1.
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs. COURT OF APPEALS and AMERICAN AIR-LINES
INCORPORATED, respondents.
This case is a consolidation of two (2) petitions for review on certiorari of a decision1 of the
Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air
Services and Hotel Representatives, Inc." which affirmed, with modification, the decision 2 of
the Regional Trial Court of Manila, Branch IV, which dismissed the complaint and granted
therein defendant's counterclaim for agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air
carrier offering passenger and air cargo transportation in the Philippines, and Orient Air
Services and Hotel Representatives (hereinafter referred to as Orient Air), entered into a
General Sales Agency Agreement (hereinafter referred to as the Agreement), whereby the
former authorized the latter to act as its exclusive general sales agent within the Philippines
for the sale of air passenger transportation. Pertinent provisions of the agreement are
reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree
as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales Agent
within the Philippines, including any United States military installation therein which
are not serviced by an Air Carrier Representation Office (ACRO), for the sale of air
passenger transportation. The services to be performed by Orient Air Services shall
include:
(a) soliciting and promoting passenger traffic for the services of American
and, if necessary, employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be
used exclusively for the transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and
promotional material to sales agents and the general public in the assigned
territory;
(d) servicing and supervising of sales agents (including such sub-agents as
may be appointed by Orient Air Services with the prior written consent of
American) in the assigned territory including if required by American the
control of remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the
general public in the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within
the United States, neither Orient Air Services nor its sub-agents will perform services
for any other air carrier similar to those to be performed hereunder for American
without the prior written consent of American. Subject to periodic instructions and
continued consent from American, Orient Air Services may sell air passenger
transportation to be performed within the United States by other scheduled air
carriers provided American does not provide substantially equivalent schedules
between the points involved.
4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock or
exchange orders, less commissions to which Orient Air Services is entitled hereunder,
not less frequently than semi-monthly, on the 15th and last days of each month for
sales made during the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on
American's ticket stock or on exchange orders, less applicable commissions to which
Orient Air Services is entitled hereunder, are the property of American and shall be
held in trust by Orient Air Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder
by Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
1
American will pay Orient Air Services a sales agency commission for all sales of
transportation by Orient Air Services or its sub-agents over American's services and
any connecting through air transportation, when made on American's ticket stock,
equal to the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United States and
between such points and Canada: 7% or such other rate(s) as may be
prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation
between points other than those described above: 8% or such other rate(s)
as may be prescribed by the International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an
overriding commission of 3% of the tariff fares and charges for all sales of
transportation over American's service by Orient Air Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing any of the
provisions of this Agreement or shall become bankrupt or make any assignment for
the benefit of or enter into any agreement or promise with its creditors or go into
liquidation, or suffer any of its goods to be taken in execution, or if it ceases to be in
business, this Agreement may, at the option of American, be terminated forthwith
and American may, without prejudice to any of its rights under this Agreement, take
possession of any ticket forms, exchange orders, traffic material or other property or
funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of
the International Air Transport Association and the Air Traffic Conference of America,
and such rules or resolutions shall control in the event of any conflict with the
provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air
Services is unable to transfer to the United States the funds payable by Orient Air
Services to American under this Agreement. Either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or
cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement
by failing to promptly remit the net proceeds of sales for the months of January to March
1981 in the amount of US $254,400.40, American Air by itself undertook the collection of the
proceeds of tickets sold originally by Orient Air and terminated forthwith the Agreement in
accordance with Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981,
American Air instituted suit against Orient Air with the Court of First Instance of Manila,
Branch 24, for Accounting with Preliminary Attachment or Garnishment, Mandatory
Injunction and Restraining Order4 averring the aforesaid basis for the termination of the
Agreement as well as therein defendant's previous record of failures "to promptly settle past
outstanding refunds of which there were available funds in the possession of the defendant, .
. . to the damage and prejudice of plaintiff."5
In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material
allegations of the complaint with respect to plaintiff's entitlement to alleged unremitted
amounts, contending that after application thereof to the commissions due it under the
Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding commissions.
Further, the defendant contended that the actions taken by American Air in the course of
terminating the Agreement as well as the termination itself were untenable, Orient Air
claiming that American Air's precipitous conduct had occasioned prejudice to its business
interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the
trial court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion
of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in
favor of defendant and against plaintiff dismissing the complaint and holding the
termination made by the latter as affecting the GSA agreement illegal and improper
and order the plaintiff to reinstate defendant as its general sales agent for passenger
tranportation in the Philippines in accordance with said GSA agreement; plaintiff is
ordered to pay defendant the balance of the overriding commission on total flown
2
 revenue covering the period from March 16, 1977 to December 31, 1980 in the
amount of US$84,821.31 plus the additional amount of US$8,000.00 by way of
proper 3% overriding commission per month commencing from January 1, 1981 until
such reinstatement or said amounts in its Philippine peso equivalent legally prevailing
at the time of payment plus legal interest to commence from the filing of the
counterclaim up to the time of payment. Further, plaintiff is directed to pay
defendant the amount of One Million Five Hundred Thousand (Pl,500,000.00) pesos
as and for exemplary damages; and the amount of Three Hundred Thousand
(P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff.7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision
promulgated on 27 January 1986, affirmed the findings of the court a quo on their material
points but with some modifications with respect to the monetary awards granted. The
dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications
1) American is ordered to pay Orient the sum of US$53,491.11 representing the
balance of the latter's overriding commission covering the period March 16, 1977 to
December 31, 1980, or its Philippine peso equivalent in accordance with the official
rate of exchange legally prevailing on July 10, 1981, the date the counterclaim was
filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's
overriding commission per month starting January 1, 1981 until date of termination,
May 9, 1981 or its Philippine peso equivalent in accordance with the official rate of
exchange legally prevailing on July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981
the date the answer with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the
substance thereof and arguing for its reversal. The appellate court's decision was also the
subject of a Motion for Partial Reconsideration by Orient Air which prayed for the restoration
of the trial court's ruling with respect to the monetary awards. The Court of Appeals, by
resolution promulgated on 17 December 1986, denied American Air's motion and with
respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance
of the trial court's award of exemplary damages and attorney's fees, but granted
insofar as the rate of exchange is concerned. The decision of January 27, 1986 is
modified in paragraphs (1) and (2) of the dispositive part so that the payment of the
sums mentioned therein shall be at their Philippine peso equivalent in accordance
with the official rate of exchange legally prevailing on the date of actual payment .9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient
Air as petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By
resolution10 of this Court dated 25 March 1987 both petitions were consolidated, hence, the
case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3%
overriding commission. It is the stand of American Air that such commission is based only on
sales of its services actually negotiated or transacted by Orient Air, otherwise referred to as
"ticketed sales." As basis thereof, primary reliance is placed upon paragraph 5(b) of the
Agreement which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an
overriding commission of 3% of the tariff fees and charges for all sales of
transportation over American's services by Orient Air Services or itssub-
agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former
not having opted to appoint any sub-agents, it is American Air's contention that Orient Air
can claim entitlement to the disputed overriding commission based only on ticketed sales.
This is supposed to be the clear meaning of the underscored portion of the above provision.
3
Thus, to be entitled to the 3% overriding commission, the sale must be made by Orient Air
and the sale must be done with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding
commission covers the total revenue of American Air and not merely that derived from
ticketed sales undertaken by Orient Air. The latter, in justification of its submission, invokes
its designation as the exclusive General Sales Agent of American Air, with the corresponding
obligations arising from such agency, such as, the promotion and solicitation for the services
of its principal. In effect, by virtue of such exclusivity, "all sales of transportation over
American Air's services are necessarily by Orient Air." 11
It is a well settled legal principle that in the interpretation of a contract, the entirety thereof
must be taken into consideration to ascertain the meaning of its provisions. 12 The various
stipulations in the contract must be read together to give effect to all. 13 After a careful
examination of the records, the Court finds merit in the contention of Orient Air that the
Agreement, when interpreted in accordance with the foregoing principles, entitles it to the
3% overriding commission based on total revenue, or as referred to by the parties, "total
flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible
for the promotion and marketing of American Air's services for air passenger transportation,
and the solicitation of sales therefor. In return for such efforts and services, Orient Air was to
be paid commissions of two (2) kinds: first, a sales agency commission, ranging from 7-8%
of tariff fares and charges from sales by Orient Air when made on American Air ticket stock ;
and second, an overriding commission of 3% of tariff fares and charges for all sales of
passenger transportation over American Air services. It is immediately observed that the
precondition attached to the first type of commission does not obtain for the second type of
commissions. The latter type of commissions would accrue for sales of American Air services
made not on its ticket stock but on the ticket stock of other air carriers sold by such carriers
or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the
basis of such overriding commissions to sales from American Air ticket stock would erase any
distinction between the two (2) types of commissions and would lead to the absurd
conclusion that the parties had entered into a contract with meaningless provisions. Such an
interpretation must at all times be avoided with every effort exerted to harmonize the entire
Agreement.
An additional point before finally disposing of this issue. It is clear from the records that
American Air was the party responsible for the preparation of the Agreement. Consequently,
any ambiguity in this "contract of adhesion" is to be taken " contra proferentem", i.e.,
construed against the party who caused the ambiguity and could have avoided it by the
exercise of a little more care. Thus, Article 1377 of the Civil Code provides that the
interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.14 To put it differently, when several interpretations of a provision are
otherwise equally proper, that interpretation or construction is to be adopted which is most
favorable to the party in whose favor the provision was made and who did not cause the
ambiguity.15 We therefore agree with the respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations,
must be read against the party who drafted it.16
We now turn to the propriety of American Air's termination of the Agreement. The
respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification
from paragraph 4 of the Agreement, Exh. F, which provides for remittances to
American less commissions to which Orient is entitled, and from paragraph 5(d)
which specifically allows Orient to retain the full amount of its commissions. Since, as
stated ante, Orient is entitled to the 3% override. American's premise, therefore, for
the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient
Air was entitled to an overriding commission based on total flown revenue. American Air's
perception that Orient Air was remiss or in default of its obligations under the Agreement
was, in fact, a situation where the latter acted in accordance with the Agreementthat of
retaining from the sales proceeds its accrued commissions before remitting the balance to
American Air. Since the latter was still obligated to Orient Air by way of such commissions.
Orient Air was clearly justified in retaining and refusing to remit the sums claimed by
American Air. The latter's termination of the Agreement was, therefore, without cause and
basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial
court's award of exemplary damages and attorney's fees. This Court sees no error in such
modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the
decision of the trial court.1wphi1We refer particularly to the lower court's decision ordering
American Air to "reinstate defendant as its general sales agent for passenger transportation
in the Philippines in accordance with said GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect, compels
American Air to extend its personality to Orient Air. Such would be violative of the principles
and essence of agency, defined by law as a contract whereby "a person binds himself to
4
render some service or to do something in representation or on behalf of another, WITH THE
CONSENT OR AUTHORITY OF THE LATTER . 17 (emphasis supplied) In an agent-principal
relationship, the personality of the principal is extended through the facility of the agent. In
so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts
which the latter would have him do. Such a relationship can only be effected with the
consent of the principal, which must not, in any way, be compelled by law or by any court.
The Agreement itself between the parties states that "either party may terminate the
Agreementwithout cause by giving the other 30 days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent
appellate court reinstating Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution
of the respondent Court of Appeals, dated 27 January 1986 and 17 December 1986,
respectively. Costs against petitioner American Air.
SO ORDERED.
2. RAMON RALLOS, Administrator of the Estate of CONCEPCION
RALLOS, petitioner, vs.FELIX GO CHAN & SONS REALTY CORPORATION and COURT
OF APPEALS, respondents.
This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal,
Concepcion Rallos, sold the latter's undivided share in a parcel of land pursuant to a power of
attorney which the principal had executed in favor. The administrator of the estate of the
went to court to have the sale declared uneanforceable and to recover the disposed share.
The trial court granted the relief prayed for, but upon appeal the Court of Appeals uphold the
validity of the sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were
sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral
Survey of Cebu covered by Transfer Certificate of 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,
Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of
his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation
for the sum of P10,686.90. The deed of 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 named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos
filed a complaint docketed as Civil Case No. R-4530 of the 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 share be reconveyed to her estate; (2) that the Certificate
of 'title issued in the 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
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 Register of Deeds of Cebu, but
subsequently, the latter was dropped from the complaint. The complaint was amended twice;
defendant Corporation's Answer contained a crossclaim against its co-defendant, Simon
Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos While the
case was pending in the trial court, both Simon and his sister Gerundia died and they were
substituted by the respective administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive portion:
A. On Plaintiffs Complaint
(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso
share of Concepcion Rallos in the property in question, Lot 5983 of the Cadastral Survey of
Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu 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 CHAN
& SONS REALTY CORPORATION and the Estate of Concepcion Rallos in the proportion of
one-half (1/2) share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an
undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon
Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay to
5
 defendant Felix Co Chan & Sons Realty Corporation the sum
of P5,343.45, representing the price of one-half (1/2) share
of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator
of the Estate of Simeon Rallos, to pay in concept of
reasonable attorney's fees to Felix Go Chan & Sons Realty
Corporation the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of
Estate of Simeon Rallos, against Josefina Rallos special administratrix of the
Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to 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 third-party complaint, at bar. (pp. 98-100, Record on
Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from
the foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of
Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on
November 20, 1964 in favor of the appellant corporation sustaining the sale in
question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the decision
but the same was denied in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his 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 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 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 performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant to
the matter tinder consideration.
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 unless he has by law a right to
represent him. 3 A contract entered into in the name of another by one who has no authority
or the legal representation or who has acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting party. 4 Article 1403 (1) of the same
Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are
justified:
(1) Those entered into in the name of another person by one who hi - been
given no authority or legal representation or who has acted beyond his
powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, caged the principal ( mandante), 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) there is consent, express or implied of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a
third person; (3) the agents acts as a representative and not for himself, and (4) the agent
acts within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature. The authority of the
agent to act emanates from the powers granted to him by his 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 himself". 6
2. There are various ways of extinguishing agency, 7 but her We are 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 Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or of
the agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is
extinguished by the death of the principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for
the law is found in the juridical basis of agency which is representation Them being an in.
6
integration of the personality of the principal integration that of the agent it is not possible
for the representation to continue to exist once the death of either is
establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a
necessary cause 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 heirs of
the fact to notify the agent of the fact of death of the former. 9
The same rule prevails at common law the death of the principal effects instantaneous and
absolute revocation of the authority of the agent unless the Power be coupled with an
interest. 10 This is the prevalent rule in American 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 execution of the power afterward is not binding on the heirs or
representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the
agent extinguishes the agency, subject to any exception, and if so, is the instant case within
that exception? That is the determinative point in issue in this litigation. It is the contention
of respondent corporation which was 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 former's sham in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-
mentioned.
ART. 1930. The agency shall remain in full force and effect even after the
death of the principal, if it has been constituted in the common interest of
the latter and of the agent, or in the interest of a third person who has
accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of
the principal or of any other cause which extinguishes the agency, is valid
and shall be fully effective with respect to third persons who may have
contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in
favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the
death of his principal is valid and effective only under two conditions, 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 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 requisites must concur the absence of one will render the act of the agent invalid
and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death
of his principal at the time he sold the latter's share in Lot No. 5983 to respondent
corporation. The knowledge of the death is clearly to be inferred from the pleadings filed by
Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his sister
Concepcion is also a finding of fact of the court a quo 13 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 Concepcion and
Gerundia Rallos without informing appellant (the realty corporation) of the death of the
former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his
principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly
requires for its application lack of knowledge on the part of the agent of the death of his
principal; it is not enough that the third person acted in good faith. Thus in Buason & Reyes
v. Panuyas, the 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 principal because it
was not shown that the agent knew of his principal's demise . 15 To the same effect is the
case of Herrera, et al., v. Luy Kim Guan, et al. , 1961, where in the words of Justice Jesus
Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs
presented no proof and there is no indication in the record, that the agent
Luy Kim Guan was aware of the death of his principal at the time he sold the
property. The death 6f the principal does not render the act of an agent
unenforceable, where the latter had no knowledge of such extinguishment of
the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals
reasoned out that there is no provision in the Code which provides 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 with him in good faith and without knowledge of the
death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the
general rule enunciated in Article 1919 that the death of the principal extinguishes the
agency. That being the general rule it follows a fortiorithat any act of an agent after the
7
death of his principal is void ab initio unless the same fags under the exception provided for
in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the
general rule, is to be strictly construed, it is not to be given an interpretation or application
beyond the clear import of its terms for otherwise the courts will be involved in a process of
legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in good faith
relied on the power of attorney which was duly registered on the original certificate of title
recorded in the Register of Deeds of the province of Cebu, that no notice of the death was
aver annotated on said certificate of title by the heirs of the principal and accordingly they
must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which
We quote:
If the agency has been granted for the purpose of contracting with certain
persons, the revocation must be made known to them. But if the agency is
general iii nature, without reference to particular person with whom the
agent is to contract, it is sufficient that the principal exercise due diligence to
make the revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom
represents' on should be made, it is the general opinion that all acts,
executed with third persons who contracted in good faith, Without
knowledge of the revocation, are valid. In such case, the principal may
exercise his right against the agent, who, knowing of the revocation,
continued to assume a personality which he no longer had. (Manresa Vol.
11, pp. 561 and 575; pp. 15-16, rollo)
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 by operation of law such
as death of the principal which obtains in this case. On page six of this Opinion We stressed
that by reason of the very nature of the relationship between principal and agent, agency is
extinguished ipso jure upon the death of either principal or agent. Although a revocation of a
power of attorney to be effective must be communicated to the parties concerned, 18 yet a
revocation by operation of law, such as by death of the principal is, as a rule, instantaneously
effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an
execution of the principal's continuing will. 19 With death, the principal's will ceases or is the
of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the
principal What the Code provides in Article 1932 is that, if the agent die his heirs must notify
the principal thereof, and in the meantime adopt such measures as the circumstances may
demand in the interest of the latter. Hence, the fact that no notice of the death of the
principal was registered on the certificate of title of the property in the Office of the Register
of Deeds, is not fatal to the cause of the estate of the principal
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 if a person purchases a registered land
from one who acquired it in bad faith even to the extent of foregoing or falsifying the deed
of sale in his favor the registered owner has no recourse against such innocent purchaser
for value but only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case
of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:
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 Nano. The latter had a power
of attorney supposedly executed 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 that Office, he found all in order including the power of attorney. But
Vallejo denied having executed the power The lower court sustained Vallejo
and the plaintiff Blondeau appealed. Reversing the decision of the court a
quo, the Supreme Court, quoting the ruling in the case of Eliason v.
Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the
defendant- appellee must be overruled. Agustin Nano had
possession of Jose Vallejo's title papers. Without those title
papers handed over to Nano with the acquiescence of
Vallejo, a fraud could not have been perpetuated. When
Fernando de la Canters, a member of the Philippine Bar and
the husband of Angela Blondeau, the principal plaintiff,
searched the registration record, he found them in due form
including the power of attorney of Vallajo in favor of Nano.
If this had not been so and if thereafter the proper notation
of the encumbrance could not have been made, Angela
Blondeau would not have sent P12,000.00 to the defendant
Vallejo.' An executed transfer of registered lands placed by
8
 the registered owner thereof in the hands of another
operates as a representation to a third party that the holder
of the transfer is authorized to deal with the land.
As between two innocent persons, one of whom must suffer
the consequence of a breach of trust, the one who made it
possible by his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all 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 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 interpretation contrary to its tenor, in the same manner that the
ruling in Blondeau and the cases cited therein found a basis in Section 55 of the Land
Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any voluntary
instrument is presented for registration shall be conclusive authority from the
registered owner to the register of deeds to enter a new certificate or to
make a memorandum of registration in accordance with such instruments,
and the new certificate or memorandum Shall be binding upon the registered
owner and upon all persons claiming under him in favor of every purchaser
for value and in good faith: Provided however, That in all cases of
registration provided by fraud, the owner may pursue all his legal and
equitable remedies against the parties to such fraud without prejudice,
however, to the right, of any innocent holder for value of a certificate of title.
... (Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed decision is an
1842 ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments
made to an agent after the death of the principal were held to be "good", "the parties being
ignorant of the death". Let us take note that the Opinion of Justice Rogers was premised on
the statement that the parties were ignorant of the death of the principal. We quote from
that decision the following:
... Here the precise point is, whether a payment to an agent when the
Parties are ignorant of the death is a good payment. in addition to the case
in Campbell before cited, the same judge Lord Ellenboruogh, has decided in
5 Esp. 117, the general question that a payment after the death of principal
is not good. Thus, a payment of sailor's wages to a person having a power of
attorney to receive them, has been held void when the principal was dead at
the time of the payment. If, by this case, it is meant merely to decide the
general proposition that by operation of law the death of the principal is a
revocation of the powers of the attorney, no objection can be taken to it. But
if it intended to say that his principle applies where there was 110 notice of
death, or opportunity of twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident
circumstance of the death of the principal, which he did not know, and which
by no possibility could he know? It would be unjust to the agent and unjust
to the debtor. In the civil law, the acts of the agent, done bona fide in
ignorance of the death of his principal are held valid and binding upon the
heirs of the latter. The same rule holds in the Scottish law, and I cannot
believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81;
emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke,
mention may be made that the above represents the minority view in American
jurisprudence. Thus in Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a general
principle, death revokes an agency and renders null every act of the agent
thereafter performed, yet that where a payment has been made in ignorance
of the death, such payment will be good. The leading case so holding is that
of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an
elaborate opinion, this view ii broadly announced. 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 case it appeared that the estate of the deceased
principal had received the benefit of the money paid, and therefore the
representative of the estate might well have been held to be estopped from
suing for it again. . . . These cases, in so far, at least, as they announce the
doctrine under discussion, are exceptional. The Pennsylvania
Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is believed
to stand almost, if not quite, alone in announcing the principle in its broadest
scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the
opinion, except so far as it related to the particular facts, was a mere dictum, Baldwin J. said:
9
 The opinion, therefore, of the learned Judge may be regarded more as an
extrajudicial indication of his views on the general subject, than as the
adjudication of the Court upon the point in question. But accordingly all
power weight to this opinion, as the judgment of a of great respectability, it
stands alone among common law authorities and is opposed by an array too
formidable to permit us to following it. (15 Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American
jurisprudence, no such conflict exists in our own for the simple reason that our statute, the
Civil Code, expressly provides for two exceptions to the general rule that death of the
principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest
(Art 1930), and (2) that the act of the agent was executed without knowledge of the death
of the principal and the third person who contracted with the agent acted also in good faith
(Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again 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.
3. AIR FRANCE, petitioner, vs.HONORABLE COURT OF APPEALS, JOSE G. GANA
(Deceased), CLARA A. GANA, RAMON GANA, MANUEL GANA, MARIA TERESA
GANA, ROBERTO GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE AREVALO,
and EMILY SAN JUAN, respondents.
In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then
respondent Court of Appeals 1 promulgated on 15 December 1980 in CA-G.R. No. 58164-R,
entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France ", which reversed the Trial
Court's judgment dismissing the Complaint of private respondents for damages arising from
breach of contract of carriage, and awarding instead P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the
GANAS), purchased from AIR FRANCE through Imperial Travels, Incorporated, a duly
authorized travel agent, nine (9) "open-dated" air passage tickets for the
Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of US$2,528.85 for their economy
and first class fares. Said tickets were bought at the then prevailing exchange rate of P3.90
per US$1.00. The GANAS also paid travel taxes of P100.00 for each passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with
other tickets for the same route. At this time, the GANAS were booked for the Manila/Osaka
segment on AIR FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip on
AIR FRANCE Flight 187 on 22 May 1970. The aforesaid tickets were valid until 8 May 1971,
the date written under the printed words "Non valuable apres de (meaning, "not valid after
the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a
Secretary of the Sta. Clara Lumber Company where Jose Gana was the Director and
Treasurer, for the extension of the validity of their tickets, which were due to expire on 8
May 1971. Teresita enlisted the help of Lee Ella Manager of the Philippine Travel Bureau,
who used to handle travel arrangements for the personnel of the Sta. Clara Lumber
Company. Ella sent the tickets to Cesar Rillo, Office Manager of AIR FRANCE. The tickets
were returned to Ella who was informed that extension was not possible unless the fare
differentials resulting from the increase in fares triggered by an increase of the exchange rate
of the US dollar to the Philippine peso and the increased travel tax were first paid. Ella then
returned the tickets to Teresita and informed her of the impossibility of extension.
In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day
before the expiry date. In the morning of the very day of their scheduled departure on the
first leg of their trip, Teresita requested travel agent Ella to arrange the revalidation of the
tickets. Ella gave the same negative answer and warned her that although the tickets could
be used by the GANAS if they left on 7 May 1971, the tickets would no longer be valid for the
rest of their trip because the tickets would then have expired on 8 May 1971. Teresita replied
that it will be up to the GANAS to make the arrangements. With that assurance, Ella on his
own, attached to the tickets validating stickers for the Osaka/Tokyo flight, one a JAL. sticker
and the other an SAS (Scandinavian Airways System) sticker. The SAS sticker indicates
thereon that it was "Reevaluated by: the Philippine Travel Bureau, Branch No. 2" (as shown
by a circular rubber stamp) and signed "Ador", and the date is handwritten in the center of
the circle. Then appear under printed headings the notations: JL. 108 (Flight), 16 May
(Date), 1040 (Time), OK (status). Apparently, Ella made no more attempt to contact AIR
FRANCE as there was no more time.
Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May
1971 on board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with respect to
this leg of the trip.
10
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the
tickets because of their expiration, and the GANAS had to purchase new tickets. They
encountered the same difficulty with respect to their return trip to Manila as AIR FRANCE also
refused to honor their tickets. They were able to return only after pre-payment in Manila,
through their relatives, of the readjusted rates. They finally flew back to Manila on separate
Air France Frights on 19 May 1971 for Jose Gana and 26 May 1971 for the rest of the family.
On 25 August 1971, the GANAS commenced before the then Court of First Instance of
Manila, Branch III, Civil Case No. 84111 for damages arising from breach of contract of
carriage.
AIR FRANCE traversed the material allegations of the Complaint and alleged that the GANAS
brought upon themselves the predicament they found themselves in and assumed the
consequential risks; that travel agent Ella's affixing of validating stickers on the tickets
without the knowledge and consent of AIR FRANCE, violated airline tariff rules and
regulations and was beyond the scope of his authority as a travel agent; and that AIR
FRANCE was not guilty of any fraudulent conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional
Stipulations of Fact as wen as on the documentary and testimonial evidence.
The GANAS appealed to respondent Appellate Court. During the pendency of the appeal,
Jose Gana, the principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and reversed the Trial Court's
judgment in a Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air France is hereby
ordered to pay appellants moral damages in the total sum of NINETY
THOUSAND PESOS (P90,000.00) plus costs.
SO ORDERED. 2 is necessary if the increase or decrease in fare (or charge) occurs when the
Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this
instance, to which we gave due course.
The crucial issue is whether or not, under the environmental milieu the GANAS have made
out a case for breach of contract of carriage entitling them to an award of damages.
We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.
Pursuant to tariff rules and regulations of the International Air Transportation Association
(IATA), included in paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties
in the Trial Court, dated 31 March 1973, an airplane ticket is valid for one year. "The
passenger must undertake the final portion of his journey by departing from the last point at
which he has made a voluntary stop before the expiry of this limit (parag. 3.1.2. ) ... That is
the time allowed a passenger to begin and to complete his trip (parags. 3.2 and 3.3.). ... A
ticket can no longer be used for travel if its validity has expired before the passenger
completes his trip (parag. 3.5.1.) ... To complete the trip, the passenger must purchase a
new ticket for the remaining portion of the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of contract
when it dishonored the tickets of the GANAS after 8 May 1971 since those tickets expired on
said date; nor when it required the GANAS to buy new tickets or have their tickets re-issued
for the Tokyo/Manila segment of their trip. Neither can it be said that, when upon sale of the
new tickets, it imposed additional charges representing fare differentials, it was motivated by
self-interest or unjust enrichment considering that an increase of fares took effect, as
authorized by the Civil Aeronautics Board (CAB) in April, 1971. This procedure is well in
accord with the IATA tariff rules which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in effect on the date
on which transportation commences from the point of origin. Any ticket sold
prior to a change of fare or charge (increase or decrease) occurring between
the date of commencement of the journey, is subject to the above general
rule and must be adjusted accordingly. A new ticket must be issued and the
difference is to be collected or refunded as the case may be. No adjustment
journey is already commenced. 4
The GANAS cannot defend by contending lack of knowledge of those rules since the evidence
bears out that Teresita, who handled travel arrangements for the GANAS, was duly informed
by travel agent Ella of the advice of Reno, the Office Manager of Air France, that the tickets
in question could not be extended beyond the period of their validity without paying the fare
differentials and additional travel taxes brought about by the increased fare rate and travel
taxes.
11
 ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being told
this by Mr. Rillo?
A I told her, because that is the reason why they accepted
again the tickets when we returned the tickets spin, that
they could not be extended. They could be extended by
paying the additional fare, additional tax and additional
exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals ,
65 SCRA 237 (1975), holding that it would be unfair to charge respondents therein with
automatic knowledge or notice of conditions in contracts of adhesion, is inapplicable. To all
legal intents and purposes, Teresita was the agent of the GANAS and notice to her of the
rejection of the request for extension of the validity of the tickets was notice to the GANAS,
her principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations for
JAL. Flight 108 for 16 May 1971, without clearing the same with AIR FRANCE allegedly
because of the imminent departure of the GANAS on the same day so that he could not get
in touch with Air France 6 was certainly in contravention of IATA rules although as he had
explained, he did so upon Teresita's assurance that for the onward flight from Osaka and
return, the GANAS would make other arrangements.
Q Referring you to page 33 of the transcript of the last
session, I had this question which reads as follows: 'But did
she say anything to you when you said that the tickets were
about to expire?' Your answer was: 'I am the one who asked
her. At that time I told her if the tickets being used ... I was
telling her what about their bookings on the return. What
about their travel on the return? She told me it is up for the
Ganas to make the arrangement.' May I know from you
what did you mean by this testimony of yours?
A That was on the day when they were asking me on May 7,
1971 when they were checking the tickets. I told Mrs.
Manucdoc that I was going to get the tickets. I asked her
what about the tickets onward from the return from Tokyo,
and her answer was it is up for the Ganas to make the
arrangement, because I told her that they could leave on the
seventh, but they could take care of that when they arrived
in Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka, Tokyo
and Manila.
Q What arrangement?
A The arrangement for the airline because the tickets would
expire on May 7, and they insisted on leaving. I asked Mrs.
Manucdoc what about the return onward portion because
they would be travelling to Osaka, and her answer was, it is
up to for the Ganas to make the arrangement.
Q Exactly what were the words of Mrs. Manucdoc when you
told her that? If you can remember, what were her exact
words?
A Her words only, it is up for the Ganas to make the
arrangement.
Q This was in Tagalog or in English?
A I think it was in English. ... 7
The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the
GANAS to leave is not tantamount to an implied ratification of travel agent Ella's irregular
actuations. It should be recalled that the GANAS left in Manila the day before the expiry date
of their tickets and that "other arrangements" were to be made with respect to the remaining
segments. Besides, the validating stickers that Ella affixed on his own merely reflect the
status of reservations on the specified flight and could not legally serve to extend the validity
of a ticket or revive an expired one.
12
The conclusion is inevitable that the GANAS brought upon themselves the predicament they
were in for having insisted on using tickets that were due to expire in an effort, perhaps, to
beat the deadline and in the thought that by commencing the trip the day before the expiry
date, they could complete the trip even thereafter. It should be recalled that AIR FRANCE
was even unaware of the validating SAS and JAL. stickers that Ella had affixed spuriously.
Consequently, Japan Air Lines and AIR FRANCE merely acted within their contractual rights
when they dishonored the tickets on the remaining segments of the trip and when AIR
FRANCE demanded payment of the adjusted fare rates and travel taxes for the Tokyo/Manila
flight.
WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended
Complaint filed by private respondents hereby dismissed.
No costs.
SO ORDERED.
4. IN RE: PETITION FOR ISSUANCE OF SEPARATE CERTIFICATE OF TITLE. JOSE
A. SANTOS Y DIAZ, Petitioner-Appellant, v. ANATOLIO BUENCONSEJO, ET
AL., Respondents-Appellees.
1. AGENCY; POWER OF ATTORNEY CANNOT VEST PROPERTY RIGHT IN ATTORNEYS OWN
NAME. A special power of attorney authorizing a person to act on behalf of the children of
another cannot vest in the said attorney any property right in his own name.
2. ID.; CHILDREN WITHOUT AUTHORITY TO EXECUTE POWER OF ATTORNEY FOR PARENT.
The children have no authority to execute a power of attorney for their father who is still
alive.
3. CO-OWNERSHIP; CO OWNER CANNOT ADJUDICATE A PORTION OF PROPERTY WITHOUT
CONFORMITY OF OTHER CO-OWNER OR BY JUDICIAL DECREE. A co-owner, pro indiviso
cannot, without the conformity of the other co-owner or a judicial decree of partition,
adjudicate to himself in fee simple a determinate portion of the property owned in common
to the exclusion of the other co-owners.
DECISION
CONCEPCION, J.:
Petitioner Jose A. Santos y Diaz seeks the reversal of an order of the Court of First Instance
of Albay, denying his petition, filed in Cadastral Case No. M-2197, LRC Cad. Rec. No. 1035,
for the cancellation of original certificate of title No. RO-3848 (25322), issued in the name of
Anatolio Buenconsejo, Lorenzo Bon and Santiago Bon and covering Lot No. 1917 of the
Cadastral Survey of Tabaco, Albay, and the issuance, in lieu thereof, of a separate transfer
certificate of title in his name, covering part of said Lot No. 1917, namely, Lot No. 1917-A of
Subdivision Plan PSD-63379.
The main facts are not disputed. They are set forth in the order appealed from, from which
we quote:jgc:chanrobles.com.ph
"It appears that the aforementioned Lot No. 1917 covered by Original Certificate of Title No.
RO-3848 (25322) was originally owned in common by Anatolio Buenconsejo to the extent of
1/2 undivided portion and Lorenzo Bon and Santiago Bon to the extent of the other 1/2 (Exh.
B); that Anatolio Buenconsejos rights, interests and participation over the portion above-
mentioned were on January 3, 1961 and by a Certificate of Sale executed by the Provincial
Sheriff of Albay, transferred and conveyed to Atty. Tecla San Andres Ziga, awardee in the
corresponding auction sale conducted by said Sheriff in connection with the execution of the
decision of the Juvenile Delinquency and Domestic Relations Court in Civil Case No. 25267,
entitled `Yolanda Buencosejo, et al, v. Anatolio Buenconsejo: that on December 26, 1961
and by a certificate of redemption issued by the Provincial Sheriff of Albay, the rights,
interest, claim and/or participation which Atty. Tecla San Andres Ziga may have acquired
over the property in question by reason of the aforementioned auction sale award, were
transferred and conveyed to the herein petitioner in his capacity as Attorney-in-fact of the
children of Anatolio Buenconsejo, namely, Anastacio Buenconsejo, Elena Buenconsejo and
Asucena Buenconsejo (Exh. C)."cralaw virtua1aw library
It would appear, also, that petitioner Santos had redeemed the aforementioned share of
Anatolio Buenconsejo, upon the authority of a special power of attorney executed in his favor
by the children of Anatolio Buenconsejo; that relying upon this power of attorney and
redemption made by him, Santos now claims to have acquired the share of Anatolio
Buenconsejo in the aforementioned Lot No. 1917; that as the alleged present owner of said
share, Santos caused a subdivision plan of said Lot No. 1917 to be made, in which the
portion he claims as his share thereof has been marked as Lot No. 1917-A; and that he
wants said subdivision Lot No. 1917-A to be segregated from Lot No. 1917 and a certificate
of title issued in his name exclusively for said subdivision Lot No. 1917-A.
As correctly held by the lower court, petitioners claim is clearly untenable, for: (1) said
special power of attorney authorized him to act on behalf of the children of Anatolio
Buenconsejo, and, hence, it could not have possibly vested him any property right in his own
13
name; (2) the children of Anatolio Buenconsejo had no authority to execute said power of
attorney, because their father is still alive and, in fact, he and his wife opposed the petition
of Santos; (3) in consequence of said power of attorney (if valid) and redemption, Santos
could have acquired no more than the share pro indiviso of Anatolio Buenconsejo in Lot No.
1917, so that petitioner can not without the conformity of the other co-owners (Lorenzo
and Santiago Bon), or a judicial decree of partition issued pursuant to the provisions of Rule
69 of the new Rules of Court (Rule 71 of the old Rules of Court) which have not been
followed by Santos adjudicate to himself in fee simple a determinate portion of said Lot
No. 1917, as his share therein, to the exclusion of the other co-owners.
Inasmuch as the appeal is patently devoid of merit, the order appealed from is hereby
affirmed, with treble costs against petitioner-appellant Jose A. Santos y Diaz. It is so ordered.
5. ALBALADEJO Y CIA., S. en C., plaintiff-appellant, vs. The PHILIPPINE REFINING
CO., as successor to The Visayan Refining Co., defendant-appellant.
This action was instituted in the Court of First Instance of the Province of Albay by Albaladejo
y Cia., S. en C., to recover a sum of money from the Philippine Refining Co., as successor to
the Visayan Refining Co., two causes of action being stated in the complaint. Upon hearing
the cause the trial judge absolved the defendant from the first cause of action but gave
judgment for the plaintiff to recover the sum of P49,626.68, with costs, upon the second
cause of action. From this judgment the plaintiff appealed with respect to the action taken
upon the first cause of action, and the defendant appealed with respect to the action taken
upon the second cause of action. It results that, by the appeal of the two parties, the
decision of the lower court is here under review as regards the action taken upon both
grounds of action set forth in the complaint.
It appears that Albaladejo y Cia. is a limited partnership, organized in conformity with the
laws of these Islands, and having its principal place of business at Legaspi, in the Province of
Albay; and during the transactions which gave origin to this litigation said firm was engaged
in the buying and selling of the products of the country, especially copra, and in the conduct
of a general mercantile business in Legaspi and in other places where it maintained agencies,
or sub-agencies, for the prosecution of its commercial enterprises.
The Visayan Refining Co. is a corporation organized under the laws of the Philippine Islands;
and prior to July 9, 1920, it was engaged in operating its extensive plant at Opon, Cebu, for
the manufacture of coconut oil.
On August 28, 1918, the plaintiff made a contract with the Visayan Refining Co., the material
parts of which are as follows:
Memorandum of Agreement Re Purchase of Copra. This memorandum of
agreement, made and entered into by and between Albaladejo y Compania, S. en C.,
of Legaspi, Province of Albay, Philippine Islands, party of the first part, and the
Visayan Refining Company, Inc., of Opon, Province of Cebu, Philippine Islands, party
of the second part,
Witnesseth That. Whereas, the party of the first part is engaged in the purchase
of copra in the Province of Albay; and Whereas, the party of the second part is
engaged in the business of the manufacture of coconut oil, or which purpose it must
continually purchase large quantities of copra; Now, Therefore, in consideration of
the premises and covenants hereinafter set forth, the said parties have agreed and
do hereby contract and agree as follows, to wit:
1. The party of the first part agrees and binds itself to sell to the party of the second
part, and the party of the second part agrees and binds itself to buy from the party
of the first part, for a period of one (1) year from the date of these presents, all the
copra purchased by the party of the first part in Province of Albay.
2. The party of the second part agrees to pay the party of the first part for the said
copra the market price thereof in Cebu at date (of) purchase, deducting, however,
from such price the cost of transportation by sea to the factory of the party of
second part at Opon, Cebu, the amount deducted to be ascertained from the rates
established, from time to time, by the public utility commission, or such entity as
shall succeed to its functions, and also a further deduction for the shrinkage of the
copra from the time of its delivery to the party of the second part to its arrival at
Opon, Cebu, plus one-half of a real per picul in the event the copra is delivered to
boats which will unload it on the pier of the party of the second part at Opon, Cebu,
plus one real per picul in the event that the party of the first part shall employ its
own capital exclusively in its purchase.
3. During the continuance of this contract the party of the second part will not
appoint any other agent for the purchase of copra in Legaspi, nor buy copra from
any vendor in Legaspi.
4. The party of the second part will, so far as practicable, keep the party of the first
part advised of the prevailing prices paid for copra in the Cebu market.
5. The party of the second part will provide transportation by sea to Opon, Cebu, for
the copra delivered to it by the party of the first part, but the party of the first part
must deliver such copra to the party of the second part free on board the boats of
the latter's ships or on the pier alongside the latter's ships, as the case may be.
14
Pursuant to this agreement the plaintiff, during the year therein contemplated, bought copra
extensively for the Visayan Refining Co. At the end of said year both parties found
themselves satisfied with the existing arrangement, and they therefore continued by tacit
consent to govern their future relations by the same agreement. In this situation affairs
remained until July 9, 1920, when the Visayan Refining Co. closed down its factory at Opon
and withdrew from the copra market.
When the contract above referred to was originally made, Albaladejo y Cia. apparently had
only one commercial establishment, i.e., that at Legaspi; but the large requirements of the
Visayan Refining Co. for copra appeared so far to justify the extension of the plaintiff's
business that during the course of the next two or three years it established some twenty
agencies, or subagencies, in various ports and places of the Province of Albay and
neighboring provinces.
After the Visayan Refining Co. had ceased to buy copra, as above stated, of which fact the
plaintiff was duly notified, the supplies of copra already purchased by the plaintiff were
gradually shipped out and accepted by the Visayan Refining Co., and in the course of the
next eight or ten months the accounts between the two parties were liquidated. The last
account rendered by the Visayan Refining Co. to the plaintiff was for the month of April,
1921, and it showed a balance of P288 in favor of the defendant. Under date of June 25,
1921, the plaintiff company addressed a letter from Legaspi to the Philippine Refining Co.
(which had now succeeded to the rights and liabilities of the Visayan Refining Co.),
expressing its approval of said account. In this letter no dissatisfaction was expressed by the
plaintiff as to the state of affairs between the parties; but about six weeks thereafter the
present action was begun.
Upon reference to paragraph five of the contract reproduced above it will be seen that the
Visayan Refining Co. obligated itself to provide transportation by sea to Opon, Cebu, for the
copra which should be delivered to it by the plaintiff; and the first cause of action set forth in
the complaint is planted upon the alleged negligent failure of the Visayan Refining Co. to
provide opportune transportation for the copra collected by the plaintiff and deposited for
shipment at various places. In this connection we reproduce the following allegations from
the complaint:
6. That, from the month of September, 1918, until the month of June, 1920, the
plaintiff opportunely advised the Visayan of the stocks that the former had for
shipment, and, from time to time, requested the Visayan to send vessels to take up
said stocks; but that the Visayan culpably and negligently allowed a great number of
days to elapse before sending the boats for the transportation of the copra to Opon,
Cebu, and that due to the fault and negligence of the Visayan, the stocks of copra
prepared for shipment by the plaintiff had to remain an unnecessary length of time in
warehouses and could not be delivered to the Visayan, nor could they be transmitted
to this latter because of the lack of boats, and that for this reason the copra
gathered by the plaintiff and prepared for delivery to the Visayan suffered the
diminishment of weight herein below specified, through shrinkage or excessive
drying, and, in consequence thereof, an important diminishment in its value.
xxx xxx xxx
8. That the diminishment in weight suffered as shrinkage through excessive drying
by all the lots of copra sold by the plaintiff to the Visayan, due to the fault and
negligence of the Visayan in the sending of boats to take up said copra, represents a
total of 9,695 piculs and 56 cates, the just and reasonable value of which, at the
rates fixed by the purchaser as the price in its liquidation, is a total of two hundred
and one thousand, five hundred and ninety-nine pesos and fifty-three centavos
(P201,599.53), Philippine currency, in which amount the plaintiff has been damaged
and injured by the negligent and culpable acts and omissions of the Visayan, as
herein above stated and alleged.
In the course of the appealed decision the trial judge makes a careful examination of the
proof relative to the movements of the fleet of boats maintained by the Visayan Refining Co.
for the purpose of collecting copra from the various ports where it was gathered for said
company, as well as of the movements of other boats chartered or hired by said company for
the same purpose; and upon consideration of all the facts revealed in evidence, his Honor
found that the Visayan Refining Co. had used reasonable promptitude in its efforts to get out
the copra from the places where it had been deposited for shipment, notwithstanding
occasional irregularities due at times to the condition of the weather as related to
transportation by sea and at other times to the inability of the Visayan Refining Co. to
dispatch boats to the more remote ports. This finding of the trial judge, that no negligence of
the kind alleged can properly be imputed to the Visayan Refining Co., is in our opinion
supported by the proof.
Upon the point of the loss of weight of the copra by shrinkage, the trial judge found that this
is a product which necessarily undergoes considerable shrinkage in the process of drying,
and intelligent witnesses who are conversant with the matter testified at the trial that
shrinkage of cobra varies from twenty to thirty per centum of the original gross weight. It is
agreed that the shrinkage shown in all of the copra which the plaintiff delivered to the
Visayan Refining Co. amounted to only 8.187 per centum of the whole, an amount which is
notably below the normal. This showing was undoubtedly due in part, as the trial judge
suggests, to the fact that in purchasing the copra directly from the producers the plaintiff's
buyers sometimes estimated the picul at sixty-eight kilos, or somewhat less, but in no case at
the true weight of 63.25 kilos. The plaintiff was therefore protected in a great measure from
15
loss by shrinkage by purchasing upon a different basis of weight from that upon which he
sold, otherwise the shrinkage shown in the result must have been much greater than that
which actually appeared. But even considering this fact, it is quite evident that the
demonstrated shrinkage of 8.187 per centum was extremely moderate average; and this fact
goes to show that there was no undue delay on the part of the Visayan Refining Co. in
supplying transportation for the copra collected by the plaintiff.
In the course of his well-reasoned opinion upon this branch of the case, the trial judge calls
attention to the fact that it is expressly provided in paragraph two of the contract that the
shrinkage of copra from the time of its delivery to the party of the second part till its arrival
at Opon should fall upon the plaintiff, from whence it is to be interfered that the parties
intended that the copra should be paid for according to its weight upon arrival at Opon
regardless of its weight when first purchased; and such appears to have been the uniform
practice of the parties in settling their accounts for the copra delivered over a period of
nearly two years.
From what has been said it follows that the first cause of action set forth in the complaint is
not well founded, and the trial judge committed no error in absolving the plaintiff therefrom.
It appears that in the first six months of the year 1919, the plaintiff found that its
transactions with the Visayan Refining Co. had not been productive of reasonable profit, a
circumstance which the plaintiff attributed to loss of weight or shrinkage in the copra from
the time of purchase to its arrival at Opon; and the matter was taken up with the officials of
said company, with the result that a bounty amounting to P15,610.41 was paid to the
plaintiff by the Visayan Refining Co. In the ninth paragraph of the complaint the plaintiff
alleges that this payment was made upon account of shrinkage, for which the Visayan
Refining Co. admitted itself to be liable; and it is suggested that the making of this payment
operated as a recognition on the part of the Visayan refining Co. of the justice of the
plaintiff's claim with respect to the shrinkage in all subsequent transactions. With this
proposition we cannot agree. At most the payment appears to have been made in
recognition of an existing claim, without involving any commitment as to liability on the part
of the defendant in the future; and furthermore it appears to have been in the nature of a
mere gratuity given by the company in order to encourage the plaintiff and to assure that the
plaintiff's organization would be kept in an efficient state for future activities. It is certain that
no general liability for plaintiff's losses was assumed for the future; and the defendant on
more than one occasion thereafter expressly disclaimed liability for such losses.
As already stated purchases of copra by the defendant were suspended in the month of July,
1920. At this time the plaintiff had an expensive organization which had been built up chiefly,
we suppose, with a view to the buying of copra; and this organization was maintained
practically intact for nearly a year after the suspension of purchases by the Visayan Refining
Co. Indeed in October, 1920, the plaintiff added an additional agency at Gubat to the twenty
or more already in existence. As a second cause of action the plaintiff seeks to recover the
sum of P110,000, the alleged amount expended by the plaintiff in maintaining and extending
its organization as above stated. As a basis for the defendant's liability in this respect it is
alleged that said organization was maintained and extended at the express request, or
requirement, of the defendant, in conjunction with repeated assurances that the defendant
would soon resume activity as a purchaser of copra.
With reference to this cause of action the trial judge found that the plaintiff, as claimed, had
incurred expenses at the request of the defendant and upon its representation that the
plaintiff would be fully compensated therefor in the future. Instead, however, of allowing the
plaintiff the entire amount claimed, his Honor gave judgment for only thirty per centum of
said amount, in view of the fact that the plaintiff's transactions in copra had amounted in the
past only to about thirty per centum of the total business transacted by it. Estimated upon
this basis, the amount recognized as constituting a just claim was found to be P49,626.68,
and for this amount judgment was rendered against the defendant.
The discussion of this branch of the appeal involves the sole question whether the plaintiff's
expense in maintaining and extending its organization for the purchase of copra in the period
between July, 1920, to July, 1921, were incurred at the instance and request of the
defendant, or upon any promise of the defendant to make the expenditure good. A careful
examination of the evidence, mostly of a documentary character, is, in our opinion,
convincing that the supposed liability does not exist.
By recurring to paragraph four of the contract between the plaintiff and the Visayan Refining
Co. it will be seen that the latter agreed to keep the plaintiff advised of the prevailing prices
paid for the copra in the Cebu market. In compliance with this obligation the Visayan
Refining Co. was accustomed to send out "trade letters" from time to time its various clients
in the southern provinces of whom the plaintiff was one. In these letters the manager of the
company was accustomed to make comment upon the state of the market and to give such
information as might be of interest or value to the recipients of the letters. From the series of
letters thus sent to Albaladejo y Cia. during the latter half of 1920, we here reproduce the
following excerpts:
(Letter of July 2, 1920, from K.B. Day, General Manager of the Visayan Refining Co., to
Albaladejo y Cia.)
The copra market is still very weak. I have spent the past two weeks in Manila
studying conditions and find that practically no business at all is being done. A few of
the mills having provincial agents are accepting small deliveries, but I do not suppose
that 500 piculs of copra are changing hands a day. Buyers are offering from P13 to
16
 P15, depending on quality, and sellers are offering to sell at anywhere from P16 to
P18, but no business can be done for the simple reason that the banks will not lend
the mills any money to buy copra with at this time.
Reports from the United States are to the effect that the oil market is in a very
serious and depressed condition and that large quantities of oil cannot be disposed
of at any price.
xxx xxx xxx
Under this conditions it is imperative that this mill buy no more copra than it can
possibly help at the present time. We are not anxious to compete, nor do we wish to
purchase same in competition with others. We do, however, desire to keep our
agents doing business and trust that they will continue to hold their parroquianos
(customers), buying only minimum quantities at present.
The local market has not changed since last week, and our liquidating price is P14.
(Letter of July 9, 1920, from Visayan Refining Co. to Albaladejo y Cia.)
Notify your subagents to drop out of the market temporarily. We do not desire to
purchase at present.
(Letter of July 10, 1920, from K. B. Day, General Manager, to Albaladejo y Cia.)
The market continues to grow weaker. Conditions are so uncertain that this company
desires to drop out of the copra market until conditions have a chance to readjust
themselves. We request therefore that our agents drop out of active competition for
copra temporarily. Stocks that are at present on hand will, of course, be liquidated,
but no new stocks should be acquired. Agents should do their best to keep their
organizations together temporarily, for we expect to be in the market again soon
stronger than ever. We expect the cooperation of agents in making this effective;
and if they give us this cooperation, we will endeavor to see that they do not lose by
the transaction in the long run. This company has been receiving copra from its
agents for a long time at prices which have netted it a loss. The company has been
supporting its agents during this period. It now expects the same support from its
agents. Agents having stocks actually on hand in their bodegas should telegraph us
the quantity immediately and we will protect same. But stocks not actually in
bodegas cannot be considered.
(Letter of July 17, 1920, from K.B. Day to Albaladejo y Cia.)
Conditions have changed very little in the copra market since last reports. . . . We
are in the same position as last week and are out of the market.
For the benefit of our agents, we wish to explain in a few words just why we are
have been forced to close down our mill until the arrival of a boat to load some of
our stocks on hand. We have large stocks of copra. The market for oil is so uncertain
that we do not care to increase these stocks until such time as we know that the
market has touched the bottom. As soon as this period of uncertainty is over, we
expect to be in the market again stronger than ever, but it is only the part of
business wisdom to play safe at such times as these.
Owing to the very small amounts of copra now in the provinces, we do not think that
our agents will lose anything by our being out of the market. On the contrary, the
producers of copra will have a chance to allow their nuts to mature on the trees so
that the quality of copra which you will receive when we again are in the market
should be much better than what you have been receiving in the past. Due to the
high prices and scarcity of copra a large proportion of the copra we have received
has been made from unripe coconuts and in order to keep revenue coming in the
producers have kept harvesting these coconuts without giving them a chance to
reach maturity. This period now should give them the chance to let their nuts ripen
and should give you a better copra in the future which will shrink less and be more
satisfactory both from your standpoint and ours. Please do all you can to assist us at
this time. We shall greatly appreciate your cooperation. lawphi1.net
(Letter of August 7, 1920, from H.U. Umstead, Assistant General Manager, to Albaladejo y
Cia.)
The copra situation in Manila remains unchanged and the outlook is still uncertain.
Arrivals continue small.
We are still out of the market and are not yet in a position to give you buying orders.
We trust, however, that within the next few days weeks we may be able to reenter
the market and resume our former activity.
xxx xxx xxx
While we are not of the market we have no objection whatever to our agents selling
copra to other purchasers, if by doing so they are able to keep themselves in the
market and retain their parroquianos (customers). We do not, however, wish you to
17
 use our money, for this purpose, nor do we want you to buy copra on speculation
with the idea in mind that we will take it off of your hands at high prices when we
reenter the market. We wish to warn you against this now so that you will not be
working under any misapprehension.
In this same mail, we are sending you a notice of change of organization. In your
dealings with us hereafter, will you kindly address all communications to the
Philippine Refining Corporation, Cebu, which you will understand will be delivered to
us.
(Letter of August 21, 1920, from Philippine Refining Corporation, by K.B. Day, to Albaladejo y
Cia.)
We are not yet in the market, but, as we have indicated before, are hopeful of
renewing our activities soon. We shall advise all our agents seasonably of our return
to the market. . . .
We are preparing new form of agreement between ourselves and our agents and
hope to have them completed in time to refer them to our agents in the course of
the next week or ten days.
All agents should endeavor to liquidate outstanding advances at this time because
this is a particularly good time to clean out old accounts and be on a business basis
when we return to the market. We request that our agents concentrate their
attention on this point during the coming week.lawphi1.net
(Letter of October 16, 1920, from K.B. Day, Manager, to Albaladejo y Cia. )
Copra in Manila and coconut oil in the United States have taken a severe drop during
the past week. The Cebu price seems to have remained unchanged, but we look for
an early drop in the local market.
We have received orders from our president in New York to buy no more copra until
the situation becomes more favorable. We had hoped and expected to be in the
market actively before this time, but this most unexpected reaction in the market
makes the date of our entry in it more doubtful.
With this in view, we hereby notify our agents that we can accept no more copra and
advance no more money until we have permission from our president to do so. We
request, therefore, that you go entirely out of the market, so far as we are
concerned, with the exception of receiving copra against outstanding accounts.
In case any agent be compelled to take in copra and desire to send same to us, we
