Bacaltos Coal Mines v. Court of Appeals, G.R. No. 114091, June 29, 1995

Summary: BACALTOS COAL MINES authorized Savellon to use the Company's coal operating contract for any legitimate purpose it may serve. Savellon then entered into a Trip Charter Party with SMC. Under the contract, 3 round trips to Davao should be made, but only 1 trip was made. SMC filed against BACALTOS COAL MINES, German Bacaltos and Savellon a complaint for specific performance and damages.

BACALTOS argued that Savellon was not its COO and that the powers granted to him are only those clearly expressed in the Authorization which do not include the power to enter into any charter contract.

RTC ruled in favor of SMC and declared all the defendants jointly and severally liable to SMC. CA affirmed the decision.

SC, however, modified the RTC decision and made Savellon alone liable to SMC. SC stated that the Authorization is a special power of attorney. It specifically authorizes the performance of a specific power and of express acts subsumed therein.  SC opined that had SMC exercised due diligence and prudence, it would have known that there is absolutely nothing on the face of the Authorization that confers upon Savellon the authority to enter into any Trip Charter Party.

Doctrine: Every 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 inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it.

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Ponente: DAVIDE, JR., J.

Facts:

October 19, 1988:  A Trip Charter Party was executed between BACALTOS COAL MINES, represented by its COO RENE ROSEL SAVELLON and SMC, represented by its SAVP and Director Francisco B. Manzon, Jr. Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of the vessel M/V Premship II and that for P650,000.00 to be paid within 7 days after the execution of the contract, it "lets, demises" the vessel to charterer SMC "for three round trips to Davao."

As payment of the aforesaid consideration, SMC issued a check payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellon issued a receipt under the heading of BACALTOS COAL MINES.

The vessel was able to make only one trip. Its demands to comply with the contract having been unheeded, SMC filed against the petitioners and Rene Savellon a complaint for specific performance and damages.

BACALTOS et al Answer:

- Savellon was not their COO and that the powers granted to him are only those clearly expressed in the Authorization which do not include the power to enter into any contract with SMC.

- also if it is true that SMC entered into a contract with them, it should have issued the check in their favor.

Savellon did not file his Answer and was declared in default.

RTC Cebu ruled in favor of SMC and ordered the petitioners and Savellon, jointly and severally, to pay to SMC P433k by way of reimbursement plus 12% interest plus damages.

- the Authorization given by German Bacaltos to Savellon necessarily included the power to enter into the Trip Charter Party.

- BACALTOS' claim that the authorization refers only to coal or coal mining and not to shipping is untenable because the business of coal mining may also involve the shipping of its products.

BACALTOS appealed.

CA, however, affirmed in toto the judgment of the trial court.

- the credentials of Savellon is not an issue since the petitioners impliedly admitted the agency while the ownership of the vessel was warranted on the face of the Trip Charter Party;

- also, SMC was not negligent when it issued the check in the name of Savellon in trust for Bacaltos Coal Mines since the Authorization clearly provides that collectibles of the petitioners can be coursed through Savellon as the agent;

- the Authorization includes the power to enter into the Trip Charter Party because the "five prerogatives" enumerated in the former is prefaced by the phrase "but not by way of limitation";

- the petitioners' statement that the check should have been issued in the name of Bacaltos Coal Mines is another implicit admission that the Trip Charter Party is part and parcel of the petitioners' business notwithstanding German Bacaltos's contrary interpretation when he testified, and in any event, the construction of obscure words should not favor him since he prepared the Authorization in favor of Savellon

Their MR having been denied, the petitioners filed the instant petition.

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Issue: Whether Savellon was duly authorized by the petitioners to enter into the Trip Charter Party under and by virtue of an Authorization dated 1 March 1988.

Held: No.

Every 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 inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it.

In the instant case, since the agency of Savellon is based on a written document, the extent and scope of his powers must be determined on the basis thereof. The language of the Authorization is clear. It pertinently states as follows: 

I.             GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use the coal operating contract of BACALTOS COAL MINES, of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows :

(1)          To acquire purchase orders for and in behalf of BACALTOS COAL MINES;

(2)          To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON;

(3)          To collect all receivables due or in arrears from people or companies having dealings under BACALTOS COAL MINES/RENE SAVELLON;

(4)          To extend to any person or company by substitution the same extent of authority that is granted to Rene Savellon;

(5)          In connection with the preceeding paragraphs to execute and sign documents, contracts, and other pertinent papers.

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There is only one express power granted to Savellon, viz., to use the coal operating contract for any legitimate purpose it may serve. The enumerated "five prerogatives" — to employ the term used by the CA — are nothing but the specific prerogatives subsumed under or classified as part of or as examples of the power to use the coal operating contract. The clause "but not by way of limitation" which precedes the enumeration could only refer to or contemplate other prerogatives which must exclusively pertain or relate or be germane to the power to use the coal operating contract. The conclusion then of the CA that the Authorization includes the power to enter into the Trip Chapter Party because the "five prerogatives" are prefaced by such clause, is seriously flawed. It fails to note that the broadest scope of Savellon's authority is limited to the use of the coal operating contract and the clause cannot contemplate any other power not included in the enumeration or which are unrelated either to the power to use the coal operating contract or to those already enumerated. In short, while the clause allows some room for flexibility, it can comprehend only additional prerogatives falling within the primary power and within the same class as those enumerated.

