Albaladejo y Cia., S. en C. vs. The Philippine Refining Co.

No liability attaches where the evidence supports a finding of reasonable promptitude in providing transportation and the contract allocates shrinkage to the seller; likewise, the law will not raise a contract by implication against the intention of the parties, and a buyer purchasing on its own account is not an agent under Article 1729 of the Civil Code.

Albaladejo y Cia., S. en C., a limited partnership based in Legaspi, Albay, was engaged in buying and selling copra and general merchandise, while the Visayan Refining Co. operated a coconut-oil factory at Opon, Cebu. Their commercial relationship was governed by a written copra purchase agreement under which Albaladejo supplied copra purchased in Albay and Visayan provided sea transportation to Opon. The Philippine Refining Co. later succeeded to Visayan's rights and liabilities.

Albaladejo y Cia., S. en C., a limited partnership with principal place of business in Legaspi, Albay, was engaged in buying and selling copra and conducting a general mercantile business through agencies and sub-agencies. The Visayan Refining Co., a corporation operating an extensive coconut-oil plant at Opon, Cebu, needed continuous large purchases of copra. On August 28, 1918, the parties executed a Memorandum of Agreement Re Purchase of Copra under which Albaladejo agreed to sell to Visayan, and Visayan agreed to buy, all copra Albaladejo purchased in Albay for one year. The price was the Cebu market price at date of purchase, less sea transportation cost, less shrinkage from delivery to arrival at Opon, plus one-half real per picul if delivered to boats unloading at Opon pier, and plus one real per picul if Albaladejo used its own capital exclusively. Visayan agreed not to appoint another copra agent in Legaspi or buy from any vendor there, to keep Albaladejo advised of prevailing Cebu prices, and to provide sea transportation to Opon, with Albaladejo delivering the copra free on board Visayan's boats or on the pier alongside them. After the one-year term, both parties were satisfied and continued the arrangement by tacit consent until July 9, 1920, when Visayan closed its Opon factory and withdrew from the copra market.

When the contract was originally made, Albaladejo had only its Legaspi establishment, but the large requirements of Visayan justified expansion, and over the next two or three years Albaladejo established some twenty agencies or sub-agencies in various ports and places in Albay and neighboring provinces. After Visayan ceased buying copra, of which Albaladejo was duly notified, the copra already purchased by Albaladejo was gradually shipped out and accepted by Visayan, and over the next eight or ten months the accounts between the parties were liquidated. The last account rendered by Visayan was for April 1921 and showed a balance of P288 in favor of the defendant. On June 25, 1921, Albaladejo wrote the Philippine Refining Co., which had succeeded to Visayan's rights and liabilities, approving the account and expressing no dissatisfaction. About six weeks later, Albaladejo commenced the present action.

In its first cause of action, Albaladejo relied on paragraph 5 of the contract, by which Visayan obligated itself to provide sea transportation to Opon. Albaladejo alleged that from September 1918 until June 1920 it timely advised Visayan of the copra stocks ready for shipment and repeatedly requested vessels, but Visayan culpably and negligently delayed sending boats, causing the copra to remain unnecessarily long in warehouses and to suffer diminishment in weight through shrinkage or excessive drying and consequent loss in value. Albaladejo claimed that the diminishment in weight of all lots sold represented 9,695 piculs and 56 cates, with a value of P201,599.53. The trial judge examined the movements of Visayan's fleet and chartered boats and found that Visayan had used reasonable promptitude in getting the copra out, notwithstanding occasional irregularities due to weather and to inability to dispatch boats to more remote ports. On shrinkage, the trial judge found that copra necessarily shrinks considerably in drying, with intelligent witnesses testifying that shrinkage varies from twenty to thirty per centum of original gross weight; the actual shrinkage shown in all copra delivered was only 8.187 per centum, notably below normal. This was due in part to Albaladejo's buyers sometimes estimating the picul at sixty-eight kilos, or somewhat less, rather than the true weight of 63.25 kilos, which protected Albaladejo from loss. The trial judge also noted that paragraph 2 of the contract expressly placed shrinkage from delivery to arrival at Opon on Albaladejo, and the parties had uniformly settled accounts on that basis.

In the first six months of 1919, Albaladejo found that its transactions with Visayan had not produced reasonable profit, which it attributed to loss of weight or shrinkage from purchase to arrival at Opon. The matter was taken up with Visayan officials, and a bounty amounting to P15,610.41 was paid to Albaladejo by Visayan. Albaladejo alleged that this payment was made on account of shrinkage, for which Visayan admitted liability, and argued that it recognized the justice of Albaladejo's claim with respect to shrinkage in all subsequent transactions. The record also showed that Visayan thereafter on more than one occasion expressly disclaimed liability for such losses.

