Compañia Maritima vs. Allied Free Workers Union

A private auditor's report is inadmissible as evidence of the original records, books of accounts, or reports it summarizes unless the proponent establishes the voluminous character of the underlying records and makes them accessible to the adverse party for cross-examination. The general rule is that an audit made by, or the testimony of, a private auditor is inadmissible as proof of the original records; the exception under Section 2(e), Rule 130 of the Rules of Court applies only when the voluminous character of the records is duly established and the records are made accessible to the adverse party.

The Compañia Maritima, a shipping company, and the Allied Free Workers Union, a newly organized labor union, entered into a written arrastre and stevedoring contract on August 11, 1952, effective for one month from August 12, 1952. The contract stipulated that the company would not be liable for payment of the union's services and that compensation would be paid by the owners and consignees of the cargoes, as was allegedly the practice in the port of Iligan City. The union, having just been organized and desiring work for its members, agreed to this arrangement but later found the stipulation oppressive. The contract was verbally renewed after its one-month term expired, and the union continued performing arrastre and stevedoring work. The parties had been engaged in litigation since 1954, with this being the fifth case elevated to the Supreme Court.

On August 11, 1952, the Compañia Maritima and the Allied Free Workers Union entered into a written contract whereby the union agreed to perform arrastre and stevedoring work for the company's vessels at Iligan City. The contract was effective for one month from August 12, 1952, and stipulated that the company would not be liable for payment of the union's services, with compensation to be paid by the owners and consignees of the cargoes as had been the practice in the port of Iligan City. The union, having just been organized and desiring work for its members, agreed to this arrangement but later found the stipulation oppressive. Arrastre work comprehends the handling of cargo on the wharf or between the establishment of the consignee or shipper and the ship's tackle, while stevedoring refers to the handling of cargo in the holds of the vessel or between the ship's tackle and the holds of the vessel.

The shippers and consignees paid the union for arrastre work but refused to pay for stevedoring service, claiming that the shipowner was obligated to pay because the bill of lading provided that unloading was at the shipowner's expense. The company refused to pay for stevedoring service because the contract explicitly provided that compensation for both arrastre and stevedoring work should be paid by the shippers and consignees. This became a sore point of contention between the parties. Although the contract was disadvantageous to the union, it did not terminate the contract because its members were in dire need of work. Upon expiration of the one-month period, the contract was verbally renewed.

On July 23, 1954, the union sent a letter to the company requesting recognition as the exclusive bargaining unit to load and unload cargo of its vessels at Iligan City. The company ignored the demand, and the union filed a petition for certification on August 6, 1954. Despite the certification case, the company served a written notice on August 24, 1954 that the contract would be terminated on August 31, 1954. The union filed unfair labor practice charges on August 26, 1954. On August 31, 1954, the company entered into a new contract with the Iligan Stevedoring Association. The following day, union members picketed the wharf for nine days, preventing the new association from performing work.

The company sued the union and its officers for rescission of the 1952 contract, injunction, and damages. The company's original complaint prayed for actual damages of P15,000 for the union's failure to load and unload cargo from September 1 to 8, 1954; P50,000 for inefficiency; P50,000 as moral and exemplary damages; and P5,000 as attorney's fees. The company later added supplemental complaints alleging additional damages for lost freight and passenger charges. The company's evidence consisted primarily of reports prepared by two private accountants, Demetrio S. Jayme and Miguel J. Siojo, and a statement by Salvador M. Magante, the company's chief clerk who did not testify. The accountants' reports claimed total damages of P349,245.37, not the P450,000 awarded by the trial court. Jayme was a personal friend and co-employee of the company's branch manager, Jose C. Teves, and had suppressed that fact in his report. The underlying records — manifests, bills of lading, receipts, and other documents — were never produced in court.

The union denied that its members rendered inefficient service and filed counterclaims for P200,000 as compensation for stevedoring services and P500,000 as other damages. The trial court dismissed the counterclaims and awarded the company P450,000 in actual damages, P50,000 in moral damages, and P20,000 in attorney's fees, ordering the union and its officers to pay solidarily. The union appealed directly to the Supreme Court.

