Olaguer vs. Purugganan, Jr.

An agent authorized under a Special Power of Attorney to sell the principal's shares of stock may validly purchase those shares himself, provided the principal consents, and the principal's consent may be inferred from contemporaneous and subsequent acts including receipt of the full purchase price without protest. The terms "absence" and "incapacity" in a power of attorney executed in anticipation of political arrest are construed according to their ordinary usage, not limited to the technical definitions under Articles 381 and 38 of the Civil Code.

Petitioner Eduardo B. Olaguer was Executive Vice-President of Businessday Corporation and President of its affiliated companies, and a stockholder holding 60,000 shares with a total par value of ₱600,000.00. Respondent Raul Locsin was a co-officer and fellow member of the political opposition against the Marcos government. Respondent Emilio Purugganan, Jr. served as Corporate Secretary of Businessday and concurrently as a notary public for Quezon City. Against the backdrop of the Marcos dictatorship, members of the opposition anticipated possible arrest and detention, prompting arrangements for the protection of personal and family interests, including the execution of a Special Power of Attorney over corporate shares.

Petitioner Eduardo B. Olaguer owned 60,000 shares of stock of Businessday Corporation with a total par value of ₱600,000.00, evidenced by Certificates of Stock No. 005, No. 028, No. 034, No. 070, and No. 100. At the time, he served as Executive Vice-President of Businessday and President of Businessday Information Systems and Services and of Businessday Marketing Corporation. Together with respondent Raul Locsin and Enrique Joaquin, petitioner was active in the political opposition against the Marcos dictatorship. Anticipating possible arrest and detention, Locsin, Joaquin, and Hector Hofileña had an unwritten agreement that, should petitioner be arrested, they would support his family through continued payment of his salary.

On 26 May 1979, petitioner executed a Special Power of Attorney appointing Locsin, Joaquin, and Hofileña as his attorneys-in-fact, authorizing them—in the event of his absence or incapacity—to attend and vote his stock at stockholders' meetings, and to sell, assign, transfer, endorse, and deliver his shares at such price and terms as the agents deemed proper, to receive payment, and to apply the net proceeds to the liquidation of any obligations petitioner might have with the Businessday group of companies. The SPA was acknowledged before respondent Emilio Purugganan, Jr., then Corporate Secretary of Businessday and a notary public for Quezon City. Petitioner testified that he agreed to execute the SPA to cancel his shares even before they were sold, in order to conceal that he was a stockholder of Businessday in the event of a military crackdown.

On 24 December 1979, petitioner was arrested by virtue of an Arrest, Search and Seizure Order and detained for allegedly committing arson. During his detention, Locsin ordered Purugganan to cancel petitioner's shares in the corporate books and transfer them to Locsin's name. According to petitioner, Locsin sent employee Rebecca Fernando to Camp Crame to borrow Certificate of Stock No. 100, purportedly as additional collateral for a Businessday loan with the National Investment and Development Corporation; when the certificate was returned, the word "cancelled" was already written on it. Petitioner became upset, and Fernando explained this was a mistake by Locsin's secretary. Petitioner did not, however, demand the issuance of a new certificate in his name.

From 1980 to 1982, Businessday made regular deposits of ₱10,000.00 on the 15th and 30th of each month into the Metropolitan Bank and Trust Company accounts of Manuel and Genaro Pantig, petitioner's in-laws, totaling ₱600,000.00. Petitioner alleged these were his salary payments under the unwritten agreement; respondent Locsin contended they were installment payments for the purchase of petitioner's shares at par value. When the total reached ₱600,000.00—matching the aggregate par value of the shares—the payments stopped. Petitioner's wife and son provided receipts for the payments. Thereafter, Locsin and Fernando asked petitioner to endorse and deliver the remaining stock certificates, but petitioner refused.

Petitioner was released from detention on 16 January 1986 and discovered he was no longer registered as a stockholder of Businessday. Purugganan had recorded the transfer of shares in favor of Locsin while petitioner was detained. Petitioner demanded restoration of his shares, but respondents refused. On 29 July 1986, petitioner filed a complaint before the trial court. The trial court found that petitioner had intended to sell the shares to provide for his family's needs, that the SPA empowered the agents to sell at such price and terms as they deemed proper, that petitioner consented to Locsin buying the shares himself, and that petitioner received ₱600,000.00 as payment. The Court of Appeals affirmed, adding that even absent a perfected sale, petitioner ratified it by receiving the purchase price without protest, and that the irregular cancellation of certificates did not invalidate the sale.

