THE MANILA REMNANT CO., INC vs. THE HONORABLE COURT OF APPEALS, OSCAR VENTANILLA, JR. and CARMEN GLORIA DIAZ

FACTS:

            Petitioner Manila Remnant Co., Inc. is the owns parcels of land situated in Quezon City and constituting the Capital Homes Subdivision Nos. I and II. Manila Remnant and A.U. Valencia & Co. Inc. entered into a contract entitled "Confirmation of Land Development and Sales Contract" to formalize a prior verbal agreement whereby  A.U. Valencia and Co., Inc. was to develop the aforesaid subdivision for a consideration of 15.5% commision. At that time the President of both A.U. Valencia and Co. Inc. and Manila Remnant Co., Inc. was Artemio U. Valencia. Manila Remnant thru A.U. Valencia and Co. executed two "contracts to sell" covering Lots 1 and 2 of Block 17 in favor of Oscar C. Ventanilla and Carmen Gloria Diaz. Ten days after the signing of the contracts with the Ventanillas, Artemio U. Valencia, without the knowledge of the Ventanilla couple, sold Lots 1 and 2 of Block 17 again, to Carlos Crisostomo, one of his sales agents without any consideration. Artemio Valencia then transmitted the fictitious Crisostomo contracts to Manila Remnant while he kept in his files the contracts to sell in favor of the Ventanillas. All the amounts paid by the Ventanillas were deposited in Valencia's bank account. Upon orders of Artemio Valencia, the monthly payments of the Ventanillas were remitted to Manila Remnant as payments of Crisostomo for which the former issued receipts in favor of Crisostomo.

General Manager Karl Landahl, wrote Artemio Valencia informing him that Manila Remnant was terminating its existing collection agreement with his firm on account of the considerable amount of discrepancies and irregularities. As a consequence, Artemio Valencia was removed as President by the Board of Directors of Manila Remnant. Therefore, Valencia stopped transmitting Ventanilla's monthly installments. A.U. Valencia and Co. sued Manila Remnant to impugn the abrogation of their agency agreement. The court ordered all lot buyers to deposit their monthly amortizations with the court. But A.U. Valencia and Co. wrote the Ventanillas that it was still authorized by the court to collect the monthly amortizations and requested them to continue remitting their amortizations with the assurance that said payments would be deposited later in court. 

Thereafter, the trial court issued an order prohibiting A.U. Valencia and Co. from collecting the monthly installments. Valencia complied with the court's order of submitting the list of all his clients but said list excluded the name of the Ventanillas. Manila Remnant caused the publication in the Times Journal of a notice cancelling the contracts to sell of some lot buyers. To prevent the effective cancellation of their contracts, Artemio Valencia filed a complaint for specific performance with damages against Manila Remnant

The Ventanillas, believing that they had already remitted enough money went directly to Manila Remnant and offered to pay the entire outstanding balance of the purchase price. Unfortunately, they discovered from Gloria Caballes that their names did not appear in the records of A.U. Valencia and Co. as lot buyers. Also, Manila Remnant refused the offer of the Ventanillas to pay for the remainder of the contract price. The Ventanillas then commenced an action for specific performance, annulment of deeds and damages against Manila Remnant, A.U. Valencia and Co. and Carlos Crisostomo.

The trial court found that Manila Remnant could have not been dragged into this suit without the fraudulent manipulations of Valencia. Subsequently, Manila Remnant and A.U. Valencia and Co. elevated the lower court's decision to the Court of Appeals through separate appeals. On October 13, 1987, the Appellate Court affirmed in toto the decision of the lower court. Reconsideration sought by petitioner Manila Remnant was denied, hence the instant petition.

ISSUE: 

          Whether or not petitioner Manila Remnant should be held solidarily liable together with A.U. Valencia and Co. and Carlos Crisostomo for the payment of moral, exemplary damages and attorney's fees in favor of the Ventanillas

HELD:

            YES. In the case at bar, the Valencia realty firm had clearly overstepped the bounds of its authority as agent — and for that matter, even the law — when it undertook the double sale of the disputed lots. Such being the case, the principal, Manila Remnant, would have been in the clear pursuant to Article 1897 of the Civil Code which states that "(t)he agent who acts as such is not personally liable to that party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers." However, the unique relationship existing between the principal and the agent at the time of the dual sale must be underscored. Bear in mind that the president then of both firms was Artemio U. Valencia, the individual directly responsible for the sale scam. Hence, despite the fact that the double sale was beyond the power of the agent, Manila Remnant as principal was chargeable with the knowledge or constructive notice of that fact and not having done anything to correct such an irregularity was deemed to have ratified the same. More in point, we find that by the principle of estoppel, Manila Remnant is deemed to have allowed its agent to act as though it had plenary powers.

                Article 1911 of the Civil Code provides: "Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers." In such a situation, both the principal and the agent may be considered as joint feasors whose liability is joint and solidary (Verzosa vs. Lim, 45 Phil. 416). In essence, therefore, the basis for Manila Remnant's solidary liability is estoppel which, in turn, is rooted in the principal's neglectfulness in failing to properly supervise and control the affairs of its agent and to adopt the needed measures to prevent further misrepresentation. As a consequence, Manila Remnant is considered estopped from pleading the truth that it had no direct hand in the deception employed by its agent. That the principal might not have had actual knowledge of the agent's misdeed is of no moment.