• Hearsay Evidence: The appellants contended that the trial court erred in awarding actual damages of P450,000, moral damages of P50,000, and attorney's fees of P20,000, and in holding the four officers of the union solidarily liable, because the auditors' reports on which the damages were based were hearsay.
• Inadequacy of Brief: The appellants' counsel made an exceedingly short and deficient recital of the facts, failing to discuss their oral and documentary evidence, and their briefs did not conform with the requirements of Sections 16 and 17, Rule 46 of the Rules of Court.
• Counterclaims: The appellants argued that the company's bill of lading provided that unloading of cargoes was at the company's expense, that the company had not paid P500,000 as compensation for stevedoring services, and that the stipulation exempting the company from liability was "non-operative" and void, "being contrary to morals and public policy."
• Injunction: The appellants invoked Section 9(d) of the Magna Carta of Labor regarding the issuance of injunctions, contending that the lower court erred in issuing a permanent injunction against them.

• Admissibility of Auditor's Reports: The company argued that the accountants' reports were admissible in evidence because of the rule that "when the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time and the fact sought to be established from them is only the general result of the whole," the original writings need not be produced under Section 2(e), Rule 130 of the Rules of Court.
• Damages Computation: The company's counsel claimed that the damages totalled P412,663.17, a computation the Supreme Court found erroneous, as the accountants' reports showed only P349,245.37.

• Admissibility of Auditor's Reports: Whether the trial court erred in admitting the private auditors' reports as evidence of the company's damages despite the non-production of the underlying records.
• Sufficiency of Damages Evidence: Whether the award of P450,000 in actual damages was supported by the evidence.
• Moral Damages and Attorney's Fees: Whether the company was entitled to moral damages and attorney's fees.
• Counterclaims: Whether the trial court erred in dismissing the union's counterclaims for stevedoring compensation.
• Injunction: Whether the trial court erred in issuing a permanent injunction against the union.

• Admissibility of Auditor's Reports: No. The auditors' reports were inadmissible hearsay. The general rule is that an audit made by, or the testimony of, a private auditor is inadmissible as proof of the original records, books of accounts, reports, or the like. The exception under Section 2(e), Rule 130 requires that the voluminous character of the records be duly established and that the records be made accessible to the adverse party.
• Sufficiency of Damages Evidence: No. The award of P450,000 was not supported by the evidence. The accountants' reports showed only P349,245.37 in claimed damages, and the reports contained speculative estimates, overlapping computations, and conclusions of a biased witness.
• Moral Damages and Attorney's Fees: No. The company, a juridical person, was not entitled to moral damages because it did not plead and prove moral damages, merely claiming them in the prayer of its complaint. The award of attorney's fees was set aside for lack of justification.
• Counterclaims: No. The trial court did not err in dismissing the counterclaims. The printed stipulation in the bill of lading was superseded by the contractual stipulation, and the contract was prepared by the union officials. The stipulation that stevedoring and arrastre charges should be paid by shippers and consignees was binding and enforceable.
• Injunction: No. The trial court did not err in issuing the permanent injunction. Section 9(d) of the Magna Carta of Labor had no application because there was no employer-employee relationship between the company and the stevedores, and the company had the contractual right to terminate the 1952 contract.

• Admissibility of Auditor's Reports: The Court held that the rule on summary evidence under Section 2(e), Rule 130 could not be applied because the voluminous character of the records on which the accountants' reports were based was not duly established. It is also a requisite that the records and accounts be made accessible to the adverse party so that the accuracy of the summary may be tested on cross-examination. The general rule applies: "an audit made by, or the testimony of, a private auditor, is inadmissible in evidence as proof of the original records, books of accounts, reports or the like." The company failed to make a preliminary showing as to the difficulty or impossibility attending the production of the records in court and their examination and analysis as evidence by the court. The Court cited U.S. vs. Razon and Tayag, 37 Phil. 856, 861, and American jurisprudence (29 Am Jur 2nd 517-8, 529; 32A C.J.S. 111; Anno 52 ALR 1266).

• Sufficiency of Damages Evidence: The Court tabulated the alleged damages claimed by the company and found they totalled P349,245.37, not P450,000. The trial court did not carefully examine the exhibits and did not bother to make a breakdown of the alleged damages. Accountant Jayme's report was unreliable: he was a "personal friend" of Teves and a co-employee who suppressed that fact, violating the accountants' code of ethics. His estimates of unrealized freight and passenger revenue were "inherently speculative and devoid of probative value," and his estimate of unrealized freight revenue overlapped with his computation of lost freight for unloaded fertilizer bags. The auditor's summary should not include his conclusions or inferences; his opinion is not evidence. As to the damages computed by Magante, the chief clerk who did not testify, the Court held that his statement was hearsay, and Jayme was not competent to take his place. The trial court required production of the manifests supporting Magante's statement, but only one was produced, and the nonproduction of the other records was not explained.