The Authorization is not a general power of attorney. It is a special power of attorney for it refers to a clear mandate specifically authorizing the performance of a specific power and of express acts subsumed therein.  It provides clear parameters of the powers granted in the Authorization.

Had SMC exercised due diligence and prudence, it should have known in no time that there is absolutely nothing on the face of the Authorization that confers upon Savellon the authority to enter into any Trip Charter Party. Its conclusion to the contrary is based solely on the second prerogative under the Authorization, to wit:

(2)          To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON;

unmindful that such is but a part of the primary authority to use the coal operating contract which it did not even require Savellon to produce. Its principal witness, Mr. Valdescona, expressly so admitted on cross-examination.

Since the principal subject of the Authorization is the coal operating contract, SMC should have required its presentation to determine what it is and how it may be used by Savellon. Such a determination is indispensable to an inquiry into the extent or scope of his authority.

A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of 1976), as amended by P.D. No. 1174. It is one of the authorized ways of active exploration, development, and production of coal resources in a specified contract area. Section 9 of the decree prescribes the obligation of the contractor, thus:

Sec. 9.   Obligations of Operator in Coal Operating Contract. — The operator under a coal operating contract shall undertake, manage and execute the coal operations which shall include:

(a)          The examination and investigation of lands supposed to contain coal, by detailed surface geologic mapping, core drilling, trenching, test pitting and other appropriate means, for the purpose of probing the presence of coal deposits and the extent thereof;

(b)          Steps necessary to reach the coal deposit so that it can be mined, including but not limited to shaft sinking and tunneling; and

(c)           The extraction and utilization of coal deposits.

The Government shall oversee the management of the operation contemplated in a coal operating contract and in this connection, shall require the operator to:

(a)          Provide all the necessary service and technology;

(b)          Provide the requisite financing;

(c)           Perform the work obligations and program prescribed in the coal operating contract which shall not be less than those prescribed in this Decree;

(d)          Operate the area on behalf of the Government in accordance with good coal mining practices using modern methods appropriate for the geological conditions of the area to enable maximum economic production of coal, avoiding hazards to life, health and property, avoiding pollution of air, lands and waters, and pursuant to an efficient and economic program of operation;

(e)          Furnish the Energy Development Board promptly with all information, data and reports which it may require;.

(f)           Maintain detailed technical records and account of its expenditures;

(g)          Conform to regulations regarding, among others, safety demarcation of agreement acreage and work areas, non-interference

with the rights of the other petroleum, mineral and natural resources operators; —

(h)          Maintain all necessary equipment in good order and allow access to these as well as to the exploration, development and production sites and operations to inspectors authorized by the Energy Development Board;

(i)            Allow representatives authorized by the Energy Development Board full access to their accounts, books and records for tax and other fiscal purposes.

Section 11 thereof provides for the minimum terms and conditions of a coal operating contract.

From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines would have provided SMC knowledge of the activities which are germane, related, or incident to the power to use it. But it did not even require Savellon to produce the same.

SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines owned a vessel. A party desiring to charter a vessel must satisfy itself that the other party is the owner of the vessel or is at least entitled to its possession with power to lease or charter the vessel. In the instant case, SMC made no such attempt. It merely satisfied itself with the claim of Savellon that the vessel it was leasing is owned by Bacaltos Coal Mines and relied on the presentation of the Authorization as well as its test on the sea worthiness of the vessel.

The Authorization itself does not state that Bacaltos Coal Mines owns any vessel, and since it is clear therefrom that it is not engaged in shipping but in coal mining or in coal business, SMC should have required the presentation of pertinent documentary proof of ownership of the vessel to be chartered.

The CA' asseveration that there was no need to verify the ownership of the vessel because such ownership is warranted on the face of the trip charter party begs the question since Savellon's authority to enter into that contract is the very heart of the controversy.

There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The petitioners denied having received it. The evidence for SMC established beyond doubt that it was Savellon who requested in writing on 19 October 1988 that the check in payment therefor be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON and that SMC drew the check in favor of RENE SAVELLON IN TRUST FOR BACALTOS COALMINES and delivered it to Savellon who there upon issued a receipt. SMC committed negligence in drawing the check in the manner aforestated. It even disregarded the request of Savellon that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the transaction was permitted in the Authorization, the check should still have been drawn in favor of the principal. SMC then made possible the wrong done. There is an equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss.  For this rule to apply, the condition precedent is that both parties must be innocent. In the present case, however, SMC is guilty of not ascertaining the extent and limits of the authority of Savellon. In not doing so, SMC dealt with Savellon at its own peril.

WHEREFORE, the instant petition is GRANTED and the challenged decision of the CA is hereby REVERSED and SET ASIDE and another judgment is hereby rendered MODIFYING the judgment of the RTC Cebu by setting aside the declaration of solidary liability, holding RENE R. SAVELLON solely liable for the amounts adjudged, and ordering the dismissal of the case as against herein petitioners.