom it may be granted, the mode of conducting the business, the charter and the quality of the service to be rendered and the duty of the grantee to the public in exercising the franchise are almost always defined in clear and unequivocal language.
After a circumspect consideration of the foregoing discussion and the contending positions of the parties, we hold that PAGCOR has acted beyond the limits of its authority when it passed on or shared its franchise to SAGE.
In the Del Mar case where a similar issue was raised when PAGCOR entered into a joint venture agreement with two other entities in the operation and management of jai alai games, the Court, in an En Banc Resolution dated 24 August 2001, partially granted the motions for clarification filed by respondents therein insofar as it prayed that PAGCOR has a valid franchise, but only by itself (i.e. not in association with any other person or entity), to operate, maintain and/or manage the game of jai-alai.
In the case at bar, PAGCOR executed an agreement with SAGE whereby the former grants the latter the authority to operate and maintain sports betting stations and Internet gaming operations. In essence, the grant of authority gives SAGE the privilege to actively participate, partake and share PAGCORs franchise to operate a gambling activity. The grant of franchise is a special privilege that constitutes a right and a duty to be performed by the grantee. The grantee must not perform its activities arbitrarily and whimsically but must abide by the limits set by its franchise and strictly adhere to its terms and conditionalities. A corporation as a creature of the State is presumed to exist for the common good. Hence, the
special privileges and franchises it receives are subject to the laws of the State and the limitations of its charter. There is therefore a reserved right of the State to inquire how these privileges had been employed, and whether they have been abused. (Emphasis supplied)
THUS, PAGCOR HAS THE SOLE AND EXCLUSIVE AUTHORITY TO OPERATE A GAMBLING ACTIVITY. WHILE PAGCOR IS ALLOWED UNDER
ITS CHARTER TO ENTER INTO OPERATORS OR MANAGEMENT CONTRACTS, PAGCOR IS NOT ALLOWED UNDER THE SAME CHARTER TO
RELINQUISH OR SHARE ITS FRANCHISE. PAGCOR CANNOT DELEGATE ITS POWER IN VIEW OF THE LEGAL PRINCIPLE OF DELEGATA POTESTAS
DELEGARE NON POTEST, INASMUCH AS THERE IS NOTHING IN THE CHARTER TO SHOW THAT IT HAS BEEN EXPRESSLY AUTHORIZED TO DO SO.[41]
Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of ABS Corporation from its foreign currency collection,
allowed ABS Corporation to operate gaming tables in the dollar pit. The Junket Agreement is in direct violation of PAGCORs charter and is
therefore void.
Since the Junket Agreement violates PAGCORs charter, gambling between the junket player and the junket operator under such
agreement is illegal and may not be enforced by the courts. Article 2014[42]of the Civil Code, which refers to illegal gambling, states that no
action can be maintained by the winner for the collection of what he has won in a game of chance.
Although not raised as an issue by petitioner, we deem it necessary to discuss the applicability of Republic Act No. 9487[43](RA 9487)
to the present case.
RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter into special agreement with third parties to share the
privileges under its franchise for the operation of gambling casinos:
Section 1. The Philippine Amusement and Gaming Corporation (PAGCOR) franchise granted under Presidential Decree No. 1869 otherwise known as the PAGCOR Charter, is hereby further amended to read as follows:
X X X
(2) SECTION 3(H) IS HEREBY AMENDED TO READ AS FOLLOWS:
SEC. 3. CORPORATE POWERS. -
x x x
(h) to enter into, make, conclude, perform, and carry out contracts of every kind and nature and for any lawful purpose which are necessary, appropriate, proper or incidental to any business or purpose of the PAGCOR, including but not limited to investment agreements, joint venture agreements, management agreements, agency agreements, whether as principal or as an agent, manpower supply agreements, or any other similar agreements or arrangements with any person, firm, association or corporation. (Boldfacing supplied)
PAGCOR sought the amendment of its charter precisely to address and remedy the legal impediment raised in Senator Jaworski v. Phil.
Amusement and Gaming Corp.
Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The Junket Agreement was entered into between
PAGCOR and ABS Corporation on 25 April 1996 when the PAGCOR charter then prevailing (PD 1869) prohibited PAGCOR from entering into any
arrangement with a third party that would allow such party to actively participate in the casino operations.
It is a basic principle that laws should only be applied prospectively unless the legislative intent to give them retroactive effect is
expressly declared or is necessarily implied from the language used.[44]RA 9487 does not provide for any retroactivity of its provisions. All laws
operate prospectively absent a clear contrary language in the text, [45]and that in every case of doubt, the doubt will be resolved against the
retroactive operation of laws.[46]
Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law when the acts giving rise to the claimed liabilities
took place. This makes the gambling activity participated in by petitioner illegal. Petitioner cannot sue PAGCOR to redeem the cash value of the
gambling chips or recover damages arising from an illegal activity for two reasons. First, petitioner engaged in gambling with ABS Corporation
and not with PAGCOR. Second, the court cannot assist petitioner in enforcing an illegal act. Moreover, for a court to grant petitioners prayer
would mean enforcing the Junket Agreement, which is void.
Now, to address the issues raised by petitioner in his petition, petitioner claims that he is a third party proceeding against the liability of a
presumed principal and claims relief, alternatively, on the basis of implied agency or agency by estoppel.
Article 1869 of the Civil Code states that implied agency is derived from the acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. Implied agency, being an actual
agency, is a fact to be proved by deductions or inferences from other facts.[47]
On the other hand, apparent authority is based on estoppel and can arise from two instances. First, the principal may knowingly permit the
agent to hold himself out as having such authority, and the principal becomes estopped to claim that the agent does not have such authority.
Second, the principal may clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that the agent
actually has such authority.[48]In an agency by estoppel, there is no agency at all, but the one assuming to act as agent has apparent or
ostensible, although not real, authority to represent another.[49]
The law makes no presumption of agency and proving its existence, nature and extent is incumbent upon the person alleging it.
[50]Whether or not an agency has been created is a question to be determined by the fact that one represents and is acting for another. [51]
Acts and conduct of PAGCOR negates the existence of an implied agency or an agency by estoppel
Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that even assuming that no actual agency existed between PAGCOR and ABS Corporation, there is still an agency by estoppel based on the acts and conduct of PAGCOR showing apparent authority in favor of ABS Corporation. Petitioner states that one factor which distinguishes agency from other legal precepts is control and the following undisputed facts show a relationship of implied agency:
1. Three floors of the Grand Boulevard Hotel[52]were leased to PAGCOR for conducting gambling operations;[53]
2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor for foreign exchange gambling, conducted by PAGCOR dealers using PAGCOR facilities, operated by PAGCOR employees and using PAGCOR chips bearing the PAGCOR logo;[54]
3. PAGCOR controlled the release, withdrawal and return of all the gambling chips given to ABS Corporation in that part
of the casino and at the end of the day, PAGCOR conducted an inventory of the gambling chips;[55]
4. ABS Corporation accounted for all gambling chips with the Commission on Audit (COA), the official auditor of PAGCOR;
[56]
5. PAGCOR enforced, through its own manager, all the rules and regulations on the operation of the gambling pit used by
ABS Corporation.[57]
Petitioners argument is clearly misplaced. The basis for agency is representation,[58]that is, the agent acts for and on behalf of the principal on
matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal.[59]On the
part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions, while on the
part of the agent, there must be an intention to accept the appointment and act on it.[60]Absent such mutual intent, there is generally no
agency.[61]
There is no implied agency in this case because PAGCOR did not hold out to the public as the principal of ABS Corporation. PAGCORs
actions did not mislead the public into believing that an agency can be implied from the arrangement with the junket operators, nor did it hold
out ABS Corporation with any apparent authority to represent it in any capacity. The Junket Agreement was merely a contract of lease of
facilities and services.
The players brought in by ABS Corporation were covered by a different set of rules in acquiring and encashing chips. The players
used a different kind of chip than what was used in the regular gaming areas of PAGCOR, and that such junket players played specifically only in
the third floor area and did not mingle with the regular patrons of PAGCOR. Furthermore, PAGCOR, in posting notices stating that the players
are playing under special rules, exercised the necessary precaution to warn the gaming public that no agency relationship exists.
For the second assigned error, petitioner claims that the intention of the parties cannot apply to him as he is not a party to the
contract.
We disagree. The Court of Appeals correctly used the intent of the contracting parties in determining whether an agency by estoppel
existed in this case. An agency by estoppel, which is similar to the doctrine of apparent authority requires proof of reliance upon the
representations, and that, in turn, needs proof that the representations predated the action taken in reliance.[62]
There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of the
principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as
claimant, and such must have produced a change of position to its detriment.[63]Such proof is lacking in this case.
In the entire duration that petitioner played in Casino Filipino, he was dealing only with ABS Corporation, and availing of the
privileges extended only to players brought in by ABS Corporation. The facts that he enjoyed special treatment upon his arrival in Manila and
special accommodations in Grand Boulevard Hotel, and that he was playing in special gaming rooms are all indications that petitioner cannot
claim good faith that he believed he was dealing with PAGCOR. Petitioner cannot be considered as an innocent third party and he cannot claim
entitlement to equitable relief as well.
For his third and final assigned error, petitioner asserts that PAGCOR ratified the acts of ABS Corporation.
The trial court has declared, and we affirm, that the Junket Agreement is void. A void or inexistent contract is one which has no force
and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be validated either by the passage of time or by
ratification.[64]Article 1409 of the Civil Code provides that contracts expressly prohibited or declared void by law, such as gambling contracts,
cannot be ratified.[65]
WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals Decision dated 27 May 2003 as well as the Resolution dated 7 May 2004
as modified by this Decision.
SO ORDERED.
G.R. No. 75640 April 5, 1990
NATIONAL FOOD AUTHORITY, (NFA), petitioner, vs.INTERMEDIATE APPELLATE COURT, SUPERIOR (SG) SHIPPING CORPORATION, respondents.
Zapanta, Gloton & Ulejorada for petitioner.Sison, Ortiz & Associates for private respondents.
PARAS, J.:
This is a petition for review on certiorari made by National Food Authority (NFA for brevity) then known as the National Grains Authority or NGA from the decision 1 of the Intermediate Appellate Court affirming the decision 2of the trial court, the decretal portion of which reads:
WHEREFORE, defendants Gil Medalla and National Food Authority are ordered to pay jointly and severally the plaintiff:
a. the sum of P25,974.90, with interest at the legal rate from October 17, 1979 until the same is fully paid; and,
b. the sum of P10,000.00 as and for attorney's fees.
Costs against both defendants.
SO ORDERED. (p. 22, Rollo)
Hereunder are the undisputed facts as established by the then Intermediate Appellate Court (now Court of Appeals), viz:
On September 6, 1979 Gil Medalla, as commission agent of the plaintiff Superior Shipping Corporation, entered into a contract for hire of ship known as "MV Sea Runner" with defendant National Grains Authority. Under the said contract Medalla obligated to transport on the "MV Sea Runner" 8,550 sacks of rice belonging to defendant National Grains Authority from the port of San Jose, Occidental Mindoro, to Malabon, Metro Manila.
Upon completion of the delivery of rice at its destination, plaintiff on October 17, 1979, wrote a letter requesting defendant NGA that it be allowed to collect the amount stated in its statement of account (Exhibit "D"). The statement of account included not only a claim for freightage but also claims for demurrage and stevedoring charges amounting to P93,538.70.
On November 5, 1979, plaintiff wrote again defendant NGA, this time specifically requesting that the payment for freightage and other charges be made to it and not to defendant Medalla because plaintiff was the owner of the vessel "MV Sea Runner" (Exhibit "E"). In reply, defendant NGA on November 16, 1979 informed plaintiff that it could not grant its request because the contract to transport the rice was entered into by defendant NGA and defendant Medalla who did not disclose that he was acting as a mere agent of plaintiff (Exhibit "F"). Thereupon on November 19, 1979, defendant NGA paid defendant Medalla the sum of P25,974.90, for freight services in connection with the shipment of 8,550 sacks of rice (Exhibit "A").
On December 4, 1979, plaintiff wrote defendant Medalla demanding that he turn over to plaintiff the amount of P27,000.00 paid to him by defendant NFA. Defendant Medalla, however, "ignored the demand."
Plaintiff was therefore constrained to file the instant complaint.
Defendant-appellant National Food Authority admitted that it entered into a contract with Gil Medalla whereby plaintiffs vessel "MV Sea Runner" transported 8,550 sacks of rice of said defendant from San Jose, Mindoro to Manila.
For services rendered, the National Food Authority paid Gil Medalla P27,000.00 for freightage.
Judgment was rendered in favor of the plaintiff. Defendant National Food Authority appealed to this court on the sole issue as to whether it is jointly and severally liable with defendant Gil Medalla for freightage. (pp. 61-62, Rollo)
The appellate court affirmed the judgment of the lower court, hence, this appeal by way of certiorari, petitioner NFA submitting a lone issue to wit: whether or not the instant case falls within the exception of the general rule provided for in Art. 1883 of the Civil Code of the Philippines.
It is contended by petitioner NFA that it is not liable under the exception to the rule (Art. 1883) since it had no knowledge of the fact of agency between respondent Superior Shipping and Medalla at the time when the contract was entered into between them (NFA and Medalla).