• Forklift Expenses: The Court held that the expenses for forklifts, pallet boards, tarpaulins, and wire rope slings, if really incurred, could not properly be treated as damages to the company. The use of this equipment "immeasurably benefitted the company," and it was not proper or just that the company's investment in those pieces of equipment should be considered damages just because it was able to bind the union to a one-sided contract which exempted it from payment of arrastre and stevedoring charges. The Court observed: "If the service rendered by the union members was unsatisfactory, it must be because the poor stevedores were underfed and underpaid. They were underfed and underpaid because the company was astute enough to insure that it would obtain stevedoring service without paying for it."

• Moral Damages and Attorney's Fees: Since the company's claim for moral damages was based on the same facts on which it predicated its claim for actual damages, which were found groundless, the company was not entitled to moral damages. The company did not plead and prove moral damages; it merely claimed them in the prayer of its complaint, which is not sufficient, citing Darang vs. Ty Belizar, L-19487, January 31, 1967, 19 SCRA 214, 222. The award of attorney's fees was set aside for lack of justification.

• Counterclaims: The Court rejected the union's argument that the stipulation exempting the company from liability was void as contrary to morals and public policy. The printed stipulation in the bill of lading was superseded by the contractual stipulation. The contract was prepared by the union officials, and the stipulation that stevedoring and arrastre charges should be paid by shippers and consignees in consonance with the practice in Iligan City was binding and enforceable. The supposed illegality of the stipulation was not squarely raised in the union's answer, and the union did not sue for reformation of the instrument.

• Injunction: Section 9(d) of the Magna Carta of Labor had no application because it was definitively ruled in the certification and unfair labor practice cases that there is no employer-employee relationship between the company and the stevedores, who work under the cabo system. The company had the contractual right to terminate the 1952 contract, citing Taylor vs. Uy Teng Piao, 43 Phil. 873. The lower court did not err in sustaining the company's rescission of the contract and in enjoining the union from performing arrastre and stevedoring work.

• Hearsay Rule on Private Auditor's Reports — An audit made by, or the testimony of, a private auditor is inadmissible in evidence as proof of the original records, books of accounts, reports, or the like. The exception under Section 2(e), Rule 130 of the Rules of Court applies only when: (a) the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time; (b) the fact sought to be established is only the general result of the whole; (c) the voluminous character of the records is duly established; and (d) the records and accounts are made accessible to the adverse party so that the accuracy of the summary may be tested on cross-examination. The Court applied this doctrine to reject the auditors' reports because the company failed to establish the voluminous character of the records and did not produce the underlying documents in court.

• Best Evidence Rule — The auditor's summary should not include his conclusions or inferences; his opinion is not evidence. The documents evidencing alleged expenses should be presented in evidence to avoid fraud or fabrication. The Court applied this doctrine in rejecting the reports of accountants Jayme and Siojo, holding that the reports were not the best evidence of the alleged damages and that the underlying records should have been produced in court.

• Damages Must Be Proved — Actual damages must be averred with particularity and certitude in the complaint and proved by reliable evidence. Speculative estimates and conjectures of a biased witness are not sufficient to support an award of damages. The Court applied this doctrine in reversing the P450,000 award, noting that the trial court "unreservedly gave credence to the conjectures of Jayme" and that his "inflated guesses are inherently speculative and devoid of probative value."

• Moral Damages for Juridical Persons — A juridical person is not entitled to moral damages unless it pleads and proves the same; merely claiming moral damages in the prayer of the complaint is not sufficient. The Court applied this doctrine in denying the company's claim for moral damages.

• "What applies to this case is the general rule 'that an audit made by, or the testimony of, a private auditor, is inadmissible in evidence as proof of the original records, books of accounts, reports or the like' (Anno 52 ALR 1266)." — This passage states the controlling rule on the inadmissibility of private auditor's reports as hearsay, which is the ratio decidendi for reversing the damages award.

