International Films (China), Ltd. vs. Lyric Film Exchange, Inc.

A subagent or submandatary is not civilly liable for the loss of the subject matter of the agency by fire when it had no express mandate to insure the same and the loss was accidental. The subagent is obliged only to fulfill the contents of the mandate and to answer for damages caused to the principal by its failure to do so, pursuant to Article 1718 of the Civil Code.

The plaintiff, International Films (China), Ltd., was a foreign corporation engaged in the film distribution business, operating in the Philippines through its agent, Bernard Gabelman, by virtue of a power of attorney executed on April 5, 1933. The defendant, The Lyric Film Exchange, Inc., was a domestic corporation engaged in the film exchange business. The parties entered into a lease contract for the exhibition of the film "Monte Carlo Madness" in various theaters, with a condition that the defendant would answer for the loss of the film whatever the cause.

Bernard Gabelman was the Philippine agent of the plaintiff company, International Films (China), Ltd., by virtue of a power of attorney executed on April 5, 1933. On June 2, 1933, the plaintiff, through its agent, leased the film "Monte Carlo Madness" to the defendant, The Lyric Film Exchange, Inc., for exhibition in several theaters: in Cavite for two days for 30 per cent of the receipts; in the Cuartel de España for one day for P45; in the University Theater for two days for 30 per cent of the receipts; in Stotsenburg for two days for 30 per cent of the receipts; and in the Paz Theater for two days for 30 per cent of the receipts. One of the conditions of the contract was that the defendant would answer for the loss of the film whatever the cause.

On June 23, 1933, following the last showing of the film in the Paz Theater, Vicente Albo, chief of the film department of the defendant, telephoned Gabelman informing him that the showing had finished and asked where he wished the film returned. Gabelman said he wished to see Albo personally. The next morning, Gabelman went to Albo's office and asked whether he could deposit the film in the vault of the defendant, as the plaintiff did not yet have a safety vault as required by fire department regulations. After the case was referred to O'Malley, Albo's chief, the latter answered that the deposit could not be made because the film would not be covered by the defendant's insurance. Gabelman then requested permission to deposit the film under his own responsibility. As there was a verbal contract between Gabelman and the defendant whereby the film would be shown elsewhere, O'Malley agreed and the film was deposited in the defendant's vault under Gabelman's responsibility.

About July 27, 1933, Gabelman severed his connection with the plaintiff, being succeeded by Lazarus Joseph. Gabelman informed Joseph of the deposit of the film and of the verbal contract whereby the defendant would act as a subagent with authority to show the film in any theater after the expiration of the contract. When Joseph took possession of the agency, he went to the defendant's office to ask for the return of the film "Monte Carlo Madness" and also the films "White Devils" and "Congress Dances." On August 13 and 19, 1933, the defendant returned the latter two films but not "Monte Carlo Madness" because it was to be shown in Cebu on August 29 and 30, 1933. Joseph agreed to this exhibition since the plaintiff would profit. However, the defendant's bodega was burned on August 19, 1933, together with the film "Monte Carlo Madness," which was not insured.

The plaintiff claimed that the defendant's failure to return the film was due to the extension of the delivery period, which expired on June 22, 1933, in order for it to be shown in Cebu, pursuant to an understanding between Joseph and the defendant. The defendant claimed that when it wanted to return the film to Gabelman, the latter, not having a safety vault, requested Albo to keep the film in the defendant's vault under Gabelman's own responsibility, verbally stipulating that the defendant, as subagent, might show the film in its theaters. The preponderance of evidence showed that the verbal agreement was that the film would remain deposited in the defendant's safety vault under Gabelman's responsibility and that the defendant, as his subagent, could show it in its theaters, with the plaintiff receiving 5 per cent of the receipts up to a certain amount and 15 per cent thereof in excess of said amount.

• Amendment of Answer: The plaintiff-appellant assigned as error the court a quo's allowance of the defendant to amend its answer after both parties had rested their respective cases, contending that this was improper at that stage of the proceedings.
• Liability for Loss: The plaintiff claimed that the defendant's failure to return the film was due to the extension of the delivery period, which expired on June 22, 1933, in order for it to be shown in Cebu, pursuant to an understanding between Lazarus Joseph, the new agent, and the defendant, and that the defendant should therefore be responsible for the film's destruction by fire.
• Insurance Proceeds: The plaintiff raised the question of whether the defendant, having collected the entire proceeds of the fire insurance policy of its films deposited in its vault, should pay the part corresponding to the film in question which was deposited therein.