As a second cause of action, Albaladejo sought P110,000, the alleged amount expended in maintaining and extending its organization after Visayan suspended purchases in July 1920. Albaladejo maintained an expensive organization built chiefly for buying copra and kept it practically intact for nearly a year after the suspension; in October 1920 it even added an agency at Gubat to the twenty or more already existing. Albaladejo alleged that the organization was maintained and extended at the express request or requirement of Visayan, together with repeated assurances that Visayan would soon resume activity as a purchaser of copra. The trial judge found that Albaladejo, as claimed, had incurred expenses at the request of the defendant and upon its representation that Albaladejo would be fully compensated in the future. Instead of allowing the entire amount claimed, the trial judge awarded only thirty per centum of the claim, or P49,626.68, because Albaladejo's copra transactions had amounted in the past to only about thirty per centum of its total business.

• Negligent Transportation and Shrinkage: Plaintiff-appellant Albaladejo y Cia. maintained that the Visayan Refining Co. culpably and negligently failed to provide opportune sea transportation from September 1918 to June 1920, causing copra to remain in warehouses and suffer shrinkage and diminishment in value amounting to 9,695 piculs and 56 cates, valued at P201,599.53.
• Bounty as Recognition of Liability: Plaintiff-appellant alleged that the P15,610.41 bounty paid by Visayan was made on account of shrinkage, for which Visayan admitted liability, and that it recognized the justice of plaintiff's claim for subsequent shrinkage losses.
• Organizational Expenses: Plaintiff-appellant claimed P110,000 for maintaining and extending its copra-buying organization from July 1920 to July 1921, asserting that the expenses were incurred at the express request or requirement of defendant and upon repeated assurances that defendant would soon resume purchasing.
• Principal-Agent Relationship and Article 1729: Plaintiff-appellant contended that the contract created a principal-agent relation and invoked Article 1729 of the Civil Code, which requires the principal to indemnify the agent for damages incurred in carrying out the agency.

• Negligence and Shrinkage (First Cause): Whether the Visayan Refining Co. was negligent in failing to provide opportune transportation, thereby causing the copra to suffer diminishment in weight and value, and whether the trial court erred in absolving defendant from the first cause of action.
• Bounty as Recognition of Future Liability: Whether the P15,610.41 bounty paid by Visayan constituted a recognition of liability for future shrinkage losses.
• Contractual Liability for Organizational Expenses (Second Cause): Whether the expenses incurred by plaintiff in maintaining and extending its copra-buying organization were incurred at the instance or request of defendant, or upon defendant's promise to make the expenditure good, so as to create liability.
• Agency and Article 1729: Whether the contract created a principal-agent relationship between plaintiff and Visayan such that defendant is liable under Article 1729 of the Civil Code to indemnify plaintiff for damages incurred in carrying out the agency.

• Negligence and Shrinkage (First Cause): No. The finding that Visayan used reasonable promptitude and was not negligent is supported by the proof; actual shrinkage of 8.187 per centum was below the normal twenty to thirty per centum, and the contract placed shrinkage from delivery to arrival at Opon on plaintiff.
• Bounty as Recognition of Future Liability: No. The bounty was at most a recognition of an existing claim or a gratuity to encourage plaintiff, not an assumption of future liability for shrinkage.
• Contractual Liability for Organizational Expenses (Second Cause): No. The trade letters did not create a contractual obligation to reimburse organizational expenses; the law will not raise a contract by implication against the intention of the parties.
• Agency and Article 1729: No. The relation was not principal-agent as to copra purchases; plaintiff bought on its own account and retained title until it resold the copra to Visayan, so Article 1729 did not apply.