• Scope of the SPA: Petitioner argued that respondent Locsin exceeded his authority under the SPA, claiming the authority to sell was limited to situations of "absence or incapacity" as technically defined under Articles 381 and 38 of the Civil Code, and that the proceeds were solely for satisfying petitioner's obligations to the Businessday group of companies.
• Lack of Consent: Petitioner maintained that he never consented to the sale of the shares to Locsin for ₱600,000.00, and that the amounts received were salary, not purchase price.
• Payments as Salary: Petitioner contended that the ₱10,000.00 semi-monthly deposits constituted his salary from Businessday under the unwritten agreement to support his family during detention, not installment payments for the shares.
• Wrong Party to the Sale: Petitioner argued that if a sale existed, Businessday Corporation—not Locsin—was the actual party, since the payments were made through Businessday checks and on Businessday's regular payroll dates.
• Prohibition on Agent Purchasing: Petitioner asserted that the sale was void under Article 1491 of the Civil Code, which prohibits agents from purchasing property entrusted to them for sale without the principal's consent.
• Irregular Cancellation: Petitioner claimed the cancellation of his stock certificates and transfer to Locsin were fraudulent and illegal because the certificates were never delivered or endorsed by petitioner, contrary to Section 63 of the Corporation Code.

• Petitioner's Request to Sell: Respondent Locsin contended that petitioner himself approached Locsin and requested him to sell, and if necessary buy, the shares to assure support for petitioner's family should he be jailed, exiled, or forced underground.
• Purchase at Par Value: Locsin maintained that after failing to find other buyers due to petitioner's oppositionist reputation and Businessday's poor financial condition, he decided to buy the shares himself at par value, borrowing the funds from Businessday and paying in installments.
• No Salary Arrangement: Locsin denied making any arrangement to continue paying petitioner's salary during imprisonment.
• Ratification by Conduct: Respondents argued that petitioner ratified the sale by receiving ₱600,000.00 through his wife and in-laws without protest, and that the payments corresponded exactly to the aggregate par value of the shares.

• Scope of the SPA: Whether respondent Locsin exceeded his authority under the Special Power of Attorney when he sold petitioner's shares during petitioner's detention.
• Consent to the Sale: Whether petitioner consented to the sale of his shares to respondent Locsin.
• Nature of Payments: Whether the ₱600,000.00 received by petitioner's family constituted salary from Businessday or installment payments for the shares.
• Identity of the Buyer: Whether Businessday Corporation, rather than respondent Locsin, was the party to the sale.
• Prohibition Under Article 1491: Whether the sale was void under Article 1491 of the Civil Code prohibiting agents from purchasing property entrusted to them.
• Validity Despite Irregular Cancellation: Whether the irregular cancellation and transfer of stock certificates invalidated the sale.

• Scope of the SPA: No. Locsin did not exceed his authority; the terms "absence" and "incapacity" in the SPA are construed according to their ordinary usage—"the state of not being present" and "the inability to act"—which covers petitioner's arrest and detention.
• Consent to the Sale: Yes. Petitioner consented to the sale, as evidenced by his receipt of ₱600,000.00 in installments matching the aggregate par value of the shares without protest, and his failure to return the payments when asked to endorse and deliver the certificates.
• Nature of Payments: No. The payments were installment payments for the shares, not salary; the amount received (₱20,000.00 per month) did not correspond to petitioner's monthly salary (₱24,000.00), and the payments stopped once the total reached the shares' par value.
• Identity of the Buyer: No. Locsin, not Businessday, was the buyer; the use of Businessday checks was explained by Locsin's cash advances from the company, and the stock and transfer books reflected the cancellation and transfer of petitioner's shares to Locsin personally.
• Prohibition Under Article 1491: No. The prohibition under Article 1491 does not apply where the principal consents to the sale; petitioner's consent was established by his contemporaneous and subsequent acts.
• Validity Despite Irregular Cancellation: No. The irregular cancellation did not invalidate the sale; petitioner's failure to deliver the certificates was a breach of his duty as seller, which he could not use to deny the sale's validity, and the cancellation had been done with petitioner's own consent for the purpose of concealing his stockholder status.