• "The rule is that the auditor's summary should not include his conclusions or inferences (29 Am Jur 2d 519). His opinion is not evidence." — This passage defines the limits of an auditor's summary under the best evidence rule, holding that conclusions and inferences are not admissible as evidence.

• "If the service rendered by the union members was unsatisfactory, it must be because the poor stevedores were underfed and underpaid. They were underfed and underpaid because the company was astute enough to insure that it would obtain stevedoring service without paying for it." — This passage articulates the Court's reasoning for rejecting the company's claim for forklift expenses, emphasizing that the expenses redounded to the company's benefit and could not be treated as damages.

• "The printed stipulation in the bill of lading was superseded by the contractual stipulation. The contract was prepared by the union officials. As already noted, it was stipulated in the contract that the stevedoring and arrastre charges should be paid by the shippers and consignees in consonance with the practice in Iligan City. That stipulation was binding and enforceable." — This passage states the Court's reasoning for dismissing the union's counterclaims, holding that the contractual stipulation controlled over the bill of lading.

• Allied Free Workers Union vs. Judge Apostol, 102 Phil. 292 — Cited in the antecedents for the holding that the lower court had jurisdiction to issue the injunction and take cognizance of the damage suit, but that the injunction was void because it was issued ex parte without following Section 9(d) of Republic Act No. 875.
• Allied Free Workers Union vs. Judge Estipona, 113 Phil. 748 — Cited in the antecedents for the holding that the writ of injunction issued by the municipal court was set aside because it was not an interlocutory order and no special reasons were adduced to justify its issuance.
• Allied Free Workers Union vs. Estipona, L-19651, June 30, 1966, 17 SCRA 513 — Cited for the holding that the union's appeal should be given due course and for reserving to the union members the right to secure restitution under Sections 2 and 5, Rule 39 of the Rules of Court.
• Allied Free Workers Union vs. Compañia Maritima, L-22951-2 and L-22971, 19 SCRA 258 — Cited for the holding that the company did not commit any unfair labor practice and that the union could not act as a collective bargaining unit because it was an independent contractor and its members were not employees of the company.
• U.S. vs. Razon and Tayag, 37 Phil. 856, 861 — Cited as controlling precedent for the rule that the voluminous character of the records must be duly established before the summary evidence exception applies.
• Darang vs. Ty Belizar, L-19487, January 31, 1967, 19 SCRA 214, 222 — Cited for the rule that merely claiming moral damages in the prayer of the complaint is not sufficient; moral damages must be pleaded and proved.
• Taylor vs. Uy Teng Piao, 43 Phil. 873 — Cited for the rule that the company had the contractual right to terminate the 1952 contract.
• Genobiagon vs. Court of Appeals, L-44323, March 2, 1977 — Cited in the footnote for the rule that the Court may dismiss motu proprio an appeal for want of page references to the record in a skimpy statement of facts.

• Section 2(e), Rule 130, Rules of Court — The summary evidence exception to the best evidence rule, allowing non-production of original writings when they consist of numerous accounts or other documents which cannot be examined in court without great loss of time and the fact sought to be established is only the general result of the whole. The Court held this provision inapplicable because the voluminous character of the records was not established and the records were not made accessible to the adverse party.
• Section 9(d), Republic Act No. 875 (Magna Carta of Labor) — The provision regarding the issuance of injunctions in labor cases. The Court held this provision inapplicable because there was no employer-employee relationship between the company and the stevedores, who worked under the cabo system.
• Sections 2 and 5, Rule 39, Rules of Court — The provisions on restitution, which the Court reserved to the union members in the earlier case of Allied Free Workers Union vs. Estipona.
• Sections 16 and 17, Rule 46, Rules of Court — The requirements for briefs, including subject indexes containing a digest of the argument, a clear and concise statement of the nature of the action, and a statement of facts in narrative form with page references. The Court noted that the appellants' briefs did not conform with these requirements.
• Section 1(g), Rule 50, Rules of Court — The provision allowing the Court to dismiss motu proprio an appeal for want of page references to the record in the statement of facts.

Barredo, Antonio, and Martin, JJ., concurred. Justice Fernando filed a separate concurring opinion, observing that "the objective of industrial peace and the Ideal of a 'compassionate society' so clearly manifested in the present Constitution call for greater understanding and more sympathetic approach on the part of management." Justice Concepcion Jr. took no part. Justice Martin was designated to sit in the Second Division.