Petitioner submits that "(A)n undisclosed principal cannot maintain an action upon a contract made by his agent unless such principal was disclosed in such contract. One who deals with an agent acquires no right against the undisclosed principal."
Petitioner NFA's contention holds no water. It is an undisputed fact that Gil Medalla was a commission agent of respondent Superior Shipping Corporation which owned the vessel "MV Sea Runner" that transported the sacks of rice belonging to petitioner NFA. The context of the law is clear. Art. 1883, which is the applicable law in the case at bar provides:
Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal.
The provision of this article shall be understood to be without prejudice to the actions between the principal and agent.
Consequently, when things belonging to the principal (in this case, Superior Shipping Corporation) are dealt with, the agent is bound to the principal although he does not assume the character of such agent and appears acting in his own name. In other words, the agent's apparent representation yields to the principal's true representation and that, in reality and in effect, the contract must be considered as entered into between the principal and the third person (Sy Juco and Viardo v. Sy Juco, 40 Phil. 634). Corollarily, if the principal can be obliged to perform his duties under the contract, then it can also demand the enforcement of its rights arising from the contract.
WHEREFORE, PREMISES CONSIDERED, the petition is hereby DENIED and the appealed decision is hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.
G.R. No. 83122 October 19, 1990
ARTURO P. VALENZUELA and HOSPITALITA N. VALENZUELA, petitioners, vs.THE HONORABLE COURT OF APPEALS, BIENVENIDO M. ARAGON, ROBERT E. PARNELL, CARLOS K. CATOLICO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., respondents.
Albino B. Achas for petitioners.
Angara, Abello, Concepcion, Regala & Cruz for private respondents.
GUTIERREZ, JR., J.:
This is a petition for review of the January 29, 1988 decision of the Court of Appeals and the April 27, 1988 resolution denying the petitioners' motion for reconsideration, which decision and resolution reversed the decision dated June 23,1986 of the Court of First Instance of Manila, Branch 34 in Civil Case No. 121126 upholding the petitioners' causes of action and granting all the reliefs prayed for in their complaint against private respondents.
The antecedent facts of the case are as follows:
Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent of private respondent Philippine American General Insurance Company, Inc. (Philamgen for short) since 1965. As such, he was authorized to solicit and sell in behalf of Philamgen all kinds of non-life insurance, and in consideration of services rendered was entitled to receive the full agent's commission of 32.5% from Philamgen under the scheduled commission rates (Exhibits "A" and "1"). From 1973 to 1975, Valenzuela solicited marine insurance from one of his clients, the Delta Motors, Inc. (Division of Electronics Airconditioning and Refrigeration) in the amount of P4.4 Million from which he was entitled to a commission of 32% (Exhibit "B"). However, Valenzuela did not receive his full commission which amounted to P1.6 Million from the P4.4 Million insurance coverage of the Delta Motors. During the period 1976 to 1978, premium payments amounting to P1,946,886.00 were paid directly to Philamgen and Valenzuela's commission to which he is entitled amounted to P632,737.00.
In 1977, Philamgen started to become interested in and expressed its intent to share in the commission due Valenzuela (Exhibits "III" and "III-1") on a fifty-fifty basis (Exhibit "C"). Valenzuela refused (Exhibit "D").
On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon insisted on the sharing of the commission with Valenzuela (Exhibit E). This was followed by another sharing proposal dated June 1, 1978. On June 16,1978, Valenzuela firmly reiterated his objection to the proposals of respondents stating that: "It is with great reluctance that I have to decline upon request to signify my conformity to your alternative proposal regarding the payment of the commission due me. However, I have no choice for to do otherwise would be violative of the Agency Agreement executed between our goodselves." (Exhibit B-1)
Because of the refusal of Valenzuela, Philamgen and its officers, namely: Bienvenido Aragon, Carlos Catolico and Robert E. Parnell took drastic action against Valenzuela. They: (a) reversed the commission due him by not crediting in his account the commission earned from the Delta Motors, Inc. insurance (Exhibit "J" and "2"); (b) placed agency transactions on a cash and carry basis; (c) threatened the cancellation of policies issued by his agency (Exhibits "H" to "H-2"); and (d) started to leak out news that Valenzuela has a substantial account with Philamgen. All of these acts resulted in the decline of his business as insurance agent (Exhibits "N", "O", "K" and "K-8"). Then on December 27, 1978, Philamgen terminated the General Agency Agreement of Valenzuela (Exhibit "J", pp. 1-3, Decision Trial Court dated June 23, 1986, Civil Case No. 121126, Annex I, Petition).
The petitioners sought relief by filing the complaint against the private respondents in the court a quo (Complaint of January 24, 1979, Annex "F" Petition). After due proceedings, the trial court found:
xxx xxx xxx
Defendants tried to justify the termination of plaintiff Arturo P. Valenzuela as one of defendant PHILAMGEN's General Agent by making it appear that plaintiff Arturo P. Valenzuela has a substantial account with defendant PHILAMGEN particularly Delta Motors, Inc.'s Account, thereby prejudicing defendant PHILAMGEN's interest (Exhibits 6,"11","11- "12- A"and"13-A").
Defendants also invoked the provisions of the Civil Code of the Philippines (Article 1868) and the provisions of the General Agency Agreement as their basis for terminating plaintiff Arturo P. Valenzuela as one of their General Agents.
That defendants' position could have been justified had the termination of plaintiff Arturo P. Valenzuela was (sic) based solely on the provisions of the Civil Code and the conditions of the General Agency Agreement. But the records will show that the principal cause of the termination of the plaintiff as General Agent of defendant PHILAMGEN was his refusal to share his Delta commission.
That it should be noted that there were several attempts made by defendant Bienvenido M. Aragon to share with the Delta commission of plaintiff Arturo P. Valenzuela. He had persistently pursued the sharing scheme to the point of terminating plaintiff Arturo P. Valenzuela, and to make matters worse, defendants made it appear that plaintiff Arturo P. Valenzuela had substantial accounts with defendant PHILAMGEN.
Not only that, defendants have also started (a) to treat separately the Delta Commission of plaintiff Arturo P. Valenzuela, (b) to reverse the Delta commission due plaintiff Arturo P. Valenzuela by not crediting or applying said commission earned to the account of plaintiff Arturo P. Valenzuela, (c) placed plaintiff Arturo P. Valenzuela's agency transactions on a "cash and carry basis", (d) sending threats to cancel existing policies issued by plaintiff Arturo P. Valenzuela's agency, (e) to divert plaintiff Arturo P. Valenzuela's insurance business to other agencies, and (f) to spread wild and malicious rumors that plaintiff Arturo P. Valenzuela has substantial account with defendant PHILAMGEN to force plaintiff Arturo P. Valenzuela into agreeing with the sharing of his Delta commission." (pp. 9-10, Decision, Annex 1, Petition).
xxx xxx xxx
These acts of harrassment done by defendants on plaintiff Arturo P. Valenzuela to force him to agree to the sharing of his Delta commission, which culminated in the termination of plaintiff Arturo P. Valenzuela as one of defendant PHILAMGEN's General Agent, do not justify said termination of the General Agency Agreement entered into by defendant PHILAMGEN and plaintiff Arturo P. Valenzuela.
That since defendants are not justified in the termination of plaintiff Arturo P. Valenzuela as one of their General Agents, defendants shall be liable for the resulting damage and loss of business of plaintiff Arturo P. Valenzuela. (Arts. 2199/2200, Civil Code of the Philippines). (Ibid, p. 11)
The court accordingly rendered judgment, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against defendants ordering the latter to reinstate plaintiff Arturo P. Valenzuela as its General Agent, and to pay plaintiffs, jointly and severally, the following:
1. The amount of five hundred twenty-one thousand nine hundred sixty four and 16/100 pesos (P521,964.16) representing plaintiff Arturo P. Valenzuela's Delta Commission with interest at the legal rate from the time of the filing of the complaint, which amount shall be adjusted in accordance with Article 1250 of the Civil Code of the Philippines;
2. The amount of seventy-five thousand pesos (P75,000.00) per month as compensatory damages from 1980 until such time that defendant Philamgen shall reinstate plaintiff Arturo P. Valenzuela as one of its general agents;
3. The amount of three hundred fifty thousand pesos (P350,000.00) for each plaintiff as moral damages;
4. The amount of seventy-five thousand pesos (P75,000.00) as and for attorney's fees;
5. Costs of the suit. (Ibid., P. 12)
From the aforesaid decision of the trial court, Bienvenido Aragon, Robert E. Parnell, Carlos K. Catolico and PHILAMGEN respondents herein, and defendants-appellants below, interposed an appeal on the following:
ASSIGNMENT OF ERRORS
I
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. VALENZUELA HAD NO OUTSTANDING ACCOUNT WITH DEFENDANT PHILAMGEN AT THE TIME OF THE TERMINATION OF THE AGENCY.
II
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. VALENZUELA IS ENTITLED TO THE FULL COMMISSION OF 32.5% ON THE DELTA ACCOUNT.
III
THE LOWER COURT ERRED IN HOLDING THAT THE TERMINATION OF PLAINTIFF ARTURO P. VALENZUELA WAS NOT JUSTIFIED AND THAT CONSEQUENTLY DEFENDANTS ARE LIABLE FOR ACTUAL AND MORAL DAMAGES, ATTORNEYS FEES AND COSTS.
IV
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES AGAINST DEFENDANT PHILAMGEN WAS PROPER, THE LOWER COURT ERRED IN AWARDING DAMAGES EVEN AGAINST THE INDIVIDUAL DEFENDANTS WHO ARE MERE CORPORATE AGENTS ACTING WITHIN THE SCOPE OF THEIR AUTHORITY.
V
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN FAVOR OF PLAINTIFF ARTURO P. VALENZUELA WAS PROPER, THE LOWER COURT ERRED IN AWARDING DAMAGES IN FAVOR OF HOSPITALITA VALENZUELA, WHO, NOT BEING THE REAL PARTY IN INTEREST IS NOT TO OBTAIN RELIEF.
On January 29, 1988, respondent Court of Appeals promulgated its decision in the appealed case. The dispositive portion of the decision reads:
WHEREFORE, the decision appealed from is hereby modified accordingly and judgment is hereby rendered ordering:
1. Plaintiff-appellee Valenzuela to pay defendant-appellant Philamgen the sum of one million nine hundred thirty two thousand five hundred thirty-two pesos and seventeen centavos (P1,902,532.17), with legal interest thereon from the date of finality of this judgment until fully paid.
2. Both plaintiff-appellees to pay jointly and severally defendants-appellants the sum of fifty thousand pesos (P50,000.00) as and by way of attorney's fees.
No pronouncement is made as to costs. (p. 44, Rollo)
There is in this instance irreconcilable divergence in the findings and conclusions of the Court of Appeals, vis-a-visthose of the trial court particularly on the pivotal issue whether or not Philamgen and/or its officers can be held liable for damages due to the termination of the General Agency Agreement it entered into with the petitioners. In its questioned decision the Court of Appeals observed that:
In any event the principal's power to revoke an agency at will is so pervasive, that the Supreme Court has consistently held that termination may be effected even if the principal acts in bad faith, subject only to the principal's liability for damages (Danon v. Antonio A. Brimo & Co., 42 Phil. 133; Reyes v. Mosqueda, 53 O.G. 2158 and Infante V. Cunanan, 93 Phil. 691, cited in Paras, Vol. V, Civil Code of the Philippines Annotated [1986] 696).
The lower court, however, thought the termination of Valenzuela as General Agent improper because the record will show the principal cause of the termination of the plaintiff as General Agent of defendant Philamgen was his refusal to share his Delta commission. (Decision, p. 9; p. 13, Rollo, 41)
Because of the conflicting conclusions, this Court deemed it necessary in the interest of substantial justice to scrutinize the evidence and records of the cases. While it is an established principle that the factual findings of the Court of Appeals are final and may not be reviewed on appeal to this Court, there are however certain exceptions to the rule which this Court has recognized and accepted, among which, are when the judgment is based on a misapprehension of facts and when the findings of the appellate court, are contrary to those of the trial court (Manlapaz v. Court of Appeals, 147 SCRA 236 [1987]); Guita v. Court of Appeals, 139 SCRA 576 [1986]). Where the findings of the Court of Appeals and the trial court are contrary to each other, this Court may scrutinize the evidence on record (Cruz v. Court of Appeals, 129 SCRA 222 [1984]; Mendoza v. Court of Appeals, 156 SCRA 597 [1987]; Maclan v. Santos, 156 SCRA 542 [1987]). When the conclusion of the Court of Appeals is grounded entirely on speculation, surmises or conjectures, or when the inference made is manifestly mistaken, absurd or impossible, or when there is grave abuse of discretion, or when the judgment is based on a misapprehension of facts, and when the findings of facts are conflict the exception also applies (Malaysian Airline System Bernad v. Court of Appeals, 156 SCRA 321 [1987]).
After a painstaking review of the entire records of the case and the findings of facts of both the court a quo and respondent appellate court, we are constrained to affirm the trial court's findings and rule for the petitioners.
