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Republic of the Philippines By a complaint filed on September 26, 1907, the legal representative of

SUPREME COURT Aldecoa and Co., in liquidation, filed suit in the Court of First Instance of Manila
Manila against Warner, Barnes and Co., Ltd., alleging in the first three paragraphs of
their complaint, as a cause of action, that the plaintiff is a regular collective
EN BANC mercantile association organized in accordance with the laws of these islands,
duly registered in the mercantile registry, and at present in liquidation; that the
G.R. No. L-5242 August 6, 1910 defendant is a joint stock mercantile firm organized in accordance with the
laws of England, registered in the mercantile registry of Manila, and has done
and is still doing business in these Islands under the name of Warner, Barnes
ALDECOA & CO., plaintiff-appellant, and Co., Ltd., which required the business that was conducted in these Islands
vs. by Warner, Barnes and Co., the assets, liabilities, and all the obligations of
WARNER, BARNES & CO., LTD., defendant-appellee. which were assumed by the defendant.

Rosado, Sanz and Opisso, for appellant. In other paragraphs of the complaint, from the fourth to the twelfth, the plaintiff
Haussermann, Ortigas, Cohn and Fisher, for appellee. set forth that, prior to December 1, 1898, Warner, Barnes and Co. were
conducting a business in Albay, the principal object of which was the purchase
TORRES, J.: of hemp in the pueblos of Legaspi and Tobacco for the purpose of bringing it to
Manila, here to sell if for exportation, and that on the said date of December 1,
1.PARTNERSHIP; ACCOUNTING; DUTY OF BUSINESS MANAGER.It is a 1898, the plaintiff company became interested in the said business of Warner,
general rule of law that he who takes charge of the management of another's Barnes and Co., in Albay and formed therewith a joint-account partnership
property is bound immediately thereafter to render accounts of his whereby Aldecoa and Co., were to share equally in the gains and losses of the
transactions; and that it is always to be understood that all accounts must be business in Albay; that the defendant is the successor to all the rights and
duly supported by proofs. obligations of Warner, Barnes and Co., among which is that of being manager
of the said joint-account partnership with Aldecoa and Co.; that the defendant
2.ID. ; ID, ; ID.The acceptance and approval of any account rendered from a acted, and continues to act as such manager, and is obliged to render
certain date does not excuse nor relieve the manager of a joint-account accounts supported by proofs, and to liquidate the business, which defendant
partnership from complying with the unquestionable duty of rendering accounts not only has not done, in spite of the demand made upon it, but it has
covering a period of time prior to the said date. They must be rendered from expressly denied the right of plaintiff to examine the vouchers, contenting itself
the time the partnership was actually formed and its business actually with forwarding copies of the entries in its books, which entries contain errors
commenced. and omissions that hereinafter will be mentioned.

3.ID.; ID.; ID.; REVISION OF ACCOUNTS.Once certain accounts have been Said entries moreover, whereas its operations should have commenced and
approved, which were duly rendered by the manager of a joint-account did commence on December 1, 1898, on which date the joint-account
partnership, the member of the entity not vested with the character of manager partnership commenced; that, with respect to the liquidation of the business,
is not entitled afterwards to claim the revision of the accounts already the operations having been closed on December 31, 1903, Warner, Barnes
approved, unless it shall be proved satisfactorily, by the production of and Co., Ltd., the defendant, has not realized upon the assets of the firm by
evidence, that there was fraud, deceit, error, or mistake in the approval of the selling the property which constitutes its capital; that the persons who were the
said accounts. (Arts. 1265, 1266, Civil Code, and law 30, title 11, 5th Partida.) managers and general partners of Warner, Barnes and Co., Ltd., and are the
managers and directors of that firm in the Philippine Islands and are the ones
who, under the previous firm name of Warner, Barnes and Co., admitted
4.ID.; ID.; ID.One of the duties of the manager of a joint-account partnership
Aldecoa and Co. as a participant in one-half of the said business, on the 1st
is that of liquidating the assets of the common ownership and to state the
day of December, 1898; that the said directors of the defendant company,
result obtained therefrom in the final rendering of accounts which he is to
unlawfully, maliciously, and criminally conspired with the persons who were
present at the conclusion of the partnership, as no person should enrich
managing the commercial firm of Aldecoa and Co. during the years 1899,
himself unjustly at the expense of another. (Art. 243, Code of Commerce, and
1900, 1901, 1902, and 1903, to defraud the latter of its interest in the said
decision in cassation given on July 1, 1870, by the supreme court of Spain.)
joint-account partnership, buying the silence of the said managers with respect
[Aldecoa & Co. vs. Wsarner, Barnes & Co., 16 Phil. 423(1910)]
to the operations of the joint-account partnership during the time comprised 1902 Dec. 31 ...................................... 98,074.52 94,279.20
between the 1st of December, 1898, and the 30th of June, 1899, and also with
respect to the errors and omission in the accounts relating to the second 1903 Dec. 31 ...................................... 66,482.49 68,880.09
semester of 1899, and those relating to 1900, 1901, 1902, and 1903. 433,307.03 428,974.07 4,332.96
Lacking .............................................. 433,307.03 433,307.03
That the said fraudulent acts were not known to the partners of the plaintiff firm
until the managers, in collusion with the managers of the defendant firm to (c) In 1900, on April 30, Messrs. Warner, Barnes and Co. Ltd., give credit for
defraud and injure the plaintiff firm, had ceased to hold their positions, to wit, 5,485 piculs of hemp, at 16 pesos a picul, when the market price at that time,
until after the 31st of December, 1906, and that by reason of this conspiracy to according to themselves, was P23.78; thereby injuring plaintiffs in the sum of
defraud the plaintiffs, the defendants have been benefited; that the errors and P21,350.36.
omissions found in the entries of the books kept by the defendant firm as
manager of the joint-account partnership are those expressed in details here (d) In 1901, on the date of January 31, Messrs. Warner, Barnes and Co., Ltd
below: give credit for 4,600 piculs of hemp, at 8.93 pesos a picul, when, according to
themselves, the market price at that time was 11.50 pesos a picul; thereby
(a) It appears that between the 10th of July and the 26th of December, 1899, injuring plaintiffs in the sum of P5,911.
43,934 piculs of hemp arrived in Manila for the joint-account partnership, which
were purchased in Legaspi and Tobacco at 13 pesos per picul, and, after (e) One of the sources of profit of the joint-account partnership between
charging against this hemp excessive expenses for collection, storage, freight, Aldecoa and Co. and Warner, Barnes and Co., Ltd., was from the pressing of
fire, marine, and war insurance, personnel, etc., the defendants, Warner, hemp, which profit is to be credited to the partnership joint-accounts, when the
Barnes and Co., as managers of the joint-account partnership and commission
hemp is realized in Manila, and from this source there are due to the plaintiffs
agents of their joint-account partners, claim that they purchased the said hemp
P149,084.12, in which sum they have been injured by the defendants. The
for themselves, but do not give the price received from the sale thereof and
said credit for pressing is omitted from the books of Warner, Barnes and Co.,
merely credit it at 13 pesos a picul, when the average market price at that time
Ltd., and should be entered as follows:
was 16.50 pesos a picul; said defendants thereby injuring plaintiffs to the
amount of P76,884.50.
1899 ............................................. 21,968 bales, at P1.25
................................. P27,460 1900 to April 30 ......................... 25,130
(b) Striking a balance from the amount of hemp debited and that credited,
bales, at P1.25 ................................. 31,412.50 1900 May 10 to Dec.
there results a difference of 4,332.96 piculs not credited which, at 24 pesos a 31 ............ 35,639 bales, at P1.25 ................................. 44,548.75
picul, the market price at the time, represents an injury to plaintiffs to the extent 1901.............................................. 50,151 bales, at P1.25
of P51,995.52, the said deficit, with respect to the hemp, pertaining to the
................................. 62,688.75 1902 to July 31 ...........................
period beginning with December 31, 1899, in the manner shown by the
26,825 bales, at P1.25 ................................. 33,531.25
following table:
Aug. 1 to Dec. 31 ............. 20,314 bales, at P1.75
................................. 35,549.50 1903 .............................................
Invoices & Cr. Dr. 34,440 bales, at P1.75 ................................. 60,270

Piculs Piculs 214,467 bales .................................................


295,460.75 2,166 bales, lacking, at P1.25 2,707.50
1899 Dec. 31 ....................................... 86,534.18 43,934
216,633 bales ..................................................
1900 Apr. 30 ...................................... 13,069.97 50,261.78 298,168.25 20 loose.

1900 Dec. 31 ...................................... 67,892.56 71,277


216,653 bales.
1901 Dec. 31 ...................................... 101,253.31 100,342
(f) Another error found in the books of Warner, Barnes, and Co., Ltd., is in June 30. To Miguel Estela. For transfer made to his account
connection with the outstanding accounts, which are debited in the sum of
P52,510.36, while only P2,769.24 are credited in the manner set out in the of 5 per cent commission on his hemp, which should
following statement:
not be paid according to agreement ..................................... P870.75
DR.
Half of this sum, P435.37, must be credited to the plaintiffs.
1899 July 31. W.B. and Co., Tobacco, transferred to net
(h) On the date of December 26, 1899, Messrs. Warner, Barnes and Co., Ltd.,
account their account sale 92.25 piculs hides deduct from the profits which they show as belonging to Aldecoa and Co., the
sum of P7,400, under the appearance of the insurance premium, and they
by Kongsee ............................................................................. delivered that sum to the plaintiffs' managers with whom they conspired, for
P1,149.46 the purposes of the collusion alleged in Paragraph VII of the complaint, in the
manner failing to observe the truth in their statement of the facts. Aldecoa and
1899 Dec. 31. For transfer account to cover business this Co., therefore, claim for themselves this amount, P7,400.

semester without statement .................................................. 16,100.57 (i) On December 31, 1903, on a capital of P50,000 brought in by Aldecoa and
Co., and to whom it should bear 5 per cent interest from the 8th of June, 1900,
the interest is unduly credited to the joint-account, thereby injuring the plaintiffs
1900 Feb. 28. As transferred account items noted page
in the sum of P8,750.
114 day-book ..........................................................................
(j) On December 31, 1902, Aldecoa and Co. are charged with six months'
18,635.08
interest, amounting to P736.46, on a balance debited against them for alleged
losses, and on June 30, 1903, they are charged with P1,818.58 for a like
1900 Feb. 28. To cover war insurance, January reason. These two items should be stricken out, because the accounts when
................................................. 4,000 correctly made to show no losses, but profits. By such debits the plaintiffs have
been injured in the sum of P1,277.52.
1900 Feb. 28. To cover outstanding accounts
................................................... 2,625.25 52,510.36 (k) In the entries corresponding to the years 1902 and 1903, Warner, Barnes
and Co., Ltd., give the price of "corriente buena" (currect good), to the grade
CR. which, according to the mark, was classified as "abaca superior" (superior
hemp); the price of "corriente ordinario" (current ordinary), to the hemp marked
1900 Feb. 28. As transferred account items noted page under the classification of "corriente buena" (current good); the price of
"segunda superior" (second superior), to what is "corriente" or "current," and
113 day-book .......................................................................... 2,769.24 so on successively; whence results a difference of price to the value of
P233,102.18, in 1902, and P74,274.90, in 1903, one-half of which differences
should be credited to Aldecoa and Co., that is P153,688.54.
There remain, therefore .........................................................
49,741.12 of which one-half, that is ......................................................
24,870.56 belongs to the plaintiffs. (l) The value of the properties brought in by Warner, Barnes and Co., Ltd., to
the joint-account, instead of cash capital, is omitted from the accounts. These
properties are the following:
(g) In 1900, there is unduly included an item of net account which should be
stricken out, as it does not pertain to this business. This item is the following:
Those purchased from Mariano Roisa, consisting of one galvanized-iron-
roofed warehouse, with hemp press; one house of strong materials and the lot
1900
on which it stands, in Tobacco, P12,000.
That purchased from Juana Roisa, which is one small warehouse of strong plaintiff be granted such other and further relief as may be found just and
materials, in Tobacco, worth about P2,500. equitable.

Those purchased from D. Manuel Zalvidea situated in Tobacco, which are: On November 11, 1907, the defendant filed a written answer an counterclaim
One warehouse of strong materials, with press; another warehouse of strong against the defendant, and, notwithstanding the overruling of the demurrer filed
materials; and two houses of strong materials, together with the lots on which by the latter to the counterclaim, the court by writ of December 4, 1907,
they are built, P22,000. ordered that the defendant should, within a period of five days, make its
allegations more specific with respect to certain particulars mentioned in the
Those purchased from D. Marcos Zubeldia, in Legaspi, which are: Four order of the court, and both parties being notified thereof, the defendant, on
warehouses with three hemp presses, and one house of strong materials, with January 24, 1908 prayed the court to authorize it to file the attached amended
their corresponding lots, P50,000. answer instead of the original one.

Total cost, P86,500. In the said amended answer the firm of Warner, Barnes & Co. Ltd., the
defendant, states that it denies each and every one of the allegations of the
complaint, with the exception of those which are expressly admitted in its
The complaint further sets forth that if the entries made by the defendant in its
answer, and admit the allegations of paragraphs 1, 2, and 3 of the complaint.
books show in themselves the foregoing errors and omissions, the plaintiff has
In answer to the allegations of paragraphs 4 to 12 of the complaint, it admits
good grounds for believing that, if the vouchers were examined, still greater
errors would be found, as to which the plaintiff can not formulate its claims with that on June 30, 1899, a joint-account partnership was formed between the
exactness until the defendant renders it an account, accompanied by plaintiff and the defendant transactions of which were the purchase of hemp in
Legaspi and Tobacco, of which business one-half of the results, whether
vouchers; that the defendant, as manager of the joint-account partnership with
losses or gains, appertained to the plaintiff. Defendant also admits that the
Alcodea & Co., neglected to comply with what is especially prescribed in article
said business continued under the management of the defendant company, as
243 of the Code of Commerce, as a duty to inherent to its position as manager
manager of the said joint-account partnership, until December 31, 1903; but it
of the joint-account partnership, which is that of rendering an account with
vouchers, and that of liquidating the said business, for it refuses to furnish the denies all the other allegations contained in the said paragraphs. For its first
special defense, the defendant alleges that during the period that the said
plaintiff the documents required for their examination and verification, and also
joint-account partnership existed, the manager thereof, the defendant,
refuses to realize the firm assets by selling the warehouses, houses, and other
rendered to the plaintiff just and true accounts of its transaction as manager of
property which constitute the capital; that, as the defendant refuses to do the
the said partnership, which accounts have been approved by the plaintiff, with
things above related, the plaintiff has no other easy, expeditious and suitable
remedy than to petition the court for a writ of mandamus, wherefore it prays the exception of those relating to the year 1903, and as to the latter, that the
the court to protect it in its rights and to issue the said mandamus against the same were objected to by plaintiff firm solely upon the grounds mentioned in
clause (k) of paragraph 9 of the complaint, which objections are wholly
defendant, ordering it, within a date set for this purpose, to render to the court
unfounded. As its second special defense, the defendant alleges that more
an account, accompanied by invoices, receipts, and vouchers of the Albay
than four years have expired between the time the alleged right of action
business, beginning the said account as of December 1, 1898, the date on
accrued to the plaintiff and the date of the filing of the complaint. For all the
which the partnership was formed, and correcting in it errors and omissions
related in paragraph 9 of this complaint; that the defendant credit and pay to reasons set forth in this amended answer, the defendant prayed that it be
the plaintiff the sums alleged in that paragraph to be due to the plaintiff, with absolved from the complaint, with the costs against the plaintiff.
interest at the legal rate upon the sums of omitted for the difference between
the amounts incorrectly debited and credited, from the respective dates on On the subsequent to the 14th of August, 1908, the trial of this cause was held
which they should appear, if correctly entered; that after the said accounts and oral evidence was introduced by the plaintiff, but no witnesses were
have been rendered and discussed, judgment be entered for any balance offered by the defendant, which finally moved for a dismissal of the case, and
which may appear in favor of the plaintiff, including the sums claimed, and the court, on December 26 of the same year, 1908, rendered judgment,
legal interest thereon. The plaintiff also prays that the writ of mandamus fix a dismissing the complaint with respect to the petition for the rendering of an
term within which the defendant is to liquidate the business, selling the account, verified by invoices, receipts and vouchers, of the said Albay
properties aforementioned and distributing the proceeds between both the business, pertaining to the period comprised from the beginning of the
litigants, and that the defendant be adjudged liable for costs of suit, and business to the 31st of December, 1902, inclusive, assessing the costs against
the plaintiff, and opening the second period of the trial with respect to the
account for the whole year 1903, in accordance with the ruling of the court proof of the aforesaid first point, if the defendant does not produce other
made at the commencement of the hearing. The plaintiff on being notified of evidence in rebuttal, they must, for some reason, be expressly rejected in the
this judgment filed a written exception thereto and announced his intention to judgment, if they are not to be taken into account in reaching the conclusions
forward through regular channels a bill of exceptions, and by another writing or in considering the case upon the merits.
moved for a new trial on the ground that the evidence did not justify the
judgment rendered, which it alleged it was openly and manifestly contrary to As regards the second point, we agree with the opinion expressed by the lower
the weight of the evidence and to law. This motion being denied, to which court and find that the firm of Warner, Barnes and Co., Ltd., did render
exception was taken by the plaintiff, the latter duly filed a proper bill of accounts from June 30, 1899, to December 31, 1902, inasmuch as the very
exceptions which was certified to and forwarded to this court, together with all evidence introduced by the plaintiff showed that the said accounts had been
the documentary and oral evidence produced at the trial. rendered and were approved by it, according to the context of its own letters of
the dates of July 27, 1907, and February 19, 1903. Therefore, the plaintiff is in
This litigation concerns the rendering of accounts pertaining to the nowise entitled, and has no right of action to compel the defendant to render
management of the business of a joint-account partnership formed between the accounts pertaining to that period, they having already been rendered and
the two litigants companies. duly approved.

Both the plaintiff and the defendant are in accord that, through verbal It is a rule of law generally observed that he who takes charge of the
agreement, the said partnership was established, whereby they should share management of another's property is bound immediately thereafter to render
equally the profits and losses of the business of gathering and storing hemp in accounts covering his transactions; and that it is always to be understood that
Albay and selling it in Manila for exportation, and that the commercial firm of all accounts rendered must be duly substantiated by vouchers.
Warner, Barnes and Co., Ltd., was the manager of the said joint-account
partnership. It is a fact admitted by both litigating parties that Warner, Barnes and Co., Ltd.,
was the manager of the business of the joint-account partnership formed
The disagreement between the parties consists in the following points: First, as between it and Aldecoa and Co., it is unquestionable that it was and is the
to the date when the partnership was formed and began business in the defendant's duty to render accounts of the management of the business, as it
province mentioned; second, whether the managing firm did render accounts, partially has done. Although the defendant has not proved, as it should have
duly verified by vouchers, of its management from the date of the organization done, that it complied with its duty of rendering accounts of its management,
of the partnership; third, whether errors and omission, prejudicial to the since the letters themselves exhibited by the plaintiff, and duly authenticated
plaintiff, Aldecoa and Co., exist in the partnership books and in its accounts, as being written by the latter, prove that the defendant did render accounts
and whether, in the management of the said business, fraudulent acts were from June 30, 1899, to December 31, 1902, no legal reason whatever exists
committed also to the plaintiff's injury; and, fourth, whether the partnership for not accepting the finding of the lower court which decided that it had been
property should be included in the liquidation of the said business and in the proved that accounts were rendered pertaining to the period mentioned and
accounts appertaining to the year 1903, when the existence of the partnership that the said accounts were approved by the plaintiff.
came to an end.
The procedure of the plaintiff is truly inexplicable in accepting and approving
With respect to the date on which the said partnership began, the plaintiff, accounts that were rendered to it, and which only begin with June 30, 1899,
Aldecoa and Co., submitted evidence unrebutted by that of the defendant, inasmuch as such approval would appear to indicate that it agreed to the claim
Warner, Barnes and Co., Ltd., and although the latter averred that the joint- made by the defendant that the partnership commenced on the said date; but
account partnership began on June 30, 1899, denying that it was commenced, even so, once that it is proved that the actual date on which the partnership
or was formed, on December 1, 1898, as the plaintiff says that it was, it is was formed was December 1, 1898, and that it is not shown that the defendant
certain that the defendant has not proved its averment; and if, on the opening has rendered accounts corresponding to the seven months subsequent to the
of this case de novo it shall not have done so within such period as the court said date of December 1, the acceptation and approval of accounts rendered
may see fit to determine, it will be proper to find in accordance with the value since the 30th of June 1899, does not excuse nor release the manager of the
of the evidence adduced by the plaintiff and to advise the defendant to render, partnership, the defendant, from complying with its unquestionable duty of
within a fixed period, accounts, verified by vouchers, of the management of the rendering accounts covering the aforesaid seven months. The presumption
partnership business and pertaining to the seven months from December 1, must be sustained until proof to the contrary is presented.
1898, to June 29, 1899; and, in view of the evidence adduced by the plaintiff in
Moreover, the approval of accounts corresponding to the years from June 30, So that it does not matter that the accounts pertaining to the years comprised
1899, to December 31, 1902, does not imply that the said approved accounts between the 30th of June, 1899, and the 31st of December, 1902, may have
comprise those pertaining that the seven months mentioned, December 1, been approved by Aldecoa & Co. Whenever this firm shall succeed in proving
1899, to June 29, 1899, because the defendant, the accountant, denied that that there was error, omission, fraud, or deceit in these accounts, they may be
the partnership commenced on the aforesaid date of December 1st, asserting duly revised, according to the law.
it began on June 30, 1899; wherefore, on defendant's rendering those
accounts, it is to be presumed that it did so from the date which it avers was With regard to the last point in controversy, the defendant agrees that the
that of the information of the partnership and the beginning of the business, plaintiff has not yet approved the accounts that the former rendered, pertaining
and it is therefore evident that it has not rendered accounts pertaining to the to 1903, the last years of the existence of the joint-account partnership; and,
seven months mentioned. for this reason, it was provided in the judgment appealed from that the trial
should continue with respect to the said accounts corresponding to the year
With respect to the third point relative to whether errors and omissions 1903, in order that the plaintiff might take such objections and statements in
prejudicial to the plaintiff, Aldecoa & Co., exist in the partnership books and in regard to the same as he deemed proper, and adduce the evidence conducive
its accounts, and whether, in the management of the said business, fraudulent to prove his claim, in accordance with law.
acts were committed to plaintiff's injury, it must be borne in mind that once
accounts have been approved which were rendered by the managing firm of It is one of the duties of the manager of a joint-account partnership, to liquidate
Warner, Barnes & Co., Ltd., the plaintiff, Aldecoa & Co., is not entitled the assets that form the common property, and to state the result obtained
afterwards to claim a revision of the same, unless it shows that there was therefrom in the final rendering of the accounts which he is to present at the
fraud, deceit, error, or mistake in the approval of the said accounts. conclusion of the partnership.

Under these hypothesis, Alcodea & Co. are strictly obliged to prove the errors, Article 243 of the Code of Commerce says;
omissions, and fraudulent acts attributed to the defendant, in connection with
the accounts already rendered, and approved by them, in order that the same
The liquidation shall be effected by the manager, and after the
may be revised in accordance with law and the jurisprudence of the courts. transactions have been concluded he shall render a proper account of
(Pastor vs. Nicasio, 6 Phil. Rep., 152.)
its results.

The approval of an account does not prevent its subsequent revision, or at


It is a recognized fact, and one admitted by both parties that the partnership
least its correction, if it is proved in a satisfactory manner that there was deceit herein concerned concluded its transactions on December 31, 1903;
and fraud or error and omission in it. (Arts. 1265, 1266, Civil Code.) wherefore the firm of Warner, Barnes & Co. Ltd., the manager of the
partnership, in declaring the latter's transactions concluded and in rendering
Law 30, title 11, 5th Partida, provides, among other things, the following: duly verified accounts of its results, owes the duty to include therein the
property and effects belonging to the partnership in common. This rule was
That is precisely what we say should be observed, in all other established by the supreme court of Spain in applying a similar precept of the
accounts that men make among themselves, in connection with the mercantile code, in its decision on an appeal in causation of the 1st of July,
things which belong to them. Notwithstanding that they may 1870, setting up the following doctrine:
acknowledge the settlement of the accounts between them and
promise never to bring them up again, if it had be known in truth that In case of the liquidation of a company of this kind (denominated joint-
he who gave the account or had the things in his keeping, concealed account partnership), inasmuch as the sale of the firm assets is
anything deceitfully, or committed other fraud against those who have necessarily uncertain and eventual, considering the greater or lesser
a share in such thing, then neither the suit, nor such previous status selling price that may be obtained from the property and effects which
and promise shall avail; on the contrary, we say that they may sue him comprise such assets, the price received should be alloted in the
to compel him to remedy the deceit he committed against them, and to same proportion as that fixed in the contract for the division of the
pay all the damages and losses that have accrued to them by reason profits and losses, for otherwise one of the partners would be
thereof; provided, however, he especially shall not have repaired the benefited to the detriment and loss of his copartners.
deceit that he committed.
This doctrine is perfectly legal and in accord with justice, as no person should
enrich himself wrongfully at the expense of another; and, in the case under
review, should it be duly and fully proved that the managing firm acquired
realty in the name and at the expense of the joint-account partnership with the
plaintiff firm, it is just that, in liquidating the property of common ownership,
such realty should be divided between the partners in the same manner as
were the profits and losses during the existence of the business, from the
beginning of the partnership to the date of its dissolution.

By the facts herein above set forth, it has been shown that in the present state
of this cause resulting from the rendering of the judgment appealed from, it has
not been possible to decide in a final manner the various issues brought up
and controverted by the litigants, for, though it be granted as proved that the
defendant firm, the manager of the said partnership, has in fact rendered
accounts pertaining to the years from June 30, 1899, to December 31, 1902,
as found in the said judgment, there still remain to be decided the four points
or questions of fact before specified. Wherefore, and in accordance with
section 496 of the Code of Civil Procedure, a new trial should be held For the
purpose of a final decision of all the questions involved in this litigation, and
accordingly the judgment appealed from is set aside and this cause shall be
returned to the court below, accompanied by a certified copy of this decision,
for the holding of a new trial, for which purpose, first, the defendant shall be
advised that it must, within a fixed period, render an account, verified by
vouchers, of its management of the business of the joint-account partnership
with the plaintiff, pertaining to the months from December 1, 1898, to June 29,
1899, and to the twelve months of the year 1903, unless it shall prove in a
satisfactory manner that the said partnership began on June 30, 1899,
contrary to the averment of the plaintiff supported by evidence that it
commenced on December 1, 1898, in which case the said rendering of
account shall be restricted to the twelve months of the year 1903, in the
accounts of which last period must be included all the property that is found to
belong to the said partnership; second, in the examination of the accounts that
may be found to have been rendered, the parties may allege and prove facts
conducive to their revision or approval besides availing themselves of the
evidence already adduced at trial; and, third, with respect to the accounts
corresponding to the period from June 30, 1899, to December 31, 1902,
already approved, the trial court shall be proceed in accordance with law, duly
considering the errors, omissions, mistakes and fraudulent or deceitful acts
that have been alleged or may specifically be alleged in rejecting the said
approved accounts, as well as the evidence introduced by both parties, and it
shall be careful to decide in its final judgment all the issues raised between the
parties in the course of this litigation and to provide such remedies as are
proper in regard to their respective claims. So ordered.

Johnson, Moreland and Trent, JJ., concur.


Republic of the Philippines acts as manager, in excess of his interest in the firm assets, should be
SUPREME COURT prosecuted against his estate in administration in the manner provided by law.
Manila
5.EXECUTORS AND ADMINISTRATORS; PARTNERSHIP; ACCOUNTING;
EN BANC DlSCONTINUANCE OF ACTION.When the manager of a defunct
partnership who is named defendant in an action for an accounting of its affairs
G.R. No. L-18707 December 9, 1922 and against whom judgment is sought for mismanagement or misappropriation
of its funds dies, the action should be discontinued, upon motion to that effect
PO YENG CHEO, plaintiff-appellee, by his personal representative, and the claim for damages should be
presented to the committee on claims in the administration of his estate. It is
vs.
LIM KA YAM, defendant-appellant. error to prosecute such an action to judgment over the objection of the
administrator. [Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 172(1922)]
F. R. Feria and Romualdez Bros. for appellant.
Quintin Llorente and Carlos C. Viana for appellee. By the amended complaint in this action, the present plaintiff, Po Yeng Cheo,
alleged sole owner of a business formerly conducted in the City of Manila
under the style of Kwong Cheong, as managing partner in said business and
STREET, J.: to recover from him its properties and assets. The defendant having died
during the pendency of the cause in the court below and the death suggested
1.PARTNERSHIP; LIABILITY OF MANAGER TO ACCOUNT; of record, his administrator, one Lim Yock Tock, was required to appear and
LIQUIDATION. Though the manager of a mercantile partnership which has make defense.
ceased to do business is accountable to his associates for any assets of the
concern in his hands, judgment cannot be rendered against him for the In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the
proportionate share of the capital claimed by one of the partners in an action court below, found that the plaintiff was entitled to an accounting from Lim Ka
brought by such partner alone, where the concern has not been liquidated and Yam, the original defendant, as manager of the business already reffered to,
there is no proof showing the existence of assets applicable to capital account. and he accordingly required Lim Yock Tock, as administrator, to present a
liquidation of said business within a stated time. This order bore no substantial
2.ID.; ID.; ACTION BY SINGLE PARTNER.Where the only assets in the fruit, for the reason that Lim Yock Tock personally knew nothing about the
hands of the manager of a defunct partnership consists of shares in other aforesaid business (which had ceased operation more than ten years
companies, the true value of which is not proved, it is error, in an action for an previously) and was apparently unable to find any books or documents that
accounting brought against him by one of the partners, to give judgment in could shed any real light on its transaction. However, he did submit to the court
favor of the plaintiff for a sum of money equivalent to his aliquot part of the par a paper written by Lim Ka Yam in life purporting to give, with vague and
value of such shares. A single partner cannot recover from another, without uncertain details, a history of the formation of the Kwong Cheong Tay and
process of liquidation or division, a part of the undivided property of the some account of its disruption and cessation from business in 1910. To this
partnership. narrative was appended a statement of assets and liabilities, purporting to
show that after the business was liquidate, it was actually debtor to Lim Ka
3.ID.; LIQUIDATION; SURVIVING MEMBER.When the manager of a Yam to the extent of several thousand pesos. Appreciating the worthlessness
mercantile partnership dies the duty of liquidating it devolves upon the of this so-called statement, and all parties apparently realizing that nothing
surviving member, or members, of the firm and not upon the legal more was likely to be discovered by further insisting on an accounting, the
representative of the deceased member. court proceeded, on December 27, 1921, to render final judgment in favor of
the plaintiff.
4.ID.; ID.; CLAIM FOR DAMAGES AGAINST MANAGER.When the
manager of a mercantile partnership who is charged with the duty of liquidating The decision made on this occasion takes as its basis the fact stated by the
the same dies, his associates should take the proper steps to settle its affairs; court in its earlier decision of July 1, 1921, which may be briefly set fourth as
and any claim against him, or his estate, for damages incident to the follows:lawphil.net
misappropriation of its funds by him or for damage resulting from his wrongful
The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and Proceeding then to consider the appealed decision in relation with the facts
as such Po Yeng Cheo inherited the interest left by Po Gui Yao in a business therein stated and other facts appearing in the orders and proceedings in the
conducted in Manila under the style of Kwong Cheong Tay. This business had cause, it is quite apparent that the judgment cannot be sustained. In the first
been in existence in Manila for many years prior to 1903, as a mercantile place, it was erroneous in any event to give judgment in favor of the plaintiff to
partnership, with a capitalization of P160,000, engaged in the import and the extent of his share of the capital of Kwong Cheong Tay. The managing
export trade; and after the death of Po Gui Yao the following seven persons partner of a mercantile enterprise is not a debtor to the shareholders for the
were interested therein as partners in the amounts set opposite their capital embarked by them in the business; and he can only be made liable for
respective names, to wit: Po Yeng Cheo, P60,000; Chua Chi Yek, P50,000; the capital when, upon liquidation of the business, there are found to be assets
Lim Ka Yam, P10,000; Lee Kom Chuen, P10,000; Ley Wing Kwong, P10,000; in his hands applicable to capital account. That the sum of one hundred and
Chan Liong Chao, P10,000; Lee Ho Yuen, P10,000. The manager of Kwong sixty thousand pesos (P160,000) was embarked in this business many years
Cheong Tay, for many years prior of its complete cessation from business in ago reveals nothing as to the condition of the capital account at the time the
1910, was Lim Ka Yam, the original defendant herein. concern ceased to do business; and even supposing--as the court possibly
did--that the capital was intact in 1908, this would not prove it was intact in
Among the properties pertaining to Kwong Cheong Tay and consisting part of 1910 when the business ceased to be a going concern; for in that precise
its assets were ten shares of a total par value of P10,000 in an enterprise interval of time the capital may have been diminished or dissipated from
conducted under the name of Yut Siong Chyip Konski and certain shares to causes in no wise chargeable to the negligence or misfeasance of the
the among of P1,000 in the Manila Electric Railroad and Light Company, of manager.
Manila.
Again, so far as appears from the appealed decision, the only property
In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do pertaining to Kwong Cheong Tay at the time this action was brought consisted
business, owing principally to the fact that the plaintiff ceased at that time to of shares in the two concerns already mentioned of the total par value of
transmit merchandise from Hongkong, where he then resided. Lim Ka Yam P11,000. Of course, if these shares had been sold and converted into money,
appears at no time to have submitted to the partners any formal liquidation of the proceeds, if not needed to pay debts, would have been distributable
the business, though repeated demands to that effect have been made upon among the various persons in interest, that is, among the various
him by the plaintiff. shareholders, in their respective proportions. But under the circumstances
revealed in this case, it was erroneous to give judgment in favor of the plaintiff
for his aliquot part of the par value of said shares. It is elementary that one
In view of the facts above stated, the trial judge rendered judgment in favor of
partner, suing alone, cannot recover of the managing partner the value of such
the plaintiff, Po Yeng Cheo, to recover of the defendant Lim Yock Tock, as
partner's individual interest; and a liquidation of the business is an essential
administrator of Lim Ka Yam, the sum of sixty thousand pesos (P60,000),
constituting the interest of the plaintiff in the capital of Kwong Cheong Tay, prerequisite. It is true that in Lichauco vs. Lichauco (33 Phil., 350), this court
plus the plaintiff's proportional interest in shares of the Yut Siong Chyip Konski permitted one partner to recover of the manager the plaintiff's aliquot part of
the proceeds of the business, then long since closed; but in that case the
and Manila Electric Railroad and Light Company, estimated at P11,000,
affairs of the defunct concern had been actually liquidate by the manager to
together with the costs. From this judgment the defendant appealed.
the extent that he had apparently converted all its properties into money and
had pocketed the same--which was admitted;--and nothing remained to be
In beginning our comment on the case, it is to be observed that this court finds done except to compel him to pay over the money to the persons in interest. In
itself strictly circumscribed so far as our power of review is concerned, to the the present case, the shares referred to--constituting the only assets of Kwong
facts found by the trial judge, for the plaintiff did not appeal from the decision of Cheong Tay--have not been converted into ready money and doubtless still
the court below in so far as it was unfavorable to him, and the defendant, as remain in the name of Kwong Cheong Tay as owner. Under these
appellant, has not caused a great part of the oral testimony to be brought up. It circumstances it is impossible to sustain a judgment in favor of the plaintiff for
results, as stated, that we must accept the facts as found by the trial judge; his aliquot part of the par value of said shares, which would be equivalent to
and our review must be limited to the error, or errors, if any, which may be allowing one of several coowners to recover from another, without process of
apparent upon the face of the appealed decision, in relation with the pleadings division, a part of an undivided property.
of record.
Another condition will be noted as present in this case which in our opinion is
fatal to the maintenance of the appealed judgment. This is that, after the death
of the original defendant, Lim Ka Yam, the trial court allowed the action to Araullo, C. J., Johnson, Malcolm, Avancea, and Villamor, JJ., concur.
proceed against Lim Yock Tock, as his administrator, and entered judgment for Ostrand, J., concurs in the result.
a sum of money against said administrator as the accounting party,-- Johns, and Romualdez, JJ., took no part in the decision of this case.
notwithstanding the insistence of the attorneys for the latter that the action
should be discontinued in the form in which it was then being prosecuted. The
error of the trial court in so doing can be readily demonstrated from more than
one point of view.

In the first place, it is well settled that when a member of a mercantile


partnership dies, the duty of liquidating its affair devolves upon the surviving
member, or members, of the firm, not upon the legal representative of the
deceased partner. (Wahl vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and
Shibata vs. Green, 6 Phil., 744) And the same rule must be equally applicable
to a civil partnership clothed with the form of a commercial association (art.
1670, Civil Code; Lichauco vs. Lichauco, 33 Phil., 350) Upon the death of Lim
Ka Yam it therefore became the duty of his surviving associates to take the
proper steps to settle the affairs of the firm, and any claim against him, or his
estate, for a sum of money due to the partnership by reason of any
misappropriation of its funds by him, or for damages resulting from his
wrongful acts as manager, should be prosecuted against his estate in
administration in the manner pointed out in sections 686 to 701, inclusive, of
the Code of Civil Procedure. Moreover, when it appears, as here, that the
property pertaining to Kwong Cheong Tay, like the shares in the Yut Siong
Chyip Konski and the Manila Electric Railroad and Light Company, are in the
possession of the deceased partner, the proper step for the surviving
associates to take would be to make application to the court having charge to
the administration to require the administrator to surrender such property.

But, in the second place, as already indicated, the proceedings in this cause,
considered in the character of an action for an accounting, were futile; and the
court, abandoning entirely the effort to obtain an accounting, gave judgment
against the administrator upon the supposed liability of his intestate to respond
for the plaintiff's proportionate share of the capital and assets. But of course
the action was not maintainable in this aspect after the death of the defendant;
and the motion to discontinue the action as against the administrator should
have been granted.

The judgment must be reversed, and the defendant will be absolved from the
complaint; but it will be understood that this order is without prejudice to any
proceeding which may be undertaken by the proper person or persons in
interest to settle the affairs of Kwong Cheong Tay and in connection therewith
to recover from the administrator of Lim Ka Yam the shares in the two
concerns mentioned above. No special pronouncement will be made as to
costs of either. So ordered.
Republic of the Philippines partner; and that plaintiff failed to liquidate the affairs of the partnership and to
SUPREME COURT render an account thereof to the administratrix of Santos' estate. The court,
Manila therefore, dismissed the plaintiff's complaint and absolved the defendant
therefrom, and ordered the plaintiff to render a full and complete accounting,
EN BANC verified by vouchers, of the partnership business from June 15, 1918, until
September 1, 1922. To this decision and order the plaintiff duly excepted.The
G.R. No. L-28920 October 24, 1928 plaintiff thereupon rendered an account prepared by one Tomas Alfonso, a
public accountant. Numerous objections to said account were presented by the
defendant, and the court, upon hearing, disapproved the account and ordered
MAXIMO GUIDOTE, plaintiff-appellant, that the defendant submit to the court an accounting of the partnership
vs. business from the date of the commencement of the partnership, June 15,
ROMANA BORJA, as administratrix of the estate of Narciso Santos, 1918, up to the time the business was closed. 1awph!l.net
deceased, defendant-appellee.
On January 25, 1924, the defendant presented an account and liquidation
OSTRAND, J.: prepared by a public accountant, Santiago A. Lindaya, showing a balance of
P29,088.95 in favor of the defendant. The account was set down for hearing
1.PARTNERSHIPS, DISSOLUTION OF; LIQUIDATION.The death of one of upon the question of its approval or disapproval by the court, at which hearing
the partners dissolves the partnership, but the liquidation of its affairs is by law the defendant introduced the public accountant Jose Turiano Santiago to
intrusted to the surviving partners, or to liquidators appointed by them, and not testify as to the results of an audit made by him of the accounts of the
to the executors of the deceased partner. (Wahl vs. Donaldson Sim & Co., 5 partnership. Santiago testified that he had been a public accountant for over
Phil., 11.) 20 years, having appeared in court as such on several occasions; that he had
examined the exhibits offered in evidence of the case by both parties; that he
2.ID.; ID.; DECEASED PARTNER; SURVIVING PARTNERS TRUSTEES.In had prepared a separate accounting or liquidation similar in results to that
equity, surviving partners are treated as trustees of the representatives of the prepared by Lindaya, but with a few differences in the sums total; and that
deceased partner in regard to his interest in the firm and are held to that according to his examination, the financial status of the partnership was as
strictness of accountability required of an incident to the position of one follows:
occupying a confidential relation. [Guidote vs. Borja, 53 Phil. 900(1928)]
Narciso Santos is a creditor of the Taller Sinukuan in
On March 4, 1921, the plaintiff brought an action against the administratrix of the sum of P26,020.89 consisting as follows:
the estate of Narciso Santos, deceased, to recover the sum of P9,534.14, a
part of which was alleged to be the net profits due the plaintiff in a partnership For his capital .................................. P12,588.53
business conducted under the name of "Taller Sinukuan," in which the
For his credit ................................... 10,348.30
deceased was the capitalist partner and the plaintiff the industrial partner, the
rest of the sum consisting of advances alleged to have been made to said For his share of the profits ............ 3,068.06
partnership by the plaintiff. The defendant in her answer admitted the
existence of the partnership and in a cross-complaint and counter-claim Total ...................................................
prayed that the plaintiff be ordered to render an accounting of the partnership 26,020.89
business and to pay to the estate of the deceased the sum of P25,000 as net
Maximo Guidote is a debtor to the Taller Sinukuan in
profits, credits, and property pertaining to said deceased. In the first trial of the
the sum of P20,020.89, consisting as follows:
case the plaintiff called several witnesses and introduced a so-called
accounting and a mass of documentary evidence consisting of books, bills, For his debt (debito) ......................... P29,088.95
and alleged vouchers, which documentary evidence was so hopelessly and
inextricably confused that the court, as stated in its decision, could not Less his share of the profits ........... 3,068.06
consider it of much probative value. It was, however, fund as facts that the
Total balance ......................................
aforesaid partnership had been formed, on or about June 15, 1918; that
26.020.89
Narciso Santos died on April 6, 1920, leaving the plaintiff as the surviving
In order to contradict the conclusions of Lindaya and Jose Turiano Santiago, (1) That the court erred in dismissing the plaintiff's complaint and
the plaintiff presented Tomas Alfonso and the bookkeeper, Pio Gaudier, as ordering him to present a liquidation of the operations and accounts of
witnesses in his favor. In regard to the character of the testimony of these the partnership formed with the deceased Narciso Santos, from the
witnesses, His Honor, the trial judge, says: beginning of the partnership until September 1, 1922.

The testimony of these two witnesses is so unreliable that the court (2) That the court erred in approving the liquidation made by the public
can place no reliance thereon. Mr. Tomas Alfonso is the same public accountant Santiago A. Lindaya, with the modification introduced by
accountant who filed the liquidation Exhibit O on behalf of the plaintiff, the witness Jose Turiano Santiago.
in relation to the partnership business, which liquidation was
disapproved by this court in its decision of August 20, 1923. It is also (3) That the court erred in ordering the plaintiff and appellant to pay to
to be noted that Mr. Alfonso would have this court believe the the defendant and appellee the sum of P26,020.89.
proposition that the plaintiff, a mere industrial partner, notwithstanding
his having received the sum of P21,649.61 on the various jobs and As to the first assignment of error there may be some merit in the appellant's
contracts of the "Taller Sinukuan," had actually expended and paid out contention that the dismissal of his complaint was premature. The better
the sum of P63,360.27, of P44,710.66 in excess of the gross receipts
practise would, perhaps, have been to let the complaint stand until the result of
of the business. This proposition is not only improbable on its face, but
the liquidation of the partnership affairs was known. But under the
it materially contradicts the allegations of plaintiff's complaint to the
circumstances of this case no harm was done by the dismissal of the
effect that the advances made by the plaintiff only the amount to
complaint, and the error, if any there be, is not reversible.
P2,017.50.
Under the same assignment of error the plaintiff argues that as the deceased
Mr. Pio Gaudier is the same bookkeeper who prepared three entirely
up to the time of his death generally took care of the payments and collections
separate and distinct liquidation for the same partnership business all
of the partnership, his legal representatives were under the obligation to render
of which were repeated by the court in its decisions of September 1,
accounts of the operations of the partnership, notwithstanding the fact that the
1922 and the court finds that the testimony given by him at the last plaintiff was in charge of the business subsequent to the death of Santos. This
hearing is confusing, contradictory and unreliable.1awph!l.net
argument is without merit. In the case of Wahl vs. Donaldson Sim & Co. (5
Phil., 11, 14), it was held that the death of one of the partners dissolves the
As to the other witnesses for the plaintiff His Honor further says: partnership, but that the liquidation of its affairs is by law intrusted, not to the
executors of the deceased partner, but to the surviving partners or the
The testimony of the other witnesses for the plaintiff deserves but liquidators appointed by them (citing article 229 of the Code of Commerce and
scant consideration as evidence to overcome the testimony of Mr. secs. 664 and 665 of the Code of Civil Procedure). The same rule is laid down
Santiago, as a whole particularly that of the witness Chua Chak, who, by the Supreme Court of Spain in sentence of October 12, 1870.
after identifying and testifying as to a certain exhibit shown him by
counsel for plaintiff, showed that he could neither read nor write The other assignments of error have reference only to questions of fact in
English, Spanish, or Tagalog, and that of the witness Mr. Claro Reyes, regard to which the findings of the court below seem to be as nearly correct as
who, after positively assuring the court that a certain exhibit tendered possible upon the evidence presented. There may be errors in the
him for identification was an original document, was forced to admit interpretation of the accounts, and it is possible that the amount of P26,020.89
that it was but a mere copy. charged against the plaintiff is excessive, but the evidence presented by him is
so confusing and unreliable as to be practically of no weight and cannot serve
The court therefore, found that the conclusions reached by Santiago A. as a basis for a readjustment of the accounts prepared by the accountant
Lindaya as modified by Jose Turinao Santiago were just and correct and Lindaya and the apparently reliable witness, Jose Turiano Santiago.
ordered the plaintiff to pay the defendant the sum of P26,020.89, Philippine
currency, with legal interest thereon from April 2, 1921, the date of the We should, perhaps, have been more inclined to question the conclusions of
defendant's answer, and to pay the costs. From this judgment the plaintiff Lindaya and Santiago if the plaintiff had shown a disposition to render an
appealed to this court and presents the following assignments of error: honest account of the business and to effect a fair liquidation of the partnership
but instead of doing so, he has by means of very questionable, and apparently
false, evidence sought to mulct his deceased partner's estate to the extent of
over P9,000. The rule for the conduct of a surviving partner is thus stated in 20
R. C. L., 1003:

In equity surviving partners are treated as trustees of the


representatives of the deceased partner, in regard to the interest of the
deceased partner in the firm. As a consequence of this trusteeship,
surviving partners are held in their dealings with the firm assets and
the representatives of the deceased to that nicety of dealing and that
strictness of accountability required of and incident to the position of
one occupying a confidential relation. It is the duty of surviving
partners to render an account of the performance of their trust to the
personal representatives of the deceased partner, and to pay over to
them the share of such deceased member in the surplus of firm
property, whether it consists of real or personal assets.