• Subagency Arrangement: The defendant claimed that when it wanted to return the film to Bernard Gabelman, the former agent, the latter, not having a safety vault, requested Vicente Albo to keep the film in the defendant's vault under Gabelman's own responsibility, verbally stipulating that the defendant, as subagent of the plaintiff, might show the film in its theaters.
• No Obligation to Insure: The defendant maintained that as a mere subagent, it was not obliged to insure the film against fire, not having received any express mandate to that effect, and it was not liable for the accidental destruction thereof by fire.
• No Unjust Enrichment: The defendant argued that it did not collect from the insurance company an amount greater than that for which its films were insured, and it would have collected the same amount even if the film had not been deposited in its safety vault, so it was not enriched by the destruction of the plaintiff's film.

• Amendment of Answer: Whether the court a quo erred in allowing the defendant company to amend its answer after both parties had already rested their respective cases.
• Liability of Subagent: Whether the defendant company is responsible to the plaintiff for the destruction by fire of the film "Monte Carlo Madness."
• Insurance Proceeds: Whether the defendant company, having collected the entire proceeds of the fire insurance policy of its films deposited in its vault, should pay the part corresponding to the film in question which was deposited therein.

• Amendment of Answer: No. The court a quo acted within its discretionary power in allowing the defendant to amend its answer by pleading the special defense of the plaintiff's lack of personality to bring the action, after both parties had already rested their respective cases, as it caused no injustice to any of the parties.
• Liability of Subagent: No. The defendant, as a mere submandatary or subagent, was not obliged to fulfill more than the contents of the mandate and to answer for the damages caused to the principal by its failure to do so, pursuant to Article 1718 of the Civil Code. The fact that the film was not insured against fire does not constitute fraud or negligence on the part of the defendant because it received no instruction to that effect from its principal.
• Insurance Proceeds: No. The film "Monte Carlo Madness" was not included in the insurance of the defendant's films, and the defendant did not collect an amount greater than that for which its films were insured. Since the defendant had not been enriched by the destruction of the plaintiff's film, it is not liable to the latter.

• Amendment of Answer: The Court cited the doctrines in Torres Viuda de Nery vs. Tomacruz (49 Phil., 913, 915) and Gould vs. Stafford (101 Cal., 32, 34), holding that amendments to pleadings are favored and should be liberally allowed in furtherance of justice. The granting of leave to file amended pleadings is a matter peculiarly within the sound discretion of the trial court, and the discretion will not be disturbed on appeal except in case of an evident abuse thereof. The Court found no evident abuse of discretion in allowing the amendment to question the personality of the plaintiff to bring the action, even after the parties had rested their cases.

• Liability of Subagent: The Court found that the preponderance of evidence showed that the verbal agreement between Bernard Gabelman, the former agent of the plaintiff, and Vicente Albo, chief of the film department of the defendant, was that the film would remain deposited in the safety vault of the defendant under Gabelman's responsibility and that the defendant, as his subagent, could show it in its theaters, with the plaintiff receiving 5 per cent of the receipts up to a certain amount and 15 per cent thereof in excess of said amount. It did not appear sufficiently proven that the understanding between Lazarus Joseph, the second agent, and Albo was that the defendant would continue showing the film under the same contract Exhibit C. Since the verbal contract was a sub-agency or submandate, the defendant was not civilly liable for the destruction by fire of the film because, as a mere submandatary or subagent, it was not obliged to fulfill more than the contents of the mandate and to answer for the damages caused to the principal by its failure to do so (art. 1718, Civil Code). The fact that the film was not insured against fire does not constitute fraud or negligence on the part of the defendant because, as a subagent, it received no instruction to that effect from its principal, and the insurance of the film does not form a part of the obligation imposed upon it by law.

• Insurance Proceeds: The evidence showed that the film "Monte Carlo Madness" was not included in the insurance of the defendant's films, as this was one of the reasons why O'Malley at first refused to receive the film for deposit and consented only when Gabelman insisted, assuming all responsibility. Furthermore, the defendant did not collect from the insurance company an amount greater than that for which its films were insured, notwithstanding the fact that the film was included in the vault, and it would have collected the same amount even if the film had not been deposited in its safety vault. Inasmuch as the defendant had not been enriched by the destruction by fire of the plaintiff's film, it is not liable to the latter.

