Barretto vs. Santa Marina

An agency or contract of service without a fixed term may be revoked at the will of the principal, and the agent is entitled only to the salary corresponding to one month’s notice under Article 302 of the Code of Commerce, particularly where the agent has voluntarily resigned or given just cause for revocation.

The La Insular Cigar and Cigarette Factory, a business engaged in the purchase of leaf tobacco and the manufacture and sale of cigars and cigarettes, was owned by Jose Santa Marina, a resident of Spain. The operation had originally been entrusted to Antonio M. A. Barretto as agent and manager by Santa Marina’s deceased brother, Joaquin Santa Marina. After Joaquin’s death, Jose Santa Marina ratified the verbal contract of agency and executed a notarial power of attorney in Barretto’s favor on September 25, 1908. The relationship functioned without any document fixing the duration of Barretto’s tenure, and his compensation was set at P37,000 per annum, paid in monthly installments.

• The Agency Contract: Barretto had been the agent and manager of the La Insular Cigar and Cigarette Factory, first under the deceased Joaquin Santa Marina and later under his brother and heir, Jose Santa Marina, who ratified the arrangement. The compensation was P37,000 per annum, paid monthly. No instrument or verbal agreement fixed a specific period during which Barretto was to serve. The notarial power of attorney executed by Jose Santa Marina on September 25, 1908 contained no term or expiration date.

• The Uy Yan Loss and Resignation: In early 1909, a Chinese customer, Uy Yan, who had purchased P97,000 worth of factory products on credit, became insolvent and disappeared without paying. On January 2, 1909, Barretto wrote to Santa Marina (Exhibit 3) reporting the loss, acknowledging that he had been “rather more generous with this fellow than I should have been,” and stating: “I have always thought that when the manager of a business trips up in a matter like this he should tender his resignation, and I still think so. The position is at your disposal to do as you like.”

• Delay in Replacement and Acceptance: Santa Marina did not immediately reply. For several months, Barretto continued to manage the factory. The principal’s silence, in the Court’s view, indicated virtual acceptance of the resignation, but he lacked a suitable replacement until later. Meanwhile, Barretto also contracted a loan without the principal’s approval, which caused panic among the stockholders.

• Revocation and Appointment of a New Manager: On December 2, 1909, Santa Marina wrote to Barretto (Exhibit D) revoking the power of attorney and informing him that Mr. J. McGavin had been appointed as the new agent and manager. McGavin personally delivered the letter. Barretto ceased to act as manager in January 1910.

• The Complaint: Barretto filed suit on January 5, 1911, claiming that he had been engaged “for so long a time as the plaintiff should not show discouragement,” that his removal was without reason, and that he was entitled to his full annual salary of P37,000 for 1910 plus P100,000 in damages. The defendant denied any fixed term, asserted the voluntary resignation and just causes for revocation, and raised the special defense that Barretto, upon selling his interests in the business, had renounced all claims.

• Fixed Term of Engagement: Petitioner maintained that the contract obligated Santa Marina to retain him for as long as he did not show discouragement, thereby establishing a fixed duration, and that his dismissal without cause before the end of 1910 entitled him to the full annual salary of P37,000 plus damages.

• Wrongful Dismissal and Damages: Petitioner argued that his removal was arbitrary and in violation of the contract, warranting recovery of P100,000 for losses and damages caused by the abrupt termination.

• Applicability of Article 1128 of the Civil Code: Petitioner contended that, even if no express period was fixed, Article 1128 authorized the courts to fix a period for the obligation, given the nature and circumstances of the engagement.

• Tacit Renewal: Petitioner invoked the doctrine of tacit renewal analogous to leases of property, suggesting that the payment of an annual salary implied a yearly renewal of the contract.

• Absence of Fixed Term: Respondent denied any stipulation of a fixed period, pointing out that neither the original verbal contract nor the subsequent power of attorney set a term; the agency was therefore revocable at will under Articles 1733 of the Civil Code and 279 of the Code of Commerce.

