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PHILIPPINE SUPREME COURT DECISIONS

THIRD DIVISION

[G.R. No. 125778. June 10, 2003.]

INTER-ASIA INVESTMENTS INDUSTRIES, INC., Petitioner, v. COURT OF APPEALS and ASIA INDUSTRIES, INC., Respondents.

D E C I S I O N


CARPIO MORALES, J.:


The present petition for review on certiorari assails the Court of Appeals Decision 1 of January 25, 1996 and Resolution 2 of July 11, 1996.cralaw : red

The material facts of the case are as follows:chanrob1es virtual 1aw library

On September 1, 1978, Inter-Asia Industries, Inc. (petitioner), by a Stock Purchase Agreement 3 (the Agreement), sold to Asia Industries, Inc. (private respondent) for and in consideration of the sum of P19,500,000.00 all its right, title and interest in and to all the outstanding shares of stock of FARMACOR, INC. (FARMACOR). 4 The Agreement was signed by Leonides P. Gonzales and Jesus J. Vergara, presidents of petitioner and private respondent, respectively. 5

Under paragraph 7 of the Agreement, petitioner as seller made warranties and representations among which were" (iv.) [t]he audited financial statements of FARMACOR at and for the year ended December 31, 1977 . . . and the audited financial statements of FARMACOR as of September 30, 1978 being prepared by S[ycip,] G[orres,] V[elayo and Co.] . . . fairly present or will present the financial position of FARMACOR and the results of its operations as of said respective dates; said financial statements show or will show all liabilities and commitments of FARMACOR, direct or contingent, as of said respective dates . . ." ; and" (v.) [t]he Minimum Guaranteed Net Worth of FARMACOR as of September 30, 1978 shall be Twelve Million Pesos (P12,000,000.00)." 6

The Agreement was later amended with respect to the "Closing Date," originally set up at 10:00 a.m. of September 30, 1978, which was moved to October 31, 1978, and to the mode of payment of the purchase price. 7

The Agreement, as amended, provided that pending submission by SGV of FARMACOR’s audited financial statements as of October 31, 1978, private respondent may retain the sum of P7,500,000.00 out of the stipulated purchase price of P19,500,000.00; that from this retained amount of P7,500,000.00, private respondent may deduct any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00; 8 and that if the amount retained is not sufficient to make up for the deficiency in the Minimum Guaranteed Net Worth, petitioner shall pay the difference within 5 days from date of receipt of the audited financial statements. 9

Respondent paid petitioner a total amount of P12,000,000.00: P5,000,000.00 upon the signing of the Agreement, and P7,000,000.00 on November 2, 1978. 10

From the STATEMENT OF INCOME AND DEFICIT attached to the financial report 11 dated November 28, 1978 submitted by SGV, it appears that FARMACOR had, for the ten months ended October 31, 1978, a deficit of P11,244,225.00. 12 Since the stockholder’s equity amounted to P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00. The guaranteed net worth shortfall thus amounted to P13,244,225.00 after adding the net worth deficiency of P1,244,225.00 to the Minimum Guaranteed Net Worth of P12,000,000.00.

The adjusted contract price, therefore, amounted to P6,225,775.00 which is the difference between the contract price of P19,500,000.00 and the shortfall in the guaranteed net worth of P13,224,225.00. Private respondent having already paid petitioner P12,000,000.00, it was entitled to a refund of P5,744,225.00.chanrob1es virtua1 1aw 1ibrary

Petitioner thereafter proposed, by letter 13 of January 24, 1980, signed by its president, that private respondent’s claim for refund be reduced to P4,093,993.00, it promising to pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To the proposal respondent agreed. Petitioner, however, welched on its promise. Petitioner’s total liability thus stood at P4,853,503.00 (P4,093,993.00 plus P759,570.00) 14 exclusive of interest. 15

On April 5, 1983, private respondent filed a complaint 16 against petitioner with the Regional Trial Court of Makati, one of two causes of action of which was for the recovery of above-said amount of P4,853,503.00 17 plus interest.

