Case Summary (G.R. No. L-74623)
Background and Factual Synopsis
BISTRANCO has operated shipping vessels with Butuan City as one of its ports. Marciano Sanchez was initially an employee (quartermaster) before ceasing employment in 1959 to render stevedoring services for BISTRANCO vessels. In 1975, Sanchez was appointed as BISTRANCO’s shipping agent in Butuan City, a role he retained upon his formal engagement via a Contract of Agency (July 27, 1976) and a Supplemental Shipping Agency Contract (July 30, 1976), both signed by the court-appointed Receiver, Atty. Adolfo V. Amor, but never submitted for court approval. Sanchez invested heavily in operational facilities—including leasing land, building a wharf and warehouse, maintaining employees, vehicles, and advertising—to support the shipping agency. His efforts significantly increased BISTRANCO’s shipping business in Butuan City.
Legal Issue on Receiver’s Authority to Contract Without Court Approval
Under Section 7, Rule 59 of the Rules of Court, a court-appointed receiver acts subject to court control and requires court authorization for acts relating to the property in receivership. The Receiver, without court approval, entered into the agency contracts with Sanchez. The Supreme Court ruled that such contracts are not absolutely void but unenforceable for lack of court approval, pursuant to Article 1403, paragraph 1 of the Civil Code. This accords with jurisprudence prohibiting a receiver from contracting without court authority.
Validity and Effect of the Agency Contracts
The Contracts' cause, object, or purpose were legitimate, creating a shipping agency relationship beneficial to both parties, and not contrary to law or public policy, thus not void under Article 1409 of the Civil Code. Despite the lack of initial court approval, BISTRANCO’s subsequent conduct amounted to ratification of these contracts. This is shown by BISTRANCO’s continued acceptance and enjoyment of benefits thereunder, explicit acknowledgement through letters from its Executive Vice-President, and sanctioning by succeeding receiver and company officers. The legal doctrine of estoppel further precludes BISTRANCO from repudiating the contracts after acceptance of the benefits.
Effect of Subsequent Working Agreements on Original Contracts
Petitioners argued that the Memorandum of Agreement and a subsequent Working Agreement novated and replaced the original Contracts by modifying commissions, payment modes, and duration. However, the Supreme Court clarified that novation must entail explicit substitution extinguishing the prior contract. Mere modifications or suspensions of terms do not amount to novation, particularly in the absence of manifest incompatibility between the contracts. The Agreements merely suspended certain provisions temporarily without extinguishing the original Contracts, which remained effective until their expiry date on July 27, 1981.
Breach by Opening a Branch Office and Its Legal Consequences
BISTRANCO opened its own branch office in Butuan City effective January 1, 1980, effectively competing against Sanchez and impairing his agency business. This conduct breached Paragraph 6 of the Supplemental Agency Contract, which prohibited BISTRANCO from appointing or employing another agent in Butuan City or nearby towns without Sanchez’s written consent. Although no express clause prohibited opening a branch office, the contractual obligation implied good faith and protection of Sanchez’s investment and agency exclusivity. The Court held that the opening of the branch office was a violation of the Contracts since it resulted in direct competition and undermined Sanchez’s agency, which was the agreed means for him to fulfill his obligations and earn commissions.
Justification for Award of Unearned Commissions and Damages
Considering the breach, the award of ₱588,000.00 for unearned commissions and damages was justified. Sanchez had documented average monthly commissions increasing substantially prior to the breach, evidencing projected earnings diminished by BISTRANCO’s repudiation. The dama
Case Syllabus (G.R. No. L-74623)
Nature of the Case and Procedural History
- Petition for certiorari to review the decision of the Intermediate Appellate Court dated April 25, 1986.
- The Intermediate Appellate Court affirmed the decision of the Regional Trial Court (RTC), Cebu City, Branch XII, dated February 14, 1983, in Civil Case No. R-18830.
- The RTC decision involved a suit for Specific Performance with Preliminary Injunction and Damages filed by private respondent Marciano Sanchez against petitioner Bisaya Land Transportation Co., Inc. (BISTRANCO).
- Petitioners are challenging the validity and enforceability of agency contracts executed between the parties and the opening of a competing branch office.
Factual Background
- BISTRANCO is engaged in the passenger-cargo shipping business with vessels calling at Butuan City.
- Marciano Sanchez initially worked as a quartermaster for BISTRANCO in 1954 and later rendered stevedoring services for its vessels.
- In May 1975, Sanchez was appointed as shipping agent for BISTRANCO’s vessel M/V Don Mariano in Butuan City.
- On March 12, 1976, while BISTRANCO was under receivership, Sanchez was appointed acting shipping agent for additional vessels M/V Dona Remedios and M/V Dona Filomena by the court-appointed receiver, Atty. Adolfo V. Amor.
- Sanchez initially received commissions of 10% for freight and passenger revenues, and 5% for freight going to Butuan, similar to his predecessor.
- On July 27, 1976, a formal Contract of Agency (Exhibit "F") and a Supplemental Shipping Agency Contract (Exhibit “G”) were executed between Sanchez and BISTRANCO, but these were never submitted for court approval as required under receivership rules.
- Sanchez conducted agency operations with substantial investment: leasing land for wharf facilities, constructing a wharf, a bodega, leasing an office, employing 13 employees, and operating trucks and a jeep for the agency.
- Business grew significantly under Sanchez's management, with monthly commissions increasing from about P8,535 in 1975 to approximately P32,000 in late 1979.
- On December 26, 1979, petitioner Benjamin G. Roa wrote Sanchez that BISTRANCO would open its own branch office in Butuan City, effective January 1, 1980.
- Sanchez submitted proposals during a Board meeting but these were rejected.
- Sanchez filed suit on December 28, 1979, for specific performance, claiming repudiation of the agency contracts by BISTRANCO’s opening of the branch office.
- BISTRANCO’s opening of the branch office impaired Sanchez’s ability to operate effectively as an agent, leading to diminished commissions and business undermining.
Issues Presented for Resolution
- Whether a court-appointed receiver can validly enter into a contract without court approval.
- Whether BISTRANCO’s opening of a branch office in Butuan City violated the agency contracts, assuming their validity.
- The effect of the Memorandum of Agreement and Working Agreement (Exhibits “S” and “U”) on the questioned contracts.
- Whether the award of unearned commissions and damages to Sanchez is justified.
Legal Analysis on Validity and Enforceability of Contracts Entered by Receiver
- Section 7, Rule 59 of the Rules of Court provides that a receiver’s acts must be authorized by the court.
- The act of entering into agency contracts by Receiver Amor was not specifically authorized by the receivership court.
- Jurisprudence holds that contracts entered by a receiver without court approval are invalid or unenforceable.
- BISTRANCO argued the contracts were either void under Article 1409(1) (contrary to law or public order) or unenforceable under Article 1403(1) of the Civil Code (entered without authority).
- Review of the contracts