will be glad to sell same for him to the highest bidder in Cebu. We will make no
charge for our services in this connection, but the copra must be forwarded to us on
consignment only so that we will not appear as buyers and be required to pay the
internal-revenue tax.
We are extremely sorry to be compelled to make the present announcement to you,
but the market is such that our president does not deem it wise for us to purchase
copra at present, and, with this in view, we have no alternative other than to comply
with his orders. We hope that our agents will realize the spirit in which these orders
are given, and will do all they can to remain faithful to us until such time as we can
reenter the market, which we hope and believe will be within a comparatively short
time.
(Special Letter of October 16, 1920, from Philippine Refining Corporation, by K.B. Day, to
Albaladejo y Cia.)
We have received very strict instructions from New York temporarily to suspend the
purchase of copra, and of course we must comply therewith. However, should you
find yourselves obliged to buy copra in connection with your business activities, and
cannot dispose of it advantageously in Cebu, we shall be glad to receive your copra
under the condition that we shall sell it in the market on your account to the highest
bidder, or, in other words, we offer you our services free, to sell your copra to the
best possible advantages that the local market may offer, provided that, in doing so,
we be not obliged to accept your copra as a purchase when there be no market for
this product.
Whenever you find yourselves obliged to buy copra in order to liquidate pending
advances, we can accept it provided that, so long as present conditions prevail, we
be not required to make further cash advances.
We shall quote no further from letters written by the management of the Philippine Refining
Corporation to the plaintiff, as we find nothing in the correspondence which reflects an
attitude different from that reflected in the matter above quoted. It is only necessary to add
that the hope so frequently expressed in the letters, to the effect that the Philippine Refining
Corporation would soon enter the market as a buyer of copra on a more extensive scale than
its predecessor, was not destined to be realized, and the factory at Opon remained closed.
18
But it is quite obvious that there is nothing in these letters on which to hold the defendant
liable for the expenses incurred by the plaintiff in keeping its organization intact during the
period now under consideration. Nor does the oral testimony submitted by the plaintiff
materially change the situation in any respect. Furthermore, the allegation in the complaint
that one agency in particular (Gubat) had been opened on October 1, 1920, at the special
instance and request of the defendant, is not at all sustained by the evidence.
We note that in his letter of July 10, 1920, Mr. Day suggested that if the various purchasing
agents of the Visayan Refining Co. would keep their organization intact, the company would
endeavor to see that they should not lose by the transaction in the long run. These words
afford no sufficient basis for the conclusion, which the trial judge deduced therefrom, that
the defendant is bound to compensate the plaintiff for the expenses incurred in maintaining
its organization. The correspondence sufficiently shows on its face that there was no
intention on the part of the company to lay a basis for contractual liability of any sort; and
the plaintiff must have understood the letters in that light. The parties could undoubtedly
have contracted about it, but there was clearly no intention to enter into contractual relation;
and the law will not raise a contract by implication against the intention of the parties. The
inducement held forth was that, when purchasing should be resumed, the plaintiff would be
compensated by the profits then to be earned for any expense that would be incurred in
keeping its organization intact. It is needless to say that there is no proof showing that the
officials of the defendant acted in bad faith in holding out this hope.
In the appellant's brief the contention is advanced that the contract between the plaintiff and
the Visayan Refining Co. created the relation of principal and agent between the parties, and
the reliance is placed upon article 1729 of the Civil Code which requires the principal to
indemnify the agent for damages incurred in carrying out the agency. Attentive perusal of
the contract is, however, convincing to the effect that the relation between the parties was
not that of principal and agent in so far as relates to the purchase of copra by the plaintiff. It
is true that the Visayan Refining Co. made the plaintiff one of its instruments for the
collection of copra; but it is clear that in making its purchases from the producers the plaintiff
was buying upon its own account and that when it turned over the copra to the Visayan
Refining Co., pursuant to that agreement, a second sale was effected. In paragraph three of
the contract it is declared that during the continuance of this contract the Visayan Refining
Co. would not appoint any other agent for the purchase of copra in Legaspi; and this gives
rise indirectly to the inference that the plaintiff was considered its buying agent. But the use
of this term in one clause of the contract cannot dominate the real nature of the agreement
as revealed in other clauses, no less than in the caption of the agreement itself. In some of
the trade letters also the various instrumentalities used by the Visayan Refining Co. for the
collection of copra are spoken of as agents. But this designation was evidently used for
convenience; and it is very clear that in its activities as a buyer the plaintiff was acting upon
its own account and not as agents, in the legal sense, of the Visayan Refining Co. The title to
all of the copra purchased by the plaintiff undoubtedly remained in it until it was delivered by
way of subsequent sale to said company.
For the reasons stated we are of the opinion that no liability on the part of the defendant is
shown upon the plaintiff's second cause of action, and the judgment of the trial court on this
part of the case is erroneous.
The appealed judgment will therefore be affirmed in so far as it absolves the defendant from
the first cause of action and will be reversed in so far as it gives judgment against the
defendant upon the second cause of action; and the defendant will be completely absolved
from the complaint. So ordered, without express findings as to costs of either instance.
6. DAVID (DAVE) THOMAS, plaintiff-appellant, vs. HERMOGENES S.
PINEDA, defendant-appellant.
For a first cause of action the plaintiff sought to compel an accounting of the defendant's
operation of a saloon and restaurant of which the plaintiff claims to have been the sole
owner. For a second cause of action the court was asked to enjoin the defendant from using
the name of that business, Silver Dollar Cafe. The court below found for the defendant on
the suit for accounting and for the plaintiff on the suit for injunction.
On the first cause of action it is alleged that the defendant managed the business as
plaintiff's employee or trustee during the Japanese occupation of the City of Manila and on a
share of the profits basis after liberation. Grounded on different relationships between the
parties before and after the occupation, this cause of action evolves two different acts of
evidence, which it may be well to take up separately for the sake of clarity. We will set out
the material facts in so far as they are uncontroverted, leaving for later discussion those
about which the parties are in disagreement.
It appears that in 1931, the plaintiff bought the bar and restaurant known as Silver Dollar
Cafe located at Plaza Santa Cruz, Manila, from one Dell Clark, paying P20,000 for its physical
assets and good will. Thereafter he employed the defendant, Clark's former employee, as a
bartender with a salary of P60. In the course of time, the defendant became successively
cashier and manager of the business. The outbreak of war found him holding the latter
position with a monthly compensation of P250.
To prevent the business and its property from falling into enemy hands, the plaintiff being a
citizen of the United States, David Thomas on or about December 28, 1941, made a fictitious
sale thereof to the defendant; and to clothe the sale with a semblance of reality, the bill of
sale was antedated November 29, 1941.
19
Though this document was said to have been destroyed and no copy thereof was available,
the fictitiousness and lack of consideration of the conveyance was expressly admitted in the
answer. Besides this admission, it is agreed that simultaneously with or soon after the
execution of the simulated sale, the plaintiff and the defendant signed a private or secret
document, identified as Exhibit "F", which was kept by the plaintiff. Because of its important
bearing on the case, it is convenient to copy this instrument in full.
PRIVATE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS THAT:
On November 29, 1941, a document which purported to be a deed of sale of the bar
and restaurant business known as the SILVER DOLLAR CAFE entered into by and
between David (Dave) Thomas and Hermogenes Pineda and acknowledged before
Julian Lim, a notary public for and in the City of Manila and entered in his notarial
register as Document No. 127, Page No. 27, Book I and Series of 1941, witnessed by
the Misses Florence Thomas and Esther Thomas.
The said document was prepared and executed only for the purpose of avoiding the
seizure of the said establishment if and when the enemy forces entered the City of
Manila.
Upon the restoration of peace and order and the absence of the danger
abovementioned, the said document automatically becomes null and void and of no
effect, the consideration of Ten Thousand Pesos (P10,000), Philippine Currency,
mentioned therein, being fictitious and not paid to the Vendor.
In witness whereof, we have hereunto set our hands in the City of Manila,
Philippines, this 29th day of November, 1941.
(Sgd.) DAVID THOMAS (Sgd.) H. PINEDA
Vendor Vendee
In the presence of:
(Sgd.) ESTHER THOMAS (Sgd.) FLORENCE THOMAS
Thomas was interred at Santo Tomas during the greater part of the war, and his business
was operated by the defendant exclusively throughout that period in accordance with the
aforequoted stipulation. On February 3, 1945, the building was destroyed by fire but the
defendant had been able to remove some of its furniture, the cash register, the piano, the
safe, and a considerable quantity of stocks to a place of safety. According to the defendant,
all of these goods were accounted for and turned over to the plaintiff after the City of Manila
had been retaken by the American Forces.
On May 8, 1945, a bar was opened on Calle Bambang, district of Sta. Cruz, under the old
name of Silver Dollar Cafe. Housed in a makeshift structure, which was erected on a lot
belonging to the defendant, the Bambang shop was conducted for about four months, i.e.,
until September of the same year, when it was transferred to the original location of the
Silver Dollar Cafe at No. 15 Plaza Sta. Cruz.
It is asserted and denied that the plaintiff as well as the defendant took a more or less active
part in the management of the post-liberation business until about the middle of September
of the following year, when, it is also alleged, the plaintiff brought a certified public
accountant to the establishment in Sta. Cruz for the purpose of examining the books of the
business and the defendant threatened the plaintiff and his companion with a gun if they
persisted in their purpose. As a result of that incident, the plaintiff forthwith filed the present
action, and set up a separate business under the same trade-name, Silver Dollar Cafe, on
Echague Street. The defendant remained with the Silver Dollar Cafe at Plaza Sta. Cruz, which
was burn down on December 15, 1946. In the face of Exhibit "F" before transcribed, there is
no denying that throughout the Japanese military regime the Silver Dollar Cafe belonged
exclusively to the plaintiff and that the defendant had charge of it merely as plaintiff's
employee, trustee, or manager. There is no pretense that the defendant invested in the
business within that period any capital of his own in the form of cash or merchandise.
The controversy lies in nature and scope of the defendant's obligation toward the plaintiff in
relation to the business. It will be noticed that Exhibit "F" is silent on this point. The
defendant endeavored to prove that there was a third, verbal, agreement, the import of
which was that he was to operate the business with no liability other than to turn it over to
the plaintiff as the plaintiff would find it after the war.
Little or no weight can be attached to this assertion if by it the defendant means, as he
apparently does, that he was relieved of any duty to make an accounting. Such
20
understanding as the defendant says existed would be at war with the care and precaution
which the plaintiff took to insure his rights in the business and its assets, which had an
inventory value of P60,000, according to the plaintiff. As the property consisted mostly of
perishable and expendable goods to be constantly disposed of and replenished as long as the
business lasted, the plaintiff could not, by any stretch of the imagination, have agreed to be
content with what the defendant would deign to give him when normalcy was restored. For
that was what the defendant's version of the alleged verbal agreement would amount to and
what the court below found. As sole manager with full power to do as his fancies dictated,
the defendant could strip the business naked of all its stocks, leaving the plaintiff holding the
bag, as it were, when the defendant's management was terminated. Unless Thomas was
willing to give away his property and its profits, no man in his right senses would have given
his manager an outright license such as the defendant claims to have gotten from his
employer. Not only did the plaintiff see to the execution of a counter agreement but he
stated that his elder daughter "had it (Exhibit "F") kept in her possession;" that "there were
many efforts by Mr. Pineda to get hold of this document during the first two weeks of the
Japanese occupation," and he was "surprised;" that he "did not know what was in the future"
and he "wanted my children to have something more than an empty possession." Referring
to the defendant's attempts to take Exhibit "F" away from him, Thomas said that the
defendant sent to the hospital where he (plaintiff) was confined, defendant's friend, an
attorney by the name of Swartzcoff of whom he had heard "things", "to recover that
document", and he, plaintiff, became more determined not to part with it; that as Swartzcoff
kept on coming, he gave the document to his children to keep up to the end of the war. This
testimony has all the stamps of veracity and vehemence and refutes the defendant's
allegation. The conclusion thus seems clear that the defendant owes the plaintiff an
accounting of his management of the plaintiff's business during the occupation. The exact
legal character of the defendant's relation to the plaintiff matters not a bit. It was enough to
show, and it had been shown, that he had been entrusted with the possession and
management of the plaintiff's business and property for the owner's benefit and had not
made an accounting.
Neither did the defendant's sweeping statement at the trial that all the proceeds from the
business had been used to support the plaintiff and his daughters an to entertain or bribe
Japanese officers and civilians dispense with defendant's duty to account. It was a clear
error for the court below to declare at this stage of the proceeding, on the basis of
defendant's incomplete and indefinite evidence, that there were no surplus profits, and to call
matters even. Under the pleadings and the evidence the court's inquiry ought to have been
confined to the determination of the plaintiff's right to secure an accounting; and that right
having been established, the appropriate judgment should have been a preliminary or
interlocutory one that the defendant do account. The court was not called upon to decide,
and should not have decided, anything beyond that.
Monies and foodstuffs which the defendant said he had supplied the plaintiff and his
daughters during the war are appropriate items to be considered on taking account. Receipts
and expenses involving thousands of pesos, covering a great length of time, and consisting
of complicated items are, on their face, so complex and in as to necessitate being threshed
out in an appropriations by the defendants substantiated. By the defendant's admission, the
business made good profits during the war, and there are charges that he amassed a fortune
out of the trusteeship. True or false, those allegations and many others which it was the
plaintiff's right to prove, if he could, should not have been dismissed summarily. Not
technicalities but substantial rights, equity, and justice clearly demanded adherence to the
normal course of practice and procedure. The employment of auditors might be necessary.
The defendant denied that the plaintiff had any proprietary interest in the saloon in Bambang
and at Plaza Sta. Cruz after liberation. Thomas' evidence on this phase of the litigation is to
the effect that, upon his release from the internment camp, he immediately took steps to
rehabilitate his business. He declared that he borrowed P2.000 from a friend by the name of
Bill Drummond, and with that amount he constructed a temporary building in Bambang and
with the stocks saved by the defendant opened the business there. He said that, as before,
the defendant now worked as manager, with the difference that under the new arrangement
he was to get one-half the net profits.
The defendant, on the other hand, undertook to show that he himself put up the Bambang
business, furnishing the construction materials, paying for the labor, and purchasing the
needed merchandise. And when the business was to be moved to Plaza Sta. Cruz, he said, he
called on Mrs. Angela Butte, was able to rent the Plaza Sta. Cruz premises from her for
Pl,200, and told the lessor when he handed her the rent, "This is my money." He went on to
say that Thomas told him to do whatever he pleased with the premises, only requesting him
to negotiate the sale of or a loan on plaintiff's mining shares so that the plaintiff could join
him as partner or "buy him out" by December. But, according to the defendant, the plaintiff
was not able to raise funds, so his desire to acquire interest in or buy the business did not
materialize. The plaintiff did not invest a centavo in the new business because he had no
money to invest, the defendant concluded. Leaving aside the evidence which depends
entirely on the credibility of the Witnesses, the following undisputed or well-established
circumstances are, in our judgment, decisive:
1. The defendant corroborated the plaintiff when he practically declared that upon the
plaintiff's release from the internment camp, Thomas lost no time in looking a site to open a
saloon. That the plaintiff then had the means to do that, was a fact brought out by the
defendant's own evidence as well as by the plaintiff's testimony. There were several cases of
whiskey, rum, gin and other kinds of liquor which the defendant admitted he had carted
away and delivered to the plaintiff after liberation. What the latter did or could have done
with those goods, if not to start a business with, there was no plausible explanation. Granting
21
that ten cases of the liquor were confiscated by the MP the plaintiff said they were soon
returned the confiscation could not have stopped the plaintiff from continuing with the
business, which was riding in the crest of a boom. Significantly, the defendant said that the
day following the alleged confiscation he handed the plaintiff P2,000 in cash. If he had
nothing else, this was an amount which ought to have been enough to enable the plaintiff to
keep the business going, which needed no large capital. That this payment was "in full and
complete liquidation of the Silver Dollar Cafe," as the defendant asserted, was, under the
circumstances, highly improbable, to put it mildly.
2. It is also an admitted fact that the bar in Bambang was called Silver Dollar Cafe, Branch
No. 1. The use of the old name suggested that the business was in fact an extension and
continuation of the Silver Dollar Cafe which the defendant had operated for the plaintiff
during the enemy occupation, and precluded any thought of the business having been
established by the defendants as his own. It should be remembered that the defendant had
not yet appropriated the trade-name Silver Dollar Cafe for himself. This the subject of the
second cause of action he did on September 27, 1945.
3. Despite statements to the contrary, it was the plaintiff who, in September, 1945, before
the reopening of the bar at Plaza Sta. Cruz, entered into a written contract of lease (Exhibit
A) with Mrs. Angela Butte for the Sta. Cruz location; Thomas was named in the contract as
the lessee. The contract also reveals that it was the plaintiff who personally paid Mrs. Butte
the advanced rent (P1,200) for the period August 31-September 30, 1945, the first month of
the lease. And thereafter, all the rental receipts were made out in Thomas' name, except
those for the months of October, November and December, which were put in the name of
the defendant. A propose of this temporary substitution, Jose V. Ramirez, owner of the land
and administrator of the building, testified that the Bureau of Internal Revenue had licensed
and taxed the business in the name of Hermogenes Pineda and so thought it necessary that
for those three months the defendant's name should be put in the receipts. Ramirez added
that Mrs. Butte agreed to the Internal Revenue Bureau's requirement on the assurance that
beginning January, 1946, the receipts would be issued again in favor of Thomas. Mrs. Butte
testified to the same effect.
At any rate, the issuance of three of the receipts in defendant's name was far from implying
that he was the proprietor or part owner of the Silver Dollar Cafe. Appropriately, as manager
he could make disbursement and get receipts therefor in his name. What would have been
strange was the issuance of receipts, let alone the execution of the lease contract, in the
name of David Thomas if Thomas had nothing to do with the business, as the defendant
would have the court believe.
The defendant testified, and the lower court believed, that he consented to the issuance of
the three receipts and the execution of the contract of lease in the plaintiff's name because it
was expected that the plaintiff would buy the business or "chip in" as partner. How the mere
possibility, by no means certain, of the plaintiff becoming the owner of the saloon or
defendant's partner on some future date could have induced the defendant to let the plaintiff
figure unqualifiedly as owner of the business in receipts and leases that had nothing to do
with the contemplated deal, and why the plaintiff would want to pose as owner while he was
yet a complete stranger to the enterprise, is utterly beyond comprehension.
For the rest, the plaintiff's testimony is as convincing and as well supported by the natural
course of things as the defendant's explanation is unreasonable. It can not be disputed that
Thomas had accumulated money from the business in Bambang which, it has also been
proved to the point of certainty, he operated with the goods retrieved by the defendant from
the pre-war Silver Dollar Cafe. Conducting saloons having been the plaintiffs only means of
support before the war, and the calling in which he had acquired plenty of experience, it is
inconceivable that he would have remained idle at a time when the trade was most lucrative
and he had been impoverished by the war. That the plaintiff, established a bar behind the
Great Eastern Hotel on Echague Street, a hidden place, immediately or very soon after he
and the defendant had a falling out, is mute testimony to his eagerness to take advantage of
the current boom.
4. That the defendant was only a manager is also made evident by two sets of business
cards of the Silver Dollar Cafe which he himself caused to be printed. On the first set, of
which 500 prints were made, David Thomas was held out as the proprietor and Hermogenes
Pineda, the defendant, as manager. On the second set, which were ordered later, the
defendant was not even mentioned as manager, but one Bill Magner, while David Thomas'
name was retained as the proprietor.
Customers of the place testified that copies of these cards were handed to them for
distribution to their friends by the defendant himself. The defendant swore that he put away
the cards in a small drawer under some books and denied they had been distributed. He
gave to understand that he was at a loss to know how the plaintiff and his witnesses got hold
of some of said cards, though, he said, he suspected that Thomas went upstairs and grabbed
some copies while the witnesses found other copies scattered after the fire which burned the
establishment for the second time in 1946.
However the case may be, whether the defendant distributed the cards or not, the important
point is why he, in the first place, ordered the cards in the form in which they were printed.
He did not give cogent reasons. His explanation was that Hugo Santiago, the printer's agent,
"gave me a hint that Mr. Thomas was going to open the Silver Dollar Cafe in Plaza Sta. Cruz."
This explanation fails to forge any sensible link between the printing of Thomas' name in the
cards and Thomas' plan to join him in the business. Incidentally, the defendant did not tell
the truth when he declared that the cards were ordered when the shop was still in Bambang;
22
the cards gave the location of the Silver Dollar Cafe as No. 15 Plaza Sta. Cruz, and, besides,
Santiago, who testified for both sides, was positive that the cards were delivered to the
defendant in September, 1945.
5. At different times from May 8 to December 15, 1945, the defendant handed the plaintiff
averse amounts totalling P24,100 without so much as asking Thomas to sign a receipts for
any of them.
The defendant testified that these amounts were simple loans secured by plaintiff's mining
shares of stock. The plaintiff countered that they were advances chargeable to his share of
the net profits. While he admitted that he owned some Baguio Consolidated and Baguio Gold
shares, he denied that he had given them to the defendant as collateral or in any other
concept. He swore that he kept those securities in his own safe and removed them in plain
sight of Pineda when he became suspicious of the latter.
It is difficult to understand how the payment of the amounts in question to the plaintiff could
have been for any purpose other than that affirmed by him. The lack of any receipt is
incompatible with the hypothesis of loans. The defendant's possession of the plaintiff's
mining shares, granting that the defendant held them, was no reason for dispensing with the
necessity of getting from the plaintiff some form of acknowledgment that the said amounts
were personal debts, if that was the case. Without such acknowledgment, which could have
been made in a matter of minutes and required no expert to make, the shares of stock did
not afford the creditor much if any protection, as an experienced and intelligent man that the
defendant is must have realized.
These amounts were the subject of a counterclaim and the court sustained the defendant's
theory and gave him judgment for them. In the light of the what has just been said and of
the evidence previously discussed, there is no escaping the conclusion that the plaintiff was
the sole owner of the post-war Silver Dollar bar and restaurant, that the defendant was only
an industrial partner, and that the said amounts were withdrawals on account of the profits,
which appear from portions of the defendant's entries in the books to have been
considerable.
On the second cause of action, which relates to the ownership of the Silver Dollar Cafe trade-
name, it appears that the defendant on September 27, 1945, registered the business and its
name as his own.
The defendant contends that in 1940, the plaintiff's right to use this trade-name expired and
by abandonment or non-use the plaintiff ceased to have any title thereto. The alleged
abandonment or non-use is predicated on the testimony that the plaintiff expressly allowed
the defendant to appropriate the trade-name in dispute.
The parties' actions negative all motions of abandonment by the plaintiff. In the fictitious bill
of sale executed on December 29, 1941, the plaintiff asserted and the defendant
acknowledged Thomas' ownership of the business. It is manifest from Exhibit "C" and "D,
samples of the business cards which were printed at the instance of the defendant himself,
that the plaintiff continued to display the name Silver Dollar Cafe after liberation. And when
the plaintiff set up a new saloon on Echague Street after he broke with the defendant, he
gave the establishment the same appellation Silver Dollar Cafe.
The most that can be said in favor of the defendant, which is the view taken by the trial
Judge, is that the plaintiff instructed Pineda to renew the registration of the trade-name and
the defendant understood the instruction as permission to make the registration in his favor.
It is to be doubted to whether even honest mistakes were possible under the circumstance of
the case. It is an understatement to say that indications pointed to bad faith in the
registration. The application for registration contained brazen untruths.
The plaintiff non-use of his trade name in 1945, granting that to have been the case, did not
work as a forfeiture of his exclusive right to the name, name which he and the man from
whom he bought the business had used for over forty years without interruption. Under the
provision of Commerce Administrative Order No. 1, issued on January 11, 1946, by the
Secretary of Commerce and Agriculture, the rights registrant of business names, the records
of which had been destroyed or lost during the war, were expressly protected. This
administrative Order No. 1-1, dated October 29, 1946, but the amendment referred only to
the procedure for authentication of the documents to be submitted. On the other hand, the
amendatory order extended the filing of application for reconstitution up to as late as
December 31, 1946, that is ninety days after plaintiff commenced the present action.
As legal proposition and in good conscience, the defendants registration of the trade name
Silver Dollar Cafe must be deemed to have been affected for the benefit of its owner of
whom he was a mere trustee or employee. "The relations of an agent to his principal are
fiduciary and it is an elementary and very old rule that in regard to property forming the
subject matter of the agency, he is estopped from acquiring or asserting a title adverse to
that of principal. His position is analogous to that of a trustee and he cannot consistently,
with the principles of good faith, be allowed to create in himself an interest in opposition to
that of his principal or cestui que trust. A receiver, trustee, attorney, agent or any other
person occupying fiduciary relations respecting property or persons utterly disabled from
acquiring for his own benefit the property committed to his custody for management. This
rule is entirely independent of the fact whether any fraud has intervened. No fraud in fact
need be shown, and no excuse will be heard from any such inquiry that the rule takes so
general form. The rule stands on the moral obligation to refrain from placing one's self in
position which ordinarily excite conflicts between self-interest at the expense of one's
23
integrity and duty to another, by making it possible to profit by yielding to temptation".
(Barreto vs. Tuason, 50 Phil. 888; Severino vs. Severino, 44 Phil., 343.)
To recapitulate, we find from what we believed is conclusive evidence, both direct and
circumstance, that the plaintiff was the owner of the Silver Dollar Cafe at Plaza Sta. Cruz
during the enemy occupation and is of right entitled to have an accounting of its
administration by the defendant. Exhibit "F" does not state the remuneration the defendant
was to be paid for managing the plaintiff's business. The natural presumption under normal
circumstances would be that his prewar compensation was to continue. But conditions during
the occupation being different from what they were before the war, the defendants
remuneration may and should be increased if so warranted by the changed circumstances.
This matter should be left for consideration in the accounting, having in mind the nature and
extent of the services rendered, the volumes of business transacted, the profits obtained and
the losses incurred, the personal risk run by the defendant, and other factors related to the
success or failure of the defendant's management.
We have it from the plaintiff that he promised to give the defendant one-half of the net
profits of the business established in Bambang and later at Plaza Sta. Cruz after liberation.
This offer was reasonable, even liberal, and no unforeseen circumstances having supervened
to warrants its alteration, the same will not be disturbed and will serve as basis of liquidation.
The other basis of liquidation of the post-war business are that the plaintiff was the exclusive
owner of its stocks and other assets from May 8, 1945, when it was reestablished in
Bambang, to December 15 1946, when the business was levelled to the ground at Plaza Sta.
Cruz.
For the reasons hereinbefore stated, the various sums of money aggregating P24,100 and
received or taken by the plaintiff were, and they hereby are declared to be, accounting from
the defendants share of said profits if there be any.
We also find that the trade-name Silver Dollar Cafe belongs to the plaintiff and that the
defendant should be and he is perpetually enjoined from using it or any essential part
thereof.
In all other respects, especially in connection with the demand for accounting, this case is
remanded to the court of origin for further proceedings in accordance with law and the tenor
of this decision and for a final judgment on the balance that may be found due from either
party.
The defendant will pay the costs of this appeal.
7. PABLO D. PALMA, petitioner, vs. EDUARDO REYES CRISTOBAL, respondent.
A parcel of a land located in Quesada Street, Tondo, Manila, covered by transfer certificate of
title No. 31073 of the Register of Deeds of Manila, issued in favor of petitioner Pablo D.
Palma, is the subject of contention between the parties.
Petitioner sought, at first, to eject respondent Eduardo Cristobal Reyes from the land in
question in a complaint filed with the Municipal Court of Manila. As respondent raised the
question of ownership, the complaint was dismissed, and petitioner filed with the Court of
First Instance of Manila the complaint which initiated this case, petitioner praying that he be
declared the owner of the land and that respondent be ordered to restore its possession and
to remove his house therefrom.
The complaint was dismissed and petitioner brought the case to the Court of Appeals, where
he again failed, the appealed judgment having been affirmed by a decision penned by Mr.
Justice Padilla, concurred in by Mr. Justice Jose G. Generoso and Mr. Justice Pedro Tuason.
The case is now before us on appeal by certiorari.
In 1909, after registration proceedings under the provisions of Act No. 496, original
certificate of title No. 1627 was issued in the names of petitioner and his wife Luisa Cristobal.
In 1923, said certificate was cancelled and substituted by certificate of title No. 20968 by
virtue of a decree issued by the Court of First Instance of Manila in connection with Manila
cadastre. It was later substituted by certificate of title No. 26704, also in the name of
petitioner and his wife. After the latter's death in 1922,a new certificate of title was issued in
1923 only in the name of the name of the petitioner, substituted in 1928 by certificate of title
No. 31073.
The Court of Appeals, upon the evidence, concluded with the Court of First Instance of
Manila that the parcel of land in question is a community property held by petitioner in trust
for the real owners (the respondent being an heir of one of them), the registration having
been made in accordance with an understanding between the co-owners, by reason of the
confidence they had in petitioner and his wife. This confidence, close relationship, and the
fact that the co-owners were receiving their shares in the rentals, were the reasons why no
step had been taken to partition the property.
The Court of Appeals explains that it was only after the death of Luisa Cristobal and
petitioner had taken a second wife that trouble on religious matters arose between petitioner
and respondent, and it gives credence to the testimony of Apolonia Reyes and respondent to
the effect that Luisa, before her death, called her husband, the petitioner, and enjoined him
to give her co-owners their shares in the parcel of land; but respondent told her then not to
worry about it, for it was more important to them to have her cured of the malady that
24
affected her. Petitioner answered his wife that she should not worry because he would take
care of the matter by giving the co-owners their respective shares.
Petitioner assigns as first error of the Court of Appeals the fact that it considered the oral
testimony adduced in behalf of respondent sufficient to rebut the legal presumption that
petitioner is the owner of the land in controversy. .
In Severino vs. Severino (43 Phil., 343), this court declared that "the relations of an agent to
his principal are fiduciary and it is an elementary and very old rule that in regard to property
forming the subject-matter of the agency, he is estopped from acquiring or asserting a title
adverse to that of the principal. His position is analogous to that of a trustee and he cannot
consistently, with the principles of good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust." Affirming the said doctrine in Barretto
vs. Tuason (50 Phil., 888), the Supreme Court declared that the registration of the property
in the name of the trustees in possession thereof, must be deemed to have been effected for
the benefit of the cestui que trust. In Palet vs. Tejedor (55 Phil., 790), it was declared that
whether or not there is bad faith or fraud in obtaining a decree with respect to a registered
property, the same does not belong to the person in whose favor it was issued, and the real
owners be entitled to recover the ownership of the property so long as the same has not
been transferred to a third person who has acquired it in good faith and for a valuable
consideration. This right to recover is sanctioned by section 55 of Act No. 496, as amended
by Act No. 3322.
There is no showing why the conclusions of facts of the Court of Appeals should be
disturbed, and upon said facts petitioner's first assignment of errors appears to be untenable
in the light of law and of the decision of this court.
Petitioner alleged that the Court of Appeals erred in not holding the respondent estopped
from claiming that petitioner is not the absolute owner of the property in question because,
after Luisa Cristobal, petitioner's wife, died in 1922, instead of moving for the partition of the
property, considering specially that petitioner had promised such a partition at the deathbed
of the deceased, respondent appeared as attorney for petitioner and prayed that a new
certificate of title be issued in the name of said petitioner as the sole owner of the property.
Petitioner insisted with energy that respondent himself was a party to the fraud upon the
court, as guilty as petitioner himself, and that estops him from asserting that he is the co-
owner of the land involved herein.lawphil.net
There is no merit in petitioner's contention. The fact that respondent has been a party to the
deception which resulted in petitioner's securing in his name the title to a property not
belonging to him, is not valid reason for changing the legal relationship between the latter
and its true owners to such an extent as to let them lose their ownership to a person trying
to usurp it.
Whether petitioner and respondent are or are not jointly responsible for any fraud upon a
court of justice, cannot affect the substantial rights of the real owners of the title of a real
property.
Respondent is not barred because his appearance as attorney for petitioner was not a
misrepresentation which would induce petitioner to believe that respondent recognized the
former as the sole owner of the property in controversy. The misrepresentation could deceive
the court and outsiders, because they were not aware of the understanding between the co-
owners that the property be registered in the name of petitioner. The Court of Appeals
found, and the finding is not now in issue, that petitioner was a party to the understanding
and assumed the role of an instrument to make it effective. Respondent's appearance, as
attorney for petitioner in 1923, was a consequence of the understanding, and petitioner
could not legitimately assume that it had the effect of breaking or reversing said
understanding.
Lastly, it is contended by petitioner that, even conceding that the controverted property was
owned in common by several co-owners, yet the Court of Appeals erred in not holding that,
as against respondent, petitioner had acquired absolute ownership of the same through
prescription.
Upon the premise that the registration in 1909 in the name of petitioner and his wife, Luisa
Cristobal, was in accordance with an agreement among the co-owners, petitioner advances
the theory that when he, upon the death of his wife in 1922, caused the trust property to be
registered in his sole name in 1923, and subsequently partitioned between himself and his
daughter, Ildefonsa Cristobal Ditangco, as heirs of the decedent, "he openly breached the
agreement of 1909 as well as the promise made to his dying wife of giving the co-owners
their respective shares," concluding that "that breach was an assumption of ownership, and
could be the basis of title by prescription."
This theory holds no water because, according to the pronouncement of the Court of
Appeals, upon the evidence, petitioner held the property and secured its registration in his
name in a fiduciary capacity, and it is elementary that a trustee cannot acquire by
prescription the ownership of the property entrusted to him. The position of a trustee is of
representative nature. His position is the position of a cestui que trust. It is logical that all
benefits derived by the possession and acts of the agent, as such agent, should accrue to the
benefit of his principal.
25
Petitioner's pretension of building his right to claim ownership by prescription upon his own
breach of a trust cannot be countenanced by any court, being subversive of generally
accepted ethical principles.
The decision of the Court of Appeals is affirmed. No costs.
8. FEDERICO VALERA, plaintiff-appellant, vs. MIGUEL VELASCO, defendant-appellee.
This is an appeal taken by Federico Valera from the judgment of the Court of First
Instance of Manila dismissing his complaint against Miguel Velasco, on the ground that
he has not satisfactorily proven his right of action.
In support of his appeal, the appellant assigns the following alleged as committed by the trial
court in its judgment, to wit: (1) The lower court erred in holding that one of the ways of
terminating an agency is by the express or tacit renunciation of the agent; (2) the lower
court erred in holding that the institution of a civil action and the execution of the judgment
obtained by the agent against his principal is but renunciation of the powers conferred on the
agent; (3) the lower erred in holding that, even if the sale by Eduardo Hernandez to the
plaintiff Federico Valera be declared void, such a declaration could not prevail over the rights
of the defendant Miguel Velasco inasmuch as the right redemption was exercised by neither
Eduardo Hernandez nor the plaintiff Federico Valera; (4) the lower court erred in not finding
that the defendant Miguel Velasco was, and at present is, an authorized representative of the
plaintiff Federico Valera; (5) the lower court erred in not annulling the sale made by the
sheriff at public auction to defendant Miguel Velasco, Exhibit K; (6) the lower court erred in
failing to annul the sale executed by Eduardo Hernandez to the plaintiff Federico Valera,
Exhibit C; (7) the lower court erred in not annulling Exhibit L, that is, the sale at public
auction of the right to repurchase the land in question to Salvador Vallejo; (8) the lower
court erred in not declaring Exhibit M null and void, which is the sale by Salvador Vallejo to
defendant Miguel Velasco; (9) the lower court erred in not ordering the defendant Miguel
Velasco to liquidate his accounts as agent of the plaintiff Federico Valera; (10) the lower
court erred in not awarding plaintiff the P5,000 damages prayed for.
The pertinent facts necessary for the solution of the questions raised by the above quoted
assignments of error are contained in the decision appealed from and are as follows:
By virtue of the powers of attorney, Exhibits X and Z, executed by the plaintiff on
April 11, 1919, and on August 8, 1922, the defendant was appointed attorney-in-fact
of the said plaintiff with authority to manage his property in the Philippines,
consisting of the usufruct of a real property located of Echague Street, City of Manila.
The defendant accepted both powers of attorney, managed plaintiff's property,
reported his operations, and rendered accounts of his administration; and on March
31, 1923 presented exhibit F to plaintiff, which is the final account of his
administration for said month, wherein it appears that there is a balance of
P3,058.33 in favor of the plaintiff.
The liquidation of accounts revealed that the plaintiff owed the defendant P1,100,
and as misunderstanding arose between them, the defendant brought suit against
the plaintiff, civil case No. 23447 of this court. Judgment was rendered in his favor
on March 28, 1923, and after the writ of execution was issued, the sheriff levied
upon the plaintiff's right of usufruct, sold it at public auction and adjudicated it to the
defendant in payment of all of his claim.
Subsequently, on May 11, 1923, the plaintiff sold his right of redemption to one
Eduardo Hernandez, for the sum of P200 (Exhibit A). On September 4, 1923, this
purchaser conveyed the same right of redemption, for the sum of P200, to the
plaintiff himself, Federico Valera (Exhibit C).
After the plaintiff had recovered his right of redemption, one Salvador Vallejo, who
had an execution upon a judgment against the plaintiff rendered in a civil case
against the latter, levied upon said right of redemption, which was sold by the sheriff
at public auction to Salvador Vallejo for P250 and was definitely adjudicated to him.
Later, he transferred said right of redemption to the defendant Velasco. This is how
the title to the right of usufruct to the aforementioned property later came to vest
the said defendant.
As the first two assignments of error are very closely related to each other, we will consider
them jointly.
Article 1732 of the Civil Code reads as follows:
Art. 1732. Agency is terminated:
1. By revocation;
2. By the withdrawal of the agent;
3. By the death, interdiction, bankruptcy, or insolvency of the principal or of the
agent.
26
And article 1736 of the same Code provides that:
Art. 1736. An agent may withdraw from the agency by giving notice to the principal.
Should the latter suffer any damage through the withdrawal, the agent must
indemnify him therefore, unless the agent's reason for his withdrawal should be the
impossibility of continuing to act as such without serious detriment to himself.
In the case of De la Pea vs. Hidalgo (16 Phil., 450), this court said laid down the following
rule:
1. AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY. When the agent
and administrator of property informs his principal by letter that for 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 abandons the property, turns it
over to a third party, renders accounts of its revenues up to the date on which he
ceases to hold his position and transmits to his principal statement which
summarizes and embraces all the balances of his accounts since he began the
administration to the date of the termination of his trust, and, without stating when
he may return to take charge of the administration of the said property, asks his
principal to execute a power of attorney in due form in favor of a transmit the same
to another person who took charge of the administration of the said property, it is
but reasonable and just to conclude that the said agent had expressly and definitely
renounced his agency and that such agency duly terminated, in accordance with the
provisions of article 1732 of the Civil Code, and, although the agent in his
aforementioned letter did not use the words "renouncing the agency," yet such
words, were undoubtedly so understood and accepted by the principal, because of
the lapse of nearly nine years up to the time of the latter's death, without his having
interrogated either the renouncing agent, disapproving what he had done, or the
person who substituted the latter.
The misunderstanding between the plaintiff and the defendant over the payment of the
balance of P1,000 due the latter, as a result of the liquidation of the accounts between them
arising from the collections by virtue of the former's usufructuary right, who was the
principal, made by the latter as his agent, and the fact that the said defendant brought suit
against the said principal on March 28, 1928 for the payment of said balance, more than
prove the breach of the juridical relation between them; for, although the agent has not
expressly told his principal that he renounced the agency, yet neither dignity nor decorum
permits the latter to continue representing a person who has adopted such an antagonistic
attitude towards him. When the agent filed a complaint against his principal for recovery of a
sum of money arising from the liquidation of the accounts between them in connection with
the agency, Federico Valera could not have understood otherwise than that Miguel Velasco
renounced the agency; because his act was more expressive than words and could not have
caused any doubt. (2 C. J., 543.) In order to terminate their relations by virtue of the agency
the defendant, as agent, rendered his final account on March 31, 1923 to the plaintiff, as
principal.
Briefly, then, the fact that an agent institutes an action against his principal for the recovery
of the balance in his favor resulting from the liquidation of the accounts between them
arising from the agency, and renders and final account of his operations, is equivalent to an
express renunciation of the agency, and terminates the juridical relation between them.
If, as we have found, the defendant-appellee Miguel Velasco, in adopting a hostile attitude
towards his principal, suing him for the collection of the balance in his favor, resulting from
the liquidation of the agency accounts, ceased ipso facto to be the agent of the plaintiff-
appellant, said agent's purchase of the aforesaid principal's right of usufruct at public auction
held by virtue of an execution issued upon the judgment rendered in favor of the former and
against the latter, is valid and legal, and the lower court did not commit the fourth and fifth
assignments of error attributed to it by the plaintiff-appellant.
In regard to the third assignment of error, it is deemed unnecessary to discuss the validity of
the sale made by Federico Valera to Eduardo Hernandez of his right of redemption in the sale
of his usufructuary right made by the sheriff by virtue of the execution of the judgment in
favor of Miguel Velasco and against the said Federico Valera; and the same thing is true as to
the validity of the resale of the same right of redemption made by Eduardo Hernandez to
Federico Valera; inasmuch as Miguel Velasco's purchase at public auction held by virtue of an
execution of Federico Valera's usufructuary right is valid and legal, and as neither the latter
nor Eduardo Hernandez exercised his right of redemption within the legal period, the
purchaser's title became absolute.
Moreover, the defendant-appellee, Miguel Velasco, having acquired Federico Valera's right of
redemption from Salvador Vallejo, who had acquired it at public auction by virtue of a writ of
execution issued upon the judgment obtained by the said Vallejo against the said Valera, the
latter lost all right to said usufruct.
And even supposing that Eduardo Hernandez had been tricked by Miguel Velasco into selling
Federico Valera's right of repurchase to the latter so that Salvador Vallejo might levy an
execution on it, and even supposing that said resale was null for lack of consideration, yet,
inasmuch as Eduardo Hernandez did not present a third party claim when the right was
levied upon for the execution of the judgment obtained by Vallejo against Federico Vallera,
nor did he file a complaint to recover said right before the period of redemption expired, said
Eduardo Hernandez, and much less Federico Valera, cannot now contest the validity of said
resale, for the reason that the one-year period of redemption has already elapsed.
27
Neither did the trial court err in not ordering Miguel Velasco to render a liquidation of
accounts from March 31, 1923, inasmuch as he had acquired the rights of the plaintiff by
purchase at the execution sale, and as purchaser, he was entitled to receive the rents from
the date of the sale until the date of the repurchase, considering them as part of the
redemption price; but not having exercised the right repurchase during the legal period, and
the title of the repurchaser having become absolute, the latter did not have to account for
said rents.
Summarizing, the conclusion is reached that the disagreements between an agent and his
principal with respect to the agency, and the filing of a civil action by the former against the
latter for the collection of the balance in favor of the agent, resulting from a liquidation of the
agency accounts, are facts showing a rupture of relations, and the complaint is equivalent to
an express renunciation of the agency, and is more expressive than if the agent had merely
said, "I renounce the agency."
By virtue of the foregoing, and finding no error in the judgment appealed from, the same is
hereby affirmed in all its parts, with costs against the appellant. So ordered.
9. JESUS MA. CUI, plaintiff-appellee, vs. ANTONIO MA. CUI, defendant-appellant,
ROMULO CUI, Intervenor-appellant.
This is a proving in quo warranto originally filed in the Court of First Instance of Cebu. The
office in contention is that of Administrator of the Hospicio de San Jose de Barili. Judgment
was rendered on 27 April 1961 in favor of the plaintiff, Jesus Ma. Cui, and appealed to us by
the defendant, Antonio Ma. Cui, and by the intervenor, Romulo Cui.
The Hospicio is a charitable institution established by the spouses Don Pedro Cui and Doa
Benigna Cui, now deceased, "for the care and support, free of charge, of indigent invalids,
and incapacitated and helpless persons." It acquired corporate existence by legislation (Act
No. 3239 of the Philippine Legislature passed 27 November 1925) and endowed with
extensive properties by the said spouses through a series of donations, principally the deed
of donation executed on 2 January 1926.
Section 2 of Act No. 3239 gave the initial management to the founders jointly and, in case of
their incapacity or death, to "such persons as they may nominate or designate, in the order
prescribed to them." Section 2 of the deed of donation provides as follows:
Que en caso de nuestro fallecimiento o incapacidad para administrar, nos sustituyan
nuestro legitime sobrino Mariano Cui, si al tiempo de nuestra muerte o incapacidad
se hallare residiendo en la caudad de Cebu, y nuestro sobrino politico Dionisio
Jakosalem. Si nuestro dicho sobrino Mariano Cui no estuviese residiendo entonces en
la caudad de Cebu, designamos en su lugar a nuestro otro sobrino legitime Mauricio
Cui. Ambos sobrinos administraran conjuntamente el HOSPICIO DE SAN JOSE DE
BARILI. A la muerte o incapacidad de estos dos administradores, la administracion
del HOSPICIO DE SAN JOSE DE BARILI pasara a una sola persona que sera el varon,
mayor de edad, que descienda legitimainente de cualquiera de nuestros sobrinos
legitimos Mariano Cui, Mauricio Cui, Vicente Cui y Victor Cui, y que posea titulo de
abogado, o medico, o ingeniero civil, o farmaceutico, o a falta de estos titulos, el que
pague al Estado mayor impuesto o contribution. En igualdad de circumstancias, sera
preferida el varon de mas edad descendiente de quien tenia ultimamente la
administracion. Cuando absolutamente faltare persona de estas cualificaciones, la
administracion del HOSPICIO DE SAN JOSE DE BARILI pasara al senor Obispo de
Cebu o quien sea el mayor dignatario de la Iglesia Catolica, apostolica, Romana, que
tuviere asiento en la cabecera de esta Provincia de Cebu, y en su defecto, al
Gobierno Provincial de Cebu.
Don Pedro Cui died in 1926, and his widow continued to administer the Hospicio until her
death in 1929. Thereupon the administration passed to Mauricio Cui and Dionisio Jakosalem.
The first died on 8 May 1931 and the second on 1 July 1931. On 2 July 1931 Dr. Teodoro
Cui, only son of Mauricio Cui, became the administrator. Thereafter, beginning in 1932, a
series of controversies and court litigations ensued concerning the position of administrator,
to which, in so far as they are pertinent to the present case, reference will be made later in
this decision.
Plaintiff Jesus Ma. Cui and defendant Antonio Ma. Cui are brothers, being the sons of Mariano
Cui, one of the nephews of the spouses Don Pedro Cui and Doa Benigna Cui. On 27
February 1960 the then incumbent administrator, Dr. Teodoro Cui, resigned in favor of
Antonio Ma. Cui pursuant to a "convenio" entered into between them and embodied in a
notarial document. The next day, 28 February, Antonio Ma. Cui took his oath of office. Jesus
Ma. Cui, however, had no prior notice of either the "convenio" or of his brother's assumption
of the position.
Dr. Teodoro Cui died on 27 August 1960; on 5 September 1960 the plaintiff wrote a letter to
the defendant demanding that the office be turned over to him; and on 13 September 1960,
the demand not having been complied with the plaintiff filed the complaint in this case.
Romulo Cui later on intervened, claiming a right to the same office, being a grandson of
Vicente Cui, another one of the nephews mentioned by the founders of the Hospicio in their
deed of donation.
As between Jesus and Antonio the main issue turns upon their respective qualifications to the
position of administrator. Jesus is the older of the two and therefore under equal
circumstances would be preferred pursuant to section 2 of the deed of donation. However,
28
before the test of age may be, applied the deed gives preference to the one, among the
legitimate descendants of the nephews therein named, "que posea titulo de abogado, o
medico, o ingeniero civil, o farmaceutico, o a falta de estos titulos el que pague al estado
mayor impuesto o contribucion."
The specific point in dispute is the mealing of the term "titulo de abogado." Jesus Ma. Cui
holds the degree of Bachelor of Laws from the University of Santo Tomas (Class 1926) but is
not a member of the Bar, not having passed the examinations to qualify him as one. Antonio
Ma. Cui, on the other hand, is a member of the Bar and although disbarred by this Court on
29 March 1957 (administrative case No. 141), was reinstated by resolution promulgated on
10 February 1960, about two weeks before he assumed the position of administrator of
the Hospicio de Barili.
The Court a quo, in deciding this point in favor of the plaintiff, said that the phrase "titulo de
abogado," taken alone, means that of a full-fledged lawyer, but that has used in the deed of
donation and considering the function or purpose of the administrator, it should not be given
a strict interpretation but a liberal one," and therefore means a law degree or diploma of
Bachelor of Laws. This ruling is assailed as erroneous both by the defendant and by the
intervenor.
We are of the opinion, that whether taken alone or in context the term "titulo de abogado"
means not mere possession of the academic degree of Bachelor of Laws but membership in
the Bar after due admission thereto, qualifying one for the practice of law. In Spanish the
word "titulo" is defined as "testimonies o instrumento dado para ejercer un empleo, dignidad
o profesion" (Diccionario de la Lengua Espaola, Real Academia Espanola, 1947 ed., p. 1224)
and the word "abogado," as follows: "Perito en el derecho positivo que se dedica a defender
en juicio, por escrito o de palabra, los derechos o intereses de los litigantes, y tambien a dar
dictmen sobre las cuestiones o puntos legales que se le consultan ( Id., p.5) A Bachelor's
degree alone, conferred by a law school upon completion of certain academic requirements,
does not entitle its holder to exercise the legal profession. The English equivalent of
"abogado" is lawyer or attorney-at-law. This term has a fixed and general signification, and
has reference to that class of persons who are by license officers of the courts, empowered
to appear, prosecute and defend, and upon whom peculiar duties, responsibilities and
liabilities are devolved by law as a consequence.
In this jurisdiction admission to the Bar and to the practice of law is under the authority of
the Supreme Court. According to Rule 138 such admission requires passing the Bar
examinations, taking the lawyer's oath and receiving a certificate from the Clerk of Court, this
certificate being his license to practice the profession. The academic degree of Bachelor of
Laws in itself has little to do with admission to the Bar, except as evidence of compliance
with the requirements that an applicant to the examinations has "successfully completed all
the prescribed courses, in a law school or university, officially approved by the Secretary of
Education." For this purpose, however, possession of the degree itself is not indispensable:
completion of the prescribed courses may be shown in some other way. Indeed there are
instances, particularly under the former Code of Civil Procedure, where persons who had not
gone through any formal legal education in college were allowed to take the Bar
examinations and to qualify as lawyers. (Section 14 of that code required possession of "the
necessary qualifications of learning ability.") Yet certainly it would be incorrect to say that
such persons do not possess the "titulo de abogado" because they lack the academic degree
of Bachelor of Laws from some law school or university.
The founders of the Hospicio de San Jose de Barili must have established the foregoing test
advisely, and provided in the deed of donation that if not a lawyer, the administrator should
be a doctor or a civil engineer or a pharmacist, in that order; or failing all these, should be
the one who pays the highest taxes among those otherwise qualified. A lawyer, first of all,
because under Act No. 3239 the managers or trustees of the Hospicio shall "make
regulations for the government of said institution (Sec. 3, b); shall "prescribe the conditions
subject to which invalids and incapacitated and destitute persons may be admitted to the
institute" (Sec. 3, d); shall see to it that the rules and conditions promulgated for admission
are not in conflict with the provisions of the Act; and shall administer properties of
considerable value for all of which work, it is to be presumed, a working knowledge of the
law and a license to practice the profession would be a distinct asset.
Under this particular criterion we hold that the plaintiff is not entitled, as against the
defendant, to the office of administrator. But it is argued that although the latter is a
member of the Bar he is nevertheless disqualified by virtue of paragraph 3 of the deed of
donation, which provides that the administrator may be removed on the ground, among
others, of ineptitude in the discharge of his office or lack of evident sound moral character.
Reference is made to the fact that the defendant was disbarred by this Court on 29 March
1957 for immorality and unprofessional conduct. It is also a fact, however, that he was
reinstated on 10 February 1960, before he assumed the office of administrator. His
reinstatement is a recognition of his moral rehabilitation, upon proof no less than that
required for his admission to the Bar in the first place.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted
and approved by this Honorable Court, without prejudice to the parties adducing other
evidence to prove their case not covered by this stipulation of facts. 1wph1.t
Whether or not the applicant shall be reinstated rests to a great extent in the sound
discretion of the court. The court action will depend, generally speaking, on whether
or not it decides that the public interest in the orderly and impartial administration of
justice will be conserved by the applicant's participation therein in the capacity of an
29
 attorney and counselor at law. The applicant must, like a candidate for admission to
the bar, satisfy the court that he is a person of good moral character a fit and
proper person to practice law. The court will take into consideration the applicant's
character and standing prior to the disbarment, the nature and character of the
charge for which he was disbarred, his conduct subsequent to the disbarment, and
the time that has elapsed between the disbarment and the application for
reinstatement. (5 Am. Jur., Sec. 301, p. 443)
Evidence of reformation is required before applicant is entitled to reinstatement,
notwithstanding the attorney has received a pardon following his conviction, and the
requirements for reinstatement have been held to be the same as for original
admission to the bar, except that the court may require a greater degree of proof
than in an original admission. (7 C.J.S., Attorney & Client, Sec. 41, p. 815.)
The decisive questions on an application for reinstatement are whether applicant is
"of good moral character" in the sense in which that phrase is used when applied to
attorneys-at-law and is a fit and proper person to be entrusted with the privileges of
the office of an attorney, and whether his mental qualifications are such as to enable
him to discharge efficiently his duty to the public, and the moral attributes are to be
regarded as a separate and distinct from his mental qualifications. (7 C.J.S., Attorney
& Client, Sec. 41, p. 816).
As far as moral character is concerned, the standard required of one seeking reinstatement
to the office of attorney cannot be less exacting than that implied in paragraph 3 of the deed
of donation as a requisite for the office which is disputed in this case. When the defendant
was restored to the roll of lawyers the restrictions and disabilities resulting from his previous
disbarment were wiped out.
This action must fail on one other ground: it is already barred by lapse of time amounting the
prescription or laches. Under Section 16 of Rule 66 (formerly sec. 16, Rule 68, taken from
section 216 of Act 190), this kind of action must be filed within one (1) year after the right of
plaintiff to hold the office arose.
Plaintiff Jesus Ma. Cui believed himself entitled to the office in question as long ago as 1932.
On January 26 of that year he filed a complaint in quo warranto against Dr. Teodoro Cui,
who assumed the administration of the Hospicio on 2 July 1931. Mariano Cui, the plaintiff's
father and Antonio Ma. Cui came in as intervenors. The case was dismissed by the Court of
First Instance upon a demurrer by the defendant there to the complaint and complaint in
intervention. Upon appeal to the Supreme Court from the order of dismissal, the case was
remanded for further proceedings (Cui v. Cui, 60 Phil. 37, 48). The plaintiff, however, did not
prosecute the case as indicated in the decision of this Court, but acceded to an arrangement
whereby Teodoro Cui continued as administrator, Mariano Cui was named "legal adviser" and
plaintiff Jesus Ma. Cui accepted a position as assistant administrator.
Subsequently the plaintiff tried to get the position by a series of extra-judicial maneuvers.
First he informed the Social Welfare Commissioner, by letter dated 1 February 1950, that as
of the previous 1 January he had "made clear" his intention of occupying the office of
administrator of the Hospicio." He followed that up with another letter dated 4 February,
announcing that he had taken over the administration as of 1 January 1950. Actually,
however, he took his oath of office before a notary public only on 4 March 1950, after
receiving a reply of acknowledgment, dated 2 March, from the Social Welfare Commissioner,
who thought that he had already assumed the position as stated in his communication of 4
February 1950. The rather muddled situation was referred by the Commissioner to the
Secretary of Justice, who, in an opinion dated 3 April 1950 (op. No. 45, S. 1950), correcting
another opinion previously given, in effect ruled that the plaintiff, not beings lawyer, was not
entitled to the administration of the Hospicio.
Meanwhile, the question again became the subject of a court controversy. On 4 March 1950,
the Hospicio commenced an action against the Philippine National Bank in the Court of First
Instance of Cebu (Civ. No. R-1216) because the Bank had frozen the Hospicio's deposits
therein. The Bank then filed a third-party complaint against herein plaintiff-appellee, Jesus
Ma. Cui, who had, as stated above, taken oath as administrator. On 19 October 1950, having
been deprived of recognition by the opinion of the Secretary of Justice he moved to dismiss
the third-party complaint on the ground that he was relinquishing "temporarily" his claim to
the administration of the Hospicio. The motion was denied in an order dated 2 October 1953.
On 6 February 1954 he was able to take another oath of office as administrator before
President Magsaysay, and soon afterward filed a second motion to dismiss in Civil case No.
R-1216. President Magsaysay, be it said, upon learning that a case was pending in Court,
stated in a telegram to his Executive Secretary that "as far as (he) was concerned the court
may disregard the oath" thus taken. The motion to dismiss was granted nevertheless and the
other parties in the case filed their notice of appeal from the order of dismissal. The plaintiff
then filed an ex-parte motion to be excluded as party in the appeal and the trial Court again
granted the motion. This was on 24 November 1954. Appellants thereupon instituted
a mandamus proceeding in the Supreme Court (G.R. No. L-8540), which was decided on 28
May 1956, to the effect that Jesus Ma. Cui should be included in the appeal. That appeal,
however, after it reached this Court was dismiss upon motion of the parties, who agreed that
"the office of administrator and trustee of the Hospicio ... should be ventilated in quo
warranto proceedings to be initiated against the incumbent by whomsoever is not occupying
the office but believes he has a right to it" (G.R. No. L-9103). The resolution of dismissal was
issued 31 July 1956. At that time the incumbent administrator was Dr. Teodoro Cui, but no
action in quo warranto was filed against him by plaintiff Jesus Ma. Cui as indicated in the
aforesaid motion for dismissal.
30
On 10 February 1960, defendant Antonio Ma. Cui was reinstated by this Court as member of IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from is reversed
the Bar, and on the following 27 February Dr. Teodoro Cui resigned as administrator in his and set aside, and the complaint as well as the complaint in intervention are dismissed, with
favor, pursuant to the "convenio" between them executed on the same date. The next day costs equally against plaintiff-appellee and intervenor-appellant.
Antonio Ma. Cui took his oath of office.
10. ALLIED FREE WORKERS' UNION (PLUM), petitioner,
The failure of the plaintiff to prosecute his claim judicially after this Court decided the first vs. COMPAIA MARITIMA, Manager JOSE C. TEVES, and COURT OF
case of Cui v. Cui in 1934 (60 Phil. 3769), remanding it to the trial court for further INDUSTRIAL RELATIONS, respondents.
proceedings; his acceptance instead of the position of assistant administrator, allowing Dr.
Teodoro Cui to continue as administrator and his failure to file an action in quo -----------------------------
warranto against said Dr. Cui after 31 July 1956, when the appeal in Civil Case No. R-1216 of
the Cebu Court was dismissed upon motion of the parties precisely so that the conflicting
G.R. No. L-22971 January 31, 1967
claims of the parties could be ventilated in such an action all these circumstances militate
against the plaintiff's present claim in view of the rule that an action in quo warranto must be
filed within one year after the right of the plaintiff to hold the office arose. The excuse that COMPAIA MARITIMA and Manager JOSE C. TEVES, petitioners,
the plaintiff did not file an action against Dr. Teodoro Cui after 31 July 1956 because of the vs.
latter's illness did not interrupt the running of the statutory period. And the fact that this ALLIED FREEWORKERS' (PLUM) and COURT OF INDUSTRIAL
action was filed within one year of the defendant's assumption of office in September 1960 RELATIONS, respondents.
does not make the plaintiff's position any better, for the basis of the action is his own right to
the office and it is from the time such right arose that the one-year limitation must be L-22951 and 22952:
counted, not from the date the incumbent began to discharge the duties of said Vicente A. Rafael and Associates for petitioner.
office. Bautista v. Fajardo, 38 Phil. 624; Lim vs. Yulo, 62 Phil. 161. Rafael Dinglasan for respondents.
Mariano B. Tuason for respondent Court of Industrial Relations.
Now for the claim of intervenor and appellant Romulo Cui. This party is also a lawyer,
grandson of Vicente Cui, one of the nephews of the founders of the Hospicio mentioned by L-22971:
them in the deed of donation. He is further, in the line of succession, than defendant Antonio Rafael Dinglasan for petitioner.
Ma. Cui, who is a son of Mariano Cui, another one of the said nephews. The deed of donation Vicente A. Rafael and Associates for respondents.
provides: "a la muerte o incapacidad de estos administradores (those appointed in the deed Mariano B. Tuason for respondent Court of Industrial Relations.
itself) pasara a una sola persona que sera el varon, mayor de edad, que descienda
legitimamente de cualquiera de nuestros sobrinos legitimos Mariano Cui, Mauricio Cui, BENGZON, J.P., J.:
Vicente Cui, Victor Cui, y que posea titulo de abogado ... En igualdad de circumstancias, sera
preferido el varon de mas edad descendiente de quien tenia ultimamente la administration." The three cases before this Court are the respective appeals separately taken by the parties
Besides being a nearer descendant than Romulo Cui, Antonio Ma. Cui is older than he and hereto from an order 1of the Court of Industrial Relations en banc affirming its trial judge's
therefore is preferred when the circumstances are otherwise equal. The intervenor contends decision, rendered on November 4, 1963, in CIR Case 175-MC and CIR Case 426-ULP. Thus
that the intention of the founders was to confer the administration by line and successively to L-22971 is the appeal of MARITIMA2 in CIR Case 175-MC; L-22952 is AFWU's appeal in the
the descendants of the nephews named in the deed, in the order they are named. Thus, he same case; and L-22951 refers to AFWU's3 appeal in CIR Case 426-ULP. Since these cases
argues, since the last administrator was Dr. Teodoro Cui, who belonged to the Mauricio Cui were jointly tried and decided in the court a quo and they involve the same fundamental
line, the next administrator must come from the line of Vicente Cui, to whom the intervenor issue the presence or absence of employer-employee relationship they are jointly
belongs. This interpretation, however, is not justified by the terms of the deed of donation. considered herein.