We agree with the court a quo that the principal cause of the termination of Valenzuela as General Agent of Philamgen arose from his refusal to share his Delta commission. The records sustain the conclusions of the trial court on the apparent bad faith of the private respondents in terminating the General Agency Agreement of petitioners. It is axiomatic that the findings of fact of a trial judge are entitled to great weight (People v. Atanacio, 128 SCRA 22 [1984]) and should not be disturbed on appeal unless for strong and cogent reasons, because the trial court is in a better position to examine the evidence as well as to observe the demeanor of the witnesses while testifying (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]; People v. Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans., Inc. v. Court of Appeals, 147 SCRA 82 [1987]). In the case at bar, the records show that the findings and conclusions of the trial court are supported by substantial evidence and there appears to be no cogent reason to disturb them (Mendoza v. Court of Appeals. 156 SCRA 597 [1987]).
As early as September 30,1977, Philamgen told the petitioners of its desire to share the Delta Commission with them. It stated that should Delta back out from the agreement, the petitioners would be charged interests through a reduced commission after full payment by Delta.
On January 23, 1978 Philamgen proposed reducing the petitioners' commissions by 50% thus giving them an agent's commission of 16.25%. On February 8, 1978, Philamgen insisted on the reduction scheme followed on June 1, 1978 by still another insistence on reducing commissions and proposing two alternative schemes for reduction. There were other pressures. Demands to settle accounts, to confer and thresh out differences regarding the petitioners' income and the threat to terminate the agency followed. The petitioners were told that the Delta commissions would not be credited to their account (Exhibit "J"). They were informed that the Valenzuela agency would be placed on a cash and carry basis thus removing the 60-day credit for premiums due. (TSN., March 26, 1979, pp. 54-57). Existing policies were threatened to be cancelled (Exhibits "H" and "14"; TSN., March 26, 1979, pp. 29-30). The Valenzuela business was threatened with diversion to other agencies. (Exhibit "NNN"). Rumors were also spread about alleged accounts of the Valenzuela agency (TSN., January 25, 1980, p. 41). The petitioners consistently opposed the pressures to hand over the agency or half of their commissions and for a treatment of the Delta account distinct from other accounts. The pressures and demands, however, continued until the agency agreement itself was finally terminated.
It is also evident from the records that the agency involving petitioner and private respondent is one "coupled with an interest," and, therefore, should not be freely revocable at the unilateral will of the latter.
In the insurance business in the Philippines, the most difficult and frustrating period is the solicitation and persuasion of the prospective clients to buy insurance policies. Normally, agents would encounter much embarrassment, difficulties, and oftentimes frustrations in the solicitation and procurement of the insurance policies. To sell policies, an agent exerts great effort, patience, perseverance, ingenuity, tact, imagination,
time and money. In the case of Valenzuela, he was able to build up an Agency from scratch in 1965 to a highly productive enterprise with gross billings of about Two Million Five Hundred Thousand Pesos (P2,500,000.00) premiums per annum. The records sustain the finding that the private respondent started to covet a share of the insurance business that Valenzuela had built up, developed and nurtured to profitability through over thirteen (13) years of patient work and perseverance. When Valenzuela refused to share his commission in the Delta account, the boom suddenly fell on him.
The private respondents by the simple expedient of terminating the General Agency Agreement appropriated the entire insurance business of Valenzuela. With the termination of the General Agency Agreement, Valenzuela would no longer be entitled to commission on the renewal of insurance policies of clients sourced from his agency. Worse, despite the termination of the agency, Philamgen continued to hold Valenzuela jointly and severally liable with the insured for unpaid premiums. Under these circumstances, it is clear that Valenzuela had an interest in the continuation of the agency when it was unceremoniously terminated not only because of the commissions he should continue to receive from the insurance business he has solicited and procured but also for the fact that by the very acts of the respondents, he was made liable to Philamgen in the event the insured fail to pay the premiums due. They are estopped by their own positive averments and claims for damages. Therefore, the respondents cannot state that the agency relationship between Valenzuela and Philamgen is not coupled with interest. "There may be cases in which an agent has been induced to assume a responsibility or incur a liability, in reliance upon the continuance of the authority under such circumstances that, if the authority be withdrawn, the agent will be exposed to personal loss or liability" (See MEC 569 p. 406).
Furthermore, there is an exception to the principle that an agency is revocable at will and that is when the agency has been given not only for the interest of the principal but for the interest of third persons or for the mutual interest of the principal and the agent. In these cases, it is evident that the agency ceases to be freely revocable by the sole will of the principal (See Padilla, Civil Code Annotated, 56 ed., Vol. IV p. 350). The following citations are apropos:
The principal may not defeat the agent's right to indemnification by a termination of the contract of agency (Erskine v. Chevrolet Motors Co. 185 NC 479, 117 SE 706, 32 ALR 196).
Where the principal terminates or repudiates the agent's employment in violation of the contract of employment and without cause ... the agent is entitled to receive either the amount of net losses caused and gains prevented by the breach, or the reasonable value of the services rendered. Thus, the agent is entitled to prospective profits which he would have made except for such wrongful termination provided that such profits are not conjectural, or speculative but are capable of determination upon some fairly reliable basis. And a principal's revocation of the agency agreement made to avoid payment of compensation for a result which he has actually accomplished (Hildendorf v. Hague, 293 NW 2d 272; Newhall v. Journal Printing Co., 105 Minn 44,117 NW 228; Gaylen Machinery Corp. v. Pitman-Moore Co. [C.A. 2 NY] 273 F 2d 340)
If a principal violates a contractual or quasi-contractual duty which he owes his agent, the agent may as a rule bring an appropriate action for the breach of that duty. The agent may in a proper case maintain an action at law for compensation or damages ... A wrongfully discharged agent has a right of action for damages and in such action the measure and element of damages are controlled generally by the rules governing any other action for the employer's breach of an employment contract. (Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin Glass Co. v. Stoehr, 54 Ohio 157, 43 NE 2798)
At any rate, the question of whether or not the agency agreement is coupled with interest is helpful to the petitioners' cause but is not the primary and compelling reason. For the pivotal factor rendering Philamgen and the other private respondents liable in damages is that the termination by them of the General Agency Agreement was tainted with bad faith. Hence, if a principal acts in bad faith and with abuse of right in terminating the agency, then he is liable in damages. This is in accordance with the precepts in Human Relations enshrined in our Civil Code that "every person must in the exercise of his rights and in the performance of his duties act with justice, give every one his due, and observe honesty and good faith: (Art. 19, Civil Code), and every person who, contrary to law, wilfully or negligently causes damages to another, shall indemnify the latter for the same (Art. 20, id). "Any person who wilfully causes loss or injury to another in a manner contrary to morals, good customs and public policy shall compensate the latter for the damages" (Art. 21, id.).
As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid and uncollected premiums which the respondent court ordered Valenzuela to pay Philamgen the amount of One Million Nine Hundred Thirty-Two Thousand Five Hundred Thirty-Two and 17/100 Pesos (P1,932,532,17) with legal interest thereon until fully paid (Decision-January 20, 1988, p. 16; Petition, Annex "A"), we rule that the respondent court erred in holding Valenzuela liable. We find no factual and legal basis for the award. Under Section 77 of the Insurance Code, the remedy for the non-payment of premiums is to put an end to and render the insurance policy not binding —
Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy or contract of insurance is valid and binding unless and until the premiums thereof have been paid except in the case of a life or industrial life policy whenever the grace period provision applies (P.D. 612, as amended otherwise known as the Insurance Code of 1974)
In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA 419 [1979]) we held that the non-payment of premium does not merely suspend but puts an end to an insurance contract since the time of the payment is peculiarly of the essence of the contract. And in Arce v. The Capital Insurance and Surety Co. Inc.(117 SCRA 63, [1982]), we reiterated the rule that unless premium is paid, an insurance contract does not take effect. Thus:
It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v. Delgado, 9 SCRA 177 [1963] was decided in the light of the Insurance Act before Sec. 72 was amended by the underscored portion. Supra. Prior to the Amendment, an insurance contract was effective even if the premium had not been paid so that an insurer was obligated to pay indemnity in case of loss and correlatively he had also the right to sue for payment of the premium. But the amendment to Sec. 72 has radically changed the legal regime in that unless the premium is paid there is no insurance. " (Arce v. Capitol Insurance and Surety Co., Inc., 117 SCRA 66; Emphasis supplied)
In Philippine Phoenix Surety case, we held:
Moreover, an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the purpose of indemnity. (Citing Insurance Law and Practice by John Alan Appleman, Vol. 15, p. 331; Emphasis supplied)
The foregoing findings are buttressed by Section 776 of the insurance Code (Presidential Decree No. 612, promulgated on December 18, 1974), which now provides that no contract of Insurance by an insurance company is valid and binding unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary (Ibid., 92 SCRA 425)
Perforce, since admittedly the premiums have not been paid, the policies issued have lapsed. The insurance coverage did not go into effect or did not continue and the obligation of Philamgen as insurer ceased. Hence, for Philamgen which had no more liability under the lapsed and inexistent policies to demand, much less sue Valenzuela for the unpaid premiums would be the height of injustice and unfair dealing. In this instance, with the lapsing of the policies through the nonpayment of premiums by the insured there were no more insurance contracts to speak of. As this Court held in the Philippine Phoenix Surety case, supra "the non-payment of premiums does not merely suspend but puts an end to an insurance contract since the time of the payment is peculiarly of the essence of the contract."
The respondent appellate court also seriously erred in according undue reliance to the report of Banaria and Banaria and Company, auditors, that as of December 31, 1978, Valenzuela owed Philamgen P1,528,698.40. This audit report of Banaria was commissioned by Philamgen after Valenzuela was almost through with the presentation of his evidence. In essence, the Banaria report started with an unconfirmed and unaudited beginning balance of account of P1,758,185.43 as of August 20, 1976. But even with that unaudited and unconfirmed beginning balance of P1,758,185.43, Banaria still came up with the amount of P3,865.49 as Valenzuela's balance as of December 1978 with Philamgen (Exh. "38-A-3"). In fact, as of December 31, 1976, and December 31, 1977, Valenzuela had no unpaid account with Philamgen (Ref: Annexes "D", "D-1", "E", Petitioner's Memorandum). But even disregarding these annexes which are records of Philamgen and addressed to Valenzuela in due course of business, the facts show that as of July 1977, the beginning balance of Valenzuela's account with Philamgen amounted to P744,159.80. This was confirmed by Philamgen itself not only once but four (4) times on different occasions, as shown by the records.
On April 3,1978, Philamgen sent Valenzuela a statement of account with a beginning balance of P744,159-80 as of July 1977.
On May 23, 1978, another statement of account with exactly the same beginning balance was sent to Valenzuela.
On November 17, 1978, Philamgen sent still another statement of account with P744,159.80 as the beginning balance.
And on December 20, 1978, a statement of account with exactly the same figure was sent to Valenzuela.
It was only after the filing of the complaint that a radically different statement of accounts surfaced in court. Certainly, Philamgen's own statements made by its own accountants over a long period of time and covering examinations made on four different occasions must prevail over unconfirmed and unaudited statements made to support a position made in the course of defending against a lawsuit.
It is not correct to say that Valenzuela should have presented its own records to refute the unconfirmed and unaudited finding of the Banaria auditor. The records of Philamgen itself are the best refutation against figures made as an afterthought in the course of litigation. Moreover, Valenzuela asked for a meeting where the figures would be reconciled. Philamgen refused to meet with him and, instead, terminated the agency agreement.
After off-setting the amount of P744,159.80, beginning balance as of July 1977, by way of credits representing the commission due from Delta and other accounts, Valenzuela had overpaid Philamgen the amount of P530,040.37 as of November 30, 1978. Philamgen cannot later be heard to complain that it committed a mistake in its computation. The alleged error may be given credence if committed only once. But as earlier stated, the reconciliation of accounts was arrived at four (4) times on different occasions where Philamgen was duly represented by its account executives. On the basis of these admissions and representations, Philamgen cannot later on assume a different posture and claim that it was
mistaken in its representation with respect to the correct beginning balance as of July 1977 amounting to P744,159.80. The Banaria audit report commissioned by Philamgen is unreliable since its results are admittedly based on an unconfirmed and unaudited beginning balance of P1,758,185.43 as of August 20,1976.
As so aptly stated by the trial court in its decision:
Defendants also conducted an audit of accounts of plaintiff Arturo P. Valenzuela after the controversy has started. In fact, after hearing plaintiffs have already rested their case.
The results of said audit were presented in Court to show plaintiff Arturo P. Valenzuela's accountability to defendant PHILAMGEN. However, the auditor, when presented as witness in this case testified that the beginning balance of their audit report was based on an unaudited amount of P1,758,185.43 (Exhibit 46-A) as of August 20, 1976, which was unverified and merely supplied by the officers of defendant PHILAMGEN.
Even defendants very own Exhibit 38- A-3, showed that plaintiff Arturo P. Valenzuela's balance as of 1978 amounted to only P3,865.59, not P826,128.46 as stated in defendant Bienvenido M. Aragon's letter dated December 20,1978 (Exhibit 14) or P1,528,698.40 as reflected in defendant's Exhibit 46 (Audit Report of Banaria dated December 24, 1980).
