G.R. No. L-41182-3 - Sevilla vs. Court of Appeals

Case Summary (G.R. No. L-41182-3)

Petitioners

Lina O. Sevilla was the operative manager of the Ermita office. She: (a) retained 4% of airline commissions on bookings she procured (3% went to TWS); (b) was not on TWS payroll and did not receive a fixed salary; (c) contributed to office expenses and supplied some furnishings; (d) was designated “branch manager” as a title of dignity; and (e) was named in the lease (Oct. 19, 1960) as solidarily liable with TWS for prompt payment of monthly rentals.

Respondents

Tourist World Service, Inc. was the lessee under the October 19, 1960 lease of the Mabini premises and maintained other corporate offices. Its board adopted resolutions (Dec. 2, 1961) abolishing the Ermita branch’s managerial office and authorizing corporate officers to take possession. Corporate secretary Gabino Canilao (and representative Eliseo Canilao) physically padlocked the premises on June 4, 1962. Segundina Noguera was the lessor/owner of the premises.

Key Dates

Oct. 19, 1960: Lease executed (TWS as lessee; Noguera as lessor; Sevilla named solidarily liable).
Nov. 24, 1961: TWS received information that Sevilla might be connected with a rival firm.
Dec. 2, 1961: TWS board resolutions abolishing the manager’s office and authorizing recovery of branch properties.
Jan. 3, 1962: TWS purportedly terminated the contract for the branch premises (effectivity Jan. 31, 1962), though the branch ceased operations earlier and Sevilla continued using premises from Nov. 1961.
June 4, 1962: Corporate secretary padlocked the Ermita office after finding it locked and unable to contact Sevilla.
Subsequent procedural activity: dismissal without prejudice by trial court, reconsideration orders permitting counterclaims, refiling (June 17, 1963), trial and appeal, and final Supreme Court decision resolving liability and damages.

Applicable Law and Authorities

Constitution: 1987 Philippine Constitution (governing period after promulgation).
Civil Code provisions cited in the opinion: Art. 1868 (agency), Art. 21 (liability for willful acts contrary to morals/good customs/public policy), Art. 2219(10) (moral damages in cases under Art. 21), Art. 2220 (moral damages for bad faith breach), Art. 2221 (nominal damages), Art. 2224 (temperate damages), Art. 2232 (exemplary damages).
Labor statutes referenced for jurisdictional context: Rep. Act No. 875 and amendments; Rep. Act No. 1052 and Rep. Act No. 1787 (regarding jurisdiction over labor disputes).
Judicial tests and authorities: right-of-control test for employer-employee relationship (LVN Pictures, Inc. v. Philippine Musicians Guild) and consideration of economic factors such as payroll inclusion (Visayan Stevedore Trans. Co. v. C.I.R.). Treatises cited for partnership/joint venture distinctions (Bautista, Campos) and agency coupled with an interest (Padilla).

Facts Relevant to Legal Determination

TWS opened an Ermita branch which Sevilla ran, soliciting airline bookings and retaining commissions. She was not on TWS payroll, retained a fluctuating commission as compensation, and signed the lease as solidarily liable for rent. TWS’s corporate acts after learning of Sevilla’s alleged connection with a rival included board resolutions to abolish the manager’s office, termination of the lease, and later unilateral padlocking of the premises and disconnection/condonation of telephone service. Sevilla and her employees were thereby deprived of access and telephone service, prompting suit for injunction and damages; TWS and Noguera answered with counterclaims.

Procedural Posture and Issues Presented

The trial court dismissed the cases for lack of merit and found Sevilla to be an employee subject to employer acts; the Court of Appeals affirmed. The Supreme Court was called upon to resolve: (1) the true legal relation between Sevilla and TWS (employee, agent, joint venturer, or partner); (2) whether TWS or its officers unilaterally disconnected telephone service and padlocked the premises; and (3) whether padlocking and other acts were actionable, including entitlement to damages under Civil Code provisions on human relations and bad faith.

Trial Court and Court of Appeals Findings

The trial court concluded that TWS, as the true lessee, had prerogative to terminate and to padlock the premises and that Sevilla was an employee (branch manager) bound by her employer’s acts. The Court of Appeals affirmed this view and focused chiefly on the telephone disconnection and padlocking incidents.