31
MARITIMA is a local corporation engaged in the shipping business. Teves is its branch
manager in the port of Iligan City. And AFWU is duly registered legitimate labor organization (SGD) SALVADOR T. LLUCH (SGD) JOSE C. TEVES
with 225 members. President Branch Manager
Allied Free Workers' Union Compaia Maritima
Iligan City Iligan City
On August 11, 1952, MARITIMA, through Teves, entered into a CONTRACT 4 with AFWU the
terms of which We reproduce: SIGNED IN THE PRESENCE OF:

ARRASTRE AND STEVEDORING CONTRACT 1. (SGD) JOSE CUETO

KNOW ALL MEN BY THESE PRESENTS: 2. (SGD) SERGIO OBACH.

This CONTRACT made and executed this 11th day of August, 1952, in the
City of Iligan, Philippines, by and between the COMPAIA MARITIMA Iligan
Branch, represented by its Branch Manager in Iligan City, and the ALLIED
FREE WORKERS' UNION, a duly authorized labor union, represented by its
President:
WITNESSETH.
1. That the Compaia MARITIMA hereby engage the services of the Allied
Free Workers' Union to do and perform all the work of stevedoring and
arrastre services of all its vessels or boats calling in the port of Iligan City,
beginning August 12, 1952.
2. That the Compaia MARITIMA shall not be liable for the payment of the
services rendered by the Allied Free Workers' Union, for the loading,
unloading and deliveries of cargoes as same is payable by the owners and
consignees of cargoes, as it has been the practice in the port of Iligan City.
3. That the Allied Free Workers' Union shall be responsible for the damages
that may be caused to the cargoes in the course of their handling.
4. That this CONTRACT is good and valid for a period of one (1) month from
August 12, 1952, but same may be renewed by agreement of the parties;
however Compaia MARITIMA reserves the right to revoke
this CONTRACT even before the expiration of the term, if and when the
Allied Free Workers' Unionfails to render good service.
IN WITNESS WHEREOF, we hereunto sign this presents in the City of Iligan,
Philippines, this 11th day of August, 1952.
During the first month of the existence of the CONTRACT , AFWU rendered satisfactory
service. So, MARITIMA, through Teves, verbally renewed the same. This harmonious
relations between MARITIMA and AFWU lasted up to the latter part of 1953 when the former
complained to the latter of unsatisfactory and inefficient service by the laborers doing the
arrastre and stevedoring work. This deteriorating situation was admitted as a fact
by AFWU's president. To remedy the situation since MARITIMA's business was being
adversely affected Teves was forced to hire extra laborers from among "stand-by" workers
not affiliated to any union to help in the stevedoring and arrastre work. The wages of these
extra laborers were paid by MARITIMA through separate vouchers and not by AFWU.
Moreover, said wages were not charged to the consignees or owners of the cargoes.
On July 23, 1954, AFWU presented to MARITIMA a written proposal5 for a collective
bargaining agreement.
This demand embodied certain terms and conditions of employment different from the
provisions of the CONTRACT . No reply was made by MARITIMA.
On August 6, 1954, AFWU instituted proceedings in the Industrial Court6 praying that it be
certified as the sole and exclusive bargaining agent in the bargaining unit composed of all the
laborers doing the arrastre and stevedoring work in connection with MARITIMA's vessels in
Iligan City. MARITIMA answered, alleging lack of employer-employee relationship between
the parties.
On August 24, 1954, MARITIMA informed AFWU of the termination of
the CONTRACT because of the inefficient service rendered by the latter which had adversely
affected its business. The termination was to take effect as of September 1,
1954. MARITIMA then contracted with the Iligan Stevedoring Union for the arrastre and
stevedoring work. The latter agreed to perform the work subject to the same terms and
conditions of the CONTRACT . The new agreement was to be carried out on September 1,
1954.
32
On August 26, 1954, upon the instance of AFWU, MARITIMA found itself charged before the
Industrial Court7 of unfair labor practices under Sec. 4(a), (1), (3), (4) and (6) of Rep. Act
No. 875. MARITIMA answered, again denying the employer-employee relationship between
the parties.
On September 1, 1954, members of AFWU, together with those of the Mindanao Workers
Alliance a sister union formed a picket line at the wharf of Iligan City, thus preventing
the Iligan Stevedoring Union from carrying out the arrastre and stevedoring work it
contracted for.8 This picket lasted for nine days.
On September 9, 1954, MARITIMA filed an action9 to rescind
the CONTRACT , enjoin AFWU members from doing arrastre and stevedoring work in
connection with its, vessels, and for recovery of damages against AFWU and its officers.
Incidentally, this civil case has been the subject of three proceedings already which have
reached this Court. The first 10 involved a preliminary injunction issued therein on September
9, 1954, by the trial court prohibiting AFWU from interfering in any manner with the loading
and unloading of cargoes from MARITIMA's vessels. This injunction was lifted that very
evening upon the filing of a counter bond by AFWU. Subsequently, a motion to dissolve said
counterbond was filed by MARITIMA but the hearing on this incident was enjoined by Us on
March 15, 1955, upon the institution of the petition for prohibition and injunction in said L-
8876. 11 Meanwhile, AFWU members-laborers were able to continue the arrastre and
stevedoring work in connection with MARITIMA's vessels.
On December 5, 1960, the CFI decision in the civil case was promulgated. It ordered the
rescission of the CONTRACT and permanently enjoined AFWU members from performing
work in connection with MARITIMA's vessels. AFWU then filed its notice of appeal, appeal
bond and record on appeal. 12 The subsequent incidents thereto gave rise to the two other
proceedings which have previously reached Us here.
On January 6, 1961, upon motion of MARITIMA ,an order of execution pending appeal and a
writ of injunction against AFWU was issued by the trial court in the civil case. This
enabled MARITIMA to engage the services of the Mindanao Arrastre Service to do the
arrastre and stevedoring work on January 8, 1961. However, AFWU filed a petition
for certiorari, injunction and prohibition 13 here and on January 18, 1961, was able to secure
a writ of preliminary injunction ordering the maintenance of the status quo prior to January
6, 1961. Thus, after January 18, 1961, AFWU laborers were again back doing the same work
as before.
The third incident that reached US 14 involved an order of the same trial court in the same
civil case, dated January 11, 1961, which amended some clerical errors in the original
decision of December 5, 1960. Upon motion of MARITIMA, the trial court, on March 24,
1962, issued an order for the execution of the decision of January 11, 1961, since AFWU did
not appeal therefrom, and on March 31, 1962, a writ of execution ousting the
225 AFWU members-laborers from their work in connection with the loading and unloading
of cargoes was issued and a levy on execution upon the properties of AFWU was effected.
Accordingly, on April 1, 1962, MARITIMA was again able to engage the services of the
Mindanao Arrastre Service.
On April 16, 1962, upon the institution of the petition for certiorari, injunction, prohibition
and mandamus, a preliminary injunction was issued by Us against the orders of March 24
and 31, 1962. But then, on May 16, 1962, upon motion of MARITIMA this preliminary
injunction was lifted by Us insofar as it related to the execution of the order ousting
the AFWU laborers from the stevedoring and arrastre work in connection with
the MARITIMA vessels. 15 Such then was the status of things.
On November 4, 1963, after almost 10 years of hearing the two cases jointly, the Industrial
Court finally rendered its decision. The dispositive part provided:
IN VIEW OF ALL THE FOREGOING CIRCUMSTANCES, the complaint of the union for
unfair labor practices against the Compaia MARITIMA and/or its agent Jose C.
Teves and the Iligan Stevedoring Union and/or Sergio Obach is hereby dismissed for
lack of substantial evidence and merit.
In pursuance of the provisions of Section 12 of Republic Act 875 and the Rules of
this court on certification election, the Honorable, the Secretary of Labor or any of
his authorized representative is hereby requested to conduct certification election
among all the workers and/or stevedores working in the wharf of Iligan City who are
performing stevedoring and arrastre service aboard Compaia MARITIMA vessels
docking at Iligan City port in order to determine their representative for collective
bargaining with the employer, whether their desire to be represented by the
petitioner Allied Free Workers Union or neither [sic]; and upon termination of the
said election, the result thereof shall forthwith be submitted to this court for further
consideration. The union present payroll may be utilized in determining the qualified
voters, with the exclusion of all supervisors.
SO ORDERED.
As already indicated, the fundamental issue involved in these cases before Us consists in
whether there is an employer-employee relationship between MARITIMA, on the one hand,
and AFWU and/or its members-laborers who do the actual stevedoring and arrastre work on
the other hand.
33
THE UNFAIR LABOR PRACTICE CASE
(L-22951 * [CIR Case 426-ULP])
Petitioner AFWU's proposition is that the court a quo erred (1) in concluding
that MARITIMA had not refused to bargain collectively with it, as the majority union; (2) in
not finding that MARITIMA had committed acts of discrimination, interferences and coercions
upon its members-laborers, and (3) in concluding that the CONTRACT may not be interferred
with even if contrary to law or public policy.
It is true that MARITIMA admits that it did not answer AFWU's proposal for a collective
bargaining agreement. From this it does not necessarily follow that it is guilty of unfair labor
practice. Under the law 16 the duty to bargain collectively arises only between the "employer"
and its "employees". Where neither party is an "employer" nor an "employee" of the other,
no such duty would exist. Needless to add, where there is no duty to bargain collectively the
refusal to bargain violates no right. So, the question is: Under
the CONTRACT , was MARITIMA the "employer" and AFWU and/or its members the
"employees" with respect to one another?
The court a quo held that under the CONTRACT , AFWU was an independent contractor
of MARITIMA. This conclusion was based on the following findings of fact, which We can no
longer disturb, stated in the CIR decision:
7. ... The petitioner union operated as a labor contractor under the so-called "cabo"
system; and as such it has a complete set of officers and office personnel (Exhs. "F"
and "F-1") and its organizational structure includes the following: General President,
with the following under him one vice-president, legal counsel, general treasurer,
general manager and the board of directors. Under the general manager is the
secretary, the auditor, and the office staff composing of the general foreman,
general checker, general timekeeper, and the respective subordinates like assistant
foreman, capataz, assistant general checker, field checker, office timekeeper, and
field timekeeper all appointed by the general manager of the union and are paid in
accordance with the union payroll exclusively prepared by the union in the office .
(See t.s.n. pp. 32-36, June 9, 1960; pp. 78-80, February 16, 1961; pp. 26-28, August
9, 1960). The payrolls where laborers are listed and paid were prepared by the union
itself without the intervention or control of the respondent company and/or its agent
at Iligan City. The respondent never had any knowledge of the individual names of
laborers and/or workers listed in the union payroll or in their roster of membership .
8. The union engaged the services of their members in undertaking the work of
arrastre and stevedoringeither to haul shippers' goods from their warehouses in
Iligan City to the MARITIMA boat or from the boat to the different consignees. The
charges for such service were known by the union and collected by them through
their bill collector. This is shown by the preparation of the union forms known as
"conduci" or delivery receipts. These "conduci" or receipts contain informations as to
the number and/or volume of cargoes handled by the union, the invoice number, the
name of the vessel and the number of bills of lading covering the cargoes to be
delivered. Those delivery receipts are different and separate from the bills of lading
and delivery receipts issued by the company to the consignees or shippers. Cargoes
carried from the warehouses to the boat or from the boat to the consignees were
always accompanied by the union checker who hand-carry the "conduci". Once
goods are delivered to their destination the union through its bill collectors prepare
the bills of collection and the charges thereon are collected by the union bill
collectors who are employees of the union and not of the respondent . The
respondent had no intervention whatsoever in the collection of those charges as the
same are clearly indicated and described in the labor CONTRACT , Exhibit "A". There
were, however, instances when the respondents were requested to help the union in
the collection of charges for services rendered by members of the union when
fertilizers and gasoline drums were loaded aboard the Compaia MARITIMA boats.
This was necessary in order to facilitate the collection of freight and handling charges
from the government for auditing purposes. When cargoes are to be loaded, the
shipper usually notifies the petitioner union when to load their cargoes aboard
Compaia MARITIMA boats calling in the port of Iligan City; and when a boat docks
in said port, the union undertakes to haul the said shipper's goods to the boat. In
doing this work, the union employs their own trucks or other vehicles or conveyance
from shipper's warehouse to the boat or vice-versa. The respondent has no truck of
any kind for the service of hauling cargoes because such service is included in the
CONTRACT executed between the parties. (See Exh. "A").
9. The union members who were hired by the union to perform arrastre and
stevedoring work on respondents' vessels at Iligan port were being supervised and
controlled by the general foreman of the petitioner union or by any union assistant
or capataz responsible for the execution of the labor CONTRACT when performing
arrastre and/or stevedoring work aboard vessels of the Compaia MARITIMA docking
at Iligan City. The foreman assigned their laborers to perform the required work
aboard vessels of the respondent. For instance, when a boat arrives, the general
foreman requests the cargo report from the chief mate of the vessel in order to
determine where the cargoes are located in the hold of the boat and to know the
destination of these cargoes. All the laborers and/or workers hired for said work are
union members and are only responsible to their immediate chief who are officers
and/or employees of the union . The respondent firm have their own separate
representatives like checkers who extend aid to the union officers and members in
checking the different cargoes unloaded or loaded aboard vessels of the
Compaia MARITIMA. There were no instances where offices and employees of the
34
 respondent Compaia MARITIMA and/or its agent had interferred in the giving of
instructions to the laborers performing the arrastre and/or stevedoring work either
aboard vessels or at the wharf of Iligan City. As contractor, the union does not
receive instructions as to what to do, how to do, and works without specific
instructions. They have no fixed hours of work required by the MARITIMA .
10. While cargoes were in transit either from the warehouse to the boat or from the
boat to the different consignees, any losses or damages caused with the said cargoes
were charged to the account of the union; and the union likewise imposed the
penalty or fine to any employee who caused or committed the damages to cargoes in
transit. Other disciplinary measures imposed on laborers performing the said work
were exercised by the general foreman of the union who has blanket authority from
the union general manager to exercise disciplinary control over their members who
were assigned to perform the work in a group of laborers assigned by the union to
perform loading or unloading cargoes when a Compaia MARITIMA boat docked at
Iligan City. The respondents have not at any time interferred in the imposition of
disciplinary action upon the laborers who are members of the union. In one instance,
under this situation, the president of the union himself dismissed one inefficient
laborer found to have been performing inefficient service at the time (t.s.n. pp. 17-18,
February 15, 1961).
xxx xxx xxx
13. Erring laborers and/or workers who are affiliates of the union were directly
responsible to the union and never to the respondent. Respondent cannot, therefore,
discipline and/or dismiss these erring workers of the union . (Emphasis supplied)
And in absolving MARITIMA of the unfair labor charge on this point, the court a
quo concluded:
From the foregoing circumstances and findings, the Court is of the opinion that no
substantial evidence has been presented to sustain the charge of unfair labor
practice acts as alleged to have been committed by herein respondent. The Court
finds no interference in the union activities, if any, of the members of the Allied Free
Workers Union as these persons engaged in the stevedoring and arrastre service
were employed by the Allied Free Workers Union as independent contractor subject
to the terms and conditions of their then existing labor CONTRACT Exhibit "A" . To
construe the CONTRACT otherwise would tend to disregard the rights and privileges
of the parties intended by them in their CONTRACT . (Exhibit "A"). This Court
believes that it may not interfere in the implementation of the said
labor CONTRACT in the absence of abuse by one party to the prejudice of the
other. ...
Further, the Court finds that the petitioner, aside from its labor CONTRACT (See
Exhibit "A") with the respondent Compaia MARITIMA also has other labor contracts
with other shipping firms on the stevedoring and arrastre work; and that this
CONTRACT obligated the petitioner as an independent labor contractor to undertake
the arrastre and stevedoring service on Compaia MARITIMA boats docking at Iligan
City Port. The petitioner is an independent contractor as defined in
the CONTRACT Exhibit "A" and in the evidence submitted by the parties. "An
independent contractor is one who, in rendering services, exercises an independent
employment or occupation and represents the will of his employer only as to the
results of his work and not as to the means whereby it is accomplished; one who
exercising an independent employment, contracts to do a piece of work according to
his own methods, without being subject to the control of his employer except as to
the result of his work; and who engaged to perform a certain service for another,
according to his own manner and methods, free from the control and direction of his
employer in all matters connected with the performance of the service except as to
the result of the work." (see 56 C.J.S. pp. 41-43; Cruz, et al. vs. Manila Hotel et al.,
G.R. No. L-9110, April 30, 1957). These factors were present in the relation of the
parties as described in their CONTRACT Exhibit "A".
xxx xxx xxx
In Viaa vs. Al Lagadan et al., G.R. No. L-8967, May 31, 1956, the Supreme Court
states the rule as follows.
'In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and
engagement of the employees; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct although
the latter is the most important element (35 Am. Jur. 445). Assuming that
the share received by the deceased could partake of the nature of wages
on which we need not and do not express our view and that the second
element, therefore, exists in the case at bar, the record does not contain any
specific data regarding the third and fourth elements.'
The clear implication of the decision of the Supreme Court is that if the defendant
has no power of control which, according to the Supreme Court, is the "most
important element" there is no employer-employee relationship. (Emphasis
supplied)
35
The conclusion thus reached by the court a quo is in full accord with the facts and the
applicable jurisprudence. We totally agree with the court a quo that AFWU was an
independent contractor. And an independent contractor is not an "employee". 17
Neither is there any direct employment relationship between MARITIMA and the laborers.
The latter have no separate individual contracts with MARITIMA. In fact, the court a
quo found that it was AFWU that hired them. Their only possible connection
with MARITIMA is through AFWU which contracted with the latter. Hence, they could not
possibly be in a better class than AFWU which dealt with MARITIMA.18
In this connection, it is interesting to note that the facts as found by the court a quo strongly
indicate that it is AFWU itself who is the "employer" of those laborers. The facts very
succinctly show that it was AFWU, through its officers, which (1) selected and hired the
laborers, (2) paid their wages, (3) exercised control and supervision over them, and (4) had
the power to discipline and dismiss them. These are the very elements constituting an
employer-employee relationship.19
Of course there is no legal impediment for a union to be an "employer". 20 Under the
particular facts of this case, however, AFWU appears to be more of a distinct and completely
autonomous business group or association. Its organizational structure and operational
system is no different from other commercial entities on the same line. It even has its own
bill collectors and trucking facilities. And that it really is engaged in business is shown by the
fact that it had arrastre and stevedoring contracts with other shipping firms in Iligan City.
Now, in its all-out endeavor to make an "employer" out of MARITIMA, AFWU citing an
impressive array of jurisprudence, even goes to the extent of insisting that it be considered a
mere "agent" of MARITIMA. Suffice it to say on this point that an agent can not represent
two conflicting interests that are diametrically opposed. And that the cases sought to be
relied upon did not involve representatives of opposing interests.
Anent the second point raised: AFWU claims that the court a quo found that acts of
interferences and discriminations were committed by MARITIMA against the former's
members simply for their union affiliation. 21However, nowhere in the 32-page decision of the
court a quo can any such finding be found. On the contrary, said court made the following
finding:
18. There is no showing that this new union, the Iligan Stevedoring Union, was
organized with the help of the branch manager Jose C. Teves . The organizer of the
union like Messrs. Sergio Obach, Labayos and Atty. Obach and their colleagues have
never sought the intervention, help or aid of the respondent Compaia MARITIMA or
its branch manager Teves in the formation and/or organization of the said Iligan
Stevedoring Union. It appears that these people have had previous knowledge and
experience in handling stevedoring and in the arrastre service prior to the
employment of the Allied Free Workers Union in the Iligan port. The charge of union
interference and domination finds no support from the evidence . (Emphasis supplied)
More worthy of consideration is the suggestion that the termination of the CONTRACT was in
bad faith. First of all, contrary to AFWU's sweeping statement, the court a quo did not find
that the termination of the CONTRACT was "in retaliation to AFWU's demand for collective
bargaining. On the contrary, the court a quo held that MARITIMA's authority to terminate
the CONTRACT was rightfully exercised:
21. The evidence does not show substantially any act of interference in the union
membership or activities of the petitioner union. The rescission of their CONTRACT is
not a union interference contemplated in the law.
xxx xxx xxx
x x x Further, the Court is satisfied that there is no act or acts of discrimination as
claimed by herein petitioner to have been committed by the respondent firm or its
branch manager Teves. Evidence is clear that Teves, in representation of the
principal, the respondent Compaia MARITIMA, has also acted, in good faith in
implementing the provisions of their existent CONTRACT (Exhibit "A"), and when he
advised the union of the rescission of the said CONTRACT effective August 31, 1954,
he did so in the concept that the employer firm may so terminate their contract
pursuant to paragraph 4 of Exhibit "A" which at the time was the law controlling
between them. ... (Emphasis supplied)
We are equally satisfied that the real reason for the termination of
the CONTRACT was AFWU's inefficient service. The court a quo drew its conclusion from the
following findings:
11. During the first month of the existence of the labor CONTRACT Exhibit 'A', the
petitioner union rendered satisfactory service. Under this situation, the
Compaia MARITIMA's representative at Iligan City was authorized to renew verbally
with the extension of the CONTRACT Exhibit "A" from month to month basis after the
first month of its expiration. This situation of harmony lasted up to the latter part of
1953 when the Compaia MARITIMA and its branch manager agent complained to
the union of the unsatisfactory service of the union laborers hired to load and unload
cargoes aboard Compaia MARITIMA boats. This deteriorating situation was
admitted as a fact by the union president (See Exhs. "3", "3-A" and "3-B"; See also
t.s.n. pp. 65-66, August 9, 1960).
36
 12. There was a showing that the laborers employed by the union were inefficient in
performing their jobs, and the business of the respondent company in Iligan City
suffered adversely during the year 1954; and this was due to the fact that
respondents' vessels were forced to leave cargoes behind in order not to disrupt the
schedule of departures. The Union laborers were slow in loading and/or unloading
freight from which the respondent Compaia MARITIMA secured its income and/or
profits. At times, cargoes were left behind because of the union's failure to load them
before vessel's departure. In order to solve this inefficiency of the complaining union,
the branch manager of the Compaia MARITIMA was forced to hire extra laborers
from among 'stand-by' workers not affiliated to any union for the purpose of helping
in the stevedoring and arrastre work on their vessels because, at that time, the union
was not performing and/or rendering efficient service in the loading and unloading of
cargoes. ...
xxx xxx xxx
14. Because of the deterioration of the Service rendered to the respondent, the
branch manager of the respondent Compaia MARITIMA informed the union of its
intention to rescind the CONTRACT Exhibit "A" because the company had been
suffering losses for such inefficient service. (See Exhibit "N").
Respondent Teves reported to the MARITIMA's head office on the financial losses of
the company in its operations. (See Exhibits 'Y', 'Y-1' to 'X-5').
15. On August 24, 1954, branch manager Jose C. Teves of the Iligan
City MARITIMA Branch, wrote the petitioner union informing them of the termination
of their CONTRACT , Exhibit "A". (See Exhibit "N"). This step was taken after the
company found the union lagging behind their work under the CONTRACT , so much
so that MARITIMA boats have to leave on schedule without loading cargoes already
contacted to be transported. (Emphasis supplied)
Perhaps, AFWU might say that this right to terminate appearing in paragraph 4 of
the CONTRACT is contrary to law, morals, good customs, public order, or public
policy. 22 However, it has not adduced any argument to demonstrate such point. Moreover,
there is authority to the effect that the insertion in a CONTRACT for personal services of a
resolutory condition permitting the cancellation of the CONTRACT by one of the contracting
parties is valid. 23Neither would the termination constitute "union-busting". Oceanic Air
Products vs. CIR, 24 cited by AFWU is not in point. That case presupposes an employer-
employee relationship between the parties disputants a basis absolutely wanting in this
case.
AFWU's third point is again that MARITIMA's act of terminating the CONTRACT constituted
union interference. As stated, the court a quo found as a fact that there is no sufficient
evidence of union interference. And no reason or argument has been advanced to show that
the fact of said termination alone constituted union interference.
THE CERTIFICATION ELECTION CASE
(L-22952 **
& L-22971 [CIR Case No. 175-MC]).
In the certification ejection case, the court a quo directed the holding of a certification
election among the laborers then doing arrastre and stevedoring work.
Both MARITIMA and AFWU have appealed from that ruling. The latter maintains that the
lower court should have directly certified it as the majority union , entitled to represent all the
workers in the arrastre and stevedoring work unit, whereas MARITIMA contends that said
court could not even have correctly ordered a certification election considering that there was
an absence of employer-employee relationship between it and said laborers.
There is no question that certification election could not have been proper during the
existence of the CONTRACT in view of the court a quo's finding that there was no
employment relationship thereunder between the parties. But after the termination of
the CONTRACT on August 31, 1954, what was the nature of the relationship
between MARITIMA and the laborers-members of AFWU?
From the finding that after the rescission of the CONTRACT , MARITIMA continued to avail of
the services of AFWUthe court a quo concluded that there came about an implied employer-
employee relationship between the parties. This conclusion cannot be sustained.
First of all, it is contradicted by the established facts. In its findings of fact, the court a
quo observed that after the rescission, the AFWU laborers continued working in accordance
with the "cabo" system, which was the prevailing custom in the place. Said the court:
20. After the rescission of the CONTRACT Exhibit "A" on August 31, 1954, the Allied
Free Workers Union and its members were working or performing the work of
arrastre and stevedoring service aboard 'vessels of the Compaia MARITIMA docking
at Iligan City port under the 'cabo system' then prevailing in that teritory ; and the
customs and conditions then prevailing were observed by the parties without
resorting to the conditions of the former labor contract Exhibit "A". (Emphasis
supplied)
Under the "Cabo" system, the union was an independent contractor. This is shown by the
court a quo's own finding that prior to the CONTRACT between MARITIMA and AFWU, the
37
former had an oral arrastre and stevedoring agreement with another union. This agreement
was also based on the "cabo" system. As found by the court a quo:
4. That prior to the execution of Exhibit "A", the arrastre and stevedoring work was
performed by the Iligan Wharf Laborers Union headed by one Raymundo Labayos
under a verbal agreement similar to the nature and contents of Exhibit "A"; and this
work continued from 1949 to 1952.
5. Under the oral CONTRACT , the Iligan Laborers Union acting as an independent
labor contractor engaged [in] the services of its members as laborers to perform the
contract work of arrastre and stevedoring service aboard vessels of the Compaia
MARITIMA calling and docking at Iligan City; and for the services therein rendered
the union charged shippers and/or consignees in accordance with the consignment
or place, and the proceeds thereof shall be shared by the union members in
accordance with the union's internal rules and regulations. This system of work is
locally known as the 'cabo system'. The laborers who are members of the union and
hired for the arrastre and stevedoring work were paid on union payrolls and the
Compaia MARITIMA has had nothing to do with the preparation of the same.
6. Because of unsatisfactory service rendered by the Iligan Wharf Labor Union
headed by Labayos, the Compaia MARITIMA through its agent in Iligan City
cancelled their oral contractor and entered into a new contractor, Exhibit "A" with the
Allied Free Workers Union (PLUM) now petitioner in this case. The terms and
conditions of the same continued and was similar to the oral contractor entered into
with the union headed by Labayos. ...
7. The cancellation of the oral contract with the Iligan Wharf Labor Union headed by
Labayos was due to the inefficient service rendered by the said union. The labor
contract entered into by the petitioner herein (Exh. "A") was negotiated through the
intervention of Messrs. Salvador Lluch, Mariano Ll Badelles, Laurentino Ll. Badelles,
Nicanor T. Halivas and Raymundo Labayos. The contract was prepared by their legal
panel and after several negotiations, respondent Teves reluctantly signed the said
written contract with the union with the assurance however that the same arrange
previously had with the former union regarding the performance and execution of
the arrastre and stevedoring contract be followed in accordance with the custom of
such kind of work at Iligan City. The petitioner union, operated as a labor contractor
under the so-called "cabor" system; ... (Emphasis supplied)
From the above findings, it is evident that, insofar as the working arrangement was
concerned, there was no real difference between the CONTRACT and the prior oral
agreement. Both were based on the "cabo" system. Under both, (1) the union was an
independent contractor which engaged the services of its members as laborers; (2) the
charges against the consignees and owners of cargoes were made directly by the union; and
(3) the laborers were paid on union payrolls and MARITIMA had nothing to do with the
preparation of the same. These are the principal characteristics of the "cabo" system on
which the parties based their relationship after the termination of the CONTRACT.
Hence, since the parties observed the "cabo" system after the rescission of
the CONTRACT, and since the characteristics of said system show that the contracting union
was an independent contractor, it is reasonable to assume that AFWU continued being an
independent contractor of MARITIMA. And, being an independent contractor, it could not
qualify as an "employee". With more reason would be true with respect to the laborers.
Moreover, there is no evidence at all regarding the characteristics of the working
arrangement between AFWU and MARITIMA after the termination of the CONTRACT. All we
have to go on is the court a quo's finding that the "cabo" system was observed a system
that negatives employment relationship. The four elements generally regarded as indicating
the employer-employee relationship or at the very least, the element of "control" must
be shown to sustain the conclusion that there came about such relationship. The lack of such
a showing in the case at bar is fatal to AFWU's contention.
Lastly, to uphold the court a quo's conclusion would be tantamount to the imposition of an
employer-employee relationship against the will of MARITIMA. This cannot be done, since it
would violate MARITIMA's exclusive prerogative to determine whether it should enter into an
employment CONTRACT or not, i.e, whether it should hire others or not. 25 In Pampanga Bus
Co. vs. Pambusco Employees' Union, 26 We said:
x x x The general right to make a contract in relation to one's business is an essential
part of the liberty of the citizens protected by the due process clause of the
constitution. The right of a laborer to sell his labor to such person as he may choose
is, in its essence, the same as the right of an employer to purchase labor from any
person whom it chooses. The employer and the employee have thus an equality of
right guaranteed by the constitution. 'If the employer can compel the employee to
work against the latter's will, this is servitude. If the employee can compel the
employer to give him work against the employer's will, this is oppression (Emphasis
supplied) .
Therefore, even if the AFWU laborers continued to perform arrastre and stevedoring work
after August 31, 1954, it cannot be correctly concluded as did the court a quo that an
employer-employee relationship even impliedly at that arose when before there never
had been any. Indeed, it would appeal unreasonable and unjust to force such a relationship
upon MARITIMA when it had clearly and continuously manifested its intention not to have
38
any more business relationship whatsoever with AFWU because of its inefficient service. It This is a petition for certiorari to review a decision of the Court of Appeals dated September
was only to comply with injunctions and other judicial mandates that MARITIMA continued to 25, 1953, reversing the decision of the Court of First Instance of Manila, and sentencing the
abide by the status quo, extending in fact and in effect the operation of defendant-petitioner Far Eastern Export & Import Co. later referred to as export company, to
the MARITIMA contract. pay the plaintiff-respondent Lim Teck Suan later to be referred to as Suan, the sum of
P11,4476.60, with legal interest from the date of the filing of the complaint and to pay the
The only remaining question now is whether, in the particular context of what We have said, costs.
the lower court's ruling ordering a certification election can be sustained. As already stated,
the duty to bargain collectively exists only between the "employer" and its "employees". As to the facts and the issue in the case we are reproducing the findings of the Court of
However, the actual negotiations which may possibly culminate in a concrete collective Appeals, which findings are binding on this Tribunal in case of similar appeals:
bargaining contract are carried on between the "employer" itself and the
official representative of the "employees" 27 in most cases, the majority labor union. Since Sometime in November, 1948, Ignacio Delizalde, an agent of the Far Eastern Export
the only function of a certification election is to determine, with judicial sanction, who this & Import Company, went to the store of Lim Teck Suan situated at 267 San Vicente
official representative or spokesman of the "employees" will be, 28 the order for certification Street, Manila, and offered to sell textile, showing samples thereof, and having
election in question cannot be sustained. There being no employer-employee relationship arrived at an agreement with Bernardo Lim, the General Manager of Lim Teck Suan,
between the parties disputants, there is neither a "duty to bargain collectively" to speak of. Delizalde returned on November 17 with the buyer's order, Exhibit A, already
And there being no such duty, to hold certification elections would be pointless. There is no prepared which reads:
reason to select a representative to negotiate when there can be no negotiations in the first
place. We therefore hold that where as in this case there is no duty to bargain FAR EASTERN EXPORT & IMPORT COMPANY
collectively, it is not proper to hold certification elections in connection therewith.
75 Escolta 2nd Floor Brias Roxas Bldg., Manila
The court a quo's objective in imposing the employer-employee relationship may have been
to do away with the "cabo" system which, although not illegal, is in its operation regarded as
Ship to LIM TECK SUAN Date Written 11/17/48
disadvantageous to the laborers and stevedores. The rule however remains that the end
475 Nueva St., Manila Your No.
cannot justify the means. For an action to be sanctioned by the courts, the purpose must not
Our No. 276
only be good but the means undertaken must also be lawful.
I hereby commission you to procure for me the following merchandise, subject to the
A true and sincere concern for the welfare of AFWU members-laborers would call for reforms
terms and conditions listed below:
within AFWU itself, if the evil of the so-called "cabo" system is to be eliminated. As We
suggested in Bermiso vs. Hijos de Escao , 29 the remedy against the "cabo" system need not
be sought in the courts but in the laborers themselves who should organize into a closely-knit ===================================================
union "which would secure the privileges that the members desire thru the election of ===
officers among themselves who would not exploit them."
Quantity Unit Particulars Amount
Wherefore, the appealed decision of the Court of Industrial Relations is hereby affirmed 10,000 yds Ashtone Acetate & Rayon-No. 13472
insofar as it dismissed the charge of unfair labor practice in CIR Case 426-ULP, but reversed Width: 41/42 inches; Weight:
and set aside insofar as it ordered the holding of a certification election in CIR Case No. 175- Approximately 8 oz. per yd; Ten (10)
MC, and the petition for certification in said case should be, as it is hereby, dismissed. No colors, buyers choice, as per attached
costs. So ordered. samples, equally assorted; at $1.13
per yard F.A.S. New York U. S. $11,500.00
Item herein sold are FOB-FAS X C. & F
11. FAR EASTERN EXPORT & IMPORT CO., petitioner, vs. LIM TECK CIF
SUAN, respondent.
39
===================================================
===
TERMS AND CONDITIONS
Acceptance
This Buyer's Order is subject to confirmation by the exporter. Shipment
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.
Payment
Payment will be by "Confirmed Irrevocable Letter of Credit" to be opened in favor of
Frenkel International Corporation, 52 Broadway, New York, 4, N. Y. for the full
amount of the above cost of merchandise plus (approximately) for export packing:
insurance, freight, documentation, forwarding, etc. which are for the buyers
accounts, IMMEDIATELY upon written Confirmation. Our Guarantee In case shipment
is not affected, seller agrees to reimburse buyer for all banking expenses. Confirmed
Accepted
Signed Nov. 17, 1948
Authorized official
Confirmed
Accepted (Sgd.) Illegible Date Nov. 1948 to be signed by our representative upon
confirmation.
In accordance with said Exhibit A, plaintiff established a letter of credit No. 6390
(Exhibit B) in favor of Frenkel International Corporation through the Hongkong and
Shanghai Bangking Corporation, attached to the agreed statement of facts. On
February 11, 1949, the textile arrived at Manila on board the vessel M. S. Arnold
Maersk, covered by bill of lading No. 125 (Exhibit C), Invoice No. 1684-M (Exhibit D)
issued by Frenkel International Corporation direct to the plaintiff. The plaintiff
complained to the defendant of the inferior quality of the textile received by him and
had them examined by Marine Surveyor Del Pan & Company. Said surveyor took
swatches of the textile and had the 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 instructions of the defendants plaintiff deposited the goods with the United
Warehouse Corporation (Exhibits H, H-1 to H-6. As per 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 Acetate and Rayon Suiting for the purpose of offering them for sale which
netted P11,907.30. Deducting this amount from the sum of 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.
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 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 without any intervention on the part of the defendants; that upon receipt of
Lim Teck Suan's complaint the defendants passed it to its principal, Frenkel
International Corporation, for comment, and the latter maintained that the
merchandise was up to standard called for.
The lower court acquitted the defendants from the complaint asking for 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 defendants without pronouncement as to
costs.
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 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 sale and not of brokerage or agency. We have carefully
examined the Velasco 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 following
statement by the court itself which we reproduced below:
Prior to November 8, 1945 a salesman or agent of the Universal Trading Co., Inc.
informed Jose Velasco, Jr. that his company was in a position to accept and fill in
orders for Panamanian Agewood Bourbon Whisky because there were several
thousand cases of this article ready for shipment to the company by its principal
office in America. Acting upon this offer and representative Velasco went to the
Universal Trading Co., Inc., and after a conversation with the latter's official entered
into an agreement couched in the following terms:
40
"Agreement is hereby made between Messrs. Jose Velasco, Jr., 340 Echaque, Manila,
and the Universal Trading Company, Manila, for order as follows and under the
following terms:
Quantity Merchan
dise and Unit Unit Amount
Price
Description
100 Panamanian Agewood Bourbon
Whisky ..........................Case $17.00 $1,700
_______
Total amount of order ........... $1,700
Terms of Agreement:
"1. That the Universal Trading Company agrees to order the above merchandise from
their Los Angeles Office at the price quoted above, C.I.F. Manila, for December
shipment;
"2. That Messrs. Jose Velasco, Jr., 340 Echaque, Manila, obligates myself/themselves
to take the above merchandise when advised of its arrival from the United States and
to pay in cash the full amount of the order in the Philippine Currency at the office of
the Universal Trading Company;
"3. This order may be subject to delay because of uncertain shipping conditions. War
risk insurance, transhipping charges, if any, port charges, and any storage that may
be incurred due to your not taking delivery of the order upon being notified by us
that the order is ready for delivery, and government taxes, are all for your account;
"4. The terms of this agreement will be either of the following:
"a. To open up irrevocable letter of credit for the value of the order with any of the
local banks, or thru bills of lading payable to A. J. Wilson Company, 1263 South
North Avenue, Los Angeles, California;
"b. To put up a cash deposit equivalent to 50 % of the order;
"5. Reasonable substitute, whenever possible, will be shipped in lieu of items called
for, if order is not available."
Accordingly, Velasco deposited with the defendant the sum of $1,700 which is 50%
of the price of the whisky pursuant to agreement made, instead of 'to open up
irrevocable letter of credit for the value of the order with any of the local banks, or
through bills of lading payable to A. J. Wilson Company.' On November 6, 1945, the
same date that the contract or agreement, Exhibit A, was signed an invoice under
the name of the Universal Trading Co., Inc. was issued to Velasco for the 100 cases
of Panamanian Agewood Bourbon Whisky for the price of $1,700 which invoice
manifested that the article was sold to Jose Velasco, Jr. On January 15, 1946 another
invoice was issued containing besides the list price of $1,700 or P3,400, a statement
of bank charges, customs duties, internal revenue taxes, etc., giving a total amount
of P5,690.10 which after deducting the deposit of $1,700, gives a balance of
P3,990.01.
On January 25, 1946 the Universal Trading Co., Inc. wrote Exhibit 4 to 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 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 Panamanian Agewood Bourbon Whisky but Panamanian Agewood Blended
Whisky. Velasco refused to receive the shipment and in turn filed action against the
defendant for the return of his deposit of $ 1,700 with interest. For its defense,
defendant contends that it merely acted as agent for Velasco and could not be held
responsible for the substitution of Blended Whisky for Bourbon Whisky and that
furthermore the Blended Whisky was a reasonable substitute for Bourbon. After due
hearing the Court of First Instance of Manila held that the transaction was purchase
and sale and ordered the defendant 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 was affirmed by this Court.
We notice the following similarities. In the present case, the export company acted as agent
for Frenkel International Corporation, presumably the supplier 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 present case, Suan according to the first part of the
agreement is said merely to be commissioning the Export Company to procure for him the
merchandise in question, just as in the other case, Velasco was supposed to be ordering the
whisky thru the Universal Trading Co. In the present case, the price of the 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 Velasco case, Velasco was given the
choice of either opening a similar 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 the whisky and because it did not conform to specifications, Velasco refused to
received it; but in the present case although Suan received the merchandise he immediately
protested its poor quality and it was deposited in the warehouse and later withdrawn and
sold for the best price possible, all at the suggestion of the Export company. The present
case is in our opinion a stronger one than that of Velasco for holding the transaction as one
of purchase and sale because as may be noticed from the agreement (Exhibit "A"), the same
41
speaks of the items (merchandise) therein involved as sold, and the sale was even confirmed
by the Export company. In both cases, the agents Universal Trading Co. and the export
company dealt directly with the local merchants Velasco and Suan without expressly
indicating or revealing their 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.
12. NIELSON & COMPANY, INC., plaintiff-appellant, vs. LEPANTO CONSOLIDATED
MINING COMPANY, defendant-appellee.
On February 6, 1958, plaintiff brought this action against defendant before the Court of First
Instance of Manila to recover certain sums of money representing damages allegedly
suffered by the former in view of the refusal of the latter to comply with the terms of a
management contract entered into between them on January 30, 1937, including attorney's
fees and costs.
Defendant in its answer denied the material allegations of the complaint and set up certain
special defenses, among them, prescription and laches, as bars against the institution of the
present action.
After trial, during which the parties presented testimonial and numerous documentary
evidence, the court a quo rendered a decision dismissing the complaint with costs. The court
stated that it did not find sufficient evidence to establish defendant's counterclaim and so it
likewise dismissed the same.
The present appeal was taken to this Court directly by the plaintiff in view of the amount
involved in the case.
The facts of this case, as stated in the decision appealed from, are hereunder quoted for
purposes of this decision:
It appears that the suit involves an operating agreement executed before World War
II between the plaintiff and the defendant whereby the former operated and
managed the mining properties owned by the latter for a management fee of
P2,500.00 a month and a 10% participation in the net profits resulting from the
operation of the mining properties. For brevity and convenience, hereafter the
plaintiff shall be referred to as NIELSON and the defendant, LEPANTO.
The antecedents of the case are: The contract in question (Exhibit `C') was made by
the parties on January 30, 1937 for a period of five (5) years. In the latter part of
1941, the parties agreed to renew the contract for another period of five (5) years,
but in the meantime, the Pacific War broke out in December, 1941.
In January, 1942 operation of the mining properties was disrupted on account of the
war. In February of 1942, the mill, power plant, supplies on hand, equipment,
concentrates on hand and mines, were destroyed upon orders of the United States
Army, to prevent their utilization by the invading Japanese Army. The Japanese
forces thereafter occupied the mining properties, operated the mines during the
continuance of the war, and who were ousted from the mining properties only in
August of 1945.
After the mining properties were liberated from the Japanese forces, LEPANTO took
possession thereof and embarked in rebuilding and reconstructing the mines and
mill; setting up new organization; clearing the mill site; repairing the mines; erecting
staff quarters and bodegas and repairing existing structures; installing new
machinery and equipment; repairing roads and maintaining the same; salvaging
equipment and storing the same within the bodegas; doing police work necessary to
take care of the materials and equipment recovered; repairing and renewing the
water system; and remembering (Exhibits "D" and "E"). The rehabilitation and
reconstruction of the mine and mill was not completed until 1948 (Exhibit "F"). On
June 26, 1948 the mines resumed operation under the exclusive management of
LEPANTO (Exhibit "F-l").
42
 Shortly after the mines were liberated from the Japanese invaders in 1945, a
disagreement arose between NIELSON and LEPANTO over the status of the
operating contract in question which as renewed expired in 1947. Under the terms
thereof, the management contract shall remain in suspense in case fortuitous event
orforce majeure, such as war or civil commotion, adversely affects the work of
mining and milling.
"In the event of inundations, floodings of mine, typhoon, earthquake or any
other force majeure, war, insurrection, civil commotion, organized strike,
riot, injury to the machinery or other event or cause reasonably beyond the
control of NIELSON and which adversely affects the work of mining and
milling; NIELSON shall report 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." (Clause II of Exhibit
"C").
NIELSON held the view that, on account of the war, the contract was suspended
during the war; hence the life of the contract should be considered extended for
such time of the period of suspension. On the other hand, LEPANTO contended that
the contract should expire in 1947 as originally agreed upon because the period of
suspension accorded by virtue of the war did not operate to extend further the life of
the contract.
No understanding appeared from the record to have been bad by the parties to
resolve the disagreement. In the meantime, LEPANTO rebuilt and reconstructed the
mines and was able to bring the property into operation only in June of 1948, . . . .
Appellant in its brief makes an alternative assignment of errors depending on whether or not
the management contract basis of the action has been extended for a period equivalent to
the period of suspension. If the agreement is suspended our attention should be focused on
the first set of errors claimed to have been committed by the court a quo; but if the contrary
is true, the discussion will then be switched to the alternative set that is claimed to have
been committed. We will first take up the question whether the management agreement has
been extended as a result of the supervening war, and after this question shall have been
determined in the sense sustained by appellant, then the discussion of the defense of laches
and prescription will follow as a consequence.
The pertinent portion of the management contract (Exh. C) which refers to suspension
should any event constitutingforce majeure happen appears in Clause II thereof which we
quote hereunder:
In the event of inundations, floodings of the mine, typhoon, earthquake or any other
force majeure, war, insurrection, civil commotion, organized strike, riot, injury to the
machinery or other event or cause reasonably beyond the control of NIELSON and
which adversely affects the work of mining and milling; NIELSON shall report 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.
A careful scrutiny of the clause above-quoted will at once reveal that in order that the
management contract may be deemed suspended two events must take place which must be
brought in a satisfactory manner to the attention of defendant within a reasonable time, to
wit: (1) the event constituting the force majeure must be reasonably beyond the control of
Nielson, and (2) it must adversely affect the work of mining and milling the company is called
upon to undertake. As long as these two condition exist the agreement is deem suspended.
Does the evidence on record show that these two conditions had existed which may justify
the conclusion that the management agreement had been suspended in the sense
entertained by appellant? Let us go to the evidence.
It is a matter that this Court can take judicial notice of that war supervened in our country
and that the mines in the Philippines were either destroyed or taken over by the occupation
forces with a view to their operation. The Lepanto mines were no exception for not was the
mine itself destroyed but the mill, power plant, supplies on hand, equipment and the like that
were being used there were destroyed as well. Thus, the following is what appears in the
Lepanto Company Mining Report dated March 13, 1946 submitted by its President C. A.
DeWitt to the defendant:1 "In February of 1942, our mill, power plant, supplies on hand,
equipment, concentrates on hand, and mine, were destroyed upon orders of the U.S. Army
to prevent their utilization by the enemy." The report also mentions the report submitted by
Mr. Blessing, an official of Nielson, that "the original mill was destroyed in 1942" and "the
original power plant and all the installed equipment were destroyed in 1942." It is then
undeniable that beginning February, 1942 the operation of the Lepanto mines stopped or
became suspended as a result of the destruction of the mill, power plant and other important
equipment necessary for such operation in view of a cause which was clearly beyond the
control of Nielson and that as a consequence such destruction adversely affected the work of
mining and milling which the latter was called upon to undertake under the management
contract. Consequently, by virtue of the very terms of said contract the same may be
deemed suspended from February, 1942 and as of that month the contract still had 60
months to go.
On the other hand, the record shows that the defendant admitted that the occupation forces
operated its mining properties subject of the management contract, 2 and from the very
report submitted by President DeWitt it appears that the date of the liberation of the mine
43
was August 1, 1945 although at the time there were still many booby traps. 3 Similarly, in a
report submitted by the defendant to its stockholders dated August 25, 1948, the following
appears: "Your Directors take pleasure in reporting that June 26, 1948 marked the official
return to operations of this Company of its properties in Mankayan, Mountain Province,
Philippines."4
It is, therefore, clear from the foregoing that the Lepanto mines were liberated on August 1,
1945, but because of the period of rehabilitation and reconstruction that had to be made as a
result of the destruction of the mill, power plant and other necessary equipment for its
operation it cannot be said that the suspension of the contract ended on that date. Hence,
the contract must still be deemed suspended during the succeeding years of reconstruction
and rehabilitation, and this period can only be said to have ended on June 26, 1948 when, as
reported by the defendant, the company officially resumed the mining operations of the
Lepanto. It should here be stated that this period of suspension from February, 1942 to June
26, 1948 is the one urged by plaintiff.5
It having been shown that the operation of the Lepanto mines on the part of Nielson had
been suspended during the period set out above within the purview of the management
contract, the next question that needs to be determined is the effect of such suspension.
Stated in another way, the question now to be determined is whether such suspension had
the effect of extending the period of the management contract for the period of said
suspension. To elucidate this matter, we again need to resort to the evidence.
For appellant Nielson two witnesses testified, declaring that the suspension had the effect of
extending the period of the contract, namely, George T. Scholey and Mark Nestle. Scholey
was a mining engineer since 1929, an incorporator, general manager and director of Nielson
and Company; and for some time he was also the vice-president and director of the Lepanto
Company during the pre-war days and, as such, he was an officer of both appellant and
appellee companies. As vice-president of Lepanto and general manager of Nielson, Scholey
participated in the negotiation of the management contract to the extent that he initialed the
same both as witness and as an officer of both corporations. This witness testified in this
case to the effect that the standard force majeure clause embodied in the management
contract was taken from similar mining contracts regarding mining operations and the
understanding regarding the nature and effect of said clause was that when there is
suspension of the operation that suspension meant the extension of the contract. Thus, to
the question, "Before the war, what was the understanding of the people in the particular
trend of business with respect to the force majeure clause?", Scholey answered: "That was
our understanding that the suspension meant the extension of time lost." 6
Mark Nestle, the other witness, testified along similar line. He had been connected with
Nielson since 1937 until the time he took the witness stand and had been a director,
manager, and president of the same company. When he was propounded the question: "Do
you know what was the custom or usage at that time in connection with force
majeure clause?", Nestle answered, "In the mining world the force majeure clause is
generally considered. When a calamity comes up and stops the work like in war, flood,
inundation or fire, etc., the work is suspended for the duration of the calamity, and the
period of the contract is extended after the calamity is over to enable the person to do the
big work or recover his money which he has invested, or accomplish what his obligation is to
a third person ."7
And the above testimonial evidence finds support in the very minutes of the special meeting
of the Board of Directors of the Lepanto Company issued on March 10, 1945 which was then
chairmaned by Atty. C. A. DeWitt. We read the following from said report:
The Chairman also stated that the contract with Nielson and Company would soon
expire if the obligations were not suspended, in which case we should have to pay
them the retaining fee of P2,500.00 a month. He believes however, that there is a
provision in the contract suspending the effects thereof in cases like the present, and
that even if it were not there, the law itself would suspend the operations of the
contract on account of the war. Anyhow, he stated, we shall have no difficulty in
solving satisfactorily any problem we may have with Nielson and Company. 8
Thus, we can see from the above that even in the opinion of Mr. DeWitt himself, who at the
time was the chairman of the Board of Directors of the Lepanto Company, the management
contract would then expire unless the period therein rated is suspended but that, however,
he expressed the belief that the period was extended because of the provision contained
therein suspending the effects thereof should any of the case of force majeure happen like in
the present case, and that even if such provision did not exist the law would have the effect
of suspending it on account of the war. In substance, Atty. DeWitt expressed the opinion that
as a result of the suspension of the mining operation because of the effects of the war the
period of the contract had been extended.
Contrary to what appellant's evidence reflects insofar as the interpretation of the force
majeure clause is concerned, however, appellee gives Us an opposite interpretation invoking
in support thereof not only a letter Atty. DeWitt sent to Nielson on October 20,
1945,9 wherein he expressed for the first time an opinion contrary to what he reported to the
Board of Directors of Lepanto Company as stated in the portion of the minutes of its Board of
Directors as quoted above, but also the ruling laid down by our Supreme Court in some cases
decided sometime ago, to the effect that the war does not have the effect of extending the
term of a contract that the parties may enter into regarding a particular transaction, citing in
this connection the cases of Victorias Planters Association v. Victorias Milling Company , 51
44
O.G. 4010; Rosario S. Vda. de Lacson, et al. v. Abelardo G. Diaz , 87 Phil. 150; and Lo Ching
y So Young Chong Co. v. Court of Appeals, et al., 81 Phil. 601.
To bolster up its theory, appellee also contends that the evidence regarding the alleged
custom or usage in mining contract that appellant's witnesses tried to introduce was
incompetent because (a) said custom was not specifically pleaded; (b) Lepanto made timely
and repeated objections to the introduction of said evidence; (c) Nielson failed to show the
essential elements of usage which must be shown to exist before any proof thereof can be
given to affect the contract; and (d) the testimony of its witnesses cannot prevail over the
very terms of the management contract which, as a rule, is supposed to contain all the terms
and conditions by which the parties intended to be bound.
It is here necessary to analyze the contradictory evidence which the parties have presented
regarding the interpretation of the force majeure clause in the management contract.
At the outset, it should be stated that, as a rule, in the construction and interpretation of a
document the intention of the parties must be sought (Rule 130, Section 10, Rules of Court).
This is the basic rule in the interpretation of contracts because all other rules are but
ancilliary to the ascertainment of the meaning intended by the parties. And once this
intention has been ascertained it becomes an integral part of the contract as though it had
been originally expressed therein in unequivocal terms (Shoreline Oil Corp. v. Guy, App. 189,
So., 348, cited in 17A C.J.S., p. 47). How is this intention determined?
One pattern is to ascertain the contemporaneous and subsequent acts of the contracting
parties in relation to the transaction under consideration (Article 1371, Civil Code). In this
particular case, it is worthy of note what Atty. C. A. DeWitt has stated in the special meeting
of the Board of Directors of Lepanto in the portion of the minutes already quoted above
wherein, as already stated, he expressed the opinion that the life of the contract, if not
extended, would last only until January, 1947 and yet he said that there is a provision in the
contract that the war had the effect of suspending the agreement and that the effect of that
suspension was that the agreement would have to continue with the result that Lepanto
would have to pay the monthly retaining fee of P2,500.00. And this belief that the war
suspended the agreement and that the suspension meant its extension was so firm that he
went to the extent that even if there was no provision for suspension in the agreement the
law itself would suspend it.
It is true that Mr. DeWitt later sent a letter to Nielson dated October 20, 1945 wherein
apparently he changed his mind because there he stated that the contract was merely
suspended, but not extended, by reason of the war, contrary to the opinion he expressed in
the meeting of the Board of Directors already adverted to, but between the two opinions of
Atty. DeWitt We are inclined to give more weight and validity to the former not only because
such was given by him against his own interest but also because it was given before the
Board of Directors of Lepanto and in the presence, of some Nielson officials 10 who, on that
occasion were naturally led to believe that that was the true meaning of the suspension
clause, while the second opinion was merely self-serving and was given as a mere
afterthought.
Appellee also claims that the issue of true intent of the parties was not brought out in the
complaint, but anent this matter suffice it to state that in paragraph No. 19 of the complaint
appellant pleaded that the contract was extended. 11 This is a sufficient allegation considering
that the rules on pleadings must as a rule be liberally construed.
It is likewise noteworthy that in this issue of the intention of the parties regarding the
meaning and usage concerning the force majeure clause, the testimony adduced by
appellant is uncontradicted. If such were not true, appellee should have at least attempted to
offer contradictory evidence. This it did not do. Not even Lepanto's President, Mr. V. E.
Lednicky who took the witness stand, contradicted said evidence.
In holding that the suspension of the agreement meant the extension of the same for a
period equivalent to the suspension, We do not have the least intention of overruling the
cases cited by appellee. We simply want to say that the ruling laid down in said cases does
not apply here because the material facts involved therein are not the same as those
obtaining in the present. The rule of stare decisis cannot be invoked where there is no
analogy between the material facts of the decision relied upon and those of the instant case.
Thus, in Victorias Planters Association vs. Victorias Milling Company , 51 O.G. 4010, there was
no evidence at all regarding the intention of the parties to extend the contract equivalent to
the period of suspension caused by the war. Neither was there evidence that the parties
understood the suspension to mean extension; nor was there evidence of usage and custom
in the industry that the suspension meant the extension of the agreement. All these matters,
however, obtain in the instant case.
Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz , 87 Phil. 150, the issue
referred to the interpretation of a pre-war contract of lease of sugar cane lands and the
liability of the lessee to pay rent during and immediately following the Japanese occupation
and where the defendant claimed the right of an extension of the lease to make up for the
time when no cane was planted. This Court, in holding that the years which the lessee could
not use the land because of the war could not be discounted from the period agreed upon,
held that "Nowhere is there any insinuation that the defendant-lessee was to have
possession of lands for seven years excluding years on which he could not harvest sugar."
Clearly, this ratio decidendi is not applicable to the case at bar wherein there is evidence that
45
the parties understood the "suspension clause by force majeure" to mean the extension of
the period of agreement.
Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of Appeals, et al., 81 Phil.
601, appellant leased a building from appellee beginning September 13, 1940 for three
years, renewable for two years. The lessee's possession was interrupted in February, 1942
when he was ousted by the Japanese who turned the same over to German Otto Schulze,
the latter occupying the same until January, 1945 upon the arrival of the liberation forces.
Appellant contended that the period during which he did not enjoy the leased premises
because of his dispossession by the Japanese had to be deducted from the period of the
lease, but this was overruled by this Court, reasoning that such dispossession was merely a
simple "perturbacion de merohecho y de la cual no responde el arrendador" under Article
1560 of the old Civil Code Art. 1664). This ruling is also not applicable in the instant case
because in that case there was no evidence of the intention of the parties that any
suspension of the lease by force majeure would be understood to extend the period of the
agreement.
In resume, there is sufficient justification for Us to conclude that the cases cited by appellee
are inapplicable because the facts therein involved do not run parallel to those obtaining in
the present case.
We shall now consider appellee's defense of laches. Appellee is correct in its contention that
the defense of laches applies independently of prescription. Laches is different from the
statute of limitations. Prescription is concerned with the fact of delay, whereas laches is
concerned with the effect of delay. Prescription is a matter of time; laches is principally a
question of inequity of permitting a claim to be enforced, this inequity being founded on
some change in the condition of the property or the relation of the parties. Prescription is
statutory; laches is not. Laches applies in equity, whereas prescription applies at law.
Prescription is based on fixed time, laches is not. (30 C.J.S., p. 522; See also Pomeroy's
Equity Jurisprudence, Vol. 2, 5th ed., p. 177).
The question to determine is whether appellant Nielson is guilty of laches within the meaning
contemplated by the authorities on the matter. In the leading case of Go Chi Gun, et al. vs.
Go Cho, et al., 96 Phil. 622, this Court enumerated the essential elements of laches as
follows:
(1) conduct on the part of the defendant, or of one under whom he claims, giving
rise to the situation of which complaint is made and for which the complaint seeks a
remedy; (2) delay in asserting the complainant's rights, the complainant having had
knowledge or notice of the defendant's conduct and having been afforded an
opportunity to institute a suit; (3) lack of knowledge or notice on the part of the
defendant that the complainant would assert the right on which he bases his suit;
and (4) injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held barred.
Are these requisites present in the case at bar?
The first element is conceded by appellant Nielson when it claimed that defendant refused to
pay its management fees, its percentage of profits and refused to allow it to resume the
management operation.
Anent the second element, while it is true that appellant Nielson knew since 1945 that
appellee Lepanto has refused to permit it to resume management and that since 1948
appellee has resumed operation of the mines and it filed its complaint only on February 6,
1958, there being apparent delay in filing the present action, We find the delay justified and
as such cannot constitute laches. It appears that appellant had not abandoned its right to
operate the mines for even before the termination of the suspension of the agreement as
early as January 20, 194612 and even before March 10, 1945, it already claimed its right to
the extension of the contract,13 and it pressed its claim for the balance of its share in the
profits from the 1941 operation14 by reason of which negotiations had taken place for the
settlement of the claim15 and it was only on June 25, 1957 that appellee finally denied the
claim. There is, therefore, only a period of less than one year that had elapsed from the date
of the final denial of the claim to the date of the filing of the complaint, which certainly
cannot be considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said that appellee Lepanto did
not know that appellant would assert its rights on which it based suit. The evidence shows
that Nielson had been claiming for some time its rights under the contract, as already shown
above.
Neither is the fourth element present, for if there has been some delay in bringing the case
to court it was mainly due to the attempts at arbitration and negotiation made by both
parties. If Lepanto's documents were lost, it was not caused by the delay of the filing of the
suit but because of the war.
Another reason why appellant Nielson cannot be held guilty of laches is that the delay in the
filing of the complaint in the present case was the inevitable of the protracted negotiations
between the parties concerning the settlement of their differences. It appears that Nielson
asked for arbitration16 which was granted. A committee consisting of Messrs. DeWitt, Farnell
and Blessing was appointed to act on said differences but Mr. DeWitt always tried to evade
the issue17 until he was taken ill and died. Mr. Farnell offered to Nielson the sum of
P13,000.58 by way of compromise of all its claim arising from the management contract 18 but
46
apparently the offer was refused. Negotiations continued with the exchange of letters
between the parties but with no satisfactory result. 19 It can be said that the delay due to
protracted negotiations was caused by both parties. Lepanto, therefore, cannot be permitted
to take advantage of such delay or to question the propriety of the action taken by Nielson.
The defense of laches is an equitable one and equity should be applied with an even hand. A
person will not be permitted to take advantage of, or to question the validity, or propriety of,
any act or omission of another which was committed or omitted upon his own request or was
caused by his conduct (R. H. Stearns Co. vs. United States, 291 U.S. 54, 78 L. Ed. 647, 54 S.
Ct., 325; United States vs. Henry Prentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).
Had the action of Nielson prescribed? The court a quo held that the action of Nielson is
already barred by the statute of limitations, and that ruling is now assailed by the appellant
in this appeal. In urging that the court a quo erred in reaching that conclusion the appellant
has discussed the issue with reference to particular claims.
The first claim is with regard to the 10% share in profits of 1941 operations. Inasmuch as
appellee Lepanto alleges that the correct basis of the computation of the sharing in the net
profits shall be as provided for in Clause V of the Management Contract, while appellant
Nielson maintains that the basis should be what is contained in the minutes of the special
meeting of the Board of Directors of Lepanto on August 21, 1940, this question must first be
elucidated before the main issue is discussed.
The facts relative to the matter of profit sharing follow: In the management contract entered
into between the parties on January 30, 1937, which was renewed for another five years, it
was stipulated that Nielson would receive a compensation of P2,500.00 a month plus 10% of
the net profits from the operation of the properties for the preceding month. In 1940, a
dispute arose regarding the computation of the 10% share of Nielson in the profits. The
Board of Directors of Lepanto, realizing that the mechanics of the contract was unfair to
Nielson, authorized its President to enter into an agreement with Nielson modifying the
pertinent provision of the contract effective January 1, 1940 in such a way that Nielson shall
receive (1) 10% of the dividends declared and paid, when and as paid, during the period of
the contract and at the end of each year, (2) 10% of any depletion reserve that may be set
up, and (3) 10% of any amount expended during the year out of surplus earnings for capital
account. 20 Counsel for the appellee admitted during the trial that the extract of the minutes
as found in Exhibit B is a faithful copy from the original. 21 Mr. George Scholey testified that
the foregoing modification was agreed upon. 22
Lepanto claims that this new basis of computation should be rejected (1) because the
contract was clear on the point of the 10% share and it was so alleged by Nielson in its
complaint, and (2) the minutes of the special meeting held on August 21, 1940 was not
signed.
It appearing that the issue concerning the sharing of the profits had been raised in
appellant's complaint and evidence on the matter was introduced 23 the same can be taken
into account even if no amendment of the pleading to make it conform to the evidence has
been made, for the same is authorized by Section 4, Rule 17, of the old Rules of Court (now
Section 5, Rule 10, of the new Rules of Court).
Coming now to the question of prescription raised by defendant Lepanto, it is contended by
the latter that the period to be considered for the prescription of the claim regarding
participation in the profits is only four years, because the modification of the sharing
embodied in the management contract is merely verbal, no written document to that effect
having been presented. This contention is untenable. The modification appears in the
minutes of the special meeting of the Board of Directors of Lepanto held on August 21, 1940,
it having been made upon the authority of its President, and in said minutes the terms of the
modification had been specified. This is sufficient to have the agreement considered, for the
purpose of applying the statute of limitations, as a written contract even if the minutes were
not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that a writing containing the
terms of a contract if adopted by two persons may constitute a contract in writing even if the
same is not signed by either of the parties (3 A.L.R., 2d, pp. 812-813). Another authority
says that an unsigned agreement the terms of which are embodied in a document
unconditionally accepted by both parties is a written contract (Corbin on Contracts, Vol. 1, p.
85)
The modification, therefore, made in the management contract relative to the participation in
the profits by appellant, as contained in the minutes of the special meeting of the Board of
Directors of Lepanto held on August 21, 1940, should be considered as a written contract
insofar as the application of the statutes of limitations is concerned. Hence, the action
thereon prescribes within ten (10) years pursuant to Section 43 of Act 190.
Coming now to the facts, We find that the right of Nielson to its 10% participation in the
1941 operations accrued on December 21, 1941 and the right to commence an action
thereon began on January 1, 1942 so that the action must be brought within ten (10) years
from the latter date. It is true that the complaint was filed only on February 6, 1958, that is
sixteen (16) years, one (1) month and five (5) days after the right of action accrued, but the
action has not yet prescribed for various reasons which We will hereafter discuss.
The first reason is the operation of the Moratorium Law, for appellant's claim is undeniably a
claim for money. Said claim accrued on December 31, 1941, and Lepanto is a war sufferer.
Hence the claim was covered by Executive Order No. 32 of March 10, 1945. It is well settled
that the operation of the Moratorium Law suspends the running of the statue of limitations
(Pacific Commercial Co. vs. Aquino, G.R. No. L-10274, February 27, 1957).
47
This Court has held that the Moratorium Law had been enforced for eight (8) years, two (2)
months and eight (8) days (Tioseco vs. Day, et al., L-9944, April 30, 1957; Levy Hermanos,
Inc. vs. Perez, L-14487, April 29, 1960), and deducting this period from the time that had
elapsed since the accrual of the right of action to the date of the filing of the complaint, the
extent of which is sixteen (16) years, one (1) month and five (5) days, we would have less
than eight (8) years to be counted for purposes of prescription. Hence appellant's action on
its claim of 10% on the 1941 profits had not yet prescribed.
Another reason that may be taken into account in support of the no-bar theory of appellant is
the arbitration clause embodied in the management contract which requires that any
disagreement as to any amount of profits before an action may be taken to court shall be
subject to arbitration. 24 This agreement to arbitrate is valid and binding. 25 It cannot be
ignored by Lepanto. Hence Nielson could not bring an action on its participation in the 1941
operations-profits until the condition relative to arbitration had been first complied
with. 26 The evidence shows that an arbitration committee was constituted but it failed to
accomplish its purpose on June 25, 1957. 27 From this date to the filing of the complaint the
required period for prescription has not yet elapsed.
Nielson claims the following: (1) 10% share in the dividends declared in 1941, exclusive of
interest, amounting to P17,500.00; (2) 10% in the depletion reserves for 1941; and (3) 10%
in the profits for years prior to 1948 amounting to P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar year of 1954 28 shows
that it declared a 10% cash dividend in December, 1941, the amount of which is
P175,000.00. The evidence in this connection (Exhibits L and O) was admitted without
objection by counsel for Lepanto. 29 Nielson claims 10% share in said amount with interest
thereon at 6% per annum. The document (Exhibit L) was even recognized by Lepanto's
President V. L. Lednicky, 30 and this claim is predicated on the provision of paragraph V of the
management contract as modified pursuant to the proposal of Lepanto at the special meeting
of the Board of Directors on August 21, 1940 (Exh. B), whereby it was provided that Nielson
would be entitled to 10% of any dividends to be declared and paid during the period of the
contract.
With regard to the second claim, Nielson admits that there is no evidence regarding the
amount set aside by Lepanto for depletion reserve for 1941 31 and so the 10% participation
claimed thereon cannot be assessed.
Anent the third claim relative to the 10% participation of Nielson on the sum of P197,647.08,
which appears in Lepanto's annual report for 1948 32 and entered as profit for prior years in
the statement of income and surplus, which amount consisted "almost in its entirety of
proceeds of copper concentrates shipped to the United States during 1947," this claim should
to denied because the amount is not "dividend declared and paid" within the purview of the
management contract.
The fifth assignment of error of appellant refers to the failure of the lower court to order
Lepanto to pay its management fees for January, 1942, and for the full period of extension
amounting to P150,000.00, or P2,500.00 a month for sixty (60) months, a total of
P152,500.00 with interest thereon from the date of judicial demand.
It is true that the claim of management fee for January, 1942 was not among the causes of
action in the complaint, but inasmuch as the contract was suspended in February, 1942 and
the management fees asked for included that of January, 1942, the fact that such claim was
not included in a specific manner in the complaint is of no moment because an appellate
court may treat the pleading as amended to conform to the evidence where the facts show
that the plaintiff is entitled to relief other than what is asked for in the complaint (Alonzo vs.
Villamor, 16 Phil. 315). The evidence shows that the last payment made by Lepanto for
management fee was for November and December, 1941. 33 If, as We have declared, the
management contract was suspended beginning February 1942, it follows that Nielson is
entitled to the management fee for January, 1942.
Let us now come to the management fees claimed by Nielson for the period of extension. In
this respect, it has been shown that the management contract was extended from June 27,
1948 to June 26, 1953, or for a period of sixty (60) months. During this period Nielson had a
right to continue in the management of the mining properties of Lepanto and Lepanto was
under obligation to let Nielson do it and to pay the corresponding management fees.
Appellant Nielson insisted in performing its part of the contract but Lepanto prevented it from
doing so. Hence, by virtue of Article 1186 of the Civil Code, there was a constructive
fulfillment an the part of Nielson of its obligation to manage said mining properties in
accordance with the contract and Lepanto had the reciprocal obligation to pay the
corresponding management fees and other benefits that would have accrued to Nielson if
Lepanto allowed it (Nielson) to continue in the management of the mines during the
extended period of five (5) years.
We find that the preponderance of evidence is to the effect that Nielson had insisted in
managing the mining properties soon after liberation. In the report 34 of Lepanto, submitted
to its stockholders for the period from 1941 to March 13, 1946, are stated the activities of
Nielson's officials in relation to Nielson's insistence in continuing the management. This
report was admitted in evidence without objection. We find the following in the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San Fernando (La Union) to
await the liberation of the mines. (Mr. Blessing was the Treasurer and Metallurgist of
Nielson). Blessing with Clark and Stanford went to the property on July 16 and found that
48
while the mill site had been cleared of the enemy the latter was still holding the area around management of the mine in 1945 was unequivocal and cannot be
the staff houses and putting up a strong defense. As a result, they returned to San Fernando misinterpreted, infra.37
and later went back to the mines on July 26. Mr. Blessing made the report, dated August 6,
recommending a program of operation. Mr. Nielson himself spent a day in the mine early in Based on the foregoing facts and circumstances, and Our conclusion that the management
December, 1945 and reiterated the program which Mr. Blessing had outlined. Two or three contract was extended, We believe that Nielson is entitled to the management fees for the
weeks before the date of the report, Mr. Coldren of the Nielson organization also visited the period of extension. Nielson should be awarded on this claim sixty times its monthly pay of
mine and told President C. A. DeWitt of Lepanto that he thought that the mine could be put P2,500.00, or a total of P150,000.00.
in condition for the delivery of the ore within ten (10) days. And according to Mark Nestle, a
witness of appellant, Nielson had several men including engineers to do the job in the mines In its sixth assignment of error Nielson contends that the lower court erred in not ordering
and to resume the work. These engineers were in fact sent to the mine site and submitted Lepanto to pay it (Nielson) the 10% share in the profits of operation realized during the
reports of what they had done. 35 period of five (5) years from the resumption of its post-war operations of the Mankayan
mines, in the total sum of P2,403,053.20 with interest thereon at the rate of 6% per annum
On the other hand, appellee claims that Nielson was not ready and able to resume the work from February 6, 1958 until full payment. 38
in the mines, relying mainly on the testimony of Dr. Juan Nabong, former secretary of both
Nielson and Lepanto, given in the separate case of Nancy Irving Romero vs. Lepanto The above claim of Nielson refers to four categories, namely: (1) cash dividends; (2) stock
Consolidated Mining Company (Civil Case No. 652, CFI, Baguio), to the effect that as far as dividends; (3) depletion reserves; and (4) amount expended on capital investment.
he knew "Nielson and Company had not attempted to operate the Lepanto Consolidated
Mining Company because Mr. Nielson was not here in the Philippines after the last war. He
Anent the first category, Lepanto's report for the calendar year 1954 39 contains a record of
came back later," and that Nielson and Company had no money nor stocks with which to
the cash dividends it paid up to the date of said report, and the post-war dividends paid by it
start the operation. He was asked by counsel for the appellee if he had testified that way in
corresponding to the years included in the period of extension of the management contract
Civil Case No. 652 of the Court of First Instance of Baguio, and he answered that he did not
are as follows:
confirm it fully. When this witness was asked by the same counsel whether he confirmed that
testimony, he said that when he testified in that case he was not fully aware of what
happened and that after he learned more about the officials of the corporation it was only POST-WAR
then that he became aware that Nielson had really sent his men to the mines along with Mr.
Blessing and that he was aware of this fact personally. He further said that Mr. Nielson was
here in 1945 and "he was going out and contacting his people." 36 8 10% November 1949 P 200,000.00

Lepanto admits, in its own brief, that Nielson had really insisted in taking over the
management and operation of the mines but that it (Lepanto) unequivocally refuse to allow
it. The following is what appears in the brief of the appellee: 9 10% July 1950 300,000.00

It was while defendant was in the midst of the rehabilitation work which was fully
described earlier, still reeling under the terrible devastation and destruction wrought
by war on its mine that Nielson insisted in taking over the management and
10 10% October 1950 500,000.00
operation of the mine. Nielson thus put Lepanto in a position where defendant,
under the circumstances, had to refuse, as in fact it did, Nielson's insistence in taking
over the management and operation because, as was obvious, it was impossible, as
a result of the destruction of the mine, for the plaintiff to manage and operate the
same and because, as provided in the agreement, the contract was suspended by 11 20% December 1950 1,000,000.00
reason of the war. The stand of Lepanto in disallowing Nielson to assume again the

49
12 20% March 1951 1,000,000.00 22 20% June 1953 1,000,000.00

13 20% June 1951 1,000,000.00 TOTAL P14,000,000.00

According to the terms of the management contract as modified, appellant is entitled to 10%
14 20% September 1951 1,000,000.00
of the P14,000,000.00 cash dividends that had been distributed, as stated in the above-
mentioned report, or the sum of P1,400,000.00.

With regard to the second category, the stock dividends declared by Lepanto during the
15 40% December 1951 2,000,000.00
period of extension of the contract are: On November 28, 1949, the stock dividend declared
was 50% of the outstanding authorized capital of P2,000,000.00 of the company, or stock
dividends worth P1,000,000.00; and on August 22, 1950, the stock dividends declared was
66-2/3% of the standing authorized capital of P3,000,000.00 of the company, or stock
16 20% March 1952 1,000,000.00 dividends worth P2,000,000.00. 40

Appellant's claim that it should be given 10% of the cash value of said stock dividends with
interest thereon at 6% from February 6, 1958 cannot be granted for that would not be in
17 20% May 1952 1,000,000.00 accordance with the management contract which entitles Nielson to 10% of any dividends
declared paid, when and as paid. Nielson, therefore, is entitled to 10% of the stock dividends
and to the fruits that may have accrued to said stock dividends pursuant to Article 1164 of
the Civil Code. Hence to Nielson is due shares of stock worth P100,000.00, as per stock
18 20% July 1952 1,000,000.00 dividends declared on November 28, 1949 and all the fruits accruing to said shares after said
date; and also shares of stock worth P200,000.00 as per stock dividends declared on August
20, 1950 and all fruits accruing thereto after said date.

19 20% September 1952 1,000,000.00 Anent the third category, the depletion reserve appearing in the statement of income and
surplus submitted by Lepanto corresponding to the years covered by the period of extension
of the contract, may be itemized as follows:

20 20% December 1952 1,000,000.00 In 1948, as per Exh. F, p. 36 and Exh. Q, p. 5, the depletion reserve set up was
P11,602.80.

In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion reserve set up was
21 20% March 1953 1,000,000.00 P33,556.07.

50
 In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the depletion reserve
set up was P84,963.30.
In 1951, as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the depletion reserve
set up was P129,089.88.
In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K p. 41, the depletion reserve
was P147,141.54.
In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve set up as
P277,493.25.
Regarding the depletion reserve set up in 1948 it should be noted that the amount given was
for the whole year. Inasmuch as the contract was extended only for the last half of the year
1948, said amount of P11,602.80 should be divided by two, and so Nielson is only entitled to
10% of the half amounting to P5,801.40.
Likewise, the amount of depletion reserve for the year 1953 was for the whole year and since
the contract was extended only until the first half of the year, said amount of P277,493.25
should be divided by two, and so Nielson is only entitled to 10% of the half amounting to
P138,746.62. Summing up the entire depletion reserves, from the middle of 1948 to the
middle of 1953, we would have a total of P539,298.81, of which Nielson is entitled to 10%,
or to the sum of P53,928.88.
Finally, with regard to the fourth category, there is no figure in the record representing the
value of the fixed assets as of the beginning of the period of extension on June 27, 1948. It
is possible, however, to arrive at the amount needed by adding to the value of the fixed
assets as of December 31, 1947 one-half of the amount spent for capital account in the year
1948. As of December 31, 1947, the value of the fixed assets was P1,061,878.88 41 and as of
December 31, 1948, the value of the fixed assets was P3,270,408.07. 42 Hence, the increase
in the value of the fixed assets for the year 1948 was P2,208,529.19, one-half of which is
P1,104,264.59, which amount represents the expenses for capital account for the first half of
the year 1948. If to this amount we add the fixed assets as of December 31, 1947 amounting
to P1,061,878.88, we would have a total of P2,166,143.47 which represents the fixed assets
at the beginning of the second half of the year 1948.
There is also no figure representing the value of the fixed assets when the contract,
as extended, ended on June 26, 1953; but this may be computed by getting one-half of the
expenses for capital account made in 1953 and adding the same to the value of the fixed
assets as of December 31, 1953 is P9,755,840.41 43 which the value of the fixed assets as of
December 31, 1952 is P8,463,741.82, the difference being P1,292,098.69. One-half of this
amount is P646,049.34 which would represent the expenses for capital account up to June,
1953. This amount added to the value of the fixed assets as of December 31, 1952 would
give a total of P9,109,791.16 which would be the value of fixed assets at the end of June,
1953.
The increase, therefore, of the value of the fixed assets of Lepanto from June, 1948 to June,
1953 is P6,943,647.69, which amount represents the difference between the value of the
fixed assets of Lepanto in the year 1948 and in the year 1953, as stated above. On this
amount Nielson is entitled to a share of 10% or to the amount of P694,364.76.
Considering that most of the claims of appellant have been entertained, as pointed out in this
decision, We believe that appellant is entitled to be awarded attorney's fees, especially when,
according to the undisputed testimony of Mr. Mark Nestle, Nielson obliged himself to pay
attorney's fees in connection with the institution of the present case. In this respect, We
believe, considering the intricate nature of the case, an award of fifty thousand (P50,000.00)
pesos for attorney's fees would be reasonable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the
court a quo and enter in lieu thereof another, ordering the appellee Lepanto to pay appellant
Nielson the different amounts as specified hereinbelow:
(1) 10% share of cash dividends of December, 1941 in the amount of P17,500.00, with legal
interest thereon from the date of the filing of the complaint;
(2) management fee for January, 1942 in the amount of P2,500.00, with legal interest
thereon from the date of the filing of the complaint;
(3) management fees for the sixty-month period of extension of the management contract,
amounting to P150,000.00, with legal interest from the date of the filing of the complaint;
(4) 10% share in the cash dividends during the period of extension of the management
contract, amounting to P1,400,000.00, with legal interest thereon from the date of the filing
of the complaint;
(5) 10% of the depletion reserve set up during the period of extension, amounting to
P53,928.88, with legal interest thereon from the date of the filing of the complaint;
(6) 10% of the expenses for capital account during the period of extension, amounting to
P694,364.76, with legal interest thereon from the date of the filing of the complaint;
51
(7) to issue and deliver to Nielson and Co., Inc. shares of stock of Lepanto Consolidated
Mining Co. at par value equivalent to the total of Nielson's l0% share in the stock dividends
declared on November 28, 1949 and August 22, 1950, together with all cash and stock
dividends, if any, as may have been declared and issued subsequent to November 28, 1949
and August 22, 1950, as fruits that accrued to said shares;
If sufficient shares of stock of Lepanto's are not available to satisfy this judgment, defendant-
appellee shall pay plaintiff-appellant an amount in cash equivalent to the market value of said
shares at the time of default (12 C.J.S., p. 130), that is, all shares of the stock that should
have been delivered to Nielson before the filing of the complaint must be paid at their market
value as of the date of the filing of the complaint; and all shares, if any, that should have
been delivered after the filing of the complaint at the market value of the shares at the time
Lepanto disposed of all its available shares, for it is only then that Lepanto placed itself in
condition of not being able to perform its obligation (Article 1160, Civil Code);
(8) the sum of P50,000.00 as attorney's fees; and
(9) the costs. It is so ordered.
13. THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner,
vs. FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY COMMERCIAL
CASUALTY INSURANCE CO., SALVADOR SISON, PORFIRIO DE LA FUENTE and THE
COURT OF APPEALS (First Division),respondents.
Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals which
reversed that of the Court of First Instance of Manila and sentenced ". . . the defendants-
appellees to pay, jointly and severally, the plaintiffs-appellants the sum of P1,651.38, with
legal interest from December 6, 1947 (Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and the
costs in both instances."
The Court of Appeals found the following:
Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee, the Shell
Company of the Philippine Islands, Ltd. accept the statement of facts made by the
trial court in its decision and appearing on pages 23 to 37 of the Record on Appeal,
we quote hereunder such statement:
This is an action for recovery of sum of money, based on alleged negligence of the
defendants.
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 Streets, Manila, for washing, greasing and
spraying. The operator of 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 personnel of
the station.
What happened to the car is recounted by Perlito Sison, as follows:
Q. Will you please describe how they proceeded to do the work?
A. Yes, sir. The first thing that was done, as I saw, was to 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 washing was done. After washing, the next step was
greasing. Before greasing was finished, there is a part near the shelf of the
right fender, right front fender, of my car to be greased, but the the grease
men cannot reached that part, so the next thing to be done was to loosen
the lifter just a few feet lower. Then upon releasing the valve to make the
car lower, a little bit lower . . .
Q. Who released the valve?
A. The greasemen, for the escape of the air. As the escape of the air is too
strong for my ear I faced backward. I faced toward Isaac Peral Street, and
covered my ear. After the 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 that time, and just for a few second the car fell., (t.s.n. pp. 22-
23.)
The case was immediately reported to the Manila Adjustor Company, the adjustor of the
firemen's Insurance Company and the Commercial Casualty Insurance Company, as the car
was insured with these insurance companies. After having been inspected by one Mr. Baylon,
representative of the Manila Adjustor Company, the damaged car was taken to the shops of
the Philippine Motors, Incorporated, for repair upon order of the Firemen's Insurance
Company and the Commercial Casualty Company, with the consent of 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 made assignments of his rights to recover
damages in favor of the Firemen's Insurance Company and the Commercial Casualty
Insurance Company.
52
On the other hand, the fall of the car from the hydraulic lifter has been explained by Q. Why?
Alfonso M. Adriano, a greaseman in the Shell Gasoline and Service Station, as
follows: A. Because when I was lowering the lifter I saw that the car was swinging
and it fell.
Q. Were you able to lift the car on the hydraulic lifter on the occasion,
September 3, 1947? THE COURT. Why did the car swing and fall?

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

Q. To what height did you raise more or less? The position of Defendant Porfirio de la Fuente is stated in his counter-statement of facts
which is hereunder also reproduced:
A. More or less five feet, sir.
In the afternoon of September 3, 1947, an automobile belonging to the plaintiff
Q. After lifting that car that height, what did you do with the car? Salvador Sison was brought by his son, Perlito Sison, to the gasoline and service
station at the corner of Marques de Comillas and Isaac Peral Streets, City of Manila,
A. I also washed it, sir. Philippines, owned by the defendant The Shell Company of the Philippine Islands,
Limited, but operated by the defendant Porfirio de la Fuente, for the purpose of
Q. And after washing? 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 Firemen's Insurance Company of
Newark, New Jersey, and Commercial Casualty Insurance Company jointly for the
A. I greased it.
sum of P10,000 (Exhibits "A', "B", and "D").
Q. On that occasion, have you been able to finish greasing and washing the
The job of washing and greasing was undertaken by defendant Porfirio de la Fuente
car?
through his two employees, Alfonso M. Adriano, as greaseman and one surnamed de
los Reyes, a helper and washer (t.s.n., pp. 65-67). To perform the job the car was
A. There is one point which I could not reach. carefully and centrally placed on the platform of the lifter in the gasoline and service
station aforementioned before raising up said platform to a height of about 5 feet
Q. And what did you do then? and then the servicing job was started. After more than one hour of washing and
greasing, the job was about to be completed except for an ungreased portion
A. I lowered the lifter in order to reach that point. underneath the vehicle which could not be reached by the greasemen. So, the lifter
was lowered a little by Alfonso M. Adriano and while doing so, the car for unknown
Q. After lowering it a little, what did you do then? reason accidentally fell and suffered damage to the value of P1, 651.38 (t.s.n., pp.
65-67).
A. I pushed and pressed the valve in its gradual pressure.
The insurance companies after paying the sum of P1,651.38 for the damage and
Q. Were you able to reach the portion which you were not able to reach charging the balance of P100.00 to Salvador Sison in accordance with the terms of
while it was lower? the insurance contract, have filed this action together with said Salvador Sison for
the recovery of the total amount of the damage from the defendants on the ground
of negligence (Record on Appeal, pp. 1-6).
A. No more, sir.