These glaring discrepancy (sic) in the accountability of plaintiff Arturo P. Valenzuela to defendant PHILAMGEN only lends credence to the claim of plaintiff Arturo P. Valenzuela that he has no outstanding account with defendant PHILAMGEN when the latter, thru defendant Bienvenido M. Aragon, terminated the General Agency Agreement entered into by plaintiff (Exhibit A) effective January 31, 1979 (see Exhibits "2" and "2-A"). Plaintiff Arturo P. Valenzuela has shown that as of October 31, 1978, he has overpaid defendant PHILAMGEN in the amount of P53,040.37 (Exhibit "EEE", which computation was based on defendant PHILAMGEN's balance of P744,159.80 furnished on several occasions to plaintiff Arturo P. Valenzuela by defendant PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1 , YY , YY-2 , ZZ and , ZZ-2).
Prescinding from the foregoing, and considering that the private respondents terminated Valenzuela with evidentmala fide it necessarily follows that the former are liable in damages. Respondent Philamgen has been appropriating for itself all these years the gross billings and income that it unceremoniously took away from the petitioners. The preponderance of the authorities sustain the preposition that a principal can be held liable for damages in cases of unjust termination of agency. In Danon v. Brimo, 42 Phil. 133 [1921]), this Court ruled that where no time for the continuance of the contract is fixed by its terms, either party is at liberty to terminate it at will, subject only to the ordinary requirements of good faith. The right of the principal to terminate his authority is absolute and unrestricted, except only that he may not do so in bad faith.
The trial court in its decision awarded to Valenzuela the amount of Seventy Five Thousand Pesos (P75,000,00) per month as compensatory damages from June 1980 until its decision becomes final and executory. This award is justified in the light of the evidence extant on record (Exhibits "N", "N-10", "0", "0-1", "P" and "P-1") showing that the average gross premium collection monthly of Valenzuela over a period of four (4) months from December 1978 to February 1979, amounted to over P300,000.00 from which he is entitled to a commission of P100,000.00 more or less per month. Moreover, his annual sales production amounted to P2,500,000.00 from where he was given 32.5% commissions. Under Article 2200 of the new Civil Code, "indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain."
The circumstances of the case, however, require that the contractual relationship between the parties shall be terminated upon the satisfaction of the judgment. No more claims arising from or as a result of the agency shall be entertained by the courts after that date.
ACCORDINGLY, the petition is GRANTED. The impugned decision of January 29, 1988 and resolution of April 27, 1988 of respondent court are hereby SET ASIDE. The decision of the trial court dated January 23, 1986 in Civil Case No. 121126 is REINSTATED with the MODIFICATIONS that the amount of FIVE HUNDRED TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR AND 16/100 PESOS (P521,964.16) representing the petitioners Delta commission shall earn only legal interests without any adjustments under Article 1250 of the Civil Code and that the contractual relationship between Arturo P. Valenzuela and Philippine American General Insurance Company shall be deemed terminated upon the satisfaction of the judgment as modified.
SO ORDERED.
G.R. No. 102300. March 17, 1993.
CITIBANK, N.A., petitioner, vs. HON. SEGUNDINO G. CHUA, SANTIAGO M. KAPUNAN and LUIS L. VICTOR, ASSOCIATE JUSTICES OF THE HON. COURT OF APPEALS, THIRD DIVISION, MANILA, HON. LEONARDO B. CANARES, Judge of Regional, Trial Court of Cebu, Branch 10, and SPOUSES CRESENCIO AND ZENAIDA VELEZ, respondents.
SYLLABUS
1. COMMERCIAL LAW; PRIVATE CORPORATIONS; LEVELS OF CONTROL IN CORPORATE HIERARCHY; BOARD OF DIRECTORS MAY VALIDLY DELEGATE SOME FUNCTIONS TO INDIVIDUAL OFFICERS OR AGENTS. — In the corporate hierarchy, there are three levels of control: (1) the board of directors, which is responsible for corporate policies and the general management of the business affairs of the corporation; (2) the officers, who in theory execute the policies laid down by the board, but in practice often have wide latitude in determining the course of business operations; and (3) the stockholders who have the residual power over fundamental corporate changes, like amendments of the articles of incorporation. However, just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it.
2. ID.; ID.; HOW CORPORATE POWERS CONFERRED UPON CORPORATE OFFICERS OR AGENTS; EXERCISE OF POWERS INCIDENTAL TO EXPRESS POWERS CONFERRED. — Corporate powers may be directly conferred upon corporate officers or agents by statute, the articles of incorporation, the by-laws or by resolution or other act of the board of directors. In addition, an officer who is not a director may also appoint other agents when so authorized by the by-laws or by the board of directors. Such are referred to as express powers. There are also powers incidental to express powers conferred. It is a fundamental principle in the law of agency that every delegation of authority, whether general or special, carries with it, unless the contrary be expressed, implied authority to do all of those acts, naturally and ordinarily done in such cases, which are reasonably necessary and proper to be done in order to carry into effect the main authority conferred. Since the by-laws are a source of authority for corporate officers and agents of the corporation, a resolution of the Board of Directors of Citibank appointing an attorney in fact to represent and bind it during the pre-trial conference of the case at bar is not necessary because its by-laws allow its officers, the Executing Officer and the Secretary Pro-Tem, to execute a power of attorney to a designated bank officer, William W. Ferguson in this case, clothing him with authority to direct and manage corporate affairs.
3. ID.; ID.; ADOPTION OF BY-LAWS; PROVISION OF SECTION 46 OF CORPORATION CODE REFERRING TO EFFECTIVITY OF CORPORATE BY-LAWS APPLICABLE ONLY TO DOMESTIC CORPORATIONS. — A corporation can submit its by-laws, prior to incorporation, or within one month after receipt of official notice of the issuance of its certificate of incorporation by the SEC. When the third paragraph of the above provision mentions "in all cases", it can only refer to these two options; i.e., whether adopted prior to incorporation or within one month after incorporation, the by-laws shall be effective only upon the approval of the SEC. But even more important, said provision starts with the phrase "Every corporation formed under this Code", which can only refer to corporations incorporated in the Philippines. Hence, Section 46, in so far as it refers to the effectivity of corporate by-laws, applies only to domestic corporations and not to foreign corporations.
4. ID.; FOREIGN CORPORATIONS; ISSUANCE OF LICENSE TO TRANSACT BUSINESS IN THE PHILIPPINES; REQUISITES; GRANT OF LICENSE IN EFFECT APPROVAL BY SEC OF FOREIGN CORPORATION'S BY-LAWS. — Section 125 of the same Code requires that a foreign corporation applying for a license to transact business in the Philippines must submit, among other documents, to the SEC, a copy of its articles of incorporation and by-laws, certified in accordance with law. Unless these documents are submitted, the application cannot be acted upon by the SEC. In the following section, the Code specifies when the SEC can grant the license applied for. Section 126 provides in part: "SEC. 126. Issuance of a license. — If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license . . ." Since the SEC will grant a license only when the foreign corporation has complied with all the requirements of law, it follows that when it decides to issue such license, it is satisfied that the applicant's by-laws, among the other documents, meet the legal requirements. This, in effect, is an approval of the foreign corporations by-laws. It may not have been made in express terms, still it is clearly an approval. Therefore, petitioner bank's by-laws, though originating from a foreign jurisdiction, are valid and effective in the Philippines.
5. CIVIL LAW; AGENCY; SPECIAL POWER OF ATTORNEY; WHEN POWER OF ATTORNEY COMPREHENSIVE ENOUGH TO INCLUDE AUTHORITY TO APPEAR AT PRE-TRIAL CONFERENCE. — It is also error on the part of the Court of Appeals to state that the power of attorney given to the four (4) Citibank employees is not a special power of attorney as required in paragraph 3, Article 1878 of the Civil Code and Section 1 (a), Rule 20 of the Rules of Court. In the case of Tropical Homes, Inc. vs. Villaluz, the special power of attorney executed by petitioner bank therein contained the following pertinent terms — "to appear for and in its behalf in the above-entitled case in all circumstances where its appearance is required and to bind it in all said instances". The court ruled that: "Although the power of attorney in question does not specifically mention the authority of petitioner's counsel to appear and bind the petitioner at the pre-trial conference, the terms of said power of attorney are comprehensive enough as to include the authority to appear for the petitioner at the pre-trial conference."
6. ID.; ID.; ID.; LEGAL COUNSEL APPOINTED TO REPRESENT BANK IN COURT PURSUANT TO BY-LAW PROVISION CONSIDERED AN EMPLOYEE FOR A SPECIAL PURPOSE. — Attorney was sufficient under the by-law provision authorizing Ferguson to delegate any of his functions to any one or more employees of the petitioner bank. A reasonable interpretation of this provision would include an appointment of a legal counsel to represent the bank in court, for, under the circumstances, such legal counsel can be considered, and in fact was considered by the petitioner bank, an employee for a special purpose. Furthermore, Ferguson, who heads the Philippine office thousands of miles away from its main office in the United States, must be understood to have sufficient powers to act promptly in order to protect the interests of his principal.
7. REMEDIAL LAW; CIVIL PROCEDURE; PRECIPITATE ORDERS OF DEFAULT FROWNED UPON BY SUPREME COURT; REASON THEREFOR; WHEN PARTY MAY BE PROPERLY DEFAULTED. — We reiterate the previous admonitions of this Court against "precipitate orders of default as these have the effect of denying the litigant the chance to be heard. While there are instances, to be sure, when a party may be properly defaulted, these should be the exceptions rather than the rule and should be allowed only in clear cases of an obstinate refusal or inordinate neglect to comply with the orders of the court. Absent such a showing, the party must be given every reasonable opportunity to present his side and to refute the evidence of the adverse party in deference to due process of law".
8. LEGAL ETHICS; AUTHORITY OF ATTORNEYS TO BIND CLIENTS. — Under Rule 138, Section 23 of the Rules of Court, an attorney has authority to bind his client in any case by an agreement in relation thereto made in writing, and this authority would include taking appeals and all matters of ordinary judicial procedure. But he cannot, without special authority, compromise his client's litigation or receive anything in discharge of a client's claim but the full amount in cash. The special powers of attorney separately executed by Florencia Tarriela and William W. Ferguson granted to J.P. Garcia & Associates are very explicit in their terms as to the counsel's authority in the case at bar.
D E C I S I O N
CAMPOS, JR., J p:
Petitioner is a foreign commercial banking corporation duly licensed to do business in the Philippines. Private respondents, spouses Cresencio and Zenaida Velez, were good clients of petitioner bank's branch in Cebu until March 14, 1986 when they filed a complaint for specific performance and damages against it in Civil Case No. CEB-4751 before the Regional Trial Court of Cebu, Branch 10.
Private respondents alleged in their complaint that the petitioner bank extended to them credit lines sufficiently secured with real estate and chattel mortgages on equipment. They claim that petitioner offered them special additional accommodation of Five Million Pesos (P5,000,000.00) to be availed of in the following manner:
"a. Defendant would and did purchase check or checks from the plaintiffs by exchanging it with defendant's manager's check on a regular daily basis as reflected in the defendant's own ledger furnished to plaintiffs;
b. It was further agreed that on the following day, defendant CITIBANK would again purchase from the plaintiffs, check or checks, by exchanging the same with defendant's manager's check, which check, however, will be deposited by the plaintiffs with their other banks to cover the check or checks previously issued by the plaintiffs mentioned above;
c. The same regular and agreed activity would be undertaken by the plaintiffs and defendant CITIBANK herein every banking day thereafter;" 1
This arrangement started on September 4, 1985 until March 11, 1986, when private respondents tried to exchange with petitioner bank six checks amounting to P3,095,000.00 but petitioner bank allegedly refused to continue with the arrangement even after repeated demands. Instead, petitioner bank suggested to private respondents that the total amount covered by the "arrangement be restructured to thirty (30) months with prevailing interest rate on the diminishing balance". 2 Private respondents agreed to such a proposal. Then as a sign of good faith, they issued and delivered a check for P75,000.00 in favor of petitioner bank which was refused by the latter demanding instead full payment of the entire amount.
For the failure of petitioner bank to comply with this restructuring agreement private respondents sued for specific performance and damages.