• Resignation and Acceptance: Respondent countered that Barretto had voluntarily tendered his resignation in the letter of January 2, 1909, and that Santa Marina’s subsequent revocation merely formalized the acceptance of that resignation; a resigning agent cannot claim damages for dismissal.

• Just Cause for Revocation: Even aside from the resignation, respondent asserted that Barretto’s negligence in extending excessive credit to Uy Yan and his unauthorized contracting of a loan constituted fraud or breach of trust justifying immediate discharge under Article 300 of the Code of Commerce.

• Waiver and Settlement: Respondent raised the special defense that upon the sale of Barretto’s rights and interests in the business, the latter had renounced all claims, settling all questions between the parties.

• Compensation Limited to One Month: Respondent argued that under Article 302 of the Code of Commerce, in the absence of a fixed term, the agent’s entitlement upon dissolution is limited to one month’s salary, which the lower court had already awarded.

• Fixed Term of Agency: Whether the contract of agency between Barretto and Santa Marina stipulated a fixed term so as to entitle Barretto to the full annual salary and damages upon revocation before the end of 1910.

• Effect of Resignation: Whether Barretto’s voluntary resignation, communicated and later acted upon by the principal, precluded any claim for wrongful dismissal or indemnity beyond the contractual notice period.

• Existence of Just Cause for Revocation: Whether, independently of the resignation, Santa Marina had just cause under Article 300 of the Code of Commerce to revoke the agency and discharge Barretto.

• Dismissal of the Damages Claim: Whether the trial court correctly sustained the demurrer to the second cause of action for P100,000 in damages.

• Proper Compensation upon Dissolution: Whether Article 302 of the Code of Commerce governed the measure of compensation, limiting recovery to one month’s salary.

• Fixed Term of Agency: No fixed period for the agency was established. The power of attorney contained no term, and the evidence did not prove a stipulation as to duration. Because the agency was not for a definite time, the principal could revoke it at will pursuant to Article 1733 of the Civil Code and Article 279 of the Code of Commerce. Article 1128 of the Civil Code, allowing courts to fix the period of an obligation, was held inapplicable to agency contracts, which are governed by distinct rules on termination and revocation. The doctrine of tacit renewal was likewise rejected; the payment of an annual salary did not imply a yearly contractual renewal but rather a monthly arrangement consonant with universal commercial practice.

• Effect of Resignation: Barretto’s letter of January 2, 1909 constituted an express, voluntary resignation prompted by his own acknowledged negligence. Santa Marina’s eventual revocation and appointment of a new manager effectively accepted that resignation, and Barretto was not “dismissed” in a manner giving rise to a claim for wrongful termination. An agent who has placed his position at the disposal of the principal cannot thereafter demand indemnity for the principal’s act of relieving him.

• Existence of Just Cause for Revocation: Even apart from the resignation, the record disclosed just causes for revocation. Barretto’s overextension of credit to Uy Yan—a P97,000 loss—and the unauthorized loan that stirred panic among stockholders constituted negligence and breach of trust, sufficient under Article 300 of the Code of Commerce to discharge an employee regardless of any unexpired term. Revocation on these grounds was an exercise of a lawful right and could not ground a claim for damages.

• Dismissal of the Damages Claim: The claim for P100,000 in losses and damages was not proved and was legally untenable in light of the valid resignation and lawful revocation. The lower court’s order sustaining the demurrer to the second cause of action was therefore proper.

• Proper Compensation upon Dissolution: Since no special time was fixed in the contract of service, Article 302 of the Code of Commerce applied: either party may dissolve the relationship by giving one month’s notice, and the employee is entitled to the salary for that month. The lower court’s award of salary for one month plus the first eight days of January 1910 correctly reflected this statutory entitlement.

• Revocability of Agency at Will — Under Article 1733 of the Civil Code, a principal may revoke a power of attorney at will and compel the return of the instrument conferring authority. Correspondingly, Article 279 of the Code of Commerce permits the principal to revoke a commission at any stage, subject to liability for transactions prior to notice of revocation. An agency is fundamentally based on confidence; when trust ceases, the principal has an absolute right to revoke, even if a fixed period were stipulated (though here none existed).