Supreme Court’s Standard for Employment and Nature of Relationship

The Court emphasized established Philippine tests: the right-of-control test (whether the principal reserved control of both results and means) and economic indicators (payroll inclusion, fixed salary). Titles alone are weak indicators. The Court examined the record facts against these tests and authorities (LVN Pictures; Visayan Stevedore).

Supreme Court’s Determination of Relationship: Agent Coupled with an Interest

Applying the tests and factual findings, the Supreme Court held that Sevilla was not a mere employee: she was not on payroll, she exercised independent control in soliciting clients and bookings, she earned commissions rather than a fixed salary, and she assumed personal financial obligations (solidary liability on the lease, contribution to expenses). These facts rebut the right-of-control test and employment economic markers. The Court rejected Sevilla’s characterization of a joint venture/partnership because there was no parity of proprietary interest, no mutual representation as partners, and the branch bore TWS signage. Taking these together, the Court declared the relationship a principal-agent relation; specifically, an agency coupled with an interest (an agency created for the mutual interest of agent and principal and one that cannot be revoked at pleasure). The agency was consistent with the parties’ intent and Sevilla’s personal stake in the business and equipment.

Analysis of Padlocking and Telephone Disconnection

The Court found error in the Court of Appeals’ narrow treatment. Even if TWS did not directly disconnect the telephone lines, it condoned the disconnection and, as owner of the telephone lines, bore responsibility for failing to restore them. The padlocking on June 4, 1962—carried out without notice and after TWS had terminated the lease months earlier—was an unwarranted, summary ouster of an occupant who had a protected interest. TWS could not unilaterally revoke an agency coupled with an interest without notice or lawful process and then physically take possession; such conduct was improper and indicative of bad faith, especially in light of board resolutions and subsequent conduct that suggested punitive intent following allegations that Sevilla h

Case Syllabus (G.R. No. L-41182-3)

Citation and Panel

Reported at 243 Phil. 340, Second Division, G.R. Nos. L-41182-3, decided April 15, 1988.
Decision authored by Justice Sarmiento; Justices Yap (Chairman), Melencio-Herrera, Paras, and Padilla concurred.

Parties and Roles

Petitioners-Appellants: Dr. Carlos L. Sevilla and Lina O. Sevilla.
Respondents-Appellees: The Court of Appeals (as respondent in the certiorari petition), Tourist World Service, Inc. (TWS), Eliseo S. Canilao, and Segundina Noguera.
Trial court: Court of First Instance of Manila, Branch XIX, Presiding Judge Montesa, Agustin.
Appellate Court panel: Justices Gaviola, Jr., Ramon; Reyes, Luis; De Castro, Pacifico.

Procedural Posture and Relief Sought

Petitioners invoked provisions on human relations of the Civil Code, specially Articles 19, 20 and 21.
Appellants sought damages and injunctive relief following forcible dispossession/padlocking and telephone disconnection of the Ermita (A. Mabini St.) branch office.
Trial court ordered dismissal for lack of merit; Court of Appeals affirmed.
Petitioners elevated the matter by certiorari to the Supreme Court challenging the Court of Appeals’ ruling and seeking reversal and damages.
Supreme Court reversed and set aside the Court of Appeals decision and ordered monetary damages against TWS and Eliseo Canilao jointly and severally; Segundina Noguera absolved of liability.

Factual Background — Contract, Operations, and Financial Arrangement

Lease agreement dated October 19, 1960 (Exhibit A / Exhibit 2) between:
- Segundina Noguera (party of the first part / lessor) — owner of premises at A. Mabini St., Manila;
- Tourist World Service, Inc. (party of the second part / lessee) represented by Eliseo Canilao;
- Lina O. Sevilla was named and held herself "solidarily liable" with TWS for prompt payment of monthly rental (party of the third part under the contract).
Purpose: TWS leased the premises for use as its Ermita branch office.
Operational arrangement as described in the records:
- Appellant Lina Sevilla "ran" the Ermita branch office when opened.
- Commission split for airline fares procured by Sevilla: 7% total from airline companies with 4% retained by Lina Sevilla and 3% remitted/withheld by Tourist World Service, Inc.
- TWS had a separate main office at the Trade & Commerce Building; Lina was not on TWS payroll.
- Lina paid certain branch expenses (salary of an office secretary, some furniture and sundry expenses); TWS shouldered rent and other expenses in consideration for the 3% split.
- Lina was styled "branch manager" for appearance/dignity only, according to testimony and admissions.
Timeline of key events:
- On or about November 24, 1961 (Exhibit 16) TWS was informed Lina was connected with a rival firm (Philippine Travel Bureau).
- December 2, 1961: Two board resolutions of TWS (Exhibits 12 and 13): one abolishing the office of the manager and vice-president of the Ermita Branch; another authorizing the corporate secretary to receive properties located at the branch.
- January 3, 1962: TWS terminated the contract with appellees for use of the branch office; effectivity was January 31, 1962, but appellees no longer used the premises; appellants used it since November 1961.
- June 4, 1962: Corporate secretary Gabino Canilao padlocked the premises after finding it locked and unable to contact Lina Sevilla; telephone lines were disconnected at some point and not reconnected by TWS.
- Appellants filed complaint seeking mandatory preliminary injunction and damages; appellees answered with counterclaims.