• Scope of the SPA: While a power of attorney must be strictly construed, the rule is not absolute and should not be applied to destroy the instrument's purpose. The construction that carries out the purpose should be adopted. Limiting "absence" to Article 381 (which requires that no agent has been appointed) and "incapacity" to Article 38 (minority, insanity, imbecility, deaf-muteness, prodigality, civil interdiction) would create absurd situations: petitioner had already appointed agents, making Article 381 inapplicable, and requiring petitioner to qualify as a minor, imbecile, or prodigal before the SPA becomes operative would be impossible, since such conditions would prevent him from appointing an agent in the first place. Ordinary usage—"the state of not being present" and "the inability to act"—reasonably covers arrest and detention, as petitioner himself admitted he contemplated arrest, death, and disappearance when executing the SPA. Petitioner's contention that the proceeds could only be applied to his obligations to Businessday was also rejected; there was no evidence he was indebted to Businessday at the time, and the SPA used the word "and" in enumerating authorized acts, not limiting phrases like "only for" or "for the purpose of."

• Consent to the Sale: Petitioner received ₱600,000.00 in installment payments from 1980 to 1982 without protest, and only demanded return of the shares four years after the payments stopped. His claim that he did not instruct Locsin to deposit money in his in-laws' accounts failed because the SPA authorized Locsin to negotiate the terms and conditions of sale including the manner of payment, and depositing in the in-laws' accounts was more advantageous to petitioner since direct payment might have resulted in confiscation by the military, pursuant to Article 1882 of the Civil Code. Petitioner made inconsistent statements—first claiming Locsin never asked him to endorse the certificates, then claiming Fernando asked but he refused—both of which proved only that petitioner refused to honor his obligation as seller after receiving payment. Had petitioner not consented, he would have returned the payments when Fernando confirmed they were for the shares.

• Nature of Payments: The ₱20,000.00 per month received did not correspond to petitioner's monthly salary of ₱24,000.00, nor to his annual compensation of ₱45,000.00 to ₱60,000.00. The payments stopped once the total reached ₱600,000.00, exactly matching the aggregate par value of the shares. Petitioner himself testified that he believed Locsin's commitment to pay salaries was mere "lip-service." Moreover, even if the payments were salary, the arrangement would constitute a donation under Article 726 of the Civil Code, which—exceeding ₱5,000.00—would require written acceptance under Article 748; petitioner admitted the arrangement was not in writing, rendering it void. The phrase "household expenses" on deposit slips did not disprove the sale, as using the phrase "sale of shares" would have defeated the purpose of concealing the transaction from the military.

• Identity of the Buyer: The semi-monthly payment schedule and Businessday as named payor were explained by Locsin's cash advances from the company, supported by Businessday's financial records and the testimony of Accounting Manager Leo Atienza. The stock and transfer books showed that the increase in Locsin's shares resulted from the cancellation and transfer of petitioner's shares to Locsin personally, not from a corporate issuance of new shares—confirming Locsin as the buyer.

• Prohibition Under Article 1491: While Article 1491 prohibits agents from purchasing property entrusted to them for sale without the principal's consent, the prohibition is not absolute and does not apply where the principal consents. Petitioner's consent was established by his contemporaneous and subsequent acts under Article 1371 of the Civil Code: when the borrowed certificate was returned marked "cancelled," petitioner did not demand a new certificate but remained silent and continued receiving payments totaling the shares' par value; when payments stopped, no demand for further payment was made; petitioner's wife and son issued receipts for the payments, a practice indicative of an onerous transaction rather than gratuity.

• Validity Despite Irregular Cancellation: Section 63 of the Corporation Code requires delivery of endorsed certificates for transfer to prevent fraudulent transfers. However, applying this rule strictly would cause the injustice the provision seeks to avoid, since there was a valid sale and petitioner's failure to deliver was a breach of his duty as seller. The cancellation of petitioner's name from the stock and transfer book had been done with his own consent for the purpose of concealing his stockholder status, and the subsequent sale to Locsin was likewise done with his consent. The irregularity in procedure did not prove fraud.

• Construction of Powers of Attorney — A power of attorney must be strictly construed, granting only those powers specified, but the rule is not absolute and should not be applied to defeat the instrument's purpose. Where the language permits, the construction that carries out the predominant intent should be adopted. Clauses repugnant to each other should be reconciled to give effect to the general intent, and the instrument should be deemed to include powers essential or usual in effectuating the express powers.