The appellant has completely failed to observe the rule quoted, and he is not in
position to complain if his testimony and that of his witnesses is discredited.

The appealed judgment is affirmed with the costs against the appellant. So
ordered.

Avancea, C. J., Johnson, Street, Malcolm, Villamor, Romualdez, and Villa-


Real, JJ., concur.
Republic of the Philippines Same; Same; Art. 1930 and Art. 1931 of the Civil Code exceptions to general
SUPREME COURT rule provided in Art. 1919 of the Civil Code, that death of principal revokes ipso
Manila jure the agency.Is the general rule provided for in Art. 1919 that the death of
the principal or of the agent extinguishes the agency, subject to any exception,
G.R. No. L-24332 January 31, 1978 and if so, is the instant case within that exception? That is the determinative
point in issue in this litigation x x x Articles 1930 and 1931 of the Civil Code
RAMON RALLOS, Administrator of the Estate of CONCEPCION provide the exceptions to the general rule aforementioned.
RALLOS, petitioner,
vs. Same; Same; Same; Contention that despite death of principal the act of
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF attorney-in-fact in selling his principals share of the disputed property is valid
APPEALS, respondents. and enforceable since the buyer acted in good faith is untenable because of
the established knowledge of the attorney-in-fact of the death of his principal;
Seno, Mendoza & Associates for petitioner. Requisites of Art. 1931 that despite death of principal and of agent is valid not
complied with.Under Art. 1931 of the Civil Code, an act done by the agent
after the death of his principal is valid and effective only under two conditions,
Ramon Duterte for private respondent. viz: (1) that the agent acted without knowledge of the death of the principal,
and (2) that the third person who contracted with the agent himself acted in
MUOZ PALMA, J.: good faith. Good faith here means that the third person was not aware of the
death of the principal at the time he contracted with said agent. These two
Agency, its concept, essential elements and characteristics.By the requisites must concur: the absence of one will render the act of the agent
relationship of agency, one party called the principal authorizes another called invalid and unenforceable. In the instant case, it cannot be questioned that the
the agent to act for and in his behalf in transactions with third persons. The agent Simeon Rallos knew of the death of his principal at the time he sold the
essential elements of agency are:(l) there is consent, express or implied, of the latters share in Lot No. 5983 to respondent corporation. x x x On the basis of
parties to establish the relationship: (2) the object is the execution of a juridical the established knowledge of Simeon Rallos concerning the death of his
act in relation to a third person; (3) the agent acts as a representative and not principal, Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The
for himself; and (4) the agent acts within the scope of his authority. Agency is law expressly requires for its application lack of knowledge on the part of the
basically personal, representative, and derivative in nature. The authority of agent of the death of his principal; it is not enough that the third person acted
the agent to act emanates from the powers granted to him by his principal; his in good faith.
act is the act of the principal if done within the scope of the authority. He who
acts through another acts himself. Same; Same; Same; Same; General rule is that an act of agent after death of
his principal is void ab initio unless the same falls under exceptions in Arts.
Same: Same; Art. 1930 and Art. 1931 of the Civil Code providing that death of 1930 and 1931 of the Civil Code; Art 1931 being an exception to the general
principal or agent extinguishing agency is only a general rule; Rationale for the rule is to be strictly construed.In sustaining the validity of the sale to
provision.Reason of the very nature of the relationship between principal respondent corporation, the Court of Appeals reasoned out that there is no
and agent, agency is extinguished by the death of the principal. Manresa provision in the Civil Code which provides that whatever is done by an agent
explains that the rationale for the law is found in the juridical basis of agency having knowledge of the death of his principal is void even with respect to third
which is representation. Laurent says that the juridical tie between the principal persons who may have contracted with him in good faith and without
and the agent is severed ipso jure upon the death of either without necessity knowledge of the death of the principal. We cannot see the merits of the
for the heirs of the principal to notify the agent of the fact of death of the foregoing argument as it ignores the existence of the general rule enunciated
former. The same rule prevails at common lawthe death of the principal in Art. 1919 that the death of the principal extinguishes the agency. That being
effects instantaneous and absolute revocation of the authority of the agent the general rule it follows a fortiori that any act of an agent after the death of
unless the power be coupled with an interest. This is the prevalent rule in his principal is void ab initio unless the same falls under the exceptions
American jurisprudence where it is well-settled that a power without an interest provided for in the aforementioned Articles 1930 and 1931. Article 1931, being
conferred upon an agent is dissolved by the principals death, and any an exception to the general rule, is to be strictly construed; it is not to be given
attempted execution of the power afterwards is not binding on the heirs or an interpretation or application beyond the clear import of its terms for
representatives of the deceased.
otherwise the courts will be involved in a process of legislation outside of their same manner that the ruling in Blondeau and the cases cited therein found a
judicial function. basis in Section 55 of the Land Registration Law.

Same; Same; Revocation by an act of the principal as a mode of terminating Same; Same; Conflict of legal opinion in American jurisprudence does not hold
agency distinguished from revocation by operation of law such as death of true in Philippine law; Civil Code of the Philippines expressly provides for two
principal.Revocation by an act of the principal as a mode of terminating an exceptions to general rule that death of the principal revokes the agency;
agency is to be distinguished from revocation by operation of law such as Agents act of executing the sale of property despite notice of death of his
death of the principal which obtains in this case. The decision stressed that by principal is unenforceable against the estate of the principal.One last point
reason of the very nature of the relationship between principal and agent, raised by respondent corporation in support of the appealed decision is an
agency is extinguished ipso jure upon the death of either principal or agent. 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie
Although a revocation of a power of attorney to be effective must be wherein payments made to an agent after the death of the principal were held
communicated to the parties concerned, yet a revocation by operation of law, to be good, the parties being ignorant of the death. Let us take note that the
such as by death of the principal is, as a rule, instantaneously effective Opinion of Justice Rogers was premised on the statement that the parties
inasmuch as by legal fiction the agents exercise of authority is regarded as were ignorant of the death of the principal. x x x To avoid any wrong
an execution of the principals continuing will. With death, the principals will impression which the Opinion in Cassiday v. McKenzie may evoke, mention
ceases or is terminated; the source of authority is extinguished. may be made that the above represents the minority view in American
jurisprudence. x x x Whatever conflict of legal opinion was generated by
Same; Same; Law does not impose a duty on the heirs of principal to notify Cassiday v. McKenzie in American jurisprudence, no such conflict exists in our
agent of death of principal; If agent dies, his heirs must notify principal own for the simple reason that our statute, the Civil Code, expressly provides
thereof.The Civil Code does not impose a duty on the heirs of the principal for two exceptions to the general rule that death of the principal revokes ipso
to notify the agent of the death of said principal. What the Code provides in jure the agency, to wit: (1) that the agency is coupled with an interest (Art.
Article 1932 is that, if the agent dies, his heirs must notify the principal thereof, 1930), and (2) that the act of the agent was executed without knowledge of the
and in the meantime adopt such measures as the circumstances may demand death of the principal and the third person who contracted with the agent acted
in the interest of the latter. Hence, the fact that no notice of the death of the also in good faith (Art. 1931). Exception No. 2 is the doctrine followed in
principal was registered on the certificate of title of the property in the Office of Cassiday, and again We stress the indispensable requirementthat the agent
the Register of Deeds, is not fatal to the cause of the estate of the principal. acted without knowledge or notice of the death of the principal. In the case
before Us the agent Ramon Rallos executed the sale notwithstanding notice of
the death of his principal. Accordingly, the agents act is unenforceable against
Same; Same; No parallel can be drawn between the case of attorney-in-fact
the estate of his principal. [Rallos vs. Felix Go Chan & Sons Realty
who after death of his principal sold the latters share in the land pursuant to a
special power of attorney which the principal had executed in his favor and that Corporation, 81 SCRA 251(1978)]
of an innocent purchaser for value of registered land.Holding that the good
faith of a third person in dealing with an agent affords the former sufficient This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of
protection, respondent court drew a parallel between the instant case and his principal, Concepcion Rallos, sold the latter's undivided share in a parcel of
that of an innocent purchaser for value of a registered land, stating that if a land pursuant to a power of attorney which the principal had executed in favor.
person purchases a registered land from one who acquired it in bad faith The administrator of the estate of the went to court to have the sale declared
even to the extent of forging or falsifying the deed of sale in his favorthe uneanforceable and to recover the disposed share. The trial court granted the
registered owner has no recourse against such innocent purchaser for value relief prayed for, but upon appeal the Court of Appeals uphold the validity of
but only against the forger. To support the correctness of this parallelism, the sale and the complaint.
respondent corporation, in its brief, cites the case of Blondeau, et al. vs. Nano
and Vallejo, 61 Phil. 625. x x x The Blondeau decision, however, is not on all Hence, this Petition for Review on certiorari.
fours with the case before Us because here We are confronted with one who
admittedly was an agent of his sister and who sold the property of the latter The following facts are not disputed. Concepcion and Gerundia both surnamed
after her death with full knowledge of such death. The situation is expressly Rallos were sisters and registered co-owners of a parcel of land known as Lot
covered by a provision of law on agency the terms of which are clear and No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of
unmistakable leaving no room for an interpretation contrary to its tenor, in the Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters
executed a special power of attorney in favor of their brother, Simeon Rallos,
authorizing him to sell for and in their behalf lot 5983. On March 3, 1955, (3) Ordering Felix Go Chan & Sons Realty
Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the Corporation to deliver the possession of an
undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix undivided one-half (1/2) share of Lot 5983 to
Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of the herein plaintiff;
sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was
cancelled, and a new transfer certificate of Title No. 12989 was issued in the (4) Sentencing the defendant Juan T.
named of the vendee. Borromeo, administrator of the Estate of
Simeon Rallos, to pay to plaintiff in concept of
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of reasonable attorney's fees the sum of
Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the P1,000.00; and
Court of First Instance of Cebu, praying (1) that the sale of the undivided share
of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said (5) Ordering both defendants to pay the costs
share be reconveyed to her estate; (2) that the Certificate of 'title issued in the jointly and severally.
name of Felix Go Chan & Sons Realty Corporation be cancelled and another
title be issued in the names of the corporation and the "Intestate estate of
B. On GO CHANTS Cross-Claim:
Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by
way of attorney's fees and payment of costs of suit. Named party defendants
were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the (1) Sentencing the co-defendant Juan T.
Register of Deeds of Cebu, but subsequently, the latter was dropped from the Borromeo, administrator of the Estate of
complaint. The complaint was amended twice; defendant Corporation's Simeon Rallos, to pay to defendant Felix Co
Answer contained a crossclaim against its co-defendant, Simon Rallos while Chan & Sons Realty Corporation the sum of
the latter filed third-party complaint against his sister, Gerundia Rallos While P5,343.45, representing the price of one-half
the case was pending in the trial court, both Simon and his sister Gerundia (1/2) share of lot 5983;
died and they were substituted by the respective administrators of their
estates. (2) Ordering co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos,
After trial the court a quo rendered judgment with the following dispositive to pay in concept of reasonable attorney's
portion: fees to Felix Go Chan & Sons Realty
Corporation the sum of P500.00.
A. On Plaintiffs Complaint
C. On Third-Party Complaint of defendant Juan T. Borromeo
administrator of Estate of Simeon Rallos, against Josefina
(1) Declaring the deed of sale, Exh. "C", null
Rallos special administratrix of the Estate of Gerundia Rallos:
and void insofar as the one-half pro-indiviso
share of Concepcion Rallos in the property in
question, Lot 5983 of the Cadastral Survey (1) Dismissing the third-party complaint without prejudice to
of Cebu is concerned; filing either a complaint against the regular administrator of the
Estate of Gerundia Rallos or a claim in the Intestate-Estate of
Cerundia Rallos, covering the same subject-matter of the
(2) Ordering the Register of Deeds of Cebu third-party complaint, at bar. (pp. 98-100, Record on Appeal)
City to cancel Transfer Certificate of Title No.
12989 covering Lot 5983 and to issue in lieu
thereof another in the names of FELIX GO Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of
CHAN & SONS REALTY CORPORATION Appeals from the foregoing judgment insofar as it set aside the sale of the one-
and the Estate of Concepcion Rallos in the half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to
proportion of one-half (1/2) share each pro- earlier, resolved the appeal on November 20, 1964 in favor of the appellant
1
indiviso; corporation sustaining the sale in question. The appellee administrator,
7
Ramon Rallos, moved for a reconsider of the decision but the same was 2. There are various ways of extinguishing agency, but her We are
2
denied in a resolution of March 4, 1965. concerned only with one cause death of the principal Paragraph 3 of Art.
1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil
What is the legal effect of an act performed by an agent after the death of his Code provides:
principal? Applied more particularly to the instant case, We have the query. is
the sale of the undivided share of Concepcion Rallos in lot 5983 valid although ART. 1919. Agency is extinguished.
it was executed by the agent after the death of his principal? What is the law in
this jurisdiction as to the effect of the death of the principal on the authority of xxx xxx xxx
the agent to act for and in behalf of the latter? Is the fact of knowledge of the
death of the principal a material factor in determining the legal effect of an act 3. By the death, civil interdiction, insanity or insolvency of the
performed after such death?
principal or of the agent; ... (Emphasis supplied)

Before proceedings to the issues, We shall briefly restate certain principles of By reason of the very nature of the relationship between Principal and agent,
law relevant to the matter tinder consideration.
agency is extinguished by the death of the principal or the agent. This is the
8
law in this jurisdiction.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may
contract in the name of another without being authorized by the latter, or Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the
3
unless he has by law a right to represent him. A contract entered into in the rationale for the law is found in thejuridical basis of agency which
name of another by one who has no authority or the legal representation or is representation Them being an in. integration of the personality of the
who has acted beyond his powers, shall be unenforceable, unless it is ratified,
principal integration that of the agent it is not possible for the representation to
expressly or impliedly, by the person on whose behalf it has been executed, continue to exist once the death of either is establish. Pothier agrees with
4
before it is revoked by the other contracting party. Article 1403 (1) of the
Manresa that by reason of the nature of agency, death is a necessary cause
same Code also provides: for its extinction. Laurent says that the juridical tie between the principal and
the agent is severed ipso jure upon the death of either without necessity for the
ART. 1403. The following contracts are unenforceable, unless 9
heirs of the fact to notify the agent of the fact of death of the former.
they are justified:
The same rule prevails at common law the death of the principal effects
(1) Those entered into in the name of another person by one instantaneous and absolute revocation of the authority of the agent unless the
who hi - been given no authority or legal representation or who 10
Power be coupled with an interest. This is the prevalent rule in American
has acted beyond his powers; ... Jurisprudence where it is well-settled that a power without an interest confer.
red upon an agent is dissolved by the principal's death, and any attempted
Out of the above given principles, sprung the creation and acceptance of execution of the power afterward is not binding on the heirs or representatives
11
the relationship of agency whereby one party, caged the principal (mandante), of the deceased.
authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) 3. Is the general rule provided for in Article 1919 that the death of the principal
there is consent, express or implied of the parties to establish the relationship; or of the agent extinguishes the agency, subject to any exception, and if so, is
(2) the object is the execution of a juridical act in relation to a third person; (3) the instant case within that exception? That is the determinative point in issue
the agents acts as a representative and not for himself, and (4) the agent acts in this litigation. It is the contention of respondent corporation which was
5
within the scope of his authority. sustained by respondent court that notwithstanding the death of the principal
Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the
Agency is basically personal representative, and derivative in nature. The former's sham in the property is valid and enforceable inasmuch as the
authority of the agent to act emanates from the powers granted to him by his corporation acted in good faith in buying the property in question.
principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts Articles 1930 and 1931 of the Civil Code provide the exceptions to the general
6
himself". rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect ... even granting arguemendo that Luis Herrera did die in
even after the death of the principal, if it has been constituted 1936, plaintiffs presented no proof and there is no indication in
in the common interest of the latter and of the agent, or in the the record, that the agent Luy Kim Guan was aware of the
interest of a third person who has accepted the stipulation in death of his principal at the time he sold the property. The
his favor. death 6f the principal does not render the act of an agent
unenforceable, where the latter had no knowledge of such
ART. 1931. Anything done by the agent, without knowledge of extinguishment of the agency. (1 SCRA 406, 412)
the death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully effective 4. In sustaining the validity of the sale to respondent consideration the Court of
with respect to third persons who may have contracted with Appeals reasoned out that there is no provision in the Code which provides
him in good. faith. that whatever is done by an agent having knowledge of the death of his
principal is void even with respect to third persons who may have contracted
16
Article 1930 is not involved because admittedly the special power of attorney with him in good faith and without knowledge of the death of the principal.
executed in favor of Simeon Rallos was not coupled with an interest.
We cannot see the merits of the foregoing argument as it ignores the existence
Article 1931 is the applicable law. Under this provision, an act done by the of the general rule enunciated in Article 1919 that the death of the principal
agent after the death of his principal is valid and effective only under two extinguishes the agency. That being the general rule it follows a fortiorithat any
conditions, viz: (1) that the agent acted without knowledge of the death of the act of an agent after the death of his principal is void ab initio unless the same
principal and (2) that the third person who contracted with the agent himself fags under the exception provided for in the aforementioned Articles 1930 and
acted in good faith. Good faith here means that the third person was not aware 1931. Article 1931, being an exception to the general rule, is to be strictly
of the death of the principal at the time he contracted with said agent. These construed, it is not to be given an interpretation or application beyond the clear
two requisites must concur the absence of one will render the act of the agent import of its terms for otherwise the courts will be involved in a process of
invalid and unenforceable. legislation outside of their judicial function.

In the instant case, it cannot be questioned that the agent, Simeon Rallos, 5. Another argument advanced by respondent court is that the vendee acting
knew of the death of his principal at the time he sold the latter's share in Lot in good faith relied on the power of attorney which was duly registered on the
No. 5983 to respondent corporation. The knowledge of the death is clearly to original certificate of title recorded in the Register of Deeds of the province of
be inferred from the pleadings filed by Simon Rallos before the trial Cebu, that no notice of the death was aver annotated on said certificate of title
12 by the heirs of the principal and accordingly they must suffer the
court. That Simeon Rallos knew of the death of his sister Concepcion is also 17
13 consequences of such omission.
a finding of fact of the court a quo and of respondent appellate court when
the latter stated that Simon Rallos 'must have known of the death of his sister,
and yet he proceeded with the sale of the lot in the name of both his sisters To support such argument reference is made to a portion
Concepcion and Gerundia Rallos without informing appellant (the realty in Manresa's Commentaries which We quote:
14
corporation) of the death of the former.
If the agency has been granted for the purpose of contracting
On the basis of the established knowledge of Simon Rallos concerning the with certain persons, the revocation must be made known to
death of his principal Concepcion Rallos, Article 1931 of the Civil Code is them. But if the agency is general iii nature, without reference
inapplicable. The law expressly requires for its application lack of knowledge to particular person with whom the agent is to contract, it is
on the part of the agent of the death of his principal; it is not enough that the sufficient that the principal exercise due diligence to make the
third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the revocation of the agency publicity known.
Court applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil
Code sustained the validity , of a sale made after the death of the In case of a general power which does not specify the persons
principal because it was not shown that the agent knew of his principal's to whom represents' on should be made, it is the general
15
demise. To the same effect is the case of Herrera, et al., v. Luy Kim Guan, opinion that all acts, executed with third persons who
et al., 1961, where in the words of Justice Jesus Barrera the Court stated: contracted in good faith, Without knowledge of the revocation,
are valid. In such case, the principal may exercise his right attorney. But Vallejo denied having executed the power The
against the agent, who, knowing of the revocation, continued lower court sustained Vallejo and the plaintiff Blondeau
to assume a personality which he no longer had. (Manresa appealed. Reversing the decision of the court a quo, the
Vol. 11, pp. 561 and 575; pp. 15-16, rollo) Supreme Court, quoting the ruling in the case of Eliason v.
Wilborn, 261 U.S. 457, held:
The above discourse however, treats of revocation by an act of the principal as
a mode of terminating an agency which is to be distinguished from revocation But there is a narrower ground on which the
by operation of law such as death of the principal which obtains in this case. defenses of the defendant- appellee must be
On page six of this Opinion We stressed that by reason of the very nature of overruled. Agustin Nano had possession of
the relationship between principal and agent, agency is extinguished ipso Jose Vallejo's title papers. Without those title
jure upon the death of either principal or agent. Although a revocation of a papers handed over to Nano with the
power of attorney to be effective must be communicated to the parties acquiescence of Vallejo, a fraud could not
18
concerned, yet a revocation by operation of law, such as by death of the have been perpetuated. When Fernando de la
principal is, as a rule, instantaneously effective inasmuch as "by legal fiction Canters, a member of the Philippine Bar and
the agent's exercise of authority is regarded as an execution of the the husband of Angela Blondeau, the principal
19
principal's continuing will. With death, the principal's will ceases or is the of plaintiff, searched the registration record, he
authority is extinguished. found them in due form including the power of
attorney of Vallajo in favor of Nano. If this had
The Civil Code does not impose a duty on the heirs to notify the agent of the not been so and if thereafter the proper
death of the principal What the Code provides in Article 1932 is that, if the notation of the encumbrance could not have
agent die his heirs must notify the principal thereof, and in the meantime adopt been made, Angela Blondeau would not have
such measures as the circumstances may demand in the interest of the latter. sent P12,000.00 to the defendant Vallejo.' An
Hence, the fact that no notice of the death of the principal was registered on executed transfer of registered lands placed
the certificate of title of the property in the Office of the Register of Deeds, is by the registered owner thereof in the hands
not fatal to the cause of the estate of the principal of another operates as a representation to a
third party that the holder of the transfer is
authorized to deal with the land.
6. Holding that the good faith of a third person in said with an agent affords the
former sufficient protection, respondent court drew a "parallel" between the
instant case and that of an innocent purchaser for value of a land, stating that As between two innocent persons, one of
if a person purchases a registered land from one who acquired it in bad faith whom must suffer the consequence of a
even to the extent of foregoing or falsifying the deed of sale in his favor breach of trust, the one who made it possible
the registered owner has no recourse against such innocent purchaser for by his act of coincidence bear the loss. (pp.
20 19-21)
value but only against the forger.

To support the correctness of this respondent corporation, in its brief, cites the The Blondeau decision, however, is not on all fours with the case before Us
case of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the because here We are confronted with one who admittedly was an agent of his
brief: sister and who sold the property of the latter after her death with full knowledge
of such death. The situation is expressly covered by a provision of law on
agency the terms of which are clear and unmistakable leaving no room for an
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61
Phil. 630, one Vallejo was a co-owner of lands with Agustin interpretation contrary to its tenor, in the same manner that the ruling in
Nano. The latter had a power of attorney supposedly executed Blondeau and the cases cited therein found a basis in Section 55 of the Land
Registration Law which in part provides:
by Vallejo Nano in his favor. Vallejo delivered to Nano his land
titles. The power was registered in the Office of the Register of
Deeds. When the lawyer-husband of Angela Blondeau went to xxx xxx xxx
that Office, he found all in order including the power of
The production of the owner's duplicate certificate whenever To avoid any wrong impression which the Opinion in Cassiday v.
any voluntary instrument is presented for registration shall be McKenzie may evoke, mention may be made that the above represents the
conclusive authority from the registered owner to the register minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court
of deeds to enter a new certificate or to make a memorandum said.
of registration in accordance with such instruments, and the
new certificate or memorandum Shall be binding upon the There are several cases which seem to hold that although, as
registered owner and upon all persons claiming under him in a general principle, death revokes an agency and renders null
favor of every purchaser for value and in good faith: Provided every act of the agent thereafter performed, yet that where a
however, That in all cases of registration provided by fraud, payment has been made in ignorance of the death, such
the owner may pursue all his legal and equitable remedies payment will be good. The leading case so holding is that
against the parties to such fraud without prejudice, however, of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76,
to the right, of any innocent holder for value of a certificate of where, in an elaborate opinion, this view ii broadly announced.
title. ... (Act No. 496 as amended) It is referred to, and seems to have been followed, in the case
of Dick v. Page,17 Mo. 234, 57 AmD 267; but in this latter
7. One last point raised by respondent corporation in support of the appealed case it appeared that the estate of the deceased principal had
decision is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday received the benefit of the money paid, and therefore the
v. McKenzie wherein payments made to an agent after the death of the representative of the estate might well have been held to be
principal were held to be "good", "the parties being ignorant of the death". Let estopped from suing for it again. . . . These cases, in so far, at
us take note that the Opinion of Justice Rogers was premised on the least, as they announce the doctrine under discussion, are
statement that the parties were ignorant of the death of the principal. We quote exceptional. The Pennsylvania Case, supra (Cassiday v.
from that decision the following: McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand
almost, if not quite, alone in announcing the principle in its
... Here the precise point is, whether a payment to an agent broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
when the Parties are ignorant of the death is a good payment.
in addition to the case in Campbell before cited, the same So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing
judge Lord Ellenboruogh, has decided in 5 Esp. 117, the out that the opinion, except so far as it related to the particular facts, was a
general question that a payment after the death of principal is mere dictum, Baldwin J. said:
not good. Thus, a payment of sailor's wages to a person
having a power of attorney to receive them, has been held The opinion, therefore, of the learned Judge may be regarded
void when the principal was dead at the time of the payment. more as an extrajudicial indication of his views on the general
If, by this case, it is meant merely to decide the general subject, than as the adjudication of the Court upon the point in
proposition that by operation of law the death of the principal question. But accordingly all power weight to this opinion, as
is a revocation of the powers of the attorney, no objection can the judgment of a of great respectability, it stands alone
be taken to it. But if it intended to say that his principle applies among common law authorities and is opposed by an array
where there was 110 notice of death, or opportunity of twice I too formidable to permit us to following it. (15 Cal. 12,17, cited
must be permitted to dissent from it. in 2 C.J. 549)

... That a payment may be good today, or bad tomorrow, from Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in
the accident circumstance of the death of the principal, which American jurisprudence, no such conflict exists in our own for the simple
he did not know, and which by no possibility could he know? It reason that our statute, the Civil Code, expressly provides for two exceptions
would be unjust to the agent and unjust to the debtor. In the to the general rule that death of the principal revokes ipso jure the agency, to
civil law, the acts of the agent, done bona fide in ignorance of wit: (1) that the agency is coupled with an interest (Art 1930), and (2) that the
the death of his principal are held valid and binding upon the act of the agent was executed without knowledge of the death of the principal
heirs of the latter. The same rule holds in the Scottish law, and and the third person who contracted with the agent acted also in good faith
I cannot believe the common law is so unreasonable... (39 (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again
Am. Dec. 76, 80, 81; emphasis supplied) We stress the indispensable requirement that the agent acted without
knowledge or notice of the death of the principal In the case before Us the
agent Ramon Rallos executed the sale notwithstanding notice of the death of
his principal Accordingly, the agent's act is unenforceable against the estate of
his principal.

IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent


appellate court, and We affirm en toto the judgment rendered by then Hon.
Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2
and 3 of this Opinion, with costs against respondent realty corporation at all
instances.

So Ordered.

Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.


Republic of the Philippines Mirasol, L-4711, Oct. 3, 1952; Compaia Maritima v. Court of Appeals, L-
SUPREME COURT 14949, May 30, 1960). Said Rep. Act No. 342, however, modified Executive
Manila Order No. 32 as to pre-war debts, making the protection available only to
debtors who had war damage claims (Sison v. Mirasol, L-4711, Oct. 3, 1952,
EN BANC cited in Abraham, et al. v. Intestate Estate of Ysmael, et al., L-16741, Jan. 31,
1962).
G.R. No. L-21601 December 28, 1968
Corporation law; Shares of stock; Consideration for which shares of stock may
NIELSON & COMPANY, INC., plaintiff-appellant, be issued; A share of stock coming from stock dividends declared cannot be
issued to one who is not a stockholder of a corporation.From the provision of
vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee. Section 16 of the Corporation Law, the consideration for which shares of stock
may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares
of stock are given the special name "stock dividends" only if they are issued in
RESOLUTION lieu of undistributed profits. If shares of stocks are issued in exchange of cash
or property then those shares do not fall under the category of "stock
ZALDIVAR, J.: dividends". A corporation may legally issue shares of stock in consideration of
services rendered to it by a person not a stockholder, or in payment of its
Pleading and practice; Appeal; Change of theory on appeal not allowable.It indebtedness. It is the shares of stock ,that are originally issued by the
is the rule, and the settled doctrine, that a party cannot change his theory on corporation and forming part of the capital that can be exchanged for cash or
appealthat is, that a party cannot raise in the appellate court any question of services rendered, or property; that is, if the corporation has original shares of
law or of fact that was not raised in the court below or which was not within the stock unsold or unsubscribed, either coming from the original capitalization or f
issue made by the parties in their pleadings (Sec. 19, Rule 49, old Rules of rom the increased capitalization. Those shares of stock may be issued to a
Court; Sec. 18 of Revised Rules of Court; Hautea v. Magallon, L-20345, Nov. person who is not a stockholder, or to a person already a stockholder in
28, 1964; Northern Motors, Inc. v. Prince Line, L-13884, Feb. 29, 1960; exchange for services rendered or for cash or property. But a share of stock
American Express Co. v. Natividad, 46 Phil. 207; Agoncillo v. Javier, 38 Phil. coming from stock dividends declared cannot be issued to one who is not a
424; Molina v. Somes, 24 Phil. 49). stockholder of a corporation.

Civil Law; Contracts; "Agency" and "lease of service" compared and Under Section 16 of the Corporation Law stock dividends can not be issued to
distinguished.In both agency and lease of services one of the parties binds a person who is not a stockholder in payment of services rendered.
himself to render some service to the other party. Agency, however, is
distinguished from lease of work or services in that the basis of agency is Same; "Stock dividend"; "Dividend"; Concept and nature.A "stock dividend"
representation, while in the lease of work or services the basis is employment. is any dividend payable in shares of stock of the corporation declaring or
The lessor of services does not represent his employer, while the agent authorizing such dividend. It is, as what the term itself implies, a distribution of
represents his principal. Agency is a preparatory contract, as agency "does not the shares of stock of the corporation among the stockholders as dividends. A
stop with the agency because the purpose is to enter into other contracts." The stock dividend of a corporation is a dividend paid in shares of stock instead of
most characteristic feature of an agency relationship is the agent's power to cash, and is properly payable only out of surplus profits (Sec. 16, Corporation
bring about business relations between his principal and third persons. "The Law). So, a stock dividend is actually two things: (1) a dividend, and (2) the
agent is destined to execute juridical acts (creation, modification or extinction enforced use of the dividend money to purchase additional shares of stock at
of relations with .third parties). Lease of services contemplate only material par. (Words and Phrases, p. 270). When a corporation issues stock dividends,
(non-juridical) acts." (Reyes & Puno, An Outline of Philippine Civil Law, Vol. V, it shows that the corporation's accumulated profits have been capitalized
p. 277). instead of distributed to the stockholders or retained as surplus available f or
distribution, in money or kind, should opportunity offer. Far from being a
Same; Obligations and contracts; Moratorium law; Republic Act No. 342 not realization of profits for the stockholder, it tends rather ,to postpone said
applicable to debts contracted during the war.Republic Act No. 342 does not realization, in ,that the fund represented by the new stock has been transferred
apply to debts contracted during the war and did not lift the moratorium in from surplus to assets and no longer available for actual distribution (Fisher v.
relation thereto (Uy v. Kalaw Katigbak, L-1830, Dec. 31, 1949; Sison v. Trinidad, 43 Phil. 973). Thus, it is apparent that stock dividends are issued only
to stockholders. This is so because only stockholders are entitled to dividends. 4. The court erred in reversing the finding of the trial judge that
They are the only ones who have a right to a proportional share in that part of Nielson's action had prescribed, but considering only the first claim
the surplus which is declared as dividends. A stock dividend really adds and ignoring the prescriptibility of the other claims.
nothing to the interest of the stockholder; the proportional interest of each
stockholder remains the same (Towne v. Eisner, 62 L. Ed. 372). If a Alternative Grounds:
stockholder is deprived of his stock dividendsand this happens if the shares
of stock f orming part of the stock dividends are issued to a nonstockholder
5. The court erred in holding that the period of suspension of the
then the proportion of the stockholder's interest changes radically. Stock contract on account of the war lasted from February 1942 to June 26,
dividends are civil fruits of the original investment, and to the owners of the 1948.
shares belong the civil fruits (Art. 441, Civil Code). The term "dividend" both in
the technical sense and its ordinary acceptation, is that part or portion of the
profits of the enterprise which the corporation, by its governing agents, sets 6. Assuming arguendo that Nielson is entitled to any relief, the court
apart for ratable division among the holders of the capital stock. It means the erred in awarding as damages (a) 10% of the cash dividends declared
fund actually set aside, and declared by the directors of the corporation as a and paid in December, 1941; (b) the management fee of P2,500.00 for
dividend, and duly ordered by the directory, or by the stockholders, at a the month of January, 1942; and (c) the full contract price for the
corporate meeting, to be divided or distributed among the stockholders extended period of sixty months, since these damages were neither
according to their respective interests (7 Thompson on Corporations 134135). demanded nor proved and, in any case, not allowable under the
[Nielson & Company, Inc. vs. Lepanto Consolidated Mining Company, 26 general law of damages.
SCRA 540(1968)]
7. Assuming arguendo that appellant is entitled to any relief, the court
Lepanto seeks the reconsideration of the decision rendered on December 17, erred in ordering appellee to issue and deliver to appellant shares of
1966. The motion for reconsideration is based on two sets of grounds the stock together with fruits thereof.
first set consisting of four principal grounds, and the second set consisting of
five alternative grounds, as follows: 8. The court erred in awarding to appellant an undetermined amount of
shares of stock and/or cash, which award cannot be ascertained and
Principal Grounds: executed without further litigation.

1. The court erred in overlooking and failing to apply the proper law 9. The court erred in rendering judgment for attorney's fees.
applicable to the agency or management contract in question, namely,
Article 1733 of the Old Civil Code (Article 1920 of the new), by virtue of We are going to dwell on these grounds in the order they are presented.
which said agency was effectively revoked and terminated in 1945
when, as stated in paragraph 20 of the complaint, "defendant 1. In its first principal ground Lepanto claims that its own counsel and this
voluntarily ... prevented plaintiff from resuming management and Court had overlooked the real nature of the management contract entered into
operation of said mining properties." by and between Lepanto and Nielson, and the law that is applicable on said
contract. Lepanto now asserts for the first time and this is done in a motion for
2. The court erred in holding that paragraph II of the management reconsideration - that the management contract in question is a contract of
contract (Exhibit C) suspended the period of said contract. agency such that it has the right to revoke and terminate the said contract, as it
did terminate the same, under the law of agency, and particularly pursuant to
3. The court erred in reversing the ruling of the trial judge, based on Article 1733 of the Old Civil Code (Article 1920 of the New Civil Code).
well-settled jurisprudence of this Supreme Court, that the management
agreement was only suspended but not extended on account of the We have taken note that Lepanto is advancing a new theory. We have
war. carefully examined the pleadings filed by Lepanto in the lower court, its
memorandum and its brief on appeal, and never did it assert the theory that it
has the right to terminate the management contract because that contract is
one of agency which it could terminate at will. While it is true that in its ninth
and tenth special affirmative defenses, in its answer in the court below,
Lepanto pleaded that it had the right to terminate the management contract in By the contract of agency, one person binds himself to render some
question, that plea of its right to terminate was not based upon the ground that service or do something for the account or at the request of another.
the relation between Lepanto and Nielson was that of principal and agent but
upon the ground that Nielson had allegedly not complied with certain terms of Article 1544, defining contract of lease of service, provides:
the management contract. If Lepanto had thought of considering the
management contract as one of agency it could have amended its answer by
In a lease of work or services, one of the parties binds himself to make
stating exactly its position. It could have asserted its theory of agency in its
or construct something or to render a service to the other for a price
memorandum for the lower court and in its brief on appeal. This, Lepanto did certain.
not do. It is the rule, and the settled doctrine of this Court, that a party cannot
change his theory on appeal that is, that a party cannot raise in the
appellate court any question of law or of fact that was not raised in the court In both agency and lease of services one of the parties binds himself to render
below or which was not within the issue made by the parties in their pleadings some service to the other party. Agency, however, is distinguished from lease
(Section 19, Rule 49 of the old Rules of Court, and also Section 18 of the new of work or services in that the basis of agency is representation, while in the
Rules of Court; Hautea vs. Magallon, L-20345, November 28, 1964; Northern lease of work or services the basis is employment. The lessor of services does
Motors, Inc. vs. Prince Line, L-13884, February 29, 1960; American Express not represent his employer, while the agent represents his principal. Manresa,
Co. vs. Natividad, 46 Phil. 207; Agoncillo vs. Javier, 38 Phil. 424 and Molina in his "Commentarios al Codigo Civil Espaol" (1931, Tomo IX, pp. 372-373),
vs. Somes, 24 Phil 49). points out that the element of representation distinguishes agency from lease
of services, as follows:
At any rate, even if we allow Lepanto to assert its new theory at this very late
stage of the proceedings, this Court cannot sustain the same. Nuestro art. 1.709 como el art. 1.984 del Codigo de Napoleon y
cuantos textos legales citamos en lasconcordancias, expresan
claramente esta idea de la representacion, "hacer alguna cosa por
Lepanto contends that the management contract in question (Exhibit C) is one
cuenta o encargo de otra" dice nuestro Codigo; "poder de hacer
of agency because: (1) Nielson was to manage and operate the mining
alguna cosa para el mandante o en su nombre" dice el Codigo de
properties and mill on behalf, and for the account, of Lepanto; and (2) Nielson Napoleon, y en tales palabras aparece vivo y luminoso el concepto y
was authorized to represent Lepanto in entering, on Lepanto's behalf, into
la teoria de la representacion, tan fecunda en ensenanzas, que a su
contracts for the hiring of laborers, purchase of supplies, and the sale and
sola luz es como se explican las diferencias que separan el mandato
marketing of the ores mined. All these, Lepanto claims, show that Nielson was,
del arrendamiento de servicios, de los contratos inominados, del
by the terms of the contract, destined to execute juridical acts not on its own
consejo y de la gestion de negocios.
behalf but on behalf of Lepanto under the control of the Board of Directors of
Lepanto "at all times". Hence Lepanto claims that the contract is one of
agency. Lepanto then maintains that an agency is revocable at the will of the En efecto, en el arrendamiento de servicios al obligarse para su
principal (Article 1733 of the Old Civil Code), regardless of any term or period ejecucion, se trabaja, en verdad, para el dueno que remunera la labor,
stipulated in the contract, and it was in pursuance of that right that Lepanto pero ni se le representa ni se obra en su nombre....
terminated the contract in 1945 when it took over and assumed exclusive
management of the work previously entrusted to Nielson under the contract. On the basis of the interpretation of Article 1709 of the old Civil Code, Article
Lepanto finally maintains that Nielson as an agent is not entitled to damages 1868 of the new Civil Code has defined the contract of agency in more explicit
since the law gives to the principal the right to terminate the agency at will. terms, as follows:

Because of Lepanto's new theory We consider it necessary to determine By the contract of agency a person binds himself to render some
the nature of the management contract whether it is a contract of agency or service or to do something in representation or on behalf of another,
a contract of lease of services. Incidentally, we have noted that the lower court, with the consent or authority of the latter.
in the decision appealed from, considered the management contract as a
contract of lease of services. There is another obvious distinction between agency and lease of services.
Agency is a preparatory contract, as agency "does not stop with the agency
Article 1709 of the Old Civil Code, defining contract of agency, provides: because the purpose is to enter into other contracts." The most characteristic
feature of an agency relationship is the agent's power to bring about business
relations between his principal and third persons. "The agent is destined to not acting as an agent of Lepanto, in the sense that the term agent is
execute juridical acts (creation, modification or extinction of relations with third interpreted under the law of agency, but as one who was performing material
parties). Lease of services contemplate only material (non-juridical) acts." acts for an employer, for a compensation.
(Reyes and Puno, "An Outline of Philippine Civil Law," Vol. V, p. 277).
It is true that the management contract provides that Nielson would also act as
In the light of the interpretations we have mentioned in the foregoing purchasing agent of supplies and enter into contracts regarding the sale of
paragraphs let us now determine the nature of the management contract in mineral, but the contract also provides that Nielson could not make any
question. Under the contract, Nielson had agreed, for a period of five years, purchase, or sell the minerals, without the prior approval of Lepanto. It is clear,
with the right to renew for a like period, to explore, develop and operate the therefore, that even in these cases Nielson could not execute juridical acts
mining claims of Lepanto, and to mine, or mine and mill, such pay ore as may which would bind Lepanto without first securing the approval of Lepanto.
be found therein and to market the metallic products recovered therefrom Nielson, then, was to act only as an intermediary, not as an agent.
which may prove to be marketable, as well as to render for Lepanto other
services specified in the contract. We gather from the contract that the work Lepanto contends that the management contract in question being one of
undertaken by Nielson was to take complete charge subject at all times to the agency it had the right to terminate the contract at will pursuant to the provision
general control of the Board of Directors of Lepanto, of the exploration and of Article 1733 of the old Civil Code. We find, however, a proviso in the
development of the mining claims, of the hiring of a sufficient and competent management contract which militates against this stand of Lepanto. Paragraph
staff and of sufficient and capable laborers, of the prospecting and XI of the contract provides:
development of the mine, of the erection and operation of the mill, and of the
benefication and marketing of the minerals found on the mining properties; and Both parties to this agreement fully recognize that the terms of this
in carrying out said obligation Nielson should proceed diligently and in Agreement are made possible only because of the faith or confidence
accordance with the best mining practice. In connection with its work Nielson
that the Officials of each company have in the other; therefore, in order
was to submit reports, maps, plans and recommendations with respect to the
to assure that such confidence and faith shall abide and continue,
operation and development of the mining properties, make recommendations
NIELSON agrees that LEPANTO may cancel this Agreement at any
and plans on the erection or enlargement of any existing mill, dispatch mining
time upon ninety (90) days written notice, in the event that NIELSON
engineers and technicians to the mining properties as from time to time may for any reason whatsoever, except acts of God, strike and other
reasonably be required to investigate and make recommendations without cost
causes beyond its control, shall cease to prosecute the operation and
or expense to Lepanto. Nielson was also to "act as purchasing agent of
development of the properties herein described, in good faith and in
supplies, equipment and other necessary purchases by Lepanto, provided,
accordance with approved mining practice.
however, that no purchase shall be made without the prior approval of
Lepanto; and provided further, that no commission shall be claimed or retained
by Nielson on such purchase"; and "to submit all requisition for supplies, all It is thus seen, from the above-quoted provision of paragraph XI of the
constricts and arrangement with engineers, and staff and all matters requiring management contract, that Lepanto could not terminate the agreement at will.
the expenditures of money, present or future, for prior approval by Lepanto; Lepanto could terminate or cancel the agreement by giving notice of
and also to make contracts subject to the prior approve of Lepanto for the sale termination ninety days in advance only in the event that Nielson should
and marketing of the minerals mined from said properties, when said products prosecute in bad faith and not in accordance with approved mining practice the
are in a suitable condition for marketing."
1 operation and development of the mining properties of Lepanto. Lepanto could
not terminate the agreement if Nielson should cease to prosecute the
operation and development of the mining properties by reason of acts of God,
It thus appears that the principal and paramount undertaking of Nielson under
strike and other causes beyond the control of Nielson.
the management contract was the operation and development of the mine and
the operation of the mill. All the other undertakings mentioned in the contract
are necessary or incidental to the principal undertaking these other The phrase "Both parties to this agreement fully recognize that the terms of
undertakings being dependent upon the work on the development of the mine this agreement are made possible only because of the faith and confidence of
and the operation of the mill. In the performance of this principal undertaking the officials of each company have in the other" in paragraph XI of the
Nielson was not in any way executing juridical acts for Lepanto, destined to management contract does not qualify the relation between Lepanto and
create, modify or extinguish business relations between Lepanto and third Nielson as that of principal and agent based on trust and confidence, such that
persons. In other words, in performing its principal undertaking Nielson was the contractual relation may be terminated by the principal at any time that the
principal loses trust and confidence in the agent. Rather, that phrase simply be sent out until the text thereof has been first approved by
implies the circumstance that brought about the execution of the management the Board of Directors of the proposed corporation.
2
contract. Thus, in the annual report for 1936 , submitted by Mr. C. A. Dewit,
President of Lepanto, to its stockholders, under date of March 15, 1937, we 4. That after the organization of the corporation, all operating
read the following: contract be entered into between ourselves and said
corporation, under the terms which the property will be
To the stockholders developed and mined and a mill erected, under our
supervision, our compensation to be P2,000.00 per month
xxx xxx xxx until the property is put on a profitable basis and P2,500.00
per month plus 10% of the net profits for a period of five years
thereafter.
The incorporation of our Company was effected as a result of
negotiations with Messrs. Nielson & Co., Inc., and an offer by these
gentlemen to Messrs. C. I. Cookes and V. L. Lednicky, dated August 5. That we shall have the option to renew said operating
11, 1936, reading as follows: contract for an additional period of five years, on the same
basis as the original contract, upon the expiration thereof.
Messrs. Cookes and Lednicky,
Present It is understood that the development and mining operations
on said property, and the erection of the mill thereon, and the
expenditures therefor shall be subject to the general control of
Re: Mankayan Copper Mines
the Board of Directors of the proposed corporation, and, in
case you accept this proposition, that a detailed operating
GENTLEMEN: contract will be entered into, covering the relationships
between the parties.
After an examination of your property by our engineers, we
have decided to offer as we hereby offer to underwrite the Yours very truly,
entire issue of stock of a corporation to be formed for the (Sgd.) L. R. Nielson
purpose of taking over said properties, said corporation to
have an authorized capital of P1,750,000.00, of which
Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson
P700,000.00 will be issued in escrow to the claim-owners in
& Co., took subscriptions for One Million Fifty Thousand Pesos
exchange for their claims, and the balance of P1,050,000.00
(P1,050,000.00) in shares of our Company and their underwriting and
we will sell to the public at par or take ourselves.
brokerage commission has been paid. More than fifty per cent of these
subscriptions have been paid to the Company in cash. The claim
The arrangement will be under the following conditions: owners have transferred their claims to the Corporation, but the
P700,000.00 in stock which they are to receive therefor, is as yet held
1. The subscriptions for cash shall be payable 50% at time of in escrow.
subscription and the balance subject to the call of the Board of
Directors of the proposed corporation. Immediately upon the formation of the Corporation Messrs. Nielson &
Co., assumed the Management of the property under the control of the
2. We shall have an underwriting and brokerage commission Board of Directors. A modification in the Management Contract was
of 10% of the P1,050,000.00 to be sold for cash to the public, made with the consent of all the then stockholders, in virtue of which
said commission to be payable from the first payment of 50% the compensation of Messrs. Nielson & Co., was increased to
on each subscription. P2,500.00 per month when mill construction began. The formal
Management Contract was not entered into until January 30, 1937.
3. We will bear the cost of preparing and mailing any
prospectus that may be required, but no such prospectus will xxx xxx xxx
Manila, March 15, 1937 It is Our considered view that by express stipulation of the parties, the
management contract in question is not revocable at the will of Lepanto. We
(Sgd.) C. A. DeWitt rule that this management contract is not a contract of agency as defined in
President Article 1709 of the old Civil Code, but a contract of lease of services as defined
in Article 1544 of the same Code. This contract can not be unilaterally revoked
by Lepanto.
We can gather from the foregoing statements in the annual report for 1936,
and from the provision of paragraph XI of the Management contract, that the
employment by Lepanto of Nielson to operate and manage its mines was The first ground of the motion for reconsideration should, therefore, be
principally in consideration of the know-how and technical services that brushed aside.
Nielson offered Lepanto. The contract thus entered into pursuant to the offer
made by Nielson and accepted by Lepanto was a "detailed operating contract". 2. In the second, third and fifth grounds of its motion for reconsideration,
It was not a contract of agency. Nowhere in the record is it shown that Lepanto Lepanto maintains that this Court erred, in holding that paragraph 11 of the
considered Nielson as its agent and that Lepanto terminated the management management contract suspended the period of said contract, in holding that
contract because it had lost its trust and confidence in Nielson. the agreement was not only suspended but was extended on account of the
war, and in holding that the period of suspension on account of the war lasted
The contention of Lepanto that it had terminated the management contract in from February, 1942 to June 26, 1948. We are going to discuss these three
1945, following the liberation of the mines from Japanese control, because the grounds together because they are interrelated.
relation between it and Nielson was one of agency and as such it could
terminate the agency at will, is, therefore, untenable. On the other hand, it can In our decision we have dwelt lengthily on the points that the management
be said that, in asserting that it had terminated or cancelled the management contract was suspended because of the war, and that the period of the
contract in 1945, Lepanto had thereby violated the express terms of the contract was extended for a period equivalent to the time when Nielson was
management contract. The management contract was renewed to last until unable to perform the work of mining and milling because of the adverse
January 31, 1947, so that the contract had yet almost two years to go upon effects of the war on the work of mining and milling.
the liberation of the mines in 1945. There is no showing that Nielson had
ceased to prosecute the operation and development of the mines in good faith It is the contention of Lepanto that the happening of those events, and the
and in accordance with approved mining practice which would warrant the effects of those events, simply suspended the performance of the obligations
termination of the contract upon ninety days written notice. In fact there was no by either party in the contract, but did not suspend the period of the contract,
such written notice of termination. It is an admitted fact that Nielson ceased to much less extended the period of the contract.
operate and develop the mines because of the war a cause beyond the
control of Nielson. Indeed, if the management contract in question was
We have conscientiously considered the arguments of Lepanto in support of
intended to create a relationship of principal and agent between Lepanto and
these three grounds, but We are not persuaded to reconsider the rulings that
Nielson, paragraph XI of the contract should not have been inserted because,
We made in Our decision.
as provided in Article 1733 of the old Civil Code, agency is essentially
revocable at the will of the principal that means, with or without cause. But
precisely said paragraph XI was inserted in the management contract to We want to say a little more on these points, however. Paragraph II of the
provide for the cause for its revocation. The provision of paragraph XI must be management contract provides as follows:
given effect.
In the event of inundation, flooding of the mine, typhoon, earthquake
In the construction of an instrument where there are several provisions or or any other force majeure, war, insurrection, civil commotion,
particulars, such a construction is, if possible, to be adopted as will give effect organized strike, riot, fire, injury to the machinery or other event or
3
to all, and if some stipulation of any contract should admit of several cause reasonably beyond the control of NIELSON and which
meanings, it shall be understood as bearing that import which is most adversely affects the work of mining and milling; NIELSON shall report
adequate to render it effectual.
4 such fact to LEPANTO and without liability or breach of the terms of
this Agreement,the same shall remain in suspense, wholly or partially
during the terms of such inability. (Emphasis supplied)
A reading of the above-quoted paragraph II cannot but convey the idea that a condition or when a situation obtains which warrants the termination of
upon the happening of any of the events enumerated therein, which adversely the suspension of the contract.
affects the work of mining and milling, the agreement is deemed suspended for
as long as Nielson is unable to perform its work of mining and milling because In Our decision We pointed out that the agreement in the management
of the adverse effects of the happening of the event on the work of mining and contract would be suspended when two conditions concur, namely: (1) the
milling. During the period when the adverse effects on the work of mining and happening of the event constituting a force majeure that was reasonably
milling exist, neither party in the contract would be held liable for non- beyond the control of Nielson, and (2) that the event constituting the force
compliance of its obligation under the contract. In other words, the operation of majeure adversely affected the work of mining and milling. The suspension,
the contract is suspended for as long as the adverse effects of the happening therefore, would last not only while the event constituting the force majeure
of any of those events had impeded or obstructed the work of mining and continued to occur but also for as long as the adverse effects of the force
milling. An analysis of the phraseology of the above-quoted paragraph II of the majeure on the work of mining and milling had not been eliminated. Under the
management contract readily supports the conclusion that it is the agreement, management contract the happening alone of the event constituting the force
or the contract, that is suspended. The phrase "the same" can refer to no other majeure which did not affect adversely the work of mining and milling would
than the term "Agreement" which immediately precedes it. The "Agreement" not suspend the period of the contract. It is only when the two conditions
may be wholly or partially suspended, and this situation will depend on concur that the period of the agreement is suspended.
whether the event wholly or partially affected adversely the work of mining and
milling. In the instant case, the war had adversely affected and wholly at
It is not denied that because of the war, in February 1942, the mine, the
that the work of mining and milling. We have clearly stated in Our decision
original mill, the original power plant, the supplies and equipment, and all
the circumstances brought about by the war which caused the whole or total
installations at the Mankayan mines of Lepanto, were destroyed upon order of
suspension of the agreement or of the management contract. the United States Army, to prevent their utilization by the enemy. It is not
denied that for the duration of the war Nielson could not undertake the work of
LEPANTO itself admits that the management contract was suspended. We mining and milling. When the mines were liberated from the enemy in August,
quote from the brief of LEPANTO: 1945, the condition of the mines, the mill, the power plant and other
installations, was not the same as in February 1942 when they were ordered
Probably, what Nielson meant was, it was prevented by Lepanto to destroyed by the US army. Certainly, upon the liberation of the mines from the
assume again the management of the mine in 1945, at the precise enemy, the work of mining and milling could not be undertaken by Nielson
time when defendant was at the feverish phase of rehabilitation and under the same favorable circumstances that obtained before February 1942.
although the contract had already been suspended. (Lepanto's Brief, The work of mining and milling, as undertaken by Nielson in January, 1942,
p. 9). could not be resumed by Nielson soon after liberation because of the adverse
effects of the war, and this situation continued until June of 1948. Hence, the
... it was impossible, as a result of the destruction of the mine, for the suspension of the management contract did not end upon the liberation of the
plaintiff to manage and operate the same and because, as provided in mines in August, 1945. The mines and the mill and the installations, laid waste
the agreement, the contract was suspended by reason of the war by the ravages of war, had to be reconstructed and rehabilitated, and it can be
(Lepanto's Brief, pp. 9-10). said that it was only on June 26, 1948 that the adverse effects of the war on
the work of mining and milling had ended, because it was on that date that the
Clause II, by its terms, is clear that the contract is suspended in case operation of the mines and the mill was resumed. The period of suspension
should, therefore, be reckoned from February 1942 until June 26, 1948,
fortuitous event or force majeure, such as war, adversely affects the
because it was during this period that the war and the adverse effects of the
work of mining and milling. (Lepanto's Brief, p. 49).
war on the work of mining and milling had lasted. The mines and the
installations had to be rehabilitated because of the adverse effects of the war.
Lepanto is correct when it said that the obligations under the contract were The work of rehabilitation started soon after the liberation of the mines in
suspended upon the happening of any of the events enumerated in paragraph August, 1945 and lasted until June 26, 1948 when, as stated in Lepanto's
II of the management contract. Indeed, those obligations were suspended annual report to its stockholders for the year 1948, "June 28, 1948 marked the
because the contract itself was suspended. When we talk of a contract that official return to operation of this company at its properties at Mankayan,
has been suspended we certainly mean that the contract temporarily ceased to Mountain Province, Philippines" (Exh. F-1).
be operative, and the contract becomes operative again upon the happening of
Lepanto would argue that if the management contract was suspended at all that Lepanto was incorporated; that it was Nielson that helped to capitalize
the suspension should cease in August of 1945, contending that the effects of Lepanto, and that after the formation of the corporation (Lepanto) Nielson
the war should cease upon the liberation of the mines from the enemy. This immediately assumed the management of the mining properties of Lepanto. It
contention cannot be sustained, because the period of rehabilitation was still a was not until January 30, 1937 when the management contract in question
period when the physical effects of the war the destruction of the mines and was entered into between Lepanto and Nielson (Exhibit A).
of all the mining installations adversely affected, and made impossible, the
work of mining and milling. Hence, the period of the reconstruction and A contract for the management and operation of mines calls for a speculative
rehabilitation of the mines and the installations must be counted as part of the and risky venture on the part of the manager-operator. The manager-operator
period of suspension of the contract. invests its technical know-how, undertakes back-breaking efforts and
tremendous spade-work, so to say, in the first years of its management and
Lepanto claims that it would not be unfair to end the period of suspension upon operation of the mines, in the expectation that the investment and the efforts
the liberation of the mines because soon after the liberation of the mines employed might be rewarded later with success. This expected success may
Nielson insisted to resume the management work, and that Nielson was under never come. This had happened in the very case of the Mankayan mines
obligation to reconstruct the mill in the same way that it was under obligation to where, as recounted by Mr. Lednicky of Lepanto, various persons and entities
construct the mill in 1937. This contention is untenable. It is true that Nielson of different nationalities, including Lednicky himself, invested all their money
insisted to resume its management work after liberation, but this was only for and failed. The manager-operator may not strike sufficient ore in the first,
the purpose of restoring the mines, the mill, and other installations to their second, third, or fourth year of the management contract, or he may not strike
operating and producing condition as of February 1942 when they were ore even until the end of the fifth year. Unless the manager-operator strikes
ordered destroyed. It is not shown by any evidence in the record, that Nielson sufficient quantity of ore he cannot expect profits or reward for his investment
had agreed, or would have agreed, that the period of suspension of the and efforts. In the case of Nielson, its corps of competent engineers,
contract would end upon the liberation of the mines. This is so because, as geologists, and technicians begun working on the Mankayan mines of Lepanto
found by this Court, the intention of the parties in the management contract, since the latter part of 1936, and continued their work without success and
and as understood by them, the management contract was suspended for as profit through 1937, 1938, and the earlier part of 1939. It was only in
long as the adverse effects of the force majeure on the work of mining and December of 1939 when the efforts of Nielson started to be rewarded when
milling had not been removed, and the contract would be extended for as long Lepanto realized profits and the first dividends were declared. From that time
as it was suspended. Under the management contract Nielson had the on Nielson could expect profit to come to it as in fact Lepanto declared
obligation to erect and operate the mill, but not to erect or reconstruct the mill dividends for 1940 and 1941 if the development and operation of the mines
in case of its destruction by force majeure. and the mill would continue unhampered. The operation, and the expected
profits, however, would still be subject to hazards due to the occurrence of
It is the considered view of this court that it would not be fair to Nielson to fortuitous events, fires, earthquakes, strikes, war, etc., constituting force
consider the suspension of the contract as terminated upon the liberation of majeure, which would result in the destruction of the mines and the mill. One of
the mines because then Nielson would be placed in a situation whereby it these diverse causes, or one after the other, may consume the whole period of
would have to suffer the adverse effects of the war on the work of mining and the contract, and if it should happen that way the manager-operator would
milling. The evidence shows that as of January 1942 the operation of the reap no profit to compensate for the first years of spade-work and investment
mines under the management of Nielson was already under beneficial of efforts and know-how. Hence, in fairness to the manager-operator, so that
conditions, so much so that dividends were already declared by Lepanto for he may not be deprived of the benefits of the work he had accomplished, the
the years 1939, 1940 and 1941. To make the management contract force majeure clause is incorporated as a standard clause in contracts for the
immediately operative after the liberation of the mines from the Japanese, at management and operation of mines.
the time when the mines and all its installations were laid waste as a result of
the war, would be to place Nielson in a situation whereby it would lose all the The nature of the contract for the management and operation of mines justifies
benefits of what it had accomplished in placing the Lepanto mines in profitable the interpretation of the force majeure clause, that a period equal to the period
operation before the outbreak of the war in December, 1941. The record of suspension due to force majeure should be added to the original term of the
shows that Nielson started its management operation way back in 1936, even contract by way of an extension. We, therefore, reiterate the ruling in Our
before the management contract was entered into. As early as August 1936 decision that the management contract in the instant case was suspended
Nielson negotiated with Messrs. C. I. Cookes and V. L. Lednicky for the from February, 1942 to June 26, 1948, and that from the latter date the
operation of the Mankayan mines and it was the result of those negotiations contract had yet five years to go.
3. In the fourth ground of its motion for reconsideration, Lepanto maintains that In other words, after the effectivity of Republic Act No. 342, the debt
this Court erred in reversing the finding of the trial court that Nielson's action moratorium was limited: (1) to debts and other monetary obligations which
has prescribed, by considering only the first claim and ignoring the were contracted after December 8, 1941 and during the Japanese occupation,
prescriptibility of the other claims. and (2) to those pre-war (or pre-December 8, 1941) debts and other monetary
obligations where the debtors filed war damage claims. That was the situation
This ground of the motion for reconsideration has no merit. up to May 18, 1953 when this Court declared Republic Act No. 342
7
unconstitutional. It has been held by this Court, however, that from March 10,
In Our decision We stated that the claims of Nielson are based on a written 1945 when Executive Order No. 32 was issued, to May 18, 1953 when
document, and, as such, the cause of action prescribes in ten Republic Act No. 342 was declared unconstitutional or a period of 8 years, 2
5 months and 8 days the debt moratorium was in force, and had the effect of
years. Inasmuch as there are different claims which accrued on different 8
suspending the period of prescription.
dates the prescriptive periods for all the claims are not the same. The claims of
Nielson that have been awarded by this Court are itemized in the dispositive
part of the decision. Lepanto is wrong when in its motion for reconsideration it claims that the
moratorium provided for in Executive Order No. 32 was continued by Republic
The first item of the awards in Our decision refers to Nielson's compensation in Act No. 342 "only with respect to debtors of pre-war obligations or those
incurred prior to December 8, 1941," and that "the moratorium
the sum of P17,500.00, which is equivalent to 10% of the cash dividends
was lifted and terminated with respect to obligations incurred after December
declared by Lepanto in December, 1941. As we have stated in Our decision, 9
8, 1941."
this claim accrued on December 31, 1941, and the right to commence an
action thereon started on January 1, 1942. We declared that the action on this
claim did not prescribe although the complaint was filed on February 6, 1958 This Court has held that Republic Act No. 342 does not apply to debts
or after a lapse of 16 years, 1 month and 5 days because of the contracted during the war and did not lift the moratorium in relations
10
operation of the moratorium law. thereto. In the case of Abraham, et al. vs. Intestate Estate of Juan C.
Ysmael, et al., L-16741, Jan. 31, 1962, this Court said:
6
We declared that under the applicable decisions of this Court the moratorium
period of 8 years, 2 months and 8 days should be deducted from the period Respondents, however, contend that Republic Act No. 342, which took
that had elapsed since the accrual of the cause of action to the date of the effect on July 26, 1948, lifted the moratorium on debts contracted
filing of the complaint, so that there is a period of less than 8 years to be during the Japanese occupation. The court has already held that
reckoned for the purpose of prescription. Republic Act No. 342 did not lift the moratorium on debts contracted
during the war (Uy vs. Kalaw Katigbak, G.R. No. L-1830, Dec. 31,
1949) but modified Executive Order No. 32 as to pre-war debts,
This claim of Nielson is covered by Executive Order No. 32, issued on March
making the protection available only to debtors who had war damage
10, 1945, which provides as follows:
claims (Sison v. Mirasol, G.R. No. L-4711, Oct. 3, 1952).
Enforcement of payments of all debts and other monetary
obligations payable in the Philippines, except debts and other We therefore reiterate the ruling in Our decision that the claim involved in the
first item awarded to Nielson had not prescribed.
monetary obligations entered into in any area after declaration by
Presidential Proclamation that such area has been freed from enemy
occupation and control, is temporarily suspended pending action by What we have stated herein regarding the non-prescription of the cause of
the Commonwealth Government. (41 O.G. 56-57; Emphasis supplied) action of the claim involved in the first item in the award also holds true with
respect to the second item in the award, which refers to Nielson's claim for
management fee of P2,500.00 for January, 1942. Lepanto admits that this
Executive Order No. 32 covered all debts and monetary obligation contracted
second item, like the first, is a monetary obligation. The right of action of
before the war (or before December 8, 1941) and those contracted subsequent
Nielson regarding this claim accrued on January 31, 1942.
to December 8, 1941 and during the Japanese occupation. Republic Act No.
342, approved on July 26, 1948, lifted the moratorium provided for in Executive
Order No. 32 on pre-war (or pre-December 8, 1941) debts of debtors who had As regards items 3, 4, 5, 6 and 7 in the awards in the decision, the moratorium
not filed war damage claims with the United States War Damage Commission. law is not applicable. That is the reason why in Our decision We did not
discuss the question of prescription regarding these items. The claims of In its motion for reconsideration, Lepanto inserted a photographic copy of page
Nielson involved in these items are based on the management contract, and 127 of its cash disbursement book, allegedly for 1941, in an effort to show that
Nielson's cause of action regarding these claims prescribes in ten years. this amount of P17,500.00 had been paid to Nielson. It appears, however, in
Corollary to Our ruling that the management contract was suspended from this photographic copy of page 127 of the cash disbursement book that the
February, 1942 until June 26, 1948, and that the contract was extended for five sum of P17,500.00 was entered on October 29 as "surplus a/c Nielson & Co.
years from June 26, 1948, the right of action of Nielson to claim for what is due Inc." The entry does not make any reference to dividends or participation of
to it during that period of extension accrued during the period from June 26, Nielson in the profits. On the other hand, in the photographic copy of page 89
1948 till the end of the five-year extension period or until June 26, 1953. And of the 1941 cash disbursement book, also attached to the motion for
so, even if We reckon June 26, 1948 as the starting date of the ten-year period reconsideration, there is an entry for P17,500.00 on April 23, 1941 which
in connection with the prescriptibility of the claims involved in items 3, 4, 5, 6 states "Accts. Pay. Particip. Nielson & Co. Inc." This entry for April 23, 1941
and 7 of the awards in the decision, it is obvious that when the complaint was may really be the participation of Nielson in the profits based on dividends
filed on February 6, 1958 the ten-year prescriptive period had not yet lapsed. declared in April 1941 as shown in Exhibit L. But in the same Exhibit L it is not
stated that any dividend was declared in October 1941. On the contrary it is
In Our decision We have also ruled that the right of action of Nielson against stated in Exhibit L that dividends were declared in December 1941. We cannot
Lepanto had not prescribed because of the arbitration clause in the entertain this piece of evidence for several reasons: (1) because this evidence
Management contract. We are satisfied that there is evidence that Nielson had was not presented during the trial in the court below; (2) there is no showing
asked for arbitration, and an arbitration committee had been constituted. The that this piece of evidence is newly discovered and that Lepanto was not in
arbitration committee, however, failed to bring about any settlement of the possession of said evidence when this case was being tried in the court below;
differences between Nielson and Lepanto. On June 25, 1957 counsel for and (3) according to Exhibit L cash dividends of P175,000.00 were declared in
Lepanto definitely advised Nielson that they were not entertaining any claim of December, 1941, and so the sum of P17,500.00 which appears to have been
Nielson. The complaint in this case was filed on February 6, 1958. paid to Nielson in October 1941 could not be payment of the equivalent of 10%
of the cash dividends that were later declared in December, 1941.
4. In the sixth ground of its motion for reconsideration, Lepanto maintains that
this Court "erred in awarding as damages (a) 10% of the cash dividends As regards the management fee of Nielson corresponding to January, 1942, in
declared and paid in December, 1941; (b) the management fee of P2,500.00 the sum of P2,500.00, We have also found that Nielson is entitled to be paid
for the month of January 1942; and (c) the full contract price for the extended this amount, and that this amount was not paid by Lepanto to Nielson.
period of 60 months, since the damages were never demanded nor proved Whereas, Lepanto was able to prove that it had paid the management fees of
13
and, in any case, not allowable under the general law on damages." Nielson for November and December, 1941, it was not able to present any
evidence to show that the management fee of P2,500.00 for January, 1942
We have stated in Our decision that the original agreement in the management had been paid.
contract regarding the compensation of Nielson was modified, such that
instead of receiving a monthly compensation of P2,500.00 plus 10% of the net It having been declared in Our decision, as well as in this resolution, that the
11 management contract had been extended for 5 years, or sixty months, from
profits from the operation of the properties for the preceding month, Nielson
would receive a compensation of P2,500.00 a month, plus (1) 10% of the June 27, 1948 to June 26, 1953, and that the cause of action of Nielson to
dividends declared and paid, when and as paid, during the period of the claim for its compensation during that period of extension had not prescribed, it
contract, and at the end of each year, (2) 10% of any depletion reserve that follows that Nielson should be awarded the management fees during the whole
may be set up, and (3) 10% of any amount expended during the year out of period of extension, plus the 10% of the value of the dividends declared during
surplus earnings for capital account. the said period of extension, the 10% of the depletion reserve that was set up,
and the 10% of any amount expended out of surplus earnings for capital
account.
It is shown that in December, 1941, cash dividends amounting to P175,000.00
12
was declared by Lepanto. Nielson, therefore, should receive the equivalent of
10% of this amount, or the sum of P17,500.00. We have found that this 5. In the seventh ground of its motion for reconsideration, Lepanto maintains
amount was not paid to Nielson. that this Court erred in ordering Lepanto to issue and deliver to Nielson shares
of stock together with fruits thereof.
In Our decision, We declared that pursuant to the modified agreement xxx xxx xxx
regarding the compensation of Nielson which provides, among others, that
Nielson would receive 10% of any dividends declared and paid, when and as No corporation shall make or declare any dividend except from the
paid, Nielson should be paid 10% of the stock dividends declared by Lepanto surplus profits arising from its business, or divide or distribute its
during the period of extension of the contract. capital stock or property other than actual profits among its members
or stockholders until after the payment of its debts and the termination
It is not denied that on November 28, 1949, Lepanto declared stock dividends of its existence by limitation or lawful dissolution: Provided, That
worth P1,000,000.00; and on August 22, 1950, it declared stock dividends banking, savings and loan, and trust corporations may receive
worth P2,000,000.00). In other words, during the period of extension Lepanto deposits and issue certificates of deposit, checks, drafts, and bills of
had declared stock dividends worth P3,000,000.00. We held in Our decision exchange, and the like in the transaction of the ordinary business of
that Nielson is entitled to receive l0% of the stock dividends declared, or banking, savings and loan, and trust corporations. (As amended by
shares of stock worth P300,000.00 at the par value of P0.10 per share. We Act No. 2792, and Act No. 3518; Emphasis supplied.)
ordered Lepanto to issue and deliver to Nielson those shares of stocks as well
as all the fruits or dividends that accrued to said shares. From the above-quoted provision of Section 16 of the Corporation Law, the
consideration for which shares of stock may be issued are: (1) cash; (2)
In its motion for reconsideration, Lepanto contends that the payment to Nielson property; and (3) undistributed profits. Shares of stock are given the special
of stock dividends as compensation for its services under the management name "stock dividends" only if they are issued in lieu of undistributed profits. If
contract is a violation of the Corporation Law, and that it was not, and it could shares of stocks are issued in exchange of cash or property then those shares
not be, the intention of Lepanto and Nielson as contracting parties that do not fall under the category of "stock dividends". A corporation may legally
the services of Nielson should be paid in shares of stock taken out of stock issue shares of stock in consideration of services rendered to it by a person
dividends declared by Lepanto. We have assiduously considered the not a stockholder, or in payment of its indebtedness. A share of stock issued to
arguments adduced by Lepanto in support of its contention, as well as the pay for services rendered is equivalent to a stock issued in exchange of
14
answer of Nielson in this connection, and We have arrived at the conclusion property, because services is equivalent to property. Likewise a share of
that there is merit in the contention of Lepanto. stock issued in payment of indebtedness is equivalent to issuing a stock in
exchange for cash. But a share of stock thus issued should be part of the
Section 16 of the Corporation Law, in part, provides as follows: original capital stock of the corporation upon its organization, or part of the
stocks issued when the increase of the capitalization of a corporation is
properly authorized. In other words, it is the shares of stock that are originally
No corporation organized under this Act shall create or issue bills,
notes or other evidence of debt, for circulation as money, and no issued by the corporation and forming part of the capital that can be
corporation shall issue stock or bonds except in exchange for actual exchanged for cash or services rendered, or property; that is, if the corporation
has original shares of stock unsold or unsubscribed, either coming from the
cash paid to the corporation or for: (1) property actually received by it
original capitalization or from the increased capitalization. Those shares of
at a fair valuation equal to the par or issued value of the stock or
stock may be issued to a person who is not a stockholder, or to a person
bonds so issued; and in case of disagreement as to their value, the
already a stockholder in exchange for services rendered or for cash or
same shall be presumed to be the assessed value or the value
appearing in invoices or other commercial documents, as the case property. But a share of stock coming from stock dividends declared cannot be
may be; and the burden or proof that the real present value of the issued to one who is not a stockholder of a corporation.
property is greater than the assessed value or value appearing in
invoices or other commercial documents, as the case may be, shall be A "stock dividend" is any dividend payable in shares of stock of the corporation
upon the corporation, or for (2) profits earned by it but not declaring or authorizing such dividend. It is, what the term itself implies, a
distributed among its stockholders or members; Provided, however, distribution of the shares of stock of the corporation among the stockholders as
That no stock or bond dividend shall be issued without the approval of dividends. A stock dividend of a corporation is a dividend paid in shares of
15
stockholders representing not less than two-thirds of all stock then stock instead of cash, and is properly payable only out of surplus profits. So,
outstanding and entitled to vote at a general meeting of the a stock dividend is actually two things: (1) a dividend, and (2) the enforced use
16
corporation or at a special meeting duly called for the purpose. of the dividend money to purchase additional shares of stock at par. When a
corporation issues stock dividends, it shows that the corporation's
accumulated profits have been capitalized instead of distributed to the
stockholders or retained as surplus available for distribution, in money or kind, addition to the dividend, we have been setting up a depletion reserve
should opportunity offer. Far from being a realization of profits for the and it does not seem fair to burden the 10% participation of Nielson
stockholder, it tends rather to postpone said realization, in that the fund with the depletion reserve, as the depletion reserve should not be
represented by the new stock has been transferred from surplus to assets and considered as an operating expense. After a prolonged discussion,
17
no longer available for actual distribution. Thus, it is apparent that stock upon motion duly made and seconded, it was
dividends are issued only to stockholders. This is so because only
stockholders are entitled to dividends. They are the only ones who have a right RESOLVED, That the President, be, and he hereby is, authorized to
to a proportional share in that part of the surplus which is declared as enter into an agreement with Nielson & Company, Inc., modifying
dividends. A stock dividend really adds nothing to the interest of the Paragraph V of management contract of January 30, 1937, effective
18
stockholder; the proportional interest of each stockholder remains the same. If January 1, 1940, in such a way that Nielson & Company, Inc. shall
a stockholder is deprived of his stock dividends - and this happens if the receive 10% of any dividends declared and paid, when and as paid
shares of stock forming part of the stock dividends are issued to a non- during the period of the contract and at the end of each year, 10% of
stockholder then the proportion of the stockholder's interest changes any depletion reserve that may be set up and 10% of any amount
radically. Stock dividends are civil fruits of the original investment, and to the expended during the year out of surplus earnings for capital account.
19
owners of the shares belong the civil fruits. (Emphasis supplied.)

The term "dividend" both in the technical sense and its ordinary acceptation, is From the sentence, "The Chairman stated that he believed that it would be
that part or portion of the profits of the enterprise which the corporation, by its better to tie the computation of the 10% participation of Nielson & Company,
governing agents, sets apart for ratable division among the holders of the Inc., to the dividend, because Nielson will then be able to definitely compute its
capital stock. It means the fund actually set aside, and declared by the net participation by the amount of the dividends declared" the idea is conveyed
directors of the corporation as dividends and duly ordered by the director, or by that the intention of Lepanto, as expressed by its Chairman C. A. DeWitt, was
the stockholders at a corporate meeting, to be divided or distributed among the to make the value of the dividends declared whether the dividends were in
20
stockholders according to their respective interests. cash or in stock as the basis for determining the amount of compensation
that should be paid to Nielson, in the proportion of 10% of the cash value of
It is Our considered view, therefore, that under Section 16 of the Corporation the dividends so declared. It does not mean, however, that the compensation
Law stock dividends can not be issued to a person who is not a stockholder in of Nielson would be taken from the amount actually declared as cash dividend
payment of services rendered. And so, in the case at bar Nielson can not be to be distributed to the stockholder, nor from the shares of stocks to be issued
paid in shares of stock which form part of the stock dividends of Lepanto for to the stockholders as stock dividends, but from the other assets or funds of
services it rendered under the management contract. We sustain the the corporation which are not burdened by the dividends thus declared. In
contention of Lepanto that the understanding between Lepanto and Nielson other words, if, for example, cash dividends of P300,000.00 are declared,
was simply to make the cash value of the stock dividends declared as the Nielson would be entitled to a compensation of P30,000.00, but this
basis for determining the amount of compensation that should be paid to P30,000.00 should not be taken from the P300,000.00 to be distributed as
Nielson, in the proportion of 10% of the cash value of the stock dividends cash dividends to the stockholders but from some other funds or assets of the
declared. And this conclusion of Ours finds support in the record. corporation which are not included in the amount to answer for the cash
dividends thus declared. This is so because if the P30,000.00 would be taken
We had adverted to in Our decision that in 1940 there was some dispute out from the P300,000.00 declared as cash dividends, then the stockholders
between Lepanto and Nielson regarding the application and interpretation of would not be getting P300,000.00 as dividends but only P270,000.00. There
certain provisions of the original contract particularly with regard to the 10% would be a dilution of the dividend that corresponds to each share of stock
participation of Nielson in the net profits, so that some adjustments had to be held by the stockholders. Similarly, if there were stock dividends worth one
made. In the minutes of the meeting of the Board of Directors of Lepanto on million pesos that were declared, which means an issuance of ten million
August 21, 1940, We read the following: shares at the par value of ten centavos per share, it does not mean that
Nielson would be given 100,000 shares. It only means that Nielson should be
The Chairman stated that he believed that it would be better to tie the given the equivalent of 10% of the aggregate cash value of those shares
computation of the 10% participation of Nielson & Company, Inc. to issued as stock dividends. That this was the understanding of Nielson itself is
the dividend, because Nielson will then be able to definitely compute borne out by the fact that in its appeal brief Nielson urged that it should be paid
its net participation by the amount of the dividends declared. In
"P300,000.00 being 10% of the P3,000,000.00 stock dividends declared on (1) Seventeen thousand five hundred pesos (P17,500.00), equivalent to 10%
21
November 28, 1949 and August 20, 1950...." of the cash dividends of December, 1941, with legal interest thereon from the
date of the filing of the complaint;
We, therefore, reconsider that part of Our decision which declares that Nielson
is entitled to shares of stock worth P300,000.00 based on the stock dividends (2) Two thousand five hundred pesos (P2,500.00) as management fee for
declared on November 28, 1949 and on August 20, 1950, together with all the January 1942, with legal interest thereon from the date of the filing of the
fruits accruing thereto. Instead, We declare that Nielson is entitled to payment complaint;
by Lepanto of P300,000.00 in cash, which is equivalent to 10% of the money
value of the stock dividends worth P3,000,000.00 which were declared on (3) One hundred fifty thousand pesos (P150,000.00), representing
November 28, 1949 and on August 20, 1950, with interest thereon at the rate management fees for the sixty-month period of extension of the management
of 6% from February 6, 1958. contract, with legal interest thereon from the date of the filing of the complaint;

6. In the eighth ground of its motion for reconsideration Lepanto maintains that (4) One million four hundred thousand pesos (P1,400,000.00), equivalent to
this Court erred in awarding to Nielson an undetermined amount of shares of 10% of the cash dividends declared during the period of extension of the
stock and/or cash, which award can not be ascertained and executed without management contract, with legal interest thereon from the date of the filing of
further litigation. the complaint;

In view of Our ruling in this resolution that Nielson is not entitled to receive (5) Three hundred thousand pesos (P300,000.00), equivalent to 10% of the
shares of stock as stock dividends in payment of its compensation under the cash value of the stock dividends declared on November 28, 1949 and August
management contract, We do not consider it necessary to discuss this ground 20, 1950, with legal interest thereon from the date of the filing of the complaint;
of the motion for reconsideration. The awards in the present case are all
reduced to specific sums of money.
(6) Fifty three thousand nine hundred twenty eight pesos and eighty eight
centavos (P53,928.88), equivalent to 10% of the depletion reserve set up
7. In the ninth ground of its motion for reconsideration Lepanto maintains that during the period of extension, with legal interest thereon from the date of the
this Court erred in rendering judgment or attorney's fees. filing of the complaint;

The matter of the award of attorney's fees is within the sound discretion of this (7) Six hundred ninety four thousand three hundred sixty four pesos and
Court. In Our decision We have stated the reason why the award of seventy six centavos (P694,364.76), equivalent to 10% of the expenses for
P50,000.00 for attorney's fees is considered by this Court as reasonable. capital account during the period of extension, with legal interest thereon from
the date of the filing of the complaint;
Accordingly, We resolve to modify the decision that We rendered on
December 17, 1966, in the sense that instead of awarding Nielson shares of (8) Fifty thousand pesos (P50,000.00) as attorney's fees; and
stock worth P300,000.00 at the par value of ten centavos (P0.10) per share
based on the stock dividends declared by Lepanto on November 28, 1949 and
(9) The costs.
August 20, 1950, together with their fruits, Nielson should be awarded the sum
of P300,000.00 which is an amount equivalent to 10% of the cash value of the
stock dividends thus declared, as part of the compensation due Nielson under It is so ordered.
the management contract. The dispositive portion of the decision should,
therefore, be amended, to read as follows: Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez and Castro,
JJ., concur.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the
decision of the court a quo and enter in lieu thereof another, ordering the Fernando, Capistrano, Teehankee and Barredo, JJ., took no part.
appellee Lepanto to pay the appellant Nielson the different amounts as
specified hereinbelow:
Republic of the Philippines which was performed lawfully and without negligence. [De la Cruz vs. Northern
SUPREME COURT Theatrical Enterprises, Inc., et al., 95 Phil. 739(1954)]
Manila
The facts in this case based on an agreed statement of facts are simple. In the
EN BANC year 1941 the Northern Theatrical Enterprises Inc., a domestic corporation
operated a movie house in Laoag, Ilocos Norte, and among the persons
G.R. No. L-7089 August 31, 1954 employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special
guard whose duties were to guard the main entrance of the cine, to maintain
DOMINGO DE LA CRUZ, plaintiff-appellant, peace and order and to report the commission of disorders within the
premises. As such guard he carried a revolver. In the afternoon of July 4,
vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants- 1941, one Benjamin Martin wanted to crash the gate or entrance of the movie
house. Infuriated by the refusal of plaintiff De la Cruz to let him in without first
appellees.
providing himself with a ticket, Martin attacked him with a bolo. De la Cruz
defendant himself as best he could until he was cornered, at which moment to
Conrado Rubio for appellant. save himself he shot the gate crasher, resulting in the latter's death.
Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
For the killing, De la Cruz was charged with homicide in Criminal Case No.
MONTEMAYOR, J.: 8449 of the Court of First Instance of Ilocos Norte. After a re-investigation
conducted by the Provincial Fiscal the latter filed a motion to dismiss the
1.EMPLOYER AND EMPLOYEE; DAMAGES CAUSED TO EMPLOYEE BY A complaint, which was granted by the court in January 1943. On July 8, 1947,
STRANGER CAN NOT BE RECOVERED FROM EMPLOYER GIVING LEGAL De la Cruz was again accused of the same crime of homicide, in Criminal
ASSISTANCE TO EMPLOYEE is NOT A LEGAL BUT A MORAL Case No. 431 of the same Court. After trial, he was finally acquitted of the
OBLIGATION.A claim of an employee against his employer for damages charge on January 31, 1948. In both criminal cases De la Cruz employed a
caused to the former by a stranger or outsider while said employee was in the lawyer to defend him. He demanded from his former employer reimbursement
performance of his duties, presents a novel question which under present of his expenses but was refused, after which he filed the present action against
legislation can not be decided in favor of the employee. While it is to the the movie corporation and the three members of its board of directors, to
interest of the employer to give legal help to, and defend, its employees recover not only the amounts he had paid his lawyers but also moral damages
charged criminally in court, in order to show that he was ,not guilty of any said to have been suffered, due to his worry, his neglect of his interests and
crime either deliberately or through negligence, because should the employee his family as well in the supervision of the cultivation of his land, a total of
be finally held criminally liable and he is found to be insolvent, the employer P15,000. On the basis of the complaint and the answer filed by defendants
would be subsidiarily liable, such legal assistance might be regarded as a wherein they asked for the dismissal of the complaint, as well as the agreed
moral obligation but it does not at present count with the sanction of man- statement of facts, the Court of First Instance of Ilocos Norte after rejecting the
made laws. If the employer is not legally obliged to give legal assistance to its theory of the plaintiff that he was an agent of the defendants and that as such
employee and provide him with a lawyer, naturally said employee may not agent he was entitled to reimbursement of the expenses incurred by him in
recover from his employer the amount he may have paid a lawyer hired by connection with the agency (Arts. 1709-1729 of the old Civil Code), found that
him. plaintiff had no cause of action and dismissed the complaint without costs. De
la Cruz appealed directly to this Tribunal for the reason that only questions of
2.ID.; ID.; PARTIES WHO MAY BE HELD RESPONSIBLE FOR DAMAGES. law are involved in the appeal.
If despite the absence of any criminal responsibility on the part of the
employee he was accused of homicide, the responsibility for the improper We agree with the trial court that the relationship between the movie
accusation may be laid at the door of the heirs of the deceased at whose corporation and the plaintiff was not that of principal and agent because the
instance the action was filed by the State through the Fiscal. This responsibility principle of representation was in no way involved. Plaintiff was not employed
can not be transferred to his employer, who in no way intervened, much less to represent the defendant corporation in its dealings with third parties. He was
initiated the criminal proceedings and whose only connection or relation to the a mere employee hired to perform a certain specific duty or task, that of acting
whole affair was that it employed plaintiff to perform a specific duty or task, as special guard and staying at the main entrance of the movie house to stop
gate crashers and to maintain peace and order within the premises. The
question posed by this appeal is whether an employee or servant who in line of is not caused by his act of shooting to death the gate crasher but rather by the
duty and while in the performance of the task assigned to him, performs an act filing of the charge of homicide which made it necessary for him to defend
which eventually results in his incurring in expenses, caused not directly by his himself with the aid of counsel. Had no criminal charge been filed against him,
master or employer or his fellow servants or by reason of his performance of there would have been no expenses incurred or damage suffered. So the
his duty, but rather by a third party or stranger not in the employ of his damage suffered by plaintiff was caused rather by the improper filing of the
employer, may recover said damages against his employer. criminal charge, possibly at the instance of the heirs of the deceased gate
crasher and by the State through the Fiscal. We say improper filing, judging by
The learned trial court in the last paragraph of its decision dismissing the the results of the court proceedings, namely, acquittal. In other words, the
complaint said that "after studying many laws or provisions of law to find out plaintiff was innocent and blameless. If despite his innocence and despite the
what law is applicable to the facts submitted and admitted by the parties, has absence of any criminal responsibility on his part he was accused of homicide,
found none and it has no other alternative than to dismiss the complaint." The then the responsibility for the improper accusation may be laid at the door of
trial court is right. We confess that we are not aware of any law or judicial the heirs of the deceased and the State, and so theoretically, they are the
authority that is directly applicable to the present case, and realizing the parties that may be held responsible civilly for damages and if this is so, we fail
importance and far-reaching effect of a ruling on the subject-matter we have to see now this responsibility can be transferred to the employer who in no way
searched, though vainly, for judicial authorities and enlightenment. All the laws intervened, much less initiated the criminal proceedings and whose only
and principles of law we have found, as regards master and servants, or connection or relation to the whole affairs was that he employed plaintiff to
employer and employee, refer to cases of physical injuries, light or serious, perform a special duty or task, which task or duty was performed lawfully and
resulting in loss of a member of the body or of any one of the senses, or without negligence.
permanent physical disability or even death, suffered in line of duty and in the
course of the performance of the duties assigned to the servant or employee, Still another point of view is that the damages incurred here consisting of the
and these cases are mainly governed by the Employer's Liability Act and the payment of the lawyer's fee did not flow directly from the performance of his
Workmen's Compensation Act. But a case involving damages caused to an duties but only indirectly because there was an efficient, intervening cause,
employee by a stranger or outsider while said employee was in the namely, the filing of the criminal charges. In other words, the shooting to death
performance of his duties, presents a novel question which under present of the deceased by the plaintiff was not the proximate cause of the damages
legislation we are neither able nor prepared to decide in favor of the employee. suffered but may be regarded as only a remote cause, because from the
shooting to the damages suffered there was not that natural and continuous
In a case like the present or a similar case of say a driver employed by a sequence required to fix civil responsibility.
transportation company, who while in the course of employment runs over and
inflicts physical injuries on or causes the death of a pedestrian; and such driver In view of the foregoing, the judgment of the lower court is affirmed. No costs.
is later charged criminally in court, one can imagine that it would be to the
interest of the employer to give legal help to and defend its employee in order Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and
to show that the latter was not guilty of any crime either deliberately or through Reyes, J.B.L., JJ., concur.
negligence, because should the employee be finally held criminally liable and
he is found to be insolvent, the employer would be subsidiarily liable. That is
why, we repeat, it is to the interest of the employer to render legal assistance
to its employee. But we are not prepared to say and to hold that the giving of
said legal assistance to its employees is a legal obligation. While it might yet
and possibly be regarded as a normal obligation, it does not at present count
with the sanction of man-made laws.