53
 The defendant Porfirio de la Fuente denied negligence in the operation of the lifter in
his separate answer and contended further that the accidental fall of the car was
caused by unforseen event (Record on Appeal, pp. 17-19).
The owner of the car forthwith notified the insurers who ordered their adjustor, the Manila
Adjustor Company, to investigate the incident and after such investigation the damaged car,
upon order of the insures and with the consent of the owner, was brought to the shop of the
Philippine Motors, Inc. The car was restored to running condition after thereon which
amounted to P1,651.38 and returned to the owner who assigned his right to collect the
aforesaid amount to the Firemen's Insurance Company and the Commercial Casualty
Insurance Company.
On 6 December 1947 the insures and the owner of the car brought an action in the Court of
First Instance of Manila against the Shell Company of the Philippines, Ltd. and Porfirio de la
Fuente to recover from them, jointly and severally, the sum of P1,651.38, interest thereon at
the legal rate from the filing of the complaint until fully paid, the costs. After trial the Court
dismissed the complaint. The plaintiffs appealed. The Court of Appeals reversed the
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.
In arriving at the conclusion that on 3 September 1947 when the car was brought to the
station for servicing Profirio de la Fuente, the operator of the gasoline and service station,
was an agent of the Shell Company of the Philippines, Ltd., the Court of Appeals found that
. . . De la Fuente owned his position to the Shell Company which could remove him
terminate his services at any time from the said Company, and he undertook to sell
the Shell Company's products exculusively at the said Station. For this purpose, De la
Fuente was placed in possession of the gasoline and service station under
consideration, and was provided with all the equipments needed to operate it, by the
said Company, such as the tools and articles listed on Exhibit 2 which the hydraulic
lifter (hoist) and accessories, from which Sison's automobile fell on the date in
question (Exhibit 1 and 2). These equipments were delivered to De la Fuente on a
so-called loan basis. The Shell Company took charge of its care and maintenance and
rendered to the public or its customers at that station for the proper functioning of
the equipment. Witness Antonio Tiongson, who was sales superintendent of the Shell
Company, and witness Augusto 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 and
responsibilities and the reason for the loan, Tiongson said: "mainly of the supervision
of sales or (of) our dealers and rountinary inspection 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); station equipments are "loaned for the exclusive use of the dealer on
condition that all supplies to be sold by said dealer should be exclusively Shell, so as
a concession we loan equipments for their use . . .," "for the proper functioning of
the equipments, we answer and see to it that the equipments are in good running
order usable condition . . .," "with respect to the public." (t.s.n., 111-112). De la
Fuente, as operator, was given special prices by the Company for the gasoline
products sold therein. Exhibit 1 Shell, which was a receipt by Antonio Tiongson
and signed by the De la Fuente, acknowledging the delivery of equipments of the
gasoline and service station in question was subsequently replaced by Exhibit 2
Shell, an official from of the inventory of the equipment which De la Fuente signed
above the words: "Agent's signature" And the service station in question had been
marked "SHELL", and all advertisements therein bore the same sign. . . .
. . . De la Fuente was the operator of the station "by grace" of the Defendant
Company which could and did remove him as it pleased; that all the equipments
needed to operate the station was owned by the Defendant Company which took
charge of their proper care and maintenance, despite the fact that they were loaned
to him; that the 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 operation of the station, and in the sale of
Defendant Company's products therein. . . .
Taking into consideration the fact that the operator owed his position to the company and
the latter could remove him or terminate his services at will; that the service station
belonged to the 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 their repair and maintenance;
that an employee of the company supervised the operator and conducted periodic inspection
of the company's gasoline and service station; that the price of the 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
54
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 usable condition;" and the Court of Appeals found that the
Company's mechanic failed to make a thorough check up of the hydraulic lifter and the 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 mechanic) left the place." The latter
was negligent and the company must answer for the negligent act of its mechanic which was
the cause of the fall of the car from the hydraulic lifter.
The judgment under review is affirmed, with costs against the petitioner.
14. DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs. THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO,
and SEGUNDINA NOGUERA, respondents-appellees.
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by
certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the
appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina
Noguera, party of the first part; the Tourist World Service, Inc., represented
by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to
as appellants, the Tourist World Service, Inc. leased the premises belonging
to the party of the first part at Mabini St., Manila for the former-s use as a
branch office. In the said contract the party of the third part held herself
solidarily liable with the party of the part for the prompt payment of the
monthly rental agreed on. When the branch office was opened, the same
was run by the herein appellant Una 0. Sevilla payable to Tourist World
Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina
Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the
Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc.
appears to have been informed that Lina Sevilla was connected with a rival
firm, the Philippine Travel Bureau, and, since the branch office was anyhow
losing, the Tourist World Service considered closing down its office. This was
firmed up by two resolutions of the board of directors of Tourist World
Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the
office of the manager and vice-president of the Tourist World Service, Inc.,
Ermita Branch, and the second,authorizing the corporate secretary to receive
the properties of the Tourist World Service then located at the said branch
office. It further appears that on Jan. 3, 1962, the contract with the
appellees for the use of the Branch Office premises was terminated and
while the effectivity thereof was Jan. 31, 1962, the appellees no longer used
it. As a matter of fact appellants used it since Nov. 1961. Because of this,
and to comply with the mandate of the Tourist World Service, the corporate
secretary Gabino Canilao went over to the branch office, and, finding the
premises locked, and, being unable to contact Lina Sevilla, he padlocked the
premises on June 4, 1962 to protect the interests of the Tourist World
Service. When neither the appellant Lina Sevilla nor any of her employees
could enter the locked premises, a complaint wall filed by the herein
appellants against the appellees with a prayer for the issuance of mandatory
preliminary injunction. Both appellees answered with counterclaims. For
apparent lack of interest of the parties therein, the trial court ordered the
dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the order
dismissing her counterclaim which the court a quo, in an order dated June 8,
1963, granted permitting her to present evidence in support of her
counterclaim.
55
 On June 17,1963, appellant Lina Sevilla refiled her case against the herein
appellees and after the issues were joined, the reinstated counterclaim of
Segundina Noguera and the new complaint of appellant Lina Sevilla were
jointly heard following which the court a quo ordered both cases dismiss for
lack of merit, on the basis of which was elevated the instant appeal on the
following assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0.
SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE,
INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN
FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT
BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT
MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A
MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE,
INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO
RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI
OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE
NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE
DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT
MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the
telephone line at the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World Service
was actionable or not; and
3. Whether or not the lessee to the office premises belonging to the appellee
Noguera was appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture
was entered into by and between her and appellee TWS with offices at the
Ermita branch office and that she was not an employee of the TWS to the
end that her relationship with TWS was one of a joint business venture
appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife
of an eminent eye, ear and nose specialist as well as a
imediately columnist had been in the travel business prior to
the establishment of the joint business venture with appellee
Tourist World Service, Inc. and appellee Eliseo Canilao, her
compadre, she being the godmother of one of his children,
with her own clientele, coming mostly from her own social
circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement
dated 19 October 1960 (Exh. 'A') covering the premises at A.
Mabini St., she expressly warranting and holding [sic] herself
'solidarily' liable with appellee Tourist World Service, Inc. for
the prompt payment of the monthly rentals thereof to other
appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from
appellee Tourist World Service, Inc., which had its own,
separate office located at the Trade & Commerce Building;
nor was she an employee thereof, having no participation in
nor connection with said business at the Trade & Commerce
Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for her own
passengers, her own bookings her own business (and not for
any of the business of appellee Tourist World Service, Inc.)
obtained from the airline companies. She shared the 7%
commissions given by the airline companies giving appellee
Tourist World Service, Lic. 3% thereof aid retaining 4% for
herself (pp. 18 tsn. Id.)
56
 5. Appellant Mrs. Sevilla likewise shared in the expenses of
maintaining the A. Mabini St. office, paying for the salary of
an office secretary, Miss Obieta, and other sundry expenses,
aside from desicion the office furniture and supplying some
of fice furnishings (pp. 15,18 tsn. April 6,1965), appellee
Tourist World Service, Inc. shouldering the rental and other
expenses in consideration for the 3% split in the co procured
by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).
6. It was the understanding between them that appellant
Mrs. Sevilla would be given the title of branch manager for
appearance's sake only (p. 31 tsn. Id .), appellee Eliseo
Canilao admit that it was just a title for dignity (p. 36 tsn.
June 18, 1965- testimony of appellee Eliseo Canilao pp. 38-
39 tsn April 61965-testimony of corporate secretary Gabino
Canilao (pp- 2-5, Appellants' Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was an
employee of the appellee Tourist World Service, Inc. and as such was
designated manager.1
xxx xxx xxx
The trial court2 held for the private respondent on the premise that the private respondent,
Tourist World Service, Inc., being the true lessee, it was within its prerogative to terminate
the lease and padlock the premises. 3 It likewise found the petitioner, Lina Sevilla, to be a
mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of
her employer. 4 The respondent Court of Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining the lower court, erred.
Specifically, they state:
I not the evidence for the said appellant supports the contention that the appellee Tourist
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD
SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA
SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND
WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY
BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE
SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED
THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN
THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE
LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION
AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO
WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY
BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS
CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON
RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER
CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT
LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR
REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC.6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between
Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the
question, the crucial issue, in its opinion being "whether or not the padlocking of the
premises by the Tourist World Service, Inc. without the knowledge and consent of the
appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or
World Service, Inc. unilaterally and without the consent of the appellant disconnected the
telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc. 7 Tourist
World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere employee,
being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on
the lease executed with the private respondent, Segundina Noguera. The petitioners
contend, however, that relation between the between parties was one of joint venture, but
concede that "whatever might have been the true relationship between Sevilla and Tourist
57
World Service," the Rule of Law enjoined Tourist World Service and Canilao from taking the
law into their own hands, 8 in reference to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the private respondent, Tourist
World Service, Inc., maintains, that the relation between the parties was in the character of
employer and employee, the courts would have been without jurisdiction to try the case,
labor disputes being the exclusive domain of the Court of Industrial Relations, later, the
Bureau Of Labor Relations, pursuant to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of an
employer-employee relation. In general, we have relied on the so-called right of control test,
"where the person for whom the services are performed reserves a right to control not only
the end to be achieved but also the means to be used in reaching such end." 10Subsequently,
however, we have considered, in addition to the standard of right-of control, the existing
economic conditions prevailing between the parties, like the inclusion of the employee in the
payrolls, in determining the existence of an employer-employee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not subject to control by the
private respondent Tourist World Service, Inc., either as to the result of the enterprise or as
to the means used in connection therewith. In the first place, under the contract of lease
covering the Tourist Worlds Ermita office, she had bound herself in solidum as and for rental
payments, an arrangement that would be like claims of a master-servant relationship. True
the respondent Court would later minimize her participation in the lease as one of mere
guaranty, 12 that does not make her an employee of Tourist World, since in any case, a true
employee cannot be made to part with his own money in pursuance of his employer's
business, or otherwise, assume any liability thereof. In that event, the parties must be bound
by some other relation, but certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen the branch office was
opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist World
Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under
these circumstances, it cannot be said that Sevilla was under the control of Tourist World
Service, Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her
own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll. For her efforts, she
retained 4% in commissions from airline bookings, the remaining 3% going to Tourist World.
Unlike an employee then, who earns a fixed salary usually, she earned compensation in
fluctuating amounts depending on her booking successes.
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist
World's employee. As we said, employment is determined by the right-of-control test and
certain economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence,
accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or
otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of
such a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist
World Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting
Tourist World Service, Inc.'s control over the manner in which the business was run. A joint
venture, including a partnership, presupposes generally a of standing between the joint co-
venturers or partners, in which each party has an equal proprietary interest in the capital or
property contributed 15 and where each party exercises equal rights in the conduct of the
business.16 furthermore, the parties did not hold themselves out as partners, and the building
itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct
partnership name.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man
the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so
pursuant to a contract of agency. It is the essence of this contract that the agent renders
services "in representation or on behalf of another.18 In the case at bar, Sevilla solicited
airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As
compensation, she received 4% of the proceeds in the concept of commissions. And as we
said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's
authority as owner of the business undertaking. We are convinced, considering the
circumstances and from the respondent Court's recital of facts, that the ties had
contemplated a principal agent relationship, rather than a joint managament or a
partnership..
But unlike simple grants of a power of attorney, the agency that we hereby declare to be
compatible with the intent of the parties, cannot be revoked at will. The reason is that it is
one coupled with an interest, the agency having been created for mutual interest, of the
agent and the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and
as such, she had acquired an interest in the business entrusted to her. Moreover, she had
assumed a personal obligation for the operation thereof, holding herself solidarily liable for
the payment of rentals. She continued the business, using her own name, after Tourist World
had stopped further operations. Her interest, obviously, is not to the commissions she earned
as a result of her business transactions, but one that extends to the very subject matter of
the power of management delegated to her. It is an agency that, as we said, cannot be
revoked at the pleasure of the principal. Accordingly, the revocation complained of should
entitle the petitioner, Lina Sevilla, to damages.
58
As we have stated, the respondent Court avoided this issue, confining itself to the telephone
disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the
Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc.
disconnected the telephone lines at the branch office. 20 Yet, what cannot be denied is the
fact that Tourist World Service, Inc. did not take pains to have them reconnected. Assuming,
therefore, that it had no hand in the disconnection now complained of, it had clearly
condoned it, and as owner of the telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the padlocking
incident. For the fact that Tourist World Service, Inc. was the lessee named in the lease con-
tract did not accord it any authority to terminate that contract without notice to its actual
occupant, and to padlock the premises in such fashion. As this Court has ruled, the
petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and necessarily,
in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract
having been explicitly named therein as a third party in charge of rental payments (solidarily
with Tourist World, Inc.). She could not be ousted from possession as summarily as one
would eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some malevolent
design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had
worked for a rival firm. To be sure, the respondent court speaks of alleged business losses to
justify the closure '21 but there is no clear showing that Tourist World Ermita Branch had in
fact sustained such reverses, let alone, the fact that Sevilla had moonlit for another company.
What the evidence discloses, on the other hand, is that following such an information (that
Sevilla was working for another company), Tourist World's board of directors adopted two
resolutions abolishing the office of 'manager" and authorizing the corporate secretary, the
respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January
3, 1962, the private respondents ended the lease over the branch office premises,
incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office was
padlocked, personally by the respondent Canilao, on the pretext that it was necessary to
Protect the interests of the Tourist World Service. " 22It is strange indeed that Tourist World
Service, Inc. did not find such a need when it cancelled the lease five months earlier. While
Tourist World Service, Inc. would not pretend that it sought to locate Sevilla to inform her of
the closure, but surely, it was aware that after office hours, she could not have been
anywhere near the premises. Capping these series of "offensives," it cut the office's
telephone lines, paralyzing completely its business operations, and in the process, depriving
Sevilla articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish
Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any event, to
elementary norms of justice and fair play.
We rule therefore, that for its unwarranted revocation of the contract of agency, the private
respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the
Civil Code, moral damages may be awarded for "breaches of contract where the defendant
acted ... in bad faith. 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury
done to Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of
attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article
2219 (10) thereof
ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.24
ART. 2219. Moral damages25 may be recovered in the following and
analogous cases:
xxx xxx xxx
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and
35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for
the same damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence
has been shown that she had connived with Tourist World Service, Inc. in the disconnection
and padlocking incidents. She cannot therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as
exemplary damages, 25and P5,000.00 as nominal 26 and/or temperate27 damages, to be just,
fair, and reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued
on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE.
The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly
59
and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral
damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00,
as and for nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.
15. LOURDES VALERIO LIM, petitioner, vs. PEOPLE OF THEPHILIPPINES, respondent.
RELOVA, J.:
Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to
suffer an imprisonment of four (4) months and one (1) day as 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 of insolvency, and to pay the costs." (p. 14, Rollo)
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 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 correccional as maximum, to indemnify the
complainant in the amount of P550.50 without subsidiary imprisonment, and to pay the costs
of suit." (p. 24, Rollo)
The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency
to sell or a contract of sale of the subject tobacco between petitioner and the complainant,
Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability of petitioner for the
crime charged.
The findings of facts of the appellate court are as follows:
... The appellant is a businesswoman. On January 10, 1966, the appellant
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
overprice for which she could sell the tobacco. This agreement was made in
the presence of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the
document, Exh. A, dated January 10, 1966, which reads:
To Whom It May Concern:
This is to certify that I have received from Mrs. Maria de
Guzman Vda. de Ayroso. of Gapan, Nueva Ecija, six hundred
fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo. The
proceed in the amount of Seven Hundred Ninety Nine Pesos
and 50/100 (P 799.50) will be given to her as soon as it was
sold.
This was signed by the appellant and witnessed by the complainant's sister,
Salud Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that
time was bringing a jeep, and the tobacco was loaded in the jeep and
brought by the appellant. Of the total value of P799.50, the appellant had
paid to Ayroso only P240.00, and this was paid on three different times.
Demands for the payment of the balance of the value of the tobacco were
made upon the appellant by Ayroso, and particularly by her sister, Salud
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
"camarin" the appellant was empty. Although the appellant denied that
demands for payment were made upon her, it is a fact that on October 19,
1966, she wrote a letter to Salud Bantug which reads as follows:
Dear Salud,
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil
kokonte pa ang 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 marami para
hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo
ay kahit konte muna ay bibigyan kita. Pupunta lang kami ni
Mina sa Maynila ngayon. Salud kung talagang kailangan mo
ay bukas ay dadalhan kita ng pera.
Medio mahirap ang maningil sa palengke ng Cabanatuan
dahil nagsisilipat ang mga suki ko ng puesto. Huwag kang
mabahala at tiyak na babayaran kita.
Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
Ludy
Pursuant to this letter, the appellant sent a money order for P100.00 on
October 24, 1967, Exh. 4, and another for P50.00 on March 8, 1967; and she
60
 paid P90.00 on April 18, 1967 as evidenced by the receipt Exh. 2, dated 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,
16, Rollo)
In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of
law, to wit:
1. Whether or not the Honorable Court of Appeals was legally right in holding
that the foregoing document (Exhibit "A") "fixed a period" and "the
obligation was therefore, immediately demandable as soon as the tobacco
was sold" (Decision, p. 6) as against the theory of the petitioner that the
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 that
can be maintained is a petition to ask the court to fix the duration thereof;
2. Whether or not the Honorable Court of Appeals was legally right in 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 "A")
gives rise to an obligation wherein the duration of the period depends upon
the will of the debtor in which case the only action that can be maintained is
a petition to ask the court to fix the duration of the period; and
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 the theory
of the petitioner that it is a contract of sale. (pp. 3-4, Rollo)
It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should
be turned over to the complainant as soon as the same was 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 period, does not apply.
Anent the argument that petitioner was not an agent because Exhibit "A" does not say that
she would be paid the commission if the goods were sold, the Court of Appeals correctly
resolved the matter as follows:
... Aside from the fact that Maria Ayroso testified that the appellant asked
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 is
unbelievable that she would go to the extent of going to Ayroso's 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 doing a 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 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, Rollo)
The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to
be given to complainant as soon as it was sold, strongly negates transfer of ownership of the
goods to the petitioner. The agreement (Exhibit "A') constituted her as an agent with the
obligation to return the tobacco if the same was not sold.
ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs.
SO ORDERED.
16. MOISES SAN DIEGO, SR., petitioner, vs. ADELO NOMBRE and PEDRO
ESCANLAR, respondents.
PAREDES, J.:
The case at bar had its origin in Special Proceedings No. 7279 of the CFI of Negros
Occidental wherein respondent Adelo Nombre was the duly constituted judicial administrator.
On May 1, 1960, Nombre, in his capacity was judicial administrator of the intestate estate
subject of the Sp. Proc. stated above, leased one of the properties of the estate (a fishpond
identified as Lot No. 1617 of the cadastral survey of Kabankaban, Negros Occidental), to
Pedro Escanlar, the other respondent. The terms of the lease was for three (3) years, with a
yearly rental of P3,000.00 to expire on May 1, 1963, the transaction having been done,
admittedly, without previous authority or approval of the Court where the proceedings was
pending. On January 17, 1961, Nombre was removed as administrator by Order of the court
and one Sofronio Campillanos was appointed in his stead. The appeal on the Order of
Nombre's removal is supposedly pending with the Court of Appeals. Respondent Escanlar was
cited for contempt, allegedly for his refusal to surrender the fishpond to the newly appointed
administrator. On March 20, 1961, Campillanos filed a motion asking for authority to execute
a lease contract of the same fishpond, in favor of petitioner herein, Moises San Diego, Sr., for
5 years from 1961, at a yearly rental of P5,000.00. Escanlar was not notified of such motion.
Nombre, the deposed administrator, presented a written opposition to the motion of
Campillanos on April 11, 1964, pointing out that the fishpond had been leased by him to
Escanlar for 3 years, the period of which was going to expire on May 1, 1963. In a
supplemental opposition, he also invited the attention of the Court that to grant the motion
61
of the new administrator would in effect nullify the contract in favor of Escanlar, a person on
whom the Court had no jurisdiction. He also intimated that the validity of the lease contract
entered into by a judicial administrator, must be recognized unless so declared void in a
separate action. The opposition notwithstanding, the Court on April 8, 1961, in effect
declared that the contract in favor of Escanlar was null and void, for want of judicial authority
and that unless he would offer the same as or better conditions than the prospective lessee,
San Diego, there was no good reason why the motion for authority to lease the property to
San Diego should not be granted. Nombre moved to reconsider the Order of April 8, stating
that Escanlar was willing to increase the rental of P5,000.00, but only after the termination of
his original contract. The motion for reconsideration was denied on April 24, 1961, the trial
judge stating that the contract in favor of Escanlar was executed in bad faith and was
fraudulent because of the imminence of Nombre's removal as administrator, one of the
causes of which was his indiscriminate pleasant, of the property with inadequate rentals.
From this Order, a petition for Certiorari asking for the annulment of the Orders of April 8
and 24, 1961 was presented by Nombre and Escanlar with the Court of Appeals. A Writ of
preliminary injunction was likewise prayed for to restrain the new administrator Campillanos
from possessing the fishpond and from executing a new lease contract covering it; requiring
him to return the possession thereof to Escanlar, plus damages and attorney's fees in the
amount of P10,000.00 and costs. The Court of Appeals issued the injunctive writ and
required respondents therein to Answer. Campillanos insisted on the invalidity of the contract
in favor of Escanlar; the lower court alleged that it did not exactly annul or invalidate the
lease in his questioned orders but suggested merely that Escanlar "may file a separate
ordinary action in the Court of general jurisdiction."
The Court of Appeals, in dismissing the petition for certiorari, among others said
The controlling issue in this case is the legality of the contract of lease entered into
by the former administrator Nombre, and Pedro Escanlar on May 1, 1960.
Respondents contend that this contract, not having been authorized or approved by
the Court, is null and void and cannot be an obstacle to the execution of another of
lease by the new administrator, Campillanos. This contention is without merit. ... . It
has been held that even in the absence of such special powers, a contract or lease
for more than 6 years is not entirely invalid; it is invalid only in so far as it exceeds
the six-year limit (Enrique v. Watson Company, et al., 6 Phil. 84). 1
No such limitation on the power of a judicial administrator to grant a lease of
property placed under his custody is provided for in the present law. Under Article
1647 of the present Civil Code, it is only when the lease is to be recorded in the
Registry of Property that it cannot be instituted without special authority. Thus,
regardless of the period of lease, there is no need of special authority unless the
contract is to be recorded in the Registry of Property. As to whether the contract in
favor of Escanlar is to be so recorded is not material to our inquiry. 1wph1.t
On the contrary, Rule 85, Section 3, of the Rules of Court authorizes a judicial
administrator, among other things, to administer the estate of the deceased not
disposed of by will. Commenting on this Section in the light of several Supreme Court
decisions (Jocson de Hilado v. Nava, 69 Phil. 1; Gamboa v. Gamboa, 68 Phil. 304;
Ferraris v. Rodas, 65 Phil. 732; Rodriguez v. Borromeo, 43 Phil. 479), Moran says:
"Under this provision, the executor or administrator has the power of administering
the estate of the deceased for purposes of liquidation and distribution. He may,
therefore, exercise all acts of administration without special authority of the Court.
For instance, he may lease the property without securing previously any permission
from the court. And where the lease has formally been entered into, the court
cannot, in the same proceeding, annul the same, to the prejudice of the lessee, over
whose person it had no jurisdiction. The proper remedy would be a separate action
by the administrator or the heirs to annul the lease. ... .
On September 13, 1961, petitioner herein Moises San Diego, Sr., who was not a party in the
case, intervened and moved for a reconsideration of the above judgment. The original parties
(the new administrator and respondent judge) also filed Motions for reconsideration, but we
do not find them in the record. On November 18, 1961, the Court of Appeals denied the
motions for reconsideration. With the denial of the said motions, only San Diego, appealed
therefrom, raising legal questions, which center on "Whether a judicial administrator can
validly lease property of the estate without prior judicial authority and approval", and
"whether the provisions of the New Civil Code on Agency should apply to judicial
administrators."
The Rules of Court provide that
An executor or administrator shall have the right to the possession of the real as well
as the personal estate of the deceased so long as it is necessary for the payment of
the debts and the expenses of administration, and shall administer the estate of the
deceased not disposed of by his will. (Sec. 3, Rule 85, old Rules).
Lease has been considered an act of administration (Jocson v. Nava; Gamboa v. Gamboa;
Rodriguez v. Borromeo; Ferraris v. Rodas, supra).
The Civil Code, on lease, provides:
62
 If a lease is to be recorded in the Registry of Property, the following persons cannot
constitute the same without proper authority, the husband with respect to the wife's
paraphernal real estate, the father or guardian as to the property of the minor or
ward, and the manager without special power. (Art. 1647).
The same Code, on Agency, states:
Special powers of attorneys are necessary in the following cases:
(8) To lease any real property to another person for more than one year. (Art. 1878)
Petitioner contends, that No. 8, Art. 1878 is the limitation to the right of a judicial
administrator to lease real property without prior court authority and approval, if it exceeds
one year. The lease contract in favor of Escanlar being for 3 years and without such court
approval and authority is, therefore, null and void. Upon the other hand, respondents
maintain that there is no limitation of such right; and that Article 1878 does not apply in the
instant case.
We believe that the Court of Appeals was correct in sustaining the validity of the contract of
lease in favor of Escanlar, notwithstanding the lack of prior authority and approval. The law
and prevailing jurisprudence on the matter militates in favor of this view. While it may be
admitted that the duties of a judicial administrator and an agent (petitioner alleges that both
act in representative capacity), are in some respects, identical, the provisions on agency (Art.
1878, C.C.), should not apply to a judicial administrator. A judicial administrator is appointed
by the Court. He is not only the representative of said Court, but also the heirs and creditors
of the estate (Chua Tan v. Del Rosario, 57 Phil. 411). A judicial administrator before entering
into his duties, is required to file a bond. These circumstances are not true in case of agency.
The agent is only answerable to his principal. The protection which the law gives the
principal, in limiting the powers and rights of an agent, stems from the fact that control by
the principal can only be thru agreements, whereas the acts of a judicial administrator are
subject to specific provisions of law and orders of the appointing court. The observation of
former Chief Justice Moran, as quoted in the decision of the Court of Appeals, is indeed
sound, and We are not prone to alter the same, at the moment.
We, likewise, seriously doubt petitioner's legal standing to pursue this appeal. And, if We
consider the fact that after the expiration of the original period of the lease contract executed
by respondent Nombre in favor of Escanlar, a new contract in favor of said Escanlar, was
executed on May 1, 1963, by the new administrator Campillanos. who, incidentally, did not
take any active participation in the present appeal, the right of petitioner to the fishpond
becomes a moot and academic issue, which We need not pass upon.
WHEREFORE, the decision appealed from should be, as it is hereby affirmed, in all respects,
with costs against petitioner Moises San Diego, Sr.
17. JOSE DE LA PEA Y DE RAMON, plaintiff-appellant, vs. FEDERICO
HIDALGO, defendant-appellant.
On May 23, 1906, Jose dela Pea y de Ramon, and Vicenta de Ramon, in her own behalf and
as the legal guardian of her son Roberto de la Pea, filed in the Court of First Instance of
Manila a written complaint against of Federico Hidalgo, Antonio Hidalgo, and Francisco
Hidalgo, and, after the said complaint, already amended, had been answered by the
defendants Antonio and Francisco Hidalgo, and the other defendant, Federico Hidalgo, had
moved for the dismissal of this complaint, the plaintiff, Jose de la Pea y de Ramon, as the
judicial administrator of the estate of the deceased Jose de la Pea y Gomiz, with the
consent of the court filed a second amended complaint prosecuting his action solely against
Federico Hidalgo, who answered the same in writing on the 21st of may and at the same
time filed a counterclaim, which was also answered by the defendant.
On October 22, 1907, the case was brought up for hearing and oral testimony was adduced
by both parties, the exhibits introduced being attached to the record. In view of such
testimony and of documentary evidence, the court, on March 24, 1908, rendered judgment in
favor of the plaintiff-administrator for the sum of P13,606.19 and legal interest from the date
of the filing of the complaint on May 24, 1906, and the costs of the trial.
Both the plaintiff and the defendant filed notice of appeal from this judgment 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 was contrary to law. The defendant, on April 1,
1908, presented a written 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 due
diligence. His petition was accompanied by affidavits from Attorney Eduardo Gutierrez
Repilde and Federico Hidalgo, and was granted by order of the court of the 4th of April.
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, alleging, among other things,
as a first cause of action, that during the period of time from November 12, 1887, to January
7, 1904, when Federico Hidalgo had possession of and administered the following properties,
to wit; one house and lot at No. 48 Calle San Luis; another house and lot at No. 6 Calle
Cortada; another house and lot at 56 Calle San Luis, and a fenced lot on the same street, all
of the district of Ermita, and another house and lot at No. 81 Calle Looban de Paco,
belonging to his principal, Jose de la Pea y Gomiz, according to the power of attorney
executed in his favor and exhibited with the complaint under letter A, the defendant, as such
63
agent, collected the rents and income from the said properties, amounting to P50,244, which
sum, collected in partial amounts and on different dates, he should have deposited, in
accordance with the verbal agreement between the deceased and himself, the defendant, in
the general treasury of the Spanish Government at an interest of 5 per cent per annum,
which interest on accrual was likewise to be deposited in order that it also might bear
interest; that the defendant did not remit or pay to Jose de la Pea y Gomiz, during the
latter's lifetime, nor to nay representative of the said De la Pea y Gomiz, the sum
aforestated nor any part thereof, with the sole exception of P1,289.03, nor has he deposited
the unpaid balance of the said sum in the treasury, according to agreement, wherefore he
has become liable to his principal and to the defendant-administrator for the said sum,
together with its interest, which amounts to P72,548.24 and that, whereas the defendant has
not paid over all nor any part of the last mentioned sum, he is liable for the same, as well as
for the interest thereon at 6 per cent per annum from the time of the filing of the complaint,
and for the costs of the suit.
In the said amended complaint, the plaintiff alleged as a second cause of action: That on
December 9, 1887, Gonzalo Tuason deposited in the general treasury of the Spanish
Government, to the credit of Pea y Gomiz, the sum of 6,360 pesos, at 5 per cent interest
per annum, and on December 20, 1888, the defendant, as the agent of Pea y Gomiz,
withdrew the said amount with its 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
him: wherefore the defendant now owes the said sum of 6,751.60 pesos, with interest at the
rate of 5 per cent per annum, compounded annually, from the 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.
The complaint recites as a third cause of action: that, on or about November 25, 1887,
defendant's principal, Pea y Gomiz, on his voyage to Spain, remitted from Singapore, one of
the ports to call, to Father Ramon Caviedas, a 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 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 draft 860 pesos,
without having returned or paid the balance of the said sum, notwithstanding the demands
made upon him so to do: wherefore the 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 yearly, to the time of the filing of the complaint and with interest at 6 per cent
from that date, as provided by law.
As a fourth cause of action the plaintiff alleges that, on or about January 23, 1904, on his
arrival from Spain and without having any knowledge or information of the true condition of
affairs relative to the property of the deceased Pea y Gomiz and its administration, he
delivered and paid to the defendant at his request the sum of P2,000, derived from the
property of the deceased, which sum the defendant has not returned notwithstanding the
demands made upon him so to do.
Wherefore the plaintiff petitions the court to render judgment sentencing the defendant to
pay, as first cause of action, the sum of P72,548.24, with interest thereon at the rate of 6 per
cent per annum from May 24, 1906, the date of the filing of the complaint, and the costs; as
a second cause of action, the sum of P15,774.19, with interest at the rate of 6 per cent per
annum from the said date of the filing of the complaint, and costs; as a third cause of action,
P9,811.13, with interest from the aforesaid date, and costs; and, finally, as a fourth cause of
action, he prays that the defendant be sentenced to refund the sum of P2,000, with interest
thereon at the rate of 6 per cent per annum from the 23d of January, 1904, and to pay the
costs of trial.
The defendant, Federico Hidalgo, in his answer to the third amended complaint, sets forth:
That he admits the second, third, and fourth allegations contained in the first, second, third,
and fourth causes of action, and denies generally and specifically each one and all of the
allegations contained in the complaint, with the exception of those expressly admitted in his
answer; that, as a special defense against the first cause of action, he, the defendant, alleges
that on November 18, 1887, by virtue of the powers conferred upon him by Pea y Gomiz,
he took charge of the administration of the latter's property and administered the same until
December 31, 1893, when for reasons of health he ceased to discharge the duties of said
position; that during the years 1889, 1890, 1891, and 1892, the defendant continually by
letter requested Pea y Gomiz, his principal, to appoint a person to substitute him in the
administration of the latter's property, inasmuch as the defendant, for reasons of health, was
unable to continue in his trust; that, on March 22, 1894, the defendant Federico Hidalgo,
because of serious illness, was absolutely obliged to leave these Islands and embarked on
the steamer Isla de Luzon for Sapin, on which date the defendant notified his principal that,
for the reason aforestated, he had renounced his powers and turned over the administration
of his property to Antonio Hidalgo, to whom he should transmit a power of attorney for the
fulfillment, in due form, of the trust that the defendant had been discharging since January
1, 1894, or else execute a power of attorney in favor of such other person as he might deem
proper;
That prior to the said date of March 22, the defendant came, rendered accounts to his
principal, and on the date when he embarked for Spain 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 statement of accounts embracing the period from November 18,
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1887, to December 31, 1893, with a balance of 6,774.50 pesos in favor of Pea y Gomiz,
which remained in the control of the acting administrator, Antonio Hidalgo; that from the
22nd of March, 1894, when the defendant left these Islands, to the date of his answer to the
said complaint, he has not again intervened nor taken any part directly or indirectly in the
administration of the 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
this latter date, delegated his powers to Francisco Hidalgo, who in turn administered the said
property until January 7, 1904; that the defendant, notwithstanding his having rendered, in
1894, all his accounts to Jose Pea y Gomiz, again rendered to the plaintiff in 1904 those
pertaining to the period from 1887 to December 31, 1893, which accounts the plaintiff
approved without any protest whatever and received to his entire satisfaction the balance
due and the vouchers and documents and documents relating to the property of the
deceased Pea y Gomiz and issued to the defendant the proper acquaintance therefor.
As a special defense to the second cause of action, the defendant alleged that, on December
9, 1886, Jose de la Pea y Gomiz himself deposited in the caja general de depositos (General
Deposit Bank) the sum of 6,000 pesos, at 6 per cent interest for the term of one year, in two
deposit receipts of 3,000 pesos each, which two deposit receipts, with the interest accrued
thereon, amounted to 6,360 pesos, ad were collected by Gonzalo Tuason, through
indorsement by Pea y Gomiz, on December 9, 1887, and on this same date Tuason, in the
name of Pea y Gomiz, again deposited the said sum of 6,360 pesos in the General Deposit
Bank, at the same rate of interest, for the term of one year and in two deposit receipts of
3,180 pesos each, registered under Nos. 1336 and 1337; that, on December 20, 1888, father
Ramon Caviedas, a Franciscan friar, delivered to the defendant, Federico Hidalgo, by order of
De la Pea y Gomiz, the said two deposit receipts with the request to collect the interest due
thereon viz., 741.60 pesos an to remit it by draft on London, drawn in favor of De la Pea y
Gomiz, to deposit again the 6,000 pesos in the said General Deposit Bank, for one year, in a
single deposit, and in the latter's name, and to deliver to him, the said Father Caviedas, the
corresponding deposit receipt and the draft on London for their transmittal to Pea y Gomiz:
all of which was performed by the defendant who acquired the said draft in favor of De la
Pea 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 Deposit Bank, to Father
Caviedas, and on the same date, by letter, notified Pea y Gomiz of the transactions
executed; that on December 20, 1889, the said Father Hidalgo, by order of Pea y Gomiz,
the aforesaid deposit receipt from the General Deposit Bank, with the request to remit, in
favor of his constituent, the interest thereon, amounting to 360 pesos, besides 500 pesos of
the capital, that is 860 pesos in all, and to again deposit the rest, 5,500 pesos, in the General
Deposit Bank for another year in Pea y Gomiz's own name, and to deliver to Father
Caviedas the deposit receipt and the draft on London, for their transmittal to his constituent;
all of which the defendant did; he again deposited the rest of the capital, 5,500 pesos, in the
General Deposit Bank, in the name of Pea y Gomiz, for one year at 5 per cent interest,
under registry number 3,320, and obtained from the house of J. M. Tuason and Co. a 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, of which acts, when performed, the
defendant advised Pea y Gomiz by letter of December 24, 1889' and that, on December 20,
1890, the said Father Ramon Caviedas delivered to the defendant, by order of Pea y Gomiz,
the said deposit receipt for 5,500 pesos with the request that he withdraw from the General
Deposit Bank the capital and accrued interest, which amounted all together to 5,775 pesos,
and that he deliver this amount to Father Caviedas, which he did, in order that it might be
remitted to Pea y Gomiz.
The defendant denied each of the allegations contained in the third cause of action, and
avers that they are all false and calumnious.
He likewise makes a general and specific denial of all the allegations of the fourth cause of
action.
As a counterclaim the defendant alleges that Jose Pea y Gomiz owed and had not paid the
defendant, up to the date of his death, the sum of 4,000 pesos with interest at 6 per cent per
annum, and 3,600 pesos, and on the plaintiff's being presented with the receipt subscribed
by his father, Pea y Gomiz, on the said date of January 15th, and evidencing his debt,
plaintiff freely and voluntarily offered to exchange for the said receipt another 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 him the said sum, with the exception of
2,000 pesos. Wherefore the defendant prays the court to render judgment absolving him
from the complaint with the 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 interest
thereon from the date of the counterclaim, to wit, May 21, 1907, and to grant such other and
further relief as may be just and equitable.
On the 25th of September, 1908, and subsequent dates, the new trial was held; oral
testimony was adduced by both parties, and the documentary evidence was attached to the
record of the proceedings, which show that the defendant objected and took exception to the
introduction of certain oral and documentary evidence produced by the plaintiff. On February
26, 1909, the court in deciding the case found that the defendant, Federico Hidalgo, as
administrator of the estate of the deceased Pea y Gomiz, actually owed by the plaintiff, on
the date of the filing of the complaint, the sum of P37,084.93; that the plaintiff was not
entitled to recover any sum whatever from the defendant for the alleged second, third, and
fourth causes of action; that the plaintiff actually owed the defendant, on the filing of the
complaint, the sum of P10,155, which the defendant was entitled to deduct from the sum
owing by him to the plaintiff. Judgment was therefore entered against the defendant,
Federico Hidalgo, for the payment of P26,629.93, with interest thereon at the rate of 6 per
cent per annum from May 23, 1906, and the costs of the trial.
65
Both parties filed written exceptions to this judgment and asked, separately, for its
annulment and that a new trial be ordered, on the grounds that the findings of fact contained
in the judgment were not supported nor justified by the evidence produced, and because the
said judgment was contrary to law, the defendant stating in writing that his exception and
motion for a new trial referred exclusively to that part of the judgment that was
condemnatory to him. By order of the 10th of April, 1909, the motions made by both parties
were denied, to which they excepted and announced their intention to file their respective
bills of exceptions.
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 solicited a suspension of the
issuance of the corresponding writ of execution 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. The court, therefore, by order of the 25th of the same month,
granted the suspension asked for, conditioned upon the defendants giving a bond, fixed at
P34,000 by another order of the same date, to guarantee compliance with the judgment
rendered should it be affirmed, or with any other decision that might be rendered in the case
by the Supreme Court. This bond was furnished by the defendant on the 26th of the same
month.
On April 16 and May 4, 1909, the defendant and the plaintiff filed their respective bills of
exceptions, which were certified to and approved by order of May 8th and forwarded to the
clerk of this court.
Before proceeding to examine the disputed facts to make such legal findings as follows from
a consideration of the same and of the questions of law to which such facts give rise, and for
the purpose of avoiding confusion and obtaining the greatest clearness and an easy
comprehension of this decision, it is indispensable to premise: First, that as before related,
the original and first complaint filed by the plaintiff was drawn against Federico Hidalgo,
Antonio Hidalgo, and Francisco Hidalgo, the three persons who had successively administered
the property of Jose de la Pea y Gomiz, now deceased; but afterwards the action was
directed solely against Federico Hidalgo, to the exclusion of the other defendants, Antonio
and Francisco Hidalgo, in the second and third amended complaints, the latter of the date of
August 10, 1908, after the issuance by the court of the order of April 4th of the same year,
granting the new trial solicited by the defendant on his being notified of the ruling of the
24th of the previous month of March; second, that the administration of the property
mentioned, from the time its owner left these Islands and returned to Spain, lasted from
November 18, 1887, to January 7, 1904; and third that, the administration of the said
Federico, Antonio, and Francisco Hidalgo, having lasted so long, it is necessary to divide it
into three periods in order to fix the time during which they respectively administered De la
Pea's property: During the first period, from November 18, 1887, to December 31, 1893,
the property of the absent Jose de la Pea y Gomiz was administered by his agent, Federico
Hidalgo, under power of attorney; during the second period, from January 1, 1894, to
September, 1902, Antonio Hidalgo administered the said property, and during the third
period, from October, 1902, to January 7, 1904, Francisco Hidalgo was its administrator.
Before Jose de la Pea y Gomiz embarked for Spain, on November 12, 1887, he executed
before a notary a power of attorney in favor of Federico Hidalgo, Antonio L. Rocha, Francisco
Roxas and Isidro Llado, so that, as his agents, they might represent him and administer, in
the order in which they were appointed, various properties he owned and possessed in
Manila. The first agent, Federico Hidalgo, took charge of the administration of the said
property on the 18th of November, 1887.
After Federico Hidalgo had occupied the position of agent and administrator of De la Pea's
property for several years, the former wrote to the latter requesting him to designate a
person who might substitute him in his said position in the event of his being obliged to
absent himself from these Islands, as one of those appointed in the said power of attorney
had died and the others did not wish to take charge of the administration of their principal's
property. The defendant, Hidalgo, stated that his constituent, Pea y Gomiz, did not even
answer his letters, to approve or object to the former's accounts, and did not appoint or
designate another person who might substitute the defendant in his administration of his
constituent's property. These statements were neither denied nor proven to be the record
show any evidence tending to disapprove them, while it does show, attached to the record
and exhibited by the defendant himself, several letters written by Hidalgo and addressed to
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, addressed to Federico Hidalgo,
telling the latter that the writer had seen among the papers of the deceased several letters
from the agent, Federico Hidalgo, in which the latter requested the designation of a
substitute, because he had to leave this country for Spain, and also asked for the approval or
disapproval of the accounts of his administration which had been transmitted to his
constituent, Pea y Gomiz.
For reasons of health and by order of his physician, Federico Hidalgo was obliged, on March
22, 1894, to embark for Spain, and, on preparing for his departure, he rendered the accounts
of his administration corresponding to the last quarters, up to December 31, 1893, not as yet
transmitted, and forwarded them to his constituent with a general statement of all the partial
balances, which amounted to the sum total of 6,774.50 pesos, by letter of the date of March
22, 1894, addressed to his principal, Pea y Gomiz. In this letter the defendant informed the
latter of the writer's intended departure from this country and of his having provisionally
turned over the administration of the said property to his cousin, Antonio Hidalgo, upon
whom the writer had conferred a general power of attorney, but asking, in case that this was
not sufficient, that Pea send to Antonio Hidalgo a new power of attorney.
66
This notifications is of the greatest importance in the decision of this case. The 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 introduction of a copy thereof by the
defendant at the trial, it was admitted without objection by the plaintiff (p. 81 of the record);
wherefore, in spite of the denial of the plaintiff and of his averment of his not having found
that said original among his father's papers, justice demands that it be concluded that this
letter of the 22d of March, 1894, was sent to, and was received by Jose de la Pea y Gomiz,
during his lifetime, for its transmittal, with inclosure of the last 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 having found among his deceased father's paper's the
said resume which he exhibited at the trial, shows conclusively that it was received by the
deceased, as well as the letter of transmittal of the 22nd of March, 1894, one of the several
letters written by Hidalgo, which the said priest, Father Gomiz, affirms that he saw among
the papers of the deceased Pea, the dates of which ran from 1890 to 1894; and it is also
shown by the record that the defendant Hidalgo positively asserted that the said letter of
March was the only one that he wrote to Pea during the year 1894; From all of which it is
deduced that the constituent, Pea y Gomiz, was informed of the departure of his agent from
these Islands for reasons of health and because of the physician's advice, of the latter's
having turned over the administration of the property to Antonio Hidalgo, and of his agent's
the defendant's petition that he send a new power of attorney to the substitute.
The existence, amount the papers of the deceased, of the aforementioned statement of all
accounts rendered, which comprise the whole period of the administration of the property of
the constituent by the defendant, Federico Hidalgo, from November 18, 1887, to December
31, 1893 a statement transmitted with the last partial accounts which were a continuation
of those already previously received and the said letter of March 22, 1894, fully 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 commenced to administer his property from January
of that year. They likewise prove that he did no see fit to execute a new power of attorney in
the letter's favor, nor to appoint or designate a new agent to take charge of the
administration of his property that had been abandoned by the defendant, Federico Hidalgo.
From the procedure followed by the agent, Federico Hidalgo, it is logically inferred that he
had definitely renounced his agency was duly terminated, according to the provisions of
article 1732 of the Civil Code, because, although in the said letter of March 22, 1894, the
word "renounce" was not employed in connection with the agency or power of attorney
executed in his favor, yet when the agent informs his principal that for reasons of health and
by medical advice he is about to depart from the place where he is exercising his trust and
where the property subject to his administration is situated, abandons the property, turns it
over a third party, without stating when he may return to take charge of the administration,
renders accounts of its revenues up to a certain date, December 31, 1893, and transmits to
his principal a general statement 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 asks that a power of attorney in due form in due form be executed and transmitted to
another person who substituted him and took charge of the administration of the principal's
property, it is then reasonable and just to conclude that the said agent expressly and
definitely renounced his agency, and it may not be alleged that the designation of Antonio
Hidalgo to take charge of the said administration was that of a mere proceed lasted for more
than fifteen years, for such an allegation would be in conflict with the nature of the agency.
This renouncement was confirmed by the subsequent procedure, as well as of the agent as
of the principal, until the latter died, on August 2, 1902, since the principal Pea did not
disapprove the designation of Antonio Hidalgo, nor did he appoint another, nor send a new
power of attorney to the same, as he was requested to by the previous administrator who
abandoned his charge; and the trial record certainly contains no proof that the defendant,
since he left these Islands in March, 1894, until January, 1904, when he returned to this city,
took 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 charge of the
aforementioned administration of De la Pea y Gomiz's property and the one who was to
represent the latter in his business affairs, with his tacit consent. From all of which it is
perfectly concluded (unless here be proof to the contrary, and none appears in the record),
that Antonio Hidalgo acted in the matter of the administration of the property of Jose de la
Pea y Gomiz by virtue of an implied agency derived from the latter, in accordance with the
provisions of article 1710 of the Civil Code.
The proof of the tacit consent of the principal, Jose de la Pea y Gomiz, the owner of the
property administered a consent embracing the essential element of a legitimate agency,
article 1710 before cited consists in that Pea, knowing that on account of the departure
of Federico Hidalgo from the Philippines for reasons of health, Antonio Hidalgo took charge of
the 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 the said Antonio
Hidalgo, nevertheless he, Jose de la Pea y Gomiz, saw fit not to execute nor transmit any
power of attorney whatever to the new administrator of his property and remained silent for
nearly nine years; and, in that the said principal, being able to prohibit the party designated,
Antonio Hidalgo, from continuing in the exercise of his position as administrator, and being
able to appoint another agent, did neither the one nor the other. Wherefore, in permitting
Antonio Hidalgo to administer his property in this city during such a number of years, it is
inferred, from the procedure and silence of the owner thereof, that he consented to have
Antonio Hidalgo administer his property, and in fact created in his favor an implied agency,
as the true and legitimate administrator.
Antonio Hidalgo administered the aforementioned property of De la Pea y Gomiz, not in the
character of business manager, but as agent by virtue of an implied agency vested in him by
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its owner who was not unaware of the fact, who knew perfectly well that the said Antonio
Hidalgo took charge of the administration of that property on account of the obligatory
absence of his previous agent for whom it was an impossibility to continue in the discharge
of his duties.
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 perfect knowledge of
the management and administration of the same, which administration and management, far
from being opposed by him was indeed consented to by him for nearly nine years, as was
done by Pea y Gomiz. The administration and management, by virtue of an implied agency,
is essentially distinguished from that management of another's business, in this respect, that
while the former originated from a contract, the latter is derived only from a qausi-contract.
The implied agency is founded on the lack of contradiction or opposition, which constitutes
simultaneous agreement on the part of the presumed principal to the execution of the
contract, while in the management of another's business there is no simultaneous consent,
either express or implied, but a fiction or presumption of consent because of the benefit
received.
The distinction between an agency and a business management has been established by the
jurisprudence of the supreme court (of Spain) in its noteworthy decision of the 7th of July,
1881, setting up the following doctrine:
That laws 28 and 32, title 12 Partida 3, refer to the expenses incurred 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 this suit where the petition of the
plaintiff is founded on the verbal request made to him by the defendant or the
latter's employees to do some hauling, and where, consequently, questions that arise
from a contract that produces reciprocal rights and duties can not be governed by
the said laws.
It being absolutely necessary for Federico Hidalgo to leave this city and abandon the
administration of the property of his principal, Pea y Gomiz, for reasons of health, he made
delivery of the property and of his administration to Antonio Hidalgo and gave notice of what
he had done to his constituent, Pea, in order that the latter might send a new power of
attorney to Antonio Hidalgo, the person charged with the administration of the property.
Pea y Gomiz did not send the power of attorney requested, did not oppose or prohibit
Antonio Hidalgo's containing to administer his property, and consented to his doing so for
nearly nine years. Consequently the second administrator must be considered as a legitimate
agent of the said principal, as a result of the tacit agreement on the latter's part, and the
previous agent, who necessarily abandoned and ceased to hold his position, as completely
free and clear from the consequences and results of the second administration, continued by
a third party and accepted by his principal; for it is a fact, undenied nor even doubted, that
the said first administrator had to abandon this country and the 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 himself, his conduct being in accordance with the
provisions of article 1736 of the Civil Code.
In the power of attorney executed by Pea y Gomiz in this city on November 12, 1887, in
favor of, among others, Federico Hidalgo, no authority was conferred upon the latter by his
principal to substitute the power or agency in favor of another person; wherefore the agent
could not, by virtue of the said power of attorney, appoint any person to substitute or relieve
him in the administration of the principal's property, for the lack of a clause of substitution in
the said instrument authorizing him so to do.
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 that the principal's
property should not be abandoned, inasmuch as, for the purposes of the discharge of the
duties of administrator of the same, the agent, who was about to absent himself from this
city, requested his principal to send to the party, provisionally designated by the former, a
new power of attorney, for the reason that the general power of attorney which Federico
Hidalgo had 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 the latter had not
authorized him to take such action.
If the owner of the property provisionally administered at the time by Antonio Hidalgo, saw
fit to keep silent, even after having received the aforesaid letter of March 22, 1894, and
during the lapse of nearly ten years, without counter commanding or disapproving the
designation of the person who took charge of the administration of his property, knowing
perfectly well that his previous 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
agent who had to abandon this country for good and valid reasons, inasmuch as the latter
immediately reported to his principal the action taken by himself and informed him of the
person who had taken charge of the administration of his property, which otherwise would
have been left abandoned. From the time of that notification the agent who, for legitimate
cause, ceased to exercise his trust, was free and clear from the results and consequences of
the management of the person who substituted him with the consent, even only a tacit one,
of the principal, inasmuch as the said owner of the property could have objected to could
have prohibited the continuance in the administration thereof, of the party designated by his
agent, and could have opportunely appointed another agent or mandatory of his own
confidence to look after his property and if he did not do so, he is obliged to abide by the
consequences of his negligence and abandonment and has no right to claim damages against
68
his previous agent, who complied with his duty and did all that he could and ought to have
done, in accordance with the law.
The defendant Federico Hidalgo, having ceased in his administration of the property
belonging to Pea y Gomiz, on account of physical impossibility, 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 requested a new power of attorney, is only liable for the
results and consequences of his administration during the period when the said property was
in his charge, and therefore his liability can not extend beyond the period of his
management, as his agency terminated by the tacit or implied approval of his principal,
judging from the latter's silence in neither objecting to nor in anywise prohibiting Antonio
Hidalgo's continuing to administer his property, notwithstanding the lapse of the many years
since he learned by letter of the action taken by his previous agent, Federico Hidalgo.
Moreover, this latter, in announcing the termination of his agency, transmitted the last partial
accounts that he had not rendered, up to December 31, 1893, together with a general
statement of all the resulting balances covering the 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 disapproval of the same nor of the general statement, which he must
have received in April or may, 1894, to the time he died, in August, 1902; and when his son,
the plaintiff, came to this city in company with the defendant, Federico Hidalgo, they traveled
together from Spain and arrived in Manila during one of the early days of January, 1904, the
former, for the purpose of taking charge of the estate left by his father, and after the plaintiff
had examined the accounts 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
on page 936 of the second record of trial, dated January 15, 1904, in which Jose de la Pea
y de Ramon acknowledged having received from his deceased father's old agent the
accounts, balances, and vouchers to his entire satisfaction, and gave an acquittance in full
settlement of the administration that had been commended to the defendant Hidalgo.
This document, written in the handwriting of the plaintiff, Pea y de Ramon, appears to be
executed in a form considered to be sufficient by its author, and, notwithstanding the
allegations of the said plaintiff, the record contains no proof of any kind of Federico Hidalgo's
having obtained it by coercion, intimidation, deceit, or fraud; neither is its shown to have
been duly impugned as false, criminally or civilly, for the statements therein made by the
plaintiff are too explicit and definite to allow, without proof of some vice or defect leading to
nullification, of its being considered as void and without value or legal effect.
With respect to the responsibility contracted by the defendant, as regards the payment of the
balance shown by the accounts rendered by him, it is not enough that the agent should have
satisfactorily rendered the accounts pertaining to his trust, but it is also indispensable that it
be proved that he had paid to his principal, or to the owner of the property administered, the
balance resulting from his accounts. This balance, which was allowed in the judgment
appealed from, notwithstanding the allegations of the plaintiff, which were not deemed as
established, amounts to P6,774.50, according to the proofs adduced at the trial. It was the
imperative duty of the administrator, Federico Hidalgo, to transmit this sum to his principal,
Jose de la Pea y Gomiz, as the final balance of the accounts of his administration, struck on
December 31, 1893, and by his failure so to do and delivery of the said sum to his successor,
Antonio Hidalgo, he acted improperly, and must pay the same to the plaintiff.
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.
Although the plaintiff, in his original complaint, had included the said Antonio Hidalgo as one
of the responsible defendants, yet he afterwards excluded him, as well from the second as
from the third amended complaint, and consequently the liability that might attach to Antonio
Hidalgo was not discussed, nor was it considered in the judgment of the lower court; neither
can it be in the decision, for the reason that the said Antonio Hidalgo is not a party to this
suit. However, the said liability of Antonio Hidalgo is imputed to Federico Hidalgo, and so it is
that, in the complain t, the claim is made solely against Federico Hidalgo, in order that the
latter might be adjudged to pay the amounts which constitute the balance owing from him
who might be responsible, Antonio Hidalgo, during the period of this latter's administration.
Federico Hidalgo, in our opinion, could not and can not be responsible for the administration
of the property that belonged to the deceased Pea y Gomiz, which was administered by
Antonio Hidalgo during eight years and some months, that is, during the second period,
because of the sole fact of his having turned over to the latter the administration of the said
property on his 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 life, even
though he were the administrator of certain property belonged to Pea y Gomiz, since the
care of the property and interests of another does not require sacrifice on the part of the
agent of his own life and interests. Federico Hidalgo was obliged to deliver the said property
belonging to Pea y Gomiz to Antonio Hidalgo for good and valid reasons, and reasons, and
in proceeding in the manner aforesaid he complied with the duty required of him by law and
justice and acted as a diligent agent. If the principal, Jose de la Pea Gomiz, 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, not to send the power of attorney requested
by Federico Hidalgo in favor of Antonio Hidalgo, and took no action nor made any inquiry
whatever to ascertain how his property was being administered by the second agent,
although to the time of his death more than eight years had elapsed, the previous agent,
who ceased in the discharge of his duties, can in nowise be held liable for the consequences
69
of such abandonment, nor for the results of the administration of property by Antonio
Hidalgo, for the reason that, since his departure from this country, he has not had the least
intervention nor even indirect participation in the aforementioned administration of the said
Antonio Hidalgo who, under the law, was the agent or administrator by virtue of an implied
agency, which is equivalent in its results to an express agency, executed by the owner of the
property. Consequently, Federico Hidalgo is not 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.
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 administration of his property. Aside from the
fact that the trial record does not show honor on what date Pea expressed such
disagreement it is certain that, 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
appointment of the said Antonio Hidalgo, and the intercalation of the word no in the
statement quoted is more inexplicable in that the attorney for the adverse party moved that
the said answer be stricken from the record, as he objected to its appearing therein.
Were it true that the principal Jose de la Pea by Gomiz, had neither agreed to the
designation of Antonio Hidalgo, nor to the latter's administering his property, he would
immediately have appointed another agent and administrator, since he knew that Federico
Hidalgo had left the place where his property was situated and that it would be abandoned,
had he not wished that 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
because the said Pea agreed and gave his consent to the acts performed by his outgoing
agent, and for this reason the answer given by Federico Hidalgo mistakenly, or not, that his
principal, Pea, did not agree to the appointment of Antonio Hidalgo, is immaterial and does
not affect the terms of this decision.
If the defendant is not responsible for the results of the administration of said property
administered by Antonio Hidalgo during the second period before referred to, neither is he
responsible for that performed during the third period by Francisco Hidalgo, inasmuch as the
latter was not even chosen by the defendant who, on October 1, 1902, when Francisco
Hidalgo took charge of Peas' property that had been turned over to him by Antonio Hidalgo,
was in Spain and had no knowledge of nor intervention in such delivery; wherefore the
defendant can in no manner be obliged to pay to the plaintiff any sum that may be found
owing by Francisco Hidalgo.
The trial judge taking into consideration that, by the evidence adduced at the hearing, it
was proved that Francisco Hidalgo rendered accounts to the plaintiff of the administration of
the property in question during the said third 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 under date of January 7, 1904, and the signature which, affixed by himself, he
admitted in his testimony was authentic, on its being exhibited to him found that the
plaintiff, Pea y de Ramon, was not entitled to recover any sum whatever for the rents
pertaining to the administration of his property by the said Francisco Hidalgo.
All the reasons hereinbefore given relate to the first cause of action, whereby claim is made
against Federico Hidalgo for the payment of the sum of P72,548.24 and interest at the rate
of 6 per cent per centum, and they have decided some of the errors assigned by the
appellants in their briefs to the judgment appealed from.
Two amounts are have claimed which have one and the same origin, yet are based on two
causes of action, the second and the third alleged by the plaintiff; and although the latter,
afterwards convinced by the truth and of the impropriety of his claim, had to waive the said
third cause of action during the 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 to the same certificates of deposit of the treasury of the Spanish Government, found, in
the judgment appealed from, that the plaintiff was not entitled to recover anything for the
aforesaid second and third causes of action a finding that is proper and just, although
qualified as erroneous by the plaintiff in his brief.
It appears, from the evidence taken in this cause, that Jose de la Pea y Gomiz, according to
the certificates issued by the chief of the division his lifetime, after having in 1882 withdrawn
from the General Deposit Bank of the Spanish Government a deposit of 17,000 pesos and its
interest deposit any 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 being
afterwards endorsed in favor of Gonzalo Tuason. The latter, on December 9, 1887, withdrew
the deposit and took out the said two amounts, together with the interest due thereon, and
on the same date redeposited them in the sum of 6,360 pesos at 5 per cent per annum in
the name of Jose de la Pea y Gomiz. On the 20th of December of the following year, 1888,
the defendant Hidalgo received from his principal, Pea y Gomiz, through Father Ramon
Caviedas, the two said letters of credit, in order that he might withdraw from the General
Deposit Bank the two amounts deposited, together with the 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 deposit receipt to Father Caviedas, of all of which transactions he
informed his principal by letter of the same date, transcribed on page 947 of the second trial
record.
70
In the following year, 1889, Father Ramon Caviedas again delivered to the defendant Hidalgo
the aforementioned deposit receipt with the request to withdraw from the General Deposit
bank the sum deposited and to purchase a draft of 860 pesos on London in favor of their
owner, Jose de la Pea y Gomiz, and, after deducting the cost of the said draft from the
capital and interest 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
Pea y Gomiz: All of which was done by the defendant Hidalgo, who delivered 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 the letter addressed by Hidalgo to Pea, of the
date of December 20 of that year and shown as an original exhibit by the plaintiff himself on
page 29 of the record of the evidence.
Lastly, in December, 1890, Father Caviedas, aforementioned, delivered to the defendant
Hidalgo the said deposit receipt for 5,500 pesos in order that he might withdraw this amount
from deposit and deliver it with the interest thereon to the former for the purpose of
remitting it by draft to Jose de la Pea; this Hidalgo did, according to a reply-letter from
Father Caviedas, the original of which appears on page 979 of the file of exhibits and is
copied on page 171 of the trial record, and is apparently confirmed by the latter in his sworn
testimony.
So that the two amounts of 3,000 pesos each, expressed in two deposit receipts received
from De la Pea y Gomiz by Father Ramon Caviedas and afterwards delivered to Francisco
Hidalgo for the successive operations of remittance and redeposit in the bank before
mentioned, are the same and only ones that were on deposit in the said bank in the name of
their owner, Pea y Gomiz. The defendant Hidalgo made two remittances by drafts of
London, one in 1888 for 741.60 pesos, through a draft purchased from the Chartered Bank,
and another in 1889 for 860 pesos, through a draft purchased from the house of Tuason &
Co., and both in favor of Pea y Gomiz, who received through Father Ramon Caviedas the
remainder, 5,500 pesos, of the sums deposited. For these reasons, the trial judge was of the
opinion that the certificates of deposit sent by Pea y Gomiz to Father Ramon Caviedas and
those received from the latter by the defendant Hidalgo were identicals, as were likewise the
total amounts expressed by the said receipts or certificates of deposit, from the sum of which
were deducted the amounts remitted to Pea y Gomiz and the remainder deposited after
each anual operation until, finally, the sum of 5,500 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, found that the plaintiff was entitled to recover any sum whatever
for the said second and third causes of action, notwithstanding that, as hereinbefore stated,
the said plaintiff withdrew the third cause of action. This finding of the court, with respect to
the collection of the amounts of the aforementioned deposit receipts, is perfectly legal and in
accordance with justice, inasmuch as it is a sustained by abundant and conclusive
documentary evidence, which proves in an incontrovertible manner the unrighteousness of
the claim made by the plaintiff in twice seeking payment, by means of the said second and
third causes of action, of the said sum which, after various operations of deposit and
remittance during three years, was finally returned with its interest to the possession of its
owner, Pea y Gomiz.
From the trial had in this case, it also appears conclusively proved that Jose de la Pea y
Gomiz owed, during his lifetime, to Federico Hidalgo, 7,600 pesos, 4,000 pesos of which
were to bear interest at the rate of 6 per cent per annum, and the remainder without any
interest, and that, notwithstanding the lapse of the period of three years, from November,
1887, within which he bound himself to repay the amount borrowed, and in spite of his
creditor's demand of payment, made by registered letter, the original copy of which is on
page 38 of the file of exhibits and a transcription thereof on page 930 of the first and second
record of the evidence, the debt was not paid up to the time of the debtor's death. For such
reasons, the trial court, in the judgment appealed from, found that there was a
preponderance of evidence to prove that this loan had been made and that the plaintiff
actually owed the defendant the sum loaned, as well as the interest thereon, after deducting
therefrom the 2,000 pesos which the defendant received from the plaintiff on account of the
credit, and that the former was entitled to recover.
It appears from the pleadings and evidence at the trial that in January, 1904, on the arrival
in this city of Federico de la Pea de Ramon, and on the occasion of the latter's proceeding
to examine the accounts previously rendered, up to December 31, 1893, by the defendant
Hidalgo to the plaintiff's father, then deceased, Hidalgo made demand upon the plaintiff,
Pea y de Ramon, for the payment of the said debt of his father, although the creditor
Hidalgo acceded to the requests of the plaintiff to grant the latter an extension of time until
he should be able to sell one of the properties of the estate. It was at that time, according to
the defendant, that the plaintiff Pea took up the instrument of indebtedness, executed by
his deceased father during his lifetime, and delivered to the defendant in exchange therefor
the document of the date of January 15, 1904, found on page 924 of the second record of
evidence, whereby the plaintiff, Jose de la Pea, bound himself to pay his father's debt of
11,000 pesos, owing to the defendant Hidalgo, out of the proceeds of the sale of some of the
properties specified in the said document, which was written and signed by the plaintiff in his
own handwriting.
The plaintiff not only executed the said document acknowledging his father's debt and
binding himself to settle it, but also, several days after the sale of a lot belonging to the
estate, paid to the creditor on account the sum of 2,000 pesos, according to the receipt
issued by the latter and exhibited on page 108 of the first record of evidence.
The said document, expressive of the obligation contracted by the plaintiff Pea y de Ramon
that he would pay to the defendant the debt of plaintiff's deceased father, amounting to
11,000 pesos, out of the proceeds from some of the properties of the estate, has not been
71
denied nor impugned as false; and not withstanding the averment made by the plaintiff that
when he signed he lacked information and knowledge of the true condition of the affairs
concerning Hidalgo's connection with the property that be absolutely no proof whatever is
shown in the trial record of the creditor's having obtained the said document through deceit
or fraud circumstances in a certain manner incompatible with the explicit statements
contained therein. For these reasons, the trial court, weighing the whole of the evidence
furnished by the record, found that the loan of the said 7,600 pesos was truly and positively
made, and that the plaintiff must pay the same to the defendant, with the interest thereon,
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 errors assigned by the plaintiff
to the judgment appealed from are dismissed.
With respect to the obligation to pay the interest due on the amounts concerned in this
decision, it must be borne in mind that, as provided by article 1755 of the Civil Code, interest
shall only be owed when it has been expressly 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 must pay, as indemnity for losses and damages, the interest agreed
upon, and should there be no express stipulation, the legal interest (art. 1108 of the Civil
Code); but, in order that the debtor may be considered to be in default and obliged to pay
the indemnity, it is required, as a general rule, that his creditor shall demand of such debtor
the fulfillment of his obligation, judicially or extrajudicially, except in such cases as are
limitedly specified in article 1100 of the Civil Code.
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 because the plaintiff renounced
and withdrew his complaint, with respect to the 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 reason of the counterclaim, the sum of P9,000 with legal interest thereon at the
rate of 6 per cent per annum from 21st of may, 1907, the date of the counterclaim.
The judgment appealed from, together with that part thereof relative to the statement it
contains concerning the equivalence between the Philippine peso and the Mexican peso, is
affirmed in so far as it is in agreement with the findings of this decision, and the said
judgment is reversed in so far as it is not in accordance herewith. No special finding is made
as to costs assessed in either instance, and to the plaintiff is reserved any right that he may
be entitled to enforce against Antonio Hidalgo.
18. DOMINGA CONDE, petitioner, vs. THE HONORABLE COURT OF APPEALS,
MANILA PACIENTE CORDERO, together with his wife, NICETAS ALTERA, RAMON
CONDE, together with his wife, CATALINA T. CONDE, respondents.
MELENCIO-HERRERA, J.:
An appeal by certiorari from the Decision of respondent Court of Appeals 1 (CA-G.R. No.
48133- R) affirming the judgment of the Court of First Instance of Leyte, Branch IX, Tacloban
City (Civil Case No. B-110), which dismissed petitioner's Complaint for Quieting of Title and
ordered her to vacate the property in dispute and deliver its possession to private
respondents Ramon Conde and Catalina Conde.
The established facts, as found by the Court of Appeals, show that on 7 April 1938. Margarita
Conde, Bernardo Conde and the petitioner Dominga Conde, as heirs of Santiago Conde, sold
with right of repurchase, within ten (10) years from said date, a parcel of agricultural land
located in Maghubas Burauen Leyte, (Lot 840), with an approximate area of one (1) hectare,
to Casimira Pasagui, married to Pio Altera (hereinafter referred to as the Alteras), for
P165.00. The "Pacto de Retro Sale" further provided:
... (4) if at the end of 10 years the said land is not repurchased, a new
agreement shall be made between the parties and in no case title and
72
 ownership shall be vested in the hand of the party of the SECOND PART (the
Alteras).
xxx xxx xxx (Exhibit "B")
On 17 April 1941, the Cadastral Court of Leyte adjudicated Lot No. 840 to the Alteras
"subject to the right of redemption by Dominga Conde, within ten (10) years counting from
April 7, 1983, after returning the amount of P165.00 and the amounts paid by the spouses in
concept of land tax ... " (Exhibit "1"). Original Certificate of Title No. N-534 in the name of
the spouses Pio Altera and Casimira Pasagui, subject to said right of repurchase, was
transcribed in the "Registration Book" of the Registry of Deeds of Leyte on 14 November
1956 (Exhibit "2").
On 28 November 1945, private respondent Paciente Cordero, son-in-law of the Alteras,
signed a document in the Visayan dialect, the English translation of which reads:
MEMORANDUM OF REPURCHASE OVER A PARCEL OF LAND SOLD WITH
REPURCHASE WHICH DOCUMENT GOT LOST
WE, PIO ALTERA and PACIENTE CORDERO, both of legal age, and residents
of Burauen Leyte, Philippines, after having been duly sworn to in accordance
with law free from threats and intimidation, do hereby depose and say:
1. That I, PIO ALTERA bought with the right of repurchase
two parcels of land from DOMINGA CONDE, BERNARDO
CONDE AND MARGARITA CONDE, all brother and sisters.
2. That these two parcels of land were all inherited by the
three.
3. That the document of SALE WITH THE RIGHT OF
REPURCHASE got lost in spite of the diligent efforts to locate
the same which was lost during the war.
4. That these two parcels of land which was the subject
matter of a Deed of Sale with the Right of Repurchase
consists only of one document which was lost.
5. Because it is about time to repurchase the land, I have
allowed the representative of Dominga Conde, Bernardo
Conde and Margarita Conde in the name of EUSEBIO
AMARILLE to repurchase the same.
6. Now, this very day November 28, 1945, 1 or We have
received together with Paciente Cordero who is my son-in-
law the amount of ONE HUNDRED SIXTY-FIVE PESOS
(P165. 00) Philippine Currency of legal tender which was the
consideration in that sale with the right of repurchase with
respect to the two parcels of land.
That we further covenant together with Paciente Cordero who is my son-in-
law that from this day the said Dominga Conde, Bernardo Conde and
Margarita Conde will again take possession of the aforementioned parcel of
land because they repurchased the same from me. If and when their
possession over the said parcel of land be disturbed by other persons, I and
Paciente Cordero who is my son-in-law will defend in behalf of the herein
brother and sisters mentioned above, because the same was already
repurchased by them.
IN WITNESS WHEREOF, I or We have hereunto affixed our thumbmark or
signature to our respective names below this document or memorandum this
28th day of November 1945 at Burauen Leyte, Philippines, in the presence of
two witnesses.
PIO ALTERA (Sgd.) PACIENTE CORDERO
WITNESSES:
1. (SGD.) TEODORO C. AGUILLON
To be noted is the fact that neither of the vendees-a-retro, Pio Altera nor Casimira Pasagui,
was a signatory to the deed. Petitioner maintains that because Pio Altera was very ill at the
time, Paciente Cordero executed the deed of resale for and on behalf of his father-in-law.
Petitioner further states that she redeemed the property with her own money as her co-heirs
were bereft of funds for the purpose.
The pacto de retro document was eventually found.
73
On 30 June 1965 Pio Altera sold the disputed lot to the spouses Ramon Conde and Catalina
T. Conde, who are also private respondents herein. Their relationship to petitioner does not
appear from the records. Nor has the document of sale been exhibited.
Contending that she had validly repurchased the lot in question in 1945, petitioner filed, on
16 January 1969, in the Court of First Instance of Leyte, Branch IX, Tacloban City, a
Complaint (Civil Case No. B-110), against Paciente Cordero and his wife Nicetas Altera,
Ramon Conde and his wife Catalina T. Conde, and Casimira Pasagui Pio Altera having died in
1966), for quieting of title to real property and declaration of ownership.
Petitioner's evidence is that Paciente Cordero signed the Memorandum of Repurchase in
representation of his father-in-law Pio Altera, who was seriously sick on that occasion, and of
his mother-in-law who was in Manila at the time, and that Cordero received the repurchase
price of P65.00.
Private respondents, for their part, adduced evidence that Paciente Cordero signed the
document of repurchase merely to show that he had no objection to the repurchase; and
that he did not receive the amount of P165.00 from petitioner inasmuch as he had no
authority from his parents-in-law who were the vendees-a-retro.
After trial, the lower Court rendered its Decision dismissing the Complaint and the
counterclaim and ordering petitioner "to vacate the property in dispute and deliver its
peaceful possession to the defendants Ramon Conde and Catalina T. Conde".
On appeal, the Court of Appeals upheld the findings of the Court a quo that petitioner had
failed to validly exercise her right of repurchase in view of the fact that the Memorandum of
Repurchase was signed by Paciente Cordero and not by Pio Altera, the vendee-a-retro, and
that there is nothing in said document to show that Cordero was specifically authorized to act
for and on behalf of the vendee a retro, Pio Altera.
Reconsideration having been denied by the Appellate Court, the case is before us on review.
There is no question that neither of the vendees-a-retro signed the "Memorandum of
Repurchase", and that there was no formal authorization from the vendees for Paciente
Cordero to act for and on their behalf.
Of significance, however, is the fact that from the execution of the repurchase document in
1945, possession, which heretofore had been with the Alteras, has been in the hands of
petitioner as stipulated therein. Land taxes have also been paid for by petitioner yearly from
1947 to 1969 inclusive (Exhibits "D" to "D-15"; and "E"). If, as opined by both the Court a
quo and the Appellate Court, petitioner had done nothing to formalize her repurchase, by the
same token, neither have the vendees-a-retro done anything to clear their title of the
encumbrance therein regarding petitioner's right to repurchase. No new agreement was
entered into by the parties as stipulated in the deed of pacto de retro, if the vendors a
retro failed to exercise their right of redemption after ten years. If, as alleged, petitioner
exerted no effort to procure the signature of Pio Altera after he had recovered from his
illness, neither did the Alteras repudiate the deed that their son-in-law had signed. Thus, an
implied agency must be held to have been created from their silence or lack of action, or
their failure to repudiate the agency. 2
Possession of the lot in dispute having been adversely and uninterruptedly with petitioner
from 1945 when the document of repurchase was executed, to 1969, when she instituted
this action, or for 24 years, the Alteras must be deemed to have incurred in laches. 3 That
petitioner merely took advantage of the abandonment of the land by the Alteras due to the
separation of said spouses, and that petitioner's possession was in the concept of a tenant,
remain bare assertions without proof.
Private respondents Ramon Conde and Catalina Conde, to whom Pio Altera sold the disputed
property in 1965, assuming that there was, indeed, such a sale, cannot be said to be
purchasers in good faith. OCT No. 534 in the name of the Alteras specifically contained the
condition that it was subject to the right of repurchase within 10 years from 1938. Although
the ten-year period had lapsed in 1965 and there was no annotation of any repurchase by
petitioner, neither had the title been cleared of that encumbrance. The purchasers were put
on notice that some other person could have a right to or interest in the property. It
behooved Ramon Conde and Catalina Conde to have looked into the right of redemption
inscribed on the title, and particularly the matter of possession, which, as also admitted by
them at the pre-trial, had been with petitioner since 1945.
Private respondent must be held bound by the clear terms of the Memorandum of
Repurchase that he had signed wherein he acknowledged the receipt of P165.00 and
assumed the obligation to maintain the repurchasers in peaceful possession should they be
"disturbed by other persons". It was executed in the Visayan dialect which he understood. He
cannot now be allowed to dispute the same. "... If the contract is plain and unequivocal in its
terms he is ordinarily bound thereby. It is the duty of every contracting party to learn and
know its contents before he signs and delivers it." 4
There is nothing in the document of repurchase to show that Paciente Cordero had signed
the same merely to indicate that he had no objection to petitioner's right of repurchase.
Besides, he would have had no personality to object. To uphold his oral testimony on that
point, would be a departure from the parol evidence rule 5 and would defeat the purpose for
which the doctrine is intended.
74
 ... The purpose of the rule is to give stability to written agreements, and to
remove the temptation and possibility of perjury, which would be afforded if
parol evidence was admissible. 6
In sum, although the contending parties were legally wanting in their respective actuations,
the repurchase by petitioner is supported by the admissions at the pre-trial that petitioner
has been in possession since the year 1945, the date of the deed of repurchase, and has
been paying land taxes thereon since then. The imperatives of substantial justice, and the
equitable principle of laches brought about by private respondents' inaction and neglect for
24 years, loom in petitioner's favor.
WHEREFORE, the judgment of respondent Court of Appeals is hereby REVERSED and SET
ASIDE, and petitioner is hereby declared the owner of the disputed property. If the original
of OCT No. N-534 of the Province of Leyte is still extant at the office of the Register of
Deeds, then said official is hereby ordered to cancel the same and, in lieu thereof, issue a
new Transfer Certificate of Title in the name of petitioner, Dominga Conde.
No costs.
SO ORDERED.
19. HARRY E. KEELER ELECTRIC CO., INC., plaintiff-appellant, vs. DOMINGO
RODRIGUEZ, defendant-appellee.
STATEMENT
The plaintiff is a domestic corporation with its principal office in the city of Manila and
engaged in the electrical business, and among other things in the sale of what is known as
the "Matthews" electric plant, and the defendant is a resident of Talisay, Occidental Negros,
and A. C. Montelibano was a resident of Iloilo.
Having this information, Montelibano approached plaintiff at its Manila office, claiming that he
was from Iloilo and lived with Governor Yulo; that he could find purchaser for the "Matthews"
plant, and was told by the plaintiff that for any plant that he could sell or any customer that
he could find he would be paid a commission of 10 per cent for his services, if the sale was
consummated. Among other persons. Montelibano interviews the defendant, and, through his
efforts, one of the "Matthews" plants was sold by the plaintiff to the defendant, and was
shipped from Manila to Iloilo, and later installed on defendant's premises after which, without
the knowledge of the plaintiff, the defendant paid the purchase price to Montelibano. As a
result, plaintiff commenced this action against the defendant, alleging that about August 18,
1920, it sold and delivered to the defendant the electric plant at the agreed price of
P2,513.55 no part of which has been paid, the demands judgment for the amount with
interest from October 20, 1920.
For answer, the defendant admits the corporation of the plaintiff, and denies all other
material allegations of the complaint, and, as an affirmative defense, alleges "that on or
about the 18th of August, 1920, the plaintiff sold and delivered to the defendant a certain
electric plant and that the defendant paid the plaintiff the value of said electric plant, to wit:
P2,513.55."
Upon such issues the testimony was taken, and the lower court rendered judgment for the
defendant, from which the plaintiff appeals, claiming that the court erred in holding that the
payment to A. C. Montelibano would discharge the debt of defendant, and in holding that the
bill was given to Montelibano for collection purposes, and that the plaintiff had held out
Montelibano to the defendant as an agent authorized to collect, and in rendering judgment
for the defendant, and in not rendering judgment for the plaintiff.
JOHNS, J.:
The testimony is conclusive that the defendant paid the amount of plaintiff's claim to
Montelibano, and that no part of the money was ever paid to the plaintiff. The defendant,
having alleged that the plaintiff sold and delivered the plant to him, and that he paid the
plaintiff the purchase price, it devolved upon the defendant to prove the payment to the
plaintiff by a preponderance of the evidence.
It appears from the testimony of H. E. Keeler that he was president of the plaintiff and that
the plant in question was shipped from Manila to Iloilo and consigned to the plaintiff itself,
and that at the time of the shipment the plaintiff sent Juan Cenar, one of its employees, with
the shipment, for the purpose of installing the plant on defendant's premises. That plaintiff
gave Cenar a statement of the account, including some extras and the expenses of the
mechanic, making a total of P2,563,95. That Montelibano had no authority from the plaintiff
to receive or receipt for money. That in truth and in fact his services were limited and
confined to the finding of purchasers for the "Matthews" plant to whom the plaintiff would
later make and consummate the sale. That Montelibano was not an electrician, could not
install the plant and did not know anything about its mechanism.
Cenar, as a witness for the plaintiff, testified that he went with shipment of the plant from
Manila to Iloilo, for the purpose of installing, testing it, and to see that everything was
75
satisfactory. That he was there about nine days, and that he installed the plant, and that it
was tested and approved by the defendant. He also says that he personally took with him the
statement of account of the plaintiff against the defendant, and that after he was there a few
days, the defendant asked to see the statement, and that he gave it to him, and the
defendant said, "he was going to keep it." I said that was all right "if you want." "I made no
effort at all to collect the amount from him because Mr. Rodriguez told me he was going to
pay for the plant here in Manila." That after the plant was installed and approved, he
delivered it to the defendant and returned to Manila.
There is nothing on the face of this receipt to show that Montelibano was the agent of, or
that he was acting for, the plaintiff. It is his own personal receipt and his own personal
signature. Outside of the fact that Montelibano received the money and signed this receipt,
there is no evidence that he had any authority, real or apparent, to receive or receipt for the
money. Neither is there any evidence that the plaintiff ever delivered the statement to
Montelibano, or authorized anyone to deliver it to him, and it is very apparent that the
statement in question is the one which was delivered by the plaintiff to Cenar, and is the one
which Cenar delivered to the defendant at the request of the defendant.

The only testimony on the part of the defendant is that of himself in the form of a deposition The evidence of the defendant that Montelibano was the one who sold him the plant is in
in which he says that Montelibano sold and delivered the plant to him, and "was the one who direct conflict with his own pleadings and the receipt statement which he offered in evidence.
ordered the installation of that electrical plant," and he introduced in evidence as part of his This statement also shows upon its face that P81.60 of the bill is for:
deposition a statement and receipt which Montelibano signed to whom he paid the money.
When asked why he paid the money to Montelibano, the witness says: To Passage round trip, 1st Class @
P40.80 a trip ........................................... P81.60.
Because he was the one who sold, delivered, and installed the electrical plant, and
he presented to me the account, Exhibits A and A-I, and he assured me that he was Plus Labor @ P5.00 per day
duly authorized to collect the value of the electrical plant. Machine's transportation ................. 9.85.

