EDUARDO B. OLAGUER, PETITIONER, VS. EMILIO PURUGGANAN, JR. AND RAUL LOCSIN, RESPONDENTS.

Olaguer versus Purugganan

The Case

This is a petition for review on certiorari brought by Eduardo Olaguer against Emilio Purugganan, Junior and Raul Locsin, arising from a complaint to declare illegal the sale of his shares of stock in Businessday Corporation, to restore to him full ownership of those shares, and to recover damages. The case matters because it is the Supreme Court's clearest teaching on how a power of attorney is construed when its literal reading would defeat its very purpose, and on when an agent may validly buy the property entrusted to him for sale. It also gathers in one decision the rules on consent and ratification in a sale, on the difference between salary and purchase price, and on the irregular cancellation of stock certificates.

Procedural History

Olaguer filed his complaint before the Regional Trial Court, which dismissed the suit for failure to prove his causes of action by preponderance of evidence, although it likewise dismissed the defendants' counterclaims for lack of evidentiary support. Olaguer appealed to the Court of Appeals, which affirmed the trial court, holding that there was a perfected contract of sale and, in any event, that Olaguer ratified the sale by receiving the price and failing to protest. The Court of Appeals also held that the irregular manner of cancelling the certificates did not relieve Olaguer of the consequences of a consummated sale. Olaguer then came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

Olaguer owned sixty thousand shares of stock of Businessday Corporation, with a total par value of six hundred thousand pesos. He was an executive of the corporation and, with Locsin and others, was active in the political opposition against the Marcos dictatorship. Anticipating arrest, he executed a special power of attorney in May 1979 appointing Locsin and two others as his attorneys-in-fact to sell or transfer his shares. He acknowledged the instrument before Purugganan, then the corporate secretary and a notary public.

In December 1979 Olaguer was arrested and detained by the military. While he was detained, Locsin ordered Purugganan to cancel Olaguer's shares in the corporate books and to transfer them to Locsin's name. An employee of the corporation was sent to Camp Crame to borrow one of his stock certificates, and when it was returned the word cancelled had been written on it. From 1980 to 1982 the corporation made regular deposits of ten thousand pesos on the fifteenth and thirtieth of each month into the bank accounts of Olaguer's in-laws, until a total of six hundred thousand pesos had been paid, and then the payments stopped.

Olaguer was released in January 1986 and discovered that he was no longer registered as a stockholder. He demanded restoration of his shares, the respondents refused, and he filed suit in July 1986. Locsin's version was that Olaguer had asked him to sell the shares, that no buyer could be found, and that he bought the shares himself at par value, borrowing the funds from the corporation and paying in installments.

Issues

• Whether or not there was a perfected contract of sale of the shares between Olaguer and Locsin, considering that Locsin allegedly exceeded his authority under the special power of attorney.
• Whether or not Olaguer consented to the sale of the shares to Locsin for six hundred thousand pesos.
• Whether or not the amounts received by Olaguer's in-laws were installment payments for the shares rather than his salary from the corporation.
• Whether or not Locsin, rather than the corporation, was the party to the sale.
• Whether or not the sale was valid although the cancellation of the shares was irregular.

Applicable Provisions

Article 381 of the Civil Code, which the petitioner invoked to define absence, provides:

When a person disappears from his domicile, his whereabouts being unknown, and without leaving an agent to administer his property, the judge, at the instance of an interested party, a relative, or a friend, may appoint a person to represent him in all that may be necessary.

The Court refused to import this stringent standard into the power of attorney, since Olaguer had himself appointed agents and needed no court-appointed representative.

Article 38 of the Civil Code, which the petitioner invoked to define incapacity, provides:

Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil interdiction are mere restrictions on capacity to act, and do not exempt the incapacitated person, from certain obligations, as when the latter arise from his acts or from property relations, such as easements.

The Court held that reading incapacity this way would make the instrument absurd, requiring the principal to be a minor or an imbecile before his own agent could act.

Article 1491 of the Civil Code, on prohibited purchases by agents, provides:

ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: x x x x (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; x x x.

This is the provision that would void Locsin's purchase, unless the principal's consent was freely given with full knowledge of the transaction.

Section 63 of the Corporation Code, on the transfer of shares, provides:

Sec.63. Certificate of stock and transfer of shares.- xxx Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

This supplies the procedure for transferring shares and frames the petitioner's complaint about the irregular cancellation.

Ruling

On the first issue, the Court held that while a power of attorney is generally strictly construed, the rule is not absolute. If the language will permit, the construction that should be adopted is that which will carry out rather than defeat the purpose of the appointment. Reading absence and incapacity in their everyday sense, as not being present and as inability to act, covers Olaguer's arrest and detention, as he himself admitted in his testimony. The Court also rejected the claim that the power was limited to paying his debts to the corporation, since the instrument used the word and in enumerating the authorized acts rather than phrases of limitation.

On the second issue, the Court found consent from Olaguer's contemporaneous and subsequent acts. He received six hundred thousand pesos in installments without protest, remained silent when a borrowed certificate was returned marked cancelled, made no demand when payments stopped, and his wife and son even issued receipts. On the third issue, the Court held that the salary claim was implausible, since the twenty thousand pesos a month did not match his twenty-four thousand peso salary, and the payments stopped precisely when they reached the par value of the shares. Any gratuity of that kind would in any event be a void donation for want of the required writing.

On the fourth issue, the Court accepted Locsin's explanation that he obtained cash advances from the corporation on the fifteenth and thirtieth of each month in order to pay for the shares. On the fifth issue, the Court held that the irregular cancellation did not invalidate a consummated sale, and that Olaguer knew of the transaction and facilitated its implementation.

Doctrine

A power of attorney is strictly construed and grants only the powers specified, but the rule yields to the dominant purpose of the instrument: the construction adopted must carry out, not defeat, the purpose of the appointment, and clauses repugnant to each other are reconciled to give effect to the general intent. Terms such as absence and incapacity in a power of attorney are read in their everyday sense, not in their technical Civil Code meanings, when the technical reading would produce absurd results.

Under Article 1491, an agent may not buy the property entrusted to him for sale unless the principal consents, freely and with full knowledge of every detail; but that consent may be inferred from the principal's contemporaneous and subsequent acts, such as accepting the price, silence in the face of obvious red flags, and facilitation of payment.

Disposition

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals, upholding the sale of the shares to Locsin.

Remember This

Memorize the line that a power of attorney is strictly construed but never to the point of destroying its purpose, and that an agent's purchase is valid where the principal's consent is shown by his acts. Examiners use this case on agency and sales, particularly on the Article 1491 prohibition and on inferring consent and ratification from silence and acceptance of benefits.