If the employer is not legally obliged to give, legal assistance to its employee
and provide him with a lawyer, naturally said employee may not recover the
amount he may have paid a lawyer hired by him.

Viewed from another angle it may be said that the damage suffered by the
plaintiff by reason of the expenses incurred by him in remunerating his lawyer,
Republic of the Philippines del Padre Moraga. In the contract it was agreed between the parties
SUPREME COURT thereto, that the defendant at any time, upon certain contingencies,
Manila before the completion of said edifice could take possession of said
edifice in the course of construction and of all the materials in and
EN BANC about said premises acquired by Merritt for the construction of said
edifice.
G.R. No. L-10918 March 4, 1916
3. That during the month of August land past, the plaintiffs delivered to
WILLIAM FRESSEL, ET AL., plaintiffs-appellants, Merritt at the said edifice in the course of construction certain materials
of the value of P1,381.21, as per detailed list hereto attached and
vs.
MARIANO UY CHACO SONS & COMPANY, defendant-appellee. marked Exhibit A, which price Merritt had agreed to pay on the 1st day
of September, 1914.
Rohde and Wright for appellants.
Gilbert, Haussermann, Cohn and Fisher for appellee. 4. That on the 28th day of August, 1914, the defendant under and by
virtue of its contract with Merritt took possession of the incomplete
edifice in course of construction together with all the materials on said
TRENT, J.: premises including the materials delivered by plaintiffs and mentioned
in Exhibit A aforesaid.
1.INDEPENDENT CONTRACTOR.Where one party to a contract was
authorized to do work according to his own method and without being subject 5. That neither Merritt nor the defendant has paid for the materials
to the other party's control, except as to the result of the work, he is an mentioned in Exhibit A, although payment has been demanded, and
independent contractor and not an agent. that on the 2d day of September, 1914, the plaintiffs demanded of the
defendant the return or permission to enter upon said premises and
2.ASSIGNMENT; MECHANICS' LIENS.In the absence of a statute creating retake said materials at the time still unused which was refused by
mechanics' liens, the owner of a building is not liable for the value of materials defendant.
purchased by an independent contractor, either as such owner or as the
assignee of the contractor, 3. PLEADINGS.On an appeal from a judgment 6. That in pursuance of the contract between Merritt and the
rendered after a refusal to amend, ambiguous matter will be resolved against defendant, Merritt acted as the agent for defendant in the acquisition
the pleader. of the materials from plaintiffs.

4.ID.; MATTERS NOT ADMITTED BY DEMURRER.The admission of the The appellants insist that the above quoted allegations show that Merritt acted
truth of material and relevant f acts well pleaded does not extend to render a as the agent of the defendant in purchasing the materials in question and that
demurrer an admission of mere conclusions of facts not stated nor conclusions the defendant, by taking over and using such materials, accepted and ratified
of law, [Fressel vs. Mariano Uy Chaco Sons & Co., 34 Phil. 122(1916)] the purchase, thereby obligating itself to pay for the same. Or, viewed in
another light, if the defendant took over the unfinished building and all the
This is an appeal from a judgment sustaining the demurrer on the ground that materials on the ground and then completed the structure according to the
the complaint does not state a cause of action, followed by an order dismissing plans, specifications, and building permit, it became in fact the successor or
the case after the plaintiffs declined to amend. assignee of the first builder, and as successor or assignee, it was as much
bound legally to pay for the materials used as was the original party. The
The complaint, omitting the caption, etc., reads: vendor can enforce his contract against the assignee as readily as against the
assignor. While, on the other hand, the appellee contends that Merritt, being
2. That during the latter part of the year 1913, the defendant entered "by the very terms of the contract" an independent contractor, is the only
into a contract with one E. Merritt, whereby the said Merritt undertook person liable for the amount claimed.
and agreed with the defendant to build for the defendant a costly
edifice in the city of Manila at the corner of Calle Rosario and Plaza
It is urged that, as the demurrer admits the truth of all the allegations of fact set there were no contractual relations whatever between the sellers and the
out in the complaint, the allegation in paragraph 6 to the effect that Merritt defendant. The mere fact that Merritt and the defendant had stipulated in their
"acted as the agent for defendant in the acquisition of the materials from building contract that the latter could, "upon certain contingencies," take
plaintiffs," must be, at this stage of the proceedings, considered as true. The possession of the incompleted building and all materials on the ground, did not
rule, as thus broadly stated, has many limitations and restrictions. change Merritt from an independent contractor to an agent. Suppose that, at
the time the building was taken over Merritt had actually used in the
A more accurate statement of the rule is that a demurrer admits the construction thus far P100,000 worth of materials and supplies which he had
truth of all material and relevant facts which are well pleaded. . . . .The purchased on a credit, could those creditors maintain an action against the
admission of the truth of material and relevant facts well pleaded does defendant for the value of such supplies? Certainly not. The fact that the
not extend to render a demurrer an admission of inferences or P100,000 worth of supplies had been actually used in the building would place
conclusions drawn therefrom, even if alleged in the pleading; nor mere those creditors in no worse position to recover than that of the plaintiffs,
inferences or conclusions from facts not stated; nor conclusions of law. although the materials which the plaintiffs sold to Merritt had not actually gone
(Alzua and Arnalot vs. Johnson, 21 Phil. Rep., 308, 350.) into the construction. To hold that either group of creditors can recover would
have the effect of compelling the defendants to pay, as we have indicated, just
Upon the question of construction of pleadings, section 106 of the Code of such prices for materials as Merritt and the sellers saw fit to fix. In the absence
of a statute creating what is known as mechanics' liens, the owner of a building
Civil Procedure provides that:
is not liable for the value of materials purchased by an independent contractor
either as such owner or as the assignee of the contractor.
In the construction of a pleading, for the purpose of determining its
effects, its allegations shall be liberally construed, with a view of
substantial justice between the parties. The allegation in paragraph 6 that Merritt was the agent of the defendant
contradicts all the other allegations and is a mere conclusion drawn from them.
Such conclusion is not admitted, as we have said, by the demurrer.
This section is essentially the same as section 452 of the California Code of
Civil Procedure. "Substantial justice," as used in the two sections, means
substantial justice to be ascertained and determined by fixed rules and positive The allegations in the complaint not being sufficient to constitute a cause of
action against the defendant, the judgment appealed from is affirmed, with
statutes. (Stevens vs. Ross, 1 Cal. 94, 95.) "Where the language of a pleading
costs against the appellants. So ordered.
is ambiguous, after giving to it a reasonable intendment, it should be resolved
against the pleader. This is especially true on appeal from a judgment
rendered after refusal to amend; where a general and special demurrer to a Arellano, C.J., Torres, Johnson and Araullo, JJ., concur.
complaint has been sustained, and the plaintiff had refused to amend, all Moreland, J., concurs in the result.
ambiguities and uncertainties must be construed against him." (Sutherland on Carson, J., dissents.
Code Pleading, vol. 1, sec. 85, and cases cited.)

The allegations in paragraphs 1 to 5, inclusive, above set forth, do not even


intimate that the relation existing between Merritt and the defendant was that
of principal and agent, but, on the contrary, they demonstrate that Merritt was
an independent contractor and that the materials were purchased by him as
such contractor without the intervention of the defendant. The fact that "the
defendant entered into a contract with one E. Merritt, where by the said Merritt
undertook and agreed with the defendant to build for the defendant a costly
edifice" shows that Merritt was authorized to do the work according to his own
method and without being subject to the defendant's control, except as to the
result of the work. He could purchase his materials and supplies from whom he
pleased and at such prices as he desired to pay. Again, the allegations that the
"plaintiffs delivered the Merritt . . . . certain materials (the materials in question)
of the value of P1,381.21, . . . . which price Merritt agreed to pay," show that
Republic of the Philippines Appeal by certiorari under Rule 46 to review a judgment of the Court of
SUPREME COURT Appeals which reversed that of the Court of First Instance of Manila and
Manila sentenced ". . . the defendants-appellees to pay, jointly and severally, the
plaintiffs-appellants the sum of P1,651.38, with legal interest from December 6,
EN BANC 1947 (Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and the costs in both
instances."
G.R. No. L-8169 January 29, 1957
The Court of Appeals found the following:
THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner,
vs. Inasmuch as both the Plaintiffs-Appellants and the Defendant-
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY Appellee, the Shell Company of the Philippine Islands, Ltd. accept the
COMMERCIAL CASUALTY INSURANCE CO., SALVADOR SISON, statement of facts made by the trial court in its decision and appearing
PORFIRIO DE LA FUENTE and THE COURT OF APPEALS (First on pages 23 to 37 of the Record on Appeal, we quote hereunder such
Division),respondents. statement:

Ross, Selph, Carrascoso & Janda for petitioner. This is an action for recovery of sum of money, based on alleged
J. A. Wolfson and Manuel Y. Macias for respondents. negligence of the defendants.

PADILLA, J.: It is a fact that a Plymounth car owned by Salvador R. Sison was
brought, on September 3, 1947 to the Shell Gasoline and Service
Station, located at the corner of Marques de Comillas and Isaac Peral
1.PRINCIPAL AND AGENT; WHEN AGENCY EXISTS AND NOT AN
INDEPENDENT CONTRACTOR.Where the operator of a gasoline and Streets, Manila, for washing, greasing and spraying. The operator of
service station owed his position to the company and the latter could remove the station, having agreed to do service upon payment of P8.00, the
car was placed on a hydraulic lifter under the direction of the
him or terminate his services at will; that the service station belonged to the
personnel of the station.
company and bore its tradename and the operator sold only the products of
the company; that the equipment used by the operator belonged to the
company and were just loaned to the operator and the company took charge of What happened to the car is recounted by Perlito Sison, as follows:
their repair and maintenance; that an employee of the company supervised the
operator and conducted periodic inspection of the companys gasoline and Q. Will you please describe how they proceeded to do the
service station; that the price of the products sold by the operator was fixed by work?
the company and not by the operator; and that the receipts signed by the
operator indicated that he was a mere agent. Held: that the operator is an A. Yes, sir. The first thing that was done, as I saw, was to
agent of the company and not an independent contractor. drive the car over the lifter. Then by the aid of the two grease
men they raised up my car up to six feet high, and then
2.CONTRACTS; NATURE OF CONTRACT; COURTS NOT BOUND UPON washing was done. After washing, the next step was greasing.
THE NAME GIVEN BY PARTIES.To determine the nature of a contract Before greasing was finished, there is a part near the shelf of
courts do not have or are not bound to rely upon the name or title given it by the right fender, right front fender, of my car to be greased, but
the contracting parties, should there be a controversy as to what they really the the grease men cannot reached that part, so the next thing
had intended to enter into, but the way the contracting parties do or perform to be done was to loosen the lifter just a few feet lower. Then
their respective obligations stipulated or agreed upon may be shown and upon releasing the valve to make the car lower, a little bit
inquired into, and should such performance conflict with the name or title given lower . . .
the contract by the parties, the former must prevail over the latter. [Shell Co. of
the Phils., Ltd. vs. Firemens Ins. Co. of Newark, N.J., et al., 100 Phil., Q. Who released the valve?
757(1957)]
A. The greasemen, for the escape of the air. As the escape of A. There is one point which I could not reach.
the air is too strong for my ear I faced backward. I faced
toward Isaac Peral Street, and covered my ear. After the Q. And what did you do then?
escaped of the air has been finished, the air coming out from
the valve, I turned to face the car and I saw the car swaying at
A. I lowered the lifter in order to reach that point.
that time, and just for a few second the car fell., (t.s.n. pp. 22-
23.)
Q. After lowering it a little, what did you do then?
The case was immediately reported to the Manila Adjustor Company, the
adjustor of the firemen's Insurance Company and the Commercial Casualty A. I pushed and pressed the valve in its gradual pressure.
Insurance Company, as the car was insured with these insurance companies.
After having been inspected by one Mr. Baylon, representative of the Manila Q. Were you able to reach the portion which you were not able
Adjustor Company, the damaged car was taken to the shops of the Philippine to reach while it was lower?
Motors, Incorporated, for repair upon order of the Firemen's Insurance
Company and the Commercial Casualty Company, with the consent of A. No more, sir.
Salvador R. Sison. The car was restored to running condition after repairs
amounting to P1,651.38, and was delivered to Salvador R. Sison, who, in turn Q. Why?
made assignments of his rights to recover damages in favor of the Firemen's
Insurance Company and the Commercial Casualty Insurance Company.
A. Because when I was lowering the lifter I saw that the car
was swinging and it fell.
On the other hand, the fall of the car from the hydraulic lifter has been
explained by Alfonso M. Adriano, a greaseman in the Shell Gasoline
THE COURT. Why did the car swing and fall?
and Service Station, as follows:

WITNESS: 'That is what I do not know, sir'. (t.s.n., p.67.)


Q. Were you able to lift the car on the hydraulic lifter on the
occasion, September 3, 1947?
The position of Defendant Porfirio de la Fuente is stated in his counter-
statement of facts which is hereunder also reproduced:
A. Yes, sir.
In the afternoon of September 3, 1947, an automobile belonging to the
Q. To what height did you raise more or less?
plaintiff Salvador Sison was brought by his son, Perlito Sison, to the
gasoline and service station at the corner of Marques de Comillas and
A. More or less five feet, sir. Isaac Peral Streets, City of Manila, Philippines, owned by the
defendant The Shell Company of the Philippine Islands, Limited, but
Q. After lifting that car that height, what did you do with the operated by the defendant Porfirio de la Fuente, for the purpose of
car? having said car washed and greased for a consideration of P8.00
(t.s.n., pp. 19-20.) Said car was insured against loss or damage by
A. I also washed it, sir. Firemen's Insurance Company of Newark, New Jersey, and
Commercial Casualty Insurance Company jointly for the sum of
Q. And after washing? P10,000 (Exhibits "A', "B", and "D").

A. I greased it. The job of washing and greasing was undertaken by defendant Porfirio
de la Fuente through his two employees, Alfonso M. Adriano, as
greaseman and one surnamed de los Reyes, a helper and washer
Q. On that occasion, have you been able to finish greasing
(t.s.n., pp. 65-67). To perform the job the car was carefully and
and washing the car? centrally placed on the platform of the lifter in the gasoline and service
station aforementioned before raising up said platform to a height of . . . De la Fuente owned his position to the Shell Company which could
about 5 feet and then the servicing job was started. After more than remove him terminate his services at any time from the said Company,
one hour of washing and greasing, the job was about to be completed and he undertook to sell the Shell Company's products exculusively at
except for an ungreased portion underneath the vehicle which could the said Station. For this purpose, De la Fuente was placed in
not be reached by the greasemen. So, the lifter was lowered a little by possession of the gasoline and service station under consideration,
Alfonso M. Adriano and while doing so, the car for unknown reason and was provided with all the equipments needed to operate it, by the
accidentally fell and suffered damage to the value of P1, 651.38 (t.s.n., said Company, such as the tools and articles listed on Exhibit 2 which
pp. 65-67). the hydraulic lifter (hoist) and accessories, from which Sison's
automobile fell on the date in question (Exhibit 1 and 2). These
The insurance companies after paying the sum of P1,651.38 for the equipments were delivered to De la Fuente on a so-called loan basis.
damage and charging the balance of P100.00 to Salvador Sison in The Shell Company took charge of its care and maintenance and
accordance with the terms of the insurance contract, have filed this rendered to the public or its customers at that station for the proper
action together with said Salvador Sison for the recovery of the total functioning of the equipment. Witness Antonio Tiongson, who was
amount of the damage from the defendants on the ground of sales superintendent of the Shell Company, and witness Augusto
negligence (Record on Appeal, pp. 1-6). Sawyer, foreman of the same Company, supervised the operators and
conducted periodic inspection of the Company's gasoline and service
station, the service station in question inclusive. Explaining his duties
The defendant Porfirio de la Fuente denied negligence in the operation
and responsibilities and the reason for the loan, Tiongson said: "mainly
of the lifter in his separate answer and contended further that the
of the supervision of sales or (of) our dealers and rountinary inspection
accidental fall of the car was caused by unforseen event (Record on
Appeal, pp. 17-19). of the equipment loaned by the Company" (t.s.n., 107); "we merely
inquire about how the equipments are, whether they have complaints,
and whether if said equipments are in proper order . . .", (t.s.n., 110);
The owner of the car forthwith notified the insurers who ordered their adjustor, station equipments are "loaned for the exclusive use of the dealer on
the Manila Adjustor Company, to investigate the incident and after such condition that all supplies to be sold by said dealer should be
investigation the damaged car, upon order of the insures and with the consent exclusively Shell, so as a concession we loan equipments for their use
of the owner, was brought to the shop of the Philippine Motors, Inc. The car . . .," "for the proper functioning of the equipments, we answer and see
was restored to running condition after thereon which amounted to P1,651.38 to it that the equipments are in good running order usable condition . .
and returned to the owner who assigned his right to collect the aforesaid .," "with respect to the public." (t.s.n., 111-112). De la Fuente, as
amount to the Firemen's Insurance Company and the Commercial Casualty operator, was given special prices by the Company for the gasoline
Insurance Company. products sold therein. Exhibit 1 Shell, which was a receipt by
Antonio Tiongson and signed by the De la Fuente, acknowledging the
On 6 December 1947 the insures and the owner of the car brought an action in delivery of equipments of the gasoline and service station in question
the Court of First Instance of Manila against the Shell Company of the was subsequently replaced by Exhibit 2 Shell, an official from of the
Philippines, Ltd. and Porfirio de la Fuente to recover from them, jointly and inventory of the equipment which De la Fuente signed above the
severally, the sum of P1,651.38, interest thereon at the legal rate from the words: "Agent's signature" And the service station in question had
filing of the complaint until fully paid, the costs. After trial the Court dismissed been marked "SHELL", and all advertisements therein bore the same
the complaint. The plaintiffs appealed. The Court of Appeals reversed the sign. . . .
judgment and sentenced the defendant to pay the amount sought to be
recovered, legal interest and costs, as stated at the beginning of this opinion. . . . De la Fuente was the operator of the station "by grace" of the
Defendant Company which could and did remove him as it pleased;
In arriving at the conclusion that on 3 September 1947 when the car was that all the equipments needed to operate the station was owned by
brought to the station for servicing Profirio de la Fuente, the operator of the the Defendant Company which took charge of their proper care and
gasoline and service station, was an agent of the Shell Company of the maintenance, despite the fact that they were loaned to him; that the
Philippines, Ltd., the Court of Appeals found that Defendant company did not leave the fixing of price for gasoline to De
la Fuente; on the other hand, the Defendant company had complete
control thereof; and that Tiongson, the sales representative of the
Defendant Company, had supervision over De la Fuente in the usable condition;" and the Court of Appeals found that the Company's
operation of the station, and in the sale of Defendant Company's mechanic failed to make a thorough check up of the hydraulic lifter and the
products therein. . . . check up made by its mechanic was "merely routine" by raising "the lifter once
or twice and after observing that the operator was satisfactory, he (the
Taking into consideration the fact that the operator owed his position to the mechanic) left the place." The latter was negligent and the company must
company and the latter could remove him or terminate his services at will; that answer for the negligent act of its mechanic which was the cause of the fall of
the service station belonged to the company and bore its tradename and the the car from the hydraulic lifter.
operator sold only the products of the company; that the equipment used by
the operator belonged to the company and were just loaned to the operator The judgment under review is affirmed, with costs against the petitioner.
and the company took charge of their repair and maintenance; that an
employee of the company supervised the operator and conducted periodic Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador,
inspection of the company's gasoline and service station; that the price of the Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.
products sold by the operator was fixed by the company and not by the
operator; and that the receipt signed by the operator indicated that he was a
mere agent, the finding of the Court of Appeals that the operator was an agent
of the company and not an independent contractor should not be disturbed.

To determine the nature of a contract courts do not have or are not bound to
rely upon the name or title given it by the contracting parties, should there be a
controversy as to what they really had intended to enter into, but the way the
contracting parties do or perform their respective obligation stipulated or
agreed upon may be shown and inquired into, and should such performance
conflict with the name or title given the contract by the parties, the former must
prevail over the latter.

It was admitted by the operator of the gasoline and service station that "the car
was carefully and centrally placed on the platform of the lifter . . ." and the
Court of Appeals found that

. . . the fall of Appellant Sison's car from the hydraulic lift and the
damage caused therefor, were the result of the jerking and swaying of
the lift when the valve was released, and that the jerking was due to
some accident and unforeseen shortcoming of the mechanism itself,
which caused its faulty or defective operation or functioning,

. . . the servicing job on Appellant Sison's automobile was accepted by


De la Fuente in the normal and ordinary conduct of his business as
operator of his co-appellee's service station, and that the jerking and
swaying of the hydraulic lift which caused the fall of the subject car
were due to its defective condition, resulting in its faulty operation. . . .

As the act of the agent or his employees acting within the scope of his
authority is the act of the principal, the breach of the undertaking by the agent
is one for which the principal is answerable. Moreover, the company undertook
to "answer and see to it that the equipments are in good running order and
Republic of the Philippines Same; Application of principle to the case at bar.The gasoline-station, with
SUPREME COURT all its appliances, equipment and employees, was under the control of
Manila appellees. A fire occurred therein and spread to and burned the neighboring
houses. The person who knew or could have known how the fire started were
EN BANC the appellees and their employees, but they gave no explanation thereof
whatsoever. It is a fair and reasonable inference that the incident happened
G.R. No. L-12986 March 31, 1966 because of want of care.

THE SPOUSES BERNABE AFRICA and SOLEDAD C. AFRICA, and the Torts; Quasi-delicts; Force majeure; Intervention of unforeseen and
HEIRS OF DOMINGA ONG,petitioners-appellants, unexpected cause.The intervention of an unforeseen and unexpected cause
is not sufficient to relieve a wrongdoer from consequences of negligence, if
vs.
CALTEX (PHIL.), INC., MATEO BOQUIREN and THE COURT OF such negligence directly and proximately cooperates with the independent
APPEALS, respondents-appellees. cause in the resulting injury. (MacAfee v. Travers Gas Corporation, 153 S.W.
2nd 442.)
MAKALINTAL., J.:
Damages; Liability of owner of gasoline station; Case at bar.A fire broke out
at the Caltex service station. It started while gasoline was being hosed from a
Evidence; Requisites for admissibility of entries in official records.There are tank into the underground storage. The fire spread to and burned several
three requisites for admissibility of evidence under Section 35, Rule 123, Rules neighboring houses owned by appellants. Issue: Whether Caltex should be
of Court: (a) that the entry was made by a public officer, or by another person, held liable for the damages caused to appellants. Held: This question depends
specially enjoined by law to do so; (b) that it was made by the public officer in on whether the operator of the gasoline station was an independent contractor
the performance of his duties, or by such other person in the performance of a or an agent of Caltex. Under the license agreement the operator would pay
duty specially enjoined by law; and (c) that the public officer or other person Caltex the purely nominal sum of P1.00 for the use of the premises and all
had sufficient knowledge of the facts by him slated, which must have been equipment therein. The operator could sell only Caltex products. Maintenance
acquired by him personally or through official information (Moran, Comments of the station and its equipment was subject to the approval, in other words
on the Rules of Court, Vol. 3, p. 393). control, of Caltex. The operator could not assign or transfer his rights as
licensee without the consent of Caltex. Termination of the contract was a right
Same; Hearsay rule; Reports not considered an exception to hearsay rule. granted only to Caltex but not to the operator. These provisions of the contract
The reports of the police and fire departments do not constitute an exception to show that the operator was virtually an employee of the Caltex, not an
the hearsay rule. For, the facts stated therein were not acquired by the independent contractor. Hence, Caltex should be liable for damages caused to
reporting officers through official information, not having been given by the appellants. [Africa, et al. vs. Caltex (Phil.), Inc., et al., 16 SCRA 448(1966)]
informants pursuant to any duty to do so.
This case is before us on a petition for review of the decision of the Court of
Same; Report submitted by a police officer in the performonce of his duties. Appeals, which affirmed that of the Court of First Instance of Manila dismissing
The report submitted by a police officer in the performance of his duties, on the petitioners' second amended complaint against respondents.
basis of his own personal observation of the facts reported, may properly be
considered as an exception to the hearsay rule. The action is for damages under Articles 1902 and 1903 of the old Civil Code.
It appears that in the afternoon of March 18, 1948 a fire broke out at the Caltex
Same; Presumption of negligence under the doctrine of res ipsa loquitur. service station at the corner of Antipolo street and Rizal Avenue, Manila. It
Where the thing which caused the injury complained of is shown to be under started while gasoline was being hosed from a tank truck into the underground
the management of the defendant or his servants and the accident is such as storage, right at the opening of the receiving tank where the nozzle of the hose
in the ordinary course of things does not happen if those who have its was inserted. The fire spread to and burned several neighboring houses,
management or control use proper care, it affords reasonable evidence, in the including the personal properties and effects inside them. Their owners,
absence of explanation by the defendant, that the accident arose from want of among them petitioners here, sued respondents Caltex (Phil.), Inc. and Mateo
care (45 C.J. 1193). Boquiren, the first as alleged owner of the station and the second as its agent
in charge of operation. Negligence on the part of both of them was attributed report (Exhibit V-Africa) which appears signed by a Detective Zapanta
as the cause of the fire. allegedly "for Salvador Capacillo," the latter was presented as witness but
respondents waived their right to cross-examine him although they had the
The trial court and the Court of Appeals found that petitioners failed to prove opportunity to do so; and thirdly, that in any event the said reports are
negligence and that respondents had exercised due care in the premises and admissible as an exception to the hearsay rule under section 35 of Rule 123,
with respect to the supervision of their employees. now Rule 130.

The first question before Us refers to the admissibility of certain reports on the The first contention is not borne out by the record. The transcript of the hearing
fire prepared by the Manila Police and Fire Departments and by a certain of September 17, 1953 (pp. 167-170) shows that the reports in question, when
Captain Tinio of the Armed Forces of the Philippines. Portions of the first two offered as evidence, were objected to by counsel for each of respondents on
reports are as follows: the ground that they were hearsay and that they were "irrelevant, immaterial
and impertinent." Indeed, in the court's resolution only Exhibits J, K, K-5 and X-
6 were admitted without objection; the admission of the others, including the
1. Police Department report:
disputed ones, carried no such explanation.
Investigation disclosed that at about 4:00 P.M. March 18, 1948, while
On the second point, although Detective Capacillo did take the witness stand,
Leandro Flores was transferring gasoline from a tank truck, plate No. T-
he was not examined and he did not testify as to the facts mentioned in his
5292 into the underground tank of the Caltex Gasoline Station located at
the corner of Rizal Avenue and Antipolo Street, this City, an unknown alleged report (signed by Detective Zapanta). All he said was that he was one
Filipino lighted a cigarette and threw the burning match stick near the of those who investigated "the location of the fire and, if possible, gather
witnesses as to the occurrence, and that he brought the report with him. There
main valve of the said underground tank. Due to the gasoline fumes, fire
was nothing, therefore, on which he need be cross-examined; and the
suddenly blazed. Quick action of Leandro Flores in pulling off the
contents of the report, as to which he did not testify, did not thereby become
gasoline hose connecting the truck with the underground tank prevented
competent evidence. And even if he had testified, his testimony would still
a terrific explosion. However, the flames scattered due to the hose from
which the gasoline was spouting. It burned the truck and the following have been objectionable as far as information gathered by him from third
persons was concerned.
accessorias and residences.

Petitioners maintain, however, that the reports in themselves, that is, without
2. The Fire Department report:
further testimonial evidence on their contents, fall within the scope of section
35, Rule 123, which provides that "entries in official records made in the
In connection with their allegation that the premises was (sic) performance of his duty by a public officer of the Philippines, or by a person in
subleased for the installation of a coca-cola and cigarette stand, the the performance of a duty specially enjoined by law, are prima facie evidence
complainants furnished this Office a copy of a photograph taken during of the facts therein stated."
the fire and which is submitted herewith. it appears in this picture that
there are in the premises a coca-cola cooler and a rack which
according to information gathered in the neighborhood contained There are three requisites for admissibility under the rule just mentioned: (a)
that the entry was made by a public officer, or by another person specially
cigarettes and matches, installed between the gasoline pumps and the
enjoined by law to do so; (b) that it was made by the public officer in the
underground tanks.
performance of his duties, or by such other person in the performance of a
duty specially enjoined by law; and (c) that the public officer or other person
The report of Captain Tinio reproduced information given by a certain Benito had sufficient knowledge of the facts by him stated, which must have been
Morales regarding the history of the gasoline station and what the chief of the acquired by him personally or through official information (Moran, Comments
fire department had told him on the same subject. on the Rules of Court, Vol. 3 [1957] p. 398).

The foregoing reports were ruled out as "double hearsay" by the Court of Of the three requisites just stated, only the last need be considered here.
Appeals and hence inadmissible. This ruling is now assigned as error. It is Obviously the material facts recited in the reports as to the cause and
contended: first, that said reports were admitted by the trial court without circumstances of the fire were not within the personal knowledge of the officers
objection on the part of respondents; secondly, that with respect to the police
who conducted the investigation. Was knowledge of such facts, however, The defendant therein disclaimed liability on the ground that the plaintiff had
acquired by them through official information? As to some facts the sources failed to show any specific act of negligence, but the appellate court overruled
thereof are not even identified. Others are attributed to Leopoldo Medina, the defense under the doctrine of res ipsa loquitur. The court said:
referred to as an employee at the gas station were the fire occurred; to
Leandro Flores, driver of the tank truck from which gasoline was being The first point is directed against the sufficiency of plaintiff's evidence
transferred at the time to the underground tank of the station; and to to place appellant on its defense. While it is the rule, as contended by
respondent Mateo Boquiren, who could not, according to Exhibit V-Africa, give the appellant, that in case of noncontractual negligence, or culpa
any reason as to the origin of the fire. To qualify their statements as "official aquiliana, the burden of proof is on the plaintiff to establish that the
information" acquired by the officers who prepared the reports, the persons proximate cause of his injury was the negligence of the defendant, it is
who made the statements not only must have personal knowledge of the facts also a recognized principal that "where the thing which caused injury,
1
stated but must have the duty to give such statements for record. without fault of the injured person, is under the exclusive control of the
defendant and the injury is such as in the ordinary course of things
The reports in question do not constitute an exception to the hearsay rule; the does not occur if he having such control use proper care, it affords
facts stated therein were not acquired by the reporting officers through official reasonable evidence, in the absence of the explanation, that the injury
information, not having been given by the informants pursuant to any duty to arose from defendant's want of care."
do so.
And the burden of evidence is shifted to him to establish that he has
The next question is whether or not, without proof as to the cause and origin of observed due care and diligence. (San Juan Light & Transit Co. v.
the fire, the doctrine of res ipsa loquitur should apply so as to presume Requena, 244, U.S. 89, 56 L. ed. 680.) This rule is known by the name
negligence on the part of appellees. Both the trial court and the appellate court of res ipsa loquitur (the transaction speaks for itself), and is peculiarly
refused to apply the doctrine in the instant case on the grounds that "as to (its) applicable to the case at bar, where it is unquestioned that the plaintiff
applicability ... in the Philippines, there seems to he nothing definite," and that had every right to be on the highway, and the electric wire was under
while the rules do not prohibit its adoption in appropriate cases, "in the case at the sole control of defendant company. In the ordinary course of
bar, however, we find no practical use for such doctrine." The question events, electric wires do not part suddenly in fair weather and injure
deserves more than such summary dismissal. The doctrine has actually been people, unless they are subjected to unusual strain and stress or there
applied in this jurisdiction, in the case of Espiritu vs. Philippine Power and are defects in their installation, maintenance and supervision; just as
Development Co. (CA-G.R. No. 3240-R, September 20, 1949), wherein the barrels do not ordinarily roll out of the warehouse windows to injure
decision of the Court of Appeals was penned by Mr. Justice J.B.L. Reyes now passersby, unless some one was negligent. (Byrne v. Boadle, 2 H &
a member of the Supreme Court. Co. 722; 159 Eng. Reprint 299, the leading case that established that
rule). Consequently, in the absence of contributory negligence (which
The facts of that case are stated in the decision as follows: is admittedly not present), the fact that the wire snapped suffices to
raise a reasonable presumption of negligence in its installation, care
and maintenance. Thereafter, as observed by Chief Baron Pollock, "if
In the afternoon of May 5, 1946, while the plaintiff-appellee and other
there are any facts inconsistent with negligence, it is for the defendant
companions were loading grass between the municipalities of Bay and
Calauan, in the province of Laguna, with clear weather and without to prove."
any wind blowing, an electric transmission wire, installed and
maintained by the defendant Philippine Power and Development Co., It is true of course that decisions of the Court of Appeals do not lay down
Inc. alongside the road, suddenly parted, and one of the broken ends doctrines binding on the Supreme Court, but we do not consider this a reason
hit the head of the plaintiff as he was about to board the truck. As a for not applying the particular doctrine of res ipsa loquitur in the case at bar.
result, plaintiff received the full shock of 4,400 volts carried by the wire Gasoline is a highly combustible material, in the storage and sale of which
and was knocked unconscious to the ground. The electric charge extreme care must be taken. On the other hand, fire is not considered a
coursed through his body and caused extensive and serious multiple fortuitous event, as it arises almost invariably from some act of man. A case
burns from skull to legs, leaving the bone exposed in some parts and strikingly similar to the one before Us is Jones vs. Shell Petroleum
causing intense pain and wounds that were not completely healed Corporation, et al., 171 So. 447:
when the case was tried on June 18, 1947, over one year after the
mishap.
Arthur O. Jones is the owner of a building in the city of Hammon which Where the thing which caused the injury complained of is shown to be
in the year 1934 was leased to the Shell Petroleum Corporation for a under the management of defendant or his servants and the accident
gasoline filling station. On October 8, 1934, during the term of the is such as in the ordinary course of things does not happen if those
lease, while gasoline was being transferred from the tank wagon, also who have its management or control use proper care, it affords
operated by the Shell Petroleum Corporation, to the underground tank reasonable evidence, in absence of explanation by defendant, that the
of the station, a fire started with resulting damages to the building accident arose from want of care. (45 C.J. #768, p. 1193).
owned by Jones. Alleging that the damages to his building amounted
to $516.95, Jones sued the Shell Petroleum Corporation for the This statement of the rule of res ipsa loquitur has been widely
recovery of that amount. The judge of the district court, after hearing approved and adopted by the courts of last resort. Some of the cases
the testimony, concluded that plaintiff was entitled to a recovery and in this jurisdiction in which the doctrine has been applied are the
rendered judgment in his favor for $427.82. The Court of Appeals for following, viz.: Maus v. Broderick, 51 La. Ann. 1153, 25 So. 977;
the First Circuit reversed this judgment, on the ground the testimony Hebert v. Lake Charles Ice, etc., Co., 111 La. 522, 35 So. 731, 64
failed to show with reasonable certainty any negligence on the part of L.R.A. 101, 100 Am. St. Rep. 505; Willis v. Vicksburg, etc., R. Co., 115
the Shell Petroleum Corporation or any of its agents or employees. La. 63, 38 So. 892; Bents v. Page, 115 La. 560, 39 So. 599.
Plaintiff applied to this Court for a Writ of Review which was granted,
and the case is now before us for decision.1wph1.t
The principle enunciated in the aforequoted case applies with equal force here.
The gasoline station, with all its appliances, equipment and employees, was
In resolving the issue of negligence, the Supreme Court of Louisiana held: under the control of appellees. A fire occurred therein and spread to and
burned the neighboring houses. The persons who knew or could have known
Plaintiff's petition contains two distinct charges of negligence one how the fire started were appellees and their employees, but they gave no
relating to the cause of the fire and the other relating to the spreading explanation thereof whatsoever. It is a fair and reasonable inference that the
of the gasoline about the filling station. incident happened because of want of care.

Other than an expert to assess the damages caused plaintiff's building In the report submitted by Captain Leoncio Mariano of the Manila Police
by the fire, no witnesses were placed on the stand by the defendant. Department (Exh. X-1 Africa) the following appears:

Taking up plaintiff's charge of negligence relating to the cause of the Investigation of the basic complaint disclosed that the Caltex Gasoline
fire, we find it established by the record that the filling station and the Station complained of occupies a lot approximately 10 m x 10 m at the
tank truck were under the control of the defendant and operated by its southwest corner of Rizal Avenue and Antipolo. The location is within
agents or employees. We further find from the uncontradicted a very busy business district near the Obrero Market, a railroad
testimony of plaintiff's witnesses that fire started in the underground crossing and very thickly populated neighborhood where a great
tank attached to the filling station while it was being filled from the tank number of people mill around t until gasoline tever be theWactjvities of
truck and while both the tank and the truck were in charge of and these peopleor lighting a cigarette cannot be excluded and this
being operated by the agents or employees of the defendant, constitute a secondary hazard to its operation which in turn endangers
extended to the hose and tank truck, and was communicated from the the entire neighborhood to conflagration.
burning hose, tank truck, and escaping gasoline to the building owned
by the plaintiff. Furthermore, aside from precautions already taken by its operator the
concrete walls south and west adjoining the neighborhood are only 2-
Predicated on these circumstances and the further circumstance of 1/2 meters high at most and cannot avoid the flames from leaping over
defendant's failure to explain the cause of the fire or to show its lack of it in case of fire.
knowledge of the cause, plaintiff has evoked the doctrine of res ipsa
loquitur. There are many cases in which the doctrine may be Records show that there have been two cases of fire which caused not
successfully invoked and this, we think, is one of them. only material damages but desperation and also panic in the
neighborhood.
Although the soft drinks stand had been eliminated, this gasoline the actor's negligent conduct actively and continuously operate to bring about
service station is also used by its operator as a garage and repair harm to another, the fact that the active and substantially simultaneous
shop for his fleet of taxicabs numbering ten or more, adding another operation of the effects of a third person's innocent, tortious or criminal act is
risk to the possible outbreak of fire at this already small but crowded also a substantial factor in bringing about the harm, does not protect the actor
gasoline station. from liability.' (Restatement of the Law of Torts, vol. 2, p. 1184, #439). Stated
in another way, "The intention of an unforeseen and unexpected cause, is not
The foregoing report, having been submitted by a police officer in the sufficient to relieve a wrongdoer from consequences of negligence, if such
performance of his duties on the basis of his own personal observation of the negligence directly and proximately cooperates with the independent cause in
facts reported, may properly be considered as an exception to the hearsay the resulting injury." (MacAfee, et al. vs. Traver's Gas Corporation, 153 S.W.
rule. These facts, descriptive of the location and objective circumstances 2nd 442.)
surrounding the operation of the gasoline station in question, strengthen the
presumption of negligence under the doctrine of res ipsa loquitur, since on The next issue is whether Caltex should be held liable for the damages caused
their face they called for more stringent measures of caution than those which to appellants. This issue depends on whether Boquiren was an independent
would satisfy the standard of due diligence under ordinary circumstances. contractor, as held by the Court of Appeals, or an agent of Caltex. This
There is no more eloquent demonstration of this than the statement of Leandro question, in the light of the facts not controverted, is one of law and hence may
Flores before the police investigator. Flores was the driver of the gasoline tank be passed upon by this Court. These facts are: (1) Boquiren made an
wagon who, alone and without assistance, was transferring the contents admission that he was an agent of Caltex; (2) at the time of the fire Caltex
thereof into the underground storage when the fire broke out. He said: "Before owned the gasoline station and all the equipment therein; (3) Caltex exercised
loading the underground tank there were no people, but while the loading was control over Boquiren in the management of the state; (4) the delivery truck
going on, there were people who went to drink coca-cola (at the coca-cola used in delivering gasoline to the station had the name of CALTEX painted on
stand) which is about a meter from the hole leading to the underground tank." it; and (5) the license to store gasoline at the station was in the name of
He added that when the tank was almost filled he went to the tank truck to Caltex, which paid the license fees. (Exhibit T-Africa; Exhibit U-Africa; Exhibit
close the valve, and while he had his back turned to the "manhole" he, heard X-5 Africa; Exhibit X-6 Africa; Exhibit Y-Africa).
someone shout "fire."
In Boquiren's amended answer to the second amended complaint, he denied
Even then the fire possibly would not have spread to the neighboring houses that he directed one of his drivers to remove gasoline from the truck into the
were it not for another negligent omission on the part of defendants, namely, tank and alleged that the "alleged driver, if one there was, was not in his
their failure to provide a concrete wall high enough to prevent the flames from employ, the driver being an employee of the Caltex (Phil.) Inc. and/or the
leaping over it. As it was the concrete wall was only 2-1/2 meters high, and owners of the gasoline station." It is true that Boquiren later on amended his
beyond that height it consisted merely of galvanized iron sheets, which would answer, and that among the changes was one to the effect that he was not
predictably crumple and melt when subjected to intense heat. Defendants' acting as agent of Caltex. But then again, in his motion to dismiss appellants'
negligence, therefore, was not only with respect to the cause of the fire but second amended complaint the ground alleged was that it stated no cause of
also with respect to the spread thereof to the neighboring houses. action since under the allegations thereof he was merely acting as agent of
Caltex, such that he could not have incurred personal liability. A motion to
There is an admission on the part of Boquiren in his amended answer to the dismiss on this ground is deemed to be an admission of the facts alleged in the
second amended complaint that "the fire was caused through the acts of a complaint.
stranger who, without authority, or permission of answering defendant, passed
through the gasoline station and negligently threw a lighted match in the Caltex admits that it owned the gasoline station as well as the equipment
premises." No evidence on this point was adduced, but assuming the therein, but claims that the business conducted at the service station in
allegation to be true certainly any unfavorable inference from the admission question was owned and operated by Boquiren. But Caltex did not present any
may be taken against Boquiren it does not extenuate his negligence. A contract with Boquiren that would reveal the nature of their relationship at the
decision of the Supreme Court of Texas, upon facts analogous to those of the time of the fire. There must have been one in existence at that time. Instead,
present case, states the rule which we find acceptable here. "It is the rule that what was presented was a license agreement manifestly tailored for purposes
those who distribute a dangerous article or agent, owe a degree of protection of this case, since it was entered into shortly before the expiration of the one-
to the public proportionate to and commensurate with a danger involved ... we year period it was intended to operate. This so-called license agreement
think it is the generally accepted rule as applied to torts that 'if the effects of (Exhibit 5-Caltex) was executed on November 29, 1948, but made effective as
of January 1, 1948 so as to cover the date of the fire, namely, March 18, 1948. latter. (Shell Company of the Philippines, Ltd. vs. Firemens' Insurance
This retroactivity provision is quite significant, and gives rise to the conclusion Company of Newark, New Jersey, 100 Phil. 757).
that it was designed precisely to free Caltex from any responsibility with
respect to the fire, as shown by the clause that Caltex "shall not be liable for The written contract was apparently drawn for the purpose of creating
any injury to person or property while in the property herein licensed, it being the apparent relationship of employer and independent contractor, and
understood and agreed that LICENSEE (Boquiren) is not an employee, of avoiding liability for the negligence of the employees about the
representative or agent of LICENSOR (Caltex)." station; but the company was not satisfied to allow such relationship to
exist. The evidence shows that it immediately assumed control, and
But even if the license agreement were to govern, Boquiren can hardly be proceeded to direct the method by which the work contracted for
considered an independent contractor. Under that agreement Boquiren would should be performed. By reserving the right to terminate the contract
pay Caltex the purely nominal sum of P1.00 for the use of the premises and all at will, it retained the means of compelling submission to its orders.
the equipment therein. He could sell only Caltex Products. Maintenance of the Having elected to assume control and to direct the means and
station and its equipment was subject to the approval, in other words control, methods by which the work has to be performed, it must be held liable
of Caltex. Boquiren could not assign or transfer his rights as licensee without for the negligence of those performing service under its direction. We
the consent of Caltex. The license agreement was supposed to be from think the evidence was sufficient to sustain the verdict of the jury. (Gulf
January 1, 1948 to December 31, 1948, and thereafter until terminated by Refining Company v. Rogers, 57 S.W. 2d, 183).
Caltex upon two days prior written notice. Caltex could at any time cancel and
terminate the agreement in case Boquiren ceased to sell Caltex products, or Caltex further argues that the gasoline stored in the station belonged to
did not conduct the business with due diligence, in the judgment of Caltex. Boquiren. But no cash invoices were presented to show that Boquiren had
Termination of the contract was therefore a right granted only to Caltex but not bought said gasoline from Caltex. Neither was there a sales contract to prove
to Boquiren. These provisions of the contract show the extent of the control of the same.
Caltex over Boquiren. The control was such that the latter was virtually an
employee of the former.
As found by the trial court the Africas sustained a loss of P9,005.80, after
deducting the amount of P2,000.00 collected by them on the insurance of the
Taking into consideration the fact that the operator owed his position house. The deduction is now challenged as erroneous on the ground that
to the company and the latter could remove him or terminate his Article 2207 of the New Civil Code, which provides for the subrogation of the
services at will; that the service station belonged to the company and insurer to the rights of the insured, was not yet in effect when the loss took
bore its tradename and the operator sold only the products of the place. However, regardless of the silence of the law on this point at that time,
company; that the equipment used by the operator belonged to the the amount that should be recovered be measured by the damages actually
company and were just loaned to the operator and the company took suffered, otherwise the principle prohibiting unjust enrichment would be
charge of their repair and maintenance; that an employee of the violated. With respect to the claim of the heirs of Ong P7,500.00 was adjudged
company supervised the operator and conducted periodic inspection by the lower court on the basis of the assessed value of the property
of the company's gasoline and service station; that the price of the destroyed, namely, P1,500.00, disregarding the testimony of one of the Ong
products sold by the operator was fixed by the company and not by children that said property was worth P4,000.00. We agree that the court
the operator; and that the receipts signed by the operator indicated erred, since it is of common knowledge that the assessment for taxation
that he was a mere agent, the finding of the Court of Appeals that the purposes is not an accurate gauge of fair market value, and in this case should
operator was an agent of the company and not an independent not prevail over positive evidence of such value. The heirs of Ong are
contractor should not be disturbed. therefore entitled to P10,000.00.