The receipt offered in evidence is headed: This claim must be for the expenses of Cenar in going to Iloilo from Manila and return, to
install the plant, and is strong evidence that it was Cenar and not Montelibano who installed
STATEMENT Folio No. 2494 the plant. If Montelibano installed the plant, as defendant claims, there would not have been
any necessity for Cenar to make this trip at the expense of the defendant. After Cenar's
Mr. DOMINGO RODRIGUEZ, return to Manila, the plaintiff wrote a letter to the defendant requesting the payment of its
Iloilo, Iloilo, P.I. account, in answer to which the defendant on September 24 sent the following telegram:

In account with Electric plant accessories and installation are paid to Montelibano about three weeks
HARRY E. KEELER ELECTRIC COMPANY, INC. Keeler Company did not present bill.
221 Calle Echaque, Quiapo, Manila, P.I.
MANILA, P.I., August 18, 1920. This is in direct conflict with the receipted statement, which the defendant offered in
evidence, signed by Montelibano. That shows upon its face that it was an itemized statement
The answer alleges and the receipt shows upon its face that the plaintiff sold the plant to the of the account of plaintiff with the defendant. Again, it will be noted that the receipt which
defendant, and that he bought it from the plaintiff. The receipt is signed as follows: Montelibano signed is not dated, and it does not show when the money was paid: Speaking
of Montelibano, the defendant also testified: "and he assured me that he was duly authorized
Received payment to collect the value of the electrical plant." This shows upon its face that the question of
HARRY E. KEELER ELECTRIC CO. Inc., Montelibano's authority to receive the money must have been discussed between them, and
that, in making the payment, defendant relied upon Montelibano's own statements and
representation, as to his authority, to receipt for the money.
Recibi
(Sgd.) A. C. MONTELIBANO.
In the final analysis, the plant was sold by the plaintiff to the defendant, and was consigned
by the plaintiff to the plaintiff at Iloilo where it was installed by Cenar, acting for, and
76
representing, the plaintiff, whose expense for the trip is included in, and made a part of, the
bill which was receipted by Montelibano.
There is no evidence that the plaintiff ever delivered any statements to Montelibano, or that
he was authorized to receive or receipt for the money, and defendant's own telegram shows
that the plaintiff "did not present bill" to defendant. He now claims that at the very time this
telegram was sent, he had the receipt of Montelibano for the money upon the identical
statement of account which it is admitted the plaintiff did render to the defendant.
Article 1162 of the Civil Code provides:
Payment must be made to the persons in whose favor the obligation is constituted,
or to another authorized to receive it in his name.
And article 1727 provides:
The principal shall be liable as to matters with respect to which the agent has
exceeded his authority only when he ratifies the same expressly or by implication.
In the case of Ormachea Tin-Conco vs. Trillana (13 Phil., 194), this court held:
The repayment of a debt must be made to the person in whose favor the obligation
is constituted, or to another expressly authorized to receive the payment in his
name.
Mechem on Agency, volume I, section 743, says:
In approaching the consideration of the inquiry whether an assumed authority exist
in a given case, there are certain fundamental principles which must not be
overlooked. Among these are, as has been seen, (1) that the law indulges in no bare
presumptions that an agency exists: it must be proved or presumed from facts; (2)
that the agent cannot establish his own authority, either by his representations or by
assuming to exercise it; (3) that an authority cannot be established by mere rumor
or general reputation; (4)that even a general authority is not an unlimited one; and
(5) that every authority must find its ultimate source in some act or omission of the
principal. An assumption of authority to act as agent for another of itself challenges
inquiry. Like a railroad crossing, it should be in itself a sign of danger and suggest
the duty to "stop, look, and listen." It is therefore declared to be a fundamental rule,
never to be lost sight of and not easily to be overestimated, that persons dealing
with an assumed agent, whether the assumed agency be a general or special one,
are bound at their peril, if they would hold the principal, to ascertain not only the fact
of the agency but the nature and extent of the authority, and in case either is
controverted, the burden of proof is upon them to establish it.
. . . It is, moreover, in any case entirely within the power of the person dealing with
the agent to satisfy himself that the agent has the authority he assumes to exercise,
or to decline to enter into relations with him. (Melchem on Agency, vol. I, sec. 746.)
The person dealing with the agent must also act with ordinary prudence and
reasonable diligence. Obviously, if he knows or has good reason to believe that the
agent is exceeding his authority, he cannot claim protection. So if the suggestions of
probable limitations be of such a clear and reasonable quality, or if the character
assumed by the agent is of such a suspicious or unreasonable nature, or if the
authority which he seeks to exercise is of such an unusual or improbable character,
as would suffice to put an ordinarily prudent man upon his guard, the party dealing
with him may not shut his eyes to the real state of the case, but should either refuse
to deal with the agent at all, or should ascertain from the principal the true condition
of affairs. (Mechem on Agency, vol. I, sec 752.)
And not only must the person dealing with the agent ascertain the existence of the
conditions, but he must also, as in other cases, be able to trace the source of his
reliance to some word or act of the principal himself if the latter is to be held
responsible. As has often been pointed out, the agent alone cannot enlarge or
extend his authority by his own acts or statements, nor can he alone remove
limitations or waive conditions imposed by his principal. To charge the principal in
such a case, the principal's consent or concurrence must be shown. (Mechem on
Agency, vol. I, section 757.)
This was a single transaction between the plaintiff and the defendant. lawph!l.net
Applying the above rules, the testimony is conclusive that the plaintiff never authorized
Montelibano to receive or receipt for money in its behalf, and that the defendant had no right
to assume by any act or deed of the plaintiff that Montelibano was authorized to receive the
money, and that the defendant made the payment at his own risk and on the sole
representations of Montelibano that he was authorized to receipt for the money.
The judgment of the lower court is reversed, and one will be entered here in favor of the
plaintiff and against the defendant for the sum of P2,513.55 with interest at the legal rate
from January 10, 1921, with costs in favor of the appellant. So ordered.
77
20. FLORENTINO RALLOS, ET AL., plaintiff-appellee, vs. TEODORO
YANGCO, defendant-appellant.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of the Province of Cebu, the
Hon. Adolph Wislizenus presiding, in favor of the plaintiffs, in the sum of P1,537.08, with
interest at 6 per cent per annum from the month of July, 1909, with costs.
The defendant in this case on the 27th day of November, 1907, sent to the plaintiff
Florentino Rallos, among others, the following letter:
CIRCULAR NO. 1.
MANILA, November 27, 1907
MR. FLORENTINO RALLOS, Cebu.
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, Binondo, Manila, P. I., a shipping and
commission department for buying and selling leaf tobacco and other native
products, under the following conditions:
1. When the consignment has been received, the consignor thereof will be credited
with a sum not to exceed two-thirds of the value of the 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 ordering at his option a bill of goods. In the latter case
he must pay a commission of 2 per cent.
2. No draft or written order will be accepted without previous notice forwarding the
consignment of goods to guarantee the same.
3. Expenses of freight, hauling and everything necessary for duly executing the
commission will be charged in the commission.
4. All advances made under sections (1) and (3) shall bear interest at 10 per cent a
year, counting by the sale of the goods shipped or remittance of the amount thereof.
5. A commission of 2 per cent will be collected on the amount realized from the
sale of the goods shipped.
R. 6. A Payment will be made immediately after collection of the price of the goods
shipped.
7. Orders will be taken for the purchase of general merchandise, ship-stores, cloths,
etc., upon remittance of the amount with the commission of 2 per cent on the total
value of the goods bought. Expenses of freight, hauling, and everything necessary
for properly executing the commission will be charged to the consignor.
8. The consignor of the good may not fix upon the consignee a longer period than
four months, counting from the date of receipt, for selling the same; with the
understanding that after such period the consignee 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 goods, as has often happened.
9. The shipment to the consignors of the goods ordered on account of the amount
realized from the sale of the goods consigned and of the goods bought on remittance
of the value thereof, under sections (1) and (3), will not be insured against risk by
sea and land except on written order of the interested parties.
10. On all consignments of goods not insured according to the next preceding
section, the consignors will bear the risk.
11. All the foregoing conditions will take effect only after this office has
acknowledged the consignor's previous notice.
12. All other conditions and details will be furnished at the office of the undersigned.
If you care to favor me with your patronage, my office is at No. 163 Muelle de la
Reinna, Binondo, Manila, P. I., under the name of "Teodoro R. Yangco." In this
connection it gives me great pleasure to introduce to you Mr. Florentino Collantes,
upon whom I have conferred public power of attorney before the notary, Mr.
Perfecto Salas 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 that through his
knowledge and long experience in the business, along with my commercial
connections with the merchants of this city and of 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 you make due note of his signature hereto affixed.
Very respectfully,
78
 (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.
It appears, however, that prior to the sending of said tobacco the defendant had severed his
relations with Collantes and that the latter was no longer acting as his factor. This fact was
not known to the plaintiffs; and it is conceded in the case that no notice of any kind was
given by the defendant to the 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
plaintiffs, placing such refusal upon the ground that at the time the said 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.
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 commission to the former agent
of the defendant, can recover of the defendant 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
of the defendant on the termination of the relationship of principal and agent to give due and
timely notice thereof to the plaintiffs. Failing to do so, he is responsible to them for whatever
goods may have been in good faith and without negligence sent to the agent without
knowledge, actual or constructive, of the termination of such relationship.
For these reasons the judgment appealed from is confirmed, without special finding as to
costs.
21. B. H. MACKE, ET AL., plaintiffs-appellees, vs. JOSE CAMPS, defendant-appellant.
The plaintiffs in this action, B. H. Macke and W. H. Chandler, partners doing business under
the firm name of Macke, Chandler & Company, allege that during the months of February
and March, 1905, they sold to the defendant and delivered at his place of business, known as
the "Washington Cafe," various bills of goods amounting to P351.50; that the defendant has
only paid on account of said accounts the sum of P174; that there is still due them on
account of said goods the sum of P177.50; that before instituting this action they made
demand for the payment thereof; and that defendant had failed and refused to pay the said
balance or any part of it up to the time of the filing of the complaint.
B. H. Macke, one of the plaintiffs, testified that on the order of one Ricardo Flores, who
represented himself to be agent of the defendant, he shipped the said goods to the
defendants at the Washington Cafe; that Flores later acknowledged the receipt of said goods
and made various payments thereon amounting in all to P174; that on demand for payment
of balance of the account Flores informed him that he did not have the necessary funds on
hand, and that he would have to wait the return of his principal, the defendant, who was at
that time visiting in the provinces; that Flores acknowledged the bill for the goods furnished
and the credits being the amount set out in the complaint; that when the goods were
ordered they were ordered on the credit of the defendant and that they were shipped by the
plaintiffs after inquiry which satisfied the witness as to the credit of the defendant and as to
the authority of Flores to act as his agent; that the witness always believed and still believes
that Flores was the agent of the defendant; and that when he went to the Washington Cafe
for the purpose of collecting his bill he found Flores, in the absence of the defendant in the
provinces, apparently in charge of the business and claiming to be the business manager of
the defendant, said business being that of a hotel with a bar and restaurant annexed.
A written contract dated May 25, 1904, was introduced in evidence, from which it appears
that one Galmes, the former owner of the business now know as the "Washington Cafe,"
subrented the building wherein the business was conducted, to the defendant for a period of
one year, for the purpose of carrying on that business, the defendant obligating himself not
to sublet or subrent the building or the business without the consent of the said Galmes. This
contract was signed by the defendant and the name of Ricardo Flores appears thereon as a
witness, and attached thereto is an inventory of the furniture and fittings which also is signed
by the defendant with the word "sublessee" ( subarrendatario) below the name, and at the
foot of this inventory the word "received" ( recibo) followed by the name "Ricardo Flores,"
with the words "managing agent" (el manejante encargado) immediately following his name.
Galmes was called to the stand and identified the above- described document as the contract
and inventory delivered to him by the defendant, and further stated that he could not tell
whether Flores was working for himself or for some one else that it to say, whether Flores
was managing the business as agent or sublessee.
The defendant did not go on the stand nor call any witnesses, and relies wholly on his
contention that the foregoing facts are not sufficient to establish the fact that he received the
goods for which payment is demanded.
79
In the absence of proof of the contrary we think that this evidence is sufficient to sustain a
finding that Flores was the agent of the defendant in the management of the bar of the
Washington Cafe with authority to bind the defendant, his principal, for the payment of the
goods mentioned in the complaint.
The contract introduced in evidence sufficiently establishes the fact that the defendant was
the owner of business and of the bar, and the title of "managing agent" attached to the
signature of Flores which appears on that contract, together with the fact that, at the time
the purchases in question were made, Flores was apparently in charge of the business,
performing the duties usually entrusted to managing agent, leave little room for doubt that
he was there as authorized agent of the defendant. One who clothes another apparent
authority as his agent, and holds him out to the public as such, can not be permitted to deny
the authority of such person to act as his agent, to the prejudice of innocent third parties
dealing with such person in good faith and in the following preassumptions or deductions,
which the law expressly directs to be made from particular facts, are deemed conclusive:
(1) "Whenever a party has, by his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, and to act upon such belief, he can
not, in any litigation arising out such declaration, act, or omission, be permitted to falsify it"
(subsec. 1, sec. 333, Act no. 190); and unless the contrary appears, the authority of an
agent must be presumed to include all the necessary and usual means of carrying his agency
into effect. (15 Conn., 347; 90 N. C. 101; 15 La. Ann, 247; 43 Mich., 364; 93 N. Y., 495; 87
Ind., 187.)
That Flores, as managing agent of the Washington Cafe, had authority to buy such
reasonable quantities of supplies as might from time to time be necessary in carrying on the
business of hotel bar may fairly be presumed from the nature of the business, especially in
view of the fact that his principal appears to have left him in charge during more or less
prolonged periods of absence; from an examination of the items of the account attached to
the complaint, we are of opinion that he was acting within the scope of his authority in
ordering these goods are binding on his principal, and in the absence of evidence to the
contrary, furnish satisfactory proof of their delivery as alleged in the complaint.
The judgment of the trial court is affirmed with the costs of his instance against the
appellant. After expiration of twenty days judgment will be rendered in accordance herewith,
and ten days thereafter the case remanded to the lower court for proper action. So ordered.
22. DIEGO LIAN, plaintiff-appellee, vs. MARCOS P. PUNO, ET AL., defendants-
appellants.
JOHNSON, J.:
The facts upon which the decision in this case depends are as follows:
(1) The the plaintiff, in the month of May, 1908, and for a long time prior thereto, was the
owner of a certain parcel of land particularly described in paragraph 2 of the complaint.
(2) That on the 16th day of May, 1908, the plaintiff executed the following document, which
conferred upon the defendant Marcos P. Puno the power, duties and obligations therein
contained:
I, Diego Lian, of age, married, a resident of Daet, Province of Ambos Camarines,
Philippine Islands, and at the present time temporarily residing in this city of Tarlac,
capital of the Province of Tarlac, P.I., set forth that I hereby confer sufficient power,
such as the law requires, upon Mr. Marcos P. Puno, likewise a resident of this city of
Tarlac, capital of the Province of Tarlac, in order that in my name and representation
he may administer the interest I possess within this municipality of Tarlac, purchase,
sell, collect and pay, as well as sue and be sued before any authority, appear before
the courts of justice and administrative officers in any proceeding or business
concerning the good administration and advancement of my said interests, and may,
in necessary cases, appoint attorneys at law or attorneys in fact to represent him.
The meaning, purport, and power conferred by this document constitute the very gist of the
present action.
(3) That in June, 1911, the defendant Puno, for the sum of P800, sold and delivered said
parcel of land to the other defendants.
The plaintiff alleges that the said document (Exhibit A) did not confer upon the defendant
Puno the power to sell the land and prayed that the sale be set aside; that the land be
returned to him, together with damages.
The defendants at first presented a demurrer to the complaint, which was overruled. To the
order overruling the demurrer the defendants duly excepted. They later answered. In their
answer they first denied generally and specially all of the important facts stated in the
complaint. In their special answer or defense they admitted the sale of the land by Puno to
the other defendants and alleged that the same was a valid sale and prayed to be relieved
from the liability under the complaint, with their costs.
Upon the issue thus presented the lower court decided: (1) That the document Exhibit A did
not give Puno authority to sell the land; (2) that the sale was illegal and void; (3) That
defendants should return to the land to the plaintiff; and (4) That the defendants should pay
80
to the plaintiff the sum of P1,000 as damages, P400 of which the defendant Puno should
alone be responsible for, and to pay the costs.
From that decision the defendants appealed to this court and made the following
assignments of error:
I. The lower court erred in overruling the demurrer filed by the appellants to the
complaints.
II. The lower court erred in holding that the appellant Marcos P. Puno was not
authorized to sell the land in question and that the sale executed by the said Marcos
P. Puno to the other appellants, Enrique, Vicente, Aquilina and Remedios, surnamed
Maglanok, is null and void.
III. The lower court erred in ordering the appellee, Diego Lian, to return to the
appellants, Enrique, Vicente, Aquilina, and Remedios Maglanok the sum of P800, the
selling price of the land question.
III. And, finally, the lower court erred in sentencing the appellants to pay to the
appellee the sum of P1,000, the value of the products collected, and to pay the
costs.
IV. And, finally, the lower court erred in sentencing the appellant to pay to the
appellee the sum of P1,000, the value of the products collected, and to pay the
costs.
With reference to the first assignment of error, we are of the opinion that the facts stated in
the opinion are sufficient to constitute a cause of action.
With reference to the second assignment of error, the plaintiff alleges that the power of
attorney, as contained in Exhibit A, did not authorize the defendant Puno had full and
complete power and authority to do what he did. The lower court held that Exhibit A only
gave Puno power and authority to administer the land; that he was not authorized to sell it.
Omitting the purely explanatory parts of Exhibit A, it reads as follows: "I, Diego Lian, ... set
forth that I ... confer sufficient power, such as the law requires, upon Mr. Marcos P. Puno ...
in order that in my name and representation he may administer ... purchase, sell, collect and
pay ... in any proceeding or business concerning the good administration and advancement
of my said interests, and may, in necessary cases, appoint at law or attorneys in fact to
represent him."
Contracts of agency as well as general powers of attorney must be interpreted in accordance
with the language used by the parties. the real intention of the parties is primarily to be
determined from the language used. The intention is to be gathered from the whole
instrument. In case of doubt resort must be had to the situation, surroundings and relations
of the parties. Whenever it is possible, effect is to be given to every word and clause used by
the parties. It is to be presumed that the parties said what they intended to say and that
they used each word or clause with some purpose and that purpose is, if possible, to be
ascertained and enforced. The intention of the parties must be sustained rather than
defeated. If the contract be open to two constructions, one of which would uphold while the
other would overthrow it, the former is to be chosen. So, if by one construction the contract
would be illegal, and by another equally permissible construction it would be lawful, the latter
must be adopted. The acts of the parties in carrying out the contract will be presumed to be
done in good faith. The acts of the parties will be presumed to have been done in conformity
with and not contrary to the intent of the contract. The meaning of generals words must be
construed with reference to the specific object to be accomplished and limited by the recitals
made in reference to such object.
With these general observations in mind, ,let us examine the terms of the power conferred
upon the defendant Puno (Exhibit A) and ascertain, if possible, what was the real intent of
the plaintiff. The lower court held that the "only power conferred was the power to
administer." Reading the contract we find it says that the plaintiff "I confer ... power ...
that ... he may administer ... purchase, sell, collect and pay ... in any proceeding or business
concerning the good administration and advancement of my said interests." The words
"administer, purchase, sell," etc., seem to be used coordinately. Each has equal force with
the other. There seems to be no good reason for saying that Puno had authority to
administer and not to sell when "to sell" was as advantageous to the plaintiff in the
administration of his affairs as "to administer." To hold that the power was "to administer"
only when the power "to sell" was equally conferred would be to give to special words of the
contract a special and limited meaning to the exclusion of other general words of equal
import.
81
The record contains no allegation on proof that Puno acted in bad faith or fraudulently in
selling the land. It will be presumed that he acted in good faith and in accordance with his
power as he understood it. That his interpretation of his power, as gathered from the
contract (Exhibit A), is tenable cannot, we believe, be successfully denied. In view of that
fact and view of the fact that, so far as the record shows, the other defendants acted in good
faith, we are of the opinion that the contract, liberally construed, as we think it should be,
justifies the interpretation given it by Puno. In reaching this conclusion, we have taken into
account the fact that the plaintiff delayed his action to annul said sale from the month of
June, 1911, until the 15th of February, 1913. Neither have we overlooked the fact in the brief
of the appellants that the plaintiff has not returned, nor offered to return, nor indicated a
willingness to return, the purchase price. (Art. 1308 of the Civil Code; Manikis vs. Blas, No.
7585.1).
In view of all the foregoing, we are of the opinion that the lower court committed the error
complained of in the second assignment, and, without discussing the other assignments of
error, we are of the opinion, and so hold, that the judgment of the lower court should be and
is hereby revoked and that the appellants should be relieved from all liability under the
complaint. Without any finding as to costs, it is so ordered.
Arellano, C.J., Torres, Carson, and Araullo, JJ., concur.
Separate Opinions
TRENT, J., dissenting:
The power of attorney, the identity of the land sold, the fact of sale, and the identity of the
parties are admitted.
I agree with the majority that "the meaning, purport, and power conferred by this document
(Exhibit A, the power of attorney) constitute the very gist of the present action," and that the
acted in good faith. But I cannot see how "the fact that the plaintiff delayed his action to
annul said sale from the month of June, 1911, to February, 15, 1913," and the fact that the
appellants have charged in their brief that the "plaintiff has not returned, nor offered, to
return, ,nor indicated a willingness to return the purchase price," can affect in any way the
issues involved in this case. the record shows that the land is situated in the Province of
Tarlac and the plaintiff lives in the Province of Ambos Camarines. The record fails to show
whether or not the plaintiff has returned, or offered to return, or is willing to return to the
vendees the purchase price of the land. The charge in appellant's brief that the plaintiff has
not done these things is not proof and should not be taken as establishing a fact or facts.
The controlling question is, Was Puno authorized under the power of attorney, which is set
out in full in the majority opinion, to sell the real estate of his principal? The solution of this
question must depend solely and exclusively upon the language used in that power of
attorney Exhibit A. There is no claim that the plaintiff enlarged the powers of his agent Puno
after the execution of Exhibit A or that he ratified the sale in question after it had been
made.
Article 1713 of the Civil Code reads:
An agency in general only includes acts of administration.
In order to compromise, alienate, mortgage, or to execute any other act of a strict
ownership an express commission is required.
The power to compromise does not give authority to place the matter in the hands of
arbitrators or amicable compromisers.
The Director General de los Registros, in its resolution of November 20, 1900 (90 Juris.
Civ., 677), construed a power of attorney given by a father to his son, authorizing the latter
to administer the property of his principal, "to lease and to rent his principal's reality to the
persons and for the time, price and conditions he deems best, and also to make ejectments,
to sign documents, to make collections, to make changes in anything belonging to his
principal, and to compromise any questions that may arise." Under color of this authority, the
son leased for a period of twelve years several parcels of land and charged several other
parcels with pensiones de censos in favor of a third person. I quote from the syllabus: "In
the present case, the lessor was authorized by his principal to lease and to rent the latter's
realty to the persons and for the price, time and conditions that seemed best to him, and
such authorization must be understood to have been granted for the simple contract of lease,
which produces only personal obligations, and consequently cannot be regarded as extended,
without express command, to the stipulation of such conditions as might alter the nature of
the contract by transforming it into a partial conveyance of ownership in the things leased, as
happened in said case, wherein the agent has thereby exceeded the limits of his agency."
A quite similar power of attorney was disposed of in the same manner in the resolution of
October 26, 1904 (99Juris. Civ., 245) where an agent leased property for thirty years under
color of authority to lease the property "for the time, price, and conditions" which he might
think desirable.
In the Resolution of April 5, 1907 ( Juris. Civ., 68), the facts were as follows: A power of
attorney executed by a wife authorized her husband to administer a vineyard belonging to
her as might be necessary for its preservation, improvement, and increase. Under this power
82
the husband entered into an agreement with several other adjoining owners with reference
to the irrigation of their respective properties by means of an aqueduct. To insure the
accomplishment of various stipulations inserted in this contract, the various parties thereto
hypothecated their respective properties and sought to have the same inscribed in the
property registry. Registration was denied on the ground, among others, that the power of
attorney in question did not authorize the husband to perform any act of strict ownership,
but only those of administration.
In commenting upon article 1713, Manresa quotes approvingly from Goyena as follows: "As
Garcia Goyena says, 'The law, which must look after the interests of all, cannot permit a man
to express himself in vague and general way with reference to the right he confers upon
another for the purposes of alienation or hypothecation, whereby he might easily be
despoiled of all he possessed and be brought to ruin; such excessive authority must be set
down in the most formal and explicit terms; and when this is not done, the law reasonably
presumes that the principal did not mean to confer it.' " (Vol. 11, p. 460.)
Bonel, in commenting upon the same article, says: "Our code, in looking after the interests of
all and thereby furnishing a proof of common sense, does not permit a vague expression in a
general and indefinite manner of the right one confers upon another to make alienations and
hypothecations, for in this way a man could with good faith on his part be despoiled of all he
possessed and be brought to ruin; hence it provides that such excessive authority must be
set down in the most favorable and explicit terms; and when this is not done, reason and
common sense induce the presumption that the principal did not mean to confer it." (Vol. 4,
p. 728.)
The supreme court of Louisiana, which also interprets the civil law, was considering the
following power of attorney in Lafourche Transportation Co. vs. Pugh (52 La. Ann., 1517);
"We ... have appointed, ... (defendant) our true and lawful agent and attorney in fact, for us,
and in our name, place and stead, to manage, control, take charge of, compromise and do
any and all things, necessary and requisite, touching and concerning our interests in the
succession of the late Robert Lawrence Pugh, and to make any and all settlements for us,
and in our behalf, with the legatees under the last will and testament of the said R. L. Pugh,
vesting our said attorney and agent with full power and authority, to do any and all acts that
we might do if personally present . . .."
The remarks of the court are brief and instructive; "It further appears that, neither at the
date of the execution of the note and act of mortgage sued on, nor any at any other time,
has W.W. Pugh held any other procuration, the attempt the prove the contrary having failed.
there is no doubt that, at the time that the note and act or mortgage were executed, he
supposed that the power of attorney held by him conferred the authority which he undertook
to exercise, but the bare reading of it shows that it did not."
In Lord vs. Sherman (2 Cal., 498), a power of attorney authorized an agent to "attend to all
business affairs appertaining to real or personal estate, bank business, or business at the
customhouse, or insurance or law business, or the commencement, settlement, or defending
any suit or suits in law or equity. Also for me and in my name, place, and stead, to sign, seal,
execute, and deliver all and any instrument under seal that he may think proper in and about
my said business, either individually or as a member of the firm of Shermans & Stork. Also to
settle, compromise, and adjust, pay and discharge all claims and demands, accounts due or
owing to me, or from me, or in which I am interested, and give all proper receipts or
discharges therefor, whether under seal or not; and to attend to all my business for me of
any name or nature, whether real or personal, that may arise during my absence, and
whether to use my name in and about the same, the same as I could do if personally
present. Also to make, indorse, or accept any drafts, bills of exchange, or promissory notes.
Also to settle and adjust all claims, etc." The court said: "The power of attorney contains no
authority to convey real estate, eo nomine. The power given `to attend to all business affairs
appertaining to real or personal estate' is too indefinite to sustain a transfer or real estate,
more particularly that acquired long subsequent to its execution."
In Billings vs. Morrow (7 Cal., 171), a power of attorney was in question which authorized
the agent "for me and in my name to superintend my real and personal estate, to make
contracts, to settle outstanding debts, and generally to do all things that concern my interest
in any way, real or personal whatsoever, giving my said attorney full power to use my name
to release others or bind myself, as he may deem proper and expedient; ..." The court said:
"It requires but a glance at this instrument to perceive that no authority is contained in it to
convey real estate. The power is limited and special, and cannot be extended by implication
to other acts more important in their character than those expressly provided in the body of
the instrument. The rule may be thus stated; that where the authority to perform specific
acts is given in the power, and general words are also employed, such words are limited to
the particular acts authorized."
In Clark & Skyles on Agency, section 213, it is said: All powers conferrred upon an agent by a
formal instrument are to receive a strict interpretation, and the authority is never extended
by intendment or construction beyond that which is given in terms or is necessary for
carrying the authority into effect, and that authority must be strictly pursued."
Upon the same point Story says in his work on Agency, section 68: "Indeed formal
instruments of this sort are ordinarily subjected to a strict interpretation, and the authority is
never extended beyond that which is given in terms, or which is necessary and proper for
carrying the authority so given into full effect."
In Reynolds vs. Rowley (4 La. Ann., 396), it was said: "We take it for granted that, under the
common law as with us, powers of attorneys are subjected to a strict interpretation, and that
83
the authority is never extended beyond that which is given in terms, or which is necessary
and proper for carrying the authority so given into full effect; that language, however general
in its form, when used in connection with a particular subject matter, will be presumed to be
used in subordination to that matter, and therefore is to be construed and limited
accordingly; that a general power to buy property for the constituent, or to make any
contracts, and do any other acts whatever, which he could if personally present, must be
construed to apply only to buying or contracting connected with his ordinary business, and
would not authorize any contracts of an extraordinary character to be made."
In Clark & Skyles on Agency, section 227, it is said: "In order that an agent may have
authority to sell real estate it is necessary that such authority should be clearly and distinctly
given to him, in such a manner that a reasonably prudent person would have no hesitancy in
seeing that such a power was given. We have herefore seen that all written powers will be
strictly construed and will not be extended beyond their obvious purpose; and unless power
to sell real estate is clearly given to him, the agent cannot sell it."
In sections 261 to 265 of the same work, the general scope of powers delegated by the
authority to manage the business of the principal is discussed. It is there stated that aside
from the particular facts and circumstances surrounding the parties, it is a general rule that
an agency to manage implies authority to with the property or in the business what has
previously been done by the principals, or by others with their express or implied consent; or
further to do what is necessary or usual and customary to do with the property, or in
business of the same kind in the same locality. But the power to dispose of the business or
embark on some unusual enterprise with the principal's capital is not included in such an
agency.
The rule that formal powers of attorney must be strictly construed and limited in their scope
to what is expressly stated and to such incidental powers as may be necessary in the
fulfillment of the powers expressly given is well settled, both in Anglo-American and in the
civil law. The authorities supporting this doctrine are legion. So, general expressions
conferring power an agent, such as "to do any and every act," "do and transact all manner of
business," to lease real property "for the time, price and with the conditions which he deems
desirable," "attend to all business affairs appertaining to real or personal estate," "to my real
and personal estate," "to superintend my real and personal estate" are to be construed in
subordination to the express powers granted, and not to refer to other unusual or
extraordinary powers of which no mention is made in the instrument. In addition to the cases
given above which illustrate the rule, many others may be found in the books of the same
character. Likewise, it is a rule uniformly stated that the power to sell real estate must
necessarily be express, and cannot be implied from any general language used.
Let us now examine the power of attorney executed by the plaintiff and see if, according to
the rules stated, it can be held to include the power to sell real estate. There is no
description of the plaintiff's property in Tarlac. The document simply designates his property
as "interests." This, of course, would ordinarily be taken to include every species of property,
real or personal, owned by him in that municipality. That the power to administer these
"interests" is expressly delegated admits of no denial, as well as to the power to appear in
court, the power to engage counsel, and to appoint sub-agents. But we are interested in
determining if the power is expressly delegated (for that is the only manner in which it could
have been given) to sell real estate . The grammatical construction of the instrument admits
of its division into two portions, as follows: "(a) He may administer such interests as I
possess within this municipality of Tarlac; (b) And may buy, sell, collect, and pay, ... in any
way whatsoever for the good administration and furtherance of my said interests."
Certainly, the power to sell real estate is not expressly delegated in the first division. True, in
the second section are the words "buy," "sell," "in any way whatsoever," and which, standing
alone, might easily refer to either real or personal property or both. But these powers are
restricted by the stated purpose for which the grant is given; that is, "for the good
administration and furtherance of my said interests." This qualifying phrase brings these
general words "buy" and "sell" "in any way whatsoever" down to the level of administrative
acts. The agent may buy or sell for the good administration and furtherance of the principal's
interests, but he may not sell those interests themselves. As a matter of fact, the second
division is but little more than a repetition of the first, with the added feature that it
enumerates a number of those powers customarily incident to the management of a
principal's business by his agent.
It develops that the plaintiff owned a parcel of agricultural land in the municipality of Tarlac.
This was one of the "interests" which the defendant Puno was to "administer." Manifestly,
the power to "buy" seed, farming implements, and material for the repair and preservation of
that land, and the power to "sell" its products were incidental powers of a general power of
management of such an "interest." The full extent of the plaintiff's business "interests" in the
municipality of Tarlac is not disclosed by the record. But it is clear that he was not engaged
in the business of buying and selling real estate. Assuming that his "interests" in the said
municipality were of almost any other description, it is evident that the sale of real estate by
the defendant agent was an extraordinary act, not capable of being classified as an act of
administration. I am unable to discover any express delegation of power to sell "real estate"
in the document in question. Not only is "real estate" not expressly mentioned, but the words
"buy" and "sell," which, it is argued, delegate that power, are, by the grammatical
construction of the document, subordinated to the "good administration and furtherance" of
the plaintiff's "interests."
For the foregoing reasons I do not agree to the disposition of this case.
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23. JULIO DANON, plaintiff-appellee, vs. ANTONIO A. BRIMO & CO., defendant-
appellant.
JOHNSON, J.:
This action was brought to recover the sum of P60,000, alleged to be the value of services
rendered to the defendant by the plaintiff as a broker. The plaintiff alleges that in the month
of August, 1918, the defendant company, through its manager, Antonio A. Brimo, employed
him to look for a purchaser of its factory known as "Holland American Oil Co.," for the sum of
P1,200,000, payable in cash; that the defendant promised to pay the plaintiff, as
compensation for his services, a commission of five per cent on the said sum of P1,200,000,
if the sale was consummated, or if the plaintiff should find a purchaser ready, able and
willing to buy said factory for the said sum of P1,200,000; that subsequently the plaintiff
found such a purchaser, but that the defendant refused to sell the said factory without any
justifiable motive or reason therefor and without having previously notified the plaintiff of its
desistance or variation in the price and terms of the sale.
To that complaint the defendant interposed a general denial. Upon the issue thus presented,
the Honorable Simplicio del Rosario, judge, after hearing and considering the evidence
adduced during the trial of the cause, rendered a judgment in favor of the plaintiff and
against the defendant for the sum of P60,000, with costs. From that judgment the defendant
appealed to this court.
The proof with regard to the authority of the plaintiff to sell the factory in question for the
defendant, on commission, is extremely unsatisfactory. It consists solely of the testimony of
the plaintiff, on the one hand, and of the manager of the defendant company, Antonio A.
Brimo, on the other. From a reading of their testimony we believe that neither of them has
been entirely free from prevarications. However, after giving due weight to the finding of the
trial court in this regard and after carefully considering the inherent probability or
improbability of the testimony of each of said witnesses, we believe we are approximating
the truth in finding: (1) That Antonio A. Brimo, in a conversation with the plaintiff, Julio
Danon, about the middle of August, 1918, informed the latter that he (Brimo) desired to sell
his factory, the Holland American Oil Co., for the sum of P1,200,000; (2) that he agreed and
promised to pay to the plaintiff a commission of 5 per cent provided the latter could sell said
factory for that amount; and (3) that no definite period of time was fixed within which the
plaintiff should effect the sale. It seems that another broker, Sellner, was also negotiating the
sale, or trying to find a purchaser for the same property and that the plaintiff was informed
of the fact either by Brimo himself or by someone else; at least, it is probable that the
plaintiff was aware that he was not alone in the field, and his whole effort was to forestall his
competitor by being the first to find a purchaser and effect the sale. Such, we believe. was
the contract between the plaintiff and the defendant, upon which the present action is based.
The next question to determine is whether the plaintiff had performed all that was required
of him under that contract to entitle him to recover the commission agreed upon. The proof
in this regard is no less unsatisfactory. It seems that immediately after having an interview
with Mr. Brimo, as above stated, the plaintiff went to see Mr. Mauro Prieto, president of the
Santa Ana Oil Mill, a corporation, and offered to sell to him the defendant's property at
P1,200,000. The said corporation was at that time in need of such a factory as the plaintiff
was offering for sale, and Mr. Prieto, its president, instructed the manager, Samuel E. Kane,
to see Mr. Brimo and ascertain whether he really wanted to sell said factory, and, if so, to get
permission from him to inspect the premises. Mr. Kane inspected the factory and,
presumably, made a favorable report to Mr. Prieto. The latter asked for an appointment with
Mr. Brimo to perfect the negotiation. In the meantime Sellner, the other broker referred to,
had found a purchaser for the same property, who ultimately bought it for P1,300,000. For
that reason Mr. Prieto, the would be purchaser found by the plaintiff, never came to see Mr.
Brimo to perfect the proposed negotiation.
Under the proofs in this case, the most that can be said as to what the plaintiff had
accomplished is, that he had found a person who might have bought the defendant's factory
if the defendant had not sold it to someone else. The evidence does not show that the Santa
Ana Oil Mill had definitely decided to buy the property in question at the fixed price of
P1,200,000. The board of directors of said corporation had not resolved to purchase said
property; and even if its president could legally make the purchase without previous formal
authorization of the board of directors, yet said president does not pretend that he had
definitely and formally agreed to buy the factory in question on behalf of his corporation at
the price stated. On direct examination he testified for the plaintiff as follows:
Q. You say that we were going to accept or that it was beneficial for us; will
you say to whom your refer, when you say "we?"
A. Our company, the Santa Ana Oil Mill.
Q. And is that company able to pay the sum of P1,200,000?
A. Yes, sir.
Q. And you accepted it at that price of P1,200.000?
A. Surely, because as I already said before, we were in the difficult position
of not being able to operate our factory, because of the obstacle placed by the
Government.
Q. And did you inform Mr. Danon of this acceptance?
85
 A. I did not explain to Mr. Danon.
On cross-examination the same witness testified:
Q. What actions did the board of directors of the Santa Ana Oil Mill take in
order to acquire or to make an offer to Mr. Brimo of the Holland American Oil
Company?
A. But nothing was effected, because Mr. Danon stated that the property had
been sold when I was going to deal with him.
Q. But do you not say that you made an offer of P1,200,000?
A. No; it was Mr. Danon who made the offer and we were sure to put the
deal through because we have bound ourselves.
The plaintiff claims that the reasons why the sale to the Santa Ana Mill was not
consummated was because Mr. Brimo refused to sell to a Filipino firm and preferred an
American buyer; that upon learning such attitude of the defendant the plaintiff endeavored
to procure another purchaser and found a Mr. Leas, who delivered to the plaintiff a letter
addressed to Mr. Brimo, offering to buy the factory in question at P1,200,000. the offer being
good for twenty-four; that said offer was not accepted by Brimo because while he was
reading the letter of Leas, Sellner came in, drew Brimo into another room, and then and
there closed the deal at P1,300,000. The last statement is admitted by the defendant.
Such are the facts in this case, as nearly accurate as we can gather them from the conflicting
evidence before us. Under those facts, is the plaintiff entitled to recover the sum of P60,000,
claimed by him as compensation for his services? It will be noted that, according to the
plaintiff's own testimony, the defendant agreed and promised to pay him a commission of 5
per cent provided he (the plaintiff) could sell the factory at P1,200.000 ("con tal que V. me
venda la fabrica en P1,200.000"). It will also be noted that all that the plaintiff had
accomplished by way of performance of his contract was, that he had found a person who
might have bought the factory in question had not the defendant sold it to someone else.
(Beaumont vs. Prieto, 41 Phil., 670; 249 U.S., 554.)
Under these circumstances it is difficult to see how the plaintiff can recover anything in the
premises. The plaintiff's action is not one for damages for breach of contract; it is an action
to recover "the reasonable value" of services rendered. this is unmistakable both from the
plaintiff's complaint and his testimony as a witness during the trial.
Q. And what is the reasonable value of the services you rendered to Mr.
Brimo?
A. Five per cent of the price at which it was sold.
Q. Upon what do you base your qualification that those services were
reasonable?
A. First, because that is the common rate in the city, and, secondly, because
of the big gain that he obtained from the sale.
What benefit did the plaintiff, by his "services," bestow upon the defendant to entitle him to
recover from the latter the sum of P60,000? It is perfectly clear and undisputed that his
"services" did not any way contribute towards bringing about the sale of the factory in
question. He was not "the efficient agent or the procuring cause of the sale."
The broker must be the efficient agent or the procuring cause of sale. The means
employed by him and his efforts must result in the sale. He must find the purchaser,
and the sale must proceed from his efforts acting as broker. (Wylie vs. Marine
National Bank, 61 N. Y., 414; 416; citing: McClure vs. Paine, 49 N. Y., 561;
Lloyd vs. Mathews, 51 id., 124; Lyon vs. Mitchell, 36 id., 235; Briggs vs. Rowe, 4
Keyes, 424; Murray vs. Currie, 7 Carr. and Payne, 584; Wilkinson vs. Martin, 8 id., 5.)
A leading case on the subject is that of Sibbald vs. Bethlehem Iron Co. (83 N. Y., 378; 38
Am. Rep., 441). In the case, after an exhaustive review of various cases, the Court of
Appeals of New York stated the rule as follows:
In all the cases, under all and varying forms of expression, the fundamental and
correct doctrine, is, that the duty assumed by the broker is to bring the minds of the
buyer and seller to an agreement for a sale, and the price and terms on which it is to
be made, and until that is done his right to commissions does not accrue .
(McGavock vs. Woodlief, 20 How., 221; Barnes vs. Roberts, 5 Bosw., 73;
Holly vs. Gosling, 2 E. D., Smith, 262; Jacobs vs. Kolff, 2 Hilt., 133;
Kock vs. Emmerling, 22 How., 72; Corning vs. Calvert, 2 Hilt., 56; Trundy vs. N.Y.
and Hartf. Steamboat Co., 6 Robt., 312; Van Lien vs. Burns, 1 Hilt., 134.)
xxx xxx xxx
It follows, as a necessary deduction from the established rule, that a broker is never
entitled to commissions for unsuccessful efforts. The risk of a failure is wholly his.
86
The reward comes only with his success. That is the plain contract and
contemplation of the parties. The broker may devote his time and labor, and expend
his money with ever so much of devotion to the interest of his employer, and yet if
he fails, if without effecting an agreement or accomplishing a bargain, he abandons
the effort, or his authority is fairly and in good faith terminated, he gains no right to
commissions. He loses the labor and effort which was staked upon success. And in
such event it matters not that after his failure, and the termination of his agency,
what he has done proves of use and benefit to the principal. In a multitude of cases
that must necessarily result. He may have introduced to each other parties who
otherwise would have never met; he may have created impressions, which under
later and more favorable circumstances naturally lead to and materially assist in the
consummation of a sale; he may have planted the very seed from which others reap
the harvest; but all that gives him no claim. It was part of his risk that failing himself,
not successful in fulfilling his obligation, others might be left to some extent to avail
themselves of the fruit of his labors. As we said in Wylie vs. Marine National Bank (61
N.Y., 416), in such a case the principal violates no right of the broker by selling to
the first party who offers the price asked, and it matters not that sale is to the very
party with whom the broker had been negotiating. He failed to find or produce a
purchaser upon the terms prescribed in his employment, and the principal was under
no obligation to wait longer that he might make further efforts. The failure therefore
and its consequences were the risk of the broker only. This however must be taken
with one important and necessary limitation. If the efforts of the broker are rendered
a failure by the fault of the employer; if capriciously he changes his mind after the
purchaser, ready and willing, and consenting to the prescribed terms, is produced; or
if the latter declines to complete the contract because of some defect of title in the
ownership of the seller, some unremoved incumbrance, some defect which is the
fault of the latter, then the broker does not lose his commissions. And that upon the
familiar principle that no one can avail himself of the nonperformance of a condition
precedent, who has himself occasioned its nonperformance. But this limitation is not
even an exception to the general rule affecting the broker's right for it goes on the
ground that the broker has done his duty, that he has brought buyer and seller to an
agreement, but that the contract is not consummated and fails though the after-fault
of the seller. The cases are uniform in this respect. (Moses vs.Burling, 31 N.Y., 462;
Glentworth vs. Luther, 21 Barb., 147; Van Lien vs. Burns, 1 Hilt., 134.)
One other principle applicable to such a contract as existed in the present case needs
to be kept in view. Where no time for the continuance of the contract is fixed by its
terms either party is at liberty to terminate it at will , subject only to the ordinary
requirements of good faith. Usually the broker is entitled to a fair and reasonable
opportunity to perform his obligation, subject of course to the right of the seller to
sell independently. But having been granted him, the right of the principal to
terminate his authority is absolute and unrestricted, except only that he may not do
it in bad faith, and as a mere device to escape the payment of the broker's
commissions. Thus, if in the midst of negotiations instituted by the broker, and which
were plainly and evidently approaching success, the seller should revoke the
authority of the broker, with the view of concluding the bargain without his aid, and
avoiding the payment of commission about to be earned, it might be well said that
the due performance his obligation by the broker was purposely prevented by the
principal. But if the latter acts in good faith, not seeking to escape the payment of
commissions, but moved fairly by a view of his own interest, he has the absolute
right before a bargain is made while negotiations remain unsuccessful, before
commissions are earned, to revoke the broker's authority , and the latter cannot
thereafter claim compensation for a sale made by the principal, even though it be to
a customer with whom the broker unsuccessfully negotiated, and even though, to
some extent, the seller might justly be said to have availed himself of the fruits of
the broker's labor. (Ibid. pp. 444, 445 and 446.)
The rule laid down in the foregoing case was adopted and followed in the cases of
Zeimer vs. Antisell (75 Cal. 509), and Ayres vs. Thomas (116 Cal., 140).
The undertaking to procure a purchaser requires of the party so undertaking, not
simply to name or introduce a person who may be willing to make any sort of
contract in reference to the property, but to produce a party capable, and who
ultimately becomes the purchaser. (Kimberly vs. Henderson and Lupton, 29 Md.,
512, 515, citing: Keener vs. Harrod and Brooke, 2 Md. 63; McGavock vs. Woodlief,
20 How., 221. See also Richards, Executor, vs. Jackson, 31 Md., 250.)
The defendant sent a proposal to a broker in these words: If you send or cause to be
sent to me, by advertisement or otherwise, any party with whom I may see fit and
proper to effect a sale or exchange of my real estate, above described I will pay you
the sum of $200. The broker found a person who proposed to purchase the property,
but the sale was not affected. Held: That the broker was not entitled to
compensation. (Walker vs. Tirrel, 3 Am. Rep., 352.)
It is clear from the foregoing authorities that, although the present plaintiff could probably
have effected the sale of the defendant's factory had not the defendant sold it to someone
else, he is not entitled to the commissions agreed upon because he had no intervention
whatever in, and much sale in question. It must be borne in mind that no definite period was
fixed by the defendant within which the plaintiff might effect the sale of its factory. Nor was
the plaintiff given by the defendant the exclusive agency of such sale. Therefore, the plaintiff
cannot complaint of the defendant's conduct in selling the property through another agent
before the plaintiff's efforts were crowned with success. "One who has employed a broker
can himself sell the property to a purchaser whom he has procured, without any aid from the
87
broker." (Hungerford vs. Hicks, 39 Conn., 259; Wylie vs. Marine National Bank, 61 N.Y., 415,
416.)
For the foregoing reasons the judgment appealed from is hereby revoked and the defendant
is hereby absolved from all liability under the plaintiff's complaint, with costs in both
instances against the plaintiff. So ordered.
24. CONSEJO INFANTE, petitioner, vs. JOSE CUNANAN, JUAN MIJARES and THE
COURT OF APPEALS, SECOND DIVISION, respondents.
BAUTISTA ANGELO, J.:
This is a petition for review of a decision of the Court of appeals affirming the judgement of
the court of origin which orders the defendant to pay the plaintiffs the sum of P2,500 with
legal interest thereon from February 2,1949 and the costs of action.
Consejo Infante, defendant herein, was the owner of two parcels of land, together with a
house built thereon, situated in the City of Manila and covered by Transfer Certificate of Title
No. 61786. On or before November 30, 1948, she contracted the services of Jose Cunanan
and Juan Mijares, plaintiff herein, to sell the above-mentioned property for a price of P30,000
subject to the condition that the purchaser would assume the mortgage existing thereon in
the favor of the Rehabilitation Finance Corporation. She agreed to pay them a commission of
5 per cent on the purchase price plus whatever overprice they may obtain for the property.
Plaintiffs found one Pio S. Noche who was willing to buy the property under the terms agreed
upon with defendant, but when they introduced him to defendant, the latter informed them
that she was no longer interested in selling the property and succeeded in making them sign
a document stating therein that the written authority she had given them was already can-
celled. However, on December 20, 1948, defendant dealt directly with Pio S. Noche selling to
him the property for P31,000. Upon learning this transaction, plaintiffs demanded from
defendant the payment of their commission, but she refused and so they brought the present
action.
Defendant admitted having contracted the services of the plaintiffs to sell her property as set
forth in the complaint, but stated that she agreed to pay them a commission of P1,200 only
on condition that they buy her a property somewhere in Taft Avenue to where she might
transfer after selling her property. Defendant avers that while plaintiffs took steps to sell her
property as agreed upon, they sold the property at Taft Avenue to another party and
because of this failure it was agreed that the authority she had given them be cancelled.
The lower court found that the preponderance of evidence was in favor of the plaintiffs and
rendered judgement sentensing the defendant to pay the plaintiff the sum of P2,500 with
legal interest thereon from February 2,1949 plus the costs of action. This decision was
affirmed in toto by the Court of Appeals.
There is no dispute that respondents were authorized by petitioner to sell her property for
the sum of P30,000 with the understanding that they will be given a commission of 5 percent
plus whatever overprice they may obtain for the property. Petitioner, however, contends that
authority has already been withdrawn on November 30, 1948 when, by the voluntary act of
respondents, they executed a document stating that said authority shall be considered
cancelled and without any effect, so that when petitioner sold the property to Pio S. Noche
on December 20, 1948, she was already free from her commitment with respondents and,
therefore, was not in duty bound to pay them any commission for the transaction..
If the facts were as claimed by petitioner, there is in-deed no doubt that she would have no
obligation to pay respondents the commission which was promised them under the original
authority because, under the old Civil Code, her right to withdraw such authority is
recognized. A principal may withdraw the authority given to an agent at will. (Article 1733.)
But this fact is disputed. Thus, respondents claim that while they agreed to cancel the written
authority given to them, they did so merely upon the verbal assurance given by petitioner
that, should the property be sold to their own buyer, Pio S. Noche, they would be given the
commission agreed upon. True, this verbal assurance does not appear in the written
cancellation, Exhibit 1, and, on the other hand, it is disputed by petitioner, but respondents
were allowed to present oral evidence to prove it, and this is now assigned as error in this
petition for review.
The plea that oral evidence should not have been allowed to prove the alleged verbal
assurance is well taken it appearing that the written authority given to respondents has been
cancelled in a written statement. The rule on this matter is that "When the terms of an
agreement have been reduced to writing, it is to be considered as containing all those terms,
and, therefore, there can be, between parties and their successors in interest, no evidence of
the terms of the agreement other than the contents of the writing." (Section 22, Rule 123,
Rules of Court.) The only exceptions to this rule are: "(a)Where a mistake or imperfection of
the writing, or its failure to express the true intent and agreement of the parties, or the
validity of the agreement is put in issue by the pleadings"; and "(b) Where there is an
intrinsic ambiguity in the writing." ( Ibid.) There is no doubt that the point raised does not
come under any of the cases excepted, for there is nothing therein that has been put in issue
by respondents in their complaint. The terms of the document, Exhibit 1, seem to be clear
and they do not contain any reservation which may in any way run counter to the clear
intention of the parties.
But even disregarding the oral evidence adduced by respondents in contravention of the
parole evidence rule, we are, however, of the opinion that there is enough justification for
88
the conclusion reached by the lower court as well as by the Court of Appeals to the effect emphasizing that from the records, the only party given a written authority by petitioner to
that respondents are entitled to the commission originally agreed upon. It is a fact found by negotiate the sale from July 5, 1966 to May 14, 1968 was private respondent.
the Court of Appeals that after petitioner had given the written authority to respondents to
sell her land for the sum of P30,000, respondents found a buyer in the person of one Pio S. DECISION
Noche who was willing to buy the property under the terms agreed upon, and this matter
was immediately brought to the knowledge of petitioner. But the latter, perhaps by way of CAMPOS, JR., J p:
strategem, advised respondents that she was no longer interested in the deal and was able
to prevail upon them to sign a document agreeing to the cancellation of the written
Petitioner Manotok Brothers., Inc., by way of the instant Petition docketed as G.R. No. 94753
authority.
sought relief from this Court's Resolution dated May 3, 1989, which reads:

That petitioner had changed her mind even if respondents had found a buyer who was
"G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador Saligumba and Court of Appeals).
willing to close the deal, is a matter that would not give rise to a legal consequence if
Considering the manifestation of compliance by counsel for petitioner dated April 14, 1989
respondents agree to call off the transaction in deference to the request of the petitioner. But
with the resolution of March 13, 1989 which required the petitioner to locate private
the situation varies if one of the parties takes advantage of the benevolence of the other and
respondent and to inform this Court of the present address of said private respondent, the
acts in a manner that would promote his own selfish interest. This act is unfair as would
Court Resolved to DISMISS this case, as the issues cannot be joined as private respondent's
amount to bad faith. This act cannot be sanctioned without ac-cording to the party
and counsel's addresses cannot be furnished by the petitioner to this court." 1
prejudiced the reward which is due him. This is the situation in which respondents were
placed by petitioner. Petitioner took advantage of the services rendered by respondents, but
believing that she could evade payment of their commission, she made use of a ruse by In addition, petitioner prayed for the issuance of a preliminary injunction to prevent
inducing them to sign the deed of cancellation Exhibit 1. This act of subversion cannot be irreparable injury to itself pending resolution by this Court of its cause. Petitioner likewise
sanctioned and cannot serve as basis for petitioner to escape payment of the commission urged this Court to hold in contempt private respondent for allegedly adopting sinister ploy to
agreed upon. deprive petitioner of its constitutional right to due process.