Petitioner bank has a different version of the business relationship that existed between it and private respondents. Thus:
". . . starting sometime on September 4 of 1985, he (private respondent Crescencio Velez) deposited his unfunded personal checks with his current account with the petitioner. But prior to depositing said checks, he would present his personal checks to a bank officer asking the latter to have his personal checks immediately credited as if it were a cash deposit and at the same time assuring the bank officer that his personal checks were fully funded. Having already gained the trust and confidence of the officers of the bank because of his past transactions, the bank's officer would always accommodate his request. After his requests are granted which is done by way of the bank officer affixing his signature on the personal checks, private respondent Cresencio Velez would then deposit his priorly approved personal checks to his current account and at the same time withdraw sums of money from said current account by way of petitioner bank's manager's check. Private respondent would then deposit petitioner bank's manager's check to his various current accounts in other commercial banks to cover his previously deposited unfunded personal checks with petitioner bank. Naturally, petitioner bank and its officers never discovered that his personal check deposits were unfunded. On the contrary, it gave the petitioner bank the false impression that private respondent's construction business was doing very well and that he was one big client who could be trusted. This deceptive and criminal scheme he did every banking day without fail from September 4, 1985 up to March 11, 1986. The amounts that he was depositing and withdrawing during this period (September 4, 1985 to March 11, 1986) progressively became bigger. It started at P46,000.00 on September 4, 1985 and on March 11, 1986 the amount of deposit and withdrawal already reached over P3,000,000.00. At this point in time (March 11, 1986), the private respondent Cresencio Velez presumably already feeling that sooner or later he would be caught and that he already wanted to cash in on his evil scheme, decided to run away with petitioner's money. On March 11, 1986, he deposited various unfunded personal checks totalling P3,095,000.00 and requested a bank officer
that the same be credited as cash and after securing the approval of said bank officer, deposited his various personal checks in the amount of P3,095,000.00 with his current account and at the same time withdrew the sum of P3,244,000.00 in the form of petitioner's manager's check. Instead of using the proceeds of his withdrawals to cover his unfunded personal checks, he ran away with petitioner bank's money. Thus, private respondent Cresencio Velez's personal checks deposited with petitioner bank on March 11, 1986 in the total aggregate amount of P3,095,000.00 bounced. The checks bounced after said personal checks were made the substantial basis of his withdrawing the sum of P3,244,000.00 from his current account with petitioner bank." 3
Subsequently, on August 19, 1986, petitioner bank filed a criminal complaint against private respondents for violation of Batas Pambansa Blg. 22 (Bouncing Checks Law) and estafa (six counts) under Article 315 par. 2(d) of the Revised Penal Code. On April 28, 1988, the investigating fiscal recommended the filing of an information against private respondents for violations of the mentioned laws.
On June 13, 1989, petitioner bank submitted its answer to the complaint filed by private respondents. In the Order dated February 20, 1990, the case was set for pre-trial on March 30, 1990 and petitioner bank was directed to submit its pre-trial brief at least 3 days before the pre-trial conference. Petitioner bank only filed its pre-trial brief on March 30, 1990.
On March 30, 1990, the date of the pre-trial conference, counsel for petitioner bank appeared, presenting a special power of attorney executed by Citibank officer Florencia Tarriela in favor of petitioner bank's counsel, the J.P. Garcia & Associates, to represent and bind petitioner bank at the pre-trial conference of the case at bar.
Inspite of this special power of attorney, counsel for private respondents orally moved to declare petitioner bank as in default on the ground that the special power of attorney was not executed by the Board of Directors of Citibank. Petitioner bank was then required to file a written opposition to this oral motion to declare it as in default. In said opposition petitioner bank attached another special power of attorney made by William W. Ferguson, Vice President and highest ranking officer of Citibank, Philippines, constituting and appointing the J.P. Garcia & Associates to represent and bind the BANK at the pre-trial conference and/or trial of the case of "Cresencio Velez, et al. vs. Citibank, N.A.". 4 In an Order dated April 23, 1990, respondent judge denied private respondents' oral motion to declare petitioner bank as in default and set the continuation of the pre-trial conference for May 2, 1990.
On the scheduled pre-trial conference, private respondents reiterated, by way of asking for reconsideration, their oral motion to declare petitioner bank as in default for its failure to appear through an authorized agent and that the documents presented are not in accordance with the requirements of the law. Petitioner bank again filed on May 14, 1990 its opposition thereto, stating as follows:
". . . While it has been the practice of Citibank to appoint its counsels as its attorney-in-fact in civil cases because it considers said counsels equivalent to a Citibank employee, yet, in order to avoid further arguments on the matter, the defendant Citibank will secure another power of attorney from Mr. William W. Ferguson in favor of its employee/s who will represent the defendant Citibank in the pre-trial conferences of this case. As soon as the said special power of attorney is secured, the defendant will present it before this Honorable Court and in pursuance therewith, the defendant hereby makes a reservation to present such document as soon as available." 5
In compliance with the above promise, petitioner bank filed a manifestation, dated May 23, 1990, attaching therewith a special power of attorney executed by William W. Ferguson in favor of Citibank employees to represent and bind Citibank on the pre-trial conference of the case at bar. 6
On August 15, 1990, respondent judge issued an order declaring petitioner bank as in default. This order, received by petitioner bank on September 27, 1990, cited the following as reason for the declaration of default:
"Defendant-bank, although a foreign corporation, is bound by Philippine laws when doing and conducting business in the Philippines (Sec. 129, B.P. Blg. 68), and its corporate powers could only be exercised by its Board of Directors (Sec. 23, B.P. Blg. 68). The exercise by the Board of Directors of such power could only be valid if it bears the approval of the majority of the Board (Sec. 25, par. 2, Corporation Code). The records does not show the requisite document. The alleged authority (Special Power of Attorney, Annex "A") executed by Mr. William W. Ferguson in favor of the alleged Citibank employees, assuming the same to be a delegable authority, to represent the defendant in the pre-trial conference, made no mention of J.P. Garcia & Associates as one of the employees of the defendant.
It stands to reason therefore, that the defendant-bank has no proper representation during the pre-trial conference on May 2, 1990 for purposes of Sec. 2, Rule 20 of the Rules of Court." 7
On October 1, 1990, petitioner bank filed a motion for reconsideration of the above order but it was denied on December 10, 1990.
Petitioner bank then filed a petition for certiorari, prohibition and mandamus with preliminary injunction and/or temporary restraining order with the Court of Appeals. On June 26, 1991, the Court of Appeals dismissed the petition on the following grounds:
". . . In the first place, petitioner admitted that it did not and could not present a Board resolution from the bank's Board of Directors appointing its counsel, Atty. Julius Z. Neri, as its attorney-in-fact to represent and bind it during the pre-trial conference of this case. This admission is contained on pages 12 and 13 of the instant petition.
In the second place, the "By-Laws" of petitioner which on its face authorizes (sic) the appointment of an attorney-in-fact to represent it in any litigation, has not been approved by the Securities and Exchange Commission, as required by Section 46 of the Corporation Code of the Philippines. Apparently, the "By-Laws" in question was (sic) approved under the laws of the United States, but there is no showing that the same was given the required imprimatur by the Securities and Exchange Commission. Since petitioner is a foreign corporation doing business in the Philippines, it is bound by all laws, rules and regulations applicable to domestic corporations (Sec. 129, Corporation Code).
In the third place, no special power of attorney was presented authorizing petitioner's counsel of record, Atty. Julius Neri and/or J.P. Garcia Associates, to appear for and in behalf of petitioner during the pre-trial.
What petitioner exhibited to the court a quo was a general power of attorney given to one William W. Ferguson who in turn executed a power of attorney in favor of five (5) (sic) Citibank employees to act as attorney-in-fact in Civil Case No. CEB-4751. Yet, during the pre-trial not one of said employees appeared, except counsel who is not even a bank employee.
Furthermore, even assuming the validity of the power of attorney issued by petitioner in favor of Ferguson as well as the power of attorney he issued to five (5) (sic) Citibank employees, said power of attorney has not been shown to be a Special Power of Attorney precisely intended not only to represent the bank at the pre-trial of the case on a certain date but also to enter into any compromise as required in paragraph 3, Article 1878 of the Civil Code and Section 1 (a), Rule 20, Rules of Court." 8
Hence, this instant petition.
Petitioner bank contends that no board resolution was necessary for its legal counsel, Atty. Julius Z. Neri, or Citibank employees to act as its attorney-in-fact in the case at bar because petitioner bank's by-laws grant to its Executing Officer and Secretary Pro-Tem the power to delegate to a Citibank officer, in this case William W. Ferguson, the authority to represent and defend the bank and its interests.
Furthermore, it contends that the Court of Appeals erred in holding that the by-laws of petitioner bank cannot be given effect because it did not have the imprimatur of the Securities and Exchange Commission (SEC) as required by Section 46 of the Corporation Code of the Philippines.
Private respondents refute both contentions. They assail the authority of petitioner bank's legal counsel to appear at the pre-trial conference on two grounds, namely: first, that the authority did not come from the Board of Directors which has the exclusive right to exercise corporate powers; and second, that the authority granted to the Executing Officer in the by-laws was ineffective because the same were not submitted to, nor approved by, the SEC.
There are thus two issues in this case. First, whether a resolution of the board of directors of a corporation is always necessary for granting authority to an agent to represent the corporation in court cases. And second, whether the by-laws of the petitioner foreign corporation which has previously been granted a license to do business in the Philippines, are effective in this jurisdiction. If the by-laws are valid and a board resolution is not necessary as petitioner bank claims, then the declaration of default would have no basis.
In the corporate hierarchy, there are three levels of control: (1) the board of directors, which is responsible for corporate policies and the general management of the business affairs of the corporation; (2) the officers, who in theory execute the policies laid down by the board, but in practice often have wide latitude in determining the course of business operations; and (3) the stockholders who have the residual power over fundamental corporate changes, like amendments of the articles of incorporation. However, just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it.
Section 23 of the Corporation Code of the Philippines in part provides:
"SEC. 23. The board of directors or trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified.
xxx xxx xxx" (Emphasis supplied).
Thus, although as a general rule, all corporate powers are to be exercised by the board of directors, exceptions are made where the Code provides otherwise.
Section 25 of said Code provides that the directors of the corporation shall elect its corporate officers, and further provides as follows:
"SEC. 25. Corporate officers; quorum. — . . . The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and by the by-laws of the corporation . . ."
Furthermore, Section 47 of the same Code enumerates what may be contained in the by-laws, among which is a provision for the "qualifications, duties and compensation of directors or trustees, officers and employees". (Emphasis supplied.)
Taking all the above provisions of law together, it is clear that corporate powers may be directly conferred upon corporate officers or agents by statute, the articles of incorporation, the by-laws or by resolution or other act of the board of directors. In addition, an officer who is not a director may also appoint other agents when so authorized by the by-laws or by the board of directors. Such are referred to as express powers. 9 There are also powers incidental to express powers conferred. It is a fundamental principle in the law of agency that every delegation of authority, whether general or special, carries with it, unless the contrary be expressed, implied authority to do all of those acts, naturally and ordinarily done in such cases, which are reasonably necessary and proper to be done in order to carry into effect the main authority conferred. 10
Since the by-laws are a source of authority for corporate officers and agents of the corporation, a resolution of the Board of Directors of Citibank appointing an attorney in fact to represent and bind it during the pre-trial conference of the case at bar is not necessary because its by-laws allow its officers, the Executing Officer and the Secretary Pro-Tem, ** to execute a power of attorney to a designated bank officer, William W. Ferguson in this case, clothing him with authority to direct and manage corporate affairs. The relevant provision in the general power of attorney granted to him are as follows:
"A. That the Executing Officer and the Secretary Pro-Tem are of full age, competent to act in the premises, to me personally known, and that they are authorized to execute this instrument by virtue of the powers granted to them pursuant to the By-Laws of the Bank and the laws of the United States of America, and that the Executing Officer said that he, on the one hand, hereby revokes and cancels any instrument of power of attorney previously executed on behalf of the Bank for use in the PHILIPPINES, in favor of WILLIAM W. FERGUSON (hereinafter referred to as the "Attorney-in-fact"), of legal age, a Banker, and now residing in the PHILIPPINES, and that he (the Executing Officer), on the other hand, does hereby authorize and empower the Attorney-in-fact, acting in the name or on behalf of the Bank, or any of its Branches, or any interest it or they may have or represent, said revocation and authorization to be effective as of this date as follows:
xxx xxx xxx
XVII. To represent and defend the Bank and its interest before any and all judges and courts, of all classes and jurisdictions, in any action, suit or proceeding in which the Bank may be a party or may be interested in administrative, civil, criminal, contentious or contentious-administrative matters, and in all kinds of lawsuits, recourses or proceedings of any kind or nature, with complete and absolute representation of the Bank, whether as plaintiff or defendant, or as an interested party for any reason whatsoever . . .
xxx xxx xxx
XXI. To substitute or delegate this Power of Attorney in whole or in part in favor of such one or more employees of the Bank, as he may deem advisable, but without divesting himself of any of the powers granted to him by this Power of Attorney; and to grant and execute in favor of any one or more such employees, powers of attorney containing all or such authorizations, as he may deem advisable. . . " 11
Since paragraph XXI above specifically allows Ferguson to delegate his powers in whole or in part, there can be no doubt that the special power of attorney in favor, first, of J.P. Garcia & Associates and later, of the bank's employees, constitutes a valid delegation of Ferguson's express power (under paragraph XVII above) to represent petitioner bank in the pre-trial conference in the lower court.
This brings us to the second query: whether petitioner bank's by-laws, which constitute the basis for Ferguson's special power of attorney in favor of petitioner bank's legal counsel are effective, considering that petitioner bank has been previously granted a license to do business in the Philippines.
The Court of Appeals relied on Section 46 of the Corporation Code to support its conclusion that the by-laws in question are without effect because they were not approved by the SEC. Said section reads as follows:
"SEC. 46. Adoption of by-laws. — Every corporation formed under this Code must, within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its government not inconsistent with this Code. For the adoption of by-laws by the corporation, the affirmative vote of the stockholders representing at least a majority of the outstanding capital stock, or of at least a majority of the members in the case of non-stock corporations, shall be necessary. The by-laws shall be signed by the stockholders or members voting for them and shall be kept in the principal office of the corporation, subject to the inspection of the stockholders or members during office hours; and a copy thereof, duly certified to by a majority of the directors or
trustees and countersigned by the secretary of the corporation, shall be filed with the Securities and Exchange Commission which shall be attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted to the Securities and Exchange Commission, together with the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a certification that the by-laws are not inconsistent with this Code."