• Termination of Agency by Withdrawal of the Agent — Pursuant to Article 1732 of the Civil Code, agency is terminated by the withdrawal of the agent. A voluntary resignation tendered by the agent and accepted by the principal extinguishes the agency and forecloses any claim for wrongful dismissal.

• Just Causes for Discharge under the Code of Commerce — Article 300 of the Code of Commerce enumerates “fraud or breach of trust in the business intrusted” as a special reason for which a principal may discharge an employee even before the lapse of the contractual period. Negligence resulting in substantial financial loss and unauthorized acts that undermine confidence constitute such cause.

• One-Month Salary Rule under Article 302 — When no special time is fixed in a contract of commercial service, Article 302 of the Code of Commerce allows either party to dissolve it upon one month’s advance notice, entitling the factor or shop clerk to the salary due for that month. This rule precludes claims for the full unexpired term or consequential damages where no definite period was agreed upon.

• Inapplicability of Article 1128 Civil Code to Agency — Article 1128, which permits courts to fix the duration of obligations where none is expressed but an intention to grant a period is inferrable, does not govern agency contracts. The right and obligations arising from agency are distinct; the duration of a service contract is implicitly tied to the period for payment of salary, and courts may not substitute their discretion for the parties’ silence.

• “The principal may, at his will, revoke the power and compel the agent to return the instrument containing the same in which the authority was given.” (Article 1733, Civil Code, quoted with approval — underscoring the absolute nature of the power to revoke.)

• “From the mere fact that the principal no longer had confidence in the agent, he is entitled to withdraw it and to revoke the power he conferred upon the latter, even before the expiration of the period of the engagement or of the agreement made between them…” (Articulating the confidence-based foundation of agency and the primacy of that interest over any fixed term.)

• “After the plaintiff had resigned the position he held, and notwithstanding the lapse of several months before its express acceptance, it cannot be understood that he has any right to demand an indemnity for losses and damages particularly since he ostensibly and frankly acknowledged that he had been negligent in the discharge of his duties…” (Connecting the voluntary resignation with the absence of a right to indemnity.)

• “In cases in which no special time is fixed in the contracts of service, any one of the parties thereto may dissolve it, advising the other party thereof one month in advance. The factor or shop clerk shall be entitled, in such case, to the salary due for one month.” (Article 302, Code of Commerce — the statutory basis for limiting recovery to one month’s salary.)

N/A — The decision relies exclusively on codal provisions and general principles; no prior Supreme Court cases are cited as precedents.

• Article 1733, Civil Code — Empowers the principal to revoke the power of attorney at will. Applied to hold that Santa Marina lawfully revoked Barretto’s agency.

• Article 1732, Civil Code — Enumerates the modes of terminating agency, including revocation and withdrawal of the agent. Cited to demonstrate that Barretto’s resignation fell within the recognized modes of extinguishment.

• Article 2, Code of Commerce — Makes the Civil Code supplementary in commercial matters. Used to apply Article 1733 to the commercial agency relationship.

• Article 279, Code of Commerce — Recognizes the principal’s right to revoke the commission at any stage of the transaction. Cited as an additional basis for the revocability of commercial agency.

• Article 283, Code of Commerce — Provides that the manager of a manufacturing or commercial establishment possesses the legal qualifications of an agent. Applied to confirm Barretto’s status and the governing rules.

• Article 300, Code of Commerce — Enumerates fraud or breach of trust as special reasons for discharging employees even before the lapse of the contract period. Found to be satisfied by Barretto’s negligence and unauthorized loan.

• Article 302, Code of Commerce — In the absence of a fixed period, allows dissolution upon one month’s notice and entitles the employee to one month’s salary. Served as the exclusive measure of Barretto’s recovery.

• Article 1128, Civil Code — Grants courts the power to fix the period of obligations where none is set but an intention to allow a period is inferred. Held inapplicable to agency contracts, distinguishing them from ordinary obligations.

Arellano, C.J., Johnson, and Carson, JJ., concurred.
Moreland, J., concurred in the result.

N/A — The decision was rendered en banc with no recorded dissenting opinion.