• Agent's Authority to Purchase Property Entrusted for Sale — Under Article 1491(2) of the Civil Code, an agent cannot acquire by purchase the property whose administration or sale has been entrusted to him, unless the principal's consent has been given. The prohibition is not absolute; it does not apply where the principal consents to the sale. Consent may be inferred from the principal's contemporaneous and subsequent acts pursuant to Article 1371 of the Civil Code.

• Ratification by Receipt of Purchase Price — A principal ratifies a sale by receiving the purchase price without protest and failing to return it when the buyer confirms the payment's purpose. Silence and continued acceptance of payments matching the property's value constitute implied consent.

• Ordinary Usage in Contract Interpretation — Terms in a power of attorney are construed according to their ordinary usage where the technical definitions under the Civil Code would render the instrument ineffective or create absurd legal situations, provided such ordinary construction is consistent with the instrument's purpose and context.

• "It is a general rule that a power of attorney must be strictly construed; the instrument will be held to grant only those powers that are specified, and the agent may neither go beyond nor deviate from the power of attorney. However, the rule is not absolute and should not be applied to the extent of destroying the very purpose of the power." — This passage articulates the controlling doctrine on the construction of powers of attorney, establishing the boundary between strict construction and purposive interpretation.

• "The prohibition against agents purchasing property in their hands for sale or management is, however, clearly, not absolute. It does not apply where the principal consents to the sale of the property in the hands of the agent or administrator." — This defines the exception to Article 1491(2) of the Civil Code, the key provision governing the agent's self-dealing prohibition.

• "Petitioner's failure to deliver the shares to their rightful buyer is a breach of his duty as a seller, which he cannot use to unjustly profit himself by denying the validity of such sale." — This passage resolves the tension between the procedural requirement of certificate delivery under Section 63 of the Corporation Code and the substantive validity of the underlying sale.

• "In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered." — This quotation of Article 1371 of the Civil Code anchors the Court's methodology for determining petitioner's consent through conduct rather than express declaration.

• Distajo vs. Court of Appeals, 393 Phil. 426 (2000) — Cited for the proposition that the prohibition under Article 1491 against agents purchasing property entrusted to them is not absolute and does not apply where the principal consents.
• Pelayo vs. Perez, G.R. No. 141323, 8 June 2005 — Cited alongside Distajo for the same principle regarding the exception to the agent-purchase prohibition.

• Article 381, Civil Code — Defines judicial appointment of a representative for an absentee who disappears from his domicile without leaving an agent. The Court held this provision inapplicable to the SPA because petitioner had already appointed agents.
• Article 38, Civil Code — Enumerates restrictions on capacity to act (minority, insanity, imbecility, deaf-muteness, prodigality, civil interdiction). The Court rejected limiting the SPA's term "incapacity" to this enumeration as it would render the SPA ineffective.
• Article 1882, Civil Code — Provides that the limits of an agent's authority shall not be considered exceeded if the act was performed in a manner more advantageous to the principal than specified. Applied to uphold Locsin's deposit of payments in the in-laws' accounts as more advantageous to petitioner.
• Article 726, Civil Code — Defines donation, including gifts given on account of merit or services rendered that do not constitute a demandable debt. Applied to characterize the alleged salary arrangement as a donation.
• Article 748, Civil Code — Requires written acceptance for donations of personal property exceeding ₱5,000.00; otherwise void. Applied to render the alleged oral salary arrangement void for lack of writing.
• Article 1491(2), Civil Code — Prohibits agents from acquiring by purchase the property entrusted to them for sale, unless the principal consents. Applied with its recognized exception, the Court finding petitioner's consent established.
• Article 1371, Civil Code — Provides that the intention of contracting parties shall be principally judged by their contemporaneous and subsequent acts. Applied to infer petitioner's consent to the sale.
• Article 1919(3), Civil Code — Provides that death, civil interdiction, insanity, or insolvency of the principal or agent extinguishes the agency. Cited to show the incongruity of limiting "incapacity" to the Article 38 enumeration.
• Section 63, Corporation Code — Governs the transfer of shares by delivery of endorsed certificates and recording in the corporate books. The Court held that while the cancellation was irregular, the procedural lapse could not invalidate an otherwise valid sale.

Consuelo Ynares-Santiago (Associate Justice, Chairperson), Ma. Alicia Austria-Martinez (Associate Justice), Antonio Eduardo B. Nachura (Associate Justice). Justice Romeo J. Callejo, Sr. was on leave.