A careful reading of the above provision would show that a corporation can submit its by-laws, prior to incorporation, or within one month after receipt of official notice of the issuance of its certificate of incorporation by the SEC. When the third paragraph of the above provision mentions "in all cases", it can only refer to these two options; i.e., whether adopted prior to incorporation or within one month after incorporation, the by-laws shall be effective only upon the approval of the SEC. But even more important, said provision starts with the phrase "Every corporation formed under this Code", which can only refer to corporations incorporated in the Philippines. Hence, Section 46, in so far as it refers to the effectivity of corporate by-laws, applies only to domestic corporations and not to foreign corporations.
On the other hand, Section 125 of the same Code requires that a foreign corporation applying for a license to transact business in the Philippines must submit, among other documents, to the SEC, a copy of its articles of incorporation and by-laws, certified in accordance with law. Unless these documents are submitted, the application cannot be acted upon by the SEC. In the following section, the Code specifies when the SEC can grant the license applied for. Section 126 provides in part:
"SEC. 126. Issuance of a license. — If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license . . ."
Since the SEC will grant a license only when the foreign corporation has complied with all the requirements of law, it follows that when it decides to issue such license, it is satisfied that the applicant's by-laws, among the other documents, meet the legal requirements. This, in effect, is an approval of the foreign corporations by-laws. It may not have been made in express terms, still it is clearly an approval. Therefore, petitioner bank's by-laws, though originating from a foreign jurisdiction, are valid and effective in the Philippines.
In pursuance of the authority granted to him by petitioner bank's by-laws, its Executing Officer appointed William W. Ferguson, a resident of the Philippines, as its Attorney-in-Fact empowering the latter, among other things, to represent petitioner bank in court cases. In turn, William W. Ferguson executed a power of attorney in favor of J.P. Garcia & Associates (petitioner bank's counsel) to represent petitioner bank in the pre-trial conference before the lower court. This act of delegation is explicity authorized by paragraph XXI of his own appointment, which we have previously cited.
It is also error for the Court of Appeals to insist that the special power of attorney, presented by petitioner bank authorizing its counsel, Atty. Julius Neri and/or J.P. Garcia & Associates, to appear for and in behalf of petitioner bank during the pre-trial, is not valid. The records do not sustain this finding. We quote with approval the contention of petitioner bank as it is borne by the records, to wit:
". . . The records of this case would show that at the start, the petitioner, thru counsel, presented a special power of attorney executed by then Citibank Officer Florencio (sic) J. Tarriela which was marked as Exhibit "1" in the pre-trial of this case . . . This is precisely the reason why the court denied, in an Order dated April 23, 1990 . . . the private respondent's oral motion to declare the defendant in fault. The said special power of attorney executed by Florencio (sic) J. Tarriela was granted by Mr. Rafael B. Buenaventura, who was then the Senior Vice-President of Citibank and the highest ranking office of Citibank in the Philippines. Considering that at the time of the presentation of the said special power of attorney Rafael B. Buenaventura was no longer connected with Citibank, the petitioner again presented another special power of attorney executed by William W. Ferguson in favor of J.P. Garcia & Associates, . . .
Finding that the authority of William W. Ferguson to delegate his authority to act for and in behalf of the bank in any civil suit is limited to individuals who are employees of the bank the petitioner again on May 23, 1990 presented another special power of attorney dated May 16, 1990 wherein William W. Ferguson appointed as attorney-in-fact the following employees of petitioner, namely: Roberto Reyes, Nemesio Solomon, Aimee Yu and Tomas Yap. The said special power of attorney was filed and presented by the petitioner through its Manifestation filed in the Trial Court on May 23, 1990, . . ." 12
Under Rule 138, Section 23 of the Rules of Court, an attorney has authority to bind his client in any case by an agreement in relation thereto made in writing, and this authority would include taking appeals and all matters of ordinary judicial procedure. But he cannot, without special authority, compromise his client's litigation or receive anything in discharge of a client's claim but the full amount in cash. The special powers of attorney separately executed by Florencia Tarriela and William W. Ferguson granted to J.P. Garcia & Associates are very explicit in their terms as to the counsel's authority in the case at bar. We quote the relevant provisions of the special powers of attorney showing sufficient compliance with the requirements of Section 23, Rule 138, to wit:
"That the BANK further authorized the said J.P. GARCIA & ASSOCIATES to enter into an amicable settlement, stipulation of facts and/or compromise agreement with the party or parties involved under such terms and conditions which the said J.P. GARCIA & ASSOCIATES may deem reasonable (under parameters previously defined by the principal) and execute and sign said documents as may be appropriate.
HEREBY GIVING AND GRANTING unto J.P. GARCIA & ASSOCIATES full power and authority whatsoever requisite necessary or proper to be done in or about the premises, as fully to all intents and purposes as the BANK might or could lawfully do or cause to be done under and by virtue of these presents." 13
It is also error on the part of the Court of Appeals to state that the power of attorney given to the four (4) Citibank employees is not a special power of attorney as required in paragraph 3, Article 1878 of the Civil Code and Section 1 (a), Rule 20 of the Rules of Court. In the case of Tropical Homes, Inc. vs. Villaluz, 14 the special power of attorney executed by petitioner bank therein contained the following pertinent terms — "to appear for and in its behalf in the above-entitled case in all circumstances where its appearance is required and to bind it in all said instances". The court ruled that:
"Although the power of attorney in question does not specifically mention the authority of petitioner's counsel to appear and bind the petitioner at the pre-trial conference, the terms of said power of attorney are comprehensive enough as to include the authority to appear for the petitioner at the pre-trial conference."
In the same manner, the power of attorney granted to petitioner bank's employees should be considered a special power of attorney. The relevant portion reads:
"WHEREAS, the Bank is the Defendant in Civil Case No. CEB-4751, entitled "Cresencio Velez, et al. vs. Citibank, N.A.," pending before the Regional Trial Court of Cebu City, Branch X;
NOW, THEREFORE, under and by virtue of Article XXI of the Power of Attorney executed by the Bank in favor of the Attorney-in-Fact (Annex "A"), which provision is quoted above, the Attorney-in-Fact has nominated, designated and appointed, as by these presents he nominates, designates and appoints, as his substitutes and delegates, with respect to the said Power of Attorney, ROBERTO REYES, Vice President and/or NEMESIO SOLOMON, JR., Manager, AIMEE YU, Assistant Vice President and/or TOMAS YAP, Assistant Manager (hereinafter referred to as the "DELEGATES"), all of legal age, citizens of the Republic of the Philippines and with business address at Citibank Center, Paseo de Roxas, Makati, Metro Manila, Philippines, the Attorney-in-Fact hereby granting, conferring and delegating such authorities and binding the Bank in the Pre-Trial Conference and/or Trial of the abovementioned case, pursuant to Rule 20 of the Revised Rules of Court, to the DELEGATES. The attorney-in-Fact furthermore hereby ratifying and confirming all that the DELEGATES shall lawfully do or cause to be done under and by virtue of these presents." 15
From the outset, petitioner bank showed a willingness, if not zeal, in pursuing and defending this case. It even acceded to private respondent's insistence on the question of proper representation during the pre-trial by presenting not just one, but three, special powers of attorney. Initially, the special power of attorney was executed by Florencia Tarriela in favor of J.P. Garcia & Associates, petitioner bank's counsel. Private respondents insisted that this was not proper authority required by law. To avoid further argument, a second special power of attorney was presented by petitioner bank, executed by William W. Fersugon, the highest ranking officer of Citibank in the Philippines, in favor of its counsel J.P. Garcia & Associates. But since the authority to delegate of William A. Fersugon in favor of an agent is limited to bank employees, another special power of attorney from Wiliam W. Fersugon in favor of the Citibank employees was presented. But the respondent trial court judge disregarded all these and issued the assailed default order. There is nothing to show that petitioner bank "miserably failed to oblige"; on the contrary, three special powers of attorney manifest prudence and diligence on petitioner bank's part.
In fact, there was no need for the third power of attorney because we believe that the second power of attorney was sufficient under the by-law provision authorizing Fersugon to delegate any of his functions to any one or more employees of the petitioner bank. A reasonable interpretation of this provision would include an appointment of a legal counsel to represent the bank in court, for, under the circumstances, such legal counsel can be considered, and in fact was considered by the petitioner bank, an employee for a special purpose. Furthermore, Fersugon, who heads the Philippine office thousands of miles away from its main office in the United States, must be understood to have sufficient powers to act promptly in order to protect the interests of his principal.
We reiterate the previous admonitions of this Court against "precipitate orders of default as these have the effect of denying the litigant the chance to be heard. While there are instances, to be sure, when a party may be properly defaulted, these should be the exceptions rather than the rule and should be allowed only in clear cases of an obstinate refusal or inordinate neglect to comply with the orders of the court. Absent such a showing, the party must be given every reasonable opportunity to present his side and to refute the evidence of the adverse party in deference to due process of law". 16
Considering further that petitioner bank has a meritorious defense and that the amount in contest is substantial, the litigants should be allowed to settle their claims on the arena of the court based on a trial on the merits rather than on mere technicalities.
WHEREFORE, in view of the foregoing, the petition is hereby GRANTED. The decision of the Court of Appeals dated June 26, 1991 and its resolution denying the motion for reconsideration of petitioner bank dated September 26, 1991 are both REVERSED and SET ASIDE. The order of default issued on August 15, 1990 in Civil Case CEB-4751 of the Regional Trial Court of Cebu is ANNULLED and SET ASIDE and the case is hereby REMANDED to the court of origin for further proceedings.
SO ORDERED.
COUNTRY BANKERS INSURANCE CORPORATION,Petitioner,
- versus -
G.R. No. 166044 Present: LEONARDO-DE CASTRO,*
Acting Chairperson,BERSAMIN,
KEPPEL CEBU SHIPYARD, UNIMARINE SHIPPING LINES, INC., PAUL RODRIGUEZ, PETER RODRIGUEZ, ALBERT HONTANOSAS, and BETHOVEN QUINAIN,Respondents.
DEL CASTILLO,VILLARAMA, JR., andPERLAS-BERNABE,** JJ. Promulgated: June 18, 2012
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
D E C I S I O N LEONARDO-DE CASTRO, J.:
This is a petition for review on certiorari[1] to reverse and set aside the January 29, 2004 Decision[2] and October 28, 2004
Resolution[3] of the Court of Appeals in CA-G.R. CV No. 58001, wherein the Court of Appeals affirmed with modification the February 10, 1997
Decision[4] of the Regional Trial Court (RTC) of Cebu City, Branch 7, in Civil Case No. CBB-13447.
Hereunder are the undisputed facts as culled from the records of the case.
On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a corporation engaged in the shipping industry, contracted the
services of Keppel Cebu Shipyard, formerly known as Cebu Shipyard and Engineering Works, Inc. (Cebu Shipyard), for dry docking and ship
repair works on its vessel, the M/V Pacific Fortune.[5]
On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to Unimarine in consideration for its services, which amounted
to P4,486,052.00.[6] Negotiations between Cebu Shipyard and Unimarine led to the reduction of this amount to P3,850,000.00. The terms of this
agreement were embodied in Cebu Shipyards February 18, 1992 letter to the President/General Manager of Unimarine, Paul Rodriguez, who
signed his conformity to said letter, quoted in full below:
18 February 1992Ref No.: LL92/0383
UNIMARINE SHIPPING LINES, INC.C/O Autographics, Inc.Gorordo Avenue, Lahug, Cebu City Attention: Mr. Paul RodriguezPresident/General Manager This is to confirm our agreement on the shiprepair bills charged for the repair of MV Pacific Fortune, our invoice no. 26035. The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount of P3,850,000.00 excluding VAT. Unimarine Shipping Lines, Inc. (Unimarine) will pay the above amount of [P3,850,000.00] in US Dollars to be fixed at the prevailing USDollar to Philippine Peso exchange rate at the time of payment. The payment terms to be extended to Unimarine is as follows:
Installments Amount Due Date1st Installment P2,350,000.00 30 May 19922nd Installment P1,500,000.00 30 Jun 1992
Unimarine will deposit post-dated checks equivalent to the above amounts in Philippine Peso and an additional check amount of P385,000.00, representing 10% [Value Added Tax] VAT on the above bill of P3,850,000.00. In the event that Unimarine fails to make full payment on the above due dates in US Dollars, the post-dated checks will be deposited by CSEW in payment of the amounts owned by Unimarine and Unimarine agree that the 10% VAT (P385,000.00) shall also become payable to CSEW. Unimarine in consideration of the credit terms extended by CSEW and the release of the vessel before full payment of the above debt, agree to present CSEW surety bonds equal to 120% of the value of the credit extended. The total bond amount shall be P4,620,000.00. Yours faithfully, CEBU SHIPYARD & ENGG WORKS, INC Conforme: (SGD) (SGD)______SEET KENG TAT PAUL RODRIGUEZTreasurer/VP-Admin. Unimarine ShippingLines, Inc.[7]
In compliance with the agreement, Unimarine, through Paul Rodriguez, secured from Country Bankers Insurance Corp. (CBIC),
through the latters agent, Bethoven Quinain (Quinain), CBIC Surety Bond No. G (16) 29419 [8] (the surety bond) on January 15, 1992 in the
amount of P3,000,000.00. The expiration of this surety bond was extended to January 15, 1993, through Endorsement No. 33152 [9] (the
endorsement), which was later on attached to and formed part of the surety bond. In addition to this, Unimarine, on February 19, 1992,
obtained another bond from Plaridel Surety and Insurance Co. (Plaridel), PSIC Bond No. G (16)-00365[10] in the amount of P1,620,000.00.
