G.R. No. 170486 ; September 12, 2011
SWIFT FOODS, INC., Petitioner, vs. SPOUSES JOSE MATEO, JR. and IRENE MATEO, Respondents.

FACTS

Petitioner Swift Foods, Inc. (Swift) and respondent-spouses Jose and Irene Mateo entered into a Warehousing Agreement in July 1995, whereby respondents would store Swift’s feeds for two years. The agreement required respondents to post a bond, but operations commenced without it. In February 1996, respondents delivered three land titles to Swift as “collateral for feeds warehousing.” Swift’s sales personnel, including Efren Buhain and Rosalino Enfestan, supervised the warehouse operations and provided respondents with Daily Warehouse Stock Reports and Warehouse Issue Slips (WIS). According to Swift, Paragraph V of the agreement required that stocks be released only to its sales personnel upon presentation of a clearance, with the WIS bearing the sales personnel’s signature as proof. However, respondents, allegedly following instructions from Buhain and Enfestan, released stocks directly to customers without the required clearances or signatures on the WIS. An audit on May 9, 1996, revealed only one missing bag, which respondents paid. On May 20, 1996, Swift terminated the agreement effective May 13, 1996, citing respondents’ violations for releasing stocks without authorization, which allegedly caused a cash shortage of around ₱2 million. Swift retained the three land titles pursuant to Paragraph XII of the agreement, which stated the bond would answer for the warehouse operator’s obligations. Respondents denied breach, claiming they merely followed Swift’s personnel instructions, and demanded the return of their titles and a separate ₱100,000 cash bond posted under a prior, expired Trucking Agreement. When Swift refused, respondents filed a complaint for the surrender of titles and damages.

ISSUE

1. Whether respondents breached the Warehousing Agreement, justifying Swift’s retention of the three land titles as collateral.
2. Whether Swift is liable to return the ₱100,000 cash bond from the Trucking Agreement.
3. Whether Swift is liable for damages due to the premature termination of the Warehousing Agreement.

RULING

1. No, respondents did not breach the Warehousing Agreement. The Supreme Court found that respondents, as novice warehouse operators, relied in good faith on the instructions of Swift’s own authorized sales personnel (Buhain and Enfestan) to release stocks directly to customers. The handwritten authorization from Buhain supported this. Respondents could not be faulted for following the procedures implemented by Swift’s agents. The alleged violations and cash shortages were attributable to the negligence or malfeasance of Swift’s personnel, not to respondents’ bad faith or fault. Therefore, Swift had no right to retain the land titles as collateral for a nonexistent obligation arising from breach.
2. Yes, Swift must return the ₱100,000 cash bond. The Trucking Agreement had expired, and Swift failed to allege or prove any liability incurred by respondents under that agreement that would justify retaining the bond. Absent a claim for damages chargeable against it, the bond should be returned to respondents.
3. Yes, Swift is liable for damages. The termination of the Warehousing Agreement was unjustified, as respondents committed no breach. Consequently, Swift is liable for:
* Actual Damages: Unrealized warehousing fees (rentals) for the unexpired term of the contract, amounting to ₱243,000.
* Moral Damages: ₱200,000 for the besmirched reputation and wounded feelings suffered by respondents due to the baseless accusations and wrongful retention of their property.
* Legal Interest: Interest at 12% per annum on the ₱100,000 cash bond from the filing of the complaint until its return, and interest at 6% per annum on the awarded damages from finality of judgment until full payment.
* Attorney’s Fees: The award of attorney’s fees was deleted by the Court of Appeals for lack of basis, which the Supreme Court sustained.
The Supreme Court affirmed the Court of Appeals’ Decision with modification, ordering Swift to return the land titles and the cash bond with interest, and to pay actual and moral damages with interest, but deleting the award of attorney’s fees.