• Subagency or Submandate — A subagent or submandatary is not obliged to fulfill more than the contents of the mandate and to answer for the damages caused to the principal by his failure to do so (art. 1718, Civil Code). The Court applied this doctrine to hold that the defendant, as a mere subagent of the plaintiff in the exhibition of the film, was not obliged to insure it against fire, not having received any express mandate to that effect, and was not liable for the accidental destruction thereof by fire.
• Amendment of Pleadings — Amendments to pleadings are favored and should be liberally allowed in furtherance of justice. The liberality is greatest in the early stages of a lawsuit, decreases as it progresses, and changes at times to a strictness amounting to a prohibition. The granting of leave to file amended pleadings is a matter peculiarly within the sound discretion of the trial court, and the discretion will not be disturbed on appeal except in case of an evident abuse thereof. The Court applied this doctrine to uphold the trial court's allowance of the defendant's amendment of its answer after both parties had rested.
• Unjust Enrichment — A party is not liable for the loss of property if it has not been enriched by the destruction thereof. The Court applied this principle to hold that since the defendant did not collect from the insurance company an amount greater than that for which its films were insured, and it would have collected the same amount even if the film had not been deposited in its safety vault, the defendant had not been enriched by the destruction of the plaintiff's film and was not liable to the latter.

• "If, as it has been sufficiently proven in our opinion, the verbal contract had between Bernard Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant company, was a sub-agency or a submandate, the defendant company is not civilly liable for the destruction by fire of the film in question because as a mere submandatary or subagent, it was not obliged to fulfill more than the contents of the mandate and to answer for the damages caused to the principal by his failure to do so (art. 1718, Civil Code)." — This passage states the ratio decidendi of the case, defining the extent of a subagent's liability under Article 1718 of the Civil Code.
• "The fact that the film was not insured against fire does not constitute fraud or negligence on the part of the defendant company, the Lyric Film Exchange, Inc., because as a subagent, it received no instruction to that effect from its principal and the insurance of the film does not form a part of the obligation imposed upon it by law." — This passage clarifies that a subagent's failure to insure the subject matter does not constitute fraud or negligence absent an express mandate from the principal.
• "Inasmuch as the defendant company, The Lyric Film Exchange, Inc., had not been enriched by the destruction by fire of the plaintiff company's film, it is not liable to the latter." — This passage articulates the principle of unjust enrichment as applied to the facts, holding that the defendant was not liable because it received no benefit from the film's destruction.

• Torres Viuda de Nery vs. Tomacruz, 49 Phil., 913, 915 — Cited as controlling precedent for the rule that amendments to pleadings are favored and should be liberally allowed in furtherance of justice, and that the granting of leave to file amended pleadings is within the sound discretion of the trial court.
• Gould vs. Stafford, 101 Cal., 32, 34 — Cited as persuasive authority, interpreting section 473 of the California Code of Civil Procedure, from which section 110 of the Philippine Code of Civil Procedure was taken, holding that courts will be liberal in allowing an amendment to a pleading when it does not seriously impair the rights of the opposite party.
• Ward vs. Clay, 82 Cal., 502, 510 — Cited as persuasive authority, stating that the principal purpose of vesting the court with discretionary power to allow amendments is to enable it to dispose of cases upon their substantial merits when it can be done without injustice to either party.
• Simpson vs. Miller, 94 Pac., 253 — Cited as persuasive authority, holding that an amendment to the answer made after both parties had rested but before the cause was submitted was properly allowed in the discretion of the court.

• Article 1718, Civil Code — This provision defines the extent of a subagent's or submandatary's obligation, providing that the subagent is not obliged to fulfill more than the contents of the mandate and to answer for the damages caused to the principal by his failure to do so. The Court applied this provision to hold that the defendant, as a mere subagent, was not liable for the film's destruction by fire because it had no express mandate to insure the film.
• Sections 109 and 110, Philippine Code of Civil Procedure — These provisions relate to the subjects of Variance and Amendments in General, and should be equitably applied to the end that cases may be favorably and fairly presented upon their merits. The Court cited these provisions in upholding the trial court's discretionary power to allow the defendant's amendment of its answer.

Avanceña, C. J., Abad Santos, Imperial, Diaz, Laurel, and Concepcion, JJ., concurred.