To determine the nature of a contract courts do not have or are not Wherefore, the decision appealed from is reversed and respondents-appellees
bound to rely upon the name or title given it by the contracting parties, are held liable solidarily to appellants, and ordered to pay them the aforesaid
should thereby a controversy as to what they really had intended to sum of P9,005.80 and P10,000.00, respectively, with interest from the filing of
enter into, but the way the contracting parties do or perform their the complaint, and costs. Bengzon, C.J., Bautista Angelo, Concepcion, Reyes,
respective obligations stipulated or agreed upon may be shown and J.B.L., Barrera, Regala, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
inquired into, and should such performance conflict with the name or Dizon, J., took no part.
title given the contract by the parties, the former must prevail over the
Republic of the Philippines person took charge of the administration of the same, through designation by
SUPREME COURT such owner's former agent who had to absent himself from the place for well-
Manila founded reasons, remained silent for nearly nine years. Although he did not
send a new power of attorney to the said person who took charge of his
EN BANC property, the fact remains that, during the .period stated, he neither opposed
nor prohibited the new agent with respect to the administration, nor did he
G.R. No. L-5486 August 17, 1910 appoint another person in his confidence; wherefore it must be concluded that
this new agent acted by virtue of an implied agency, equivalent to a legitimate
agency, tacitly conferred by the owner of the property administered.
JOSE DE LA PEA Y DE RAMON, plaintiff-appellant,
vs.
FEDERICO HIDALGO, defendant-appellant. 3.ID. ; ID. ; ID.It is improper to compare the case where the owner of the
property is unaware of the officious management of a third party in the former's
interests, with the case where, having perfect knowledge that his interests and
O'Brien and DeWitt, for plaintiff and appellant. property were so being managed and administered, he did not object, but in
E. Gutierrez Repilde, for defendant and appellant. fact consented to such management and administration for many years; for the
reason that an administration by virtue of an implied agency derives its origin
TORRES, J.: from a contract, and the management of another's business without the
knowledge of the owner thereof, is based solely on a quasi-contracta
1.AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY.When distinction sanctioned by the jurisprudence established by the supreme court
the agent and administrator of property informs his principal by letter that for of Spain in its decision of July 7, 1881.
reasons of health and medical treatment he is about to depart from the place
where he is executing his trust and wherein the said property is situated, and 4.ID. ; ID. ; ID.The agent and administrator who was obliged to leave his
abandons the property, turns it over to a third party, renders accounts of its charge for a legitimate cause and who duly informed his principal, is
revenues up to the date on which he ceases to hold his position and transmits thenceforward released and freed from the results and consequences of the
to his principal a general statement which summarizes and embraces all the management of the person who substituted him with the consent, even tacit
balances of his accounts since he began the administration to the date of the though it be, of his principal. For this reason, the latter has no right to claim
termination of his trust, and, without stating when he may return to take charge damages against his former agent whose conduct was in accordance with the
of the administration of the said property, asks his principal to execute a power provisions of article 1736 of the Civil Code, for the care of the property and
of attorney in due form in favor of and transmit the same to another person interests of another can not require that the agent make the sacrifice of his
who took charge of the administration of the said property, it is but reasonable health, of his life, and of his own interests, it having been shown that it was
and just to conclude that the said agent had expressly and definitely impossible for the latter to continue in the discharge of his duties.
renounced his agency and that such agency was duly terminated, in
accordance with the provisions of article 1732 of the Civil Code, and, although 5. ID.; ID.; ID.; LIABILITY OF ADMINISTRATOR.The administrator is only
the agent in his aforementioned letter did not use the words "renouncing the responsible for the result and consequences of his administration during the
agency," yet such words were undoubtedly so understood and accepted by the period when he had charge of his principal's property. His responsibility can
principal, because of the lapse of nearly nine years up to the time of the latter's not be held to extend beyond the period of his administration, especially as the
death, without his having interrogated either the renouncing agent, representative of the testate succession of the deceased owner of the property
disapproving what he had done, or the person who substituted the latter. ad issued in his favor an instrument whereby he acknowledges that the said
administration was satisfactorily terminated.
2.ID. ; ID. ; ID.The person who took charge of the administration of property
without express authorization and without a power of attorney executed by the 6.ID.; ID.; ID.; ACCOUNTING; PAYMENT.It is not sufficient that the agent
owner thereof, and performed the duties of his office without opposition or shall have rendered a satisfactory accounting; in addition thereto it is
absolute prohibition on the owner's part, expressly communicated to the said indispensable that he pay to his principal, or to the owner of the property
person, is concluded to have administered the said property by virtue of an administered, any balance shown by such accounts.
'implied agency, in acordance with the provisions of article 1710 of the Civil
Code, since the said owner of the property, knowing perfectly well that the said
7.DEBTS AND DEBTORS; INTEREST.According to the provisions of article alleging, among other things, as a first cause of action, that during the period
1755 of the Civil Code, interest shall be owed only when it has been expressly of time from November 12, 1887, to January 7, 1904, when Federico Hidalgo
stipulated, and article 1108 of the same code provides that should the debtor, had possession of and administered the following properties, to wit; one house
who is obliged to pay a certain sum of money, be in default and fail to fulfill the and lot at No. 48 Calle San Luis; another house and lot at No. 6 Calle Cortada;
agreement made with his creditor, he must pay, as indemnity for losses and another house and lot at 56 Calle San Luis, and a fenced lot on the same
damages, should there be no stipulation to the contrary, the interest agreed street, all of the district of Ermita, and another house and lot at No. 81 Calle
upon, and should there be no express stipulation, the legal interest; but, in Looban de Paco, belonging to his principal, Jose de la Pea y Gomiz,
order that the debtor may be considered to be in default and obliged to pay according to the power of attorney executed in his favor and exhibited with the
such indemnity it is necessary, as a general rule, that his creditor demand of complaint under letter A, the defendant, as such agent, collected the rents and
him the fulfillment of his obligation, judicially or extrajudicially, except in such income from the said properties, amounting to P50,244, which sum, collected
cases as are limitedly specified in article 1100 of the aforesaid code. [De la in partial amounts and on different dates, he should have deposited, in
Pea vs. Hidalgo., 16 Phil. 450(1910)] accordance with the verbal agreement between the deceased and himself, the
defendant, in the general treasury of the Spanish Government at an interest of
On May 23, 1906, Jose dela Pea y de Ramon, and Vicenta de Ramon, in her 5 per cent per annum, which interest on accrual was likewise to be deposited
own behalf and as the legal guardian of her son Roberto de la Pea, filed in in order that it also might bear interest; that the defendant did not remit or pay
the Court of First Instance of Manila a written complaint against of Federico to Jose de la Pea y Gomiz, during the latter's lifetime, nor to nay
Hidalgo, Antonio Hidalgo, and Francisco Hidalgo, and, after the said complaint, representative of the said De la Pea y Gomiz, the sum aforestated nor any
already amended, had been answered by the defendants Antonio and part thereof, with the sole exception of P1,289.03, nor has he deposited the
Francisco Hidalgo, and the other defendant, Federico Hidalgo, had moved for unpaid balance of the said sum in the treasury, according to agreement,
the dismissal of this complaint, the plaintiff, Jose de la Pea y de Ramon, as wherefore he has become liable to his principal and to the defendant-
the judicial administrator of the estate of the deceased Jose de la Pea y administrator for the said sum, together with its interest, which amounts to
Gomiz, with the consent of the court filed a second amended P72,548.24 and that, whereas the defendant has not paid over all nor any part
complaint prosecuting his action solely against Federico Hidalgo, who of the last mentioned sum, he is liable for the same, as well as for the interest
answered the same in writing on the 21st of may and at the same time filed a thereon at 6 per cent per annum from the time of the filing of the complaint,
counterclaim, which was also answered by the defendant. and for the costs of the suit.

On October 22, 1907, the case was brought up for hearing and oral testimony In the said amended complaint, the plaintiff alleged as a second cause of
was adduced by both parties, the exhibits introduced being attached to the action: That on December 9, 1887, Gonzalo Tuason deposited in the general
record. In view of such testimony and of documentary evidence, the court, on treasury of the Spanish Government, to the credit of Pea y Gomiz, the sum of
March 24, 1908, rendered judgment in favor of the plaintiff-administrator for the 6,360 pesos, at 5 per cent interest per annum, and on December 20, 1888, the
sum of P13,606.19 and legal interest from the date of the filing of the complaint defendant, as the agent of Pea y Gomiz, withdrew the said amount with its
on May 24, 1906, and the costs of the trial. interest, that is, 6,751.60 pesos, and disposed of the same for his own use and
benefit, without having paid all or any part of the said sum to Pea y Gomiz, or
to the plaintiff after the latter's death, notwithstanding the demands made upon
Both the plaintiff and the defendant filed notice of appeal from this judgment
him: wherefore the defendant now owes the said sum of 6,751.60 pesos, with
and also asked for the annulment of the same and for a new trial, on the
ground that the evidence did not justify the said judgment and that the latter interest at the rate of 5 per cent per annum, compounded annually, from the
was contrary to law. The defendant, on April 1, 1908, presented a written 20th of December, 1888, to the time of the filing of this complaint, and from the
latter date at 6 per cent, in accordance with law.
motion for new hearing, alleging the discovery of new evidence favorable to
him and which would necessarily influence the decision such evidence or to
introduce it at the trial of the case, notwithstanding the fact that he had used all The complaint recites as a third cause of action: that, on or about November
due diligence. His petition was accompanied by affidavits from Attorney 25, 1887, defendant's principal, Pea y Gomiz, on his voyage to Spain,
Eduardo Gutierrez Repilde and Federico Hidalgo, and was granted by order of remitted from Singapore, one of the ports to call, to Father Ramon Caviedas, a
the court of the 4th of April. Franciscan friar residing in this city, the sum of 6,000 pesos with the request to
deliver the same, which he did, to defendant, who, on receiving this money,
appropriated it to himself and converted it to his own use and benefit, since he
At this stage of the proceedings and on August 10, 1908, the plaintiff Pea y
De Ramon filed a third amended complaint, with the permission of the court, only remitted to Pea y Gomiz in Sapin, by draft, 737.24 pesos, on December
20, 1888; and, later, on December 21, 1889, he likewise remitted by another power of attorney for the fulfillment, in due form, of the trust that the defendant
draft 860 pesos, without having returned or paid the balance of the said sum, had been discharging since January 1, 1894, or else execute a power of
notwithstanding the demands made upon him so to do: wherefore the attorney in favor of such other person as he might deem proper;
defendant owes to the plaintiff, for the third cause of action, the sum of
P4,402.76, with interest at the rate of 5 per cent per annum, compounded That prior to the said date of March 22, the defendant came, rendered
yearly, to the time of the filing of the complaint and with interest at 6 per cent accounts to his principal, and on the date when he embarked for Spain
from that date, as provided by law. rendered the accounts pertaining to the years 1892 and 1893, which were
those that yet remained to be forwarded, and transmitted to him a general
As a fourth cause of action the plaintiff alleges that, on or about January 23, statement of accounts embracing the period from November 18, 1887, to
1904, on his arrival from Spain and without having any knowledge or December 31, 1893, with a balance of 6,774.50 pesos in favor of Pea y
information of the true condition of affairs relative to the property of the Gomiz, which remained in the control of the acting administrator, Antonio
deceased Pea y Gomiz and its administration, he delivered and paid to the Hidalgo; that from the 22nd of March, 1894, when the defendant left these
defendant at his request the sum of P2,000, derived from the property of the Islands, to the date of his answer to the said complaint, he has not again
deceased, which sum the defendant has not returned notwithstanding the intervened nor taken any part directly or indirectly in the administration of the
demands made upon him so to do. property of Pea y Gomiz, the latter's administrator by express authorization
having been Antonio Hidalgo, from January 1, 1894, to October, 1902, who, on
Wherefore the plaintiff petitions the court to render judgment sentencing the this latter date, delegated his powers to Francisco Hidalgo, who in turn
defendant to pay, as first cause of action, the sum of P72,548.24, with interest administered the said property until January 7, 1904; that the defendant,
thereon at the rate of 6 per cent per annum from May 24, 1906, the date of the notwithstanding his having rendered, in 1894, all his accounts to Jose Pea y
filing of the complaint, and the costs; as a second cause of action, the sum of Gomiz, again rendered to the plaintiff in 1904 those pertaining to the period
P15,774.19, with interest at the rate of 6 per cent per annum from the said from 1887 to December 31, 1893, which accounts the plaintiff approved
date of the filing of the complaint, and costs; as a third cause of action, without any protest whatever and received to his entire satisfaction the balance
P9,811.13, with interest from the aforesaid date, and costs; and, finally, as a due and the vouchers and documents and documents relating to the property
fourth cause of action, he prays that the defendant be sentenced to refund the of the deceased Pea y Gomiz and issued to the defendant the proper
sum of P2,000, with interest thereon at the rate of 6 per cent per annum from acquaintance therefor.
the 23d of January, 1904, and to pay the costs of trial.
As a special defense to the second cause of action, the defendant alleged that,
The defendant, Federico Hidalgo, in his answer to the third amended on December 9, 1886, Jose de la Pea y Gomiz himself deposited in the caja
complaint, sets forth: That he admits the second, third, and fourth allegations general de depositos (General Deposit Bank) the sum of 6,000 pesos, at 6 per
contained in the first, second, third, and fourth causes of action, and denies cent interest for the term of one year, in two deposit receipts of 3,000 pesos
generally and specifically each one and all of the allegations contained in the each, which two deposit receipts, with the interest accrued thereon, amounted
complaint, with the exception of those expressly admitted in his answer; that, to 6,360 pesos, ad were collected by Gonzalo Tuason, through indorsement by
as a special defense against the first cause of action, he, the defendant, Pea y Gomiz, on December 9, 1887, and on this same date Tuason, in the
alleges that on November 18, 1887, by virtue of the powers conferred upon name of Pea y Gomiz, again deposited the said sum of 6,360 pesos in the
him by Pea y Gomiz, he took charge of the administration of the latter's General Deposit Bank, at the same rate of interest, for the term of one year
property and administered the same until December 31, 1893, when for and in two deposit receipts of 3,180 pesos each, registered under Nos. 1336
reasons of health he ceased to discharge the duties of said position; that and 1337; that, on December 20, 1888, father Ramon Caviedas, a Franciscan
during the years 1889, 1890, 1891, and 1892, the defendant continually by friar, delivered to the defendant, Federico Hidalgo, by order of De la Pea y
letter requested Pea y Gomiz, his principal, to appoint a person to substitute Gomiz, the said two deposit receipts with the request to collect the interest due
him in the administration of the latter's property, inasmuch as the defendant, thereon viz., 741.60 pesos an to remit it by draft on London, drawn in favor of
for reasons of health, was unable to continue in his trust; that, on March 22, De la Pea y Gomiz, to deposit again the 6,000 pesos in the said General
1894, the defendant Federico Hidalgo, because of serious illness, was Deposit Bank, for one year, in a single deposit, and in the latter's name, and to
absolutely obliged to leave these Islands and embarked on the steamer Isla de deliver to him, the said Father Caviedas, the corresponding deposit receipt and
Luzon for Sapin, on which date the defendant notified his principal that, for the the draft on London for their transmittal to Pea y Gomiz: all of which was
reason aforestated, he had renounced his powers and turned over the performed by the defendant who acquired the said draft in favor of De la Pea
administration of his property to Antonio Hidalgo, to whom he should transmit a y Gomiz from the Chartered Bank of India, Australia and China, on December
20, 1888, and delivered the draft, together with the receipt from the General evidence was attached to the record of the proceedings, which show that the
Deposit Bank, to Father Caviedas, and on the same date, by letter, notified defendant objected and took exception to the introduction of certain oral and
Pea y Gomiz of the transactions executed; that on December 20, 1889, the documentary evidence produced by the plaintiff. On February 26, 1909, the
said Father Hidalgo, by order of Pea y Gomiz, the aforesaid deposit receipt court in deciding the case found that the defendant, Federico Hidalgo, as
from the General Deposit Bank, with the request to remit, in favor of his administrator of the estate of the deceased Pea y Gomiz, actually owed by
constituent, the interest thereon, amounting to 360 pesos, besides 500 pesos the plaintiff, on the date of the filing of the complaint, the sum of P37,084.93;
of the capital, that is 860 pesos in all, and to again deposit the rest, 5,500 that the plaintiff was not entitled to recover any sum whatever from the
pesos, in the General Deposit Bank for another year in Pea y Gomiz's own defendant for the alleged second, third, and fourth causes of action; that the
name, and to deliver to Father Caviedas the deposit receipt and the draft on plaintiff actually owed the defendant, on the filing of the complaint, the sum of
London, for their transmittal to his constituent; all of which the defendant did; P10,155, which the defendant was entitled to deduct from the sum owing by
he again deposited the rest of the capital, 5,500 pesos, in the General Deposit him to the plaintiff. Judgment was therefore entered against the defendant,
Bank, in the name of Pea y Gomiz, for one year at 5 per cent interest, under Federico Hidalgo, for the payment of P26,629.93, with interest thereon at the
registry number 3,320, and obtained from the house of J. M. Tuason and Co. a rate of 6 per cent per annum from May 23, 1906, and the costs of the trial.
draft on London for 860 pesos in favor of Pea y Gomiz, on December 21,
1889, and thereupon delivered the said receipt and draft to Father Caviedas, Both parties filed written exceptions to this judgment and asked, separately, for
of which acts, when performed, the defendant advised Pea y Gomiz by letter its annulment and that a new trial be ordered, on the grounds that the findings
of December 24, 1889' and that, on December 20, 1890, the said Father of fact contained in the judgment were not supported nor justified by the
Ramon Caviedas delivered to the defendant, by order of Pea y Gomiz, the evidence produced, and because the said judgment was contrary to law, the
said deposit receipt for 5,500 pesos with the request that he withdraw from the defendant stating in writing that his exception and motion for a new trial
General Deposit Bank the capital and accrued interest, which amounted all referred exclusively to that part of the judgment that was condemnatory to him.
together to 5,775 pesos, and that he deliver this amount to Father Caviedas, By order of the 10th of April, 1909, the motions made by both parties were
which he did, in order that it might be remitted to Pea y Gomiz. denied, to which they excepted and announced their intention to file their
respective bills of exceptions.
The defendant denied each of the allegations contained in the third cause of
action, and avers that they are all false and calumnious. By written motions of the 24th of March, 1909, the plaintiff prayed for the
execution of the said judgment, and the defendant being informed thereof
He likewise makes a general and specific denial of all the allegations of the solicited a suspension of the issuance of the corresponding writ of execution
fourth cause of action. until his motion for a new trial should be decided or his bill of exceptions for the
appeal be approved, binding himself to give such bond as the court might fix.
As a counterclaim the defendant alleges that Jose Pea y Gomiz owed and The court, therefore, by order of the 25th of the same month, granted the
had not paid the defendant, up to the date of his death, the sum of 4,000 suspension asked for, conditioned upon the defendants giving a bond, fixed at
pesos with interest at 6 per cent per annum, and 3,600 pesos, and on the P34,000 by another order of the same date, to guarantee compliance with the
plaintiff's being presented with the receipt subscribed by his father, Pea y judgment rendered should it be affirmed, or with any other decision that might
Gomiz, on the said date of January 15th, and evidencing his debt, plaintiff be rendered in the case by the Supreme Court. This bond was furnished by
freely and voluntarily offered to exchange for the said receipt another the defendant on the 26th of the same month.
document executed by him, and transcribed in the complaint. Defendant
further alleges that, up to the date of his counterclaim, the plaintiff has not paid On April 16 and May 4, 1909, the defendant and the plaintiff filed their
him the said sum, with the exception of 2,000 pesos. Wherefore the defendant respective bills of exceptions, which were certified to and approved by order of
prays the court to render judgment absolving him from the complaint with the May 8th and forwarded to the clerk of this court.
costs against the plaintiff, and to adjudge that the latter shall pay to the
defendant the sum 9,000 pesos, which he still owes defendant, with legal Before proceeding to examine the disputed facts to make such legal findings
interest thereon from the date of the counterclaim, to wit, May 21, 1907, and to as follows from a consideration of the same and of the questions of law to
grant such other and further relief as may be just and equitable. which such facts give rise, and for the purpose of avoiding confusion and
obtaining the greatest clearness and an easy comprehension of this decision,
On the 25th of September, 1908, and subsequent dates, the new trial was it is indispensable to premise: First, that as before related, the original and first
held; oral testimony was adduced by both parties, and the documentary complaint filed by the plaintiff was drawn against Federico Hidalgo, Antonio
Hidalgo, and Francisco Hidalgo, the three persons who had successively he had to leave this country for Spain, and also asked for the approval or
administered the property of Jose de la Pea y Gomiz, now deceased; but disapproval of the accounts of his administration which had been transmitted
afterwards the action was directed solely against Federico Hidalgo, to the to his constituent, Pea y Gomiz.
exclusion of the other defendants, Antonio and Francisco Hidalgo, in the
second and third amended complaints, the latter of the date of August 10, For reasons of health and by order of his physician, Federico Hidalgo was
1908, after the issuance by the court of the order of April 4th of the same year, obliged, on March 22, 1894, to embark for Spain, and, on preparing for his
granting the new trial solicited by the defendant on his being notified of the departure, he rendered the accounts of his administration corresponding to the
ruling of the 24th of the previous month of March; second, that the last quarters, up to December 31, 1893, not as yet transmitted, and forwarded
administration of the property mentioned, from the time its owner left these them to his constituent with a general statement of all the partial balances,
Islands and returned to Spain, lasted from November 18, 1887, to January 7, which amounted to the sum total of 6,774.50 pesos, by letter of the date of
1904; and third that, the administration of the said Federico, Antonio, and March 22, 1894, addressed to his principal, Pea y Gomiz. In this letter the
Francisco Hidalgo, having lasted so long, it is necessary to divide it into three defendant informed the latter of the writer's intended departure from this
periods in order to fix the time during which they respectively administered De country and of his having provisionally turned over the administration of the
la Pea's property: During the first period, from November 18, 1887, to said property to his cousin, Antonio Hidalgo, upon whom the writer had
December 31, 1893, the property of the absent Jose de la Pea y Gomiz was conferred a general power of attorney, but asking, in case that this was not
administered by his agent, Federico Hidalgo, under power of attorney; during sufficient, that Pea send to Antonio Hidalgo a new power of attorney.
the second period, from January 1, 1894, to September, 1902, Antonio Hidalgo
administered the said property, and during the third period, from October,
This notifications is of the greatest importance in the decision of this case. The
1902, to January 7, 1904, Francisco Hidalgo was its administrator.
plaintiff avers that he found no such letter among his father's papers after the
latter's death, for which reason he did not have it in his possession, but on the
Before Jose de la Pea y Gomiz embarked for Spain, on November 12, 1887, introduction of a copy thereof by the defendant at the trial, it was admitted
he executed before a notary a power of attorney in favor of Federico Hidalgo, without objection by the plaintiff (p. 81 of the record); wherefore, in spite of the
Antonio L. Rocha, Francisco Roxas and Isidro Llado, so that, as his agents, denial of the plaintiff and of his averment of his not having found that said
they might represent him and administer, in the order in which they were original among his father's papers, justice demands that it be concluded that
appointed, various properties he owned and possessed in Manila. The first this letter of the 22d of March, 1894, was sent to, and was received by Jose de
agent, Federico Hidalgo, took charge of the administration of the said property la Pea y Gomiz, during his lifetime, for its transmittal, with inclosure of the last
on the 18th of November, 1887. partial accounts of Federico Hidalgo's administration and of the general
resume of balances, being affirmed by the defendant, the fact of the plaintiff's
After Federico Hidalgo had occupied the position of agent and administrator of having found among his deceased father's paper's the said resume which he
De la Pea's property for several years, the former wrote to the latter exhibited at the trial, shows conclusively that it was received by the deceased,
requesting him to designate a person who might substitute him in his said as well as the letter of transmittal of the 22nd of March, 1894, one of the
position in the event of his being obliged to absent himself from these Islands, several letters written by Hidalgo, which the said priest, Father Gomiz, affirms
as one of those appointed in the said power of attorney had died and the that he saw among the papers of the deceased Pea, the dates of which ran
others did not wish to take charge of the administration of their principal's from 1890 to 1894; and it is also shown by the record that the defendant
property. The defendant, Hidalgo, stated that his constituent, Pea y Gomiz, Hidalgo positively asserted that the said letter of March was the only one that
did not even answer his letters, to approve or object to the former's accounts, he wrote to Pea during the year 1894; From all of which it is deduced that the
and did not appoint or designate another person who might substitute the constituent, Pea y Gomiz, was informed of the departure of his agent from
defendant in his administration of his constituent's property. These statements these Islands for reasons of health and because of the physician's advice, of
were neither denied nor proven to be the record show any evidence tending to the latter's having turned over the administration of the property to Antonio
disapprove them, while it does show, attached to the record and exhibited by Hidalgo, and of his agent's the defendant's petition that he send a new power
the defendant himself, several letters written by Hidalgo and addressed to of attorney to the substitute.
Pea y Gomiz, which prove the said statements, and also a letter from the
priest Pedro Gomiz, a relative of the deceased Jose de la Pea y Gomiz, The existence, amount the papers of the deceased, of the aforementioned
addressed to Federico Hidalgo, telling the latter that the writer had seen statement of all accounts rendered, which comprise the whole period of the
among the papers of the deceased several letters from the agent, Federico administration of the property of the constituent by the defendant, Federico
Hidalgo, in which the latter requested the designation of a substitute, because Hidalgo, from November 18, 1887, to December 31, 1893 a statement
transmitted with the last partial accounts which were a continuation of those virtue of an implied agency derived from the latter, in accordance with the
already previously received and the said letter of March 22, 1894, fully provisions of article 1710 of the Civil Code.
prove that Jose de la Pea y Gomiz also received the said letter, informed
himself of its contents, and had full knowledge that Antonio Hidalgo The proof of the tacit consent of the principal, Jose de la Pea y Gomiz, the
commenced to administer his property from January of that year. They likewise owner of the property administered a consent embracing the essential
prove that he did no see fit to execute a new power of attorney in the letter's element of a legitimate agency, article 1710 before cited consists in that
favor, nor to appoint or designate a new agent to take charge of the Pea, knowing that on account of the departure of Federico Hidalgo from the
administration of his property that had been abandoned by the defendant, Philippines for reasons of health, Antonio Hidalgo took charge of the
Federico Hidalgo. administration of his property, for which Federico Hidalgo, his agent, who was
giving up his trust, requested him to send a new power of attorney in favor of
From the procedure followed by the agent, Federico Hidalgo, it is logically the said Antonio Hidalgo, nevertheless he, Jose de la Pea y Gomiz, saw fit
inferred that he had definitely renounced his agency was duly terminated, not to execute nor transmit any power of attorney whatever to the new
according to the provisions of article 1732 of the Civil Code, because, although administrator of his property and remained silent for nearly nine years; and, in
in the said letter of March 22, 1894, the word "renounce" was not employed in that the said principal, being able to prohibit the party designated, Antonio
connection with the agency or power of attorney executed in his favor, yet Hidalgo, from continuing in the exercise of his position as administrator, and
when the agent informs his principal that for reasons of health and by medical being able to appoint another agent, did neither the one nor the other.
advice he is about to depart from the place where he is exercising his trust and Wherefore, in permitting Antonio Hidalgo to administer his property in this city
where the property subject to his administration is situated, abandons the during such a number of years, it is inferred, from the procedure and silence of
property, turns it over a third party, without stating when he may return to take the owner thereof, that he consented to have Antonio Hidalgo administer his
charge of the administration, renders accounts of its revenues up to a certain property, and in fact created in his favor an implied agency, as the true and
date, December 31, 1893, and transmits to his principal a general statement legitimate administrator.
which summarizes and embraces all the balances of his accounts since he
began to exercise his agency to the date when he ceased to hold his trust, and Antonio Hidalgo administered the aforementioned property of De la Pea y
asks that a power of attorney in due form in due form be executed and Gomiz, not in the character of business manager, but as agent by virtue of an
transmitted to another person who substituted him and took charge of the implied agency vested in him by its owner who was not unaware of the fact,
administration of the principal's property, it is then reasonable and just to who knew perfectly well that the said Antonio Hidalgo took charge of the
conclude that the said agent expressly and definitely renounced his agency, administration of that property on account of the obligatory absence of his
and it may not be alleged that the designation of Antonio Hidalgo to take previous agent for whom it was an impossibility to continue in the discharge of
charge of the said administration was that of a mere proceed lasted for more his duties.
than fifteen years, for such an allegation would be in conflict with the nature of
the agency. It is improper to compare the case where the owner of the property is ignorant
of the officious management of the third party, with the case where he had
This renouncement was confirmed by the subsequent procedure, as well as of perfect knowledge of the management and administration of the same, which
the agent as of the principal, until the latter died, on August 2, 1902, since the administration and management, far from being opposed by him was indeed
principal Pea did not disapprove the designation of Antonio Hidalgo, nor did consented to by him for nearly nine years, as was done by Pea y Gomiz. The
he appoint another, nor send a new power of attorney to the same, as he was administration and management, by virtue of an implied agency, is essentially
requested to by the previous administrator who abandoned his charge; and the distinguished from that management of another's business, in this respect, that
trial record certainly contains no proof that the defendant, since he left these while the former originated from a contract, the latter is derived only from a
Islands in March, 1894, until January, 1904, when he returned to this city, took qausi-contract.
any part whatever, directly or even indirectly, in the said administration of the
principal's property, while Antonio Hidalgo was the only person who was in The implied agency is founded on the lack of contradiction or opposition, which
charge of the aforementioned administration of De la Pea y Gomiz's property constitutes simultaneous agreement on the part of the presumed principal to
and the one who was to represent the latter in his business affairs, with his
the execution of the contract, while in the management of another's business
tacit consent. From all of which it is perfectly concluded (unless here be proof
there is no simultaneous consent, either express or implied, but a fiction or
to the contrary, and none appears in the record), that Antonio Hidalgo acted in
presumption of consent because of the benefit received.
the matter of the administration of the property of Jose de la Pea y Gomiz by
The distinction between an agency and a business management has been to the party, provisionally designated by the former, a new power of attorney,
established by the jurisprudence of the supreme court (of Spain) in its for the reason that the general power of attorney which Federico Hidalgo had
noteworthy decision of the 7th of July, 1881, setting up the following doctrine: left, executed in favor of his cousin Antonio Hidalgo, was so executed in his
own name and for his own affairs, and not in the name of Pea y Gomiz, as
That laws 28 and 32, title 12 Partida 3, refer to the expenses incurred the latter had not authorized him to take such action.
in things not one's own and without power of attorney from those to
whom they belong, and therefore the said laws are not applicable to If the owner of the property provisionally administered at the time by Antonio
this suit where the petition of the plaintiff is founded on the verbal Hidalgo, saw fit to keep silent, even after having received the aforesaid letter of
request made to him by the defendant or the latter's employees to do March 22, 1894, and during the lapse of nearly ten years, without counter
some hauling, and where, consequently, questions that arise from a commanding or disapproving the designation of the person who took charge of
contract that produces reciprocal rights and duties can not be the administration of his property, knowing perfectly well that his previous
governed by the said laws. agent was obliged, by sickness and medical advice to leave this city where
such property was situated, he is not entitled afterwards to hold amenable the
It being absolutely necessary for Federico Hidalgo to leave this city and agent who had to abandon this country for good and valid reasons, inasmuch
abandon the administration of the property of his principal, Pea y Gomiz, for as the latter immediately reported to his principal the action taken by himself
reasons of health, he made delivery of the property and of his administration to and informed him of the person who had taken charge of the administration of
Antonio Hidalgo and gave notice of what he had done to his constituent, Pea, his property, which otherwise would have been left abandoned. From the time
in order that the latter might send a new power of attorney to Antonio Hidalgo, of that notification the agent who, for legitimate cause, ceased to exercise his
the person charged with the administration of the property. Pea y Gomiz did trust, was free and clear from the results and consequences of the
not send the power of attorney requested, did not oppose or prohibit Antonio management of the person who substituted him with the consent, even only a
Hidalgo's containing to administer his property, and consented to his doing so tacit one, of the principal, inasmuch as the said owner of the property could
for nearly nine years. Consequently the second administrator must be have objected to could have prohibited the continuance in the administration
considered as a legitimate agent of the said principal, as a result of the tacit thereof, of the party designated by his agent, and could have opportunely
agreement on the latter's part, and the previous agent, who necessarily appointed another agent or mandatory of his own confidence to look after his
abandoned and ceased to hold his position, as completely free and clear from property and if he did not do so, he is obliged to abide by the consequences of
the consequences and results of the second administration, continued by a his negligence and abandonment and has no right to claim damages against
third party and accepted by his principal; for it is a fact, undenied nor even his previous agent, who complied with his duty and did all that he could and
doubted, that the said first administrator had to abandon this country and the ought to have done, in accordance with the law.
administration of Pea's property for reasons of health, which made it possible
for him to continue in the discharge of his duties without serious detriment to The defendant Federico Hidalgo, having ceased in his administration of the
himself, his conduct being in accordance with the provisions of article 1736 of property belonging to Pea y Gomiz, on account of physical impossibility,
the Civil Code. which cessation he duly reported to his principal and also informed him of the
person who relieved him as such administrator, and for whom he had
In the power of attorney executed by Pea y Gomiz in this city on November requested a new power of attorney, is only liable for the results and
12, 1887, in favor of, among others, Federico Hidalgo, no authority was consequences of his administration during the period when the said property
conferred upon the latter by his principal to substitute the power or agency in was in his charge, and therefore his liability can not extend beyond the period
favor of another person; wherefore the agent could not, by virtue of the said of his management, as his agency terminated by the tacit or implied approval
power of attorney, appoint any person to substitute or relieve him in the of his principal, judging from the latter's silence in neither objecting to nor in
administration of the principal's property, for the lack of a clause of substitution anywise prohibiting Antonio Hidalgo's continuing to administer his property,
in the said instrument authorizing him so to do. notwithstanding the lapse of the many years since he learned by letter of the
action taken by his previous agent, Federico Hidalgo.
The designation of Antonio Hidalgo was not made as a result of substitution of
the power of attorney executed by Pea in favor of the defendant, but in order Moreover, this latter, in announcing the termination of his agency, transmitted
that the principal's property should not be abandoned, inasmuch as, for the the last partial accounts that he had not rendered, up to December 31, 1893,
purposes of the discharge of the duties of administrator of the same, the agent, together with a general statement of all the resulting balances covering the
who was about to absent himself from this city, requested his principal to send period of his administration, and Jose de la Pea y Gomiz remained silent and
offered no objection whatever to the said accounts and did not manifest his discussed, nor was it considered in the judgment of the lower court; neither
disapproval of the same nor of the general statement, which he must have can it be in the decision, for the reason that the said Antonio Hidalgo is not a
received in April or may, 1894, to the time he died, in August, 1902; and when party to this suit. However, the said liability of Antonio Hidalgo is imputed to
his son, the plaintiff, came to this city in company with the defendant, Federico Federico Hidalgo, and so it is that, in the complain t, the claim is made solely
Hidalgo, they traveled together from Spain and arrived in Manila during one of against Federico Hidalgo, in order that the latter might be adjudged to pay the
the early days of January, 1904, the former, for the purpose of taking charge of amounts which constitute the balance owing from him who might be
the estate left by his father, and after the plaintiff had examined the accounts responsible, Antonio Hidalgo, during the period of this latter's administration.
kept by Federico Hidalgo, his deceased father's first agent, he approved them
and therefore issued in favor of the defendant the document, Exhibit 5, found Federico Hidalgo, in our opinion, could not and can not be responsible for the
on page 936 of the second record of trial, dated January 15, 1904, in which administration of the property that belonged to the deceased Pea y Gomiz,
Jose de la Pea y de Ramon acknowledged having received from his which was administered by Antonio Hidalgo during eight years and some
deceased father's old agent the accounts, balances, and vouchers to his entire months, that is, during the second period, because of the sole fact of his
satisfaction, and gave an acquittance in full settlement of the administration having turned over to the latter the administration of the said property on his
that had been commended to the defendant Hidalgo. departure from this city of Spain. Neither law nor reason obliged Federico
Hidalgo to remain in this country at the cost of his health and perhaps of his
This document, written in the handwriting of the plaintiff, Pea y de Ramon, life, even though he were the administrator of certain property belonged to
appears to be executed in a form considered to be sufficient by its author, and, Pea y Gomiz, since the care of the property and interests of another does not
notwithstanding the allegations of the said plaintiff, the record contains no require sacrifice on the part of the agent of his own life and interests. Federico
proof of any kind of Federico Hidalgo's having obtained it by coercion, Hidalgo was obliged to deliver the said property belonging to Pea y Gomiz to
intimidation, deceit, or fraud; neither is its shown to have been duly impugned Antonio Hidalgo for good and valid reasons, and reasons, and in proceeding in
as false, criminally or civilly, for the statements therein made by the plaintiff are the manner aforesaid he complied with the duty required of him by law and
too explicit and definite to allow, without proof of some vice or defect leading to justice and acted as a diligent agent. If the principal, Jose de la Pea Gomiz,
nullification, of its being considered as void and without value or legal effect. the owner of the property mentioned, although informed opportunely of what
had occurred saw fit to keep silent, not to object to the arrangements made,
With respect to the responsibility contracted by the defendant, as regards the not to send the power of attorney requested by Federico Hidalgo in favor of
payment of the balance shown by the accounts rendered by him, it is not Antonio Hidalgo, and took no action nor made any inquiry whatever to
enough that the agent should have satisfactorily rendered the accounts ascertain how his property was being administered by the second agent,
pertaining to his trust, but it is also indispensable that it be proved that he had although to the time of his death more than eight years had elapsed, the
paid to his principal, or to the owner of the property administered, the balance previous agent, who ceased in the discharge of his duties, can in nowise be
resulting from his accounts. This balance, which was allowed in the judgment held liable for the consequences of such abandonment, nor for the results of
appealed from, notwithstanding the allegations of the plaintiff, which were not the administration of property by Antonio Hidalgo, for the reason that, since his
deemed as established, amounts to P6,774.50, according to the proofs departure from this country, he has not had the least intervention nor even
adduced at the trial. It was the imperative duty of the administrator, Federico indirect participation in the aforementioned administration of the said Antonio
Hidalgo, to transmit this sum to his principal, Jose de la Pea y Gomiz, as the Hidalgo who, under the law, was the agent or administrator by virtue of an
final balance of the accounts of his administration, struck on December 31, implied agency, which is equivalent in its results to an express agency,
1893, and by his failure so to do and delivery of the said sum to his successor, executed by the owner of the property. Consequently, Federico Hidalgo is not
Antonio Hidalgo, he acted improperly, and must pay the same to the plaintiff. required to render accounts of the administration corresponding to the second
period mentioned, nor to pay the balance that such accounts may show to be
owing.
Antonio Hidalgo took charge of the administration of Pea y Gomiz's property
from January, 1894, to September, 1902, that is, during the second period of
administration of the several properties that belonged to the deceased Pea. At the first trial of this cause, Federico Hidalgo, testified under oath that his
principal, Jose Pea y Gomiz, did not agree to the appointment of Antonio
Hidalgo, chosen by the witness, not to such appointee's taking charge of the
Although the plaintiff, in his original complaint, had included the said Antonio
administration of his property. Aside from the fact that the trial record does not
Hidalgo as one of the responsible defendants, yet he afterwards excluded him,
show honor on what date Pea expressed such disagreement it is certain that,
as well from the second as from the third amended complaint, and
consequently the liability that might attach to Antonio Hidalgo was not in view of the theory of defense maintained by the defendant Hidalgo could
have said, by means of a no, that his principal did not agree to the Two amounts are have claimed which have one and the same origin, yet are
appointment of the said Antonio Hidalgo, and the intercalation of the word no based on two causes of action, the second and the third alleged by the
in the statement quoted is more inexplicable in that the attorney for the plaintiff; and although the latter, afterwards convinced by the truth and of the
adverse party moved that the said answer be stricken from the record, as he impropriety of his claim, had to waive the said third cause of action during the
objected to its appearing therein. second hearing of this cause (pp. 57 and 42 of the record of the evidence), the
trial judge, on the grounds that the said second and third causes of action refer
Were it true that the principal Jose de la Pea by Gomiz, had neither agreed to to the same certificates of deposit of the treasury of the Spanish Government,
the designation of Antonio Hidalgo, nor to the latter's administering his found, in the judgment appealed from, that the plaintiff was not entitled to
property, he would immediately have appointed another agent and recover anything for the aforesaid second and third causes of action a
administrator, since he knew that Federico Hidalgo had left the place where his finding that is proper and just, although qualified as erroneous by the plaintiff in
property was situated and that it would be abandoned, had he not wished that his brief.
Antonio Hidalgo should continue to administer it. If the latter continued in the
administration of the property for so long a time, nearly nine years, it was It appears, from the evidence taken in this cause, that Jose de la Pea y
because the said Pea agreed and gave his consent to the acts performed by Gomiz, according to the certificates issued by the chief of the division his
his outgoing agent, and for this reason the answer given by Federico Hidalgo lifetime, after having in 1882 withdrawn from the General Deposit Bank of the
mistakenly, or not, that his principal, Pea, did not agree to the appointment of Spanish Government a deposit of 17,000 pesos and its interest deposit any
Antonio Hidalgo, is immaterial and does not affect the terms of this decision. sum therein until December 9, 1886, when he deposited two amounts of 3,000
pesos each, that is, 6,000 pesos in all, the two deposit receipts for the same
If the defendant is not responsible for the results of the administration of said being afterwards endorsed in favor of Gonzalo Tuason. The latter, on
property administered by Antonio Hidalgo during the second period before December 9, 1887, withdrew the deposit and took out the said two amounts,
referred to, neither is he responsible for that performed during the third period together with the interest due thereon, and on the same date redeposited them
by Francisco Hidalgo, inasmuch as the latter was not even chosen by the in the sum of 6,360 pesos at 5 per cent per annum in the name of Jose de la
defendant who, on October 1, 1902, when Francisco Hidalgo took charge of Pea y Gomiz. On the 20th of December of the following year, 1888, the
Peas' property that had been turned over to him by Antonio Hidalgo, was in defendant Hidalgo received from his principal, Pea y Gomiz, through Father
Spain and had no knowledge of nor intervention in such delivery; wherefore Ramon Caviedas, the two said letters of credit, in order that he might withdraw
the defendant can in no manner be obliged to pay to the plaintiff any sum that from the General Deposit Bank the two amounts deposited, together with the
may be found owing by Francisco Hidalgo. interest due thereon, amounting to 741 pesos, and with this interest purchase
a draft on London in favor of its owner and then redeposit the original capital of
6,000 pesos. This, the defendant Hidalgo did and then delivered the draft and
The trial judge taking into consideration that, by the evidence adduced at
the hearing, it was proved that Francisco Hidalgo rendered accounts to the the deposit receipt to Father Caviedas, of all of which transactions he informed
plaintiff of the administration of the property in question during the said third his principal by letter of the same date, transcribed on page 947 of the second
trial record.
period, that is, for one year, three months, and someday, and that he delivered
to the plaintiff the balance of 1,280.03 pesos, for which the latter issued to the
said third administrator the document Exhibit 2, written in his own handwriting In the following year, 1889, Father Ramon Caviedas again delivered to the
under date of January 7, 1904, and the signature which, affixed by himself, he defendant Hidalgo the aforementioned deposit receipt with the request to
admitted in his testimony was authentic, on its being exhibited to him found withdraw from the General Deposit bank the sum deposited and to purchase a
that the plaintiff, Pea y de Ramon, was not entitled to recover any sum draft of 860 pesos on London in favor of their owner, Jose de la Pea y Gomiz,
whatever for the rents pertaining to the administration of his property by the and, after deducting the cost of the said draft from the capital and interest
said Francisco Hidalgo. withdrawn from deposit, amounting to 6,360 pesos, to redeposit the remainder,
5,500 pesos, in the bank mentioned, in accordance with the instructions from
All the reasons hereinbefore given relate to the first cause of action, whereby Pea y Gomiz: All of which was done by the defendant Hidalgo, who delivered
claim is made against Federico Hidalgo for the payment of the sum of to Father Caviedas the receipt for the new deposit of 5,500 pesos as
accredited by the reply-letter, transcribed on page 169 of the record, and by
P72,548.24 and interest at the rate of 6 per cent per centum, and they have
the letter addressed by Hidalgo to Pea, of the date of December 20 of that
decided some of the errors assigned by the appellants in their briefs to the
year and shown as an original exhibit by the plaintiff himself on page 29 of the
judgment appealed from.
record of the evidence.
Lastly, in December, 1890, Father Caviedas, aforementioned, delivered to the the file of exhibits and a transcription thereof on page 930 of the first and
defendant Hidalgo the said deposit receipt for 5,500 pesos in order that he second record of the evidence, the debt was not paid up to the time of the
might withdraw this amount from deposit and deliver it with the interest thereon debtor's death. For such reasons, the trial court, in the judgment appealed
to the former for the purpose of remitting it by draft to Jose de la Pea; this from, found that there was a preponderance of evidence to prove that this loan
Hidalgo did, according to a reply-letter from Father Caviedas, the original of had been made and that the plaintiff actually owed the defendant the sum
which appears on page 979 of the file of exhibits and is copied on page 171 of loaned, as well as the interest thereon, after deducting therefrom the 2,000
the trial record, and is apparently confirmed by the latter in his sworn pesos which the defendant received from the plaintiff on account of the credit,
testimony. and that the former was entitled to recover.