Procedural History at Trial and on Appeal

Initial complaint filed; case ordered dismissed without prejudice for apparent lack of interest of parties.
Segundina Noguera sought reconsideration; court granted her motion (order dated June 8, 1963) allowing her to present evidence in support of counterclaim.
Lina Sevilla refiled on June 17, 1963; reinstated counterclaim of Noguera and new complaint were jointly heard.
Trial court (Court of First Instance) ordered dismissal for lack of merit.
Court of Appeals affirmed dismissal, focusing on telephone disconnection and padlocking incidents.
Petitioners brought the matter to the Supreme Court by certiorari, assigning errors and contesting the characterization of the parties’ relationship and the lawfulness of TWS’s acts.

Issues Presented and Framed by the Supreme Court

Whether TWS unilaterally disconnected the telephone line at the Ermita branch office.
Whether the padlocking of the office by TWS (through its corporate secretary) was actionable.
Whether the lessee of the office premises was TWS alone, or TWS and Lina Sevilla (i.e., whether Lina had such interest as to prevent unilateral ouster).
Whether the relationship between Lina Sevilla and TWS was that of employer-employee, joint venture/partnership, or agency (and if agency, whether such agency was coupled with an interest and thus not revocable at will).
Whether TWS and Eliseo Canilao must answer in damages for their acts, and whether Segundina Noguera participated in or connived in those acts.

Petitioners’ Contentions (Selected and as Presented)

Petitioners invoked Civil Code provisions on human relations (Arts. 19–21) and alleged bad faith, moral injury, and unlawful acts depriving Lina of her business.
Lina O. Sevilla claimed a joint business venture with TWS at the Ermita branch, not an employer-employee relationship, citing:
- Her prior independent travel business and clientele drawn from social circle.
- Her signature to the lease dated October 19, 1960, making her solidarily liable for rent.
- She did not receive salary; she was not included in TWS payroll or main office operations.
- Commission arrangement: she retained 4% for her own passengers and gave 3% to TWS.
- Shared expenses for the branch; she supplied furniture and paid a secretary’s salary.
- The title "branch manager" was essentially a dignity/title only.
Petitioners argued padlocking and telephone cut-off were unfair self-help measures and that TWS and Canilao acted in bad faith.

Respondents’ Contentions (Selected)

Tourist World Service, Inc. contended Lina was a mere employee of TWS designated as branch manager and thus bound by her employer’s acts.
TWS asserted its prerogative as the named lessee to terminate the lease and to secure its premises.

Trial Court and Court of Appeals Findings (as recited)

Trial court found TWS to be the true lessee and held that it was within its prerogative to terminate the lease and padlock the premises.
Trial court found Lina Sevilla to be more of an employee of Tourist World Service, Inc.; being an employee, she was bound by acts of her employer.
Court of Appeals affirmed the trial court’s dismissal and confined its crucial issue mostly to whether padlocking and telephone disconnection entitled Lina to damages and whether evidence supported unilateral disconnection by TWS.
Court of Appeals opined there was no evidence that TWS disconnected the telephone lines.

Legal Tests and Authorities Applied by the Supreme Court

Right-of-control test: employment is determined in general by whether the person for whom services are performed reserves the right to control not only the result but the means used to achieve it. (Citing LVN Pictures, Inc. v. Philippine Musicians Guild.)
Economic conditions and labels: In addition to control, economic indicators such as inclusion in payrolls were considered (citing Visayan Stevedore Trans. Co. v. C.I.R.).
Agency defined by the Civil Code (art. 1868): e