On February 17, 1992, Unimarine executed a Contract of Undertaking in favor of Cebu Shipyard. The pertinent portions of the
contract read as follows:
Messrs, Uni-Marine Shipping Lines, Inc. (the Debtor) of Gorordo Avenue, Cebu City hereby acknowledges that in consideration of Cebu Shipyard & Engineering Works, Inc. (Cebu Shipyard) at our request agreeing to release the vessel specified in part A of the Schedule (name of vessel) prior to the receipt of the sum specified in part B of the Schedule
(Moneys Payable) payable in respect of certain works performed or to be performed by Cebu Shipyard and/or its subcontractors and/or material and equipment supplied or to be supplied by Cebu Shipyard and/or its subcontractors in connection with the vessel for the party specified in part C of the Schedule (the Debtor), we hereby unconditionally, irrevocably undertake to make punctual payment to Cebu Shipyard of the Moneys Payable on the terms and conditions as set out in part B of the Schedule. We likewise hereby expressly waive whatever right of excussion we may have under the law and equity. This contract shall be binding upon Uni-Marine Shipping Lines, Inc., its heirs, executors, administrators, successors, and assigns and shall not be discharged until all obligation of this contract shall have been faithfully and fully performed by the Debtor.[11]
Because Unimarine failed to remit the first installment when it became due on May 30, 1992, Cebu Shipyard was constrained to deposit the
peso check corresponding to the initial installment of P2,350,000.00. The check, however, was dishonored by the bank due to insufficient funds.
[12] Cebu Shipyard faxed a message to Unimarine, informing it of the situation, and reminding it to settle its account immediately.[13]
On June 24, 1992, Cebu Shipyard again faxed a message[14] to Unimarine, to confirm Paul Rodriguezs promise that Unimarine will pay
in full the P3,850,000.00, in US Dollars on July 1, 1992.
Since Unimarine failed to deliver on the above promise, Cebu Shipyard, on July 2, 1992, through a faxed letter, asked Unimarine if
the payment could be picked up the next day. This was followed by another faxed message on July 6, 1992, wherein Cebu Shipyard reminded
Unimarine of its promise to pay in full on July 28, 1992. On August 24, 1992, Cebu Shipyard again faxed[15] Unimarine, to inform it that interest
charges will have to be imposed on their outstanding debt, and if it still fails to pay before August 28, 1992, Cebu Shipyard will have to enforce
payment against the sureties and take legal action.
On November 18, 1992, Cebu Shipyard, through its counsel, sent Unimarine a letter,[16] demanding payment, within seven days from
receipt of the letter, the amount ofP4,859,458.00, broken down as follows:
B#26035 MV PACIFIC FORTUNE 4,486,052.00LESS: ADJUSTMENT:CN#00515-03/19/92 (636,052.00)------------------3,850,000.00Add: VAT on repair bill no. 26035 385,000.00------------------4,235,000.00Add: Interest/penalty charges:Debit Note No. 02381 189,888.00Debit Note No. 02382 434,570.00------------------4,859,458.00[17]
Due to Unimarines failure to heed Cebu Shipyards repeated demands, Cebu Shipyard, through counsel, wrote the sureties CBIC [18] on November
18, 1992, and Plaridel,[19] on November 19, 1992, to inform them of Unimarines nonpayment, and to ask them to fulfill their obligations as
sureties, and to respond within seven days from receipt of the demand.
However, even the sureties failed to discharge their obligations, and so Cebu Shipyard filed a Complaint dated January 8, 1993, before the RTC,
Branch 18 of Cebu City, against Unimarine, CBIC, and Plaridel. This was docketed as Civil Case No. CBB-13447.
CBIC, in its Answer,[20] said that Cebu Shipyards complaint states no cause of action. CBIC alleged that the surety bond was issued by its agent,
Quinain, in excess of his authority. CBIC claimed that Cebu Shipyard should have doubted the authority of Quinain to issue the surety bond
based on the following:
1. The nature of the bond undertaking (guarantee payment), and the amount involved.
2. The surety bond could only be issued in favor of the Department of Public Works and Highways, as stamped on the upper right
portion of the face of the bond.[21]This stamp was covered by documentary stamps.
3. The issuance of the surety bond was not reported, and the corresponding premiums were not remitted to CBIC.[22]
CBIC added that its liability was extinguished when, without its knowledge and consent, Cebu Shipyard and Unimarine novated their
agreement several times.Furthermore, CBIC stated that Cebu Shipyards claim had already been paid or extinguished when Unimarine executed
an Assignment of Claims[23] of the proceeds of the sale of its vessel M/V Headline in favor of Cebu Shipyard. CBIC also averred that Cebu
Shipyards claim had already prescribed as the endorsement that extended the surety bonds expiry date, was not reported to CBIC. Finally, CBIC
asseverated that if it were held to be liable, its liability should be limited to the face value of the bond and not for exemplary damages,
attorneys fees, and costs of litigation.[24]
Subsequently, CBIC filed a Motion to Admit Cross and Third Party Complaint [25] against Unimarine, as cross defendant; Paul
Rodriguez, Albert Hontanosas, and Peter Rodriguez, as signatories to the Indemnity Agreement they executed in favor of CBIC; and Bethoven
Quinain, as the agent who issued the surety bond and endorsement in excess of his authority, as third party defendants.[26]
CBIC claimed that Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez executed an Indemnity Agreement, wherein they bound
themselves, jointly and severally, to indemnify CBIC for any amount it may sustain or incur in connection with the issuance of the surety bond
and the endorsement.[27] As for Quinain, CBIC alleged that he exceeded his authority as stated in the Special Power of Attorney, wherein he was
authorized to solicit business and issue surety bonds not exceeding P500,000.00 but only in favor of the Department of Public Works and
Highways, National Power Corporation, and other government agencies.[28]
On August 23, 1993, third party defendant Hontanosas filed his Answer with Counterclaim, to the Cross and Third Party
Complaint. Hontanosas claimed that he had no financial interest in Unimarine and was neither a stockholder, director nor an officer of
Unimarine. He asseverated that his relationship to Unimarine was limited to his capacity as a lawyer, being its retained counsel. He further
denied having any participation in the Indemnity Agreement executed in favor of CBIC, and alleged that his signature therein was forged, as he
neither signed it nor appeared before the Notary Public who acknowledged such undertaking.[29]
Various witnesses were presented by the parties during the course of the trial of the case. Myrna Obrinaga testified for Cebu
Shipyard. She was the Chief Accountant in charge of the custody of the documents of the company. She corroborated Cebu Shipyards
allegations and produced in court the documents to support Cebu Shipyards claim.She also testified that while it was true that the proceeds of
the sale of Unimarines vessel, M/V Headline, were assigned to Cebu Shipyard, nothing was turned over to them.[30]
Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for the repairs it did on M/V Pacific Fortune, despite the
extensions granted to Unimarine. He claimed that he signed the Indemnity Agreement because he trusted Quinain that it was a mere pre-
requisite for the issuance of the surety bond. He added that he did not bother to read the documents and he was not aware of the
consequences of signing an Indemnity Agreement. Paul Rodriguez also alleged to not having noticed the limitation Valid only in favor of DPWH
stamped on the surety bond.[31] However, Paul Rodriguez did not contradict the fact that Unimarine failed to pay Cebu Shipyard its obligation.[32]
CBIC presented Dakila Rianzares, the Senior Manager of its Bonding Department. Her duties included the evaluation and approval of
all applications for and reviews of bonds issued by their agents, as authorized under the Special Power of Attorney and General Agency Contract
of CBIC. Rianzares testified that she only learned of the existence of CBIC Surety Bond No. G (16) 29419 when she received the summons for
this case. Upon investigation, she found out that the surety bond was not reported to CBIC by Quinain, the issuing agent, in violation of their
General Agency Contract, which provides that all bonds issued by the agent be reported to CBICs office within one week from the date of
issuance. She further stated that the surety bond issued in favor of Unimarine was issued beyond Quinains authority. Rianzares added that she
was not aware that an endorsement pertaining to the surety bond was also issued by Quinain.[33]
After the trial, the RTC was faced with the lone issue of whether or not CBIC was liable to Cebu Shipyard based on Surety Bond No. G
(16) 29419.[34]
On February 10, 1997, the RTC rendered its Decision, the fallo of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Cebu Shipyard & Engineering Works, Incorporated and against the defendants:
1. Ordering the defendants Unimarine Shipping Lines, Incorporated, Country Bankers Insurance Corporation and Plaridel Surety and Insurance Corporation to pay plaintiff jointly and severally the amount of P4,620,000.00 equivalent to the value of the surety bonds;
2. Ordering further defendant Unimarine to pay plaintiff the amount of P259,458.00 to complete its entire
obligation of P4,859,458.00;
3. To pay plaintiff jointly and severally the amount of P100,000.00 in attorneys fees and litigation expenses;
4. For Cross defendant Unimarine Shipping Lines, Incorporated and Third party defendants Paul Rodriguez, Peter Rodriguez and Alber[t] Hontanosas: To indemnify jointly and severally, cross plaintiff and third party plaintiff Country Bankers Insurance Corporation whatever amount the latter is made to pay to plaintiff.[35]
The RTC held that CBIC, in its capacity as surety is bound with its principal jointly and severally to the extent of the surety bond it
issued in favor of [Cebu Shipyard] because although the contract of surety is in essence secondary only to a valid principal obligation, his liability
to [the] creditor is said to be direct, primary[,] and absolute, in other words, he is bound by the principal.[36] The RTC added:
Solidary obligations on the part of Unimarine and CBIC having been established and expressly stated in the
Surety Bond No. 29419 (Exh. C), [Cebu Shipyard], therefore, is entitled to collect and enforce said obligation against any and or both of them, and if and when CBIC pays, it can compel its co-defendant Unimarine to reimburse to it the amount it has paid.[37]
The RTC found CBICs contention that Quinain acted in excess of his authority in issuing the surety bond untenable. The RTC held that
CBIC is bound by the surety bond issued by its agent who acted within the apparent scope of his authority. The RTC said:
[A]s far as third persons are concerned, an act is deemed to have been performed within the scope of the agents authority, if such act is within the terms of the powers of attorney as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent.[38]
All the defendants appealed this Decision to the Court of Appeals.
Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas argued that Unimarines obligation under Bill No. 26035 had
been extinguished by novation, as Cebu Shipyard had agreed to accept the proceeds of the sale of the M/V Headline as payment for the ship
repair works it did on M/V Pacific Fortune. Paul Rodriguez and Peter Rodriguez added that such novation also freed them from their liability
under the Indemnity Agreement they signed in favor of CBIC. Albert Hontanosas in turn reiterated that he did not sign the Indemnity
Agreement.[39][SC1]
CBIC, in its Appellants Brief,[40] claimed that the RTC erred in enforcing its liability on the surety bond as it was issued in excess of
Quinains authority. Moreover, CBIC averred, its liability under such surety had been extinguished by reasons of novation, payment, and
prescription. CBIC also questioned the RTCs order, holding it jointly and severally liable with Unimarine and Plaridel for the amount
of P4,620,000.00, a sum larger than the face value of CBIC Surety Bond No. G (16) 29419, and why the RTC did not hold Quinain liable to
indemnify CBIC for whatever amount it was ordered to pay Cebu Shipyard.