Wherefore, the decision appealed from is hereby affirmed, with costs against petitioner.
25. MANOTOK BROTHERS, INC., petitioner, vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE JUDGE OF THE REGIONAL
TRIAL COURT OF MANILA (Branch VI), and SALVADOR SALIGUMBA, respondents.
SYLLABUS
1. CIVIL LAW; AGENCY; AGENT'S COMMISSION; WHEN ENTITLED' RULE; APPLICATION IN
CASE AT BAR. In an earlier case, this Court ruled that when there is a close, proximate
and causal connection between the agent's efforts and labor and the principal's sale of his
property, the agent is entitled to a commission. We agree with respondent Court that the
City of Manila ultimately became the purchaser of petitioner's property mainly through the
efforts of private respondent. Without discounting the fact that when Municipal Ordinance
No. 6603 was signed by the City Mayor on May 17, 1968, private respondent's authority had
already expired, it is to be noted that the ordinance was approved on April 26, 1968 when
private respondent's authorization was still in force. Moreover, the approval by the City Mayor
came only three days after the expiration of private respondent's authority. It is also worth
Acting on said Petition, this Court in a Resolution 2 dated October 1, 1990 set aside the entry
of judgment made on May 3, 1989 in case G.R. No. 78898; admitted the amended petition;
and issued a temporary restraining order to restrain the execution of the judgment appealed
from.
The amended petition 3 admitted, by this Court sought relief from this Court's Resolution
abovequoted. In the alternative, petitioner begged leave of court to re-file its Petition for
Certiorari 4 (G.R. No. 78898) grounded on the allegation that petitioner was deprived of its
opportunity to be heard.
The facts as found by the appellate court, revealed that petitioner herein (then defendant-
appellant) is the owner of a certain parcel of land and building which were formerly leased by
the City of Manila and used by the Claro M. Recto High School, at M.F. Jhocson Street,
Sampaloc Manila.
89
By means of a letter 5 dated July 5, 1966, petitioner authorized herein private respondent
Salvador Saligumba to negotiate with the City of Manila the sale of the aforementioned
property for not less than P425,000.00. In the same writing, petitioner agreed to pay private
respondent a five percent (5%) commission in the event the sale is finally consummated and
paid.
Petitioner, on March 4, 1967, executed another letter 6 extending the authority of private
respondent for 120 days. Thereafter, another extension was granted to him for 120 more
days, as evidenced by another letter 7 dated June 26, 1967.
Finally, through another letter 8 dated November 16, 1967, the corporation with Rufino
Manotok, its President, as signatory, authorized private respondent to finalize and
consummate the sale of the property to the City of Manila for not less than P410,000.00.
With this letter came another extension of 180 days.
The Municipal Board of the City of Manila eventually, on April 26, 1968, passed Ordinance
No. 6603, appropriating the sum of P410,816.00 for the purchase of the property which
private respondent was authorized to sell. Said ordinance however, was signed by the City
Mayor only on May 17, 1968, one hundred eighty three (183) days after the last letter of
authorization.
On January 14, 1969, the parties signed the deed of sale of the subject property. The initial
payment of P200,000.00 having been made, the purchase price was fully satisfied with a
second payment on April 8, 1969 by a check in the amount of P210,816.00.
Notwithstanding the realization of the sale, private respondent never received any
commission, which should have amounted to P20,554.50. This was due to the refusal of
petitioner to pay private respondent said amount as the former does not recognize the
latter's role as agent in the transaction.
Consequently, on June 29, 1969, private respondent filed a complaint against petitioner,
alleging that he had successfully negotiated the sale of the property. He claimed that it was
because of his efforts that the Municipal Board of Manila passed Ordinance No. 6603 which
appropriated the sum for the payment of the property subject of the sale.
Petitioner claimed otherwise. It denied the claim of private respondent on the following
grounds: (1) private respondent would be entitled to a commission only if the sale was
consummated and the price paid within the period given in the respective letters of authority;
and (2) private respondent was not the person responsible for the negotiation and
consummation of the sale, instead it was Filomeno E. Huelgas, the PTA president for 1967-
1968 of the Claro M. Recto High School. As a counterclaim, petitioner (then defendant-
appellant) demanded the sum of P4,000.00 as attorney's fees and for moral damages.
Thereafter, trial ensued. Private respondent, then plaintiff, testified as to the efforts
undertaken by him to ensure the consummation of the sale. He recounted that it first began
at a meeting with Rufino Manotok at the office of Fructuoso Ancheta, principal of C.M. Recto
High School. Atty. Dominador Bisbal, then president of the PTA, was also present. The
meeting was set precisely to ask private respondent to negotiate the sale of the school lot
and building to the City of Manila. Private respondent then went to Councilor Mariano
Magsalin, the author of the Ordinance which appropriated the money for the purchase of said
property, to present the project. He also went to the Assessor's Office for appraisal of the
value of the property. While these transpired and his letters of authority expired, Rufino
Manotok always renewed the former's authorization until the last was given, which was to
remain in force until May 14, 1968. After securing the report of the appraisal committee, he
went to the City Mayor's Office, which indorsed the matter to the Superintendent of City
Schools of Manila. The latter office approved the report and so private respondent went back
to the City Mayor's Office, which thereafter indorsed the same to the Municipal Board for
appropriation. Subsequently, on April 26, 1968, Ordinance No. 6603 was passed by the
Municipal Board for the appropriation of the sum corresponding to the purchase price.
Petitioner received the full payment of the purchase price, but private respondent did not
receive a single centavo as commission.
Fructuoso Ancheta and Atty. Dominador Bisbal both testified acknowledging the authority of
private respondent regarding the transaction.
Petitioner presented as its witnesses Filomeno Huelgas and the petitioner's President, Rufino
Manotok.
Huelgas testified to the effect that after being inducted as PTA president in August, 1967 he
followed up the sale from the start with Councilor Magsalin until after it was approved by the
Mayor on May 17, 1968. He. also said that he came to know Rufino Manotok only in August,
1968, at which meeting the latter told him that he would be given a "gratification" in the
amount of P20,000.00 if the sale was expedited.
Rufino Manotok confirmed that he knew Huelgas and that there was an agreement between
the two of them regarding the "gratification".
On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA meetings from 1965 to
1967 but he never offered to help in the acquisition of said property. Moreover, he testified
that Huelgas was aware of the fact that it was private respondent who was negotiating the
sale of the subject property.
90
Thereafter, the then Court of First Instance (now, Regional Trial Court) rendered judgment
sentencing petitioner and/or Rufino Manotok to pay unto private respondent the sum of
P20,540.00 by way of his commission fees with legal interest thereon from the date of the
filing of the complaint until payment. The lower court also ordered petitioner to pay private
respondent the amount of P4,000.00 as and for attorney's fees. 9
Petitioner appealed said decision, but to no avail. Respondent Court of Appeals affirmed the
said ruling of the trial court. 10
Its Motion for Reconsideration having been denied by respondent appellate court in a
Resolution dated June 22, 1987, petitioner seasonably elevated its case on Petition for
Review on Certiorari on August 10, 1987 before this Court, docketed as G.R. No. 78898.
Acting on said Petition, this Court issued a Minute Resolution 11 dated August 31, 1987
ordering private respondent to comment on said Petition.
It appearing that the abovementioned Resolution was returned unserved with the
postmaster's notation "unclaimed", this Court in another Resolution 12 dated March 13, 1989,
required petitioner to locate private respondent and to inform this Court of the present
address of private respondent within ten (10) days from notice. As petitioner was
unsuccessful in its efforts to locate private respondent, it opted to manifest that private
respondent's last address was the same as that address to which this. Court's Resolution was
forwarded.
Subsequently, this Court issued a Resolution dated May 3, 1989 dismissing petitioner's case
on the ground that the issues raised in the case at bar cannot be joined. Thus, the above-
entitled case became final and executory by the entry of judgment on May 3, 1989.
Thereafter, on January 9, 1990 private respondent filed a Motion to Execute the said
judgment before the court of origin. Upon discovery of said development, petitioner verified
with the court of origin the circumstances by which private respondent obtained knowledge
of the resolution of this Court. Sensing a fraudulent scheme employed by private respondent,
petitioner then instituted this instant Petition for Relief, on August 30, 1990. On September
13, 1990, said petition was amended to include, in the alternative, its petition to re-file its
Petition for Certiorari (G.R. No. 78898).
The sole issue to be addressed in this petition is whether or not private respondent is entitled
to the five percent (5%) agent's commission.
It is petitioner's contention that as a broker, private respondent's job is to bring together the
parties to a transaction. Accordingly, if the broker does not succeed in bringing the minds of
the purchaser and the vendor to an agreement with respect to the sale, he is not entitled to
a commission.
Private respondent, on the other hand, opposes petitioner's position maintaining that it was
because of his efforts that a purchase actually materialized between the parties.
We rule in favor of private respondent.
At first sight, it would seem that private respondent is not entitled to any commission as he
was not successful in consummating the sale between the parties, for the sole reason that
when the Deed of Sale was finally executed, his extended authority had already expired. By
this alone, one might be misled to believe that this case squarely falls within the ambit of the
established principle that a broker or agent is not entitled to any commission until he has
successfully done the job given to him. 13
Going deeper however into the case would reveal that it is within the coverage of the
exception rather than of the general rule, the exception being that enunciated in the case of
Prats vs. Court of Appeals. 14 In the said case, this Court ruled in favor of claimant-agent,
despite the expiration of his authority, when a sale was finally consummated.
In its decision in the abovecited case, this Court said, that while it was respondent court's
(referring to the Court of Appeals) factual findings that petitioner Prats (claimant-agent) was
not the efficient procuring cause in bringing about the sale (prescinding from the fact of
expiration of his exclusive authority), still petitioner was awarded compensation for his
services. And We quote:
"In equity, however, the Court notes that petitioner had diligently taken steps to bring back
together respondent Doronila and the SSS,.
xxx xxx xxx
The court has noted on the other hand that Doronila finally sold the property to the Social
Security System at P3.25 per square meter which was the very same price counter-offered by
the Social Security System and accepted by him in July, 1967 when he alone was dealing
exclusively with the said buyer long before Prats came into the picture but that on the other
hand Prats' efforts somehow were instrumental in bringing them together again and finally
consummating the transaction at the same price of P3.25 per square meter, although such
finalization was after the expiration of Prats' extended exclusive authority.
xxx xxx xxx
91
Under the circumstances, the Court grants in equity the sum of One hundred Thousand
Pesos (P100,000.00) by way of compensation for his efforts and assistance in the
transaction, which however was finalized and consummated after the expiration of his
exclusive authority . . ." 15 (Emphasis supplied.).
From the foregoing, it follows then that private respondent herein, with more reason, should
be paid his commission, While in Prats vs. Court of Appeals, the agent was not even the
efficient procuring cause in bringing about the sale, unlike in the case at bar, it was still held
therein that the agent was entitled to compensation. In the case at bar, private respondent is
the efficient procuring cause for without his efforts, the municipality would not have anything
to pass and the Mayor would not have anything to approve.
In an earlier case, 16 this Court ruled that when there is a close, proximate and causal
connection between the agent's efforts and labor and the principal's sale of his property, the
agent is entitled to a commission.
We agree with respondent Court that the City of Manila ultimately became the purchaser of
petitioner's property mainly through the efforts of private respondent. Without discounting
the fact that when Municipal Ordinance No. 6603 was signed by the City Mayor on May 17,
1968, private respondent's authority had already expired, it is to be noted that the ordinance
was approved on April 26, 1968 when private respondent's authorization was still in force.
Moreover, the approval by the City Mayor came only three days after the expiration of private
respondent's authority. It is also worth emphasizing that from the records, the only party
given a written authority by petitioner to negotiate the sale from July 5, 1966 to May 14,
1968 was private respondent.
Contrary to what petitioner advances, the case of Danon vs. Brimo, 17 on which it heavily
anchors its justification for the denial of private respondent's claim, does not apply squarely
to the instant petition. Claimant-agent in said case fully comprehended the possibility that he
may not realize the agent's commission as he was informed that another agent was also
negotiating the sale and thus, compensation will pertain to the one who finds a purchaser
and eventually effects the sale. Such is not the case herein. On the contrary, private
respondent pursued with his goal of seeing that the parties reach an agreement, on the
belief that he alone was transacting the business with the City Government as this was what
petitioner made it to appear.
While it may be true that Filomeno Huelgas followed up the matter with Councilor Magsalin,
the author of Municipal Ordinance No. 6603 and Mayor Villegas, his intervention regarding
the purchase came only after the ordinance had already been passed when the buyer has
already agreed to the purchase and to the price for which said property is to be paid.
Without the efforts of private respondent then, Mayor Villegas would have nothing to
approve in the first place. It was actually private respondent's labor that had set in motion
the intervention of the third party that produced the sale, hence he should be amply
compensated.
WHEREFORE, in the light of the foregoing and finding no reversible error committed by
respondent Court, the decision of the Court of Appeals is hereby AFFIRMED. The temporary
restraining order issued by this Court in its Resolution dated October 1, 1990 is hereby lifted.
SO ORDERED.
26. VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA.
DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and
JOSELITO, all surnamed DOMINGO, petitioners-appellants,
vs. GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-
respondent.
Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs,
Antonina Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene
and Joselito, all surnamed Domingo, sought the reversal of the majority decision dated,
March 12, 1969 of the Special Division of Five of the Court of Appeals affirming the judgment
of the trial court, which sentenced the said Vicente M. Domingo to pay Gregorio M. Domingo
P2,307.50 and the intervenor Teofilo P. Purisima P2,607.50 with interest on both amounts
from the date of the filing of the complaint, to pay Gregorio Domingo P1,000.00 as moral and
exemplary damages and P500.00 as attorney's fees plus costs.
The following facts were found to be established by the majority of the Special Division of
Five of the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio
Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate
with an area of about 88,477 square meters at the rate of P2.00 per square meter (or for
P176,954.00) with a commission of 5% on the total price, if the property is sold by Vicente or
by anyone else during the 30-day duration of the agency or if the property is sold by Vicente
within three months from the termination of the agency to apurchaser to whom it was
submitted by Gregorio during the continuance of the agency with notice to Vicente. The said
agency contract was in triplicate, one copy was given to Vicente, while the original and
another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer,
promising him one-half of the 5% commission.
92
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.
Oscar de Leon submitted a written offer which was very much lower than the price of P2.00
per square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his
offer. After several conferences between Gregorio and Oscar de Leon, the latter raised his
offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed
by signing Exhibit "C". Upon demand of Vicente, Oscar de Leon issued to him a check in the
amount of P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum of
P300.00. Oscar de Leon confirmed his former offer to pay for the property at P1.20 per
square meter in another letter, Exhibit "D". Subsequently, Vicente asked for an additional
amount of P1,000.00 as earnest money, which Oscar de Leon promised to deliver to him.
Thereafter, Exhibit "C" was amended to the effect that Oscar de Leon will vacate on or about
September 15, 1956 his house and lot at Denver Street, Quezon City which is part of the
purchase price. It was again amended to the effect that Oscar will vacate his house and lot
on December 1, 1956, because his wife was on the family way and Vicente could stay in lot
No. 883 of Piedad Estate until June 1, 1957, in a document dated June 30, 1956 (the year
1957 therein is a mere typographical error) and marked Exhibit "D". Pursuant to his promise
to Gregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos (P1,000.00)
for succeeding in persuading Vicente to sell his lot at P1.20 per square meter or a total in
round figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One Thousand
Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente
the additional amount of One Thousand Pesos (P1,000.00) by way of earnest money. In the
deed of sale was not executed on August 1, 1956 as stipulated in Exhibit "C" nor on August
15, 1956 as extended by Vicente, Oscar told Gregorio that he did not receive his money from
his brother in the United States, for which reason he was giving up the negotiation including
the amount of One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the
One Thousand Pesos (P1,000.00) given to Gregorio as propina or gift. When Oscar did not
see him after several weeks, Gregorio sensed something fishy. So, he went to Vicente and
read a portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was still committed
to pay him 5% commission, if the sale is consummated within three months after the
expiration of the 30-day period of the exclusive agency in his favor from the execution of the
agency contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente during the
said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces. Gregorio
held his peace, not wanting to antagonize Vicente further, because he had still duplicate of
Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register
of Deeds of Quezon City, where he discovered Exhibit "G' deed of sale executed on
September 17, 1956 by Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40
Denver Street, Cubao, Quezon City, in favor Vicente as down payment by Oscar de Leon on
the purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus learning that Vicente
sold his property to the same buyer, Oscar de Leon and his wife, he demanded in writting
payment of his commission on the sale price of One Hundred Nine Thousand Pesos
(P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told him that Vicente
went to him and asked him to eliminate Gregorio in the transaction and that he would sell his
property to him for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to
Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5%
commission because he sold the property not to Gregorio's buyer, Oscar de Leon, but to
another buyer, Amparo Diaz, wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency
contract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale
by Vicente of his property is practically a sale to Oscar de Leon since husband and wife have
common or identical interests; that Gregorio and intervenor Teofilo Purisima were the
efficient cause in the consummation of the sale in favor of the spouses Oscar de Leon and
Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00)
as "propina" or gift and not as additional earnest money to be given to the plaintiff, because
Exhibit "66", Vicente's letter addressed to Oscar de Leon with respect to the additional
earnest money, does not appear to have been answered by Oscar de Leon and therefore
there is no writing or document supporting Oscar de Leon's testimony that he paid an
additional earnest money of One Thousand Pesos (P1,000.00) to Gregorio for delivery to
Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon
to Vicente as earnest money, evidenced by the letter Exhibit "4"; and that Vicente did not
even mention such additional earnest money in his two replies Exhibits "I" and "J" to
Gregorio's letter of demand of the 5% commission.
The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose
to Vicente the payment to him by Oscar de Leon of the amount of One Thousand Pesos
(P1,000.00) as gift or "propina" for having persuaded Vicente to reduce the purchase price
from P2.00 to P1.20 per square meter, so constitutes fraud as to cause a forfeiture of his
commission on the sale price; (2) whether Vicente or Gregorio should be liable directly to the
intervenor Teofilo Purisima for the latter's share in the expected commission of Gregorio by
reason of the sale; and (3) whether the award of legal interest, moral and exemplary
damages, attorney's fees and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by
Justice Juan Enriquez did not touch on these issues which were extensively discussed by
Justice Magno Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his
concurring opinion, affirmed that it does not constitute breach of trust or fraud on the part of
the broker and regarded same as merely part of the whole process of bringing about the
meeting of the minds of the seller and the purchaser and that the commitment from the
prospect buyer that he would give a reward to Gregorio if he could effect better terms for
him from the seller, independent of his legitimate commission, is not fraudulent, because the
principal can reject the terms offered by the prospective buyer if he believes that such terms
are onerous disadvantageous to him. On the other hand, Justice Gatmaitan, with whom
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Justice Antonio Cafizares corner held the view that such an act on the part of Gregorio was
fraudulent and constituted a breach of trust, which should deprive him of his right to the
commission.
The duties and liabilities of a broker to his employer are essentially those which an agent
owes to his principal.1
Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New
Civil Code.
Art. 1891. Every agent is bound to render an account of his transactions and
to deliver to the principal whatever he may have received by virtue of the
agency, even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an
account shall be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud but also for negligence,
which shall be judged with more less rigor by the courts, according to
whether the agency was or was not for a compensation.
Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which
provides that:
Art. 1720. Every agent is bound to give an account of his transaction and to
pay to the principal whatever he may have received by virtue of the agency,
even though what he has received is not due to the principal.
The modification contained in the first paragraph Article 1891 consists in changing the phrase
"to pay" to "to deliver", which latter term is more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is
required to an agent condemning as void any stipulation exempting the agent from the
duty and liability imposed on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old
Spanish Civil Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for negligence,
which shall be judged with more or less severity by the courts, according to
whether the agency was gratuitous or for a price or reward.
The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and
fairness on the part of the agent, the real estate broker in this case, to his principal, the
vendor. The law imposes upon the agent the absolute obligation to make a full disclosure or
complete account to his principal of all his transactions and other material facts relevant to
the agency, so much so that the law as amended does not countenance any stipulation
exempting the agent from such an obligation and considers such an exemption as void. The
duty of an agent is likened to that of a trustee. This is not a technical or arbitrary rule but a
rule founded on the highest and truest principle of morality as well as of the strictest justice. 2
Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal
benefit from the vendee, without revealing the same to his principal, the vendor, is guilty of a
breach of his loyalty to the principal and forfeits his right to collect the commission from his
principal, even if the principal does not suffer any injury by reason of such breach of fidelity,
or that he obtained better results or that the agency is a gratuitous one, or that usage or
custom allows it; because the rule is to prevent the possibility of any wrong, not to remedy
or repair an actual damage. 3 By taking such profit or bonus or gift or propina from the
vendee, the agent thereby assumes a position wholly inconsistent with that of being an agent
for hisprincipal, who has a right to treat him, insofar as his commission is concerned, as if no
agency had existed. The fact that the principal may have been benefited by the valuable
services of the said agent does not exculpate the agent who has only himself to blame for
such a result by reason of his treachery or perfidy.
This Court has been consistent in the rigorous application of Article 1720 of the old Spanish
Civil Code. Thus, for failure to deliver sums of money paid to him as an insurance agent for
the account of his employer as required by said Article 1720, said insurance agent was
convicted estafa.4 An administrator of an estate was likewise under the same Article 1720 for
failure to render an account of his administration to the heirs unless the heirs consented
thereto or are estopped by having accepted the correctness of his account previously
rendered.5
Because of his responsibility under the aforecited article 1720, an agent is likewise liable for
estafa for failure to deliver to his principal the total amount collected by him in behalf of his
principal and cannot retain the commission pertaining to him by subtracting the same from
his collections.6
A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the
money and property received by him for his client despite his attorney's lien. 7 The duty of a
94
commission agent to render a full account his operations to his principal was reiterated
in Duhart, etc. vs. Macias.8
The American jurisprudence on this score is well-nigh unanimous.
Where a principal has paid an agent or broker a commission while ignorant
of the fact that the latter has been unfaithful, the principal may recover back
the commission paid, since an agent or broker who has been unfaithful is not
entitled to any compensation.
xxx xxx xxx
In discussing the right of the principal to recover commissions retained by an
unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE
260, 34 LRA (NS) 1046, said: "It is well settled that the agent is bound to
exercise the utmost good faith in his dealings with his principal. As Lord
Cairns said, this rule "is not a technical or arbitrary rule. It is a rule founded
on the highest and truest principles, of morality." Parker vs. McKenna (1874)
LR 10,Ch(Eng) 96,118 ... If the agent does not conduct himself with entire
fidelity towards his principal, but is guilty of taking a secret profit or
commission in regard the matter in which he is employed, he loses his right
to compensation on the ground that he has taken a position wholly
inconsistent with that of agent for his employer, and which gives his
employer, upon discovering it, the right to treat him so far as compensation,
at least, is concerned as if no agency had existed. This may operate to give
to the principal the benefit of valuable services rendered by the agent, but
the agent has only himself to blame for that result."
xxx xxx xxx
The intent with which the agent took a secret profit has been held
immaterial where the agent has in fact entered into a relationship
inconsistent with his agency, since the law condemns the corrupting
tendency of the inconsistent relationship. Little vs. Phipps (1911) 94 NE 260.9
As a general rule, it is a breach of good faith and loyalty to his principal for
an agent, while the agency exists, so to deal with the subject matter thereof,
or with information acquired during the course of the agency, as to make a
profit out of it for himself in excess of his lawful compensation; and if he
does so he may be held as a trustee and may be compelled to account to his
principal for all profits, advantages, rights, or privileges acquired by him in
such dealings, whether in performance or in violation of his duties, and be
required to transfer them to his principal upon being reimbursed for his
expenditures for the same, unless the principal has consented to or ratified
the transaction knowing that benefit or profit would accrue or had accrued,
to the agent, or unless with such knowledge he has allowed the agent so as
to change his condition that he cannot be put in status quo. The application
of this rule is not affected by the fact that the principal did not suffer any
injury by reason of the agent's dealings or that he in fact obtained better
results; nor is it affected by the fact that there is a usage or custom to the
contrary or that the agency is a gratuitous one. (Emphasis applied.) 10
In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift
or propina in the amount of One Thousand Pesos (P1,000.00) from the prospective buyer
Oscar de Leon, without the knowledge and consent of his principal, herein petitioner-
appellant Vicente Domingo. His acceptance of said substantial monetary gift corrupted his
duty to serve the interests only of his principal and undermined his loyalty to his principal,
who gave him partial advance of Three Hundred Pesos (P300.00) on his commission. As a
consequence, instead of exerting his best to persuade his prospective buyer to purchase the
property on the most advantageous terms desired by his principal, the broker, herein
defendant-appellee Gregorio Domingo, succeeded in persuading his principal to accept the
counter-offer of the prospective buyer to purchase the property at P1.20 per square meter or
One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of 88,477
square meters, which is very much lower the the price of P2.00 per square meter or One
Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot
originally offered by his principal.
The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker
acted only as a middleman with the task of merely bringing together the vendor and vendee,
who themselves thereafter will negotiate on the terms and conditions of the transaction.
Neither would the rule apply if the agent or broker had informed the principal of the gift or
bonus or profit he received from the purchaser and his principal did not object
therto. 11 Herein defendant-appellee Gregorio Domingo was not merely a middleman of the
petitioner-appellant Vicente Domingo and the buyer Oscar de Leon. He was the broker and
agent of said petitioner-appellant only. And therein petitioner-appellant was not aware of the
gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the prospective
buyer; much less did he consent to his agent's accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de
Leon, does not materially alter the situation; because the transaction, to be valid, must
necessarily be with the consent of the husband Oscar de Leon, who is the administrator of
their conjugal assets including their house and lot at No. 40 Denver Street, Cubao, Quezon
95
City, which were given as part of and constituted the down payment on, the purchase price
of herein petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law and in fact, it
was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo
must forfeit his right to the commission and must return the part of the commission he
received from his principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio
Domingo his one-half share of whatever amounts Gregorio Domingo received by virtue of the
transaction as his sub-agency contract was with Gregorio Domingo alone and not with
Vicente Domingo, who was not even aware of such sub-agency. Since Gregorio Domingo
received from Vicente Domingo and Oscar de Leon respectively the amounts of Three
Hundred Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total of One Thousand
Three Hundred Pesos (P1,300.00), one-half of the same, which is Six Hundred Fifty Pesos
(P650.00), should be paid by Gregorio Domingo to Teofilo Purisima.
Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental
anguish and serious anxiety as well as wounded feelings, petitioner-appellant Vicente
Domingo should be awarded moral damages in the reasonable amount of One Thousand
Pesos (P1,000.00) attorney's fees in the reasonable amount of One Thousand Pesos
(P1,000.00), considering that this case has been pending for the last fifteen (15) years from
its filing on October 3, 1956.
WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of
Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of
Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages and One
Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the sum of Six
Hundred Fifty Pesos (P650.00); and (3) to pay the costs.
27. PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners, vs. INTERMEDIATE
APPELLATE COURT and TERESITA NACIANCENO, respondents.
This is a petition for review of the decision of the Intermediate Appellate Court affirming in
toto the judgment of the Court of First Instance of Manila, Branch XXI, which ordered the
petitioner to pay respondent the thirty percent (30%) commission on 15,666 pieces of
Philippine flags worth P936,960.00, moral damages, attorney's fees and the costs of the suit.
Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing officials of the
then Department of Education and Culture, hereinafter called Department, to purchase
without public bidding, one million pesos worth of national flags for the use of public schools
throughout the country. The respondent was able to expedite the approval of the purchase
by hand-carrying the different indorsements from one office to another, so that by the first
week of September, 1974, all the legal requirements had been complied with, except the
release of the purchase orders. When Nacianceno was informed by the Chief of the Budget
Division of the Department that the purchase orders could not be released unless a formal
offer to deliver the flags in accordance with the required specifications was first submitted for
approval, she contacted the owners of the United Flag Industry on September 17, 1974. The
next day, after the transaction was discussed, the following document (Exhibit A) was drawn
up:
Mrs. Tessie Nacianceno,
This is to formalize our agreement for you to represent United Flag Industry
to deal with any entity or organization, private or government in connection
with the marketing of our products-flags and all its accessories.
For your service, you will be entitled to a commission of thirty
(30%) percent.
Signed
Mr. Primitive Siasat
Owner and Gen. Manager
On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry.
The next day, on October 17, 1974, the respondent's authority to represent the United Flag
Industry was revoked by petitioner Primitivo Siasat.
According to the findings of the courts below, Siasat, after receiving the payment of
P469,980.00 on October 23, 1974 for the first delivery, tendered the amount of P23,900.00
or five percent (5%) of the amount received, to the respondent as payment of her
commission. The latter allegedly protested. She refused to accept the said amount insisting
on the 30% commission agreed upon. The respondent was prevailed upon to accept the
same, however, because of the assurance of the petitioners that they would pay the
commission in full after they delivered the other half of the order. The respondent states that
she later on learned that petitioner Siasat had already received payment for the second
delivery of 7,833 flags. When she confronted the petitioners, they vehemently denied receipt
of the payment, at the same time claiming that the respondent had no participation
whatsoever with regard to the second delivery of flags and that the agency had already been
revoked.
96
The respondent originally filed a complaint with the Complaints and Investigation Office in
Malacaang but when nothing came of the complaint, she filed an action in the Court of First
Instance of Manila to recover the following commissions: 25%, as balance on the first
delivery and 30%, on the second delivery.
The trial court decided in favor of the respondent. The dispositive portion of the decision
reads as follows:
WHEREFORE, judgment is hereby rendered sentencing Primitivo Siasat to
pay to the plaintiff the sum of P281,988.00, minus the sum P23,900.00, with
legal interest from the date of this decision, and ordering the defendants to
pay jointly and solidarily the sum of P25,000.00 as moral damages, and
P25,000.00 as attorney's fees, also with legal interest from the date of this
decision, and the costs.
The decision was affirmed in toto by the Intermediate Appellate Court. After their motion for
reconsideration was denied, the petitioners went to this Court on a petition for review on
August 6, 1984.
In assailing the appellate court's decision, the petition tenders the following arguments: first,
the authorization making the respondent the petitioner's representative merely states that
she could deal with any entity in connection with the marketing of their products for a
commission of 30%. There was no specific authorization for the sale of 15,666 Philippine
flags to the Department; second, there were two transactions involved evidenced by the
separate purchase orders and separate delivery receipts, Exhibit 6-C for the purchase and
deliver on October 16, 1974, and Exhibits 7 to 7-C, for the purchase and delivery on
November 6, 1974. The revocation of agency effected by the parties with mutual consent on
October 17, 1974, therefore, forecloses the respondent's claim of 30% commission on the
second transaction; and last, there was no basis for the granting of attorney's fees and moral
damages because there was no showing of bad faith on the part of the petitioner. It was
respondent who showed bad faith in denying having received her commission on the first
delivery. The petitioner's counterclaim, therefore, should have been granted.
This petition was initially dismissed for lack of merit in a minute resolution.On a motion for
reconsideration, however,this Court give due course to the petition on November 14, 1984.
After a careful review of the records, we are constrained to sustain with some modifications
the decision of the appellate court.
We find respondent's argument regarding respondent's incapacity to represent them in the
transaction with the Department untenable. There are several kinds of agents. To quote a
commentator on the matter:
An agent may be (1) universal: (2) general, or (3) special. A universal; agent
is one authorized to do all acts for his principal which can lawfully be
delegated to an agent. So far as such a condition is possible, such an agent
may be said to have universal authority. (Mec. Sec. 58).
A general agent is one authorized to do all acts pertaining to a business of a
certain kind or at a particular place, or all acts pertaining to a business of a
particular class or series. He has usually authority either expressly conferred
in general terms or in effect made general by the usages, customs or nature
of the business which he is authorized to transact.
An agent, therefore, who is empowered to transact all the business of his
principal of a particular kind or in a particular place, would, for this reason,
be ordinarily deemed a general agent. (Mec Sec. ,30).
A special agent is one authorized to do some particular act or to act upon
some particular occasion. lie acts usually in accordance with specific
instructions or under limitations necessarily implied from the nature of the
act to be done. (Mec. Sec. 61) (Padilla, Civil Law The Civil Code Annotated,
Vol. VI, 1969 Edition, p. 204).
One does not have to undertake a close scrutiny of the document embodying the agreement
between the petitioners and the respondent to deduce that the 'latter was instituted as a
general agent. Indeed, it can easily be seen by the way general words were employed in the
agreement that no restrictions were intended as to the manner the agency was to be carried
out or in the place where it was to be executed. The power granted to the respondent was
so broad that it practically covers the negotiations leading to, and the execution of, a
contract of sale of petitioners' merchandise with any entity or organization.
There is no merit in petitioners' allegations that the contract of agency between the parties
was entered into under fraudulent representation because respondent "would not disclose
the agency with which she was supposed to transact and made the petitioner believe that
she would be dealing with The Visayas", and that "the petitioner had known of the
transactions and/or project for the said purchase of the Philippine flags by the Department of
Education and Culture and precisely it was the one being followed up also by the petitioner."
97
If the circumstances were as claimed by the petitioners, they would have exerted efforts to
protect their interests by limiting the respondent's authority. There was nothing to prevent
the petitioners from stating in the contract of agency that the respondent could represent
them only in the Visayas. Or to state that the Department of Education and Culture and the
Department of National Defense, which alone would need a million pesos worth of flags, are
outside the scope of the agency. As the trial court opined, it is incredible that they could be
so careless after being in the business for fifteen years.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of Court
states that "when the terms of an agreement have been reduced to writing, it is to be
considered as containing all such terms, and, therefore, there can be between the parties
and their successors-in-interest, no evidence of the terms of the agreement other than the
contents of the writing", except in cases specifically mentioned in the same rule. Petitioners
have failed to show that their agreement falls under any of these exceptions. The respondent
was given ample authority to transact with the Department in behalf of the petitioners.
Equally without merit is the petitioners' proposition that the transaction involved two
separate contracts because there were two purchase orders and two deliveries. The
petitioners' evidence is overcome by other pieces of evidence proving that there was only
one transaction.
The indorsement of then Assistant Executive Secretary Roberto Reyes to the Budget
Commission on September 3, 1974 (Exhibit "C") attests to the fact that out of the total
budget of the Department for the fiscal year 1975, "P1,000,000.00 is for the purchase of
national flags." This is also reflected in the Financial and Work Plan Request for Allotment
(Exhibit "F") submitted by Secretary Juan Manuel for fiscal year 1975 which however, divided
the allocation and release of the funds into three, corresponding to the second, third, and
fourth quarters of the said year. Later correspondence between the Department and the
Budget Commission (Exhibits "D" and "E") show that the first allotment of P500.000.00 was
released during the second quarter. However, due to the necessity of furnishing all of the
public schools in the country with the Philippine flag, Secretary Manuel requested for the
immediate release of the programmed allotments intended for the third and fourth quarters.
These circumstances explain why two purchase orders and two deliveries had to be made on
one transaction.
The petitioners' evidence does not necessarily prove that there were two separate
transactions. Exhibit "6" is a general indorsement made by Secretary Manuel for the purchase
of the national flags for public schools. It contains no reference to the number of flags to be
ordered or the amount of funds to be released. Exhibit "7" is a letter request for a "similar
authority" to purchase flags from the United Flag Industry. This was, however, written by Dr.
Narciso Albarracin who was appointed Acting Secretary of the Department after Secretary
Manuel's tenure, and who may not have known the real nature of the transaction.
If the contracts were separate and distinct from one another, the whole or at least a
substantial part of the government's supply procurement process would have been repeated.
In this case, what were issued were mere indorsements for the release of funds and
authorization for the next purchase.
Since only one transaction was involved, we deny the petitioners' contention that respondent
Nacianceno is not entitled to the stipulated commission on the second delivery because of
the revocation of the agency effected after the first delivery. The revocation of agency could
not prevent the respondent from earning her commission because as the trial court opined, it
came too late, the contract of sale having been already perfected and partly executed.
In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in principle,
this Court held:
We do not mean to question the general doctrine as to the power of a
principal to revoke the authority of his agent at will, in the absence of a
contract fixing the duration of the agency (subject, however, to some well
defined exceptions). Our ruling is that at the time fixed by the manager of
the plaintiff company for the termination of the negotiations, the defendant
real estate agent had already earned the commissions agreed upon, and
could not be deprived thereof by the arbitrary action of the plaintiff company
in declining to execute the contract of sale for some reason personal to itself.
The principal cannot deprive his agent of the commission agreed upon by cancelling the
agency and, thereafter, dealing directly with the buyer. (Infante v. Cunanan, 93 Phil. 691).
The appellate courts citation of its previous ruling in Heimbrod et al. v. Ledesma (C.A. 49
O.G. 1507) is correct:
The appellee is entitled to recovery. No citation is necessary to show that the
general law of contracts the equitable principle of estoppel. and the expense
of another, uphold payment of compensation for services rendered.
There is merit, however, in the petitioners' contention that the agent's commission on the
first delivery was fully paid. The evidence does not sustain the respondent's claim that the
petitioners paid her only 5% and that their right to collect another 25% commission on the
first delivery must be upheld.
When respondent Nacianceno asked the Malacanang Complaints and Investigation Office to
help her collect her commission, her statement under oath referred exclusively to the 30%
commission on the second delivery. The statement was emphatic that "now" her demand
98
was for the 30% commission on the (second) release of P469,980.00. The demand letter of
the respondent's lawyer dated November 13, 1984 asked petitioner Siasat only for the 30%
commission due from the second delivery. The fact that the respondent demanded only the
commission on the second delivery without reference to the alleged unpaid balance which
was only slightly less than the amount claimed can only mean that the commission on the
first delivery was already fully paid, Considering the sizeable sum involved, such an omission
is too glaringly remiss to be regarded as an oversight.
Moreover, the respondent's authorization letter (Exhibit "5") bears her signature with the
handwritten words "Fully Paid", inscribed above it.
The respondent contested her signature as a forgery, Handwriting experts from two
government agencies testified on the matter. The reason given by the trial court in ruling for
the respondent is too flimsy to warrant a finding of forgery.
The court stated that in thirteen documents presented as exhibits, the private respondent
signed her name as "Tessie Nacianceno" while in this particular instance, she signed as "T.
Nacianceno."
The stated basis is inadequate to sustain the respondent's allegation of forgery. A variance in
the manner the respondent signed her name can not be considered as conclusive proof that
the questioned signature is a forgery. The mere fact that the respondent signed thirteen
documents using her full name does not rule out the possibility of her having signed the
notation "Fully Paid", with her initial for the given came and the surname written in full. What
she was signing was a mere acknowledgment.
This leaves the expert testimony as the sole basis for the verdict of forgery.
In support of their allegation of full payment as evidenced by the signed authorization letter
(Exhibit "5-A"), the petitioners presented as witness Mr. Francisco Cruz. Jr., a senior
document examiner of the Philippine Constabulary Crime laboratory. In rebuttal, the
respondent presented Mr. Arcadio Ramos, a junior document examiner of the National
Bureau of Investigation.
While the experts testified in a civil case, the principles in criminal cases involving forgery are
applicable. Forgery cannot be presumed. It must be proved.
In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:
xxx xxx xxx
... Where the evidence, as here, gives rise to two probabilities, one
consistent with the defendant's innocence and another indicative of his guilt,
that which is favorable to the accused should be considered. The
constitutional presumption of innocence continues until overthrown by proof
of guilt beyond reasonable doubt, which requires moral certainty which
convinces and satisfies the reason and conscience of those who are to act
upon it. (People v. Clores, et al., 125 SCRA 67; People v. Bautista, 81 Phil.
78).
We ruled in another case that where the supposed expert's testimony would constitute the
sole ground for conviction and there is equally convincing expert testimony to the contrary,
the constitutional presumption of innocence must prevail. (Lorenzo Ga. Cesar v. Hon.
Sandiganbayan and People of the Philippines, 134 SCRA 105). In the present case, the
circumstances earlier mentioned taken with the testimony of the PC senior document
examiner lead us to rule against forgery.
We also rule against the respondent's allegation that the petitioners acted in bad faith when
they revoked the agency given to the respondent.
Fraud and bad faith are matters not to be presumed but matters to be alleged with sufficient
facts. To support a judgment for damages, facts which justify the inference of a lack or
absence of good faith must be alleged and proven. (Bacolod-Murcia Milling Co., Inc. vs. First
Farmers Milling Co., Inc., Etc., 103 SCRA 436).
There is no evidence on record from which to conclude that the revocation of the agency was
deliberately effected by the petitioners to avoid payment of the respondent's commission.
What appears before us is only the petitioner's use in court of such a factual allegation as a
defense against the respondent's claim. This alone does not per se make the petitioners
guilty of bad faith for that defense should have been fully litigated.
Moral damages cannot be awarded in the absence of a wrongful act or omission or of fraud
or bad faith. (R & B Surety & Insurance Co., Inc. vs. Intermediate Appellate Court, 129 SCRA
736).
We therefore, rule that the award of P25,000.00 as moral damages is without basis.
The additional award of P25,000.00 damages by way of attorney's fees, was given by the
courts below on the basis of Article 2208, Paragraph 2, of the Civil Code, which provides:
"When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interests;" attorney's fees may be awarded as
damages. (Pirovano et al. v. De la Rama Steamship Co., 96 Phil. 335).
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The underlying circumstances of this case lead us to rule out any award of attorney's fees.
For one thing, the respondent did not come to court with completely clean hands. For
another, the petitioners apparently believed they could legally revoke the agency in the
manner they did and deal directly with education officials handling the purchase of Philippine
flags. They had reason to sincerely believe they did not have to pay a commission for the
second delivery of flags.
We cannot close this case without commenting adversely on the inexplicably strange
procurement policies of the Department of Education and Culture in its purchase of Philippine
flags. There is no reason why a shocking 30% of the taxpayers' money should go to an agent
or facilitator who had no flags to sell and whose only work was to secure and handcarry the
indorsements of education and budget officials. There are only a few manufacturers of flags
in our country with the petitioners claiming to have supplied flags for our public schools on
earlier occasions. If public bidding was deemed unnecessary, the Department should have
negotiated directly with flag manufacturers. Considering the sad plight of underpaid and
overworked classroom teachers whose pitiful salaries and allowances cannot sometimes be
paid on time, a P300,000.00 fee for a P1,000,000.00 purchase of flags is not only clearly
unnecessary but a scandalous waste of public funds as well.
WHEREFORE, the decision of the respondent court is hereby MODIFIED. The petitioners are
ordered to pay the respondent the amount of ONE HUNDRED FOURTY THOUSAND NINE
HUNDRED AND NINETY FOUR PESOS (P140,994.00) as her commission on the second
delivery of flags with legal interest from the date of the trial court's decision. No
pronouncement as to costs.
SO ORDERED.
28. GERMANN & CO., plaintiff-appellees, vs. DONALDSON, SIM & CO., defendants-
appellants.
This is an incident of want of personality of the plaintiff's attorney. The action is to recover a
sum claimed to be due for freight under a charter party. It was brought by virtue of a general
power for suits, executed in Manila October 27, 1900, by Fernando Kammerzell, and
purporting to be a substitution in favor of several attorneys of powers conferred upon
Kammerzell in an instrument executed in Berlin, Germany, February 5, 1900, by Max Leonard
Tornow, the sole owner of the business carried on in Berlin and Manila under the name of
Gemann & Co. The first-named instrument was authenticated by a notary with the formalities
required by the domestic laws. The other was not so authenticated. Both Tornow and
Kammerzell are citizens of Germany. Tornow is a resident of Berlin and Kammerzell of
Manila.
The defendants claim that the original power is invalid under article 1280, No. 5, of the Civil
Code, which provides that powers for suits must be contained in a public instrument. No
claim is made that the document was not executed with the formalities required by the
German law in the case of such an instrument. We see no reason why the general principle
that the formal validity of contracts is to be tested by the laws of the country where they are
executed should not apply. (Civil Code, art. 11.)
The defendants also claim that the original power can not be construed as conferring upon
Kammerzell authority to institute or defend suits, from which contention, if correct, it would
of course follow that the delegated power is invalid. In support of this contention reliance is
placed upon article 1713 of the Civil Code, by which it is provided that "an agency stated in
general terms only includes acts of administration," and that "in order to compromise,
alienate, mortgage, or to execute any other act of strict ownership an express commission is
required."
It has been argued by counsel for the plaintiff that these provisions of the domestic law are
not applicable to the case of an agency conferred, as was that in question, by one foreigner
upon another in an instrument executed in the country of which both were citizens. We shall
not pass upon this question, since we are clearly of opinion that the instrument contains an
explicit grant of a power broad enough to authorize the bringing of the present action, even
assuming the applicability of the domestic law as claimed by the defendants. lawphil.net
By this instrument Tornow constitutes Kammerzell his "true and lawful attorney with full
power to enter the firm name of Germann & Co. in the Commercial Registry of the city of
Manila as a branch of the house of Germann & Co. in Berlin, it being the purpose of this
power to invest said attorney will full legal powers and authorization to direct and administer
in the city of Manila for us and in our name a branch of our general commercial business of
important and exportation, for which purpose he may make contracts of lease and employ
suitable assistants, as well as sign every kind of documents, accounts, and obligations
connected with the business which may be necessary, take charge in general of the receipt
and delivery of merchandise connected with the business, sign all receipts for sums of money
and collect them and exact their payment by legal means, and in general execute all the acts
and things necessary for the perfect carrying on of the business committed to his charge in
the same manner as we could do ourselves if we were present in the same place."
We should not be inclined to regard in institution of a suit like the present, which appears to
be brought to collect a claim accruing in the ordinary course of the plaintiff's business, as
properly belonging to the class of acts described in article 1713 of the Civil Code as acts "of
strict ownership." It seems rather to be something which is necessarily a part of the mere
administration of such a business as that described in the instrument in question and only
incidentally, if at all, involving a power to dispose of the title to property.
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But whether regarded as an act of strict ownership or not, it appears to be expressly and
specially authorized by the clause conferring the power to "exact the payment" of sums of
money "by legal means." This must mean the power to exact the payment of debts due the
concern by means of the institution of suits for their recovery. If there could be any doubt as
to the meaning of this language taken by itself, it would be removed by a consideration of
the general scope and purpose of the instrument in which it occurs. (See Civil Code, art.
1286.) The main object of the instrument is clearly to make Kammerzell the manager of the
Manila branch of the plaintiff's business, with the same general authority with reference to its
conduct which his principal would himself possess if he were personally directing it. It can
not be reasonably supposed, in the absence of very clear language to that effect, that it was
the intention of the principal to withhold from his agent a power so essential to the efficient
management of the business entrusted to his control as that to sue for the collection of
debts.
29. THE MUNICIPAL COUNCIL OF ILOILO, plaintiff-appellee, vs. JOSE EVANGELISTA,
ET AL., defendants-appellees. TAN ONG SZE VDA. DE TAN TOCO, appellant.
VILLA-REAL, J.:
This is an appeal taken by the defendant Tan Ong Sze Vda. de Tan Toco from the judgment
of the Court of First Instance of Iloilo, providing as follows:
Wherefore, judgment is hereby rendered, declaring valid and binding the deed of
assignment of the credit executed by Tan Toco's widow, through her attorney-in-fact
Tan Buntiong, in favor of late Antero Soriano; likewise the assignment executed by
the latter during his lifetime in favor of the defendant Mauricio Cruz & Co., Inc., and
the plaintiff is hereby ordered to pay the said Mauricio Cruz & Co., Inc., the balance
of P30,966.40; the plaintiff is also ordered to deposit said sum in a local bank within
the period of ninety days from the time this judgment shall become final, at the
disposal of the aforesaid Mauricio Cruz & Co. Inc., and in case that the plaintiff shall
not make such deposit in the manner indicated, said amount shall bear the legal
interest of six percent per annum from the date when the plaintiff shall fail to make
the deposit within the period herein set forth, until fully paid.
Without special pronouncement of costs.
In support of its appeal, the appellant assigns the following alleged errors as committed by
the trial court in its decision, to wit:
1. The lower court erred in rejecting as evidence Exhibit 4-A, Tan Toco, and Exhibit
4-B, Tan Toco.
2. The lower court erred in sustaining the validity of the deed of assignment of the
credit, Exhibit 2-Cruz, instead of finding that said assignment made by Tan Buntiong
to Attorney Antero Soriano was null and void.
3. The lower court erred in upholding the assignment of that credit by Antero Soriano
to Mauricio Cruz & Co., Inc., instead of declaring it null and void.
4. The court below erred in holding that the balance of the credit against the
municipality of Iloilo should be adjudicated to the appellant herein, Tan Toco's
widow.
5. The lower court erred in denying the motion for a new trial filed by the defendant-
appellant.
The facts of the case are as follows:
On March 20, 1924, the Court of First Instance of Iloilo rendered judgment in civil case No.
3514 thereof, wherein the appellant herein, Tan Ong Sze Vda. de Tan Toco was the plaintiff,
and the municipality of Iloilo the defendant, and the former sought to recover of the latter
the value of a strip of land belonging to said plaintiff taken by the defendant to widen a
public street; the judgment entitled the plaintiff to recover P42,966.40, representing the
value of said strip of land, from the defendant (Exhibit A). On appeal to this court (G. R. No .
22617) 1 the judgment was affirmed on November 28, 1924 (Exhibit B).
After the case was remanded to the court of origin, and the judgment rendered therein had
become final and executory, Attorney Jose Evangelista, in his own behalf and as counsel for
the administratrix of Jose Ma .Arroyo's intestate estate, filed a claim in the same case for
professional services rendered by him, which the court, acting with the consent of the
appellant widow, fixed at 15 per cent of the amount of the judgment (Exhibit 22 Soriano).
At the hearing on said claim, the claimants appeared, as did also the Philippine National
Bank, which prayed that the amount of the judgment be turned over to it because the land
taken over had been mortgaged to it. Antero Soriano also appeared claiming the amount of
the judgment as it had been assigned to him, and by him, in turn, assigned to Mauricio Cruz
& Co., Inc.
After hearing all the adverse claims on the amount of the judgment the court ordered that
the attorney's lien in the amount of 15 per cent of the judgment, be recorded in favor of
Attorney Jose Evangelista, in his own behalf and as counsel for the administratrix of the
deceased Jose Ma .Arroyo, and directed the municipality of Iloilo to file an action of
interpleading against the adverse claimants, the Philippine National Bank, Antero Soriano,
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Mauricio Cruz & Co., Jose Evangelista and Jose Arroyo, as was done, the case being filed in
the Court of First Instance of Iloilo as civil case No. 7702.
After due hearing, the court rendered the decision quoted from at the beginning.
On March 29, 1928, the municipal treasurer of Iloilo, with the approval of the auditor of the
provincial treasurer of Iloilo and of the Executive Bureau, paid the late Antero Soriano the
amount of P6,000 in part payment of the judgment mentioned above, assigned to him by
Tan Boon Tiong, acting as attorney-in-fact of the appellant herein, Tan Ong Sze Vda. de Tan
Toco.
On December 18, 1928, the municipal treasurer of Iloilo deposited with the clerk of the Court
of First Instance of Iloilo the amount of P6,000 on account of the judgment rendered in said
civil case No. 3514. In pursuance of the resolution of the court below ordering that the
attorney's lien in the amount of 15 per cent of the judgment be recorded in favor of Attorney
Jose Evangelista, in his own behalf and as counsel for the late Jose Ma. Arroyo, the said clerk
of court delivered on the same date to said Attorney Jose Evangelista the said amount of
P6,000. At the hearing of the instant case, the codefendants of Attorney Jose Evangelista
agreed not to discuss the payment made to the latter by the clerk of the Court of First
Instance of Iloilo of the amount of P6,000 mentioned above in consideration of said lawyer's
waiver of the remainder of the 15 per cent of said judgment amounting to P444.69.
With these two payments of P6,000 each making a total of P12,000, the judgment for
P42,966.44 against the municipality of Iloilo was reduced to P30,966.40, which was
adjudicated by said court to Mauricio Cruz & Co.
This appeal, then, is confined to the claim of Mauricio Cruz & Co. as alleged assignee of the
rights of the late Attorney Antero Soriano by virtue of the said judgment in payment of
professional services rendered by him to the said widow and her coheirs.
The only question to be decided in this appeal is the legality of the assignment made by Tan
Boon Tiong as attorney-in-fact of the appellant Tan Ong Sze Viuda de Tan Toco, to Attorney
Antero Soriano, of all the credits, rights and interests belonging to said appellant Tan Ong
Sze Viuda de Tan Toco by virtue of the judgment rendered in civil case No .3514 of the Court
of First Instance of Iloilo, entitled Viuda de Tan Toco vs. The Municipal Council of Iloilo,
adjudicating to said widow the amount of P42,966.40, plus the costs of court, against said
municipal council of Iloilo, in consideration of the professional services rendered by said
attorney to said widow of Tan Toco and her coheirs, by virtue of the deed Exhibit 2.
The appellant contends, in the first place, that said assignments was not made in
consideration of professional services by Attorney Antero Soriano, for they had already been
satisfied before the execution of said deed of assignment, but in order to facilitate the
collection of the amount of said judgment in favor of the appellant, for the reason that, being
Chinese, she had encountered many difficulties in trying to collect. lawphil.net
In support of her contention on this point, the appellant alleges that the payments admitted
by the court in its judgment, as made by Tan Toco's widow to Attorney Antero Soriano for
professional services rendered to her and to her coheirs, amounting to P2,900, must be
added to the P700 evidenced by Exhibits 4-A, Tan Toco, and 4-B Tan Toco, respectively,
which exhibits the court below rejected as evidence, on the ground that they were
considered as payments made for professional services rendered, not by Antero Soriano
personally, by the firm of Soriano & Arroyo.
A glance at these receipts shows that those amounts were received by Attorney Antero
Soriano for the firm of Soriano & Arroyo, which is borne out by the stamp on said receipts
reading, "Befete Soriano & Arroyo," and the manner in which said attorney receipted for
them, "Soriano & Arroyo, by A. Soriano."
Therefore, the appellant's contention that the amounts of P200 and P500 evidence by said
receipts should be considered as payments made to Attorney Antero Soriano for professional
services rendered by him personally to the interests of the widow of Tan Toco, is untenable.
Besides, if at the time of the assignments to the late Antero Soriano his professional services
to the appellant widow of Tan Toco had already been paid for, no reason can be given why it
was necessary to write him money in payment of professional services on March 14, 1928
(Exhibit 5-G Tan Toco) and December 15, of the same year (Exhibit 5-H Tan Toco) after the
deed of assignment, (Exhibit 2-Cruz) dated September 27, 1927, had been executed. In view
of the fact that the amounts involved in the cases prosecuted by Attorney Antero Soriano as
counsel for Tan Toco's widow, some of which cases have been appealed to this court, run
into the hundreds of thousands of pesos, and considering that said attorney had won several
of those cases for his clients, the sum of P10,000 to date paid to him for professional
services is wholly inadequate, and shows, even if indirectly, that the assignments of the
appellant's rights and interests made to the late Antero Soriano and determined in the
judgment aforementioned, was made in consideration of the professional services rendered
by the latter to the aforesaid widow and her coheirs.
The defendant-appellant also contends that the deed of assignment Exhibit 2-Cruz was
drawn up in contravention of the prohibition contained in article 1459, case 5, of the Civil
Code, which reads as follows:
ART. 1459. The following persons cannot take by purchase, even at a public or
judicial auction, either in person or through the mediation of another:
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 xxx xxx xxx
5. Justices, judges, members of the department of public prosecution, clerks of
superior and inferior courts, and other officers of such courts, the property and rights
in litigation before the court within whose jurisdiction or territory they perform their
respective duties .This prohibition shall include the acquisition of such property by
assignment.
Actions between co-heirs concerning the hereditary property, assignments in
payment of debts, or to secure the property of such persons, shall be excluded from
this rule.
The prohibition contained in this paragraph shall include lawyers and solicitors with
respect to any property or rights involved in any litigation in which they may take
part by virtue of their profession and office.
It does not appear that the Attorney Antero Soriano was counsel for the herein appellant in
civil case No. 3514 of the Court of First Instance of Iloilo, which she instituted against the
municipality of Iloilo, Iloilo, for the recovery of the value of a strip of land expropriated by
said municipality for the widening of a certain public street. The only lawyers who appear to
have represented her in that case were Arroyo and Evangelista, who filed a claim for their
professional fees .When the appellant's credit, right, and interests in that case were assigned
by her attorney-in-fact Tan Boon Tiong, to Attorney Antero Soriano in payment of
professional services rendered by the latter to the appellant and her coheirs in connection
with other cases, that particular case had been decided, and the only thing left to do was to
collect the judgment. There was no relation of attorney and client, then, between Antero
Soriano and the appellant, in the case where that judgment was rendered; and therefore the
assignment of her credit, right and interests to said lawyer did not violate the prohibition
cited above.
As to whether Tan Boon Tiong as attorney-in-fact of the appellant, was empowered by his
principal to make as assignment of credits, rights and interests, in payment of debts for
professional services rendered by lawyers, in paragraph VI of the power of attorney, Exhibit
5-Cruz, Tan Boon Tiong is authorized to employ and contract for the services of lawyers upon
such conditions as he may deem convenient, to take charge of any actions necessary or
expedient for the interests of his principal, and to defend suits brought against her. This
power necessarily implies the authority to pay for the professional services thus engaged. In
the present case, the assignment made by Tan Boon Tiong, as Attorney-in-fact for the
appellant, in favor of Attorney Antero Soriano for professional services rendered in other
cases in the interests of the appellant and her coheirs, was that credit which she had against
the municipality of Iloilo, and such assignment was equivalent to the payment of the amount
of said credit to Antero Soriano for professional services.
With regard to the failure of the other attorney-in-fact of the appellant, Tan Montano,
authorized by Exhibit 1 Tan Toco, to consent to the deed of assignment, the latter being
also authorized to pay, in the name and behalf of the principal, all her debts and the liens
and encumbrances her property, the very fact that different letters of attorney were given to
each of these two representatives shows that it was not the principal's intention that they
should act jointly in order to make their acts valid. Furthermore, the appellant was aware of
that assignment and she not only did not repudiate it, but she continued employing Attorney
Antero Soriano to represent her in court.
For the foregoing considerations, the court is of opinion and so holds: (1) That an agent of
attorney-in -fact empowered to pay the debts of the principal, and to employ lawyers to
defend the latter's interests, is impliedly empowered to pay the lawyer's fees for services
rendered in the interests of said principal, and may satisfy them by an assignment of a
judgment rendered in favor of said principal; (2) that when a person appoints two attorneys-
in-fact independently, the consent of the one will not be required to validate the acts of the
other unless that appears positively to have been the principal's attention; and (3) that the
assignment of the amount of a judgment made by a person to his attorney, who has not
taken any part in the case wherein said judgment was rendered, made in payment of
professional services in other cases, does not contravene the prohibition of article 1459, case
5, of the Civil Code.
By virtue whereof, and finding no error in the judgment appealed from, the same is affirmed
in its entirety, with costs against the appellant. So ordered.
30. ANTONIO CABALLERO and CONCORDIA CABALLERO, plaintiffs-appellants,
vs. ALMA DEIPARINE, TOMAS RAGA, OLIMPIO RAGA, ADRIANO RAGA, and
MAGDALENA RAGA, defendant-appellees.
ESGUERRA, J.:p
This case was originally appealed to the Court of Appeals which certified it to this Court by
resolution of its Fifth Division, dated June 14, 1974, for the reason that it involves purely
legal questions which are within the exclusive jurisdiction of this Court to adjudicate. The two
legal questions raised are (1) whether the written stipulation of facts entered into by the
counsel for both parties without the signature of the latter is valid and binding and (2)
whether a motion for new trial and to amend the complaint may be granted after a decision
is rendered by the trial court on the basis of said stipulation of facts.
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I. Statement of the Case
On March 21, 1967, plaintiffs Antonio Caballero and Concordia Caballero filed a complaint
against defendants Alma Deiparine, Tomas Raga, Olimpio Raga, Adriano Raga and
Magdalena Raga alleging, among other things:
1. That plaintiffs Antonio Caballero and Concordia Caballero are the children by the first
marriage, and the defendants, Tomas Raga, Olimpio Raga, Adriano Raga and Magdalena
Raga, are the children by second marriage of Vicenta Bucao, now deceased, who died
sometime in February, 1943 in Tabunoc, Talisay, Cebu;
2. That Vicenta Bucao in her lifetime and Tomas Raga acquired by joint purchase a parcel of
land from the Talisay-Minglanilla Friar Lands Estate identified as Lot 2072 situated in
Tabunoc, Talisay, Cebu and now more particularly described in Transfer Certificate of Title
No. Rt-2485 (T-17232) of the Registry of Deeds of Cebu and further declared for taxation
purposes under Tax Declaration No. 15954 and at P100.00;
3. That sometime in 1932, defendant Tomas Raga and Vicenta Bucao jointly sold 1/4 of said
Lot 2072 to plaintiff Antonio Caballero, which sale was evidenced by a deed of sale; and
since the title to said lot at the time of the conveyance to him had not as yet been issued to
them they held the subject portion in trust for said Antonio Caballero until its title could be
delivered to the latter;
4. That plaintiff Antonio Caballero had been paying the yearly land tax for the subject portion
thru his mother Vicenta Bucao, from the time of his acquisition thereof until Vicenta's death
in 1943;
5. That long before the death of Vicenta Bucao in 1943, plaintiff Antonio Caballero had been,
asking the former to deliver the title to the portion sold to him, but he was told by his mother
to wait, as after all, according to her, he (plaintiff) was already in possession thereof and,
besides, his mother was then still living;
6. That after the death of Vicenta Bucao in 1943, plaintiff Antonio Caballero asked defendant
Tomas Raga to deliver the title to the portion sold to him from Lot 2072, but he (Tomas
Raga) told him to wait until it could be segregated and that there was no hurry since he
(Antonio) was already in possession thereof, and, being his brother, he would protect him
(Antonio) from any claim of third persons thereto, should the occasion arise;
7. That plaintiff Antonio Caballero had been in the continuous, open, peaceful and adverse
possession of the subject portion and had built a house thereon way back in 1941 which is
still existing up to the present and used as his dwelling;
8. That the share of Vicenta Bucao to Lot 2072 consisting of 207 square meters, more or
less, in which the plaintiffs Antonio Caballero and Concordia Caballero own an undivided 1/6
share each, had not been partitioned among her heirs by the first and second marriages,
respectively;
9. That sometime on May 11, 1965, plaintiff Antonio Caballero received from defendant Alma
Deiparine a letter demanding that he vacate the portion of Lot 2072 which he was holding for
she had bought it from defendant Tomas Raga, and as the new owner she would like to
construct a house thereon and would further improve said lot;
10. That upon refusal of the plaintiff to vacate the portion in question defendant Alma
Deiparine brought an action for ejectment against him in the Municipal Court of Talisay, and
after trial said Court rendered judgment in favor of Antonio Caballero, the plaintiff herein;
11. That defendant Alma Deiparine appealed the decision of the Municipal Court in the
ejectment case to the Court of First Instance of Cebu where she again lost but she elevated
the decision of the Court of First Instance to the Court of Appeals where it is pending;
12. That in the light of the foregoing facts Transfer Certificate of Title No. 9934 is fraudulent
and questionable for having deliberately included in the sale made by defendant Tomas Raga
to defendant Alma Deiparine the portion previously sold to herein plaintiff Antonio Caballero
as well as the plaintiffs' share inherited from their deceased mother, Vicente Bucao;
13. That the defendants Tomas Raga, Olimpio Raga, Adriano Raga and Magdalena Raga
have willfully and falsely misrepresented themselves by declaring in the instrument of
declaration of heirs and confirmation of sale they executed on March 18, 1963, that they are
the sole heirs of Vicenta Bucao, thereby deliberately and willfully excluding the plaintiffs
herein from succeeding to the share of their mother, Vicenta Bucao, in Lot 2072;
14. That defendant Tomas Raga, Olimpio Raga, Adriano Raga and Magdalena Raga have
willfully and with deliberate falsehood misrepresented themselves when they stated in the
instrument of declaration of heirs and confirmation of sale that Vicenta Bucao's share in Lot
2072 was sold to Tomas Raga, for there was in fact no such sale between them, the truth of
the matter being that long before Vicenta Bucao's death in the early part of 1943 the said
defendants had earlier evacuated from Tabunoc in the later part of 1942 and were in hiding
when the Japanese forces occupied Talisay, leaving behind the herein plaintiff to minister
alone to their sickly mother, Vicenta Bucao, during the last days of her life until her death in
1943 and she died without the presence of even one of her children by the second marriage;
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15. That the deed of sale executed by defendant Tomas Raga over Lot 2072 in favor of
defendant Alma Deiparine has been delivered to the latter but the possession of the property
in question has not been delivered and still remains in the possession of the herein plaintiffs;
16. That the plaintiffs herein discovered the fraudulent conveyance of Lot 2072 to defendant
Alma Deiparine only upon the receipt of the latter's letter dated May 11, 1965.
Defendant Alma Deiparine answered the complaint alleging, among other things:
1. That the alleged sale between Antonio Caballero on one hand and Vicenta Bucao and
defendant Tomas Raga on the other hand was only made known to her after she had already
filed an action for ejectment against Antonio Caballero; at the time she purchased the lot in
question on March 28, 1963, the certificate of title to the land was free of any encumbrance
and she purchased it in good faith for a valuable consideration without any knowledge or
information about the alleged sale to plaintiff Caballero of a portion thereof; the office of the
register of deeds does not show that said deed of sale was registered and from the time she
purchased the land on the date aforesaid until Antonio Caballero filed his answer to the
ejectment case she filed, Antonio Caballero never made mention of said deed of sale
although he had already received a letter of ejectment as well as oral demands to vacate;
hence, the deed of sale in his favor is fictitious as confirmed by Antonio's conduct in keeping
the same in secrecy for more than 30 years;
2. That the Transfer Certificate of Title No. 9934 issued to her is valid, legal, enforceable and
regular, no fraud having committed in its issuance.
Defendants Tomas Raga, Olimpio Raga, Adriano Raga and Magdalena Raga also answered
plaintiffs, complaint alleging, among other things:
1. hat it is not true that Tomas Raga and Vicente Bucao sold 1/4 of the land in question to
Antonio Caballero;
2. hat before the 1/2 of the land in question was sold by Vicenta Bucao to Tomas Raga it was
Vicenta and Tomas who were paying the taxes and after the sale it was Tomas alone who
paid the same;
3. That Antonio Caballero never made demands because he know and still knows that he is
not the owner of any portion of the land in question; while it is true that he is occupying a
portion of the subject land where his house now stands, the same is by mere tolerance by
Vicenta and Tomas for they took pity upon him when he needed a place where to build his
house;
4. That the land in question was sold by Tomas Raga in good faith to defendant Alma
Deiparine;
5. That the sale in favor of defendant Alma Deiparine is valid and did not prejudice Antonio
Caballero since he has no right whatsoever in and over the land in question or in any portion
thereof;
6. That the declaration of heirs and confirmation of sale speaks the truth and was not
intended to prejudice any person;
7. That a sale was made by Vicenta Bucao in favor of Tomas Raga of her 1/2 participation in
the land in question;
8. That it cannot be true that the sale to Alma Deiparine was only discovered by Antonio
Caballero on May 11, 1965, because even before the actual sale was made, plaintiff Antonio
know that there were negotiations for the sale of the land and after the sale the plaintiffs
were also informed that the land has a new owner.
II. Facts of the Case
Before the case was called for hearing, the parties through counsel entered into a stipulation
of facts on March 13, 1968, which provides as follows:
STIPULATION OF FACTS
The PLAINTIFFS and the DEFENDANTS in the above-entitled case duly
assisted by their respective counsels, unto this Honorable Court hereby
respectfully submit the following stipulation of facts:
1. That the parties are all of legal ages and residents of Talisay, Cebu;
2. That Plaintiffs Antonio and Concordia, all surnamed Caballero, and
Defendant Tomas, Olimpio, Adriano and Magdalena, all surnamed Raga, are
the children of Vicenta Bucao now deceased, the first two named being the
children by the first marriage and the last four named being the children by
the second marriage;
3. That during the lifetime of Vicenta Bucao she with her second husband
Casimero Raga and her son Tomas Raga acquired by joint purchase a parcel
of land from the Talisay-Minglanilla Estate identified as Lot No. 2072 and
105
described in TRANSFER CERTIFICATE OF TITLE NO. RT-2485 (T-17232)
issued by the Register of Deeds of Cebu on October 12, 1936, a certified true
copy of which is identified as Annex "A" in the Complaint and Tomas Raga is
the owner of undivided one-half thereof;
4. That in 1932 Vicenta Bucao and Tomas Raga before Annex "A" mentioned
in the next preceding paragraph had been issued, executed jointly a notarial
instrument identified as Annex "B" wherein they acknowledged that Antonio
Caballero had contributed the amount therein stated for the purchase of the
property and they sold 1/4 of the lot to him; when the title to said lot was
issued, Vicenta Bucao and Tomas Raga held it in trust for their co-owner;
5. That the portion mentioned as sold to plaintiff Antonio Caballero remained
unsegregated from Lot 2072 and the deed of sale, Annex "B" of the
Complaint; nor had it been registered in the Register of Deeds; but he, had
been in occupation of a portion of this lot peacefully until the present;
6. That the Tax Declaration of the property remained in the name of Vicenta
Bucao;
7. That during the lifetime of Vicenta Bucao, she, with the conformity of her
husband, sold her undivided 1/2 of the above parcel to her co-owner, Tomas
Raga;
8. That on March 18, 1963 defendants Olimpio Raga, Adriano Raga,
Magdalena Raga and Tomas Raga executed an instrument known as
"Declaration and confirmation of sale" without the participation of plaintiffs
Antonio Caballero and Concordia Caballero, wherein they stated that they are
the heirs of Vicenta Bucao of the 1/2 of the property to Tomas Raga, a
certified true copy of which document is identified as Annex "E" in the
Complaint;
9. That on March 28, 1963 Alma Deiparine acquired in good faith, with a just
title and for a valuable consideration, the whole of Lot 2072 from Tomas
Raga as per deed of absolute sale identified as Annex "C" in the complaint
which cancelled Transfer Certificate of Title No. RT-2482 (T-17232) and the
issuance in her name of Transfer Certificate of Title No. 9934 on April 1,
1963, a certified true copy of which is identified as Annex "D" in the
complaint;
10. That defendant Alma Deiparine came to know only of Annex "B" when it
was presented by plaintiff Antonio Caballero at the trial of an ejectment case
filed by the former in the Municipal Court of Talisay, Cebu which was
docketed as Civil Case No. 108. This case was decided in favor of Antonio
Caballero but the decision was appealed by Alma Deiparine to the Court of
First Instance of Cebu which affirmed the decision for Caballero. The case is
now in the Court of Appeals on appeal by Alma Deiparine;
11. That based on the foregoing stipulation of facts the parties hereby jointly
submit the following legal issues for the determination of this Honorable
Court:
a) Whether the plaintiffs could ask for the rescission of the
declaration of heirs and confirmation of sale identified as
Annex "E" in the complaint;
b) Whether the deed of sale in favor of Alma Deiparine
identified as Annex "C" in the Complaint can be annulled and
Transfer Certificate of Title No. 9934 (Annex "D") be
cancelled.
WHEREFORE, it is most respectfully prayed that the foregoing Stipulation of
Facts be approved and that a decision he handed down on the legal issues
submitted on the basis of said Stipulation of Facts.
Cebu City, March 13, 1968.
The trial court on April 30, 1968, rendered a decision based on the stipulation of facts, the
dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby
rendered against the plaintiffs, dismissing the complaint insofar as the
defendant Alma Deiparine is concerned, but awarding to said plaintiffs and
against the other defendants Raga, jointly and severally, the amount of ONE
THOUSAND PESOS (P1,000.00), as moral damages, and FIVE HUNDRED
PESOS (P500.00) as attorney's fees. The defendants Raga are likewise
ordered to pay the costs.
106
Plaintiffs filed a motion for reconsideration and/or new trial and for leave of court to admit an
amended complaint which the lower court in its order of August 26, 1968, denied. Hence,
this appeal to the Court of Appeals by Antonio Caballero and Concordia Caballero, which was
certified to this Court.
III. Discussion of Assigned Errors
Appellants assigned the following errors to have been committed by the trial court:
1. The court a quo erred in finding that the appellants submitted the stipulation of facts for
its approval, the truth being that they were never made to participate in the preparation and
information of said stipulation of facts;
2. The court a quo erred in finding that the stipulation of facts bear the conformity of the
appellants, the truth being that they never gave their conformity to said stipulation of facts
which was made the basis of the appealed decision;
3. The court a quo erred in approving the stipulation of facts which did not bear the
conformity of the parties, particularly by plaintiffs-appellants;
4. The court a quo erred in rendering a decision based only on the stipulation of facts which
did not state all the facts as borne by the issues brought about in the complaint as well as in
the answer, nor did the stipulation of facts bear the conformity of plaintiffs-appellants;
5. The court a quo erred in denying the plaintiffs-appellants' motion for reconsideration;
6. The court a quo erred likewise in denying the admission of plaintiffs-appellants' amended
complaint.
Since the assigned errors are inter-related and revolve around the basic issue of the legality
of the Stipulation of Facts, they will be discussed jointly for the sake of brevity.
A perusal of the stipulation of facts does not disclose any assent and/or conformity to the
same given by the plaintiffs-appellants. It should be noted that the complaint is verified by
plaintiff Antonio Caballero who swore to the truth thereof before his counsel-notary-public,
Atty. Melecio C. Guba, although under the Rules, considering the nature and subject matter
of the complaint, it did not require any verification. It should also be noted that the
introductory paragraph of said stipulation of facts clearly states that both parties were "duly
assisted" by their counsel, which seems to connote the idea that the parties-litigants,
particularly the plaintiffs-appellants, had actual participation in the formulation of said
stipulation of facts. But the same stipulation of facts shows that plaintiffs-appellants,
particularly principal plaintiff Antonio Caballero, never signed the same. As to why their
counsel, particularly Atty. Melecio C. Guba for the plaintiffs, did not require his clients to affix
their signatures so as to show their conformity and assent thereto, when he even required
the same principal plaintiff, Antonio Caballero, to verify the complaint has not been explained
and remains quite puzzling. The conduct of then counsel for plaintiffs-appellants in entering
into a compromise agreement or stipulation of facts which practically confesses judgment,
without the consent and conformity of his clients, is not in keeping with the sworn duty of a
lawyer to protect the interest of his clients. It is a groosly reprehensible act which amounts to
fraud. The stipulation of facts should not have been tolerated by the trial court by giving its
seal of approval thereto.
And to top it all, plaintiffs-appellants' counsel made the unauthorized admission therein that
principal defendant Alma Deiparine acquired in good faith with a just title and for a valuable
consideration the whole of Lot 2072. Their counsel even admitted also in said document that
during the lifetime of Vicenta Bucao, she, with the conformity of her husband, sold her
undivided of Lot 2072 to her co-owner Tomas Raga. No document was ever shown to him
by the Ragas in support of this claim and the record do not disclose that there was such
document. On the contrary it is replete with implications that no such sale was ever made.
Plaintiffs-appellants maintain that if given a chance they can prove that principal defendant
Alma Deiparine is a purchaser in bad faith and her registration of the deed of sale executed
by the Ragas did not confer upon her any right under the law. The stipulation of facts which
was made the basis of the decision appealed from was null and void as it contained serious
unauthorized admissions against the interest and claims of plaintiffs-appellants who had no
hand in its preparation and formulation. Hence the lower court should have set aside the
decision and admit the amended complaint so as to have the issues properly ventilated.
Appellees on the other hand contend that the stipulation of facts was entered into with full
knowledge, consent and authority of all the parties; that the same was executed after the
parties through their respective counsel had manifested at the pre-trial hearing on February
3, 1968, that they were submitting a stipulation of facts; that at the pre-trial all the parties
were present and the stipulation of facts was signed by counsel for and in behalf of their
clients and strictly within their authority to do so; and that it was entered into in good faith
on the basis of the true facts which could be established at the trial.
The stipulation of facts in question appellees further continue, is a matter of ordinary judicial
Procedure as it relates to admission; that no one is in a better position than the counsel to
determine what facts are to be established in a given case to support the theory of the case;
that he alone knows what facts he cannot established by the evidence and what facts can be
admitted without trial either because it to be true as borne out by oral or documentary
107
evidence he himself has on hand or because he has no evidence to refute it; that it was
within his authority to make the stipulation for and in behalf of his client; that in the instant
cases, the complaint itself is barren of any allegation that appellee Alma Deiparine is buyer in
bad faith; that the allegations in the complaint are directed only against the alleged false
misrepresentations of the defendants Tomas Raga, Olimpio Raga, Adriano Raga and
Magdalena Raga in the declaration of heirs; that the complaint was prepared by Atty. Melecio
C. Guba and as a lawyer of good standing he is presumed to know the case and the nature
of his evidence, and his failure to allege such a material fact simply shows lack of evidence to
prove bad faith on the part of appellee Alma Deiparine that no error nor mistake, much less,
bad faith, attended the admission made in the stipulation of facts that said appellee Alma
Deiparine purchase the property in good faith and for a valuable consideration; that it was
not necessary that the parties litigant should sign the stipulation of facts which is nothing
more than a pleading containing judicial admission which the lawyer himself can make.
Finally, appellees argue that the stipulation of facts clearly show that Atty. Guba acted for
and in behalf of his clients; that there is no showing at all of absence of such authority, and
that a client is bound by the action of his counsel in the conduct of a case and he cannot be
heard to complain that the result might have been different had he proceeded differently;
that a client is bound by the mistakes of his lawyer; that if such grounds were to be admitted
as reasons for reopening of cases, there would never be an end to a suit for as long as new
counsel could be employed who could allege and show that prior counsel had not been
sufficiently diligentor experienced or learned; that even granting that Atty. Guba committed a
mistake, such a mistake is no ground for the reversal of the decision or re-opening of the
case; that plaintiffs' remedy is to proceed against his counsel Atty. Guba, and that the lower
court, therefore, did not err in rendering the decision on the basis thereof and in denying the
motions for reconsideration and for amendment of the complaint.
After weighing the conflicting claims of the parties, We find merit in the contention of
plaintiffs-appellants. Antonio Caballero and Concordia Caballero. A reading of the stipulation
of facts convinces Us that it is a compromise agreement of the parties. The stipulation
concludes with this prayer: "WHEREFORE, it is most respectfully prayed that the foregoing
Stipulation of Facts be approved and that a decision be handed down on the legal issues
submitted on the basis of said Stipulation of Facts." Apparently it is intended to terminate the
case. Rule 138, Section 23 of the Rules of Court specifically provides that:
Authority of attorneys to bind clients. Attorneys have authority to bind
their clients in any case by any agreement in relation thereto made in
writing, and in taking appeals, and in all matters of ordinary judicial
procedure. But they cannot, without special authority, compromise their
client's litigation, or receive anything in discharge of a client's claim but the
full amount in cash. (Emphasis supplied)
It may be true that during the pre-trial hearing held on February 3, 1968, the parties
concerned agreed to execute a stipulation of facts but it does not mean that the respective
counsels of the contending parties can prepare a stipulation of facts the contents of which is
prejudicial to the interest of their clients and sign it themselves without the intervention of
their clients. In the case at bar, the then counsel for plaintiffs-appellants, Atty. Melecio C.
Guba, agreed that defendant-appellee Alma Deiparine bought the land in question in good
faith and for a valuable consideration; that during the lifetime of their mother Vicenta Bucao,
she, with the conformity of her husband, sold her undivided of the land in question to her
co-owner and son, Tomas Raga. All these adverse facts were made the basis of the appealed
decision against the plaintiffs. No further evidence was presented as there was no hearing.
The attorney for the plaintiffs in making such admission went beyond the scope of his
authority as counsel and practically gave away the plaintiffs' case. The admission does not
refer to a matter of judicial procedure related to the enforcement of the remedy. It related to
the very subject matter of the cause of action, or to a matter on which the client alone can
make the admission binding on him. In Belandres vs. Lopez Sugar Central Mill Co., Inc. , L-
6869, May 27, 1955; 97 Phil. 100, 104, 105, it was held that:
The broad implied or apparent powers of an attorney with respect to the
conduct or control of litigation are, however, limited to matters which relate
only to the procedure or remedy. The employment of itself confers upon the
attorney no implied or power or authority over the subject matter of the
cause of action or defense; and, unless the attorney has expressly been
granted authority with respect thereto, the power to deal with or surrender
these matters is regarded as remaining exlusively in the client .
The line of demarcation between the respective rights and powers of an
attorney and his client is clearly defined. The cause of action, the claim or
demand sued upon, and the subject matter of the litigation are all within the
exclusive control of a client, and an attorney may not impair, compromise,
settle, surrender, or destroy them without his client's consent . But all the
proceedings in court to enforce the remedy, to bring the claim, demand,
cause of action, or subject matter of the suit to hearing, trial, determination,
judgment, and execution, are within the exclusive control of the attorney.
(Emphasis supplied)
FOR ALL THE FOREGOING, the decision appealed from is hereby set aside and this case shall
be remanded to the court a quo for further proceedings in consonance with the opinion
above set forth, and to admit the amended complaint submitted by the plaintiffs.
Costs against appellees.
108
31. PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.
MAXIMO STA. MARIA, ET AL., defendant,
VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA, all
surnamed STA. MARIA,defendants-appellants.
TEEHANKEE, J.:
In this appeal certified to this Court by the Court of Appeals as involving purely legal issues,
we hold that a special power of attorney to mortgage real estate is limited to such authority
to mortgage and does not bind the grantor personally to other obligations contracted by the
grantee, in the absence of any ratification or other similar act that would estop the grantor
from questioning or disowning such other obligations contracted by the grantee.
Plaintiff bank filed this action on February 10, 1961 against defendant Maximo Sta. Maria and
his six brothers and sisters, defendants-appellants, Valeriana, Emeteria, Teofilo, Quintin,
Rosario and Leonila, all surnamed Sta. Maria, and the Associated Insurance & Surety Co.,
Inc. as surety, for the collection of certain amounts representing unpaid balances on two
agricultural sugar crop loans due allegedly from defendants. 1
The said sugar crop loans were obtained by defendant Maximo Sta. Maria from plaintiff bank
under a special power of attorney, executed in his favor by his six brothers and sisters,
defendants-appellants herein, to mortgage a 16-odd hectare parcel of land, jointly owned by
all of them, the pertinent portion of which reads as follows:
That we, VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA all
surnamed STA. MARIA, sole heirs of our deceased parents CANDIDO STA. MARIA
and FRANCISCA DE LOS REYES, all of legal age, Filipinos, and residents of
Dinalupihan, Bataan, do hereby name, constitute and appoint Dr. MAXIMO STA.
MARIA, of legal age, married, and residing at Dinalupihan, Bataan to be our true and
lawful attorney of and in our place, name and stead to mortgage, or convey as
security to any bank, company or to any natural or juridical person, our undivided
shares over a certain parcel of land together the improvements thereon which parcel
of land is more particularly described as follows, to wit:
"Situated in the Barrio of Pinulot, Municipality of Dinalupihan, Bataan,
containing an area of 16.7249 hectares and bounded as follows to wit: North
by property of Alejandro Benito; on the Northeast, by public land and
property of Tomas Tulop; on the southeast, by property of Ramindo Agustin;
on the southwest, by properties of Jose V. Reyes and Emilio Reyes; and on
the northwest, by excluded portion claimed by Emilio Reyes."
of which parcel of land aforementioned we are together with our said attorney who is
our brother, the owners in equal undivided shares as evidenced by Transfer
Certificate of Title No. T-2785 of the Registry of Deeds of Bataan dated Feb. 26th
1951. (Exh. E)2
In addition, Valeriana Sta. Maria alone also executed in favor of her brother, Maximo, a
special power of attorney to borrow money and mortgage any real estate owned by her,
granting him the following authority:
For me and in my name to borrow money and make, execute, sign and deliver
mortgages of real estate now owned by me standing in my name and to make,
execute, sign and deliver any and all promissory notes necessary in the premises .
(Exh. E-I)3
By virtue of the two above powers, Maximo Sta. Maria applied for two separate crop loans,
for the 1952-1953 and 1953-1954 crop years, with plaintiff bank, one in the amount of
P15,000.00, of which only the sum of P13,216.11 was actually extended by plaintiff, and the
other in the amount of P23,000.00, of which only the sum of P12,427.57 was actually
extended by plaintiff. As security for the two loans, Maximo Sta. Maria executed in his own
name in favor of plaintiff bank two chattel mortgages on the standing crops, guaranteed by
surety bonds for the full authorized amounts of the loans executed by the Associated
Insurance & Surety Co., Inc. as surety with Maximo Sta. Maria as principal. The records of
the crop loan application further disclose that among the securities given by Maximo for the
loans were a "2nd mortgage on 25.3023 Has. of sugarland, including sugar quota rights
therein" including, the parcel of land jointly owned by Maximo and his six brothers and sisters
herein for the 1952-1953 crop loan, with the notation that the bank already held a first
mortgage on the same properties for the 1951-1952 crop loan of Maximo, 4 and a 3rd
mortgage on the same properties for the 1953-1954 crop loan. 5
The trial court rendered judgment in favor of plaintiff and against defendants
thus:1wph1.t
WHEREFORE premises considered, judgment is hereby rendered condemning the
defendant Maximo R. Sta. Maria and his co-defendants Valeriana, Quintin, Rosario,
Emeteria, Teofilo, and Leonila all surnamed Sta. Maria and the Associated Insurance
and Surety Company, Inc., jointly and severally, to pay the plaintiff, the Philippine
National Bank, Del Carmen Branch, as follows:
1. On the first cause of action, the sum of P8,500.72 with a daily interest of P0.83 on
P6,100.00 at 6% per annum beginning August 21, 1963 until fully paid;
109
 2. On the second cause of action, the sum of P14,299.79 with a daily interest of
P1.53 on P9,346.44 at 6% per annum until fully paid; and
3. On both causes of action the further sum equivalent to 10% of the total amount
due as attorney's fee as of the date of the execution of this decision, and the costs. 6
Defendant Maximo Sta. Maria and his surety, defendant Associated Insurance & Surety Co.,
Inc. who did not resist the action, did not appeal the judgment. This appeals been taken by
his six brothers and sisters, defendants-appellants who reiterate in their brief their main
contention in their answer to the complaint that under this special power of attorney, Exh. E,
they had not given their brother, Maximo, the authority to borrow money but only to
mortgage the real estate jointly owned by them; and that if they are liable at all, their liability
should not go beyond the value of the property which they had authorized to be given as
security for the loans obtained by Maximo. In their answer, defendants-appellants had
further contended that they did not benefit whatsoever from the loans, and that the plaintiff
bank's only recourse against them is to foreclose on the property which they had authorized
Maximo to mortgage.
We find the appeal of defendants-appellants, except for defendant Valeriana Sta. Maria who
had executed another special power of attorney, Exh. E-1, expressly authorizing Maximo to
borrow money on her behalf, to be well taken.
1. Plaintiff bank has not made out a cause of action against defendants-appellants
(except Valeriana), so as to hold them liable for the unpaid balances of the loans
obtained by Maximo under the chattel mortgages executed by him in his own name
alone. In the early case of Bank of P.I. vs. De Coster, this Court, in holding that the
broad power of attorney given by the wife to the husband to look after and protect
the wife's interests and to transact her business did not authorize him to make her
liable as a surety for the payment of the pre-existing debt of a third person, cited the
fundamental construction rule that "where in an instrument powers and duties are
specified and defined, that all of such powers and duties are limited andconfined to
those which are specified and defined, and all other powers and duties are
excluded." 7 This is but in accord with the disinclination of courts to enlarge an
authority granted beyond the powers expressly given and those which incidentally
flow or derive therefrom as being usual or reasonably necessary and proper for the
performance of such express powers. Even before the filing of the present action,
this Court in the similar case of De Villa vs. Fabricante 8 had already ruled that where
the power of attorney given to the husband by the wife was limited to a grant of
authority to mortgage a parcel of land titled in the wife's name, the wife may not be
held liable for the payment of the mortgage debt contracted by the husband, as the
authority to mortgage does not carry with it the authority to contract obligation. This
Court thus held in the said case:
Appellant claims that the trial court erred in holding that only Cesario A.
Fabricante is liable to pay the mortgage debt and not his wife who is exempt
from liability. The trial court said: "Only the defendant Cesario A. Fabricante
is liable for the payment of this amount because it does not appear that the
other defendant Maria G. de Fabricante had authorized Cesario A. Fabricante
to contract the debt also in her name . The power of attorney was not
presented and it is to be presumed that the power (of attorney) was limited
to a grant of authority to Cesario A. Fabricante to mortgage the parcel of
land covered by Transfer Certificate of Title in the name of Maria G. de
Fabricante.
We went over the contents of the deed of mortgage executed by Cesario
Fabricante in favor of Appellant on April 18, 1944, and there is really nothing
therein from which we may infer that Cesario was authorized by his wife to
construct the obligation in her name. The deed shows that the authority was
limited to the execution of the mortgage insofar as the property of the wife
is concerned. There is a difference between authority to mortgage and
authority to contract obligation. Since the power of attorney was not
presented as evidence, the trial court was correct in presuming that the
power was merely limited to a grant of authority to mortgage unless the
contrary is shown.9
2. The authority granted by defendants-appellants (except Valeriana) unto their
brother, Maximo, was merely to mortgage the property jointly owned by them. They
did not grant Maximo any authority to contract for any loans in their names and
behalf. Maximo alone, with Valeriana who authorized him to borrow money, must
answer for said loans and the other defendants-appellants' only liability is that the
real estate authorized by them to be mortgaged would be subject to foreclosure and
sale to respond for the obligations contracted by Maximo. But they cannot be held
personally liable for the payment of such obligations, as erroneously held by the trial
court.
3. The fact that Maximo presented to the plaintiff bank Valeriana's additional special
power of attorney expressly authorizing him to borrow money, Exh. E-1, aside from
the authority to mortgage executed by Valeriana together with the other defendants-
appellants also in Maximo's favor, lends support to our view that the bank was not
satisfied with the authority to mortgage alone. For otherwise, such authority to
borrow would have been deemed unnecessary and a surplusage. And having failed
110
to require that Maximo submit a similar authority to borrow, from the other
defendants-appellants, plaintiff, which apparently was satisfied with the surety bond
for repayment put up by Maximo, cannot now seek to hold said defendants-
appellants similarly liable for the unpaid loans. Plaintiff's argument that "a mortgage
is simply an accessory contract, and that to effect the mortgage, a loan has to be
secured" 10 falls, far short of the mark. Maximo had indeed, secured the loan on his
own account and the defendants-appellants had authorized him to mortgage their
respective undivided shares of the real property jointly owned by them as security for
the loan. But that was the extent of their authority land consequent liability, to have
the real property answer for the loan in case of non-payment. It is not unusual in
family and business circles that one would allow his property or an undivided share in
real estate to be mortgaged by another as security, either as an accommodation or
for valuable consideration, but the grant of such authority does not extend to
assuming personal liability, much less solidary liability, for any loan secured by the
grantee in the absence of express authority so given by the grantor.
4. The outcome might be different if there had been an express ratification of the
loans by defendants-appellants or if it had been shown that they had been benefited
by the crop loans so as to put them in estoppel. But the burden of establishing such
ratification or estoppel falls squarely upon plaintiff bank. It has not only failed to
discharge this burden, but the record stands undisputed that defendant-appellant
Quintin Sta. Maria testified that he and his co-defendants executed the authority to
mortgage "to accommodate (my) brother Dr. Maximo Sta. Maria ... and because he
is my brother, I signed it to accommodate him as security for whatever he may apply
as loan. Only for that land, we gave him as, security" and that "we brothers did not
receive any centavo as benefit." 11 The record further shows plaintiff bank itself
admitted during the trial that defendants-appellants "did not profit from the loan"
and that they "did not receive any money (the loan proceeds) from (Maximo)." 12 No
estoppel, therefore, can be claimed by plaintiff as against defendants-appellants.
5. Now, as to the extent of defendant Valeriana Sta. Maria's liability to plaintiff. As
already stated above, Valeriana stands liable not merely on the mortgage of her
share in the property, but also for the loans which Maximo had obtained from
plaintiff bank, since she had expressly granted Maximo the authority to incur such
loans. (Exh. E-1.) Although the question has not been raised in appellants' brief, we
hold that Valeriana's liability for the loans secured by Maximo is not joint and
several or solidary as adjudged by the trial court, but only joint, pursuant to the
provisions of Article 1207 of the Civil Code that "the concurrence ... of two or more
debtors in one and the same obligation does not imply that ... each one of the
(debtors) is bound to render entire compliance with the prestation. There is a
solidary liability only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity." It should be noted that in the additional
special power of attorney, Exh. E-1, executed by Valeriana, she did not grant Maximo
the authority to bind her solidarity with him on any loans he might secure
thereunder.
6. Finally, as to the 10% award of attorney's fees, this Court believes that
considering the resources of plaintiff bank and the fact that the principal debtor,
Maximo Sta. Maria, had not contested the suit, an award of five (5%) per cent of the
balance due on the principal, exclusive of interests, i.e., a balance of P6,100.00 on
the first cause of action and a balance of P9,346.44 on the second cause of action,
per the bank's statements of August 20, 1963, (Exhs. Q-1 and BB-1, respectively)
should be sufficient.
WHEREFORE, the judgment of the trial court against defendants-appellants Emeteria, Teofilo,
Quintin, Rosario and Leonila, all surnamed Sta. Maria is hereby reversed and set aside, with
costs in both instances against plaintiff. The judgment against defendant-appellant Valeriana
Sta. Maria is modified in that her liability is held to be joint and not solidary, and the award of
attorney's fees is reduced as set forth in the preceding paragraph, without costs in this
instance.
32. BA FINANCE CORPORATION, petitioner,
vs. HON. COURT OF APPEALS and TRADERS ROYAL BANK, respondents
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the respondent appellate court
which reversed the ruling of the trial court dismissing the case against petitioner.
The antecedent facts are as follows:
On December 17, 1980, Renato Gaytano, doing business under the name Gebbs
International, applied for and was granted a loan with respondent Traders Royal Bank in the
amount of P60,000.00. As security for the payment of said loan, the Gaytano spouses
executed a deed of suretyship whereby they agreed to pay jointly and severally to
respondent bank the amount of the loan including interests, penalty and other bank charges.
In a letter dated December 5, 1980 addressed to respondent bank, Philip Wong as credit
administrator of BA Finance Corporation for and in behalf of the latter, undertook to
guarantee the loan of the Gaytano spouses. The letter reads:
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 This is in reference to the application of Gebbs International for a twenty-five
(25) month term loan of 60,000.00 with your Bank.
In this connection, please be advised that we unconditionally guarantee full
payment in peso value the said accommodation (sic) upon non-payment by
subject up to a maximum amount of P60,000.00.
Hoping this would meet your requirement and expedite the early processing
of their application.
Thank you.
NCE CORPORATION
( In view of the foregoing, the judgment is hereby rendered ordering the
(p. 12, Rollo)
Partial payments were made on the loan leaving an unpaid balance in the amount of
P85,807.25. Since the Gaytano spouses refused to pay their obligation, respondent bank filed
with the trial court complaint for sum of money against the Gaytano spouses and petitioner
corporation as alternative defendant.
The Gaytano spouses did not present evidence for their defense. Petitioner corporation, on
the other hand, raised the defense of lack of authority of its credit administrator to bind the
corporation.
On December 12, 1988, the trial court rendered a decision the dispositive portion of which
states:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of
plaintiff and against defendants/Gaytano spouses, ordering the latter to
jointly and severally pay the plaintiff the following:
1) EIGHTY FIVE THOUSAND EIGHT HUNDRED SEVEN AND 25/100
(P85,807.25), representing the total unpaid balance with accumulated
interests, penalties and bank charges as of September 22, 1987, plus
interests, penalties and bank charges thereafter until the whole obligation
shall have been fully paid.
2) Attorney's fees at the stipulated rate of ten (10%) percent computed from
the total obligation; and
3) The costs of suit.
The dismissal of the case against defendant BA Finance Corporation is
hereby ordered without pronouncement as to cost.
SO ORDERED. (p. 31, Rollo)
Not satisfied with the decision, respondent bank appealed with the Court of Appeals. On
March 13, 1990, respondent appellate court rendered judgment modifying the decision of the
trial court as follows:
defendants Gaytano spouses and alternative defendant BA Finance
Corporation, jointly and severally, to pay the plaintiff the amount of
P85,807.25 as of September 8, 1987, including interests, penalties and other
back (sic) charges thereon, until the full obligation shall have been fully paid.
No pronouncement as to costs.
SO ORDERED. (p. 27 Rollo)
Hence this petition was filed with the petitioner assigning the following errors committed by
respondent appellate court:
1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
PETITIONER IS JOINTLY AND SEVERALLY LIABLE WITH GAYTANO SPOUSES
DESPITE ITS FINDINGS THAT THE LETTER GUARANTY (EXH. "C") IS
"INVALID AT ITS INCEPTION";
2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
THE PETITIONER WAS GUILTY OF ESTOPPEL DESPITE THE FACT THAT IT
NEVER KNEW OF SUCH ALLEGED LETTER-GUARANTY;
3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT RULING
THAT SUCH LETTER GUARANTY (EXHIBIT "C") BEING PATENTLY ULTRA
VIRES, IS UNENFORCEABLE;
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 4. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING RELIEF a) P650,000.00 Secured Loans
ON PETITIONER'S COUNTERCLAIM b) P550,000.00 Supported Loans
(p. 10, Rollo). c) P350,000.00 Truck Loans/Contracts/Leases
d) P350,000.00 Auto Loan Contracts/Leases
Since the issues are interrelated, it would be well to discuss them jointly. e) P350,000.00 Appliance Loan Contracts
f) P350,000.00 Unsecured Loans
Petitioner contends that the letter guaranty is ultra vires, and therefore unenforceable; that
said letter-guaranty was issued by an employee of petitioner corporation beyond the scope of Total loans and/or credits [combination of (a) thru (f) extended to any one
his authority since the petitioner itself is not even empowered by its articles of incorporation borrower including parents, affiliates and/or subsidiaries, should not exceed
and by-laws to issue guaranties. Petitioner also submits that it is not guilty of estoppel to P750,000.00. In exercising the limits aforementioned, both direct
make it liable under the letter-guaranty because petitioner had no knowledge or notice of and contingent commitments to the borrower(s) should be considered.
such letter-guaranty; that the allegation of Philip Wong, credit administrator, that there was
an audit was not supported by evidence of any audit report or record of such transaction in All loans must be within the Company's established lending guideline and
the office files. policies.