So that the two amounts of 3,000 pesos each, expressed in two deposit It appears from the pleadings and evidence at the trial that in January, 1904,
receipts received from De la Pea y Gomiz by Father Ramon Caviedas and on the arrival in this city of Federico de la Pea de Ramon, and on the
afterwards delivered to Francisco Hidalgo for the successive operations of occasion of the latter's proceeding to examine the accounts previously
remittance and redeposit in the bank before mentioned, are the same and only rendered, up to December 31, 1893, by the defendant Hidalgo to the plaintiff's
ones that were on deposit in the said bank in the name of their owner, Pea y father, then deceased, Hidalgo made demand upon the plaintiff, Pea y de
Gomiz. The defendant Hidalgo made two remittances by drafts of London, one Ramon, for the payment of the said debt of his father, although the creditor
in 1888 for 741.60 pesos, through a draft purchased from the Chartered Bank, Hidalgo acceded to the requests of the plaintiff to grant the latter an extension
and another in 1889 for 860 pesos, through a draft purchased from the house of time until he should be able to sell one of the properties of the estate. It was
of Tuason & Co., and both in favor of Pea y Gomiz, who received through at that time, according to the defendant, that the plaintiff Pea took up the
Father Ramon Caviedas the remainder, 5,500 pesos, of the sums deposited. instrument of indebtedness, executed by his deceased father during his
For these reasons, the trial judge was of the opinion that the certificates of lifetime, and delivered to the defendant in exchange therefor the document of
deposit sent by Pea y Gomiz to Father Ramon Caviedas and those received the date of January 15, 1904, found on page 924 of the second record of
from the latter by the defendant Hidalgo were identicals, as were likewise the evidence, whereby the plaintiff, Jose de la Pea, bound himself to pay his
total amounts expressed by the said receipts or certificates of deposit, from the father's debt of 11,000 pesos, owing to the defendant Hidalgo, out of the
sum of which were deducted the amounts remitted to Pea y Gomiz and the proceeds of the sale of some of the properties specified in the said document,
remainder deposited after each anual operation until, finally, the sum of 5,500 which was written and signed by the plaintiff in his own handwriting.
pesos was remitted to its owner, Pea y Gomiz, according to his instructions,
through the said Father Caviedas. The lower court, in concluding its judgment, The plaintiff not only executed the said document acknowledging his father's
found that the plaintiff was entitled to recover any sum whatever for the said debt and binding himself to settle it, but also, several days after the sale of a
second and third causes of action, notwithstanding that, as hereinbefore lot belonging to the estate, paid to the creditor on account the sum of 2,000
stated, the said plaintiff withdrew the third cause of action. This finding of the pesos, according to the receipt issued by the latter and exhibited on page 108
court, with respect to the collection of the amounts of the aforementioned of the first record of evidence.
deposit receipts, is perfectly legal and in accordance with justice, inasmuch as
it is a sustained by abundant and conclusive documentary evidence, which
The said document, expressive of the obligation contracted by the plaintiff
proves in an incontrovertible manner the unrighteousness of the claim made
Pea y de Ramon that he would pay to the defendant the debt of plaintiff's
by the plaintiff in twice seeking payment, by means of the said second and
deceased father, amounting to 11,000 pesos, out of the proceeds from some
third causes of action, of the said sum which, after various operations of of the properties of the estate, has not been denied nor impugned as false;
deposit and remittance during three years, was finally returned with its interest and not withstanding the averment made by the plaintiff that when he signed
to the possession of its owner, Pea y Gomiz.
he lacked information and knowledge of the true condition of the affairs
concerning Hidalgo's connection with the property that be absolutely no proof
From the trial had in this case, it also appears conclusively proved that Jose de whatever is shown in the trial record of the creditor's having obtained the said
la Pea y Gomiz owed, during his lifetime, to Federico Hidalgo, 7,600 pesos, document through deceit or fraud circumstances in a certain manner
4,000 pesos of which were to bear interest at the rate of 6 per cent per annum, incompatible with the explicit statements contained therein. For these reasons,
and the remainder without any interest, and that, notwithstanding the lapse of the trial court, weighing the whole of the evidence furnished by the record,
the period of three years, from November, 1887, within which he bound himself found that the loan of the said 7,600 pesos was truly and positively made, and
to repay the amount borrowed, and in spite of his creditor's demand of that the plaintiff must pay the same to the defendant, with the interest thereon,
payment, made by registered letter, the original copy of which is on page 38 of and that he was not entitled to recover the 2,000 pesos, as an undue payment
made by him to the defendant creditor. For the foregoing reason the others because the plaintiff renounced and withdrew his complaint, with respect to the
errors assigned by the plaintiff to the judgment appealed from are dismissed. third cause of action; and that we should and do likewise adjudge, that the
plaintiff, Jose de la Pea y de Ramon, shall pay to Federico Hidalgo, by
With respect to the obligation to pay the interest due on the amounts reason of the counterclaim, the sum of P9,000 with legal interest thereon at the
concerned in this decision, it must be borne in mind that, as provided by article rate of 6 per cent per annum from 21st of may, 1907, the date of the
1755 of the Civil Code, interest shall only be owed when it has been expressly counterclaim.
stipulated, and that should the debtor, who is obliged to pay a certain sum of
money, be in default and fail to fulfill the agreement made with his creditor, he The judgment appealed from, together with that part thereof relative to the
must pay, as indemnity for losses and damages, the interest agreed upon, and statement it contains concerning the equivalence between the Philippine peso
should there be no express stipulation, the legal interest (art. 1108 of the Civil and the Mexican peso, is affirmed in so far as it is in agreement with the
Code); but, in order that the debtor may be considered to be in default and findings of this decision, and the said judgment is reversed in so far as it is not
obliged to pay the indemnity, it is required, as a general rule, that his creditor in accordance herewith. No special finding is made as to costs assessed in
shall demand of such debtor the fulfillment of his obligation, judicially or either instance, and to the plaintiff is reserved any right that he may be entitled
extrajudicially, except in such cases as are limitedly specified in article 1100 of to enforce against Antonio Hidalgo.
the Civil Code.
Arellano, C.J., Johnson, Moreland and Trent, JJ., concur.
It was not expressly stipulated that either the balance of the last account
rendered by the defendant Federico Hidalgo in 1893, or the sum which the
plaintiff bound himself to pay to the defendant, in the instrument of the 15th of
January, 1904, should bear interest; nor is there proof that a judicial or
extrajudicial demand was made, on the part of the respective creditors
concerned, until the date of complaint, on the part of the plaintiff, and that of
the counterclaim, on the part of the defendant. Therefore no legal interest is
owing for the time prior to the respectives dates of the complaint and
counterclaim.

By virtue, then, of the reasons herein before set forth, it is proper, in our
opinion, to adjudge, as we do hereby adjudge, that the defendant, Federico
Hidalgo, shall pay to the plaintiff, Jose de la Pea y de Ramon, as
administrator of the estate of the deceased Jose de la Pea y Gomiz, the sum
of P6,774.50, and the legal interest thereon at the rate of 6 per cent per annum
from 23rd of May, 1906, the date of the filing of the original complaint in this
case; that we should and hereby do declare that the said defendant Federico
Hidalgo, is not bound to gibe nor render accounts of the administration of the
property of the said deceased Jose de la Pea y Gomiz administered,
respectively, by Antonio Hidalgo, from January, 1894, to September 30, 1902,
and by Francisco Hidalgo, from October 1, 1902, to January 7, 1904, and
therefore the defendant, Federico Hidalgo, not being responsible for the results
of the administration of the said property administered by the said Antonio and
Francisco Hidalgo, we do absolve the said defendant from the complaint filed
by the plaintiff, in so far as it concerns the accounts pertaining to the aforesaid
two periods of administration and relates to the payment of the balances
resulting from such accounts; and that we should and hereby do absolve the
defendant Hidalgo from the complaint with respect to the demand for the
payment of the sums of P15,774.19 and P2,000, with their respective interests,
on account of the second and the fourth cause of action, respectively, and
Republic of the Philippines forged signature. x x x The petitioner must in turn shoulder the loss of the
SUPREME COURT amounts which the respondent, as its collecting agent, had to reimburse to the
Manila drawee-banks.

FIRST DIVISION Same; Same; Same; Same; Lapse of 3 months after collecting bank obtained
proceeds of checks from drawee-bank before it informed depositor of fact
checks were forged not material where collecting bank acted promptly upon
G.R. No. L-29432 August 06, 1975
being informed of forgery. Moreover, depositor of a check as indorser warrants
that it is genuine and in all respects what it purports to be.We do not
JAI-ALAI CORPORATION OF THE PHILIPPINES, petitioner, consider material for the purposes of the case at bar that more than three
vs. months had elapsed since the proceeds of the checks in question were
BANK OF THE PHILIPPINE ISLANDS, respondent. collected by respondent. The records shows that the respondent had acted
promptly after being informed that the indorsements on the checks were
CASTRO, J.: forged. Moreover having received the checks merely for collection and deposit,
the respondent cannot be expected to know or ascertain the genuineness of all
Negotiable Instruments Law; Checks; Banks; Agency; Where check is prior indorsements on the said checks. Indeed, having itself indorsed them to
deposited with a collecting bank relationship created is that of agency, not the respondent in accordance with the rules and practices of commercial
creditor-debtor. Same rule follows where after drawee-bank paid the collecting banks, of which the Court takes due cognizance, the petitioner is deemed to
bank, it was found that signature of payee of checks was forged by one who have given the warranty prescribed in Section 66 of the Negotiable
previously encashed them.When the petitioner deposited the checks with Instruments Law that every single one of those checks is genuine and in all
the respondent, the nature of the relationship created at that stage was one of respects what it purports to be.
agency, that is, the bank was to collect from the drawee of the checks the
corresponding proceeds. It is true that the respondent had already collected Same; Same; Same; Same; One who accepts and encashes a check from an
the proceeds of the checks when it debited the petitioners account, so that individual knowing that the payee is a corporation does so at his peril.The
following the rule in Gullas vs. Philippine National Bank it might be argued that petitioner was, moreover, grossly recreant in accepting the checks in questions
the relationship between the parties had become that of creditor and debtor as from Ramirez. It could not have escaped the attention of the petitioner that the
to preclude the respondent from using the petitioners funds to make payments payee of all the checks was a corporationthe Inter-Island Gas Service, Inc.
not authorized by the latter. It is our view nonetheless that no creditor-debtor Yet, the petitioner cashed these checks, to a mere individual who was
relationship was created between the parties. x x x Since under the foregoing admittedly a habitue at its jai-alai games without making any inquiry as to his
provision of Section 23 of the Negotiable Instruments Law, a forged signature authority to exchange checks belonging to the payee-corporation. x x x Any
in a negotiable instrument is wholly inoperative and no right to discharge it or person taking checks made payable to a corporation, which can act only by
enforce its payment can be acquired through or under the forged signature agents, does so at his peril, and must abide by the consequences if the agent
except against a party who cannot invoke the forgery, it stands to reason, upon who indorses the same is without authority. It must be noted further that three
the facts of record, that the respondent, as a collecting bank which indorsed of the checks in question are crossed checks, namely, exhs. 21, 25 and 27,
the checks to the drawee-banks for clearing, should be liable to the latter for which may only be deposited, but not encashed; yet, petitioner negligently
reimbursement, for, as found by the court a quo and by the appellate court, the accepted them for cash. That two of the crossed checks, namely, exhs. 21 and
indorsements on the checks had been forged prior to their delivery to the 25, are bearer instruments would not, in our view, exculpate the petitioner from
petitioner. In legal contemplation, therefore, the payments made by the liability with respect to them. The fact that they are bearer checks and at the
drawee-banks to the respondent on account of the said checks were same time crossed checks should have aroused the petitioners suspicion as
ineffective; and, such being the case, the relationship of creditor and debtor to the title of Ramirez over them and his authority to cash them (apparently to
between petitioner and the respondent had not been validly effected, the purchase jai-alai tickets from the petitioner), it appearing on their face that a
checks not having been properly and legitimately converted into cash. In Great corporate entitythe Inter-Island Gas Service, Inc.was the payee thereof.
Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, the Court rule that it is
the obligation of the collecting bank to reimburse the drawee-bank the value of Same; One who indorses a bearer instrument incurs liability of general
the checks subsequently found to contain the forged indorsement of the indorser that instrument is genuine.At all events, under Section 67 of the
payee. The reason is that the bank with which the check was deposited has, Negotiable Instruments Law, Where a person places his indorsement on an
no right to pay the sum stated therein to the forger or anyone else upon a instrument negotiable by delivery he incurs all the liability of an indorser, and
under Section 66 of the same statute a general indorser warrants that the
instrument is genuine and in all respects what it purports to be. 2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation
and payable to the Inter-Island Gas Service, Inc. or bearer:
Same; Contracts; Banks; Checks; Provision in deposit slip that bank reserves
to itself right to charge back item to account of its depositor at any time before 4/13/59 B-335063 P 2108.70 21
current funds actually received by Bank does not negate right of Bank to debit
depositors account for value of forged checks after drawee-bank had paid the 4/27/59 B-335072 P2210.94 22
collecting bank because the transfer of funds from drawee-bank to collecting
bank in such cases is ineffectual.The provision in the deposit slip issued by 3. Drawn by the Luzon Tinsmith & Company upon the China Banking
the respondent which stipulates that it reserves to itself, the right to charge Corporation and payable to the Inter-Island Gas Service, Inc. or bearer:
back the item to the account of its depositor, at any time before current funds
or solvent credits shall have been actually received by the Bank, would not 5/18/59 VN430188 P940.80 25
materially affect the conclusion we have reached. That stipulation prescribes
that there must be an actual receipt by the bank of current funds or solvent 4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank
credits; but as we have earlier indicated the transfer by the drawee-banks of and payable to the Inter-Island Gas Service, Inc. order:
funds to the respondent on account of the checks in question was ineffectual
because made under the mistaken and valid assumption that the indorsements 5/14/59 1860160 P 500.00 26
of the payee thereon were genuine. x x x There was, therefore, in
contemplation of law, no valid payment of money made by the drawee-banks 5/18/59 1860660 P 500.00 27
to the respondent on account of the questioned checks. [Jai-Alai Corp. of the
Phil. vs. Bank of the Phil. Is., 66 SCRA 29(1975)] All the foregoing checks, which were acquired by the petitioner from one
Antonio J. Ramirez, a sales agent of the Inter-Island Gas and a regular bettor
This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter at jai-alai games, were, upon deposit, temporarily credited to the petitioner's
referred to as the petitioner) for review of the decision of the Court of Appeals account in accordance with the clause printed on the deposit slips issued by
in C.A.-G.R. 34042-R dated June 25, 1968 in favor of the Bank of the the respondent and which reads:
Philippine Islands (hereinafter referred to as the respondent).
"Any credit allowed the depositor on the books of the Bank for checks or drafts
From April 2, 1959 to May 18, 1959, ten checks with a total face value of hereby received for deposit, is provisional only, until such time as the proceeds
P8,030.58 were deposited by the petitioner in its current account with the thereof, in current funds or solvent credits, shall have been actually received
respondent bank. The particulars of these checks are as follows: by the Bank and the latter reserves to itself the right to charge back the item to
the account of its depositor, at any time before that event, regardless of
1. Drawn by the Delta Engineering Service upon the Pacific Banking whether or not the item itself can be returned."
Corporation and payable to the Inter-Island Gas Service Inc. or order:
About the latter part of July 1959, after Ramirez had resigned from the Inter-
Date Check Exhibit Island Gas and after the checks had been submitted to inter-bank clearing, the
Inter-Island Gas discovered that all the indorsements made on the checks
Deposited Number Amount Number purportedly by its cashiers, Santiago Amplayo and Vicenta Mucor (who were
merely authorized to deposit checks issued payable to the said company) as
4/2/59 B-352680 P500.00 18 well as the rubber stamp impression thereon reading "Inter-Island Gas
Service, Inc.," were forgeries. In due time, the Inter-Island Gas advised the
4/20/59 A-156907 372.32 19 petitioner, the respondent, the drawers and the drawee-banks of the said
checks about the forgeries, and filed a criminal complaint against Ramirez with
4/24/59 A-156924 397.82 20 the Office of the City Fiscal of Manila. 1
5/4/59 B-364764 250.00 23 The respondent's cashier, Ramon Sarthou, upon receipt of the latter of Inter-
Island Gas dated August 31, 1959, called up the petitioner's cashier, Manuel
5/6/59 B-364775 250.00 24
Garcia, and advised the latter that in view of the circumstances he would debit respondent, the nature of the relationship created at that stage was one of
the value of the checks against the petitioner's account as soon as they were agency, that is, the bank was to collect from the drawees of the checks the
returned by the respective drawee-banks. corresponding proceeds. It is true that the respondent had already collected
the proceeds of the checks when it debited the petitioner's account, so that
Meanwhile, the drawers of the checks, having been notified of the forgeries, following the rule in Gullas vs. Philippine National Bank 2 it might be argued
demanded reimbursement to their respective accounts from the drawee-banks, that the relationship between the parties had become that of creditor and
which in turn demanded from the respondent, as collecting bank, the return of debtor as to preclude the respondent from using the petitioner's funds to make
the amounts they had paid on account thereof. When the drawee-banks payments not authorized by the latter. It is our view nonetheless that no
returned the checks to the respondent, the latter paid their value which the creditor-debtor relationship was created between the parties.
former in turn paid to the Inter-Island Gas. The respondent, for its part, debited
the petitioner's current account and forwarded to the latter the checks Section 23 of the Negotiable Instruments Law (Act 2031) states that 3
containing the forged indorsements, which the petitioner, however, refused to
accept. "When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
On October 8, 1959 the petitioner drew against its current account with the instrument, or to give a discharge therefor, or to enforce payment thereof
respondent a check for P135,000 payable to the order of the Mariano Olondriz against any party thereto, can be acquired through or under such signature,
y Cia. in payment of certain shares of stock. The check was, however, unless the party against whom it is sought to enforce such right is precluded
dishonored by the respondent as its records showed that as of October 8, from setting up the forgery or want of authority."
1959 the current account of the petitioner, after netting out the value of the
checks P8,030.58) with the forged indorsements, had a balance of only Since under the foregoing provision, a forged signature in a negotiable
P128,257.65. instrument is wholly inoperative and no right to discharge it or enforce its
payment can be acquired through or under the forged signature except against
The petitioner then filed a complaint against the respondent with the Court of a party who cannot invoke the forgery, it stands to reason, upon the facts of
First Instance of Manila, which was however dismissed by the trial court after record, that the respondent, as a collecting bank which indorsed the checks to
due trial, and as well by the Court of Appeals, on appeal. the drawee-banks for clearing, should be liable to the latter for reimbursement,
for, as found by the court a quo and by the appellate court, the indorsements
Hence, the present recourse. on the checks had been forged prior to their delivery to the petitioner. In legal
contemplation, therefore, the payments made by the drawee-banks to the
The issues posed by the petitioner in the instant petition may be briefly stated respondent on account of the said checks were ineffective; and, such being
as follows: the case, the relationship of creditor and debtor between the petitioner and the
respondent had not been validly effected, the checks not having been properly
(a) Whether the respondent had the right to debit the petitioner's current and legitimately converted into cash. 4
account in the amount corresponding to the total value of the checks in
question after more than three months had elapsed from the date their value In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5 the Court
was credited to the petitioner's account:(b) Whether the respondent is ruled that it is the obligation of the collecting bank to reimburse the drawee-
estopped from claiming that the amount of P8,030.58, representing the total bank the value of the checks subsequently found to contain the forged
value of the checks with the forged indorsements, had not been properly indorsement of the payee. The reason is that the bank with which the check
credited to the petitioner's account, since the same had already been paid by was deposited has no right to pay the sum stated therein to the forger "or
the drawee-banks and received in due course by the respondent; and(c) On anyone else upon a forged signature." "It was its duty to know," said the Court,
the assumption that the respondent had improperly debited the petitioner's "that [the payee's] endorsement was genuine before cashing the check." The
current account, whether the latter is entitled to damages. petitioner must in turn shoulder the loss of the amounts which the respondent;
as its collecting agent, had to reimburse to the drawee-banks.
These three issues interlock and will be resolved jointly.
We do not consider material for the purposes of the case at bar that more than
In our opinion, the respondent acted within legal bounds when it debited the three months had elapsed since the proceeds of the checks in question were
petitioner's account. When the petitioner deposited the checks with the collected by the respondent. The record shows that the respondent had acted
promptly after being informed that the indorsements on the checks were which relied upon the petitioner's warranty should not be held liable for the
forged. Moreover, having received the checks merely for collection and resulting loss. This conclusion applied similarly to exh. 22 which is an
deposit, the respondent cannot he expected to know or ascertain the uncrossed bearer instrument, for under Section 65 of the Negotiable
genuineness of all prior indorsements on the said checks. Indeed, having itself Instrument Law. "Every person negotiating an instrument by delivery . . .
indorsed them to the respondent in accordance with the rules and practices of warrants (a) That the instrument is genuine and in all respects what it purports
commercial banks, of which the Court takes due cognizance, the petitioner is to be." Under that same section this warranty "extends in favor of no holder
deemed to have given the warranty prescribed in Section 66 of the Negotiable other than the immediate transferee," which, in the case at bar, would be the
Instruments Law that every single one of those checks "is genuine and in all respondent.
respects what it purports to be.".
The provision in the deposit slip issued by the respondent which stipulates that
The petitioner was, moreover, grossly recreant in accepting the checks in it "reserves to itself the right to charge back the item to the account of its
question from Ramirez. It could not have escaped the attention of the depositor," at any time before "current funds or solvent credits shall have been
petitioner that the payee of all the checks was a corporation the Inter-Island actually received by the Bank," would not materially affect the conclusion we
Gas Service, Inc. Yet, the petitioner cashed these checks to a mere individual have reached. That stipulation prescribes that there must be an actual receipt
who was admittedly a habitue at its jai-alai games without making any inquiry by the bank of current funds or solvent credits; but as we have earlier indicated
as to his authority to exchange checks belonging to the payee-corporation. In the transfer by the drawee-banks of funds to the respondent on account of the
Insular Drug Co. vs. National 6 the Court made the pronouncement that. checks in question was ineffectual because made under the mistaken and
valid assumption that the indorsements of the payee thereon were genuine.
". . . The right of an agent to indorse commercial paper is a very responsible Under article 2154 of the New Civil Code "If something is received when there
power and will not be lightly inferred. A salesman with authority to collect is no right to demand it and it was unduly delivered through mistake, the
money belonging to his principal does not have the implied authority to indorse obligation to return it arises." There was, therefore, in contemplation of law, no
checks received in payment. Any person taking checks made payable to a valid payment of money made by the drawee-banks to the respondent on
corporation, which can act only by agents, does so at his peril, and must abide account of the questioned checks.
by the consequences if the agent who indorses the same is without authority."
(underscoring supplied) ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at
petitioner's cost.
It must be noted further that three of the checks in question are crossed
checks, namely, exhs. 21, 25 and 27, which may only be deposited, but not Makasiar, Esguerra, Muoz Palma and Martin, JJ., concur.
encashed; yet, the petitioner negligently accepted them for cash. That two of
the crossed checks, namely, exhs. 21 and 25, are bearer instruments would Teehankee, J., is on leave.
not, in our view, exculpate the petitioner from liability with respect to them. The
fact that they are bearer checks and at the same time crossed checks should
have aroused the petitioner's suspicion as to the title of Ramirez over them
and his authority to cash them (apparently to purchase jai-alai tickets from the
petitioner), it appearing on their face that a corporate entity the Inter Island
Gas Service, Inc. was the payee thereof and Ramirez delivered the said
checks to the petitioner ostensibly on the strength of the payee's cashiers'
indorsements.

At all events, under Section 67 of the Negotiable Instruments Law, "Where a


person places his indorsement on an instrument negotiable by delivery he
incurs all the liability of an indorser," and under Section 66 of the same statute
a general indorser warrants that the instrument "is genuine and in all respects
what it purports to be." Considering that the petitioner indorsed the said checks
when it deposited them with the respondent, the petitioner as an indorser
guaranteed the genuineness of all prior indorsements thereon. The respondent
Republic of the Philippines CONTRACT EXECUTED BY AND BETWEEN ANDRES
SUPREME COURT QUIROGA AND J. PARSONS, BOTH MERCHANTS
Manila ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF
"QUIROGA" BEDS IN THE VISAYAN ISLANDS.
EN BANC
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his
G.R. No. L-11491 August 23, 1918 beds in the Visayan Islands to J. Parsons under the following
conditions:
ANDRES QUIROGA, plaintiff-appellant,
vs. (A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons
PARSONS HARDWARE CO., defendant-appellee. for the latter's establishment in Iloilo, and shall invoice them at the
same price he has fixed for sales, in Manila, and, in the invoices, shall
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. make and allowance of a discount of 25 per cent of the invoiced
Crossfield & O'Brien for appellee. prices, as commission on the sale; and Mr. Parsons shall order the
beds by the dozen, whether of the same or of different styles.
AVANCEA, J.:
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds
received, within a period of sixty days from the date of their shipment.
1.SALES; INTERPRETATION OF CONTRACT.For the classification of
contracts, due regard must be paid to their essential clauses. In the contract in
(C) The expenses for transportation and shipment shall be borne by
the instant case, what was essential, constituting its cause and subject matter,
M. Quiroga, and the freight, insurance, and cost of unloading from the
was that the plaintiff was to furnish the defendant with the beds which the latter
might order, at the stipulated price, and that the defendant was to pay this vessel at the point where the beds are received, shall be paid by Mr.
price in the manner agreed upon. These are precisely the essential features of Parsons.
a contract of purchase and sale. There was the obligation on the part of the
plaintiff to supply the beds, and, on that of the defendant, to pay their price. (D) If, before an invoice falls due, Mr. Quiroga should request its
These features exclude the legal conception of an agency or order to sell payment, said payment when made shall be considered as a prompt
whereby the mandatary or agent receives the thing to sell it, and does not pay payment, and as such a deduction of 2 per cent shall be made from
its price, but delivers to the principal the price he obtains from the sale of the the amount of the invoice.
thing to a third person, and if he does not succeed in selling it, he returns it.
Held: That this contract is one of purchase and sale, and not of commercial The same discount shall be made on the amount of any invoice which
agency. Mr. Parsons may deem convenient to pay in cash.

2.ID.; ID.The testimony of the person who drafted this contract, to the effect (E) Mr. Quiroga binds himself to give notice at least fifteen days before
that his purpose was to be an agent for the beds and to collect a commission hand of any alteration in price which he may plan to make in respect to
on the sales, is of no importance to prove that the contract was one of agency, his beds, and agrees that if on the date when such alteration takes
inasmuch as the agreements contained in the contract constitute, according to effect he should have any order pending to be served to Mr. Parsons,
law, covenants of purchase and sale, and not of commercial [QUIROGA vs. such order shall enjoy the advantage of the alteration if the price
PARSONS HARDWARE Co., 38 Phil. 501(1918)] thereby be lowered, but shall not be affected by said alteration if the
price thereby be increased, for, in this latter case, Mr. Quiroga
On January 24, 1911, in this city of manila, a contract in the following tenor assumed the obligation to invoice the beds at the price at which the
was entered into by and between the plaintiff, as party of the first part, and J. order was given.
Parsons (to whose rights and obligations the present defendant later
subrogated itself), as party of the second part: (F) Mr. Parsons binds himself not to sell any other kind except the
"Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for he obtains from the sale of the thing to a third person, and if he does not
the benefit of both contracting parties, Mr. Parsons may find himself succeed in selling it, he returns it. By virtue of the contract between the plaintiff
obliged to make, Mr. Quiroga assumes the obligation to offer and give and the defendant, the latter, on receiving the beds, was necessarily obliged to
the preference to Mr. Parsons in case anyone should apply for the pay their price within the term fixed, without any other consideration and
exclusive agency for any island not comprised with the Visayan group. regardless as to whether he had or had not sold the beds.

ART. 3. Mr. Parsons may sell, or establish branches of his agency for It would be enough to hold, as we do, that the contract by and between the
the sale of "Quiroga" beds in all the towns of the Archipelago where defendant and the plaintiff is one of purchase and sale, in order to show that it
there are no exclusive agents, and shall immediately report such was not one made on the basis of a commission on sales, as the plaintiff
action to Mr. Quiroga for his approval. claims it was, for these contracts are incompatible with each other. But,
besides, examining the clauses of this contract, none of them is found that
ART. 4. This contract is made for an unlimited period, and may be substantially supports the plaintiff's contention. Not a single one of these
terminated by either of the contracting parties on a previous notice of clauses necessarily conveys the idea of an agency. The words commission on
ninety days to the other party. sales used in clause (A) of article 1 mean nothing else, as stated in the
contract itself, than a mere discount on the invoice price. The word agency,
also used in articles 2 and 3, only expresses that the defendant was the only
Of the three causes of action alleged by the plaintiff in his complaint, only two
one that could sell the plaintiff's beds in the Visayan Islands. With regard to the
of them constitute the subject matter of this appeal and both substantially
remaining clauses, the least that can be said is that they are not incompatible
amount to the averment that the defendant violated the following obligations:
not to sell the beds at higher prices than those of the invoices; to have an open with the contract of purchase and sale.
establishment in Iloilo; itself to conduct the agency; to keep the beds on public
exhibition, and to pay for the advertisement expenses for the same; and to The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-
order the beds by the dozen and in no other manner. As may be seen, with the president of the defendant corporation and who established and managed the
exception of the obligation on the part of the defendant to order the beds by latter's business in Iloilo. It appears that this witness, prior to the time of his
the dozen and in no other manner, none of the obligations imputed to the testimony, had serious trouble with the defendant, had maintained a civil suit
defendant in the two causes of action are expressly set forth in the contract. against it, and had even accused one of its partners, Guillermo Parsons, of
But the plaintiff alleged that the defendant was his agent for the sale of his falsification. He testified that it was he who drafted the contract Exhibit A, and,
beds in Iloilo, and that said obligations are implied in a contract of commercial when questioned as to what was his purpose in contracting with the plaintiff,
agency. The whole question, therefore, reduced itself to a determination as to replied that it was to be an agent for his beds and to collect a commission on
whether the defendant, by reason of the contract hereinbefore transcribed, sales. However, according to the defendant's evidence, it was Mariano Lopez
was a purchaser or an agent of the plaintiff for the sale of his beds. Santos, a director of the corporation, who prepared Exhibit A. But, even
supposing that Ernesto Vidal has stated the truth, his statement as to what
was his idea in contracting with the plaintiff is of no importance, inasmuch as
In order to classify a contract, due regard must be given to its essential
the agreements contained in Exhibit A which he claims to have drafted,
clauses. In the contract in question, what was essential, as constituting its
constitute, as we have said, a contract of purchase and sale, and not one of
cause and subject matter, is that the plaintiff was to furnish the defendant with
the beds which the latter might order, at the price stipulated, and that the commercial agency. This only means that Ernesto Vidal was mistaken in his
defendant was to pay the price in the manner stipulated. The price agreed classification of the contract. But it must be understood that a contract is what
the law defines it to be, and not what it is called by the contracting parties.
upon was the one determined by the plaintiff for the sale of these beds in
Manila, with a discount of from 20 to 25 per cent, according to their class.
Payment was to be made at the end of sixty days, or before, at the plaintiff's The plaintiff also endeavored to prove that the defendant had returned beds
request, or in cash, if the defendant so preferred, and in these last two cases that it could not sell; that, without previous notice, it forwarded to the defendant
an additional discount was to be allowed for prompt payment. These are the beds that it wanted; and that the defendant received its commission for the
precisely the essential features of a contract of purchase and sale. There was beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most
the obligation on the part of the plaintiff to supply the beds, and, on the part of only shows that, on the part of both of them, there was mutual tolerance in the
the defendant, to pay their price. These features exclude the legal conception performance of the contract in disregard of its terms; and it gives no right to
of an agency or order to sell whereby the mandatory or agent received the have the contract considered, not as the parties stipulated it, but as they
thing to sell it, and does not pay its price, but delivers to the principal the price performed it. Only the acts of the contracting parties, subsequent to, and in
connection with, the execution of the contract, must be considered for the
purpose of interpreting the contract, when such interpretation is necessary, but
not when, as in the instant case, its essential agreements are clearly set forth
and plainly show that the contract belongs to a certain kind and not to another.
Furthermore, the return made was of certain brass beds, and was not effected
in exchange for the price paid for them, but was for other beds of another kind;
and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect
to said beds, which shows that it was not considered that the defendant had a
right, by virtue of the contract, to make this return. As regards the shipment of
beds without previous notice, it is insinuated in the record that these brass
beds were precisely the ones so shipped, and that, for this very reason, the
plaintiff agreed to their return. And with respect to the so-called commissions,
we have said that they merely constituted a discount on the invoice price, and
the reason for applying this benefit to the beds sold directly by the plaintiff to
persons in Iloilo was because, as the defendant obligated itself in the contract
to incur the expenses of advertisement of the plaintiff's beds, such sales were
to be considered as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only one
expressly imposed by the contract, the effect of its breach would only entitle
the plaintiff to disregard the orders which the defendant might place under
other conditions; but if the plaintiff consents to fill them, he waives his right and
cannot complain for having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between
the plaintiff and the defendant was one of purchase and sale, and that the
obligations the breach of which is alleged as a cause of action are not imposed
upon the defendant, either by agreement or by law.

The judgment appealed from is affirmed, with costs against the appellant. So
ordered.

Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.


Republic of the Philippines as found by the trial court and confirmed by the appellate court, which are
SUPREME COURT admitted by the respondent, are as follows:
Manila
In the year 1929, the "Teatro Arco", a corporation duly organized
EN BANC under the laws of the Philippine Islands, with its office in Manila, was
engaged in the business of operating cinematographs. In 1930, its
G.R. No. L-47538 June 20, 1941 name was changed to Arco Amusement Company. C. S. Salmon was
the president, while A. B. Coulette was the business manager. About
GONZALO PUYAT & SONS, INC., petitioner, the same time, Gonzalo Puyat & Sons, Inc., another corporation doing
business in the Philippine Islands, with office in Manila, in addition to
vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro its other business, was acting as exclusive agents in the Philippines
Arco), respondent. for the Starr Piano Company of Richmond, Indiana, U.S. A. It would
seem that this last company dealt in cinematographer equipment and
machinery, and the Arco Amusement Company desiring to equipt its
Feria & Lao for petitioner. cinematograph with sound reproducing devices, approached Gonzalo
J. W. Ferrier and Daniel Me. Gomez for respondent. Puyat & Sons, Inc., thru its then president and acting manager, Gil
Puyat, and an employee named Santos. After some negotiations, it
LAUREL, J.: was agreed between the parties, that is to say, Salmon and Coulette
on one side, representing the plaintiff, and Gil Puyat on the other,
CONTRACTS; PURCHASE AND SALE; INTERPRETATION.The contract is representing the defendant, that the latter would, on behalf of the
the law between the parties and should include all the things they are plaintiff, order sound reproducing equipment from the Starr Piano
supposed to have been agreed upon. What does not appear on the face of the Company and that the plaintiff would pay the defendant, in addition to
contract should be regarded merely as "dealer's" or "trader's talk", which can the price of the equipment, a 10 per cent commission, plus all
not bind either party. (Nolbrook v. Conner, 56 So., 576; 11 Am. Rep., 212; expenses, such as, freight, insurance, banking charges, cables, etc. At
Bank v. Brosscell, 120 111., 161; Bank v. Palmer, 47 111., 92; Hosser v. the expense of the plaintiff, the defendant sent a cable, Exhibit "3", to
Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhbits 1 the Starr Piano Company, inquiring about the equipment desired and
and 2, by which the respondent accepted the prices of $1,700 and $1,600, making the said company to quote its price without discount. A reply
respectively, for the sound reproducing equipment subject of its contract with was received by Gonzalo Puyat & Sons, Inc., with the price, evidently
the petitioner, are clear in their terms and admit of no other interpretation than the list price of $1,700 f.o.b. factory Richmond, Indiana. The defendant
that the respondent agreed to purchase from the petitioner the equipment in did not show the plaintiff the cable of inquiry nor the reply but merely
question at the prices indicated which are fixed and determinate. The informed the plaintiff of the price of $1,700. Being agreeable to this
respondent admitted in its complaint filed with the Court of First Instance of price, the plaintiff, by means of Exhibit "1", which is a letter signed by
Manila that the petitioner agreed to sell to it the first sound reproducing C. S. Salmon dated November 19, 1929, formally authorized the order.
equipment and machinery. [Puyat & Sons, Inc. vs. Arco Amusement Co., 72 The equipment arrived about the end of the year 1929, and upon
Phil. 402(1941)] delivery of the same to the plaintiff and the presentation of necessary
papers, the price of $1.700, plus the 10 per cent commission agreed
This is a petition for the issuance of a writ of certiorari to the Court of Appeals upon and plus all the expenses and charges, was duly paid by the
for the purpose of reviewing its Amusement Company (formerly known as plaintiff to the defendant.
Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-
appellee." Sometime the following year, and after some negotiations between the
same parties, plaintiff and defendants, another order for sound
It appears that the respondent herein brought an action against the herein reproducing equipment was placed by the plaintiff with the defendant,
petitioner in the Court of First Instance of Manila to secure a reimbursement of on the same terms as the first order. This agreement or order was
certain amounts allegedly overpaid by it on account of the purchase price of confirmed by the plaintiff by its letter Exhibit "2", without date, that is to
sound reproducing equipment and machinery ordered by the petitioner from say, that the plaintiff would pay for the equipment the amount of
the Starr Piano Company of Richmond, Indiana, U.S.A. The facts of the case $1,600, which was supposed to be the price quoted by the Starr Piano
Company, plus 10 per cent commission, plus all expenses incurred. el Juzgado de Primera Instncia de Manila, presidido entonces por el
The equipment under the second order arrived in due time, and the hoy Magistrado Honorable Marcelino Montemayor.
defendant was duly paid the price of $1,600 with its 10 per cent
commission, and $160, for all expenses and charges. This amount of II. El Tribunal de Apelaciones incurrio en error de derecho al declarar
$160 does not represent actual out-of-pocket expenses paid by the que, suponiendo que dicha relacion fuerra de vendedora a
defendant, but a mere flat charge and rough estimate made by the compradora, la recurrente obtuvo, mediante dolo, el consentimiento
defendant equivalent to 10 per cent of the price of $1,600 of the de la recurrida en cuanto al precio de $1,700 y $1,600 de las
equipment. maquinarias y equipos en cuestion, y condenar a la recurrente ha
obtenido de la Starr Piano Company of Richmond, Indiana.
About three years later, in connection with a civil case in Vigan, filed
by one Fidel Reyes against the defendant herein Gonzalo Puyat & We sustain the theory of the trial court that the contract between the petitioner
Sons, Inc., the officials of the Arco Amusement Company discovered and the respondent was one of purchase and sale, and not one of agency, for
that the price quoted to them by the defendant with regard to their two the reasons now to be stated.
orders mentioned was not the net price but rather the list price, and
that the defendants had obtained a discount from the Starr Piano
In the first place, the contract is the law between the parties and should include
Company. Moreover, by reading reviews and literature on prices of
all the things they are supposed to have been agreed upon. What does not
machinery and cinematograph equipment, said officials of the plaintiff
appear on the face of the contract should be regarded merely as "dealer's" or
were convinced that the prices charged them by the defendant were
"trader's talk", which can not bind either party. (Nolbrook v. Conner, 56 So.,
much too high including the charges for out-of-pocket expense. For 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v. Palmer, 47 III.,
these reasons, they sought to obtain a reduction from the defendant or 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The
rather a reimbursement, and failing in this they brought the present
letters, Exhibits 1 and 2, by which the respondent accepted the prices of
action.
$1,700 and $1,600, respectively, for the sound reproducing equipment subject
of its contract with the petitioner, are clear in their terms and admit no other
The trial court held that the contract between the petitioner and the respondent interpretation that the respondent in question at the prices indicated which are
was one of outright purchase and sale, and absolved that petitioner from the fixed and determinate. The respondent admitted in its complaint filed with the
complaint. The appellate court, however, by a division of four, with one Court of First Instance of Manila that the petitioner agreed to sell to it the first
justice dissenting held that the relation between petitioner and respondent sound reproducing equipment and machinery. The third paragraph of the
was that of agent and principal, the petitioner acting as agent of the respondent's cause of action states:
respondent in the purchase of the equipment in question, and sentenced the
petitioner to pay the respondent alleged overpayments in the total sum of 3. That on or about November 19, 1929, the herein plaintiff
$1,335.52 or P2,671.04, together with legal interest thereon from the date of
(respondent) and defendant (petitioner) entered into an agreement,
the filing of the complaint until said amount is fully paid, as well as to pay the
under and by virtue of which the herein defendant was to secure from
costs of the suit in both instances. The appellate court further argued that even the United States, and sell and deliver to the herein plaintiff, certain
if the contract between the petitioner and the respondent was one of purchase
sound reproducing equipment and machinery, for which the said
and sale, the petitioner was guilty of fraud in concealing the true price and defendant, under and by virtue of said agreement, was to receive the
hence would still be liable to reimburse the respondent for the overpayments actual cost price plus ten per cent (10%), and was also to be
made by the latter.
reimbursed for all out of pocket expenses in connection with the
purchase and delivery of such equipment, such as costs of telegrams,
The petitioner now claims that the following errors have been incurred by the freight, and similar expenses. (Emphasis ours.)
appellate court:
We agree with the trial judge that "whatever unforseen events might have
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar taken place unfavorable to the defendant (petitioner), such as change in
que, segun hechos, entre la recurrente y la recurrida existia una prices, mistake in their quotation, loss of the goods not covered by insurance
relacion implicita de mandataria a mandante en la transaccion de que or failure of the Starr Piano Company to properly fill the orders as per
se trata, en vez de la de vendedora a compradora como ha declarado specifications, the plaintiff (respondent) might still legally hold the defendant
(petitioner) to the prices fixed of $1,700 and $1,600." This is incompatible with aware of such an arrangement. The respondent, therefore, could not have
the pretended relation of agency between the petitioner and the respondent, offered to pay a 10 per cent commission to the petitioner provided it was given
because in agency, the agent is exempted from all liability in the discharge of the benefit of the 25 per cent discount enjoyed by the petitioner. It is well
his commission provided he acts in accordance with the instructions received known that local dealers acting as agents of foreign manufacturers, aside from
from his principal (section 254, Code of Commerce), and the principal must obtaining a discount from the home office, sometimes add to the list price
indemnify the agent for all damages which the latter may incur in carrying out when they resell to local purchasers. It was apparently to guard against an
the agency without fault or imprudence on his part (article 1729, Civil Code). exhorbitant additional price that the respondent sought to limit it to 10 per cent,
and the respondent is estopped from questioning that additional price. If the
While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten respondent later on discovers itself at the short end of a bad bargain, it alone
per cent (10%) commission, this does not necessarily make the petitioner an must bear the blame, and it cannot rescind the contract, much less compel a
agent of the respondent, as this provision is only an additional price which the reimbursement of the excess price, on that ground alone. The respondent
respondent bound itself to pay, and which stipulation is not incompatible with could not secure equipment and machinery manufactured by the Starr Piano
the contract of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Company except from the petitioner alone; it willingly paid the price quoted; it
Phil., 501.) received the equipment and machinery as represented; and that was the end
of the matter as far as the respondent was concerned. The fact that the
petitioner obtained more or less profit than the respondent calculated before
In the second place, to hold the petitioner an agent of the respondent in the
entering into the contract or reducing the price agreed upon between the
purchase of equipment and machinery from the Starr Piano Company of
petitioner and the respondent. Not every concealment is fraud; and short of
Richmond, Indiana, is incompatible with the admitted fact that the petitioner is
fraud, it were better that, within certain limits, business acumen permit of the
the exclusive agent of the same company in the Philippines. It is out of the
ordinary for one to be the agent of both the vendor and the purchaser. The loosening of the sleeves and of the sharpening of the intellect of men and
facts and circumstances indicated do not point to anything but plain ordinary women in the business world.
transaction where the respondent enters into a contract of purchase and sale
with the petitioner, the latter as exclusive agent of the Starr Piano Company in The writ of certiorari should be, as it is hereby, granted. The decision of the
the United States. appellate court is accordingly reversed and the petitioner is absolved from the
respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company
(formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons,
It follows that the petitioner as vendor is not bound to reimburse the
Inc., defendants-appellee," without pronouncement regarding costs. So
respondent as vendee for any difference between the cost price and the sales
ordered.
price which represents the profit realized by the vendor out of the transaction.
This is the very essence of commerce without which merchants or middleman
would not exist. Avancea, C.J., Diaz, Moran and Horrilleno, JJ., concur.