Denying private respondent’s claim, petitioner countered that private respondent failed to pay the balance of the purchase price and accordingly set up a counterclaim.

Finding for private respondent, the trial court rendered on November 27, 1991 a Decision, 18 the dispositive portion of which reads:chanrob1es virtual 1aw library

WHEREFORE, judgment is rendered in favor of plaintiff and against defendant (a) ordering the latter to pay to the former the sum of P4,853,503.00 19 plus interest thereon at the legal rate from the filing of the complaint until fully paid, the sum of P30,000.00 as attorney’s fees and the costs of suit; and (b) dismissing the counterclaim.

SO ORDERED.

On appeal to the Court of Appeals, petitioner raised the following errors:chanrob1es virtual 1aw library

THE TRIAL COURT ERRED IN HOLDING THE DEFENDANT LIABLE UNDER THE FIRST CAUSE OF ACTION PLEADED BY THE PLAINTIFF.

THE TRIAL COURT ERRED IN AWARDING ATTORNEY’S FEES AND IN DISMISSING THE COUNTERCLAIM.

THE TRIAL COURT ERRED IN RENDERING JUDGMENT IN FAVOR OF THE PLAINTIFF, THE ALLEGED BREACH OF WARRANTIES AND REPRESENTATION NOT HAVING BEEN SHOWN, MUCH LESS ESTABLISHED BY THE PLAINTIFF. 20

By Decision of January 25, 1996, the Court of Appeals affirmed the trial court’s decision. Petitioner’s motion for reconsideration of the decision having been denied by the Court of Appeals by Resolution of July 11, 1996, the present petition for review on certiorari was filed, assigning the following errors:chanrob1es virtual 1aw library

I


THE RESPONDENT COURT ERRED IN NOT HOLDING THAT THE LETTER OF THE PRESIDENT OF THE PETITIONER IS NOT BINDING ON THE PETITIONER BEING ULTRA VIRES.

II


THE LETTER CAN NOT BE AN ADMISSION AND WAIVER OF THE PETITIONER AS A CORPORATION.

III


THE RESPONDENT COURT ERRED IN NOT DECLARING THAT THERE IS NO BREACH OF WARRANTIES AND REPRESENTATION AS ALLEGED BY THE PRIVATE RESPONDENT.

IV


THE RESPONDENT COURT ERRED IN ORDERING THE PETITIONER TO PAY ATTORNEY’S FEES AND IN SUSTAINING THE DISMISSAL OF THE COUNTERCLAIM. 18 (Emphasis in the original)chanrob1es virtua1 1aw 1ibrary

Petitioner argues that the January 24, 1980 letter-proposal (for the reduction of private respondent’s claim for refund upon petitioner’s promise to pay the cost of NOCOSII superstructures in the amount of P759,570.00) which was signed by its president has no legal force and effect against it as it was not authorized by its board of directors, it citing the Corporation Law which provides that unless the act of the president is authorized by the board of directors, the same is not binding on it.

This Court is not persuaded.

The January 24, 1980 letter signed by petitioner’s president is valid and binding. The case of People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals 19 instructs:chanrob1es virtual 1aw library

The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct from its stockholders and members, "having . . . powers, attributes and properties expressly authorized by law or incident to its existence."cralaw virtua1aw library

Being a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management, as provided in Section 23 of the Corporation Code of the Philippines:chanrob1es virtual 1aw library

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 . . ..

Under this provision, the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business, viz:chanrob1es virtual 1aw library

A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that [the] authority to do so has been conferred upon him, and this includes powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused person dealing with the officer or agent to believe that it has conferred.

x       x       x


[A]pparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar acts executed either in its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation.