We find the petitioner's contentions meritorious. It is a settled rule that persons dealing with
an assumed agent, whether the assumed agency be a general or special one are bound at
their peril, if they would hold the principal liable, to ascertain not only the fact of agency but
also the nature and extent of authority, and in case either is controverted, the burden of
proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19). Hence, the burden
is on respondent bank to satisfactorily prove that the credit administrator with whom they
transacted acted within the authority given to him by his principal, petitioner corporation.
The only evidence presented by respondent bank was the testimony of Philip Wong, credit
administrator, who testified that he had authority to issue guarantees as can be deduced
from the wording of the memorandum given to him by petitioner corporation on his lending
authority. The said memorandum which allegedly authorized Wong not only to approve and
grant loans but also to enter into contracts of guaranty in behalf of the corporation, partly
reads:
To: Philip H. Wong, SAM
Credit Administrator
From: Hospicio B. Bayona, Jr., VP and
Head of Credit Administration
Re: Lending Authority
I am pleased to delegate to you in your capacity as Credit Administrator the
following lending limits:
xxx xxx xxx
LEVELS OF APPROVAL
All transactions in excess of any branch's limit must be recommended to you
through the Official Credit Report for approval. If the transaction exceeds
your limit, you must concur in application before submitting it to the Vice
President, Credit Administration for approval or concurrence.
. . . (pp. 62-63, Rollo) (Emphasis ours)
Although Wong was clearly authorized to approve loans even up to P350,000.00 without any
security requirement, which is far above the amount subject of the guaranty in the amount of
P60,000.00, nothing in the said memorandum expressly vests on the credit administrator
power to issue guarantees. We cannot agree with respondent's contention that the phrase
"contingent commitment" set forth in the memorandum means guarantees. It has been held
that a power of attorney or authority of an agent should not be inferred from the use of
vague or general words. Guaranty is not presumed, it must be expressed and cannot be
extended beyond its specified limits (Director v. Sing Juco, 53 Phil. 205). In one case, where
it appears that a wife gave her husband power of attorney to loan money, this Court ruled
that such fact did not authorize him to make her liable as a surety for the payment of the
debt of a third person (Bank of Philippine Islands v. Coster, 47 Phil. 594).
The sole allegation of the credit administrator in the absence of any other proof that he is
authorized to bind petitioner in a contract of guaranty with third persons should not be given
weight. The representation of one who acts as agent cannot by itself serve as proof of his
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authority to act as agent or of the extent of his authority as agent (Velasco v. La Urbana, 58
Phil. 681). Wong's testimony that he had entered into similar transactions of guaranty in the
past for and in behalf of the petitioner, lacks credence due to his failure to show documents
or records of the alleged past transactions. The actuation of Wong in claiming and testifying
that he has the authority is understandable. He would naturally take steps to save himself
from personal liability for damages to respondent bank considering that he had exceeded his
authority. The rule is clear that an agent who exceeds his authority is personally liable for
damages (National Power Corporation v. National Merchandising Corporation, Nos. L-33819
and
L-33897, October 23, 1982, 117 SCRA 789).
Anent the conclusion of respondent appellate court that petitioner is estopped from alleging
lack of authority due to its failure to cancel or disallow the guaranty, We find that the said
conclusion has no basis in fact. Respondent bank had not shown any evidence aside from the
testimony of the credit administrator that the disputed transaction of guaranty was in fact
entered into the official records or files of petitioner corporation, which will show notice or
knowledge on the latter's part and its consequent ratification of the said transaction. In the
absence of clear proof, it would be unfair to hold petitioner corporation guilty of estoppel in
allowing its credit administrator to act as though the latter had power to guarantee.
ACCORDINGLY, the petition is GRANTED and the assailed decision of the respondent
appellate court dated March 13, 1990 is hereby REVERSED and SET ASIDE and another one
is rendered dismissing the complaint for sum of money against BA Finance Corporation.
SO ORDERED.
33. THE DIRECTOR OF PUBLIC WORKS, plaintiff-appellee, vs.
SING JUCO, ET AL., defendants. SING JUCO, SING BENGCO and PHILIPPINE
NATIONAL BANK, appellants.
STREET, J.:
From Torrens certificate of title No. 1359 relating to land in the municipality of Iloilo, it
appears that on September 28, 1920, the title of the property described therein was owned,
in undivided shares, by Mariano de la Rama, Gonzalo Mariano Tanboontien, Sing Juco and
Sing Bengco. The interest vested by said certificate in Mariano de la Rama was subsequently
transferred to sale to Enrique Enchaus. It further appears that on November 23, 1020, the
owners of the property covered by the said certificate conveyed it by way of a mortgage to
the Philippine National Bank for the purpose of securing a credit in current account in a
mount not in excess of P170,000, with interest at a rate of 12 percent per annum. The
indebtedness covered by this mortgage has not been satisfied, and upon the date of the
decision of the court below it amounted to the sum of P170,000, plus interest at 12 percent
per annum from November 24, 1920.
The land above referred to contains an area of nearly 16 hectares, or to be exact,
158,589.44 square meters according to the certificate. It is located on "Point Llorente" at the
mouth of Iloilo river, near the City of Iloilo, and it is of so low a level that, prior to the
improvement to which reference is to be made, it was subject to frequent flooding. In 1921,
the Government of the Philippine Islands was planning extensive harbor improvements in this
vicinity, requiring extensive dredging by the Bureau of Public Works in the mouth of said
river. The conduct of these dredging operations made it necessary for the Director of Public
Works to find a place of deposit for the dirt and mud taken from the place, or places,
dredged. As the land already referred to was low and easily accessible to the spot where
dredging was to be conducted, it was obviously for the interest of the Government and the
said owners of the land that the material taken out by the dredges should be deposited on
the said property. Accordingly, after preliminary negotiations to this effect have been
conducted, a contract was made between the Director of Public Works, representing the
Government of the Philippine Islands, and the four owners, M. de la Rama, Sing Juco, G. M.
Tanboontien, and Seng Bengco, of which, as modified by some respects by subsequent
agreement, the following features are noteworthy.
(1) The Bureau of Public Works agreed to deposit the material to be dredged by it from the
Iloilo River, in connection with the contempted improvement, upon the lot of the land,
already described as covered by certificate No. 1359, at a price to be determined at the
actual cost of the filling, with certain surcharges to be determined by the Director of Public
Works. It was contemplated in the original draft of the contract that the Bureau would be
able to furnish some 250,000 cubic meters of dredged material for filling in the land, was
limited to the material which should be dredged from the river as a result of the proposed
improvement. To this stipulation the four owners of the property assented on March 14,
1921.
(2) With respect to the compensation it was agreed that the amount due should be
determined by the Director of Public Works, under certain conditions mentioned in the
contract, of an amount of not less that 20 nor more than 75 centavos per cubic meter. It was
further agreed that, when the work should be finished, the cost thereof should be paid by
the owners in 5 annual installments and that for failure to pay such installment the whole of
the amount thereafter to accrue should become at once due. This contract was noted in the
Torrens certificate of title on January 8, 1924.
In connection with the making of the contract abovementioned, the, Director of Public Works
required a bond to be supplied by the owners in the penal amount of P150,000,
approximately twice the estimated cost of the filling, conditioned for the payment of the
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amount due from the owners. This bond was executed contemporaneously with the main
contract; and in connection therewith it should be noted that one of the names appearing
upon said contract was that of "Casa Viuda de Tan Toco," purporting to be signed by M. de
la Rama.
The dredging operation were conducted by the Bureau of Public Works in substantial
accomplice, we find, with the terms of said agreement; and after the account with the
owners were liquidated and the amount due from them determined, demand was made upon
them for the payment of the first installment. No such payment was, however, made as a
consequence this action was instituted by the Director of Public Works on October 14, 1926,
for the purpose of recovering the amount due to the Government under the contract from
the original owners of the property from the sureties whose names were signed to the
contract of suretyship, and to enforce the obligation as a real lien upon the property. In said
action the Philippine National Bank was made a party defendant, as having an interest under
its prior mortgage upon the property, while Enrique Enchaus was made defendant as
successor in interest of M. de la Rama, and Tan Ong Sze widow of Tan Toco, was also made
defendant by reason of her supposed liability derived from the act of De la Rama in signing
the firm "Casa Viuda de Tan Toco" as a surety on bond. It was noteworthy that in the
complaint it was asked that, in the enforcement of the government's lien, the property should
be sold "subject to the first mortgage in favor of the Philippine National Bank."
To this complaint different defenses were set up, as follows: On behalf of the owners of the
property, it was contended that the government has not complied with that contract, in that
dredged material deposited on the land had not been sufficient in quantity to raise the level
of the land above high water, and that, as a consequence, the land had not been much
benefited. It is therefore asserted that the owners of the property are not obligated to pay
the filling operation. These defendants sought to recover further damages by way of cross-
complaint for the same supposed breach of contract on the part of the Government. On the
part of Viuda de Tan Toco the defense was interposed that the name "Casa Viuda de Tan
Toco" signed to the contract of suretyship by Mariano de la Rama was signed without
authority; while on the part of the Philippine National Bank was asserted that the mortgage
credit pertaining to the bank is superior to the Governments lien for improvement, and by
way of counterclaim the bank asked that its mortgage be foreclosed for the amount of its
mortgage credit, and that the four mortgagors, Sing Juco, Sing Bengco, M. de la Rama and
G.M. Tanboontien, be required to pay the amount due to the bank, and that in case of their
failure to do so the mortgaged property should be sold and the proceeds paid preferentially
to the bank upon its mortgage.
Upon hearing the cause the trial court, ignoring that part of the original complaint wherein
the Government seeks to enforce its lien in subordination to its first mortgage, made
pronouncements:
(1) Declaring Sing Juco, Sing Bengco, M. de la Rama and G. M. Tanboontien
indebted to the Government in the amount of P70, 938, with interest from the date
of the filing of the complaint, and requiring them to pay the said sum to the plaintiff;
(2) Declaring, in effect, that the lien of the Government for the filing improvement
was superior to the mortgage of the Philippine National Bank; and finally
(3) Declaring the defendant Tan Ong Sze, Viuda de Tan Toco, personally liable upon
the contract of suretyship, in case the four principal obligors should not satisfy their
indebtedness to the Government, or if the land should not sell enough to satisfy the
same.
From this judgment various parties defendant appealed as follows: All of the defendants,
except the Philippine National Bank, appealed from so much of the decision as held that the
defendant owners and signatories to the contract of suretyship has not been released by
non-performance of the contract on the part of the Bureau of Public Works, and from the
refusal of the court to give to the defendant owners damages for breach of contract on the
part of the Government. On the part of Tan Ong Sze, Viuda de Tan Toco, error is assigned to
the action of the court in holding said defendant liable upon the contract of suretyship.
Finally, the Philippine National Bank appealed from so much of the decision as gave the lien
of the Government for improvement priority over the mortgagee executed in favor of the
bank.
Dealing with these contentions in the order indicated, we find the contention of the
appellants (except the Philippine National Bank), to the effect that the Director of Public
Works has failed to comply with the obligations imposed upon the government by the
contract, is wholly untenable. By said contract, the Government was not obligated to raise
the land on which the dredged material was deposited to any specified level. The
Government only obligated itself upon said land the material should be dredged from the
mouth of the Iloilo River in the course of the improvement undertaken by the Government in
and near that place. Under the original contract as originally drafted, the Government agreed
to furnish 250,000 cubic meters, more or less, of dredged material; but on Mar. 14, 1921,
the owners of the property indicated their acceptance of a modification of the contract
effected by the Director of Public Works and the Secretary of Commerce and
Communications, in which it was made clear that the material to be supplied would be such
only as should be dredged from the river as a result of the proposed improvement. In the
endorsement of the Director of Public Works, thus accepted by the owners, it was made clear
that the Bureau of Public Works did not undertake to furnish material to complete the filling
of the land to any specified level. Proof submitted on the part of the owners tends to show
that parts of the filled land are still subject to inundation in rainy weather; and it is
contended, that the owners have, for this reason, been able to sell in lots the property to
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individual occupants. the sum of P15,000, which is claimed upon this account, as damages by
the owners, is the amount of interest alleged to have been accrued upon their investment,
owing to their inability to place the land advantageously upon the market. The claim is, as
already suggested, untenable. There has been no breach on the part of the Government in
fulfilling the contract. In fact it appears that the Government deposited in the period covered
by the contract 236,460 cubic meters, and after the amount thus deposited had been
reduced by 21,840 cubic meters, owing to the natural process of drying, the Bureau of Public
Works further deposited 53,000 cubic meters on the same land. In this connection, the
district engineer testified that the filling which has been charged to the owners at P70,938
actually cost the Government the amount of P88,297.85. The charge made for the work was
evidently computed on a very moderate basis; and the owners of the property have no just
ground of complaint whatever.
The contention of Tan Ong Sze, widow of Tan Toco, to the effect that she was not, and is
not, bound by the contract of suretyship, is our pinion, well-founded. It will be remembered
that said contract purports to have been signed by Mariano de la Rama, acting for this
defendant under the power of attorney. But the Government has exhibited no power of
attorney which would authorize the creation, by the attorney-in-fact, of an obligation in the
nature of suretyship binding upon this principal.
It is true that the Government introduced in evidence 2 documents exhibiting powers of
attorney, conferred by these documents (Exhibit K, identical with Exhibit 5) Mariano de la
Rama was given the power which reads as follows:
. . . and also for me and in my name to sign, seal and execute, and as my act and
deed deliver, any lease or any other deed for the conveying any real or personal
property or the other matter or thing wherein I am or may be personally interested
or concerned. And I do hereby further authorize and empower my said attorney to
substitute and point any other attorney or attorneys under him for the purposes
aforesaid, and the same again and pleasure to revoke; and generally for me and in
my name to do, perform, and execute all and any other lawful and reasonable acts
and things whatsoever as fully and effectually as I, the said Tan Ong Sze might or
could do if personally present.
In another document, (Exhibits L and M), executed in favor of the same Mariano de la Rama
by his uncle Tan Lien Co, attorney-in-fact of Tan Ong Sze, with power of substitution, there
appears the following:
. . . and also for her and for her name to sign, seal and execute, and as her act and
deed deliver, any lease, release, bargain, sale, assignment, conveyance or
assurance, any other deed for the conveying any real or personal property or other
matter or thing wherein she or may be personally interested or concerned.
Neither of these powers officially confers upon Mariano de la Rama the power to bind a
principal by a contract of suretyship. The clauses noted relate more specifically to the
execution of contracts relating to property; and the more general words at the close of the
quoted clauses should be interpreted, under the general rule ejusdem generis, as referring to
the contracts of like character. Power to execute a contract so exceptional a nature as a
contract of suretyship or guaranty cannot be inferred from the general words contained in
these powers.
In article 1827 of the Civil Code it is declared that guaranty shall not be presumed; it must be
expressed and cannot be extended beyond its specified limits. By analogy a power of
attorney to execute a contract of guaranty should not be inferred from vague or general
words, especially when such words have their origin and explanation in particular powers of a
wholly different nature. It results that the trial court was in error in giving personal judgment
against Tan Ong Sze upon the bond upon which she was sued in this case.
We now proceed to consider the last important disputed question involved in this case, which
is, whether the indebtedness owing to the Government under the contract for filling the
parcel of land already mentioned is entitled to preference over the mortgage credit due to
the Philippine National Bank, as the trial judge held, or whether on the contrary, the latter
claim is entitled to priority over the claim of the Government Upon entering into the
discussion of the feature of the case it is well to recall the fact that the bank's mortgage was
registered in the office of the Register of Deeds of the province of Iloilo on November 26,
1920, while the filing contract was registered on January 8, 1924, that is to say, there is a
priority of more than three years, in point of time, in the inscription of the mortgage credit
under the filling contract was made an express lien upon the property which was the subject
of improvement.
In the brief submitted in behalf of the bank it appears to be assumed that the Government
credit under the filling contract is a true refectionary credit ( credito refacionario) under
subsection 2 of Article 1923 of the Civil Code. It may be observed, however, that in a precise
and technical sense, this credit is not exactly of the nature of the refectionary credit as
known to the civil law. In the civil law the refectionary credit is primarily an indebtedness
incurred in the repair or reconstruction of something previously made, such repair or
reconstruction being made necessary by the deterioration or destruction as it formerly
existed. The conception does not ordinarily include an entirely new work, though Spanish
jurisprudence appears to have sanctioned this broader conception in certain cases as may be
116
gathered from the decision in the Enciclopedia Juridica Espanola (vol. 26, pp. 888-890) s.
v. Refaccionario. The question whether the credit we are considering falls precisely under the
conception of the refectionary credit in the civil law is in this case academic rather than
practical, for the reason that by the express terms of the filling contract the credit was
constituted a lien upon the improved property. But assuming, as might be tenable in the
state of jurisprudence, that said credit is a refectionary credit enjoying preference under
subsection 3 or article 1923 of the Civil code , then the mortgage credit must be given
priority under subsection 2 of the article 1927 of the same code, for the reason that the
mortgage was registered first.
Possibly the simpler view of the situation is to consider the Government's right under the
stipulation expressly making the credit a lien upon the property, for it was certainly lawful for
the parties to the filling contract to declare the credit a lien upon the property to be improved
to the extent hereinafter define whether the credit precisely fulfills the conception of
refectionary credit or not. In this aspect we have before us a competition between the real
lien created by the filling contract of the later registration. The true solution to the problem
is, in our opinion, not open to doubt; and again the result is that priority must be conceded
to the mortgage. The mortgage was created by the lawful owners at a time when no other
competing interest existed in the property. The lien of the mortgage therefore attached to
the fee, or unlimited interest of the owners in the property. On the other hand, the lien
created by the filling contract was created after the mortgage had been made and registered,
and therefore, after the owners of the property had parted with the interest created by the
mortgage. The Government's lien owes its origin to the contract, and derives its efficacy from
the volition of the contracting parties. But no party can by contract create a right in another
intrinsically greater than that which he himself possess. The owners, at the time this contract
was made, were owners of the equity of redemption only and not of the entire interest in the
property, and the lien created by the contract could only operate upon the equity of
redemption.
In this connection, we observed that, as the new material was deposited from the
Government dredges upon the property in question, it became an integral part of the soil and
an irremovable fixture; and the deposit having been made under contract between the
Government and the owners of the equity of redemption, without the concurrence of the
mortgage creditor in said contract the latter could not be prejudiced thereby. The trial court,
in declaring that the Government's lien should have preference over the mortgage, seems to
have proceeded upon the idea that, at the time the mortgage was created, the new soil had
yet been deposited under the filling contract and that as a consequence the mortgage lien
should not been considered as attaching to the value added by deposit of the additional
material. This proposition, however, overlooks the fact that the deposited material became
an irremovable fixture, by the act and intention of the parties to the filling contract, and the
lien of the mortgage undoubtedly attached to the increment thus spread over and affixed to
the mortgaged land. If the idea which prevailed in the trial court should be accepted as law
upon this point, the result would be that a mortgage creditor could, by the act of strangers,
be entirely proved out of his property by making of improvements to which he has not
assented. This cannot be accepted as good law.
We may add that the case cannot, on this point, be resolved favorably to the contention of
the Director of Public Works, upon the authority of Unson vs. Urquijo, Zuluoaga and Escubi
(50 Phil., 160), for the reason that upon the deposit of the dredged material on the land such
material lost its identity. In the case cited the machinery in respect to which the vendor's
preference was upheld by this court retained its separate existence and remained perfectly
capable of identification at all times.
From what it has been said it results that the appealed judgment must be affirmed, and the
same is hereby affirmed, in dismissing, in effect, the cross-complaint filed by some of the
defendants against the plaintiff, the Director of Public Works. Such judgment is further
affirmed in its findings, which are not dispute, with respect to the amount of the
Government's claim under the filling contract and the amount of mortgage credit of the bank,
as it is also affirmed in respect to the joint and several judgment entered in favor of the
plaintiff against Sing Juco, Sing Bengco, Tanboontien and Mariano de la Rama Tanbunco
(alias Mariano de la Rama) for the amount due to the Government
Said judgment, however, must be reversed and the same is being reversed in so far as it
holds that Tan Ong Sze, Viuda de Tan Toco, is liable upon the contract of suretyship, and she
is hereby absolved from the complaint. The judgment must also be reversed in so far as it
declares that the Government's lien under the filling contract is entitled to priority over the
bank's mortgage. On the contrary it is hereby declared that the bank's credit is entitled to
priority out of the proceeds of the foreclosure sale, the residue, if any, to be applied to the
Government's lien created by the filling contract and otherwise in accordance with law. For
further proceedings in conformity with this opinion, the cause is hereby remanded to the
cause of origin, without pronouncements as to costs. So ordered.
34. THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., INC., plaintiff-
appellee,
vs. JUAN M. POIZAT, ET AL., defendants.
GABRIELA ANDREA DE COSTER, appellant.
STATEMENT
August 25, 1905, the appellant, with his consent executed to and in favor of her husband,
Juan M. Poizat, a general power of attorney, which among other things, authorized him to do
in her name, place and stead, and making use of her rights and actions, the following things:
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 To loan or borrow any amount in cash or fungible conditions he may deem
convenient collecting or paying the principal or interest, for the time, and under the
principal of the interest, when they respectively should or private documents, and
making there transactions with or without mortgage, pledge or personal securities.
November 2, 1912, Juan M. Poizat applied for and obtained from the plaintiff a credit for the
sum of 10,000 Pounds Sterling to be drawn on the" Banco Espanol del Rio de la Plata" in
London not later than January, 1913. Later, to secure the payment of the loan, he executed
a mortgage upon the real property of his wife, the material portions of which are as follows:
This indenture entered into the City of Manila, P.I., by and between Juan M. Poizat,
merchant, of legal age, married and residing in the City of Manila, in his own behalf
and in his capacity also as attorney in fact of his wife Dona Gabriela Andrea de
Coster by virtue of the authority vested in him by the power of attorney duly
executed and acknowledge in this City of Manila, etc.
First. That in the name of Dona Gabriela Andrea de Coster, wife of Don Juan M.
Poizat, there is registered on page 89 (back) of Book 3, Urban Property consisting of
a house and six adjacent warehouse, all of strong material and constructed upon her
own land, said property being Nos. 5, 3, and 1 of Calle Urbiztondo, and No. 13 of
Calle Barraca in the District of Binondo in the City of Manila, etc.
Second. That the marriage of Don Juan M. Poizat and Dona Gabriela Andrea de
Coster being subsisting and undissolved, and with the object of constructing a new
building over the land hereinabove described, the aforesaid house with the six
warehouse thereon constructed were demolished and in their stead a building was
erected, by permission of the Department of Engineering and Public Works of this
City issued November 10, 1902, said building being of strong material which,
together with the land, now forms only one piece of real estate, etc; which property
must be the subject of a new description in which it must appear that the land
belongs in fee simple and in full ownership as paraphernal property to the said Dona
Gabriela Andrea de Coster and the new building thereon constructed to the conjugal
partnership of Don Juan M. Poizat and the said Dona Gabriela Andrea de Coster, etc.
Third. That the Philippine Sugar Estates Development Company, Ltd., having granted
to Don Juan M. Poizat a credit of Ten Thousand Pounds Sterling with a mortgage
upon the real property above described, etc.
(a) That the Philippine sugar Estated Development Company, Ltd. hereby grants Don
Juan M. Poizat a credit in the amount of Ten Thousand Pounds sterling which the
said Mr. Poizat may use within the entire month of January of the coming year, 1913,
upon the bank established in the City of London, England, known as 'Banco Espanol
del Rio de la Plata, which shall be duly advised, so as to place upon the credit of Mr.
Poizat the said amount of Ten Thousand Pounds Sterling, after executing the
necessary receipts therefore.
(c) That Don Juan M. Poizat personally binds himself and also binds his principal
Dona Gabriela Andrea de Coster to pay the Philippine Sugar Estates Development
Company, Ltd., for the said amount of Ten Thousand Pounds Sterling at the yearly
interest of 9 per cent which shall be paid at the end of each quarter, etc.
(d) Don Juan M. Poizat also binds himself personally and his principal Dona Gabriela
Andrea de Coster to return to the Philippine Sugar Estates Development Company,
Ltd., the amount of Ten Thousand Pounds Sterling within four years from the date
that the said Mr. Poizat shall receive the aforesaid sum as evidenced by the receipt
that he shall issue to the 'BAnco Espanol del Rio de la Plata.'
(e) As security for the payment of the said credit, in the case Mr. Poizat should
receive the money, together with its interest hereby constitutes a voluntary especial
mortgage upon the Philippine Sugar Estates Development Company, Ltd., f the urban
property above described, etc.
(f) Don Juan M. Poizat in the capacity above mentioned binds himself, should he
receive the amount of the credit, and while he may not return the said amount of
Ten thousand Pounds Sterling to the Philippine Sugar Estates Development
Company, Ltd., to insure against fire the mortgaged property in an amount not less
than One hundred Thousand Pesos, etc.
Fourth. Don Buenaventura Campa in the capacity that he holds hereby accepts this
indenture in the form, manner, and condition executed by Don Juan M. Poizat by
himself personally and in representation of his wife Dona Gabriela Andrea de Coster,
in favor of the Philippine Sugar Estates Development Company, Ltd.,
In witness whereof, we have signed these presents in Manila, this November 2,
1912.
(Sgd.) JUAN M. POIZAT
THE PHILIPPINE SUGAR ESTATES
DEVELOPMENT COMPANY, LTD.
The President
BUENAVENTURA CAMPA
118
 Signed in the presence of: September 18, 1924, the property, which had an assessed value of P342,685, was sold to the
plaintiff for the sum of P100,000.
(Sgd.) MANUEL SAPSANO
JOSE SANTOS September 23, 1924, and for the first time, the appellant personally appeared by her present
attorney, and objected to the confirmation of the sale, among other things, upon illegally
UNITED STATES OF AMERICA executed, and is null and void, because the agent of this defendant was not authorized to
PHILIPPINE ISLANDS execute it. That there was no consideration. That the plaintiff, with full knowledge that J. M.
CITY OF MANILA Poizat was acting beyond the scope of his authority, filed this action to subject the property
of this defendant to the payment of the debt which, as to appellant, was not a valid contract.
In the City of Manila P.I., this November 2, 1912, before me Enrique Barrera y That the judgment was rendered by confession when the plaintiff and J. M. Poizat knew that
Caldes, a Notary Public for said city, personally appeared before me Don Juan M. Poizat was not authorized to confess judgment, and that the proceeding was a constructive
Poizat and Don Buenaventura Campa, whom i know to be the persons who executed fraud. That at the time the action was filed and the judgment rendered, this defendant was
the foregoing document and acknowledged same before me as an act of their free absent from the Philippine Islands, and had no knowledge of the execution of the mortgage.
will and deed; the first exhibited to me his certificate of registry No. 14237, issued in That after the judgment of foreclosure became final and order of the sale of the property
Manila, February 6, 1912, the second did not exhibit any cedula, being over sixty was made, that this defendant for the first time learned that he mortgage contract was
years old; this document bears No. 495, entered on page 80 of my Notarial registry. tainted with fraud, and that she first knew and learned of such things on the 11th of
September, 1924. That J. M. Poizat was not authorized to bind her property to secure the
payment of his personal debts. That the plaintiff knew that the agent of the defendant was
Before me:
not authorized to bind her or her property. That the mortgage was executed to secure a loan
(Sgd.) Dr. ENRIQUE BARRERA Y CALDES
of 10,000 Pounds which was not made to this defendant or for her benefit, but was made to
[NOTARIAL SEAL]
him personally and for the personal use and benefit of J. M. Poizat.
Notary Public
Among other things, the mortgage in question, marked Exhibit B, was introduced in
Up to the 31st of December , 1912
evidence, and made a part of the record.
For failure to pay the loan, on November 12, 1923, the plaintiff brought an action against the
All of such objections to the confirmation of the sale were overruled, from which Gabriela
defendants to foreclose the mortgage. In this action, the summons was served upon the
Andrea de Coster appealed and assigns the following errors:
defendant Juan M. Poizat only, who employed the services of Antonio A. Sanz to represent
the defendants. The attorneys filed a general appearance for all of them, and later an answer
in the nature of a general denial. I. The lower court erred in finding that Juan M. Poizat was, under the power of
attorney which he had from Gabriela Andrea de Coster, authorized to mortgage her
paraphernal property as security for a loan made to him personally by the Philippine
February 18, 1924, when the case was called for trial, Jose Galan y Blanco in open court
Sugar Estates Development Company, Ltd., to him;
admitted all of the allegations made in the compliant, and consented that judgment should
be rendered as prayed for . Later, Juan M. Poizat personally, for himself and his
codefendants, file an exception to the judgment and moved for a new trial, which was denied II. The lower court erred in not finding that under the power of attorney, Juan M.
March 31, 1924. Poizat had no authority to make Gabriela Andrea de Coster jointly liable with him for
a loan of 10,000 pound made by the Philippine Sugar Estates Development Co., Ltd.,
to him;
August 22, 1924, execution was issued directing the sale of the mortgaged property to
satisfy the judgment.itc@alf
III. The lower court erred in not finding that the Philippine Sugar Estates
Development Company, Ltd., had knowledge and notice of the lack of authority of
Don Juan M. Poizat to execute the mortgage deed Exhibit A of the plaintiff;
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 IV. The lower court erred in holding that Gabriela Andrea de Coster was duly
summoned in this case; and in holding that Attorney Jose Galan y Blanco could
lawfully represent her or could, without proof of express authority, confess judgment
against Gabriela Andrea de Coster;
V. The court erred in holding that the judgment in this case has become final and res
judicata;
VI. The court erred in approving the judicial sale made by the sheriff at an
inadequate price;
VII. The lower court erred in not declaring these proceedings, the judgment and the
sale null and void.
JOHNS, J.:
For the reasons stated in the decision of this court in the Bank of the Philippine Islands vs.
De Coster, the alleged service of the summons in the foreclosure suit upon the appellant was
null and void. In fact, it was made on J. M. Poizat only, and there is no claim or pretense that
any service of summons was ever made upon her. After service was made upon him, the
attorneys in question entered their appearance for all of the defendants in the action,
including the appellant upon whom no service was ever made, and file an answer for them.
Later, in open court, it was agreed that judgment should be entered for the plaintiff as
prayed for in its complaint.
The appellant contends that the appearance made by the attorneys for her was collusive and
fraudulent, and that it was made without her authority, and there maybe some truth in that
contention. It is very apparent that t the attorneys made no effort to protect or defend her
legal rights, but under our view of the case, that question is not material to this decision.
The storm center of this case is the legal force and effect of the real mortgage in question ,
by whom and for whom it was executed, and upon whom is it binding, and whether or not it
is null and void as to the appellant.
It is admitted that the appellant gave her husband, J. M. Poizat, the power of attorney in
question, and that it is in writing and speaks for itself. If the mortgage was legally executed
by her attorney in fact for her and in her name as her act and deed, it would be legal and
binding upon her and her property. If not so executed, it is null and void.
It appears upon the face of the instrument that J. M. Poizat as the husband of the wife, was
personally a party to the mortgage, and that he was the only persona who signed the
mortgage. and the he was the only person who signed the mortgage. It does not appear
from his signature that he signed it for his wife or as her agent or attorney in fact, and there
is nothing in his signature that would indicate that in the signing of it by him, he intended
that his signature should bind his wife. It also appears from the acknowledgment of the
instrument that he executed it as his personal act and deed only, and there is nothing to
show that he acknowledge it as the agent or attorney in fact of his wife, or as her act and
deed.
The mortgage recites that it was entered into by and between Juan M. Poizat in his own
behalf and as attorney in fact of his wife. That the record title of the mortgaged property is
registered in the name of his wife, Dona Gabriela Andrea de Coster. That they were legally
married, and that the marriage between them has never been dissolved. That with the object
of constructing a new building on the land. the six warehouses thereon were demolished,
and that a new building was erected. That the property is the subject of a new registration in
which it must be made to appear that the land belongs in fee simple and in full ownership as
the paraphernal property of the wife, and that the new building thereon is the property of
the conjugal partnership. "That the Philippine Sugar Estates Development Company, Ltd.,
having granted to Don Juan M. Poizat a credit of 10,000 Pounds Sterling with the mortgage
upon the real property above described," that the Development Company "hereby grants Don
Juan M. Poizat a credit in the amount of 10,000 Pounds Sterling which the said Mr. Poizat
may use, etc." That should he personally or on behalf of his wife use the credit he
acknowledges, that he and his principal are indebted to the Development Company in the
sum of 10,000 Pounds Sterling which "they deem to have received as a loan from the said
commercial entity." That he binds himself and his wife to pay that amount with a yearly
interest of 9 per cent, payable quarterly. That as security for the payment of said credit in
the case Mr. Poizat should receive the money at any time, with its interest, "the said Mr.
Poizat in the dual capacity that above mentioned binds himself, should he receive the amount
of the credit."
It thus appears that at the time the power of attorney and the mortgage were executed, Don
Juan M. Poizat and Gabriela Andrea de Coster were husband and wife, and that the real
property upon which the mortgage was her sole property before her marriage, and that it
was her paraphernal property at the time the mortgage was executed, and that the new
building constructed on the land was the property of the conjugal partnership.
The instrument further recites that the Development Company "hereby grants Don Juan M.
Poizat a credit in the amount of 10,000 Pounds Sterling which the said Mr. Poizat may use
within the entire month of January of the coming year, 1913." In other words, it appears
upon the face of the mortgage that the loan was made to the husband with authority to use
120
the money for his sole use and benefit. With or without a power of attorney, the signature of
the husband would be necessary to make the instrument a valid mortgage upon the property
of the wife, even though she personally signed the mortgage.
It is contended that the instrument upon its face shows that its purpose and intent was to
bind the wife. But it also shows upon its face that the credit was granted to Don Juan M.
Poizat which he might use within the "entire month of January."
Any authority which he had to bind his wife should be confined and limited to his power of
attorney.
Giving to it the very broadest construction, he would not have any authority to mortgage her
property, unless the mortgage was executed for her "and in her name, place or stead," and
as her act and deed. The mortgage in question was not so executed. it was signed by Don
Juan M. Poizat in his own name, his own proper person, and by him only, and it was
acknowledge by him in his personal capacity, and there is nothing in either the signature or
acknowledgment which shows or tends to show that it was executed for or on behalf of his
wife or "in her name, place or stead."
It is contended that the instrument shows upon its face that it was intended to make the wife
liable for his debt, and to mortgage her property to secure its payment, and that his personal
signature should legally be construed as the joined or dual signature of both the husband
and that of the wife as her agent. That is to say, construing the recitals in the mortgage and
the instrument as a whole, his lone personal signature should be construed in a double
capacity and binding equally and alike both upon the husband and the wife. No authority has
been cited, and none will ever be found to sustain such a construction.
As the husband of the wife, his signature was necessary to make the mortgage valid. In
other words, to make it valid, it should have been signed by the husband in his own proper
person and by him as attorney in fact for his wife, and it should have been executed by both
husband and wife, and should have been so acknowledged.
There is no principle of law by which a person can become liable on a real mortgage which
she never executed either in person or by attorney in fact. It should be noted that this is a
mortgage upon real property, the title to which cannot be divested except by sale on
execution or the formalities of a will or deed. For such reasons, the law requires that a power
of attorney to mortgage or sell real property should be executed with all of the formalities
required in a deed. For the same reason that the personal signature of Poizat, standing
alone, would not convey the title of his wife in her own real property, such a signature would
not bind her as a mortgagor in real property, the title to which was in her name.
We make this broad assertion that upon the facts shown in the record, no authority will ever
be found to hold the wife liable on a mortgage of her real property which was executed in
the form and manner in which the mortgage in question was executed. The real question
involved is fully discussed in Mechem on Agency, volume 1, page 784, in which the author
says:
It is to be observed that the question here is not how but how such an authority is to
be executed. it is assumed that the agent was authorized to bind his principal, but
the question is, has he done so.
That is the question here.
Upon that point, there is a full discussion in the following sections, and numerous authorities
are cited:
SEC. 1093. Deed by agent must purport to be made and sealed in the name of the
principal. It is a general rule in the law of agency that in order to bind the
principal by a deed executed by an agent, the deed must upon its grace purport to
be made, signed and sealed in the name of the principal. If, on the contrary, though
the agent describes name, the words of grant, covenant and the like, purport upon
the face of the instrument to be his, and the seal purports to be his seal, the deed
will bind the agent if any one and not the principal.
SEC. 1101. Whose deed is a given deed . How question determined. In
determining whether a given deed is the deed of the principal, regard may be
had First, to the party named as grantor. Is the deed stated to be made by the
principal or by some other person? Secondly, to the granting clause. Is the principal
or the agent the person who purports to make the grant? Thirdly, to the covenants,
if any. Are these the covenants of the principal? Fourthly, to the testimonium clause.
Who is it who is to set his name and seal in testimony of the grant? Is it the principal
or the agent? And Fifthly, to the signature and seal. Whose signature and seal are
these? Are they those of the principal or of the agent?
If upon such an analysis the deed does not upon its face purport to be the deed of
the principal, made, signed, sealed and delivered in his name and his deed, it cannot
take effect as such.
SEC. 1102. Not enough to make deed the principal's that the agent is described as
such. It is not enough merely that not acted in the name of the principal. Nor is it
ordinarily sufficient that he describes himself in the deed as acting by virtue of a
power of attorney or otherwise, or for or in behalf, or as attorney, of the principal, or
121
 as a committee, or as trustee of a corporation, etc.; for these expressions are usually
but descriptio personae, and if, in fact, he has acted of action thereon accrue to and
against him personally and not to or against the principal, despite these recital.
SEC. 1103. Not principal's deed where agent appears as grantor and signer .
Neither can the deed ordinarily be deemed to be the deed of the principal where the
agent is the one who is named as the grantor or maker, and he is also the one who
signs and seals it. . . .
SEC. 1108. . . . But however clearly the body of the deed may show an intent that it
shall be the act of he principal, yet unless its executed by his attorney for him, it is
not his deed, but the deed of the attorney or of no one. The most usual and
approved form of executing a deed by attorney is by his writing the name of the
principal and adding by A B his attorney or by his attorney A B.'
That is good law. Applying it to the facts, under his power of attorney, Juan M. Poizat may
have had authority to borrow money and mortgage the real property of his wife, but the law
specifies how and in what manner it must be done, and the stubborn fact remains that, as to
the transaction in question, that power was never exercised. The mortgage in question was
executed by him and him only, and for such reason, it is not binding upon the wife, and as to
her, it is null and void.
It follows that the whole decree against her and her paraphernal property and the sale of
that property to satisfy the mortgage are null and void, and that any title she may have had
in or to her paraphernal property remains and is now vested in the wife as fully and as
absolutely as if the mortgage had never been executed, the decree rendered or the property
sold. As to Don Juan M. Poizat, the decree is valid and binding, and remains in full force and
effect.
It is an undisputed fact, which appears in the mortgage itself, that the land in question was
the paraphernal property of the wife, but after the marriage the old buildings on the property
were torn down and a new building constructed and, in the absence of evidence to the
contrary, it must be presumed that the new building is conjugal property of the husband and
wife. As such, it is subject of the debts of the conjugal partnership for the payment or
security of which the husband has the power to mortgage or otherwise encumber the
property .
It is very probable that his particular question was not fully presented to or considered by the
lower court.
The mortgage as to the paraphernal property of the wife is declared null and void ab initio,
and as to her personally, the decree is declared null and void, and as to her paraphernal
property, the sale is set aside and vacated, and held for naught, leaving it free and clear
from the mortgage, decree and sale, and in the same condition as if the mortgage had never
been executed, with costs in favor of the appellant. So ordered.
35. RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner, vs.
HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and
RUFINO S. AQUINO, respondents.
GRIO-AQUINO, J.:
This petition for review seeks reversal of the decision dated September 18, 1990 of the Court
of Appeals, reversing the decision of the Regional Trial Court of Makati, Branch 150, which
dismissed the private respondents' complaint and awarded damages to the petitioner, Rural
Bank of Bombon.
On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo, executed a special
power of attorney in favor of Rufina S. Aquino authorizing him:
1. To secure a loan from any bank or lending institution for any amount or
otherwise mortgage the property covered by Transfer Certificate of Title No.
S-79238 situated at Las Pias, Rizal, the same being my paraphernal
property, and in that connection, to sign, or execute any deed of mortgage
and sign other document requisite and necessary in securing said loan and
to receive the proceeds thereof in cash or in check and to sign the receipt
therefor and thereafter endorse the check representing the proceeds of loan.
(p. 10, Rollo.)
Thereupon, Gallardo delivered to Aquino both the special power of attorney and her owner's
copy of Transfer Certificate of Title No. S-79238 (19963-A).
On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino in
favor of the Rural Bank of Bombon (Camarines Sur), Inc. (hereafter, defendant Rural Bank)
over the three parcels of land covered by TCT No. S-79238. The deed stated that the
property was being given as security for the payment of "certain loans, advances, or other
accommodations obtained by the mortgagor from the mortgagee in the total sum of Three
Hundred Fifty Thousand Pesos only (P350,000.00), plus interest at the rate of fourteen
(14%) per annum . . ." (p. 11, Rollo).
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On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed an action against damages the amount of which will be determined in appropriate proceedings. The court lifted
Rufino Aquino and the Bank because Aquino allegedly left his residence at San Pascual, the writ of preliminary injunction it previously issued.
Hagonoy, Bulacan, and transferred to an unknown place in Bicol. She discovered that Aquino
first resided at Sta. Isabel, Calabanga, Camarines Sur, and then later, at San Vicente, On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order suspending the
Calabanga, Camarines Sur, and that they (plaintiffs) were allegedly surprised to discover that foreclosure proceedings until after the decision in the annulment case (Civil Case No. 6062)
the property was mortgaged to pay personal loans obtained by Aquino from the Bank solely shall have become final and executory.
for personal use and benefit of Aquino; that the mortgagor in the deed was defendant
Aquino instead of plaintiff Gallardo whose address up to now is Manuyo, Las Pias, M.M., per The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which on September
the title (TCT No. S-79238) and in the deed vesting power of attorney to Aquino; that 18, 1990, reversed the trial court. The dispositive portion of the decision reads:
correspondence relative to the mortgage was sent to Aquino's address at "Sta. Isabel,
Calabanga, Camarines Sur" instead of Gallardo's postal address at Las Pias, Metro Manila;
UPON ALL THESE, the summary judgment entered by the lower court is
and that defendant Aquino, in the real estate mortgage, appointed defendant Rural Bank as
hereby REVERSED and in lieu thereof, judgment is hereby RENDERED,
attorney in fact, and in case of judicial foreclosure as receiver with corresponding power to
declaring the deed of real estate mortgage dated August 26, 1981, executed
sell and that although without any express authority from Gallardo, defendant Aquino waived
between Rufino S. Aquino with the marital consent of his wife Bibiana Aquino
Gallardo's rights under Section 12, Rule 39, of the Rules of Court and the proper venue of the
with the appellee Rural Bank of Bombon, Camarines Sur, unauthorized, void
foreclosure suit.
and unenforceable against plaintiff Ederlinda Gallardo; ordering the
reinstatement of the preliminary injunction issued at the onset of the case
On January 23, 1984, the trial court, thru the Honorable Fernando P. Agdamag, temporarily and at the same time, ordering said injunction made permanent.
restrained the Rural Bank "from enforcing the real estate mortgage and from foreclosing it
either judicially or extrajudicially until further orders from the court" (p.36, Rollo).
Appellee Rural Bank to pay the costs. (p. 46, Rollo.)

Rufino S. Aquino in his answer said that the plaintiff authorized him to mortgage her property
Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur, alleging that the
to a bank so that he could use the proceeds to liquidate her obligation of P350,000 to him.
Court of Appeals erred:
The obligation to pay the Rural Bank devolved on Gallardo. Of late, however, she asked him
to pay the Bank but defendant Aquino set terms and conditions which plaintiff did not agree
to. Aquino asked for payment to him of moral damages in the sum of P50,000 and lawyer's 1. in declaring that the Deed of Real Estate Mortgage was unauthorized,
fees of P35,000. void, and unenforceable against the private respondent Ederlinda Gallardo;
and
The Bank moved to dismiss the complaint and filed counter-claims for litigation expenses,
exemplary damages, and attorney's fees. It also filed a crossclaim against Aquino for 2. in not upholding the validity of the Real Estate Mortgage executed by
P350,000 with interest, other bank charges and damages if the mortgage be declared Rufino S. Aquino as attorney-in-fact for Gallardo, in favor of the Rural Bank
unauthorized. of Bombon, (Cam. Sur), Inc.

Meanwhile, on August 30, 1984, the Bank filed a complaint against Ederlinda Gallardo and Both assignments of error boil down to the lone issue of the validity of the Deed of Real
Rufino Aquino for "Foreclosure of Mortgage" docketed as Civil Case No. 8330 in Branch 141, Estate Mortgage dated August 26, 1981, executed by Rufino S. Aquino, as attorney-in-fact of
RTC Makati. On motion of the plaintiff, the foreclosure case and the annulment case (Civil Ederlinda Gallardo, in favor of the Rural Bank of Bombon (Cam. Sur), Inc.
Case No. 6062) were consolidated.

On January 16, 1986, the trial court rendered a summary judgment in Civil Case No. 6062,
dismissing the complaint for annulment of mortgage and declaring the Rural Bank entitled to

123
The Rural Bank contends that the real estate mortgage executed by respondent Aquino is
valid because he was expressly authorized by Gallardo to mortgage her property under the
special power of attorney she made in his favor which was duly registered and annotated on
Gallardo's title. Since the Special Power of Attorney did not specify or indicate that the loan
would be for Gallardo's benefit, then it could be for the use and benefit of the attorney-in-
fact, Aquino.
However, the Court of Appeals ruled otherwise. It held:
The Special Power of Attorney above quoted shows the extent of authority
given by the plaintiff to defendant Aquino. But defendant Aquino in
executing the deed of Real Estate Mortgage in favor of the rural bank over
the three parcels of land covered by Gallardo's title named himself as the
mortgagor without stating that his signature on the deed was for and in
behalf of Ederlinda Gallardo in his capacity as her attorney-in-fact.
At the beginning of the deed mention was made of "attorney-in-fact of
Ederlinda H. Gallardo," thus: " (T)his MORTGAGE executed by Rufino S.
Aquino attorney in fact of Ederlinda H. Gallardo, of legal age, Filipino,
married to Bibiana Panganiban with postal address at Sta. Isabel . . .," but
which of itself, was merely descriptive of the person of defendant Aquino.
Defendant Aquino even signed it plainly as mortgagor with the marital
consent yet of his wife Bibiana P. Aquino who signed the deed as "wife of
mortgagor."
xxx xxx xxx
The three (3) promissory notes respectively dated August 31, 1981,
September 23, 1981 and October 26, 1981, were each signed by Rufino
Aquino on top of a line beneath which is written "signature of mortgagor"
and by Bibiana P. Aquino on top of a line under which is written "signature of
spouse," without any mention that execution thereof was for and in behalf of
the plaintiff as mortgagor. It results, borne out from what were written on
the deed, that the amounts were the personal loans of defendant Aquino. As
pointed out by the appellant, Aquino's wife has not been appointed co-agent
of defendant Aquino and her signature on the deed and on the promissory
notes can only mean that the obligation was personally incurred by them and
for their own personal account.
The deed of mortgage stipulated that the amount obtained from the loans
shall be used or applied only for "fishpond (bangus and sugpo production)."
As pointed out by the plaintiff, the defendant Rural Bank in its Answer had
not categorically denied the allegation in the complaint that defendant
Aquino in the deed of mortgage was the intended user and beneficiary of the
loans and not the plaintiff. And the special power of attorney could not be
stretched to include the authority to obtain a loan in said defendant Aquino's
own benefit. (pp. 40-41, Rollo.)
The decision of the Court of Appeals is correct. This case is governed by the general rule in
the law of agency which this Court, applied in "Philippine Sugar Estates Development Co. vs.
Poizat," 48 Phil. 536, 538:
It is a general rule in the law of agency that, in order to bind the principal by
a mortgage on real property executed by an agent, it must upon its face
purport to be made, signed and sealed in the name of the principal,
otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the
name of the principal. Neither is it ordinarily sufficient that in the mortgage
the agent describes himself as acting by virtue of a power of attorney, if in
fact the agent has acted in his own name and has set his own hand and seal
to the mortgage. This is especially true where the agent himself is a party to
the instrument. However clearly the body of the mortgage may show and
intend that it shall be the act of the principal, yet, unless in fact it is
executed by the agent for and on behalf of his principal and as the act and
deed of the principal, it is not valid as to the principal.
In view of this rule, Aquino's act of signing the Deed of Real Estate Mortgage in his name
alone as mortgagor, without any indication that he was signing for and in behalf of the
property owner, Ederlinda Gallardo, bound himself alone in his personal capacity as a debtor
of the petitioner Bank and not as the agent or attorney-in-fact of Gallardo. The Court of
Appeals further observed:
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 It will also be observed that the deed of mortgage was executed on August
26, 1981 therein clearly stipulating that it was being executed "as security
for the payment of certain loans, advances or other accommodation obtained
by the Mortgagor from the Mortgagee in the total sum of Three Hundred
Fifty Thousand Pesos only (P350,000.00)" although at the time no such loan
or advance had been obtained. The promissory notes were dated August 31,
September 23 and October 26, 1981 which were subsequent to the
execution of the deed of mortgage. The appellant is correct in claiming that
the defendant Rural Bank should not have agreed to extend or constitute the
mortgage on the properties of Gallardo who had no existing indebtedness
with it at the time.
Under the facts the defendant Rural Bank appeared to have ignored the
representative capacity of Aquino and dealt with him and his wife in their
personal capacities. Said appellee Rural Bank also did not conduct an inquiry
on whether the subject loans were to benefit the interest of the principal
(plaintiff Gallardo) rather than that of the agent although the deed of
mortgage was explicit that the loan was for purpose of the bangus and
sugpo production of defendant Aquino.
In effect, with the execution of the mortgage under the circumstances and
assuming it to be valid but because the loan taken was to be used
exclusively for Aquino's business in the "bangus" and "sugpo" production,
Gallardo in effect becomes a surety who is made primarily answerable for
loans taken by Aquino in his personal capacity in the event Aquino defaults
in such payment. Under Art. 1878 of the Civil Code, to obligate the principal
as a guarantor or surety, a special power of attorney is required. No such
special power of attorney for Gallardo to be a surety of Aquino had been
executed. (pp. 42-43, Rollo.)
Petitioner claims that the Deed of Real Estate Mortgage is enforceable against Gallardo since
it was executed in accordance with Article 1883 which provides:
Art. 1883. If an agent acts in his own name, the principal has no right of
action against the persons with whom the agent has contracted; neither
have such persons against the principal.
In such case the agent is the one directly bound in favor of the person with
whom he has contracted, as if the transaction were his own, except when
the contract involves things belonging to the principal.
The above provision of the Civil Code relied upon by the petitioner Bank, is not applicable to
the case at bar. Herein respondent Aquino acted purportedly as an agent of Gallardo, but
actually acted in his personal capacity. Involved herein are properties titled in the name of
respondent Gallardo against which the Bank proposes to foreclose the mortgage constituted
by an agent (Aquino) acting in his personal capacity. Under these circumstances, we hold, as
we did in Philippine Sugar Estates Development Co. vs. Poizat, supra, that Gallardo's property
is not liable on the real estate mortgage:
There is no principle of law by which a person can become liable on a real
mortgage which she never executed either in person or by attorney in fact. It
should be noted that this is a mortgage upon real property, the title to which
cannot be divested except by sale on execution or the formalities of a will or
deed. For such reasons, the law requires that a power of attorney to
mortgage or sell real property should be executed with all of the formalities
required in a deed. For the same reason that the personal signature of
Poizat, standing alone, would not convey the title of his wife in her own real
property, such a signature would not bind her as a mortgagor in real
property, the title to which was in her name. (p. 548.)
WHEREFORE, finding no reversible error in the decision of the Court of Appeals, we AFFIRM
it in toto. Costs against the petitioner.
SO ORDERED.
36. COMMERCIAL BANK & TRUST COMPANY OF THE PHILIPPINES, plaintiff-
appellee, vs. REPUBLIC ARMORED CAR SERVICE CORPORATION and DAMASO
PEREZ, ET AL., defendants-appellants.
LABRADOR, J.:
The above-entitled cases are appeals from judgments rendered by the Court of First Instance
of through Judges Gustavo Victoriano and Conrado M. Vasquez, respectively, of said Court.
In G.R. No. L-8223 plaintiff-appellee filed it complaint alleging that the defendants-appellants
were granted by it credit accommodations in the form of an overdraft line for an amount not
exceeding P80,000, with interest (paragraph 2, Complaint); that defendants or either of them
drew regularly upon the above credit line and as of February 10, 1960, the total of their
drawings and interest due amounted to P79,940.80 (par. 3, id.); that repeated demands
were made upon defendants to pay for the drawings but said demands were ignored (par.
4, id.). In their answer to the complaint the defendants admit having drawn upon the credit
line extended to them as alleged in the complaint; claim they have not ignored the demands
125
for the payment of the sums demanded and have instituted actions against the former
officers of defendant corporation who held defrauded the latter; etc. (par. 4, Answer). By
way of special affirmative defenses, they allege that the former officers and directors of the
defendant corporation had deliberately defrauded and mismanaged the corporations, as a
part of their scheme to wrest control of various corporations owned by Damaso Perez, from
the latter, and as a result of said frauds or mismanagements the defendants have instituted
actions for damages for breach of trust; and that the amounts drawn on the credit line
subject of the complaint were received and used by the former directors and officers of the
defendant corporations and constitute part of the funds misapplied by them. Upon motion,
Judge Victoriano entered for the plaintiff a judgment on the pleadings, holding that the
"special affirmative defenses (of the answer) filled to show that any allegation respecting the
extent of defendants' drawing although they have admitted having drawn against the credit
line, subject of the action, so that said denial, not being specific denial in the true sense,
does not controvert the allegation at which it is aimed," etc. The court also further held that
the alleged mismanagement and fraud of the former directors and officials of defendant
corporation and the action now pending in court regarding the same are merely internal
affairs of the corporation which cannot affect or diminish the liability of the defendant
corporation to the plaintiff. The defendants appealed from the decision to the Court of
Appeals, but this Court certified the case to Us.
In G.R. No. L-18224 the complaint also alleges that the defendants were given credit
accommodation in the form of an overdraft line in an amount not exceeding P150,000 and
drew regularly upon said credit line amounts which with their interest reach the sum of
P133,453.17; that demands were made for the payment of the drawings but defendants
have failed to pay the amounts demanded. Defendants in their answer admit the opening of
the credit line in their favor and that demands for the indebtedness were made upon them,
but allege as special defenses that the directors and officers of the defendant corporation
deliberately defrauded and mismanaged the said corporation breach of trust in order to
deprive Damaso Perez of his control and majority interest in the defendant corporation, as a
result of which fraud, mismanagement and breach of trust the defendants suffered
tremendous losses; that the amounts drawn by defendant corporation upon the credit line
were received and used by the former directors and officers and same constitute part of the
funds of the defendant corporation misapplied and mismanaged by said former officers and
directors of said corporation. Upon the presentation of the answer the plaintiff presented
motion sustained, for judgment on the pleadings which the court sustained, holding:
with respect to the defendant Damaso Perez who appears to have executed the
agreement, Annex A, in his own personal capacity and not as an officer of the
defendant Republic Credit Corporation. The allegation that the defendants have a
right to claim indemnity or contribution from the erring directors and officers of the
defendant corporation is a matter which may be the subject of a separate action, and
in which the plaintiff is not concerned. (p. 37, Record on Appeal)
Against the above judgment the defendants also have prosecuted this appeal. The Court of
Appeals certified the same to Us in accordance with law.
In G.R. No. L-18223, the defendants-appellants argue that the admission made by the
defendants in their answer that the amount demanded was due, is qualified "in the sense
that whatever amounts were drawn from the overdraft line in question were part of those
corporate funds of Philippine Armored Car, Inc., misused and misapplied by Ramon Racelis,
et al., former directors and executive officers of said corporation." (p. 13, Appellee's Brief) In
answer to this argument we call attention to the fact that in the agreement attached to the
complaint Exhibit "A", the obligation of the defendants-appellants to pay for the amount due
under the overdraft line is not in any way qualified; there is no statement that the
responsibility of the defendants-appellants for the amount taken on overdraft would cease or
be defeated or reduced upon misappropriations on mismanagement of the funds of the
corporation by the directors and employees thereof. The special defense is, therefore, a
sham defense.
Furthermore, under general rules and principles of law the mismanagement of the business
of a party by his agents does not relieve said party from the responsibility that he had
contracted to third persons, especially in the case at bar where the written agreement
contains no limitation to defendants-appellants' liability. 1wph1.t

The defendants having admitted the indebtedness in question, its liability to pay the
plaintiff the amount of the said indebtedness is beyond question. The alleged fact
that the money borrowed from the plaintiff was misappropriated or misapplied by
some officers of the defendant corporation is no defense against the liability of the
defendants to the plaintiff. It is an internal matter of the defendant corporation in
which the plaintiff has no concern or participation whatsoever. This is specially so
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The so-called special defense contained in the answer is, therefore, no special defense to the
liability of the defendants-appellants, nor to the action, and the court's action or judgment on
the pleadings was properly taken. The argument contained in the brief of the defendants-
appellants that the defendants contemplated a third-party complaint is of no weight, because
a third-party complaint was not available to the defendants under the facts of the case. A
third-party complaint is, under the Rules, available only if the defendant has a right to
demand contribution, indemnity, subrogation or any other relief from the supposed third-
party defendants in respect to the plaintiff's claim. (Sec. 1, Rule 12, Rules of Court). The
supposed parties defendants or alleged officers of the defendant corporation had nothing to
do with the overdraft account of defendant corporation with the plaintiff-appellee.
Consequently, they cannot be made parties defendants in a third party complaint. Anyway
the filing of a third party complaint is no hindrance to the issuance of the order of the court
declaring that the defendants' answer presented no issue or defense and that, therefore,
plaintiff-appellee was entitled to judgment.
In G. R. No. L-18224, our ruling in the first case is also applicable. In this second case, it is
also alleged that at the time of the agreement for credit in current account the defendant
corporation was under the management of Ramon Racelis and others who defrauded and
mismanaged the corporation, in breach of trust, etc., etc. Again we declare that the written
agreement for credit in current account, Annex "A", contains no limitation about the liability
of the defendants-appellants, nor an express agreement that the responsibility of the
defendants-appellants should be conditioned upon the lawful management of the business of
the defendant corporation. The same rulings in the first case are applicable in this second
case.
After hearing the evidence, the lower court, found as a fact that "the defendants purchased
the merchandise in question from Domingo Tim Bun Liu and paid the said Domingo Tim Bun
Liu for the merchandise."
The lower court further said: "The conclusions are that the defendants have paid for the
merchandise described in the complaint, and that they are not liable for payment for the
value thereof," and rendered judgment in favor of the defendant and against the plaintiffs
and dismissed said complaint, with costs against the plaintiffs.
From this decision of the lower court the plaintiffs appealed and made the following
assignments of error:
First. The lower court erred in holding as follows: "It also clearly appears that the defendants
purchased the merchandise in question from Domingo Tim Bun Liu and paid Domingo Tim
Bun Liu for the merchandise."
Second. The lower court erred in holding that the plaintiffs never notified the defendants, in
any way, that their employee, Domingo Tim Bun Liu, could sell their merchandise, but could
not receive payment for it, and that the defendants never had notice that their business
transactions with Domingo Tim Bun Liu were by him as agent or employee of the plaintiffs.
Third. The court erred in holding that the plaintiffs accepted payment through Domingo Tim
Bun Liu.

WHEREFORE, the judgments appealed from are hereby affirmed, with costs against the
defendants-appellants.
37. LIM TIU, LIM SUNTIAN and LIM KAENG JO, operating under the name of "Lim
Juco y Compaia," plaintiffs-appellants, vs. RUIZ Y REMENTERIA, a concern
operating under the name of "La Isla de Cuba," defendant-appellee.
Fourth. The court erred in holding that "the defendants having in good faith purchased the
goods upon an agreement to pay for them in merchandise of their own, under an agreement
with the person from whom they received the goods, to so pay for them, could not be held
responsible for the failure of the plaintiffs' employee to deliver to his employers, that which
was received in payment."
Fifth. The court erred in admitting as evidence Exhibit D (1), Exhibit D (2), and Exhibit D (3).

JOHNSON, J.:
Sixth. The court erred in dismissing the plaintiffs' complaint and in deciding in favor of the
defendants.
On the 6th day of July, 1908, the plaintiffs commenced an action against the defendants in
the Court of First Instance of the city of Manila, alleging that upon the 26th day of May,
Upon these assignments of error the plaintiffs and appellants present three questions:
1908, the 5th day of June, 1908, and the 12th day of June, 1908, they sold to the defendant
certain merchandise, amounting to the sum of P1,043.57; that said amount was due and
First. Did the defendants purchase directly from the plaintiffs?
unpaid, and prayed judgment for said sum (P1,043.57) with interest and cost.

To this petition the defendants filed a general denial.