The respondents contends that it merely agreed to pay the cost price as
distinguished from the list price, plus ten per cent (10%) commission and all
out-of-pocket expenses incurred by the petitioner. The distinction which the
respondents seeks to draw between the cost price and the list price we
consider to be spacious. It is to be observed that the twenty-five per cent
(25%) discount granted by the Starr piano Company to the petitioner is
available only to the latter as the former's exclusive agent in the Philippines.
The respondent could not have secured this discount from the Starr Piano
Company and neither was the petitioner willing to waive that discount in favor
of the respondent. As a matter of fact, no reason is advanced by the
respondent why the petitioner should waive the 25 per cent discount granted it
by the Starr Piano Company in exchange for the 10 percent commission
offered by the respondent. Moreover, the petitioner was not duty bound to
reveal the private arrangement it had with the Starr Piano Company relative to
such discount to its prospective customers, and the respondent was not even
Republic of the Philippines P11,4476.60, with legal interest from the date of the filing of the complaint and
SUPREME COURT to pay the costs.
Manila
As to the facts and the issue in the case we are reproducing the findings of the
EN BANC Court of Appeals, which findings are binding on this Tribunal in case of similar
appeals:
G.R. No. L-7144 May 31, 1955
Sometime in November, 1948, Ignacio Delizalde, an agent of the Far
FAR EASTERN EXPORT & IMPORT CO., petitioner, Eastern Export & Import Company, went to the store of Lim Teck Suan
vs. situated at 267 San Vicente Street, Manila, and offered to sell textile,
LIM TECK SUAN, respondent. showing samples thereof, and having arrived at an agreement with
Bernardo Lim, the General Manager of Lim Teck Suan, Delizalde
Juan Nabong and Crisolito Pascual for petitioner. returned on November 17 with the buyer's order, Exhibit A, already
Jose P. Laurel, Marciano Almario and Jose T. Lojom for respondent. prepared which reads:

MONTEMAYOR, J.: FAR EASTERN EXPORT & IMPORT COMPANY

75 Escolta 2nd Floor Brias Roxas Bldg., Manila


1.PURCHASE AND SALE; WHEN TRANSACTION NOT AN AGENCY OR
BROKERAGE.Where the agreement speaks of the items (merchandise)
therein involved as sold and the sale was even confirmed by the export Ship to LIM TECK SUAN Date Written 11/17/48
company, the agents U. T. Co. and the export company dealt directly with local 475 Nueva St., Manila Your No.
merchants V. and S. without expressly indicating or revealing their principals, Our No. 276
there was no privity of contract between the buyers S. and V. and the suppliers
F. I. C. and A. J. W. C., respectively, no commission or monetary consideration I hereby commission you to procure for me the following merchandise,
was paid or agreed to be paid by the buyers to the export company and the U. subject to the terms and conditions listed below:
T. Co., proof that there was no agency or brokerage and that the profit of the
latter undoubtedly the difference between the price listed to the buyers and the =====================================================
net special price quoted to the sellers, by the suppliers. Held; that the =
transaction entered into is one of purchase and sale.
Quantity Unit Particulars Amount
2.PRINCIPAL AND AGENT; AGENT OF FOREIGN COMPANY MAY NOT 10,000 yds Ashtone Acetate & Rayon-No. 13472
ACT AS AGENT OF LOCAL BUYERS.Where a foreign company has an Width: 41/42 inches; Weight:
agent here selling its goods and merchandise, that same agent could not very Approximately 8 oz. per yd; Ten (10)
well act as agent for local buyers, because the interests of his foreign principal colors, buyers choice, as per attached
and those of the buyers would be in direct conflict. He could not serve two samples, equally assorted; at $1.13
masters at the same time. (The doctrine in Gonzalo Puyat & Sons, Inc., vs. per yard F.A.S. New York U. S. $11,500.00
Arco Amusement, 72 Phil. 402, reiterated.) [Far Eastern Export & Import Co., Item herein sold are FOB-FAS X C. & F
vs. Lim Teck Suan, 97 Phil. 171(1955)] CIF

This is a petition for certiorari to review a decision of the Court of Appeals =====================================================
dated September 25, 1953, reversing the decision of the Court of First =
Instance of Manila, and sentencing the defendant-petitioner Far Eastern
Export & Import Co. later referred to as export company, to pay the plaintiff-
TERMS AND CONDITIONS
respondent Lim Teck Suan later to be referred to as Suan, the sum of
Acceptance Acetate and Rayon Suiting for the purpose of offering them for sale
which netted P11,907.30. Deducting this amount from the sum of
This Buyer's Order is subject to confirmation by the exporter. Shipment P23,686.96 which included the amount paid by plaintiff for said textile
and the warehouse expenses, a difference of P11,476.66 is left,
representing the net direct loss.
Period of Shipment is to be within December. Bank Documents should
be for a line of 45 days to allow for presentation and payment against
"ON BOARD" bills of lading. Partial shipments permitted. The defense set up is that the Far Eastern Export and Import
Company only acted as a broker in this transaction; that after placing
the order the defendants took no further action and the cargo was
Payment
taken directly by the buyer Lim Teck Suan, the shipment having been
made to him and all the documents were also handled by him directly
Payment will be by "Confirmed Irrevocable Letter of Credit" to be without any intervention on the part of the defendants; that upon
opened in favor of Frenkel International Corporation, 52 Broadway, receipt of Lim Teck Suan's complaint the defendants passed it to its
New York, 4, N. Y. for the full amount of the above cost of principal, Frenkel International Corporation, for comment, and the
merchandise plus (approximately) for export packing: insurance, latter maintained that the merchandise was up to standard called for.
freight, documentation, forwarding, etc. which are for the buyers
accounts, IMMEDIATELY upon written Confirmation. Our Guarantee
The lower court acquitted the defendants from the complaint asking for
In case shipment is not affected, seller agrees to reimburse buyer for
all banking expenses. Confirmed Accepted damages in the sum of P19,500.00 representing the difference in price
between the textile ordered and those received, plus profits unrealized
and the cost of this suit, and dismissed the counterclaim filed by the
Signed Nov. 17, 1948 defendants without pronouncement as to costs.

Authorized official As already stated, the Court of Appeals reversed the judgment entered by the
Court of First Instance of Manila, basing its decision of reversal on the case of
Confirmed Jose Velasco, vs. Universal Trading Co., Inc., 45 Off. Gaz. 4504 where the
transaction therein involved was found by the court to be one of purchase and
Accepted (Sgd.) Illegible Date Nov. 1948 to be signed by our sale and not of brokerage or agency. We have carefully examined the Velasco
representative upon confirmation. case and we agree with the Court of Appeals that the facts in that case are
very similar to those in the present case. In the case of Velasco, we have the
In accordance with said Exhibit A, plaintiff established a letter of credit following statement by the court itself which we reproduced below:
No. 6390 (Exhibit B) in favor of Frenkel International Corporation
through the Hongkong and Shanghai Bangking Corporation, attached Prior to November 8, 1945 a salesman or agent of the Universal
to the agreed statement of facts. On February 11, 1949, the textile Trading Co., Inc. informed Jose Velasco, Jr. that his company was in a
arrived at Manila on board the vessel M. S. Arnold Maersk, covered by position to accept and fill in orders for Panamanian Agewood Bourbon
bill of lading No. 125 (Exhibit C), Invoice No. 1684-M (Exhibit D) Whisky because there were several thousand cases of this article
issued by Frenkel International Corporation direct to the plaintiff. The ready for shipment to the company by its principal office in America.
plaintiff complained to the defendant of the inferior quality of the textile Acting upon this offer and representative Velasco went to the
received by him and had them examined by Marine Surveyor Del Pan Universal Trading Co., Inc., and after a conversation with the latter's
& Company. Said surveyor took swatches of the textile and had the official entered into an agreement couched in the following terms:
same analyzed by the Institute of Science (Exhibit E-1) and submitted
a report or survey under date of April 9, 1949 (Exhibit E). Upon "Agreement is hereby made between Messrs. Jose Velasco, Jr., 340
instructions of the defendants plaintiff deposited the goods with the Echaque, Manila, and the Universal Trading Company, Manila, for
United Warehouse Corporation (Exhibits H, H-1 to H-6. As per order as follows and under the following terms:
suggestion of the Far Eastern Export and Import Company contained
in its letter dated June 16, 1949, plaintiff withdrew from the United
Bonded Warehouse, Port Area, Manila, the fifteen cases of Ashtone
Quantity Merchandise and Unit Unit Amount Price Description total amount of P5,690.10 which after deducting the deposit of $1,700,
100 Panamanian Agewood Bourbon gives a balance of P3,990.01.
Whisky ..........................Case $17.00 $1,700
_______ On January 25, 1946 the Universal Trading Co., Inc. wrote Exhibit 4 to
Total amount of order ........... $1,700 Mr. Velasco advising him that the S. S. Manoeran had docked and that
they would appreciate it if he would pay the amount of P3,990.10
Terms of Agreement: direct to them. It turned out, however, that after the ship arrived, what
the Universal Trading Co., Inc. tried to deliver to Velasco was not
"1. That the Universal Trading Company agrees to order the above Panamanian Agewood Bourbon Whisky but Panamanian Agewood
merchandise from their Los Angeles Office at the price quoted above, Blended Whisky. Velasco refused to receive the shipment and in turn
C.I.F. Manila, for December shipment; filed action against the defendant for the return of his deposit of $
1,700 with interest. For its defense, defendant contends that it merely
"2. That Messrs. Jose Velasco, Jr., 340 Echaque, Manila, obligates acted as agent for Velasco and could not be held responsible for the
myself/themselves to take the above merchandise when advised of its substitution of Blended Whisky for Bourbon Whisky and that
furthermore the Blended Whisky was a reasonable substitute for
arrival from the United States and to pay in cash the full amount of the
Bourbon. After due hearing the Court of First Instance of Manila held
order in the Philippine Currency at the office of the Universal Trading
that the transaction was purchase and sale and ordered the defendant
Company;
to refund to the plaintiff his deposit of P1,700 with legal interest from
the date of the filing of the suit with costs, which decision on appeal
"3. This order may be subject to delay because of uncertain shipping was affirmed by this Court.
conditions. War risk insurance, transhipping charges, if any, port
charges, and any storage that may be incurred due to your not taking
We notice the following similarities. In the present case, the export company
delivery of the order upon being notified by us that the order is ready
acted as agent for Frenkel International Corporation, presumably the supplier
for delivery, and government taxes, are all for your account;
of the textile sold. In the Velasco case, the Universal Trading Co., was acting
as agent for A. J. Wilson Company, also the supplier of the whisky sold. In the
"4. The terms of this agreement will be either of the following: present case, Suan according to the first part of the agreement is said merely
"a. To open up irrevocable letter of credit for the value of the order with to be commissioning the Export Company to procure for him the merchandise
any of the local banks, or thru bills of lading payable to A. J. Wilson in question, just as in the other case, Velasco was supposed to be ordering the
Company, 1263 South North Avenue, Los Angeles, California; whisky thru the Universal Trading Co. In the present case, the price of the
"b. To put up a cash deposit equivalent to 50 % of the order; merchandise bought was paid for by Suan by means of an irrevocable letter of
credit opened in favor of the supplier, Frenkel International Corporation. In the
"5. Reasonable substitute, whenever possible, will be shipped in lieu of Velasco case, Velasco was given the choice of either opening a similar
items called for, if order is not available." irrevocable letter of credit in favor of the supplier A. J. Wilson Company or
making a cash deposit. It is true that in the Velasco case, upon the arrival of
Accordingly, Velasco deposited with the defendant the sum of $1,700 the whisky and because it did not conform to specifications, Velasco refused to
which is 50% of the price of the whisky pursuant to agreement made, received it; but in the present case although Suan received the merchandise
instead of 'to open up irrevocable letter of credit for the value of the he immediately protested its poor quality and it was deposited in the
order with any of the local banks, or through bills of lading payable to warehouse and later withdrawn and sold for the best price possible, all at the
A. J. Wilson Company.' On November 6, 1945, the same date that the suggestion of the Export company. The present case is in our opinion a
contract or agreement, Exhibit A, was signed an invoice under the stronger one than that of Velasco for holding the transaction as one of
name of the Universal Trading Co., Inc. was issued to Velasco for the purchase and sale because as may be noticed from the agreement (Exhibit
100 cases of Panamanian Agewood Bourbon Whisky for the price of "A"), the same speaks of the items (merchandise) therein involved as sold, and
$1,700 which invoice manifested that the article was sold to Jose the sale was even confirmed by the Export company. In both cases, the agents
Velasco, Jr. On January 15, 1946 another invoice was issued Universal Trading Co. and the export company dealt directly with the local
containing besides the list price of $1,700 or P3,400, a statement of merchants Velasco and Suan without expressly indicating or revealing their
bank charges, customs duties, internal revenue taxes, etc., giving a principals. In both cases there was no privity of contract between the buyers
Suan and Velasco and the suppliers Frenkel International Corporation and A.
J. Wilson Company, respectively. In both cases no commission or monetary
consideration was paid or agreed to be paid by the buyers to the Export
company and the Universal Trading Co., proof that there was no agency or
brokerage, and that the profit of the latter was undoubtedly the difference
between the price listed to the buyers and the net or special price quoted to
the sellers, by the suppliers. As already stated, it was held in the Velasco case
that the transaction therein entered into was one of purchase and sale, and for
the same reasons given there, we agreed with the Court of Appeals that the
transaction entered into here is one of purchase and sale.

As was held by this Tribunal in the case of Gonzalo Puyat & Sons
Incorporated vs. Arco Amusement, 72 Phil., 402, where a foreign company has
an agent here selling its goods and merchandise, that same agent could not
very well act as agent for local buyers, because the interests of his foreign
principal and those of the buyer would be in direct conflict. He could not serve
two masters at the same time. In the present case, the Export company being
an agent of the Frenkel International Corporation could not, as it claims, have
acted as an agent or broker for Suan.

Finding no reversible error in the decision appealed from, the same is hereby
affirmed, with costs.

Pablo, Bengzon, Reyes, A., Bautista Angelo, Labrador, Concepcion, and


Reyes, J. B. L., JJ., concur.
Republic of the Philippines Manila; that Tong could sell the article in his territory at any price he saw that
SUPREME COURT fit; that payment for any floor wax purchased shall he delivered to plaintiff
Manila within sixty days from the date of shipment; that (this is important) Tong was to
furnish surety bond to cover all shipments of the floor wax that are damaged or
EN BANC unmerchantable, at its expense; and that in case of loss due to fortuitous event
or force majeure, the plaintiff was to shoulder the loss, provided the goods
G.R. No. L-10517 June 28, 1957 were still in transit.

PEARL ISLAND COMMERCIAL CORPORATION, plaintiff-appellee, On the same day said contract were executed on June 16, 1951, defendant
Manila Surety & Fidelity Co., Inc., with Tong as principal, filed the surety bond
vs.
LIM TAN TONG and MANILA SURETY & FIDELITY CO., INC., defendants- (Exhibit B), binding itself unto the plaintiff in the sum of P5,000, by reason of
the appointment of Tong as exclusive agent for plaintiff for the Visayas-
appellants.
Mindanao provinces, the bond being conditioned on the faithful performance of
Tong's duties, in accordance with the agreement. It would appear that for its
Diaz and Baizas for appellee. security, the Surety Company had Ko Su Kuan and Marciano Du execute in its
De Santos and Herrera for appellant Manila Surety & Fidelity Co., Inc. favor an indemnity agreement that they would indemnify said surety company
in whatever amount it may pay to the plaintiff by reason of the bond filed by it.
MONTEMAYOR, J.:
On June 18, 1951, plaintiff shipped 299 cases of Bee Wax, valued at P7,107,
SURETY BOND; TERMS OF CONTRACTS; PARTLY AGENCY AND to Tong, duly received by the latter. Tong failed to remit the value within sixty
PARTLY PURCHASE AND SALE; LIABILITY OF SURETY.Surety Company days, and despite the demand made by plaintiff on him to send that amount,
contends that it cannot be held liable on its bond for the reason that the latter he sent only P770, leaving a balance of P6,337, which he admits to be still with
was filed on the theory that the contract between plaintiff and T was one of him, but which he refuses to remit to the plaintiff, claiming that the latter owed
agency as a result of which said surety Company guaranteed the faithful him a larger amount. To enforce payment of the balance of P6,337, plaintiff
performance of T as agent, but that it turned out that said contract was one of filed this present action not only against Tong, but also against the Surety
purchase and sale, as shown by the very title of said contract namely "contract Company, to recover from the latter the amount of its bond of P5,000.
of purchase and sale". However, a careful examination of the terms of the
contract, shows that while it provides for the sale of Bee Wax f rom plaintiff to The Surety Company in its answer filed a cross-claim against Tong, and with
T, it also designates T as the sole distributor of the article within a certain the trial courts permission, filed a third-party complaint against Ko Su Kuan
territory; besides, the contract provides that T is to furnish surety bond to cover and Marciano Du who, as already stated, had executed an indemnity
all shipments made by plaintiff to him. Held, that the surety company cannot agreement in its favor. After trial, the lower court, presided by Judge
deny its liability for the value of the shipment of the articles. Any way, it seems Hermogenes Concepcion, rendered judgment, the dispositive part of which
to have been the sole concern and interest of the plaintiff to be sure that it was reads as follows:
paid the value of all shipments of Bee Wax to T and the Surety Company by its
bond, guaranteed in the final analysis said payment by T either as purchaser
IN VIEW OF ALL THE FOREGOING, the Court renders judgment in
or as agent. [Pearl Is. Commercial Corp. vs. Tan Tong, et al., 101 Phil.,
favor of the plaintiff and against the defendants as follows:
789(1957)]

In June, 1951, plaintiff Pearl Island Commercial Corporation, engaged in the (a) The Court orders the defendants Lim Tan Tong and the Manila
manufacture of floor wax under the name of "Bee Wax", in the City of Manila, Surety & Fidelity Co., Inc., to pay jointly and severally the plaintiff Pearl
Island Commercial Corporation the sum of P5,000.00 plus legal
entered into a contract, Exhibit A, with defendant Lim Tan Tong, wherein the
interest from the date of the filing of this complaint, until it is fully paid;
latter, designated as sole distributor of said article in the provinces of Samar,
Leyte Cebu Bohol and Negros Oriental and all the provinces in the island of
Mindanao, was going to buy the said floor wax for resale in the territory above- (b) the Court orders the defendant Lim Tan Tong to pay to the plaintiff
mentioned. The plaintiff undertook not to appoint any other distributor within the sum of P1,337.00 with legal rate of interest from the date of the
the said territory; to sell to defendant Tong at factory price in Manila, F. O. B. filing of this complaint until said amount is fully paid;
(c) The two defendants shall pay jointly and severally another amount Under the circumstances, we are afraid that the Surety Company is not now in
of P500 to the plaintiff as attorney's fees, plus the costs of this suit; a position to deny its liability for the shipment of the 299 cases of Bee Wax
duly received by Tong and his failure to pay its value of P7,107, minus P770 or
(d) The Court orders the cross-defendant Lim Tan Tong and the third- a balance of P6,337, of course, up to the limit of P5,000, the amount of the
party defendants Ko Su Kuan and Marciano Du to pay jointly and bond. True, the contract (Exhibit A) is not entirely clear. It is in some respects,
severally to the Manila Surety & Fidelity Co., Inc., the sum of P5,000 even confusing. While it speaks of sale of Bee Wax to Tong and his
with legal rate of interest from the date of the filing of this complaint responsibility for the payment of the value of every shipment so purchased, at
until fully paid, plus P500 as attorney's fees, plus the costs of this suit. the same time it appoints him sole distributor within a certain area, the plaintiff
undertaking not to appoint any other agent or distributor within the same area.
Anyway, it seems to have been the sole concern and interest of the plaintiff to
The Surety company is appealing said decision. The appeal originally taken to
be sure that it was paid the value of all shipments of Bee Wax to Tong and the
the Court of Appeals was later certified to us as involving only questions of
Surety Company by its bond, in the final analysis said payment by Tong, either
law.
as purchaser or as agent. Whether the article was purchased by Tong or
whether it was consigned to him as agent to be sold within his area, the fact is
Appellant assigns the following errors: that Tong admits said shipment, admits its value, admits keeping the same
(P7,107 minus the P770 he had paid on account), but that he is retaining it for
I. The trial court erred in holding that the contract between the Pearl reasons of his own, namely, that plaintiff allegedly owes him a larger amount.
Island Commercial Corporation and Lim Tan tong was one of agency Moreover, the Surety Company is adequately protected, especially by the
so that breach thereof would come within the terms of the surety bond judgment because by its express terms, appellant can recover from Ko Su
posted by appellant therein. Kuan and Marciano Du whatever amounts, including attorney's fees it may pay
to plaintiff, and said two persons evidently have not appealed from the
II. The trial court erred in ordering the defendant-appellant herein to decision.
pay attorney's fees and other charges stated in the judgement.
In view of the foregoing, the decision appealed from is hereby affirmed, with
It is appellant's contention that it cannot be held liable on its bond for the costs.
reason that the latter was filed on the theory that the contract between the
plaintiff and Tong was one of agency as a result of which, said surety Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador,
Company guaranteed the faithful performance of tong as agent, but that it Concepcion, Reyes, J.B.L., and Felix, JJ.,concur.
turned out that said contract was one of purchase and sale, shown by the very
title of said contract (Exhibit A), namely, "Contract of Purchase and Sale", and
appellant never undertook to guaranty the faithful performance of Tong as a
purchaser. However, a careful examination of the said contract shows that
appellant is only partly right, for the reason that the terms of the said contract,
while providing for sale of Bee Wax from the plaintiff to Tong and purchase of
the same by Tong from the plaintiff, also designates Tong as the sole
distributor of the article within a certain territory. Besides, paragraph 4 of the
contract entitled "Security", provides that tong was to furnish surety bond to
cover all shipments made by the plaintiff to him. Furthermore, appellant must
have understood the contract to one, at least partly, of agency because the
bond itself (Exhibit B) says the following:

WHEREAS, the above bounden principal has been appointed


as exclusive agent for Pearl Islands Commercial Corporation of
Manila, Philippines, for the Visayas-Mindanao Provinces; . . .
Republic of the Philippines Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was
SUPREME COURT sentenced "to suffer an imprisonment of four (4) months and one (1) day as
Manila minimum to two (2) years and four (4) months as maximum, to indemnify the
offended party in the amount of P559.50, with subsidize imprisonment in case
FIRST DIVISION of insolvency, and to pay the costs." (p. 14, Rollo)

G.R. No. L-34338 November 21, 1984 From this judgment, appeal was taken to the then Court of Appeals which
affirmed the decision of the lower court but modified the penalty imposed by
LOURDES VALERIO LIM, petitioner, sentencing her "to suffer an indeterminate penalty of one (1) month and one
(1) day of arresto mayor as minimum to one (1) year and one (1) day of prision
vs.
correccional as maximum, to indemnify the complainant in the amount of
PEOPLE OF THE PHILIPPINES, respondent.
P550.50 without subsidiary imprisonment, and to pay the costs of suit." (p. 24,
Rollo)
RELOVA, J.:
The question involved in this case is whether the receipt, Exhibit "A", is a
Criminal Law; Contracts; Where a person obliged himself to pay to another the contract of agency to sell or a contract of sale of the subject tobacco between
proceeds of the latters tobacco as soon as they are disposed of, a period petitioner and the complainant, Maria de Guzman Vda. de Ayroso, thereby
exists for payment of the obligation and, therefore, Art. 1197, N.C.C. does not precluding criminal liability of petitioner for the crime charged.
apply.It is clear in the agreement, Exhibit A, that the proceeds of the sale of
the tobacco should be turned over to he complainant as soon as the same was
The findings of facts of the appellate court are as follows:
sold, or, that the obligation was immediately demandable as soon as the
tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which
provides that the courts may fix the duration of the obligation if it does not fix a ... The appellant is a businesswoman. On January 10, 1966, the appellant
period, does not apply. went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco.
Ayroso agreed to the proposition of the appellant to sell her tobacco
consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the
Same; Same; Agency; Estafa is present where contract to sell constituted
overprice for which she could sell the tobacco. This agreement was made in
another as mere agent.Aside from the fact that Maria Ayroso testified that
the presence of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the
the appellant asked her to be her agent in selling Ayrosos tobacco, the
appellant herself admitted that there was an agreement that upon the sale of document, Exh. A, dated January 10, 1966, which reads:
the tobacco she would be given something. The appellant is a
businesswoman, and it is unbelievable that she would go to the extent of going To Whom It May Concern:
to Ayrosos house and take the tobacco with a jeep which she had brought if
she did not intend to make a profit out of the transaction. Certainly, if she was This is to certify that I have received from Mrs. Maria de Guzman Vda. de
doing a favor to Maria Ayroso and it was Ayroso who had requested her to sell Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be
her tobacco, it would not have been the appellant who would have gone to the sold at Pl.30 per kilo. The proceed in the amount of Seven Hundred Ninety
house of Ayroso, but it would have been Ayroso who would have gone to the Nine Pesos and 50/100 (P 799.50) will be given to her as soon as it was
house of the appellant and deliver the tobacco to the appellant. sold.

Same; Same; Same; Sale; There is no contract of sale, but mere agency to This was signed by the appellant and witnessed by the complainant's sister,
sell, where agreement was to pay over to tobacco owner the proceeds thereof Salud Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that
as soon as it was sold.The fact that appellant received the tobacco to be time was bringing a jeep, and the tobacco was loaded in the jeep and
sold at P1.30 per kilo and the proceeds to be given to complainant as soon as brought by the appellant. Of the total value of P799.50, the appellant had
it was sold, strongly negates transfer of ownership of the goods to the paid to Ayroso only P240.00, and this was paid on three different times.
petitioner. The agreement (Exhibit A) constituted her as an agent with the Demands for the payment of the balance of the value of the tobacco were
obligation to return the tobacco if the same was not sold. [Lim vs. People, 133 made upon the appellant by Ayroso, and particularly by her sister, Salud
SCRA 333(1984)] Bantug. Salud Bantug further testified that she had gone to the house of the
appellant several times, but the appellant often eluded her; and that the "A") gives rise to an obligation wherein the duration of the period depends
"camarin" the appellant was empty. Although the appellant denied that upon the will of the debtor in which case the only action that can be
demands for payment were made upon her, it is a fact that on October 19, maintained is a petition to ask the court to fix the duration of the period;
1966, she wrote a letter to Salud Bantug which reads as follows: and

Dear Salud, 3. Whether or not the honorable Court of Appeals was legally right in
holding that the foregoing receipt is a contract of agency to sell as against
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang the theory of the petitioner that it is a contract of sale. (pp. 3-4, Rollo)
nasisingil kong pera, magintay ka hanggang dito sa linggo ito at tiak na ako
ay magdadala sa iyo. Gosto ko Salud ay makapagbigay man lang ako ng It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the
marami para hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay tobacco should be turned over to the complainant as soon as the same was
kahit konte muna ay bibigyan kita. Pupunta lang kami ni Mina sa Maynila sold, or, that the obligation was immediately demandable as soon as the
ngayon. Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which
pera. provides that the courts may fix the duration of the obligation if it does not fix a
period, does not apply.
Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat
ang mga suki ko ng puesto. Huwag kang mabahala at tiyak na babayaran Anent the argument that petitioner was not an agent because Exhibit "A" does
kita. not say that she would be paid the commission if the goods were sold, the
Court of Appeals correctly resolved the matter as follows:
Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
... Aside from the fact that Maria Ayroso testified that the appellant asked
Ludy her to be her agent in selling Ayroso's tobacco, the appellant herself
admitted that there was an agreement that upon the sale of the tobacco
she would be given something. The appellant is a businesswoman, and it
Pursuant to this letter, the appellant sent a money order for P100.00 on
is unbelievable that she would go to the extent of going to Ayroso's house
October 24, 1967, Exh. 4, and another for P50.00 on March 8, 1967; and
and take the tobacco with a jeep which she had brought if she did not
she paid P90.00 on April 18, 1967 as evidenced by the receipt Exh. 2, dated
intend to make a profit out of the transaction. Certainly, if she was doing a
April 18, 1967, or a total of P240.00. As no further amount was paid, the
complainant filed a complaint against the appellant for estafa. (pp. 14, 15, favor to Maria Ayroso and it was Ayroso who had requested her to sell her
tobacco, it would not have been the appellant who would have gone to the
16, Rollo)
house of Ayroso, but it would have been Ayroso who would have gone to
the house of the appellant and deliver the tobacco to the appellant. (p. 19,
In this petition for review by certiorari, Lourdes Valerio Lim poses the following Rollo)
questions of law, to wit:
The fact that appellant received the tobacco to be sold at P1.30 per kilo and
1. Whether or not the Honorable Court of Appeals was legally right in the proceeds to be given to complainant as soon as it was sold, strongly
holding that the foregoing document (Exhibit "A") "fixed a period" and "the negates transfer of ownership of the goods to the petitioner. The agreement
obligation was therefore, immediately demandable as soon as the tobacco (Exhibit "A') constituted her as an agent with the obligation to return the
was sold" (Decision, p. 6) as against the theory of the petitioner that the tobacco if the same was not sold.
obligation does not fix a period, but from its nature and the circumstances
it can be inferred that a period was intended in which case the only action
ACCORDINGLY, the petition for review on certiorari is dismissed for lack of
that can be maintained is a petition to ask the court to fix the duration
merit. With costs.
thereof;

SO ORDERED. Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez,


2. Whether or not the Honorable Court of Appeals was legally right in
Jr. and De la Fuente, JJ., concur.
holding that "Art. 1197 of the New Civil Code does not apply" as against
the alternative theory of the petitioner that the fore. going receipt (Exhibit
Republic of the Philippines E.R. Squibb & Sons Philippine Corporation is pleased to appoint Green
SUPREME COURT Valley Poultry & Allied Products, Inc. as a non-exclusive distributor for
Manila Squibb Veterinary Products, as recommended by Dr. Leoncio D. Rebong,
Jr. and Dr. J.G. Cruz, Animal Health Division Sales Supervisor.
SECOND DIVISION
As a distributor, Green Valley Poultry & Allied Products, Inc. wig be
G.R. No. L-49395 December 26, 1984 entitled to a discount as follows:

GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., petitioner Feed Store Price (Catalogue)
vs.
THE INTERMEDIATE APPELLATE COURT and E.R. SQUIBB & SONS Less 10%
PHILIPPINE CORPORATION,respondents.
Wholesale Price
ABAD SANTOS, J.:
Less 10%
Contracts; Damages; Agency; In an agency to sell, the agent is liable to pay
the principal for goods sold by the agent without the principals consent.We Distributor Price
do not have to categorize the contract. Whether viewed as an agency to sell or
as a contract of sale, the liability of Green Valley is indubitable. Adopting
There are exceptions to the above price structure. At present, these are:
Green Valleys theory that the contract is an agency to sell, it is liable because
it sold on credit without authority from its principal. The Civil Code has a
provision exactly in point. 1. Afsillin Improved 40 lbs. bag

Same; Same; Same; Same.The commission agent cannot, without the The distributor commission for this product size is 8% off P120.00
express or implied consent of the principal, sell on credit. Should he do so, the
principal may demand from him payment in cash, but the commission agent 2. Narrow Spectrum Injectible Antibiotics
shall be entitled to any interest or benefit, which may result from such sale.
(Art. 1905, N.C.C.) [Green Valley Poultry & Allied Products, Inc. vs. These products are subject to price fluctuations. Therefore, they are
Intermediate Appellate Court, 133 SCRA 697(1984)] invoiced at net price per vial.

This is a petition to review a decision of the defunct Court of Appeals which 3. Deals and Special Offers are not subject to the above distributor price
affirmed the judgment of the trial court whereby: structure. A 5% distributor commission is allowed when the distributor
furnishes copies for each sale of a complete deal or special offer to a
... judgment is hereby rendered in favor of the plaintiff [E.R. feedstore, drugstore or other type of account.
Squibb & Sons Philippine Corporation], ordering the defendant
[Green Valley Poultry & Allied Products, Inc.] to pay the sum Deals and Special Offers purchased for resale at regular price invoiced at
of P48,374.74 plus P96.00 with interest at 6% per annum from net deal or special offer price.
the filing of this action; plus attorney's fees in the amount of
P5,000.00 and to pay the costs. Prices are subject to change without notice. Squibb will endeavor to advise
you promptly of any price changes. However, prices in effect at the tune
On November 3, 1969, Squibb and Green Valley entered into a letter orders are received by Squibb Order Department will apply in all
agreement the text of which reads as follows: instances.
Green Valley Poultry & Allied Products, Inc. win distribute only for the consignment only with the obligation to turn over the proceeds, less its
Central Luzon and Northern Luzon including Cagayan Valley areas. We commission, or to return the goods ff not sold, and since it had sold the goods
will not allow any transfer or stocks from Central Luzon and Northern but had not been able to collect from the purchasers thereof, the action was
Luzon including Cagayan Valley to other parts of Luzon, Visayas or premature.
Mindanao which are covered by our other appointed Distributors. In line
with this, you will follow strictly our stipulations that the maximum discount Upon the other hand, Squibb claimed that the contract was one of sale so that
you can give to your direct and turnover accounts will not go beyond 10%. Green Valley was obligated to pay for the goods received upon the expiration
of the 60-day credit period.
It is understood that Green Valley Poultry and Allied Products, Inc. will
accept turn-over orders from Squibb representatives for delivery to Both courts below upheld the claim of Squibb that the agreement between the
customers in your area. If for credit or other valid reasons a turn-over order parties was a sales contract.
is not served, the Squibb representative will be notified within 48 hours
and hold why the order will not be served. We do not have to categorize the contract. Whether viewed as an agency to
sell or as a contract of sale, the liability of Green Valley is indubitable. Adopting
It is understood that Green Valley Poultry & Allied Products, Inc. will put up Green Valley's theory that the contract is an agency to sell, it is liable because
a bond of P20,000.00 from a mutually acceptable bonding company. it sold on credit without authority from its principal. The Civil Code has a
provision exactly in point. It reads:
Payment for Purchases of Squibb Products will be due 60 days from date
of invoice or the nearest business day thereto. No payment win be Art. 1905. The commission agent cannot, without the express
accepted in the form of post-dated checks. Payment by check must be on or implied consent of the principal, sell on credit. Should he do
current dating. so, the principal may demand from him payment in cash, but
the commission agent shall be entitled to any interest or
It is mutually agreed that this non-exclusive distribution agreement can be benefit, which may result from such sale.
terminated by either Green Valley Poultry & Allied Products, Inc. or Squibb
Philippines on 30 days notice. WHEREFORE, the petition is hereby dismissed; the judgment of the defunct
Court of Appeals is affirmed with costs against the petitioner.
I trust that the above terms and conditions will be met with your approval
and that the distributor arrangement will be one of mutual satisfaction. SO ORDERED.

If you are agreeable, please sign the enclosed three (3) extra copies of Aquino, Concepcion, Jr., Escolin and Cuevas, JJ., concur.
this letter and return them to this Office at your earliest convenience.
Makasiar (Chairman), reserves his vote.
Thank you for your interest and support of the products of E.R. Squibb &
Sons Philippines Corporation. (Rollo, pp. 12- 13.)

For goods delivered to Green Valley but unpaid, Squibb filed suit to collect.
The trial court as aforesaid gave judgment in favor of Squibb which was
affirmed by the Court of Appeals.

In both the trial court and the Court of Appeals, the parties advanced their
respective theories.

Green Valley claimed that the contract with Squibb was a mere agency to sell;
that it never purchased goods from Squibb; that the goods received were on
Republic of the Philippines Same; Same; Same; Damages; Award of damages for pecuniary loss for
SUPREME COURT failure of buyer to build a house, eliminated; Reason.The award in the
Manila amount of P100,000.00 representing pecuniary loss for not having been able
to build a P100,000.00 house should be eliminated. Respondent spouses did
FIRST DIVISION not lose that amount. It was only the estimated cost of the house they were
unable to construct. It was an expense item, not expected income.
G.R. No. L-56545 January 28, 1983
Same; Same; Same; Same; Speculation arising from defendants alleged
BERT OSMEA & ASSOCIATES, petitioners, wrongful act cannot be a basis for an award of damages.The amount of
P5,610.00 awarded representing rentals the spouses could have saved, from
vs.
THE COURT OF APPEALS and SPOUSES PEDRO QUIMBO and the time when the house was to be finished to the date when respondent
LEONADIZA QUIMBO, respondents. Leonadiza testified in Court (January 1972 to September 6, 1974), should also
be eliminated for being speculative. If they had built their P100,000.00 house,
thus avoiding the payment of rentals, they would, on the other hand, be losing
Siguion Reyna, Montecillo & Ongsiako for petitioners. interest or income from that amount. Evidence that the plaintiff could have
bettered his position had it not been for the defendants wrongful act cannot
Hilario Davide, Jr., for private respondents. serve as basis for an award of damages.

RESOLUTION Same; Same; Same; Same; Moral damages, award of, due to fraud and bad
faith of seller, proper, but must be reduced.Fraud and bad faith by petitioner
MELENCIO-HERRERA, J.: company and the Siguenzas having been established, the award of moral
damages is in order. Moral damages should be reduced, however, from
Civil Law; Obligations; Sales; Novation; Contract of sale not novated and P50,000.00 to P10,000.00.
liability not extinguished absent a new contract executed by the parties.
Petitioners contention that inasmuch as respondent spouses had agreed to Same; Same; Same; Same; Exemplary damages, award of, reduced.Moral
exchange Lot 409 for Lots 1 and 2, the contract of sale had been novated and damages having been awarded, exemplary damages were also properly
its liability extinguished, is untenable. No new contract was ever executed awarded. They should be reduced, however, from P25,000.00 to P5,000.00.
between petitioner and respondent spouses, notwithstanding Helena
Siguenzas assurances to that effect. Same; Same; Same; Attorneys fees, award of, proper, as aggrieved parties
were compelled to litigate to protect their interests.The award of P5,000.00
Same; Same; Same; Fraud; Sale of property to another by a seller who was no as attorneys fees is affirmed inasmuch as respondent spouses were
longer owner of property constitutes fraud upon the buyer.Fraud has been compelled to litigate for the protection of their interests.
established. As the trial Court had concluded: There is no question that the
defendants have conveyed and disposed of Lots 1 and 2, Block I, Phase II of Same; Same; Same; Agency; Plea for exemption from liability for damages for
the Clarita Village Subdivision to the plaintiffs at a time when they were no allegedly being a mere agent, untenable, as contract of sale described the
longer the owners thereof. At the time of the execution of the contract of sale, party not as agent but as seller.Petitioners plea for exception from liability
their only interest thereon was a mortgage lien in the amount of P13,440.00. for damages on the ground that it was a mere agent of the Siguenzas is
As mortgagee they did not have the right to sell the same. Helena and Carmen untenable. The contract of sale describes petitioner as seller together with the
Siguenza did not reveal this fact to the plaintiffs and the latter relied on their Siguenzas. In fact, petitioner was the lone signatory for the sellers in said
assurances that the same belong to them. Bert Osmea and Associates, Inc. contract. [Bert Osmea & Associates vs. Court of Appeals, 120 SCRA
as developer and at the same time attorney-in-fact for Carmen and Helena 395(1983)]
Siguenza similarly concealed this fact. Their efforts to cover up this fraud make
the acts more detestable and obnoxious. Defendants demonstrated palpable Sought to be reversed in this Petition for Review on certiorari is the Decision of
malice, bad faith, wantonness and incurable dishonesty. respondent Court of Appeals in CA-G.R. No. 62601-R, entitled "Pedro Quimbo
and Leonadiza Quimbo vs. Carmen Siguenza and Helena Siguenza, Bert
Osmea & Associates, Inc." sentencing defendants, jointly and severally, to plaintiffs paid from January 1972 to September 6, 1974;
pay damages to the plaintiffs, who are the private respondents herein. P50,000.00 as moral damages, P25,000.00 as exemplary
1
damages, P5,000.00 as attorney's fees; and the cost.
Upon a review of the evidence, we find as established: (1) that on June 3,
1971, a "Contract of Sale" over Lots 1 and 2, Block I, Phase II of the Clarita The Appellate Court affirmed the judgment of the Trial Court in toto. Hence,
Subdivision, Cebu City, for the total price of P15,200.00, was executed in favor this recourse by petitioner company, advancing tile following arguments:
of the Quimbo spouses. The sellers were petitioner company, developer of the
subdivision, and Carmen and Helena Siguenza, owners of the property, 1) The Honorable Court of Appeals seriously erred in not having considered
represented by petitioner. Antonio V. Osmea signed the contract on behalf of the contract as having been novated by virtue of the change in the subject
the company. Signing as witness was one C. Siguenza. matter or object of the contract;

(2) The spouses had intended to construct a house thereon inasmuch as their 2) The courts below seriously erred for having found petitioner to have acted
rented abode, for which they were paying P170.00 monthly, had become fraudulently where there is no evidence to support such a finding;
inconvenient for their family. Plans for the house were drawn. The spouses
were ready to pay the purchase price in full even before the due date of the
3) The Court of Appeals committed serious error in law when it held
first installment and advised Helena Siguenza accordingly so that title in their
petitioner jointly and severally liable to pay P100,000.00 as compensation for
names could be delivered to them. On the pretext that a road would traverse
the pecuniary loss suffered by Mrs. Quimbo;
the lots purchased, Helena proposed to exchange another lot (Lot 409) with
the same area for the lots purchased by the spouses to which the latter
hesitating agreed. Until 1973, however, no title could be given the Quimbo 4) The Court seriously erred in holding petitioner jointly and severally liable
spouses. with the Siguenzas to pay moral damages to Quimbo, there being no
evidence showing fraud or bad faith perpetrated by petitioner;
(3) It turned out that on December 15, 1969, or approximately a year and a half
prior to the sale in the spouses' favor, Lots Nos. 1 and 2 had already been sold 5) The lower court seriously erred in holding petitioner liable to pay the sum
to Dr. Francisco Maningo (Exhs. "G " and "G-1 "), and that Transfer of P5,610.00 as reimbursement for rentals because Quimbo was no longer
Certificates of Title Nos. 48546 and 48547 were issued in favor of Irenea interested in the lots on which her house was supposed to have been
Maningo on September 21, 1970 (Exhs. "H" and "H-1 "), or about nine months constructed but sought only for reimbursement of the downpayment;
before. the sale. Annotated on said titles were mortgages in favor of petitioner.
6) The Court below erred in holding petitioner liable jointly and severally for
(4) Discovering this fact only in 1973, respondent spouses instituted this suit exemplary damages, attorneys fees and costs;
for Damages against petitioner company and the Siguenzas on March 25,
1974. 7) The court seriously erred in fact and in law in holding petitioner jointly and
severally with the Siguenzas to return the downpayment.
In its judgment, the lower Court ordered petitioner company and the Siguenzas
to pay damages to respondent spouses as follows: Except for some items of damages awarded, we affirm.