• Negligence and Shrinkage (First Cause): Paragraph 5 of the contract obligated Visayan to provide sea transportation to Opon. The trial judge examined the movements of Visayan's fleet and chartered boats and found reasonable promptitude, despite occasional irregularities due to weather and inability to dispatch boats to remote ports. This finding that no negligence could properly be imputed to Visayan was supported by the proof. On shrinkage, witnesses testified that copra normally shrinks from twenty to thirty per centum of original gross weight, while the actual shrinkage was only 8.187 per centum, notably below normal. This was partly because Albaladejo's buyers sometimes estimated the picul at sixty-eight kilos or less, rather than the true 63.25 kilos, protecting Albaladejo from loss. Paragraph 2 of the contract expressly provided that shrinkage from delivery to arrival at Opon fell on Albaladejo, and the parties uniformly settled accounts on weight at arrival. No liability therefore arose on the first cause.
• Bounty as Recognition of Future Liability: The P15,610.41 payment was made after Albaladejo complained that its transactions had not been profitable due to shrinkage. The payment was at most a recognition of an existing claim, without any commitment as to future liability. It appeared to be a mere gratuity given to encourage Albaladejo and to assure that its organization would be kept efficient for future activities. No general liability for future losses was assumed, and defendant expressly disclaimed such liability on more than one occasion thereafter.
• Contractual Liability for Organizational Expenses (Second Cause): The sole question was whether Albaladejo's expenses in maintaining and extending its organization from July 1920 to July 1921 were incurred at defendant's instance and request or upon a promise to make the expenditure good. The documentary evidence, chiefly trade letters, did not show such liability. The July 10, 1920 letter stated that if agents kept their organizations intact, the company would endeavor to see that they did not lose in the long run, but this was not a contractual undertaking. The correspondence showed no intention to create contractual liability; Albaladejo must have understood the inducement to be that future profits would compensate it for expenses incurred in keeping its organization intact. The law will not raise a contract by implication against the intention of the parties. Oral testimony did not change the result, and the allegation that the Gubat agency was opened at defendant's special instance and request was not sustained. No bad faith was shown.
• Agency and Article 1729: Albaladejo argued that the contract created a principal-agent relation and invoked Article 1729. The relation was not that of principal and agent as to the purchase of copra. Although Visayan made Albaladejo an instrument for the collection of copra, Albaladejo bought from producers on its own account, and when it turned over the copra to Visayan a second sale was effected. Paragraph 3 stated that Visayan would not appoint another agent in Legaspi, and the trade letters used the term "agents," but this designation was used for convenience and could not dominate the real nature of the agreement. Title to all copra purchased by Albaladejo remained in it until delivered by subsequent sale to Visayan. Article 1729 therefore did not apply.

• Contract not implied against intention of parties — A contract cannot be implied where the parties did not intend to enter into a contractual relation. This principle was applied to the trade letters, holding that expressions of hope for future business and requests for cooperation did not create an obligation to reimburse Albaladejo's organizational expenses.
• Agency distinguished from buyer-seller relationship — A principal-agent relationship requires the agent to act for and in behalf of the principal. Where a party purchases goods on its own account, retains title, and later resells them to the other party, the relationship is that of buyer and seller, not principal and agent, even if the term "agent" is used in the contract or correspondence. Article 1729 of the Civil Code, requiring indemnity to an agent, therefore does not apply.
• Gratuity or recognition of existing claim does not create future liability — A payment made as a gratuity or in recognition of an existing claim, without commitment as to future liability, does not establish an admission of liability for subsequent losses. This principle was applied to the P15,610.41 bounty.
• Contractual allocation of shrinkage and proof of negligence — Where the contract expressly allocates shrinkage from delivery to arrival at destination to the seller, and the evidence shows actual shrinkage below normal and no unreasonable delay in transportation, no negligence or liability arises.

• "The parties could undoubtedly have contracted about it, but there was clearly no intention to enter into contractual relation; and the law will not raise a contract by implication against the intention of the parties." — This states the ratio for rejecting Albaladejo's claim for organizational expenses based on the trade letters.
• "Attentive perusal of the contract is, however, convincing to the effect that the relation between the parties was not that of principal and agent in so far as relates to the purchase of copra by the plaintiff." — This is the Court's canonical holding rejecting the principal-agent theory and the application of Article 1729.
• "The title to all of the copra purchased by the plaintiff undoubtedly remained in it until it was delivered by way of subsequent sale to said company." — This fact underpins the Court's conclusion that the transactions were sales, not agency.
• "At most the payment appears to have been made in recognition of an existing claim, without involving any commitment as to liability on the part of the defendant in the future; and furthermore it appears to have been in the nature of a mere gratuity given by the company in order to encourage the plaintiff and to assure that the plaintiff's organization would be kept in an efficient state for future activities." — This defines the legal effect of the bounty payment and rejects its use as proof of future liability.

• Article 1729, Civil Code — Cited by plaintiff-appellant to require a principal to indemnify an agent for damages incurred in carrying out the agency; it was held inapplicable because the relation between the parties as to copra purchases was not principal and agent.

Johnson, Malcolm, Avanceña, Villamor, Johns and Romualdez, JJ., concur.