13 - Inter-Asia Investments Inc. vs. CA

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THIRD DIVISION

[G.R. No. 125778. June 10, 2003]

INTER-ASIA INVESTMENTS INDUSTRIES, INC., petitioner, vs. COURT


OF APPEALS and ASIA INDUSTRIES, INC., respondents.

DECISION
CARPIO-MORALES, J.:

The present petition for review on certiorari assails the Court of Appeals


Decision  of January 25, 1996 and Resolution  of July 11, 1996.
[1] [2]

The material facts of the case are as follows:


On September 1, 1978, Inter-Asia Industries, Inc. (petitioner), by a Stock Purchase
Agreement  (the Agreement), sold to Asia Industries, Inc. (private respondent) for and
[3]

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).  The Agreement
[4]

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


FARMACORs 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;
 and that if the amount retained is not sufficient to make up for the deficiency in the
[8]
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 P 12,000,000.00: 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  dated November 28, 1978 submitted by SGV, it appears that FARMACOR had,
[11]

for the ten months ended October 31, 1978, a deficit of P11,244,225.00.  Since the [12]

stockholders 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.
Petitioner thereafter proposed, by letter  of January 24, 1980, signed by its
[13]

president, that private respondents 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, weiched on its promise. Petitioners total liability thus stood at
P4,853,503.00 (P4,093,993.00 plus P759,570.00)  exclusive of interest.
[14] [15]

On April 5, 1983, private respondent filed a complaint  against petitioner with the
[16]

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  plus interest.
[17]

Denying private respondents 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,  the dispositive portion of which reads:
[18]

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  plus interest
[19]

thereon at the legal rate from the filing of the complaint until fully paid, the sum of
P30,000.00 as attorneys 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:

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 ATTORNEYS 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 courts


decision. Petitioners 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:
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 ATTORNEYS FEES AND IN SUSTAINING THE DISMISSAL OF THE
COUNTERCLAIM.  (Underscoring in the original)
18

Petitioner argues that the January 24, 1980 letter-proposal (for the reduction of
private respondents claim for refund upon petitioners 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 petitioners president is valid and binding. The
case of Peoples Aircargo and Warehousing Co., Inc. v. Court of Appeals  instructs:
19

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 x x
x powers, attributes and properties expressly authorized by law or incident to its
existence.

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:

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 x x x.

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:

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.

xxx

[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 act(s) executed either in
its favor or in favor of other parties. It is not
the quantity of similar acts whichestablishes apparent authority, but
the vesting of a corporate officer with power to bind the corporation.

x x x (Emphasis and underscoring 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;  and that it should not be bound by the SGV Report
[22]

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.
This Court is not persuaded either.
The pertinent provisions of the Agreement read:

7. Warranties and Representations - (a) SELLER warrants and represents as


follows:

xxx

(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 beingprepared by SGV pursuant to paragraph 6(b) fairly pres
ent 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.

x x x (Underscoring 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 petitioners assigned error on the award of attorneys fees which, it argues, is


bereft of factual, legal and equitable justification, this Court finds the same well-taken.

On the matter of attorneys fees, it is an accepted doctrine that the award thereof as an
item of damages is the exception rather than the rule, and counsels fees are not to be
awarded every time a party wins a suit. The power of the court to award
attorneys fees under Article 2208 of the Civil Code demands
factual, legal and equitable justification, without which the award is
a conclusion without apremise, 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 attorneys fees. [25]

x x x (Emphasis and underscoring 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
attorneys fees in favor of private respondent is deleted. The decision is affirmed in other
respects.
SO ORDERED.
Puno, (Chairman), Panganiban, Sandoval-Gutierrez, and Corona, JJ., concur.

[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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