WHEREFORE, based on all the foregoing considerations, 1) Petitioner's contention that in. as much as respondent spouses had agreed
judgment is hereby rendered in favor of the plaintiffs and to exchange Lot 409 for Lots 1 and 2, the contract of sale had been novated
against the defendants ordering the latter: and its liability extinguished, in untenable. No new contract was ever executed
between. petitioner and respondent spouses, notwithstanding Helena
To pay, jointly and severally, the plaintiffs P3,040.00, with Siguenza's assurances to that effect. As held by respondent Court:
interest at the legal rate from June 2, 1971 until the same shall
have been fully paid; P100,000.00 as compensation for the This stand taken by appellant only reveals its misconception of novation.
pecuniary loss plaintiffs suffered for failure to construct their Novation is a contract containing two stipulations: one to extinguish an
residential house; P5,610.00 as reimbursement for the rentals existing obligation, the other to substitute a new one in its place. It requires
the creation of a new contractual relation as well as the extinguishment of 7) The award of P5,000.00 as attorney's fees is affirmed inasmuch as
the old. There must be a consent of all the parties to the substitution, respondent spouses were compelled to litigate for the protection of their
6
resulting in the extinction of the old obligation and the creation of a new valid interests.
2
one (Tiu Suico vs. Habana, 45 Phil. 707).
8) The portion of the Decision requiring petitioners and the Siguenzas to return
2) Fraud has been established. As the trial Court had concluded: the downpayment of P3,040.00 is also justified. The Quimbo spouses are
entitled to the return of their downpayment, with interest at the legal rate from
7
There is no question that the defendants have conveyed and disposed of March 25, 1974 when the instant, suit was commenced.
Lots 1 and 2, Block I, Phase II of the Clarita Village Subdivision to the
plaintiffs at a time when they were no longer the owners thereof. At the time 9) Petitioner's plea for exception from liability for damages on the ground that it
of the execution of the contract of sale, their only interest thereon was a was a mere agent of the Siguenzas is untenable. The contract of sale
mortgage lien in the amount of P13,440.00. As mortgagee they did not have describes petitioner as seller together with the Siguenzas. In fact, petitioner
the right to sell the same. Helena and Carmen Siguenza did not reveal this was the lone signatory for the sellers in said contract. As held by respondent
fact to the plaintiffs and the latter relied on their assurances that the same Court:
belong to them. Bert Osmea and Associates, Inc. as developer and at the
same time attorney-in-fact for Carmen and Helena Siguenza similarly The contract ... is clear that appellant is one of the Seller-of the lots in
concealed this fact.1wph1.tTheir efforts to cover up this fraud make the question. We will not allow a variation of the terms of the written contract by
acts more detestable and obnoxious. Defendants demonstrated palpable parole evidence, for there is never an allegation in the appellant's answer
3
malice, bad faith, wantonness and incurable dishonesty. that Exhibit 6-Osmea does not express the true intent of the parties or that
it is suffering from a vice or mistake or imperfection. Further, appellant never
The finding of fraud in this case was a finding of fact and there are no factors asserted in its answer that it is a mere agent of its co-defendant Helena.
which can justify a reversal thereof. Indeed, the tenor of its Answer is one which shows its admission that it is a
co-seller of all lots in subdivision which it is developing. We take particular
3) The award in the amount of P100,000.00 representing pecuniary loss for not attention to appellant's admission in its answer to the allegations in par. 4, 8
having been able to build a P100,000.00 house should be eliminated. and 9 of appellees' complaint, which show that appellant was not an agent
8
Respondent spouses did not lose that amount. It was only the estimated cost but a co-seller of the lots.
of the house they were unable to construct. It was an expense item, not
expected income. ACCORDINGLY, the judgment appealed from is hereby modified in that
petitioner is hereby ordered to pay private respondents the following sums:
4) The amount of P5,610.00 awarded representing rentals the spouses could P3,040.00 with interest at the legal rate from March 25, 1974 until fully paid;
have saved, from the time when the house was to be finished to the date when P10,000.00 as moral damages; P5,000.00 as exemplary damages; and
respondent Leonadiza testified in Court (January 1972 to September 6, 1974), P5,000.00 as attorney's fees. Costs against petitioner company.
should also be eliminated for being speculative. If they had built their
P100,000.00 house, thus avoiding the payment of rentals, they would, on the SO ORDERED.
other hand, be losing interest or income from that amount. Evidence that the
plaintiff could have bettered his position had it not been for the defendant's Vasquez, Relova and Gutierrez, Jr., JJ., concur.
4
wrongful act cannot serve as basis for an award of damages.
Plana J., is on leave.
5) Fraud and bad faith by petitioner company and the Siguenzas having been
established, the award of moral damages is in order. Moral damages should
be reduced, however, from P50,000.00 to P10,000.00.

6) Moral damages having been awarded, exemplary damages were also


5
properly awarded. They should be reduced, however, from P25,000.00 to
P5,000.00.
Republic of the Philippines subject matter of the transaction. In the present case, the sugar was shipped
SUPREME COURT by V. M. Co., and upon arrival at the port of destination, the plaintiff received
Manila and transf erred it for deposit in its warehouses until the purchaser called for it.
The deposit of the sugar in the warehouses of the plaintiff was made upon its
EN BANC own account and at its own risk until it was sold and taken by the purchaser.
There is, therefore, no doubt that the plaintiff, alter taking the sugar on board
G.R. No. L-45976 July 20, 1939 until it was sold, had it in its possession and at its own risk, circumstances
determinative of its status as a commission merchant in connection with the
sale of sugar under these conditions.
PACIFIC COMMERCIAL COMPANY, plaintiff-appellant,
vs.
ALFREDO L. YATCO, defendant-appellee. 4.ID.; ID.; ID.; COMMERCIAL BROKER.The plaintiff merely acted as a
commercial broker as to the sale of the sugar delivered to the purchaser on
board. The broker, unlike the commission merchant, has no relation with the
E.P. Revilla for appellant. thing he sells or buys. He is merely an intermediary between the purchaser
Office of the Solicitor-General Tuason for appellee. and the vendor. He acquires neither the possession nor the custody of the
things sold. His only office is to bring together the parties to the transaction.
AVANCEA, C.J.: These circumstances are present in connection with the plaintiff's sale of the
sugar which was delivered to the purchaser on board. The sugar sold under
1.PAYMENT or TAX ON MERCHANT SALES BY MANUFACTURER AND these conditions was shipped by the plaintiff at its expense and risk until it
OWNER OF SUGAR; PAYMENT OF ANOTHER TAX BY ONE WHO MADE reached its destination, where it was later taken on board by the purchaser.
THE SALE DOES NOT CONSTITUTE DOUBLE TAXATION.V. M. Co. The plaintiff never had possession of the sugar at any time. The circumstance
already paid the merchant sales tax for the sales of sugar, in its capacity as that the bill of lading was sent to the plaintiff does not alter its character of
manufacturer and owner of the sugar sold. It is said that the payment of being merely a broker, or constitute possession by it of the sugar shipped,
another tax by the plaintiff, who effected the sale, constitutes double taxation, inasmuch as the same was sent to it for the sole purpose of turning it over to
there having been only one sale. In Gil Hermanos vs. Hord (10 Phil., 218), this the' purchaser for the collection of the price, The sugar did not come to its
question was already decided in the sense that there is no double taxation. possession in any sense. [Pacific Commercial Company vs. Yatco, 68 Phil.
The case at bar is identical in all respects. 398(1939)]

2.ID.; ID.; DECISION IN GIL HERMANOS vs. HORD, SUPRA, HAS NOT The plaintiff, a corporation engaged in business as a merchant, with offices in
BEEN REVERSED.It is said that the decision in Gil Hermanos vs. Hord, Manila, Cebu and Iloilo, during the period from April 1, 1934 to December 31,
supra, was reversed in Atkins, Kroll & Co. vs. Posadas (48 Phil., 352), and 1935, sold in the Philippines, for the account of Victorias Milling Co., another
other cases. This, however, is not correct. Neither in Atkins, Kroll & Co. vs. Philippine corporation, refined sugar, manufactured by the said corporation, up
Posadas, nor in the other cases mentioned by the plaintiff, has the decision in to the total amount of P1,126,135.96, having received by way of commission
Gil Hermanos vs. Hord been reversed. Although a distinct result was reached for this sale the amount of P29,534.29. The corporation Victorias Milling Co.,
in these cases, this was only because they have been found to be different paid to the Collector of Internal Revenue for this sale the amount of
from the case of Gil Hermanos vs, Hord. On the contrary, in F. E. Zuellig, Inc. P16,944.90 as merchant sales tax in its capacity as manufacturer and owner
vs. Collector of Internal Revenue (51 Phil., 629), the doctrine in Gil Hermanos of the sugar sold. Notwithstanding this payment made by Victorias Milling Co.,
was followed. the Collector of Internal Revenue also collected from the plaintiff the same tax
for the same amount of P16,944.90.
3.ID.; ID.; ID.; COMMISSION MERCHANT.The question of whether the
appellant, in connection with the sugar delivered in its warehouses and The sales of this sugar were made by the plaintiff in two ways. The plaintiff
thereafter sold to the purchasers, acted as a commission merchant, presents looked for purchasers of the sugar, and once the corresponding purchase
no doubt. A commission merchant is one engaged in the purchase or sale for order is obtained from them, the same is sent to the office of Victorias Milling
another of personal property which, for this purpose, is placed in his Co., in Manila, which, in turn, endorsed the order to its office in Negros, with
possession and at his disposal. He maintains a relation not only with his instructions to ship the sugar thus ordered to Manila, Cebu or Iloilo, as the
principal and the purchasers or vendors, but also with the property which is the case may be. At times, the purchase is made for the delivery of the sugar ex-
warehouse of the plaintiff and at other times for delivery ex-ship. In all cases, be different from the case of Gil Hermanos vs. Hord. On the contrary , in F.E.
the billing of lading is sent to the plaintiff. If the sugar was to be delivered ex- Zuellig, Inc. vs. Collector of Internal Revenue (51 Phil., 629), the doctrine in gil
ship, all that the plaintiff did was to hand over the bill of lading to the purchaser Hermanos was followed.
and collect the price. If it was for delivery ex-warehouse, the sugar is first
deposited in the warehouse of the plaintiff before delivery to the purchaser. The question of whether the appellant, in connection with the sugar delivered
ex-warehouse and thereafter sold to the purchasers, acted as a commission
The court found that of the price of sugar sold by the plaintiff, the amount of merchant , presents no doubt. A commission merchant is one engaged in the
P558,550.41 corresponds to sugar sold for delivery ex-warehouse and that of purchase or sale for another of personal property which, for this purpose, is
P567,585.55 corresponds to sugar sold for delivery ex-ship, and considering placed in his possession and at his disposal. He maintains a relation not only
that in the first case the plaintiff acted as a commission merchant, and in the with his principal and the purchasers or vendors, but also with the property
second case a broker, it ordered the defendant to return to the plaintiff the which is the subject matter of the transaction. In the present case, the sugar
amount collected from it, by way of tax on the sale of sugar to be delivered ex- was shipped by Victorias Milling Co., and upon arrival at the port of
ship, and denied the prayer in the complaint for the return of the amount paid destination, the plaintiff received and transferred it for deposit in its
for the sales of sugar to be delivered ex-warehouse. warehouses until the purchaser called for it. The deposit of the sugar in the
warehouses of the plaintiff was made upon its own account and at its own risk
Both parties appealed from this decision. until it was sold and taken by the purchaser. There is, therefore, no doubt that
the plaintiff, after taking the sugar on board until it was sold, had it in its
possession and at its own risk, circumstances determinative of its status as a
The appeal raises three questions: (a) whether there is double taxation in the
present case; (b) whether the plaintiff acted as a commission merchant as to commission merchant in connection with the sale of sugar under these
the sugar delivered ex-warehouse; (c) whether the plaintiff acted as a mere conditions.
commercial broker as to the sugar delivered ex-ship.
There is also no doubt on the question of whether the plaintiff merely acted as
a commercial broker as to the sale of the sugar delivered to the purchaser ex-
As to the first question, it should be borne in mind that Victorias Milling Co.
already paid the merchant sales tax for the sales of sugar, in its capacity as ship. The broker, unlike the commission merchant, has no relation with the
thing he sells or buys. He is merely an intermediary between the purchaser
manufacturer and owner of the sugar sold. It is said that the payment of
and the vendor. He acquires neither the possession nor the custody of the
another tax by the plaintiff, who effected the sale, constitutes double taxation,
there having been only one sale. In Gil Hermanos vs. Hord (10 Phil., 218), this things sold. His only office is to bring together the parties to the transaction.
These circumstances are present in connection with the plaintiff's sale of the
question was already decided in the sense that there is no double taxation. In
that case, Aldecoa & Co., remitted abaca to Gil Hermanos, which the latter sugar which was delivered to the purchaser's ex-ship. The sugar sold under
sold on commission for the account of the former. Aldecoa & Co. paid the tax these conditions was shipped by the plaintiff at its expense and risk until it
reached its destination, where it was later taken ex-ship by the purchaser. The
for one-third of 1 per cent upon the value of the abaca sold by Gil Hermanos,
plaintiff never had possession of the sugar at any time. The circumstance that
and the latter also paid another one-third of 1 per cent of the same sale. It was
the bill of lading was sent to the plaintiff does not alter its character of being
held that, although there was only one sale, this is not a case of double
merely a broker, or constitute possession by it of the sugar shipped , inasmuch
taxation, because the tax is not upon property or products, but upon
occupation or industry. The tax was paid by Aldecoa & Co. and Gil Hermanos as the same was sent to it for the sole purpose of turning it over to the
in consideration of the occupation or industry in which each is engaged. The purchaser for the collection of the price. The sugar did not come to its
possession in any sense.
value of the thing sold is taken into account only as a basis for the fixing of the
amount of the tax and not as the reason and purpose thereof. The case at bar
is identical in all respects. In view of the foregoing, the appealed decision is affirmed, without special
pronouncement as to the costs. So ordered.
It is said that this decision was reversed in Atkins, Kroll & Co. vs. Posadas (48
Phil., 352), and other cases. This, however, is not correct. Neither in Atkins, Villa-Real, Imperial, Diaz, Laurel, and Concepcion, JJ., concur.
Kroll & Co. vs. Posadas, nor in the other cases mentioned by the plaintiff, has
the decision in Gil Hermanos vs. Hord been reversed. Although a distinct result
was reached in these cases, this was only because they have been found to
Separate Opinions by Victorias Milling Company or by the Pacific Commercial Company,
alternatively.
MORAN, J., dissenting:
It is true that the doctrine laid down in Gil Hermanos vs. Hord (10 Phil., 218),
I regret to dissent form the majority opinion penned by our illustrious and and F.E. Zuellig, Inc. vs. Collector of Internal Revenue (51 Phil., 629), supports
beloved Chief Justice. the theory held by the majority; but this doctrine runs counter to that
established in Atkins, Kroll & Co. vs. Posadas (48 Phil., 352). In this case,
The tax on the sale made by the plaintiff Pacific Commercial Company, for the Atkins, Kroll & Co., through Macleod & Co., Inc., a commission merchant,
shipped a certain amount of copra to the United States. The Government
account of Victorias Milling Company, has already been paid by the latter, as
sought to collect the total tax on the consignment both from the owner of the
the majority admits. Hence, to require the Pacific Commercial Company to pay
copra as well as from the commission merchant, and this court held that the
the same tax is clearly to impose double taxation upon one and the same sale.
Government "held no legal right to levy and collect the same tax from two
different persons on one consignment abroad on one shipment of the same
But the majority maintains that this is not a case of double taxation, because copra" (page 359). In other words, this court held that for a single
the tax in question is not a tax "upon property or products, but upon occupation consignment, the Government is not entitled to collect two taxes, one from the
or industry." Although, in my opinion, the tax, according to the language of the owner of the merchandise and the other from the commission merchant. It is
law, is imposed upon the transaction rather than upon the occupation, or, at true that it had to do with a consignment and not a sale; but both transactions
most, upon both, I would say that the distinction made by the majority is not of are governed by the same legal provision, namely section 1459 of the
much importance. The important thing is, as the majority holds, that the value Administrative Code.
of the transaction "is taken into account only as a basis for the fixing of the
amount of the tax"; which means, in the last analysis, that the transaction is
Upon the question at issue, our jurisprudence is wavering, if not confusing and
the basis of the tax and that , as a consequence, where there is only one
contradictory, and I had wished that this court make a revision thereof to lay
transaction, there is no more basis but for a single tax. In the present case,
down clearly and definitely a more just and equitable doctrine for the good of
there is only one sale, that made by the plaintiff in the name of Victorias Milling
Company, and two taxes cannot be demanded of these two companies commerce. In my opinion, the Government has no right to receive more than
one tax for a single transaction. A contrary doctrine would be detrimental to
because they have brought about only one basis for the payment of one tax.
local merchants. If a foreign merchant sells his merchandise through a resident
To impose two taxes upon them would be like holding that the plaintiff has
commission merchant, the Government will not collect more than one tax, and
effected one sale and the Victorias Milling Company another, which is not true,
will do so from the commission merchant. But if a resident merchant makes a
as both have realized but one sale. To make this sale twice as a basis for the
collection of two taxes is unjust and unlawful, because a single transaction is similar transaction, the Government will collect tax twice, from the merchant
thereby pluralized and, moreover, in such case, the proportion between the and from the commission merchant. I do not believe that the legislator
intended a measure so unjust to the merchants of the country.
amount of the total tax collected and the true value of the only transaction
made would exceed the rate fixed by law. The Government is not entitled to
receive more than one tax for a single transaction.

Note that the law imposes the tax upon the vendor of merchandise. In the
present case, who sold the merchandise? Was it the Victorias Milling
Company of the Pacific Commercial Company? As to this, there is no
controversy on the facts. The Victorias Milling Company sold the merchandise
through the Pacific Commercial Company, or, otherwise stated, the latter sold
the merchandise in the former's name. The Victorias Milling Company is the
vendor in law, and the Pacific Commercial Company is the vendor in fact; one
completes the personality of the other and both constitute one efficient subject
of the sale. In reality, therefore, there is but one vendor and but one sale and
only one thing sold, hence, only one tax may be collected, which may be paid
Republic of the Philippines favor of third persons which arise from the conduct of the captain in the care of
SUPREME COURT the goods which the vessel carried; but he may exempt himself therefrom by
Manila abandoning the vessel with all her equipments and the freightage he may have
earned during the voyage. (Article 587).
SECOND DIVISION
Same; Same; Same; Evidence; Where a ship agent does not dispute its
G.R. No. L-48264 February 21, 1980 liabilities arising from loss or damage of the goods and no proof was adduced
to exempt it from liability, it is liable for the loss suffered.At any rate, the
SWITZERLAND GENERAL INSURANCE COMPANY, LTD., petitioner, liabilities of the ship agent are not disputed by private respondent. It appearing
that the Citadel Lines is the ship agent for the vessel S/S St. Lourdes at the
vs.
HON. PEDRO A. RAMIREZ, Presiding Judge of the Court of First Instance port of Manila, it is, therefore, liable to the petitioner, solidarily with its principal,
of Manila, Branch XXX, OYAMA LINES, CITADEL LINES and MABUHAY Oyama Shipping Co., Ltd., in an amount representing the value of the goods
BROKERAGE CO., INC., respondents. lost and or damaged, amounting to P38,698.94, which was likewise the
amount paid by petitioner, as insurer, to the insured/consignee. As found by
the court a quo, there has been no proof presented to show that the officers of
Manuel N. Camacho, for petitioner. the vessel, in whose custody the goods were lost or damaged, are exempt
from liability therefrom and that the damage was caused by factors and cir
Bito, Misa & Lozada for respondents Oyama Lines and Citadel Lines. cumstances exempting them from liability.

Gregorio Gonzales for respondent Company. Same; Same; Insolvency; Insolvency of a foreign charterer does not affect the
liability of a ship agent.The insolvency of Oyama Lines has no bearing on
ANTONIO, J.: the instant case insofar as the liability of Citadel Lines, Inc. is concerned. The
law does not make the liability of the ship agent dependent upon the solvency
Code of Commerce; Ship agent; Definition and scope of a ship agent.A ship or insolvency of the ship owner. [Switzerland General Insurance Company, Ltd
agent, according to Article 586 of the Code of Commerce, is the person vs. Ramirez, 96 SCRA 297(1980)]
entrusted with the provisioning of a vessel, or who represents her in the port in
which she happens to be. (Italics supplied). Petition for review of the decision, dated February 24, 1978 of the Court of
First Instance of Manila in Civil Case No. 100704, entitled "Switzerland
Same; Same; Local representative of a foreign charterer of vessel, which is the General Insurance Co., Ltd. v. Oyama Lines and Citadel Lines, and/or
entity that represents the vessel in the port of Manila, is considered a ship Mabuhay Brokerage Co., Inc."
agent.It is not disputed by the private respondent that it is the local
representative in the Philippines of the Oyama Shipping Co., Ltd. and, as On December 24, 1975, petitioner, a foreign insurance company authorized to
alleged by petitioner, upon arrival of the vessel S/S St. Lourdes in Manila, it do business in the Philippines thru its agent, F. E. Zuellig Inc., filed an
took charge of the unloading of the cargo and issued cargo receipts (or tally admiralty case (Civil Case No. 100704) against private respondents Oyama
sheets) in its own name, for the purpose of evidencing discharge of cargoes Shipping Co., Ltd. (referred to as Oyama Lines), a foreign firm doing business
and the conditions thereof from the vessel to the arrastre operators and/or unto in the Philippines, and Citadel Lines, Inc. which is the local agent of private,
barges/lighters, and that claims against the vessel S/S St. Lourdes for losses respondent Oyama Shipping Co., Inc. and/or Mabuhay Brokerage Co., Inc.
damages sustained by shipments were in fact filed and processed by
respondent Citadel Lines, Inc. These facts point to the inevitable conclusion The complaint alleged that on December 21, 1974, 60,000 bags of Urea
that private respondent is the entity that represents the vessel in the port of Nitrogen were shipped from Niihama Japan, on board the S/S St. Lourdes",
Manila and hence is a ship agent within the meaning and context of Article 586 claimed to be owned and operated by defendant Citadel Lines, Inc. The goods
of the Code of Commerce. were consigned to Borden International Phils., Inc., and insured by petitioner
for the sum of P9,319,105.00 against all risks.
Same; Same; Liabilities of a ship agent.The Code of Commerce provides,
among others that the ship agent shall also be liable for the indemnities in
The shipment was discharged from the vessel S/S "St. Lourdes" shipside into to exercise utmost diligence after it took possession of the cargo from the
lighters owned by Mabuhay Brokerage Company, Inc., but when the same was vessel S/S "St. Lourdes". Finally, it was averred that plaintiff's reinsurer had
subsequently delivered to and received by the consignee, it was found to have already paid the plaintiff's claim and, hence, said reinsurer is the real party to
sustained losses and/or damage amounting to P38.698.94. This amount was the action, and that assumming defendant Oyama Shipping Co., Ltd. to be
paid by petitioner insurance company to the consignee/assured, by virtue of liable, its liability is limited to the amount of the loss in relation to the total
which payment it became subrogated to the rights of the latter. amount of the freight of the goods, which if computed, would be a much lower
amount. It was prayed that the complaint be dismissed as against this
Petitioner made repeated demands against herein private respondents for defendant.
payment of the aforesaid losses or damaged but no payment was made and,
uncertain in whose custody the goods were damaged, impleaded the private After trial on the merits, respondent court rendered a decision, dated February
respondents as alternative defendants to determine their respective liability. 23, 1978, in favor of petitioner as against therein defendant Oyama Shipping
Co., Ltd., but absolving Citadel Lines, Inc. and Mabuhay Brokerage Co., Inc.
Defendant Citadel Lines, Inc. filed an Answer with Compulsory Counterclaim from liability. The decision reads, in part, as follows:
and Cross-claim, interposing special and affirmative defenses and alleging that
defendant Citadel Lines was merely the civil agent in the Philippines for the Since in the case at bar there is no question that the shipment
Japanese firm Oyama Shipping Co., Ltd., which was the charterer of the in question has suffered loss or damage while in the custody
vessel S/S "St. Lourdes", said vessel being owned by Companies Maritime de of the carrier, the herein defendant Oyama Line, but it has not
Brios, Sociedad Anonima a Panamanian corporation. It was further alleged adduced evidence to prove that it was caused by any of those
that the principal agency relationship between the said Oyama Shipping Co., factors or reasons exempting it from liability, particularly that
Ltd. and defendant Citadel Lines, Inc. was terminated on August 21, 1975 the bags became torn or burst and the contents spilled
when the Tokyo District Court declared and decreed the insolvency of the said because of the character of the shipment or defects in the
Oyama Shipping Co., Ltd. packing or in the containers, or the nature or defect of the
article itself. the defendant Oyama Line, as carrier, cannot
It was argued that defendant Citadel Lines "has always acted as an agent of a avoid liability to the consignee or its subrogee the plaintiff
disclosed principal and, therefore, the herein defendant is without any liability herein.
at all" in connection with the plaintiff's claim.
The defendant Oyama Line pleads prescription of the plaintiff's
By way of cross-claim, defendant Citadel Lines alleged that the loss/damaged cause of action under Article 366 of the Code of Commerce.
to the cargo took place while the latter was being delivered to the consignee The defense is untenable. to begin with, the required claim
thereof by the Mabuhay Brokerage, Inc. and said corporation should be held that the owner of merchandise is supposed to make within 24
liable therefor, as well as for all damages suffered and expenses incurred by hours from receipt is but in the nature of a limitation upon his
defendant Citadel Lines as a result of the filing of the suit. Defendant likewise right to recovery and the burden of proof is accordingly on the
interposed a counterclaim for damages against plaintiff Switzerland General carrier to show that the limitation is reasonable and in proper
Insurance Company, Ltd. (herein petitioner). form or without the time stated (Southern Lines, Inc. vs. Court
of Appeals, 4 SCRA 258, 261-262). And it is incumbent upon
the said defendant to prove its defense, particularly that no
Defendant Oyama Shipping Co. Ltd. likewise filed its Answer, denying the
such claim was filed within the required period. Without such
material averments of the complaint, alleging that it ceased to be represented
proof of a negative allegation, which it has failed to adduce,
in the Philippines upon the declaration of its insolvency by the Tokyo Court;
the pleader must suffer defeat under the rules of evidence
that it was a mere charterer of the S/S "St. Lourdes" which is owned by
Companies Maritime de Brios, Sociedad Anonima a Panamanian corporation; (section 1, Rule 131, Revised Rules of Court). Be that as it
that due to the insolvency of Oyama Shipping Co. Ltd., the case as against it may, the survey report submitted in evidence by the plaintiff
states that after completion of delivery the consignee signified
should be dismissed, the remedy for the plaintiff being to file its claim before
its 'intention to file a claim for the full value of the loss
the insolvency court in Tokyo, Japan. Further, it imputed the loss or damage to
sustained by the shipment' (Exhibits 1, 1-1 to 1-5), a fact that
the shipment to the shipper, Sumitomo Shoji Kaisha, Ltd. for failing to provide
has not at all been refuted by the defendant Oyama Line.
seaworthy packages for the goods, and/or the Mabuhay Brokerage for failure
The fact that the defendant Oyama Line has been declared Petitioner filed a Motion for Reconsideration of the aforesaid decision insofar
insolvent by the Tokyo District Court of Japan since August as it absolves respondents Citadel Lines, Inc. and Mabuhay Brokerage Co.,
21, 1975, is no defense at all. For such declaration of Inc. from liability, but said Motion for Reconsideration was denied on April 21,
insolvency, even under Philippine Laws, does not bar recovery 1979; hence, the instant petition for review.
of damages based on contract. Neither can it successfully
ward off liability on a claim that it is a mere charterer of the The main issue raised in the instant petition is whether or not respondent
carrying vessel, having represented on the face of the bill of Citadel Lines, Inc., the local agent of a foreign ocean going vessel, the S/S "St.
lading as the carrier itself (Exhibit A; Exhibit 1-Oyama) And Lourdes", may be held primarily liable for the loss/damage found to have been
even if it is but a charterer of the vessel that it claims it is, it sustained by subject shipment while on board and/or still in the custody of the
cannot avoid its liability as a carrier for loss and damage said vessel.
suffered by the goods it has transported.
Petitioner contends that respondent Citadel Lines, Inc., being the ship agent
As a mere agent in the Philippines of the defendant Oyama for the vessel S/S "St. Lourdes", is liable under the pertinent provisions of the
Line, the defendant Citadel Line (see paragraph 1, complaint) Code of Commerce and applicable jurisprudence.
cannot be held liable for the damages recoverable from its
principal. But for failure to substantiate it, its counterclaim
Respondent Citadel Lines, Inc., in its Comment to the petition, alleges that the
against the plaintiff should be dismissed. So must its
lower court had made a finding that it is a mere agent of Oyama Shipping Co.,
crossclaim against its co-defendant brokerage company be
Ltd., and not a ship agent, and this, being a finding of fact, can no longer be
dismissed since it has not at all been held liable to the plaintiff. questioned in the instant proceedings. Further, it argues that the provisions of
the Code of Commerce relied upon by petitioner are applicable to a ship agent,
Neither can the defendant Mabuhay Brokerage Company, Inc. but not to a mere agent like private respondent, and that granting that it is a
be held answerable for the loss and damage sustained by the ship agent, it contends that it should not be held liable because the principal,
cargo in question while still in custody of the carrying vessel, Oyama Shipping Co., Ltd. has been declared insolvent. it is claimed that
for obvious reasons. Nor can it be made liable, jointly and petitioner, upon being informed of the insolvency of the Oyama Shipping Co.,
severally, with the defendant Oyama Line for further loss and Ltd., should have filed its claim before the Trustee of the Oyama Shipping Co.,
damage to the contents of the torn or burst bags turned over Ltd. in Japan.
to its custody in that condition in view of the required
extraordinary diligence that it has observed to prevent further
In fine, private respondents do not dispute that a ship agent is liable to third
loss or damage to them. According to the defendant persons under certain circumstances as provided in the Code of Commerce,
brokerage's witness, Virgilio de Jesus, as soon as the bags in but insists that it is not a ship agent but a mere agent and hence, not liable.
bad order were received from the lighters they were tied and
the torn parts sewed the falsity of which the plaintiff has failed
to prove. We find the instant petition meritorious the error of the lower court lies in its
application of the general rule on agency to the case a quo, when the
applicable law is contained in the pertinent provisions of the Code of
WHEREFORE, the Court hereby renders judgment in favor of Commerce as applied in relevant decisions of this Court. Its finding. therefore,
the plaintiff Switzerland General Insurance Company, Ltd. and
that respondent Citadel Lines, Inc. was a mere agent of Oyama Shipping Co.,
against the defendant Oyama Line, ordering the latter to pay
Ltd. was a result of its erroneous application of the law of agency to the instant
the former the amount of P38,698.94, with interest thereon at
case. Considering the relationship of the parties, respondent Citadel Lines, Inc.
the legal rate from the date of the filing of the complaint on
cannot be considered as a "mere agent" under the civil law on agency as
December 24, 1975, until fully paid, P5,000.00 as attorney's distinguished from a ship agent, within the context of the Code of Commerce.
fees and the costs of the suit. The plaintiff's complaint against 1
In Yu Biao Sontua & Co. v. Ossorio, for example, it was held that the
the defendants Citadel Line and Mabuhay Brokerage
doctrines having reference to the relations Between principal and agent cannot
Company, Inc. are dismissed. So is the defendant Citadel
be applied in the case of ship agents and ship owners. For this reason,
Lines' counterclaim against the plaintiff and crossclaim against
respondent cannot validly claim that the court a quo made a finding of fact
its co-defendant brokerage company dismissed.
which is conclusive upon this Court. A ship agent, according to Article 586 of
the Code of Commerce, is the person entrusted with the provisioning of a service and defense of the same, if he does not prove Chat,
vessel or who represents her in the port in which she happens to be." he made full use of his authority to prevent or avoid them.
(Emphasis supplied.)
5. For those arising by reason of a misuse of powers and non-
It is not disputed by the private respondent that it is the local representative in fulfillment of the duties which pertain to him in accordance with
the Philippines of the Oyama Shipping Co., Ltd. and, as alleged by petitioner, Articles 610 and 612.
upon arrival of the vessel S/S "St. Lourdes" in Manila, it took charge of the
unloading of the cargo and issued cargo receipts (or tally sheets) in its own 6. For those arising by reason of his going out of his course or
name, for the purpose of evidencing discharge of cargoes and the conditions taking a course which, in the opinion of the officers of the
thereof from the vessel to the arrastre operators and/or unto barges/lighters, vessel, at a meeting attended by the shippers or super
and that claims against the vessel S/S "St. Lourdes" for losses/damages cargoes who may be on board, he should not have taken
sustained by shipments were in fact filed and processed by respondent Citadel without sufficient cause.
Lines, Inc. These facts point to the inevitable conclusion that private
respondent is the entity that represents the vessel in the port of Manila and No exception whatsoever shall exempt him from his obligation.
hence is a ship agent within the meaning and context of Article 586 of the
Code of Commerce.
7. For those arising by reason of his voluntarily entering a port
other than his destination, with the exception of the cases or
The Code of Commerce provides, among others, that the ship agent shall also without the formalities referred to in Article 612.
be liable for the indemnities in favor of third persons which arise from the
conduct of the captain in the care of the goods which the vessel carried; but he
may exempt himself therefrom by abandoning the vessel with all her 8. For those arising by reason of the non-observance of the
equipments and the freightage he may have earned during the voyage. (Article provisions contained in the regulations for lights and
587). maneuvers for the purpose of preventing collisions.

In addition, Article 618 of the same Code states: The foregoing provisions have been repeatedly applied by this Court in various
2
cases, among them: Pons y Compaia v. La Compania Maritima; Behn,
3 4
Meyer & Co. v. McMicking, et al.: Yu Biao Sontua & Co. v. Ossorio, Wing
Art. 618. The captain shall be civilly liable to the ship agent 5
Kee Compradoring Co. v. Bark "Monongahela" and The American Insurance
and the latter to the third persons who may have made Co., Inc. v. Macondray & Co., Inc.
6
contracts with the former
In Pons v. La Compania Maritima, supra, it was held that for damages
1. For all the damages sufferred by the vessel and its cargo by
resulting to merchandize in transit due to negligence of the officers of the ship,
reason of want of skill or negligence on his part. If a a cause of action arises against the owners or agents of the vessels which
misdemeanor or crime has been committed he shall be liable may be prosecuted by the shipper or consignor the damaged goods.
in accordance with the Penal Code.
At any rate, the liabilities of the ship agent are not disputed by private
2. For all the thefts and robberies committed by the crew,
respondent. It appearing that the Citadel Lines is the ship agent for the vessel
reserving his right of action against the guilty parties. S/S "St. Lourdes" at the port of Manila, it is, therefore, liable to the petitioner,
solidarily with its principal, Oyama Shipping Co., Ltd., in an amount
3. For the losses, fines, and confiscations imposed on account representing the value of the goods lost and or damaged, amounting to
of violation. of the laws and regulations of customs, police, P38,698.94, which was likewise the amount paid by petitioner, as insurer, to
health, and navigation the insured consignee As found by the court a quo, there has been no proof
presented to show that the officers of the vessel, in whose custody the goods
4. For the losses and damages caused by mutinies on board were lost or damaged, are exempt from liability therefrom and that the damage
the vessel or by reason of faults committed by the crew in the was caused by factors and circumstances exempting them from liability.
The insolvency of Oyama Lines has no bearing on the instant case insofar as
the liability of Citadel Lines, Inc. is concerned. The law does does not make
the liability of the ship agent dependent upon the solvency or insolvency of the
ship owner.

WHEREFORE, the decision appealed from is modified, and private respondent


Citadel Lines, Inc. is hereby ordered to pay, solidarily with its principal, Oyama
Lines (Oyama Shipping Co., LTD.), the amount of P38,698.94, with interest
thereon at the legal rate from the date of the filing of the complaint on
December 24, 1975 until fully paid, P5,000.00 as attorney's fees and the costs
of suit. The rest of the decision is affirmed. No pronouncement as to costs.

SO ORDERED.

Barredo (Chairman), and Concepcion Jr., JJ., concur.

Justice Vicente Abad Santos is on leave.

Justice Pacifico P. de Castro, a Member of the First Division was designated to


sit in the Second Division.

Separate Opinions

AQUINO, J., concurring:

I concur with the observation of the liability of a ship agent, like Citadel Lines,
Inc., is limited to the value of the vessel or to its insurance, in view of the so-
called real and hypothecary nature of maritime law (Yangco vs. Laserna, 73
Phil. 330; Philippine Shipping Co. vs. Garcia, 6 Phil. 281).
Republic of the Philippines MR. FLORENTINO RALLOS, Cebu.
SUPREME COURT
Manila DEAR SIR: I have the honor to inform you that I have on this date
opened in my steamship office at No. 163 Muelle de la Reina,
EN BANC Binondo, Manila, P. I., a shipping and commission department for
buying and selling leaf tobacco and other native products, under the
G.R. No. 6906 September 27, 1911 following conditions:

FLORENTINO RALLOS, ET AL., plaintiff-appellee, 1. When the consignment has been received, the consignor thereof
vs. will be credited with a sum not to exceed two-thirds of the value of the
TEODORO R. YANGCO, defendant-appellant. goods shipped, which may be made available by acceptance of a draft
or written order of the consignor on five to ten day's sight, or by his
Mariano Escueta, for appellant. ordering at his option a bill of goods. In the latter case he must pay a
Martin M. Levering, for appellees. commission of 2 per cent.

MORELAND, J.: 2. No draft or written order will be accepted without previous notice
forwarding the consignment of goods to guarantee the same.
1.PRINCIPAL AND AGENT; TERMINATION OF THE AGENCY; DUTY OF
3. Expenses of freight, hauling and everything necessary for duly
PRINCIPAL TO GIVE DUE NOTICE.The defendant having advertised the
executing the commission will be charged in the commission.
fact that C was his agent, having given special notice to the plaintiffs of the
agency, and having also given them a special invitation to deal with such
agent, it became the defendant's duty, upon the termination of the relationship 4. All advances made under sections (1) and (3) shall bear interest at
of principal and agent, to give due and timely notice thereof to the plaintiffs. 10 per cent a year, counting by the sale of the goods shipped or
remittance of the amount thereof.
2.ID; ID.; ID.; LIABILITY OF PRINCIPAL.The general rule is that, when the
relationship of principal and agent is established, and the principal gives notice 5. A commission of 2 per cent will be collected on the amount
of the agency and holds out the agent as his authorized representative, upon realized from the sale of the goods shipped.
the termination of the agency it is the duty of the principal to give due and
timely notice thereof, otherwise, he will be held liable to third parties acting in 6. A Payment will be made immediately after collection of the price of
good faith and properly relying upon such agency. [Rallos vs. Yangco., 20 Phil. the goods shipped.
269(1911)]
7. Orders will be taken for the purchase of general merchandise, ship-
This is an appeal from a judgment of the Court of First Instance of the Province stores, cloths, etc., upon remittance of the amount with the
of Cebu, the Hon. Adolph Wislizenus presiding, in favor of the plaintiffs, in the commission of 2 per cent on the total value of the goods bought.
sum of P1,537.08, with interest at 6 per cent per annum from the month of Expenses of freight, hauling, and everything necessary for properly
July, 1909, with costs. executing the commission will be charged to the consignor.

The defendant in this case on the 27th day of November, 1907, sent to the 8. The consignor of the good may not fix upon the consignee a longer
plaintiff Florentino Rallos, among others, the following letter: period than four months, counting from the date of receipt, for selling
the same; with the understanding that after such period the consignee
CIRCULAR NO. 1. is authorized to make the sale, so as to prevent the advance and cost
of storage from amounting to more than the actual value of said
MANILA, November 27, 1907 goods, as has often happened.
9. The shipment to the consignors of the goods ordered on account of It appears, however, that prior to the sending of said tobacco the defendant
the amount realized from the sale of the goods consigned and of the had severed his relations with Collantes and that the latter was no longer
goods bought on remittance of the value thereof, under sections (1) acting as his factor. This fact was not known to the plaintiffs; and it is conceded
and (3), will not be insured against risk by sea and land except on in the case that no notice of any kind was given by the defendant to the
written order of the interested parties. plaintiffs of the termination of the relations between the defendant and his
agent. The defendant refused to pay the said sum upon demand of the
10. On all consignments of goods not insured according to the next plaintiffs, placing such refusal upon the ground that at the time the said
preceding section, the consignors will bear the risk. tobacco was received and sold by Collantes he was acting personally and not
as agent of the defendant. This action was brought to recover said sum.
11. All the foregoing conditions will take effect only after this office has
acknowledged the consignor's previous notice. As is seen, the only question for our decision is whether or not the plaintiffs,
acting in good faith and without knowledge, having sent produce to sell on
12. All other conditions and details will be furnished at the office of the commission to the former agent of the defendant, can recover of the defendant
undersigned. under the circumstances above set forth. We are of the opinion that the
defendant is liable. Having advertised the fact that Collantes was his agent and
having given them a special invitation to deal with such agent, it was the duty
If you care to favor me with your patronage, my office is at No. 163 of the defendant on the termination of the relationship of principal and agent to
Muelle de la Reinna, Binondo, Manila, P. I., under the name of give due and timely notice thereof to the plaintiffs. Failing to do so, he is
"Teodoro R. Yangco." In this connection it gives me great pleasure to responsible to them for whatever goods may have been in good faith and
introduce to you Mr. Florentino Collantes, upon whom I have conferred without negligence sent to the agent without knowledge, actual or constructive,
public power of attorney before the notary, Mr. Perfecto Salas of the termination of such relationship.
Rodriguez, dated November 16, 1907, to perform in my name and on
my behalf all acts necessary for carrying out my plans, in the belief
For these reasons the judgment appealed from is confirmed, without special
that through his knowledge and long experience in the business, along
with my commercial connections with the merchants of this city and of finding as to costs.
the provinces, I may hope to secure the most advantageous prices for
my patrons. Mr. Collantes will sign by power of attorney, so I beg that Torres, Mapa, Johnson and Carson, JJ., concur.
you make due note of his signature hereto affixed.

Very respectfully,

(Sgd.) T. R. YANGCO.

(Sgd.) F. COLLANTES.

Accepting this invitation, the plaintiffs proceeded to do a considerable business


with the defendant through the said Collantes, as his factor, sending to him as
agent for the defendant a good deal of produce to be sold on commission.
Later, and in the month of February, 1909, the plaintiffs sent to the said
Collantes, as agent for the defendant, 218 bundles of tobacco in the leaf to be
sold on commission, as had been other produce previously. The said Collantes
received said tobacco and sold it for the sum of P1,744. The charges for such
sale were P206.96. leaving in the hands of said Collantes the sum of
P1,537.08 belonging to the plaintiffs. This sum was, apparently, converted to
his own use by said agent.
Republic of the Philippines appealed for said sum. From that judgment the plaintiff appealed and made
SUPREME COURT several assignments of error in this court.
Manila
An examination of the record brought to this court shows by a large
EN BANC preponderance of the evidence that the agent of the plaintiff (Gutierrez) had
been selling goods, wares, and merchandise to the defendant, and buying
G.R. No. L-6530 October 6, 1911 abaca and other agricultural products of the defendant for a period covering
more than eight years; that the particular transactions to which the present
LA COMPAIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellant, action related took place between the 11th of January, 1909, and the 1st of
April, 1909. The plaintiff attempted to show that it had suspended its agent
vs.
DIABA, defendant-appellee. (Gutierrez), as its agent, and that he (Gutierrez) had no further authority to
represent it (the plaintiff). There is no convincing proof in the record that the
orders given by the plaintiff to its agent (Gutierrez) had ever been
Orense and Gonzales diez, for appellant. communicated to the defendant. The defendant had a perfect right to believe,
No appearance for appellee. until otherwise informed, that the agent of the plaintiff, in his purchase of abaca
and other effects was still representing the plaintiff in said transactions. The
JOHNSON, J.: plaintiff, during the trial of the cause, placed Gutierrez, its agent, upon the
stand as a witness. He testified that the abaca which was purchased of the
PRINCIPAL AND AGENT; TERMINATION OF AGENCY WITHOUT NOTICE; defendant was purchased by him a agent of the plaintiff and that said abaca
LIABILITY OF PRINCIPAL.G. had been an agent of the plaintiff in buying was actually delivered to the plaintiff. The plaintiff, it appears, was perfectly
and selling merchandise for and on behalf of the plaintiff, for a period of eight willing to ratify the acts of its agent in selling goods to the defendant, but
years. G.'s agency was terminated by the plaintiff but no notice of such f act seemed to be unwilling to ratify said agent's acts in purchasing goods from the
was given to the people who had for years theretofore been selling defendant.
merchandise to him. Held: That the principal was liable to one, for
merchandise sold and delivered to the agent, who had not received notice of Under all of the facts of record, we see no reason for modifying the judgment
the termination of such a [Compaa General de Tabacos vs. Diaba., 20 Phil. of the lower court; the same is, therefore, hereby affirmed with costs.
321(1911)]
Torres, Mapa, Carson and Moreland, JJ., concur.
On the 19th of July, 1909, the plaintiff commenced an action against the
defendant in the Court of First Instance of the Province of Leyte, for the
purpose of recovering the sum of P442, for goods sold and delivered by the
plaintiff, through its agent (Gutierrez) to the defendant, between the 11th of
January, 1909, and the 1st of April, 1909.

To this complaint the defendant, in his special answer, admitted that he had
purchased from the agent of the plaintiff (Gutierrez) goods, wares, and
merchandise, between the 12th of January, 1909, and the 15th of March,
1909, amounting to the sum of P692, and that he had sold to the agent of the
plaintiff (Gutierrez) abaca and other effects, between the 25th of January,
1909, and the 6th of February, 1909, amounting to P1,308.80, leaving a
balance due him (the defendant) of P616.80.1awphil.net

After hearing the evidence, the Hon. Charles A. Low, judge, found that the
plaintiff was indebted to the defendant in the sum of P616.80, and rendered a
judgment against the plaintiff for said sum. From that judgment the plaintiff