On January 29, 2004, the Court of Appeals promulgated its decision, with the following dispositive portion:
WHEREFORE, in view of the foregoing, the respective appeal[s] filed by Defendants-Appellants Unimarine Shipping Lines, Inc. and Country Bankers Insurance Corporation; Cross-Defendant-Appellant Unimarine Shipping Lines, Inc. and; Third-Party Defendants-Appellants Paul Rodriguez, Peter Rodriguez and Albert Hontanosas are hereby DENIED. The decision of the RTC in Civil Case No. CEB-13447 dated February 10, 1997 is AFFIRMED with modification that Mr. Bethoven Quinain, CBICs agent is hereby held jointly and severally liable with CBIC by virtue of Surety Bond No. 29419 executed in favor of plaintiff-appellee CSEW.[41]
In its decision, the Court of Appeals resolved the following issues, as it had summarized from the parties pleadings:
I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a sum of money arising from the ship-repair contract; II. Whether or not the obligation of UNIMARINE to [Cebu Shipyard] has been extinguished by novation; III. Whether or not Defendant-Appellant CBIC, allegedly being the Surety of UNIMARINE is liable under Surety Bond No. 29419[;] IV. Whether or not Cross Defendant-Appellant UNIMARINE and Third-Party Defendants-Appellants Paul Rodriguez, Peter Rodriguez, Albert Hontanosas and Third-Party Defendant Bethoven Quinain are liable by virtue of the Indemnity Agreement executed between them and Cross and Third Party Plaintiff CBIC; V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled to the award of P100,000.00 in attorneys fees and litigation expenses.[42]
The Court of Appeals held that it was duly proven that Unimarine was liable to Cebu Shipyard for the ship repair works it did on the
formers M/V Pacific Fortune. The Court of Appeals dismissed CBICs contention of novation for lack of merit.[43] CBIC was held liable under the
surety bond as there was no novation on the agreement between Unimarine and Cebu Shipyard that would discharge CBIC from its
obligation. The Court of Appeals also did not allow CBIC to disclaim liability on the ground that Quinain exceeded his authority because third
persons had relied upon Quinains representation, as CBICs agent.[44] Quinain was, however, held solidarily liable with CBIC under Article 1911 of
the Civil Code.[45]
Anent the liability of the signatories to the Indemnity Agreement, the Court of Appeals held Paul Rodriguez, Peter Rodriguez, and
Albert Hontanosas jointly and severally liable thereunder. The Court of Appeals rejected Hontanosass claim that his signature in the Indemnity
Agreement was forged, as he was not able to prove it.[46]
The Court of Appeals affirmed the award of attorneys fees and litigation expenses to Cebu Shipyard since it was able to clearly establish the
defendants liability, which they tried to dodge by setting up defenses to release themselves from their obligation.[47]
CBIC[48]and Unimarine, together with third party defendants-appellants[49] filed their respective Motions for Reconsideration. This was, however,
denied by the Court of Appeals in its October 28, 2004 Resolution for lack of merit.
Unimarine elevated its case to this Court via a petition for review on certiorari, docketed as G.R. No. 166023, which was denied in a Resolution
dated January 19, 2005.[50]
The lone petitioner in this case, CBIC, is now before this Court, seeking the reversal of the Court of Appeals decision and resolution
on the following grounds:
A.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN APPLYING THE PROVISIONS OF ARTICLE 1911 OF THE CIVIL CODE TO HOLD PETITIONER LIABLE FOR THE ACTS DONE BY ITS AGENT IN EXCESS OF AUTHORITY.
B.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT AN EXTENSION OF THE PERIOD FOR THE PERFORMANCE OF AN OBLIGATION GRANTED BY THE CREDITOR TO THE PRINCIPAL DEBTOR IS NOT SUFFICIENT TO RELEASE THE SURETY.
C.
ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND, THE HONORABLE COURT OF APPEALS NONETHELESS SERIOUSLY ERRED IN AFFIRMING THE SOLIDARY LIABILITY OF PETITIONER BEYOND THE VALUE OF THE BOND.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER JOINTLY AND SEVERALLY LIABLE FOR ATTORNEYS FEES IN THE AMOUNT OFP100,000.00.[51]
Issue
The crux of the controversy lies in CBICs liability on the surety bond Quinain issued to Unimarine, in favor of Cebu Shipyard.
CBIC avers that the Court of Appeals erred in interpreting and applying the rules governing the contract of agency. It argued that the Special
Power of Attorney granted to Quinain clearly set forth the extent and limits of his authority with regard to businesses he can transact for and in
behalf of CBIC. CBIC added that it was incumbent upon Cebu Shipyard to inquire and look into the power of authority conferred to
Quinain. CBIC said:
The authority to bind a principal as a guarantor or surety is one of those powers which requires a Special Power of Attorney pursuant to Article 1878 of the Civil Code. Such power could not be simply assumed or inferred from the mere existence of an agency. A person who enters into a contract of suretyship with an agent without confirming the extent of the latters authority does so at his peril. x x x.[52]
CBIC claims that the foregoing is true even if Quinain was granted the authority to transact in the business of insurance in general,
as the authority to bind the principal in a contract of suretyship could nonetheless never be presumed.[53] Thus, CBIC claims, that:
[T]hird persons seeking to hold the principal liable for transactions entered into by an agent should establish the following, in case the same is controverted: 6.6.1. The fact or existence of the agency.6.6.2. The nature and extent of authority.[54]
To go a little further, CBIC said that the correct Civil Code provision to apply in this case is Article 1898. CBIC asserts that Cebu
Shipyard was charged with knowledge of the extent of the authority conferred on Mr. Quinain by its failure to perform due diligence
investigations.[55]
Cebu Shipyard, in its Comment[56] first assailed the propriety of the petition for raising factual issues. In support, Cebu Shipyard
claimed that the Court of Appeals application of Article 1911 of the Civil Code was founded on findings of facts that CBIC now disputes. Thus,
the question is not purely of law.Discussion
The fact that Quinain was an agent of CBIC was never put in issue. What has always been debated by the parties is the extent of authority or, at
the very least, apparent authority, extended to Quinain by CBIC to transact insurance business for and in its behalf.
In a contract of agency, a person, the agent, binds himself to represent another, the principal, with the latters consent or authority.
[57] Thus, agency is based on representation, where the agent acts for and in behalf of the principal on matters within the scope of the authority
conferred upon him.[58] Such acts have the same legal effect as if they were personally done by the principal. By this legal fiction of
representation, the actual or legal absence of the principal is converted into his legal or juridical presence.[59]
The RTC applied Articles 1900 and 1911 of the Civil Code in holding CBIC liable for the surety bond. It held that CBIC could not be
allowed to disclaim liability because Quinains actions were within the terms of the special power of attorney given to him.[60] The Court of
Appeals agreed that CBIC could not be permitted to abandon its obligation especially since third persons had relied on Quinains
representations. It based its decision on Article 1911 of the Civil Code and found CBIC to have been negligent and less than prudent in
conducting its insurance business for its failure to supervise and monitor the acts of its agents, to regulate the distribution of its insurance
forms, and to devise schemes to prevent fraudulent misrepresentations of its agents.[61]
This Court does not agree. Pertinent to this case are the following provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the
principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principals ratification.
Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of the agents authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent.
Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of attorney, or the instructions as regards the agency. Private or secret orders and instructions of the principal do not prejudice third persons who have relied upon the power of attorney or instructions shown to them.
Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he
ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers.
Our law mandates an agent to act within the scope of his authority. [62] The scope of an agents authority is what appears in the
written terms of the power of attorney granted upon him.[63] Under Article 1878(11) of the Civil Code, a special power of attorney is necessary
to obligate the principal as a guarantor or surety.
In the case at bar, CBIC could be held liable even if Quinain exceeded the scope of his authority only if Quinains act of issuing Surety
Bond No. G (16) 29419 is deemedto have been performed within the written terms of the power of attorney he was granted.[64]
However, contrary to what the RTC held, the Special Power of Attorney accorded to Quinain clearly states the limits of his authority
and particularly provides that in case of surety bonds, it can only be issued in favor of the Department of Public Works and Highways, the
National Power Corporation, and other government agencies; furthermore, the amount of the surety bond is limited to P500,000.00, to wit:
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That, COUNTRY BANKERS INSURANCE CORPORATION, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with head offices at 8th Floor, G.F. Antonino Building, T.M. Kalaw Street, Ermita, Manila, now and hereinafter referred to as the Company hereby appoints BETHOVEN B. QUINAIN with address at x x x to be its General Agent and Attorney-in-Fact, for and in its place, name and stead, and for its own use and benefit, to do and perform the following acts and things:
1. To conduct, manage, carry on and transact insurance business as usually pertains to a General Agency of Fire, Personal Accident, Bond, Marine, Motor Car (Except Lancer).
2. To accept, underwrite and subscribe policies of insurance for and in behalf of the Company under the
terms and conditions specified in the General Agency Contract executed and entered into by and between it and its said Attorney-in-Fact subject to the following Schedule of Limits:
- SCHEDULE OF LIMITS - a. FIRE:
x x x x
b. PERSONAL ACCIDENT: x x x x
c. MOTOR CAR:
x x x x
d. MARINE:
x x x x
e. BONDS: x x x x
Surety Bond (in favor of Dept. of Pub. Works andHighways, Natl. Power Corp. & other. 500,000.00Government agencies)[65]
CBIC does not anchor its defense on a secret agreement, mutual understanding, or any verbal instruction to Quinain. CBICs stance is
grounded on its contract with Quinain, and the clear, written terms therein. This Court finds that the terms of the foregoing contract specifically
provided for the extent and scope of Quinains authority, and Quinain has indeed exceeded them.
Under Articles 1898 and 1910, an agents act, even if done beyond the scope of his authority, may bind the principal if he ratifies
them, whether expressly or tacitly. It must be stressed though that only the principal, and not the agent, can ratify the unauthorized acts, which
the principal must have knowledge of.[66] Expounding on the concept and doctrine of ratification in agency, this Court said:
Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by
another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless of the parties between whom the question of ratification may arise. Nevertheless, this principle does not apply if the principals ignorance of the material facts and circumstances was willful, or that the principal chooses to act in ignorance of the facts. However, in the absence of circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts .[67] (Emphases supplied.)
Neither Unimarine nor Cebu Shipyard was able to repudiate CBICs testimony that it was unaware of the existence of Surety Bond
No. G (16) 29419 and Endorsement No. 33152. There were no allegations either that CBIC should have been put on alert with regard to
Quinains business transactions done on its behalf. It is clear, and undisputed therefore, that there can be no ratification in this case, whether
express or implied.
Article 1911, on the other hand, is based on the principle of estoppel, which is necessary for the protection of third persons. It states
that the principal is solidarily liable with the agent even when the latter has exceeded his authority, if the principal allowed him to act as though
he had full powers. However, for an agency by estoppel to exist, the following must be established:
1. The principal manifested a representation of the agents authority or knowingly allowed the agent to assume such authority;
2. The third person, in good faith, relied upon such representation; and
3. Relying upon such representation, such third person has changed his position to his detriment.[68]
In Litonjua, Jr. v. Eternit Corp.,[69] this Court said that [a]n agency by estoppel, which is similar to the doctrine of apparent authority,
requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in
reliance.[70]
This Court cannot agree with the Court of Appeals pronouncement of negligence on CBICs part. CBIC not only clearly stated the
limits of its agents powers in their contracts, it even stamped its surety bonds with the restrictions, in order to alert the concerned
parties. Moreover, its company procedures, such as reporting requirements, show that it has designed a system to monitor the insurance
contracts issued by its agents. CBIC cannot be faulted for Quinains deliberate failure to notify it of his transactions with Unimarine. In fact, CBIC
did not even receive the premiums paid by Unimarine to Quinain.
Furthermore, nowhere in the decisions of the lower courts was it stated that CBIC let the public, or specifically Unimarine, believe
that Quinain had the authority to issue a surety bond in favor of companies other than the Department of Public Works and Highways, the
National Power Corporation, and other government agencies. Neither was it shown that CBIC knew of the existence of the surety bond before
the endorsement extending the life of the bond, was issued to Unimarine. For one to successfully claim the benefit of estoppel on the ground
that he has been misled by the representations of another, he must show that he was not misled through his own want of reasonable care and
circumspection.[71]
It is apparent that Unimarine had been negligent or less than prudent in its dealings with Quinain. In Manila Memorial Park
Cemetery, Inc. v. Linsangan,[72] this Court held:
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it. The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such an inquiry, he is chargeable with knowledge of the agents authority and his ignorance of that authority will not be any excuse.
In the same case, this Court added:
[T]he ignorance of a person dealing with an agent as to the scope of the latters authority is no excuse to such person and the fault cannot be thrown upon the principal. A person dealing with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by relying upon the agents assumption of authority that proves to be unfounded. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency.[73]
Unimarine undoubtedly failed to establish that it even bothered to inquire if Quinain was authorized to agree to terms beyond the
limits indicated in his special power of attorney. While Paul Rodriguez stated that he has done business with Quinain more than once, he was
not able to show that he was misled by CBIC as to the extent of authority it granted Quinain. Paul Rodriguez did not even allege that he asked
for documents to prove Quinains authority to contract business for CBIC, such as their contract of agency and power of attorney. It is also
worthy to note that even with the Indemnity Agreement, Paul Rodriguez signed it on Quinains mere assurance and without truly understanding
the consequences of the terms of the said agreement. Moreover, both Unimarine and Paul Rodriguez could have inquired directly from CBIC to
verify the validity and effectivity of the surety bond and endorsement; but, instead, they blindly relied on the representations of Quinain. As
this Court held in Litonjua, Jr. v. Eternit Corp.[74]:
A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority. The settled rule is that, persons dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove it. In this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.[75]
In light of the foregoing, this Court is constrained to release CBIC from its liability on Surety Bond No. G (16) 29419 and Endorsement No.
33152. This Court sees no need to dwell on the other grounds propounded by CBIC in support of its prayer.
WHEREFORE, this petition is hereby GRANTED and the complaint against CBIC is DISMISSED for lack of merit. The January 29, 2004 Decision
and October 28, 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 58001 is MODIFIED insofar as it affirmed CBICs liability on Surety
Bond No. G (16) 29419 and Endorsement No. 33152.
SO ORDERED.