. . . (Emphasis and Italics supplied)

As correctly argued by private respondent, an officer of a corporation who is authorized to purchase the stock of another corporation has the implied power to perform all other obligations arising therefrom, such as payment of the shares of stock. By allowing its president to sign the Agreement on its behalf, petitioner clothed him with apparent capacity to perform all acts which are expressly, impliedly and inherently stated therein. 21

Petitioner further argues that when the Agreement was executed on September 1, 1978, its financial statements were extensively examined and accepted as correct by private respondent, hence, it cannot later be disproved "by resorting to some scheme such as future financial auditing;" 22 and that it should not be bound by the SGV Report because it is self-serving and biased, SGV having been hired solely by private respondent, and the alleged shortfall of FARMACOR occurred only after the execution of the Agreement.chanrob1es virtua1 1aw 1ibrary

This Court is not persuaded either.

The pertinent provisions of the Agreement read:chanrob1es virtual 1aw library

7. Warranties and Representations — (a) SELLER warrants and represents as follows:chanrob1es virtual 1aw library

x       x       x


(iv) The audited financial statements of FARMACOR as at and for the year ended December 31, 1977 and the audited financial statements of FARMACOR as at September 30, 1978 being prepared by SGV pursuant to paragraph 6(b) fairly present or will present the financial position of FARMACOR and the results of its operations as of said respective dates; said financial statements show or will show all liabilities and commitments of FARMACOR, direct or contingent, as of said respective dates; and the receivables set forth in said financial statements are fully due and collectible, free and clear of any set-offs, defenses, claims and other impediments to their collectibility.

(v) The Minimum Guaranteed Net Worth of FARMACOR as of September 30, 1978 shall be Twelve Million Pesos (P12,000,000.00), Philippine Currency.

. . . (Emphasis in the original; Emphasis supplied) 23

True, private respondent accepted as correct the financial statements submitted to it when the Agreement was executed on September 1, 1978. But petitioner expressly warranted that the SGV Reports "fairly present or will present the financial position of FARMACOR." By such warranty, petitioner is estopped from claiming that the SGV Reports are self-serving and biased.

As to the claim that the shortfall occurred after the execution of the Agreement, the declaration of Emmanuel de Asis, supervisor in the Accounting Division of SGV and head of the team which conducted the auditing of FARMACOR, that the period covered by the audit was from January to October 1978 shows that the period before the Agreement was entered into (on September 1, 1978) was covered. 24

As to petitioner’s assigned error on the award of attorney’s fees which, it argues, is bereft of factual, legal and equitable justification, this Court finds the same well-taken.

On the matter of attorney’s fees, it is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsel’s fees are not to be awarded every time a party wins a suit. The power of the court to award attorney’s fees under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the award of attorney’s fees.25cralaw:red

. . . (Emphasis and Italics supplied; Citations omitted)

WHEREFORE, the instant petition is PARTLY GRANTED. The assailed decision of the Court of Appeals affirming that of the trial court is modified in that the award of attorney’s fees in favor of private respondent is deleted. The decision is affirmed in other respects.chanrob1es virtua1 1aw 1ibrary

SO ORDERED.

Puno, Panganiban, Sandoval-Gutierrez and Corona, JJ., concur.

Endnotes:



1. Rollo at 29–42.

2. Id. at 44–45.

3. Records at 9–23.

4. Id. at 10–11.

5. Id. at 22.

6. Id. at 16–17.

7. Exhibits "G-1", "G-2", "G-3" ; Records at 586–593.

8. Ibid.

9. Records at 12.

10. Rollo at 12 and 82.

11. Records at 322–327.

12. Id. at 324–325.

13. Exhibit "G-6" ; Records at 598–604.

14. P4,853,503.00 is the amount prayed for in the complaint but it is noted that the total amount of these figures is P4,853,563.00.

15. Id. at 13; Records at 4.

16. Records at 1–25.

17. See footnote 14.

18. Id. at 757–760.

19. See footnote 14. Plaintiff did not move to reconsider the amount adjudged to it.

20. Rollo at 14.

18. Id. at 15.

19. 297 SCRA 170 (1998).

21. Rollo at 92–93.

22. Id. at 21.

23. Records at 17–18.

24. Transcript of Stenographic Notes, July 27, 1988 at 5.

25. Central Azucarera de Bais v. CA, 188 SCRA 328 (1990).

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