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Second. If not, did the defendants have sufficient notice of Domingo Tim Bun Liu's relation
with the plaintiffs to place them on their guard?
Third. If the last is answered affirmatively, then was the payment by the defendants to
Domingo Tim Bun Liu, in something other than cash, binding on the plaintiffs?
With reference to the first question, "Did the defendants purchase directly from the
plaintiffs?" there is much conflict in the testimony. The lower court answered this question in
the negative. It appears that the defendants had been buying merchandise from Domingo
Tim Bun Liu for a period covering several months, and paying for said merchandise in
exchange, and from time to time settling their accounts by the defendants paying to the said
Domingo Tim Bun Liu the difference, if any, in his favor, and by Domingo paying to the
defendants the difference of the accounts, if there was found to be due them any balance on
such settlements. The defendant claim that they had no knowledge or information that the
merchandise which they were receiving from Domingo Tim Bun Liu was the merchandise of
the plaintiffs. This contention of the defendants is supported by the fact that during all of the
period during which they were doing business with Domingo, their which they were kept with
Domingo Tim Bun Liu, and not with the plaintiffs. The plaintiffs contend that for certain of
the merchandise sold by Domingo Tim Bun Liu to the defendants Domingo presented a bill in
their favor. In this proof the plaintiffs attempt to establish the fact that the defendants knew
that they were dealing with them and not with Domingo Tim Bun Liu.
In answer to this contention, the defendants contend that the only bill Domingo presented to
them for merchandise belonging to the plaintiffs was for the purpose of showing that he,
Domingo, was charging the defendants for the merchandise in question the same price which
he had been obliged to pay to the plaintiffs.
The fact is not disputed that Domingo Tim Bun Liu purchased all or nearly all of the goods
which he sold to the defendants, from the plaintiffs. We think a fair preponderance of the
evidence shows that the defendants, in their dealings with Domingo Tim Bun Liu, believed
that they were dealing with him and not with the plaintiffs. There is no proof that Domingo
ever notified the defendants that he was acting as the agent of the plaintiffs. Neither does
the proof show that the plaintiffs ever notified the defendants that Domingo Tim Bun Liu was
acting as their agent in selling the merchandise in question. It is not disputed that the
defendants have paid to Domingo Tim Bun Liu, in full, for all the merchandise which they
purchased of him.
It being established by a preponderance of the evidence that Domingo Tim Bun Liu acted in
his own name selling the merchandise to the defendants, and that the defendants fully
believed that they were dealing with the said Domingo Tim Bun Liu, without any knowledge
of the fact that he was the agent of the plaintiffs, and having paid him in full for the
merchandise purchased, they are not liable to the plaintiffs, for said merchandise, even
though it be admitted that Domingo Tim Bun Liu was in fact the agent of the plaintiffs in
selling the merchandise in question. This is true whether the transaction is covered by the
provisions of the Civil Code (art. 1717) or by the provisions of the Commercial Code (art.
246). Said article 1717 provides:
When an agent acts in his own name the principal shall have no action against the
persons with whom the agent has contracted, nor the said persons against the
principal.
Said article 246 provides that: "When an agent transacts business in his own name, it shall
not be necessary for him to state who is the principal, and he shall be directly liable, as if the
business were for his own account, to the persons with whom he transacts the same, said
persons not having any right of action against the principal, nor the latter against the former,
the liabilities of the principal and the agent to each other reserved."
(Castle Brothers, Wolf & Sons vs. Go Juno, 7 Phil. Rep., 144; Pastell &
Regordosa vs. Hollman & Co., 2 Phil. Rep., 235; 11 Manresa, 470; Munroe vs. Kearney, 17
Ohio, 572.)
Having reached the above conclusions, we deem it unnecessary to further discuss the
assignments of error and the questions presented by the appellant.
In view of the foregoing reasons, the judgment of the lower court should be and is hereby
affirmed. So ordered.
38. THE PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. PAZ AGUDELO Y
GONZAGA, ET AL., defendants. PAZ AGUDELO Y GONZAGA, appellant.
VILLA-REAL, J.:
The defendant Paz Agudelo y Gonzaga appeals to this court from the judgment rendered by
the Court of First Instance of Occidental Negros, the dispositive part of which reads as
follows:
Wherefore, judgment is rendered herein absolving the defendant Mauro A. Garrucho
from the complaint and ordering the defendant Paz Agudelo y Gonzaga to pay to the
plaintiff the sum of P31,091.55, Philippine currency, together with the interest on the
balance of P20,774.73 at 8 per cent per annum of P4.55 daily from July 16, 1929,
until fully paid, plus the sum of P1,500 as attorney's fees, and the costs of this suit.
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 It is hereby ordered that in case the above sums adjudged in favor of the defendant
by virtue of this judgment are not paid to the Philippine National Bank or deposited
in the office of the clerk of this court, for delivery to the plaintiff, within three months
from the date of this decision, the provincial sheriff of Occidental Negros shall set at
public auction the mortgaged properties described in annex E of the second
amended complaint, and apply the proceeds thereof to the payment of the sums in
question.
It is further ordered that in case the proceeds of the mortgaged properties are not
sufficient to cover the amount of this judgment, a writ of execution be issued against
any other property belonging to the defendant Paz Agudelo y Gonzaga, not
otherwise exempt from execution, to cover the balance resulting therefrom.
In support of her appeal, the appellant assigns six alleged errors as committed by the trial
court, which we shall discuss in the course of this decision.
The following pertinent facts, which have been proven without dispute during the trial, are
necessary for the decision of the questions raised in the present appeal, to wit:
On November 9, 1920, the defendant-appellant Paz Agudelo y Gonzaga executed in favor of
her nephew, Mauro A. Garrucho, the document Exhibit K conferring upon him a special
power of attorney sufficiently broad in scope to enable him to sell, alienate and mortgage in
the manner and form he might deem convenient, all her real estate situated in the
municipalities of Murcia and Bacolod, Occidental Negros, consisting in lots Nos. 61 and 207 of
the cadastral survey of Bacolod, Occidental Negros, together with the improvement thereon.
On December 22, 1920, Amparo A. Garrucho executed the document Exhibit H whereby she
conferred upon her brother Mauro A Garrucho a special power of attorney sufficiently broad
in scope to enable him to sell, alienate, mortgage or otherwise encumber, in the manner and
form he might deem convenient, all her real estate situated in the municipalities of Murcia
and Bago, Occidental Negros.
Nothing in the aforesaid powers of attorney expressly authorized Mauro A. Garrucho to
contract any loan nor to constitute a mortgage on the properties belonging to the respective
principals, to secure his obligations.
On December 23, 1920, Mauro A. Garrucho executed in the favor of the plaintiff entity, the
Philippine National bank, the document Exhibit G, whereby he constituted a mortgage on lot
No. 878 of the cadastral survey of Murcia, Occidental Negros, with all the improvements
thereon, described in transfer certificate of title No. 2415 issued in the name of Amparo A.
Garrucho, to secure the payment of credits, loans, commercial overdrafts, etc., not exceeding
P6,000, together with interest thereon, which he might obtain from the aforesaid plaintiff
entity, issuing the corresponding promissory note to that effect.
During certain months of the year 1921 and 1922, Mauro A. Garrucho maintained a personal
current account with the plaintiff bank in the form of a commercial credit withdrawable
through checks (Exhibits S, 1 and T).
On August 24, 1931, the said Mauro A. Garrucho executed in favor of the plaintiff entity, the
Philippine National Bank, the document Exhibit J whereby he constituted a mortgage on lots
Nos. 61 and 207 of the cadastral survey of Bacolod together with the buildings and
improvements thereon, described in original certificates of title Nos. 2216 and 1148,
respectively, issued in the name of Paz Agudelo y Gonzaga, to secure the payment of credits,
loans and commercial overdrafts which the said bank might furnish him to the amount of
P16,00, payable on August 24, 1922, executing the corresponding promissory note to that
effect.
The mortgage deeds Exhibit G and J as well as the corresponding promissory notes for
P6,000 and P16,000, respectively, were executed in Mauro A. Garrucho's own name and
signed by him in his personal capacity, authorizing the mortgage creditor, the Philippine
National Bank, to take possession of the mortgaged properties, by means of force if
necessary, in case he failed to comply with any of the conditions stipulated therein.
On January 4, 1922, the manager of the Iloilo branch of the Philippine National Bank notified
Mauro A. Garrucho that his promissory note for P6,000 of 10 days within which to make
payment thereof (Exhibit O).1awphil.net
On May 9, 1922, the said manager notified Mauro A. Garrucho that his commercial credit was
closed from that date (Exhibit S).
Inasmuch as Mauro A. Garrucho had overdrawn his credit with the plaintiff-appellee, the said
manager thereof, in a letter dated June 27, 1922 (Exhibit T), requested him to liquidate his
account amounting to P15,148.15, at the same time notifying him that his promissory note
for P16,000 giving as security for the commercial overdraft in question, had fallen due some
time since.
On July 15, 1922, Mauro A. Garrucho, executed in favor of the plaintiff entity the deed
Exhibit C whereby he constituted a mortgage on lots Nos. 61 and 207 of the cadastral survey
of Bacolod, together with the improvements thereon, described in transfer certificates of title
Nos. 2216 and 1148, respectively, issued in the name of Paz Agudelo y Gonzaga, and on lot
No. 878 of the cadastral survey of Murcia, described in transfer certificate of title No. 2415,
issued in the name of Amparo A. Garrucho.
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In connection of the credits, loans, and commercial overdrafts amounting to P21,000 which
had been granted him, Mauro A. Garrucho, on the said date July 15, 1922, executed the
promissory note, Exhibit B, for P21,000 as a novation of the former promissory notes for
P6,000 and P16,000, respectively.
In view of the aforesaid consolidated mortgage, Exhibit C, the Philippine National Bank, on
the said date of July 15, 1922, cancelled the mortgages constituted on lots Nos. 61, 207 and
878 described in Torrens titles Nos. 2216, 1148 and 2415, respectively.
On November 25, 1925, Amparo A. Garrucho sold lot No. 878 described in certificate of title
No. 2415, to Paz Agudelo y Gonzaga (Exhibit M).
On January 15, 1926, in the City of Manila, Paz Agudelo y Gonzaga signed the affidavit,
Exhibit N, which reads as follows:
Know all men by these presents : That I, Paz Agudelo y Gonzaga, single, of
age, and resident of the City of Manila, P. I., by these present do hereby
agree and consent to the transfer in my favor of lot No. 878 of the Cadastre
of Murcia, Occidental Negros, P. I., by Miss Amparo A. Garrucho, as
evidenced by the public instrument dated November 25, 1925, executed
before the notary public Mr. Genaro B. Benedicto, and do hereby further
agree to the amount of the lien thereon stated in the mortgage deed
executed by Miss Amparo A. Garrucho in favor of the Philippine National
Bank.
In testimony whereof, I hereunto affix my signature in the City of Manila,
P.I., this 15th of January, 1926.
(Sgd.) PAZ AGUDELO Y GONZAGA.
Pursuant to the sale made by Amparo A. Garrucho in favor of Paz Agudelo y Gonzaga, of lot
No. 878 of the cadastral survey of Murcia, described in certificate of title No. 2145 issued in
the name of said Amparo A. Garrucho, and to the affidavit, Exhibit N, transfer certificate of
title No. 5369 was issued in the name of Paz Agudelo y Gonzaga.
Without discussing and passing upon whether or not the powers of attorney issued in favor
of Mauro A. Garrucho by his sister, Amparo A. Garrucho, and by his aunt, Paz Agudelo y
Gonzaga, respectively, to mortgage their respective real estate, authorized him to obtain
loans secured by mortgage in the properties in question, we shall consider the question of
whether or not Paz Agudelo y Gonzaga is liable for the payment of the loans obtained by
Mauro A. Garrucho from the Philippine National Bank for the security of which he constituted
a mortgage on the aforesaid real estate belonging to the defendant-appellant Paz Agudelo y
Gonzaga.
Article 1709 of the Civil Code provides the following:
ART. 1709. By the contract of agency, one person binds himself to render some
service, or to do something for the account or at the request of another.
And article 1717 of the same Code provides as follows:
ART. 1717. When an agent acts in his own name, the principal shall have no right of
action against the persons with whom the agent has contracted, or such persons
against the principal.
In such case, the agent is directly liable to the person with whom he has contracted,
as if the transaction were his own. Cases involving things belonging to the principal
are excepted.
The provisions of this article shall be understood to be without prejudice to actions
between principal and agent.
Aside from the phrases "attorney in fact of his sister, Amparo A. Garrucho, as evidenced by
the power of attorney attached hereto" and "attorney in fact of Paz Agudelo y Gonzaga"
written after the name of Mauro A. Garrucho in the mortgage deeds, Exhibits G. and J,
respectively, there is nothing in the said mortgage deeds to show that Mauro A. Garrucho is
attorney in fact of Amparo A. Garrucho and of Paz Agudelo y Gonzaga, and that he obtained
the loans mentioned in the aforesaid mortgage deeds and constituted said mortgages as
security for the payment of said loans, for the account and at the request of said Amparo A.
Garrucho and Paz Agudelo y Gonzaga. The above-quoted phrases which simply described his
legal personality, did not mean that Mauro A. Garrucho obtained the said loans and
constituted the mortgages in question for the account, and at the request, of his principals.
From the titles as well as from the signatures therein, Mauro A. Garrucho, appears to have
acted in his personal capacity. In the aforesaid mortgage deeds, Mauro A. Garrucho, in his
capacity as mortgage debtor, appointed the mortgage creditor Philippine National Bank as his
attorney in fact so that it might take actual and full possession of the mortgaged properties
by means of force in case of violation of any of the conditions stipulated in the respective
mortgage contracts. If Mauro A. Garrucho acted in his capacity as mere attorney in fact of
Amparo A. Garrucho and of Paz Agudelo y Gonzaga, he could not delegate his power, in view
of the legal principle of "delegata potestas delegare non potest" (a delegated power cannot
be delegated), inasmuch as there is nothing in the records to show that he has been
expressly authorized to do so.
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He executed the promissory notes evidencing the aforesaid loans, under his own signature,
without authority from his principal and, therefore, were not binding upon the latter (2
Corpus Juris, pp. 630-637, par. 280). Neither is there anything to show that he executed the
promissory notes in question for the account, and at the request, of his respective principals
(8 Corpus Juris, pp. 157-158).
Furthermore, it is noted that the mortgage deeds, Exhibits C and J, were cancelled by the
documents, Exhibits I and L, on July 15, 1922, and in their stead the mortgage deed, Exhibit
C, was executed, in which there is absolutely no mention of Mauro A. Garrucho being
attorney in fact of anybody, and which shows that he obtained such credit fro himself in his
personal capacity and secured the payment thereof by mortgage constituted by him in his
personal capacity, although on properties belonging to his principal Paz Agudelo y Gonzaga.
Furthermore, the promissory notes executed by Mauro A. Garrucho in favor of the Philippine
National Bank, evidencing loans of P6,000 and P16,000 have been novated by the promissory
notes for P21,000 (Exhibit B) executed by Mauro A. Garrucho, not only without express
authority from his principal Paz Agudelo y Gonzaga but also under his own signature.
In the case of National Bank vs. Palma Gil (55 Phil., 639), this court laid down the following
doctrine:
A promissory note and two mortgages executed by the agent for and on behalf of his
principal, in accordance with a power of attorney executed by the principal in favor
of the agent, are valid, and as provided by article 1727 of contracted by the agent;
but a mortgage on real property of the principal not made and signed in the name of
the principal is not valid as to the principal.
It has been intimated, and the trial judge so stated. that it was the intention of the parties
that Mauro A. Garrucho would execute the promissory note, Exhibit B, and the mortgage
deed, Exhibit C, in his capacity as attorney in facts of Paz Agudelo y Gonzaga, and that
although the terms of the aforesaid documents appear to be contrary to the intention of the
parties, such intention should prevail in accordance with article 1281 of the Civil Code.
Commenting on article 1281 of the Civil Code, Manresa, in his Commentaries to the Civil
Code, says the following:
IV. Intention of the contracting parties; its appreciation . In order that the
intention may prevail, it is necessary that the question of interpretation be raised,
either because the words used appear to be contrary thereto, or by the existence of
overt acts opposed to such words, in which the intention of the contracting parties is
made manifest. Furthermore, in order that it may prevail against the terms of the
contract, it must be clear or, in other words, besides the fact that such intention
should be proven by admissible evidence, the latter must be of such charter as to
carry in the mind of the judge an unequivocal conviction. This requisite as to the kind
of evidence is laid down in the decision relative to the Mortgage Law of September
30, 1891, declaring that article 1281 of the Civil Code gives preference to intention
only when it is clear. When the aforesaid circumstances is not present in a
document, the only thing left for the register of deeds to do is to suspend the
registration thereof, leaving the solution of the problem to the free will of the parties
or to the decision of the courts.
However, the evident intention which prevails against the defective wording thereof
is not that of one of the parties, but the general intent, which, being so, is to a
certain extent equivalent to mutual consent, inasmuch as it was the result desired
and intended by the contracting parties. (8 Manresa, 3d edition, pp. 726 and 727.)
Furthermore, the records do not show that the loan obtained by Mauro A. Garrucho,
evidenced by the promissory note, Exhibit B, was for his principal Paz Agudelo y Gonzaga.
The special power of attorney, Exhibit K, does not authorize Mauro A. Garrucho to constitute
a mortgage on the real estate of his principal to secure his personal obligations. Therefore, in
doing so by virtue of the document, Exhibit C, he exceeded the scope if his authority and his
principal is not liable for his acts. (2 Corpus Juris, p. 651; article 1714, Civil Code.)
It is further claimed that inasmuch as the properties mortgaged by Mauro A. Garrucho belong
to Paz Agudelo y Gonzaga, the latter is responsible for the acts of the former although he
acted in his own name, in accordance with the exception contained in article 1717 of the Civil
Code. It would be an exception with the properties of his own name in connection with the
properties of his principal, does so within the scope of his authority. It is noted that Mauro A.
Garrucho was not authorized to execute promissory notes even in the name of his principal
Paz Agudelo y Gonzaga, nor to constitute a mortgage on her real properties to secure such
promissory notes. The plaintiff Philippine National Bank should know this inasmuch as it is in
duty bound to ascertain the extent of the agent's authority before dealing with him.
Therefore, Mauro A. Garrucho and not Paz Agudelo y Gonzaga is personally liable for the
amount of the promissory note Exhibit B. (2 Corpus Juris, pp. 563-564.)
However, Paz Agudelo y Gonzaga in an affidavit dated January 15, 1926 (Exhibit AA), and in
a letter dated January 16, 1926 (Exhibit Z), gave her consent to the lien on lot No. 878 of the
cadastre of Murcia, Occidental Negros, described in Torrens title No. 5369, the ownership of
which was transferred to her by her niece Amparo A. Garrucho. This acknowledgment,
however, does not extend to lots Nos. 207 and 61 of the cadastral survey of Bacolod,
described in transfer certificates of title Nos. 1148 and 2216, respectively, inasmuch as,
although it is true that a mortgage is indivisible as to the contracting parties and as top their
131
successors in interest (article 1860, Civil Code), it is not so with respect to a third person who
did not take part in the constitution thereof either personally or through an agent, inasmuch
as he can make the acknowledgment thereof in the form and to the extent he may deem
convenient, on the ground that he is not in duty bound to acknowledge the said mortgage.
Therefore, the only liability of the defendant-appellant Paz Agudelo y Gonzaga is that which
arises from the aforesaid acknowledgment, but only with respect to the lien and not to the
principal obligation secured by the mortgage acknowledged by her to have been constituted
on said lot No. 878 of the cadastral survey of Murcia, Occidental Negros. Such liability is not
direct but a subsidiary one.
Having reach this contention, it is unnecessary to pass upon the other questions of law raised
by the defendant- appellant in her brief and upon the law cited therein.
In view of the foregoing consideration, we are of the opinion and so hold that when an agent
negotiates a loan in his personal capacity and executes a promissory note under his own
signature, without express authority from his principal, giving as security therefor real estate
belonging to the letter, also in his own name and not in the name and representation of the
said principal, the obligation do constructed by him is personal and does not bind his
aforesaid principal.
Wherefore, it is hereby held that the liability constructed by the aforesaid defendant-
appellant Paz Agudelo y Gonzaga is merely subsidiary to that of Mauro A. Garrucho, limited
lot No. 878 of the cadastral survey of Murcia, Occidental Negros, described in Torrens title
No. 2415. However, inasmuch as the principal obligator, Mauro A. Garrucho, has been
absolved from the complaint and the plaintiff- appellee has not appealed from the judgment
absolving him, the law does not afford any remedy whereby Paz Agudelo y Gonzaga may be
required to comply with the said subsidiary obligation in view of the legal maxim that the
accessory follows the principal. Wherefore, the defendant herein should also be absolved
from the complaint which is hereby dismissed, with the costs against the appellee. So
ordered.
39. VICENTE SY-JUCO and CIPRIANA VIARDO, plaintiffs-appellants, vs.
SANTIAGO V. SY-JUCO, defendant-appellant.
.AVANCEA, J.:
In 1902 the defendant was appointed by the plaintiffs administrator of their property and
acted as such until June 30, 1916, when his authority was cancelled. The plaintiffs are
defendant's father and mother who allege that during his administration the defendant
acquired the property claimed in the complaint in his capacity as plaintiffs' administrator with
their money and for their benefit. After hearing the case the trial court rendered his decision,
the dispositive part of which is the following:
Wherefore, the court give judgment for the plaintiffs and orders:
1. That the defendant return to the plaintiffs the launch Malabon, in question, and
execute all the necessary documents and instruments for such delivery and the
registration in the records of the Custom House of said launch as plaintiffs' property;
2. That the defendant return to the plaintiffs the casco No. 2584, or pay to them the
value thereof which has been fixed at the sum of P3,000, and should the return of
said casco be made, execute all the necessary instruments and documents for its
registration in plaintiffs' name at the Custom House; and
3. That the defendant return to the plaintiffs the automobile No. 2060 and execute
the necessary instruments and documents for its registration at the Bureau of Public
Works. And judgment is hereby given for the defendant absolving him from the
complaint so far concerns:
1. The rendition of accounts of his administration of plaintiffs property;
2. The return of the casco No. 2545;
3. The return of the typewriting machine;
4. The return of the house occupied by the defendant; and
5. The return of the price of the piano in question.
Both parties appealed from this judgment.
In this instance defendant assigns three errors alleged to have been committed by the lower
court in connection with the three items of the dispositive part of the judgment unfavorable
to him. We are of the opinion that the evidence sufficiently justifies the judgment against the
defendant.
Regarding the launch Malabon, it appears that in July, 1914, the defendant bought it in his
own name from the Pacific Commercial Co., and afterwards registered it at the Custom
House. But his does not necessarily show that the defendant bought it for himself and with
his own money, as he claims. This transaction was within the agency which he had received
132
from the plaintiffs. The fact that he has acted in his own name may be only, as we believe it
was, a violation of the agency on his part. As the plaintiffs' counsel truly say, the question is
not in whose favor the document of sale of the launch is executed nor in whose name same
was registered, but with whose money was said launch bought. The plaintiffs' testimony that
it was bought with their money and for them is supported by the fact that, immediately after
its purchase, the launch had to be repaired at their expense, although said expense was
collected from the defendant. I the launch was not bought for the plaintiffs and with their
money, it is not explained why they had to pay for its repairs.
The defendant invokes the decision of this Court in the case of Martinez vs. Martinez (1 Phil.
Rep., 647), which we do not believe is applicable to the present case. In said case, Martinez,
Jr., bought a vessel in his own name and in his name registered it at the Custom House. This
court then said that although the funds with which the vessel was bought belonged to
Martinez Sr., Martinez Jr. is its sole and exclusive owner. But in said case the relation of
principal and agent, which exists between the plaintiffs and the defendant in the present
case, did not exist between Martinez, Sr., and Martinez, Jr. By this agency the plaintiffs
herein clothed the defendant with their representation in order to purchase the launch in
question. However, the defendant acted without this representation and bought the launch in
his own name thereby violating the agency. If the result of this transaction should be that
the defendant has acquired for himself the ownership of the launch, it would be equivalent to
sanctioning this violation and accepting its consequences. But not only must the
consequences of the violation of this agency not be accepted, but the effects of the agency
itself must be sought. If the defendant contracted the obligation to but the launch for the
plaintiffs and in their representation, but virtue of the agency, notwithstanding the fact that
he bought it in his own name, he is obliged to transfer to the plaintiffs the rights he received
from the vendor, and the plaintiffs are entitled to be subrogated in these rights.
There is another point of view leading us to the same conclusion. From the rule established
in article 1717 of the Civil Code that, when an agency acts in his own name, the principal
shall have no right of action against the person with whom the agent has contracted, cases
involving things belonging to the principal are excepted. According to this exception (when
things belonging to the principal are dealt with) the agent is bound to the principal although
he does not assume the character of such agent and appears acting in his own
name (Decision of the Supreme Court of Spain, May 1, 1900). This means that in the case of
this exception the agent's apparent representation yields to the principal's true representation
and that, in reality and in effect, the contract must be considered as entered into between
the principal and the third person; and, consequently, if the obligations belong to the former,
to him alone must also belong the rights arising from the contract. The money with which the
launch was bough having come from the plaintiff, the exception established in article 1717 is
applicable to the instant case.
Concerning the casco No. 2584, the defendant admits it was constructed by the plaintiff
himself in the latter's ship-yard. Defendant's allegation that it was constructed at his instance
and with his money is not supported by the evidence. In fact the only proof presented to
support this allegation is his own testimony contradicted, on the on hand, by the plaintiffs'
testimony and, on the other hand, rebutted by the fact that, on the date this casco was
constructed, he did not have sufficient money with which to pay the expense of this
construction.
As to the automobile No. 2060, there is sufficient evidence to show that its prices was paid
with plaintiffs' money. Defendant's adverse allegation that it was paid with his own money is
not supported by the evidence. The circumstances under which, he says, this payment has
been made, in order to show that it was made with his own money, rather indicate the
contrary. He presented in evidence his check-book wherein it appears that on March 24,
1916, he issued a check for P300 and on the 27th of same month another for P400 and he
says that the first installment was paid with said checks. But it results that, in order to issue
the check for P300 on March 24 of that year, he had to deposit P310 on that same day; and
in order to issue the other check for P400 on the 27th of the same month, he deposited P390
on that same day. It was necessary for the defendant to make these deposits for on those
dates he had not sufficient money in the bank for which he could issue those checks. But, in
order to pay for the price of the automobile, he could have made these payments directly
with the money he deposited without the necessity of depositing and withdrawing it on the
same day. If this action shows something, it shows defendant's preconceived purpose of
making it appear that he made the payment with his own funds deposited in the bank.
The plaintiffs, in turn, assign in this instance the following three errors alleged to have been
committed by the lower court:
1. The court erred in not declaring that the plaintiffs did not sell to the defendant
the casco No. 2545 and that they were its owners until it was sunk in June, 1916.
2. The court erred in absolving the defendant from his obligation to render an
account of his administration to the plaintiffs, and to pay to the latter the amount of
the balance due in their favor.
3. The court erred in not condemning the defendant to pay to the plaintiffs the value
of the woods, windows and doors taken from their lumber-year by the defendant and
used in the construction of the house on calle Real of the barrio of La Concepcion,
municipality of Malabon, Rizal.
Concerning the casco No. 2545, the lower court refrained from making any declaration about
its ownership in view of the fact that this casco had been leased and was sunk while in the
133
lessee's hands before the complaint in this case was filed. The lower court, therefore,
considered it unnecessary to pass upon this point. We agree with the plaintiffs that the trial
court should have made a pronouncement upon this casco. The lessee may be responsible in
damages for its loss, and it is of interest to the litigants in this case that it be determined
who is the owner of said casco that may enforce this responsibility of the lessee.
Upon an examination of the evidence relative to this casco, we find that it belonged to the
plaintiffs and that the latter sold it afterwards to the defendant by means of a public
instrument. Notwithstanding plaintiffs' allegation that when they signed this instrument they
were deceived, believing it not to be an instrument of sale in favor of the defendant,
nevertheless, they have not adduced sufficient proof of such deceit which would destroy the
presumption of truth which a public document carries with it. Attorney Sevilla, who acted as
the notary in the execution of this instrument, testifying as a witness in the case, said that he
never verified any document without first inquiring whether the parties knew its content. Our
conclusion is that this casco was lawfully sold to the defendant by the plaintiffs.
Concerning the wood, windows and doors given by the plaintiffs to the defendant and used
in the construction of the latter's house on calle Real of the barrio of La Concepcion of the
municipality of Malabon, Rizal, we find correct the trial Court's decision that they were given
to the defendant as his and his wife's property.
Concerning the rendition of accounts which the plaintiffs require of the defendant, we
likewise find correct the trial court's decision absolving the latter from this petition, for it
appears, from the plaintiffs' own evidence, that the defendant used to render accounts of his
agency after each transactions, to the plaintiffs' satisfaction.
From the foregoing considerations, we affirm the judgment appealed from in all its parts
except in so far as the casco No. 2545 is concerned, and as to this we declare that, it having
been sold by the plaintiffs to the defendant, the latter is absolved. No special findings as to
costs. So ordered.
40. NATIONAL FOOD AUTHORITY, (NFA), petitioner,
vs. INTERMEDIATE APPELLATE COURT, SUPERIOR (SG) SHIPPING
CORPORATION, respondents.
PARAS, J.:
This is a petition for review on certiorari made by National Food Authority (NFA for brevity)
then known as the National Grains Authority or NGA from the decision 1 of the Intermediate
Appellate Court affirming the decision 2 of the trial court, the decretal portion of which reads:
WHEREFORE, defendants Gil Medalla and National Food Authority are ordered to pay
jointly and severally the plaintiff:
a. the sum of P25,974.90, with interest at the legal rate from October 17,
1979 until the same is fully paid; and,
b. the sum of P10,000.00 as and for attorney's fees.
Costs against both defendants.
SO ORDERED. (p. 22, Rollo)
Hereunder are the undisputed facts as established by the then Intermediate Appellate Court
(now Court of Appeals), viz:
On September 6, 1979 Gil Medalla, as commission agent of the plaintiff Superior
Shipping Corporation, entered into a contract for hire of ship known as "MV Sea
Runner" with defendant National Grains Authority. Under the said contract Medalla
obligated to transport on the "MV Sea Runner" 8,550 sacks of rice belonging to
defendant National Grains Authority from the port of San Jose, Occidental Mindoro,
to Malabon, Metro Manila.
Upon completion of the delivery of rice at its destination, plaintiff on October 17,
1979, wrote a letter requesting defendant NGA that it be allowed to collect the
amount stated in its statement of account (Exhibit "D"). The statement of account
included not only a claim for freightage but also claims for demurrage and
stevedoring charges amounting to P93,538.70.
On November 5, 1979, plaintiff wrote again defendant NGA, this time specifically
requesting that the payment for freightage and other charges be made to it and not
to defendant Medalla because plaintiff was the owner of the vessel "MV Sea Runner"
(Exhibit "E"). In reply, defendant NGA on November 16, 1979 informed plaintiff that
it could not grant its request because the contract to transport the rice was entered
into by defendant NGA and defendant Medalla who did not disclose that he was
acting as a mere agent of plaintiff (Exhibit "F"). Thereupon on November 19, 1979,
defendant NGA paid defendant Medalla the sum of P25,974.90, for freight services in
connection with the shipment of 8,550 sacks of rice (Exhibit "A").
134
 On December 4, 1979, plaintiff wrote defendant Medalla demanding that he turn
over to plaintiff the amount of P27,000.00 paid to him by defendant NFA. Defendant
Medalla, however, "ignored the demand."
Plaintiff was therefore constrained to file the instant complaint.
Defendant-appellant National Food Authority admitted that it entered into a contract
with Gil Medalla whereby plaintiffs vessel "MV Sea Runner" transported 8,550 sacks
of rice of said defendant from San Jose, Mindoro to Manila.
For services rendered, the National Food Authority paid Gil Medalla P27,000.00 for
freightage.
Judgment was rendered in favor of the plaintiff. Defendant National Food Authority
appealed to this court on the sole issue as to whether it is jointly and severally liable
with defendant Gil Medalla for freightage. (pp. 61-62, Rollo)
The appellate court affirmed the judgment of the lower court, hence, this appeal by way
of certiorari, petitioner NFA submitting a lone issue to wit: whether or not the instant case
falls within the exception of the general rule provided for in Art. 1883 of the Civil Code of the
Philippines.
It is contended by petitioner NFA that it is not liable under the exception to the rule (Art.
1883) since it had no knowledge of the fact of agency between respondent Superior Shipping
and Medalla at the time when the contract was entered into between them (NFA and
Medalla). Petitioner submits that "(A)n undisclosed principal cannot maintain an action upon
a contract made by his agent unless such principal was disclosed in such contract. One who
deals with an agent acquires no right against the undisclosed principal."
Petitioner NFA's contention holds no water. It is an undisputed fact that Gil Medalla was a
commission agent of respondent Superior Shipping Corporation which owned the vessel "MV
Sea Runner" that transported the sacks of rice belonging to petitioner NFA. The context of
the law is clear. Art. 1883, which is the applicable law in the case at bar provides:
Art. 1883. If an agent acts in his own name, the principal has no right of action
against the persons with whom the agent has contracted; neither have such persons
against the principal.
In such case the agent is the one directly bound in favor of the person with whom
he has contracted, as if the transaction were his own, except when the contract
involves things belonging to the principal.
The provision of this article shall be understood to be without prejudice to the
actions between the principal and agent.
Consequently, when things belonging to the principal (in this case, Superior Shipping
Corporation) are dealt with, the agent is bound to the principal although he does not assume
the character of such agent and appears acting in his own name. In other words, the agent's
apparent representation yields to the principal's true representation and that, in reality and in
effect, the contract must be considered as entered into between the principal and the third
person (Sy Juco and Viardo v. Sy Juco, 40 Phil. 634). Corollarily, if the principal can be
obliged to perform his duties under the contract, then it can also demand the enforcement of
its rights arising from the contract.
WHEREFORE, PREMISES CONSIDERED, the petition is hereby DENIED and the appealed
decision is hereby AFFIRMED.
SO ORDERED.
41. E. AWAD, Plaintiff-Appellant, vs. FILMA MERCANTILE CO., INC., Defendant-
Appellee.
OSTRAND, J.:
Early in the month of September, 1924, the plaintiff, doing business in the Philippine Islands
under the name of E. Awad & Co., delivered certain merchandise of the invoice value of
P11,140 to Chua Lioc, a merchant operating under the name of Hang Chua Co. in Manila,
said merchandise to be sold on commission by Chua Lioc. Representing himself as being the
owner of the merchandise, Chua Lioc, on September 8, 1924, sold it to the defendant for the
sum of P12,155.60. He owed the Philippine Manufacturing Co., the sum of P3,480, which the
defendant agreed to pay, and was also indebted to the defendant itself in the sum of
P2,017.98. The total amount of the two debts, P5,497.98, was deducted from the purchase
price, leaving a balance of P6,657.52 which the defendant promised to pay to Chua Lioc on
or before October 9, 1924.chanroblesvirtualawlibrary chanrobles virtual law library
The merchandise so purchased on September 9, was delivered to the defendant, who
immediately offered it for sale. Three days later D. J. Awad, the representative of the plaintiff
in the Philippine Islands; having ascertained that the goods entrusted to Chua Lioc was being
135
offered for sale by the defendant, obtained authorization from Chua Lioc to collect the sum of
P11,707 from said defendant and informed the latter's treasurer of the facts above set forth.
On September 15, D. J. Awad, in behalf of E. Awad & Co., wrote a letter to the defendant
corporation advising it that, inasmuch as the merchandise belonged to E. Awad & Co., the
purchase price should be paid to them, to which letter, the defendant, on September 18,
1924, made the following answer:
Messrs. E. AWAD & CO.chanroblesvirtualawlibrary chanrobles virtual law library
435 Juan Luna Manila. chanrobles virtual law library
GENTLEMEN: We are in receipt of your letter of September 15, 1924, in which you state that
certain blankets and shirts were brought from you by the Chinaman Chua Lioc under false
pretenses on consignment, basis, and in which you say that the merchandise is yours and we
should make payment to you for said merchandise. In answer to your letter, we beg to say
to you that the blankets and shirts in question, together with other merchandise, were
purchased and received by us from the Chinaman Chua Lioc on September 9, 1924, in the
ordinary course of business, and that there is now due from us to the said Chinaman a
balance of P6,657.52, which is payable on October 9, 1924. In view of these facts, we are
unable to comply with your request, and would advise you, in case this Chinaman is indebted
to you for said merchandise, to take the necessary steps through the Court to secure the
payment of this balance due to him to your firm, inasmuch as if you do not do so, we shall
be obliged to pay the balance which we owe for said merchandise directly to
him.chanroblesvirtualawlibrary chanrobles virtual law library
Yours respectfully,
FILMA MERCHANTILE CO. INC.
chanrobles virtual law library
On the same date, September 18, 1924, the Philippine Trust Company, brought an action,
civil case No. 26934, against Chua Lioc for the recovery of the sum of P1,036.36 and under a
writ of attachment garnished the balance due Chua Lioc from the defendant. On October 7,
E. Awad also brought an action, civil case No. 27016, against Chua Lioc for the recovery of
the sum of P11,140, the invoice value of the merchandise above-mentioned and also
obtained a writ of attachment under which notice of garnishment of the said aforesaid
balance we served upon the herein defendant.chanroblesvirtualawlibrary chanrobles virtual
law library
The complaint in the present action was filed on November 26, 1924, the plaintiff demanding
payment of the same sum of P11,140 for which action had already been brought against
Chua Lioc. The defendant, its answer, set up as special defense that it brought the
merchandise in good faith and without any knowledge whether of the person from whom or
the condition under which the said merchandise had been acquired by Chua Lioc or Hang
Chuan Co.; that the defendant therefore had acquired title to the merchandise purchased;
that the balance of P6,657.52, now in the hands of the defendant had been attached in the
two actions brought on September 18, and October 7, respectively, and garnishment served
upon the defendant, who therefore, holds the money subject to the orders of the court in the
cases above-mentioned, but which sum the defendant is able and willing to pay at any time
when the court decides to whom the money lawfully
pertains.chanroblesvirtualawlibrary chanrobles virtual law library
Upon trial, the court below dismissed the case without costs on the ground that the plaintiff
was only entitled to payment of the sum of P6,657.52, but which sum the defendant had the
right to retain subject to the orders of the court in cases Nos. 26134 and 27016. From this
judgment the plaintiff appealed.chanroblesvirtualawlibrary chanrobles virtual law library
The law applicable to the case is well settled. Article 246 of the Code of Commerce reads as
follows:
When the agent transacts business in his own name, it shall not be necessary for him to
state who is the principal and he shall be directly liable, as if the business were for his own
account, to the persons with whom he transacts the same, said persons not having any right
of action against the principal, nor the latter against the former, the liabilities of the principal
and of the agent to each other always being reserved.
The rule laid down in the article quoted is contrary to the general rule in the United States as
to purchases of merchandise from agents with undisclosed principal, but it has been followed
in a number of cases and is the law in its jurisdiction. (Pastells & Regordosa vs.Hollman &
Co., 2 Phil., 235; Castle Bros., Wolf & Sons vs. Go-Juno, & Phil., 144; Lim Tiuvs. Ruiz y
Rementeria, 15 Phil., 367.) But the appellant points out several circumstances which, in his
opinion, indicate that the defendant-appellee was aware of the condition under which the
merchandise was entrusted to the agent Chua Lioc and therefore did not purchase the goods
in good faith. This, if true, would, of course, lead to a decision of the case in favor of the
plaintiff, but there is, in our opinion, nothing conclusive about the circumstances referred to
and they are not sufficient to overcome the presumption of good
faith.chanroblesvirtualawlibrary chanrobles virtual law library
The appealed judgment is in accordance with the law and the facts and is affirmed with the
costs against the appellant. So ordered.chanroblesvirtualawlibrary chanrobles virtual law
136
42. JOSE BORDADOR and LYDIA BORDADOR, petitioners, vs. BRIGIDA D. LUZ,
ERNESTO M. LUZ and NARCISO DEGANOS, respondents.
DECISION
REGALADO, J.:
In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in
CA-G.R. CV No. 49175 affirming the adjudication of the Regional Trial Court of Malolos,
Bulacan which found private respondent Narciso Deganos liable to petitioners for actual
damages, but absolved respondent spouses Brigida D. Luz and Ernesto M. Luz of liability.
Petitioners likewise belabor the subsequent resolution of the Court of Appeals which denied
their motion for reconsideration of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and
respondent Brigida D. Luz, also known as Aida D. Luz, was their regular customer. On several
occasions during the period from April 27, 1987 to September 4, 1987, respondent Narciso
Deganos, the brother of Brigida D. Luz, received several pieces of gold and jewelry from
petitioners amounting to P382,816.00. [1] These items and their prices were indicated in
seventeen receipts covering the same. Eleven of the receipts stated that they were received
for a certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that they
were received for Brigida D. Luz. [2]
Deganos was supposed to sell the items at a profit and thereafter remit the proceeds
and return the unsold items to petitioners. Deganos remitted only the sum of P53,207.00. He
neither paid the balance of the sales proceeds, nor did he return any unsold item to
petitioners. By January 1990, the total of his unpaid account to petitioners, including interest,
reached the sum of P725,463.98. [3] Petitioners eventually filed a complaint in
the barangay court against Deganos to recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,
appeared as a witness for Deganos and ultimately, she and her husband, together with
Deganos, signed a compromise agreement with petitioners. In that compromise agreement,
Deganos obligated himself to pay petitioners, on installment basis, the balance of his account
plus interest thereon. However, he failed to comply with his aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial
Court of Malolos, Bulacan against Deganos and Brigida D. Luz for recovery of a sum of
money and damages, with an application for preliminary attachment. [4] Ernesto Luz was
impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with
estafa[5] in the Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal Case
No. 785-M-94. That criminal case appears to be still pending in said trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the agent of
Brigida D. Luz when he received the subject items of jewelry and, because he failed to pay
for the same, Brigida, as principal, and her spouse are solidarily liable with him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to
petitioners, he claimed that the same was only in the sum of P382,816.00 and
not P725,463.98. He further asserted that it was he alone who was involved in the
transaction with the petitioners; that he neither acted as agent for nor was he authorized to
act as an agent by Brigida D. Luz, notwithstanding the fact that six of the receipts indicated
that the items were received by him for the latter. He further claimed that he never delivered
any of the items he received from petitioners to Brigida.
Brigida, on her part, denied that she had anything to do with the transactions between
petitioners and Deganos. She claimed that she never authorized Deganos to receive any item
of jewelry in her behalf and, for that matter, neither did she actually receive any of the
articles in question.
After trial, the court below found that only Deganos was liable to petitioners for the
amount and damages claimed. It held that while Brigida D. Luz did have transactions with
petitioners in the past, the items involved were already paid for and all that Brigida owed
petitioners was the sum of P21,483.00 representing interest on the principal account which
she had previously paid for.[6]
The trial court also found that it was petitioner Lydia Bordador who indicated in the
receipts that the items were received by Deganos for Evelyn Aquino and Brigida D.
Luz. [7] Said court was persuaded that Brigida D. Luz was behind Deganos, but because there
was no memorandum to this effect, the agreement between the parties was unenforceable
under the Statute of Frauds. [8] Absent the required memorandum or any written document
connecting the respondent Luz spouses with the subject receipts, or authorizing Deganos to
act on their behalf, the alleged agreement between petitioners and Brigida D. Luz was
unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest
thereon from June 25, 1990, and attorneys fees. Brigida D. Luz was ordered to
pay P21,483.00 representing the interest on her own personal loan. She and her co-
defendant spouse were absolved from any other or further liability. [9]
As stated at the outset, petitioners appealed the judgment of the court a quo to the
Court of Appeals which affirmed said judgment. [10] The motion for reconsideration filed by
petitioners was subsequently dismissed, [11] hence the present recourse to this Court.
The primary issue in the instant petition is whether or not herein respondent spouses
are liable to petitioners for the latters claim for money and damages in the sum
of P725,463.98, plus interests and attorneys fees, despite the fact that the evidence does not
137
show that they signed any of the subject receipts or authorized Deganos to receive the items
of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the court a
quo that respondent spouses are not liable to them, as said conclusion of the trial court is
contradicted by the finding of fact of the appellate court that (Deganos) acted as agent of his
sister (Brigida Luz). [12] In support of this contention, petitioners quoted several letters sent to
them by Brigida D. Luz wherein the latter acknowledged her obligation to petitioners and
requested for more time to fulfill the same. They likewise aver that Brigida testified in the
trial court that Deganos took some gold articles from petitioners and delivered the same to
her.
Both the Court of Appeals and the trial court, however, found as a fact that the
aforementioned letters concerned the previous obligations of Brigida to petitioners, and had
nothing to do with the money sought to be recovered in the instant case. Such concurrent
factual findings are entitled to great weight, hence, petitioners cannot plausibly claim in this
appellate review that the letters were in the nature of acknowledgments by Brigida that she
was the principal of Deganos in the subject transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of the gold
to her, there is no showing whatsoever that her statement referred to the items which are
the subject matter of this case. It cannot, therefore, be validly said that she admitted her
liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him
with apparent authority as her agent and held him out to the public as such, hence Brigida
can not be permitted to deny said authority to innocent third parties who dealt with Deganos
under such belief. [13] Petitioners further represent that the Court of Appeals recognized in its
decision that Deganos was an agent of Brigida.[14]
The evidence does not support the theory of petitioners that Deganos was an agent of
Brigida D. Luz and that the latter should consequently be held solidarily liable with Deganos
in his obligation to petitioners. While the quoted statement in the findings of fact of the
assailed appellate decision mentioned that Deganos ostensibly acted as an agent of Brigida,
the actual conclusion and ruling of the Court of Appeals categorically stated that, (Brigida
Luz) never authorized her brother (Deganos) to act for and in her behalf in any transaction
with Petitioners x x x. [15] It is clear, therefore, that even assuming arguendo that Deganos
acted as an agent of Brigida, the latter never authorized him to act on her behalf with regard
to the transactions subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.
The basis for agency is representation. Here, there is no showing that Brigida consented
to the acts of Deganos or authorized him to act on her behalf, much less with respect to the
particular transactions involved. Petitioners attempt to foist liability on respondent spouses
through the supposed agency relation with Deganos is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos,
not once or twice but on at least six occasions as evidenced by six receipts, several pieces of
jewelry of substantial value without requiring a written authorization from his alleged
principal. A person dealing with an agent is put upon inquiry and must discover upon his peril
the authority of the agent. [16]
The records show that neither an express nor an implied agency was proven to have
existed between Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in
their transactions with Deganos, cannot seek relief from the effects of their negligence by
conjuring a supposed agency relation between the two respondents where no evidence
supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that the
decision of the court below, which it affirmed, is null and void as it contradicted its ruling in
CA-G.R. SP No. 39445 holding that there is sufficient evidence/proof against Brigida D. Luz
and Deganos for estafa in the pending criminal case. They further aver that said appellate
court erred in ruling against them in this civil action since the same would result in an
inevitable conflict of decisions should the trial court convict the accused in the criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz
and Deganos had filed a demurrer to evidence and a motion for reconsideration in the
aforestated criminal case, both of which were denied by the trial court. They then filed a
petition for certiorari in the Court of Appeals to set aside the denial of their demurrer and
motion for reconsideration but, as just stated, their petition therefor was dismissed. [17]
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition
in CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to a finding that there
is sufficient evidence in the estafa case against Brigida D. Luz and Deganos. Hence, as
already stated, petitioners theorize that the decision and resolution of the Court of Appeals
now being impugned in the case at bar would result in a possible conflict with the
prospective decision in the criminal case. Instead of promulgating the present decision and
resolution under review, so they suggest, the Court of Appeals should have awaited the
decision in the criminal case, so as not to render academic or preempt the same or, worse,
create two conflicting rulings. [18]
138
 Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that
in cases involving alleged fraudulent acts, a civil action for damages, entirely separate and
distinct from the criminal action, may be brought by the injured party. Such civil action shall
proceed independently of the criminal prosecution and shall require only a preponderance of
evidence.
It is worth noting that this civil case was instituted four years before the criminal case
for estafa was filed, and that although there was a move to consolidate both cases, the same
was denied by the trial court. Consequently, it was the duty of the two branches of the
Regional Trial Court concerned to independently proceed with the civil and criminal cases. It
will also be observed that a final judgment rendered in a civil action absolving the defendant
from civil liability is no bar to a criminal action. [19]
It is clear, therefore, that this civil case may proceed independently of the criminal
case [20] especially because while both cases are based on the same facts, the quantum of
proof required for holding the parties liable therein differ. Thus, it is improvident of
petitioners to claim that the decision and resolution of the Court of Appeals in the present
case would be preemptive of the outcome of the criminal case. Their fancied fear of possible
conflict between the disposition of this civil case and the outcome of the pending criminal
case is illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to
issue the denial resolution dated August 18, 1997, as the same was tainted with irregularities
and badges of fraud perpetrated by its court officers. [21] They charge that said appellate
court, through conspiracy and fraud on the part of its officers, gravely abused its discretion in
issuing that resolution denying their motion for reconsideration. They claim that said
resolution was drafted by the ponente, then signed and issued by the members of the
Eleventh Division of said court within one and a half days from the elevation thereof by the
division clerk of court to the office of the ponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution as the
same was made without waiting for the lapse of the ten-day period for respondents to file
their comment and for petitioners to file their reply. It was allegedly impossible for the Court
of Appeals to resolve the issue in just one and a half days, especially because its ponente,
the late Justice Maximiano C. Asuncion, was then recuperating from surgery and, that,
additionally, hundreds of more important cases were pending. [22]
These lamentable allegation of irregularities in the Court of Appeals and in the conduct
of its officers strikes us as a desperate attempt of petitioners to induce this Court to give
credence to their arguments which, as already found by both the trial and intermediate
appellate courts, are devoid of factual and legal substance. The regrettably irresponsible
attempt to tarnish the image of the intermediate appellate tribunal and its judicial officers
through ad hominem imputations could well be contumacious, but we are inclined to let that
pass with a strict admonition that petitioners refrain from indulging in such conduct in
litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial
courts decision. [23] Petitioners moved for reconsideration and the Court of Appeals ordered
respondents to file a comment. Respondents filed the same on August 5, 1997 [24] and
petitioners filed their reply to said comment on August 15, 1997. [25] The Eleventh Division of
said court issued the questioned resolution denying petitioners motion for reconsideration on
August 18, 1997.[26]
It is ironic that while some litigants malign the judiciary for being supposedly slothful in
disposing of cases, petitioners are making a show of calling out for justice because the Court
of Appeals issued a resolution disposing of a case sooner than expected of it. They would
even deny the exercise of discretion by the appellate court to prioritize its action on cases in
line with the procedure it has adopted in disposing thereof and in declogging its dockets. It is
definitely not for the parties to determine and dictate when and how a tribunal should act
upon those cases since they are not even aware of the status of the dockets and the internal
rules and policies for acting thereon.
The fact that a resolution was issued by said court within a relatively short period of
time after the records of the case were elevated to the office of the ponente cannot, by itself,
be deemed irregular. There is no showing whatsoever that the resolution was issued without
considering the reply filed by petitioners. In fact, that brief pleading filed by petitioners does
not exhibit any esoteric or ponderous argument which could not be analyzed within an
hour. It is a legal presumption, born of wisdom and experience, that official duty has been
regularly performed; [27] that the proceedings of a judicial tribunal are regular and valid, and
that judicial acts and duties have been and will be duly and properly performed. [28] The
burden of proving irregularity in official conduct is on the part of petitioners and they have
utterly failed to do so. It is thus reprehensible for them to cast aspersions on a court of law
on the bases of conjectures or surmises, especially since one of the petitioners appears to be
a member of the Philippine Bar.
Lastly, petitioners fault the trial courts holding that whatever contract of agency was
established between Brigida D. Luz and Narciso Deganos is unenforceable under the Statute
of Frauds as that aspect of this case allegedly is not covered thereby. [29] They proceed on
the premise that the Statute of Frauds applies only to executory contracts and not to
executed or to partially executed ones. From there, they move on to claim that the contract
involved in this case was an executed contract as the items had already been delivered by
petitioners to Brigida D. Luz, hence, such delivery resulted in the execution of the contract
and removed the same from the coverage of the Statute of Frauds.
Petitioners claim is speciously unmeritorious. It should be emphasized that neither the
trial court nor the appellate court categorically stated that there was such a contractual
relation between these two respondents. The trial court merely said that if there was such an
139
agency existing between them, the same is unenforceable as the contract would fall under
the Statute of Frauds which requires the presentation of a note or memorandum thereof in
order to be enforceable in court. That was merely a preparatory statement of a principle of
law. What was finally proven as a matter of fact is that there was no such contract between
Brigida D. Luz and Narciso Deganos, executed or partially executed, and no delivery of any of
the items subject of this case was ever made to the former.
WHEREFORE, no error having been committed by the Court of Appeals in affirming the
judgment of the court a quo, its challenged decision and resolution are hereby AFFIRMED
and the instant petition is DENIED, with double costs against petitioners
SO ORDERED.
43. ALFRED HAHN, petitioner, vs. COURT OF APPEALS and BAYERISCHE MOTOREN
WERKE AKTIENGESELLSCHAFT (BMW), respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision [1] of the Court of Appeals dismissing a
complaint for specific performance which petitioner had filed against private respondent on
the ground that the Regional Trial Court of Quezon City did not acquire jurisdiction over
private respondent, a nonresident foreign corporation, and of the appellate court's order
denying petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-
Manila." On the other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft
(BMW) is a nonresident foreign corporation existing under the laws of the former Federal
Republic of Germany, with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a "Deed of
Assignment with Special Power of Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark and device
in the Philippines which ASSIGNOR uses and has been using on the products manufactured
by ASSIGNEE, and for which ASSIGNOR is the authorized exclusive Dealer of the ASSIGNEE
in the Philippines, the same being evidenced by certificate of registration issued by the
Director of Patents on 12 December 1963 and is referred to as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said transfer of
the said BMW trademark and device in favor of the ASSIGNEE herein with the Philippines
Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the stipulations hereunder
stated, the ASSIGNOR hereby affirms the said assignment and transfer in favor of the
ASSIGNEE under the following terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other than ASSIGNOR or
infringer of the BMW trademark in the Philippines, for such purpose, the ASSIGNOR shall
inform the ASSIGNEE immediately of any such use or infringement of the said trademark
which comes to his knowledge and upon such information the ASSIGNOR shall automatically
act as Attorney-In-Fact of the ASSIGNEE for such case, with full power, authority and
responsibility to prosecute unilaterally or in concert with ASSIGNEE, any such infringer of the
subject mark and for purposes hereof the ASSIGNOR is hereby named and constituted as
ASSIGNEE's Attorney-In-Fact, but any such suit without ASSIGNEE's consent will exclusively
be the responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has been usual
in the past without a formal contract, and for that purpose, the dealership of ASSIGNOR shall
cover the ASSIGNEE's complete production program with the only limitation that, for the
present, in view of ASSIGNEE's limited production, the latter shall not be able to supply
automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been usual in the
past without a formal contract." But on February 16, 1993, in a meeting with a BMW
representative and the president of Columbia Motors Corporation (CMC), Jose Alvarez,
petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW
cars and products to CMC, which had expressed interest in acquiring the same. On February
24, 1993, petitioner received confirmation of the information from BMW which, in a letter,
expressed dissatisfaction with various aspects of petitioner's business, mentioning among
other things, decline in sales, deteriorating services, and inadequate showroom and
warehouse facilities, and petitioner's alleged failure to comply with the standards for an
exclusive BMW dealer.[2] Nonetheless, BMW expressed willingness to continue business
relations with the petitioner on the basis of a "standard BMW importer" contract, otherwise, it
said, if this was not acceptable to petitioner, BMW would have no alternative but to terminate
petitioner's exclusive dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive dealership would be a
breach of the Deed of Assignment. [3] Hahn insisted that as long as the assignment of its
trademark and device subsisted, he remained BMW's exclusive dealer in the Philippines
because the assignment was made in consideration of the exclusive dealership. In the same
140
letter petitioner explained that the decline in sales was due to lower prices offered for BMW
cars in the United States and the fact that few customers returned for repairs and servicing
because of the durability of BMW parts and the efficiency of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW withdrew on March
26, 1993 its offer of a "standard importer contract" and terminated the exclusive dealer
relationship effective June 30, 1993. [4] At a conference of BMW Regional Importers held on
April 26, 1993 in Singapore, Hahn was surprised to find Alvarez among those invited from the
Asian region. On April 29, 1993, BMW proposed that Hahn and CMC jointly import and
distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for
specific performance and damages against BMW to compel it to continue the exclusive
dealership. Later he filed an amended complaint to include an application for temporary
restraining order and for writs of preliminary, mandatory and prohibitory injunction to enjoin
BMW from terminating his exclusive dealership. Hahn's amended complaint alleged in
pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the Philippines with principal
offices at Munich, Germany. It may be served with summons and other court processes
through the Secretary of the Department of Trade and Industry of the Philippines. . . .
....
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of Assignment
with Special Power of Attorney covering the trademark and in consideration thereof, under its
first whereas clause, Plaintiff was duly acknowledged as the "exclusive Dealer of the Assignee
in the Philippines" . . . .
....
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without
any monetary contribution from defendant BMW, established BMW's goodwill and market
presence in the Philippines. Pursuant thereto, Plaintiff has invested a lot of money and
resources in order to single-handedly compete against other motorcycle and car
companies .... Moreover, Plaintiff has built buildings and other infrastructures such as service
centers and showrooms to maintain and promote the car and products of defendant BMW.
....
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was willing
to maintain with Plaintiff a relationship but only "on the basis of a standard BMW importer
contract as adjusted to reflect the particular situation in the Philippines" subject to certain
conditions, otherwise, defendant BMW would terminate Plaintiff's exclusive dealership and
any relationship for cause effective June 30, 1993. . . .
....
15. The actuations of defendant BMW are in breach of the assignment agreement between
itself and plaintiff since the consideration for the assignment of the BMW trademark is the
continuance of the exclusive dealership agreement. It thus, follows that the exclusive
dealership should continue for so long as defendant BMW enjoys the use and ownership of
the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of the
Quezon City Regional Trial Court, which on June 14, 1993 issued a temporary restraining
order. Summons and copies of the complaint and amended complaint were thereafter served
on the private respondent through the Department of Trade and Industry, pursuant to Rule
14, 14 of the Rules of Court. The order, summons and copies of the complaint and amended
complaint were later sent by the DTI to BMW via registered mail on June 15, 1993 [5]and
received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the application for
the writ of preliminary injunction proceeded ex parte, with petitioner Hahn testifying. On
June 30, 1993, the trial court issued an order granting the writ of preliminary injunction upon
the filing of a bond of P100,000.00. On July 13, 1993, following the posting of the required
bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not
acquire jurisdiction over it through the service of summons on the Department of Trade and
Industry, because it (BMW) was a foreign corporation and it was not doing business in the
Philippines. It contended that the execution of the Deed of Assignment was an isolated
transaction; that Hahn was not its agent because the latter undertook to assemble and sell
BMW cars and products without the participation of BMW and sold other products; and that
Hahn was an indentor or middleman transacting business in his own name and for his own
account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in
the Philippines through him as its agent, as shown by the fact that BMW invoices and order
forms were used to document his transactions; that he gave warranties as exclusive BMW
dealer; that BMW officials periodically inspected standards of service rendered by him; and
that he was described in service booklets and international publications of BMW as a "BMW
Importer" or "BMW Trading Company" in the Philippines.
141
 The trial court[6] deferred resolution of the Motion to dismiss until after trial on the
merits for the reason that the grounds advanced by BMW in its motion did not seem to be
indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a petition
for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE WRIT
OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR THE
ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION OF THE
MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION, AND THEREBY
FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order and, after hearing,
for a writ of preliminary injunction, to enjoin the trial court from proceeding further in Civil
Case No. Q-93-15933. Private respondent pointed out that, unless the trial court's order was
set aside, it would be forced to submit to the jurisdiction of the court by filing its answer or
to accept judgment in default, when the very question was whether the court had jurisdiction
over it.
The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On
December 20, 1993, it rendered judgment finding the trial court guilty of grave abuse of
discretion in deferring resolution of the motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before it came out with its
questioned order of July 26, 1993, we rule and so hold that petitioner's (BMW) motion to
dismiss could be resolved then and there, and that the respondent judge's deferment of his
action thereon until after trial on the merit constitutes, to our mind, grave abuse of
discretion.
....
. . . [T]here is not much appreciable disagreement as regards the factual matters relating, to
the motion to dismiss. What truly divide (sic) the parties and to which they greatly differ is
the legal conclusions they respectively draw from such facts, (sic) with Hahn maintaining that
on the basis thereof, BMW is doing business in the Philippines while the latter asserts that it
is not.
Then, after stating that any ruling which the trial court might make on the motion to
dismiss would anyway be elevated to it on appeal, the Court of Appeals itself resolved the
motion. It ruled that BMW was not doing business in the country and, therefore, jurisdiction
over it could not be acquired through service of summons on the DTI pursuant to Rule 14,
Section 14. The court upheld private respondent's contention that Hahn acted in his own
name and for his own account and independently of BMW, based on Alfred Hahn's
allegations that he had invested his own money and resources in establishing BMW's goodwill
in the Philippines and on BMW's claim that Hahn sold products other than those of BMW. It
held that petitioner was a mere indentor or broker and not an agent through whom private
respondent BMW transacted business in the Philippines. Consequently, the Court of Appeals
dismissed petitioner's complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding
that the trial court gravely abused its discretion in deferring action on the motion to dismiss
and (2) in finding that private respondent BMW is not doing business in the Philippines and,
for this reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon foreign corporations. If the defendant is a foreign corporation, or a
nonresident joint stock company or association, doing business in the Philippines,
service may be made on its resident agent designated in accordance with law for that
purpose, or, if there be no such agent, on the government official designated by law to that
effect, or on any of its officers or agents within the Philippines. (Emphasis added)
What acts are considered "doing business in the Philippines" are enumerated in 3(d) of
the Foreign Investments Act of 1991 (R.A. No. 7042) as follows:[7]
d) the phrase "doing business" shall include soliciting orders, service contracts, opening
offices, whether called "liaison" offices or branches, appointing representatives or
distributors domiciled in the Philippines or who in any calendar year stay in the
country for a period or periods totalling one hundred eighty (180) days or more;
participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements and contemplate to that
extent the performance of acts or works, or the exercise of some of the
functions normally incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business organization: Provided,
however, That the phrase "doing business" shall not be deemed to include mere
investment as a shareholder by a foreign entity in domestic corporations duly registered
to do business, and/or the exercise of rights as such investor; nor having, a nominee
director or officer to represent its interests in such corporation; nor appointing a
142
 representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in the Philippines"
but not when the representative or distributor "transacts business in its name and for its own
account." In addition, Section 1(f)(1) of the Rules and Regulations implementing (IRR) the
Omnibus Investment Code of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44 of the
Code. In particular, "doing business" includes:
(1).... A foreign firm which does business through middlemen acting in their own names,
such as indentors, commercial brokers or commission merchants, shall not be deemed doing
business in the Philippines. But such indentors, commercial brokers or commission merchants
shall be the ones deemed to be doing business in the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor in the
Philippines of private respondent BMW. If he is, BMW may be considered doing business in
the Philippines and the trial court acquired jurisdiction over it (BMW) by virtue of the service
of summons on the Department of Trade and Industry. Otherwise, if Hahn is not the agent of
BMW but an independent dealer, albeit of BMW cars and products, BMW, a foreign
corporation, is not considered doing business in the Philippines within the meaning of the
Foreign Investments Act of 1991 and the IRR, and the trial court did not acquire jurisdiction
over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his
own account and not as agent or distributor in the Philippines of BMW on the ground that "he
alone had contacts with individuals or entities interested in acquiring BMW vehicles.
Independence characterizes Hahn's undertakings, for which reason he is to be considered,
under governing statutes, as doing business." (p. 13) In support of this conclusion, the
appellate court cited the following allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without
any monetary contributions from defendant BMW; established BMW's goodwill and market
presence in the Philippines. Pursuant thereto, Plaintiff invested a lot of money and resources
in order to single-handedly compete against other motorcycle and car companies....
Moreover, Plaintiff has built buildings and other infrastructures such as service centers and
showrooms to maintain and promote the car and products of defendant BMW.
As the above quoted allegations of the amended complaint show, however, there is
nothing to support the appellate court's finding that Hahn solicited orders alone and for his
own account and without "interference from, let alone direction of, BMW." (p. 13) To the
contrary, Hahn claimed he took orders for BMW cars and transmitted them to BMW. Upon
receipt of the orders, BMW fixed the down payment and pricing charges, notified Hahn of the
scheduled production month for the orders, and reconfirmed the orders by signing and
returning to Hahn the acceptance sheets. Payment was made by the buyer directly to BMW.
Title to cars purchased passed directly to the buyer and Hahn never paid for the purchase
price of BMW cars sold in the Philippines. Hahn was credited with a commission equal to
14% of the purchase price upon the invoicing of a vehicle order by BMW. Upon confirmation
in writing that the vehicles had been registered in the Philippines and serviced by him, Hahn
received an additional 3% of the full purchase price. Hahn performed after-sale services,
including, warranty services, for which he received reimbursement from BMW. All orders
were on invoices and forms of BMW.[8]
These allegations were substantially admitted by BMW which, in its petition
for certiorari before the Court of Appeals, stated:[9]
9.4. As soon as the vehicles are fully manufactured and full payment of the purchase prices
are made, the vehicles are shipped to the Philippines. (The payments may be made by the
purchasers or third-persons or even by Hahn.) The bills of lading are made up in the name of
the purchasers, but Hahn-Manila is therein indicated as the person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of
conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission of
fourteen percent (14%) of the full purchase price thereof, and as soon as he confirms in
writing, that the vehicles have been registered in the Philippines and have been serviced by
him, he will receive an additional three percent (3%) of the full purchase prices as
commission.
Contrary to the appellate court's conclusion, this arrangement shows an agency. An
agent receives a commission upon the successful conclusion of a sale. On the other hand, a
broker earns his pay merely by bringing the buyer and the seller together, even if no sale is
eventually made.
As to the service centers and showrooms which he said he had put up at his own
expense, Hahn said that he had to follow BMW specifications as exclusive dealer of BMW in
the Philippines. According to Hahn, BMW periodically inspected the service centers to see to
it that BMW standards were maintained. Indeed, it would seem from BMW's letter to Hahn
143
that it was for Hahn's alleged failure to maintain BMW standards that BMW was terminating
Hahn's dealership.
The fact that Hahn invested his own money to put up these service centers and
showrooms does not necessarily prove that he is not an agent of BMW. For as already noted,
there are facts in the record which suggest that BMW exercised control over Hahn's activities
as a dealer and made regular inspections of Hahn's premises to enforce compliance with
BMW standards and specifications.[10] For example, in its letter to Hahn dated February 23,
1996, BMW stated:
In the last years we have pointed out to you in several discussions and letters that we
have to tackle the Philippine market more professionally and that we are through your
present activities not adequately prepared to cope with the forthcoming challenges. [11]
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of Appeals ,[12] in
which the foreign corporation entered into a "Representative Agreement" and a "Licensing
Agreement" with a domestic corporation, by virtue of which the latter was appointed
"exclusive representative" in the Philippines for a stipulated commission. Pursuant to these
contracts, the domestic corporation sold products exported by the foreign corporation and
put up a service center for the products sold locally. This Court held that these acts
constituted doing business in the Philippines. The arrangement showed that the foreign
corporation's purpose was to penetrate the Philippine market and establish its presence in
the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in the
Philippines, even as it announced in the Asian region that Hahn was the "official BMW agent"
in the Philippines.[13]
The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and
not exclusively in BMW products, and, on this basis, ruled that Hahn was not an agent of
BMW. (p. 14) This finding is based entirely on allegations of BMW in its motion to dismiss
filed in the trial court and in its petition for certiorari before the Court of Appeals.[14] But this
allegation was denied by Hahn [15] and therefore the Court of Appeals should not have cited it
as if it were the fact.
Indeed this is not the only factual issue raised, which should have indicated to the Court
of Appeals the necessity of affirming the trial court's order deferring resolution of BMW's
motion to dismiss. Petitioner alleged that whether or not he is considered an agent of BMW,
the fact is that BMW did business in the Philippines because it sold cars directly to Philippine
buyers. [16] This was denied by BMW, which claimed that Hahn was not its agent and that,
while it was true that it had sold cars to Philippine buyers, this was done without solicitation
on its part.[17]
It is not true then that the question whether BMW is doing business could have been
resolved simply by considering the parties' pleadings. There are genuine issues of facts which
can only be determined on the basis of evidence duly presented. BMW cannot short circuit
the process on the plea that to compel it to go to trial would be to deny its right not to
submit to the jurisdiction of the trial court which precisely it denies. Rule 16, 3 authorizes
courts to defer the resolution of a motion to dismiss until after the trial if the ground on
which the motion is based does not appear to be indubitable. Here the record of the case
bristles with factual issues and it is not at all clear whether some allegations correspond to
the proof.
Anyway, private respondent need not apprehend that by responding to the summons it
would be waiving its objection to the trial court's jurisdiction. It is now settled that. for
purposes of having summons served on a foreign corporation in accordance with Rule 14, 14,
it is sufficient that it be alleged in the complaint that the foreign corporation is doing business
in the Philippines. The court need not go beyond the allegations of the complaint in order to
determine whether it has jurisdiction. [18] A determination that the foreign corporation is doing
business is only tentative and is made only for the purpose of enabling the local court to
acquire jurisdiction over the foreign corporation through service of summons pursuant to
Rule 14, 14. Such determination does not foreclose a contrary finding should evidence later
show that it is not transacting business in the country. As this Court has explained:
This is not to say, however, that the petitioner's right to question the jurisdiction of the court
over its person is now to be deemed a foreclosed matter. If it is true, as Signetics claims,
that its only involvement in the Philippines was through a passive investment in Sigfil, which
it even later disposed of, and that TEAM Pacific is not its agent, then it cannot really be said
to be doing business in the Philippines. It is a defense, however, that requires the
contravention of the allegations of the complaint, as well as a full ventilation, in effect, of the
main merits of the case, which should not thus be within the province of a mere motion to
dismiss. So, also, the issue posed by the petitioner as to whether a foreign corporation which
has done business in the country, but which has ceased to do business at the time of the
filing, of a complaint, can still be made to answer for a cause of action which accrued while it
was doing, business, is another matter that would yet have to await the reception and
admission of evidence. Since these points have seasonably been raised by the petitioner,
there should be no real cause for what may understandably be its apprehension, i.e., that by
its participation during the trial on the merits, it may, absent an invocation of separate or
independent reliefs of its own, be considered to have voluntarily submitted itself to the
court's jurisdiction.[19]
Far from committing an abuse of discretion, the trial court properly deferred resolution
of the motion to dismiss and thus avoided prematurely deciding a question which requires a
factual basis, with the same result if it had denied the motion and conditionally assumed
jurisdiction. It is the Court of Appeals which, by ruling that BMW is not doing business on the
144
basis merely of uncertain allegations in the pleadings, disposed of the whole case with finality
and thereby deprived petitioner of his right to be heard on his cause of action. Nor was there
justification for nullifying the writ of preliminary injunction issued by the trial court. Although
the injunction was issued ex parte, the fact is that BMW was subsequently heard on its
defense by filing a motion to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is
REMANDED to the trial court for further proceedings.
SO ORDERED.
44. MANUEL B. TAN, GREGG M. TECSON and ALEXANDER SALDAA, petitioners,
vs. EDUARDO R. GULLAS and NORMA S. GULLAS, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review seeking to set aside the decision [1] of the Court of
Appeals[2] in CA-G.R. CV No. 46539, which reversed and set aside the decision [3] of the
Regional Trial Court of Cebu City, Branch 22 in Civil Case No. CEB-12740.
The records show that private respondents, Spouses Eduardo R. Gullas and Norma S.
Gullas, were the registered owners of a parcel of land in the Municipality of Minglanilla,
Province of Cebu, measuring 104,114 sq. m., with Transfer Certificate of Title No. 31465.
[4]
On June 29, 1992, they executed a special power of attorney [5] authorizing petitioners
Manuel B. Tan, a licensed real estate broker, [6] and his associates Gregg M. Tecson and
Alexander Saldaa, to negotiate for the sale of the land at Five Hundred Fifty Pesos
(P550.00)per square meter, at a commission of 3% of the gross price. The power of attorney
was non-exclusive and effective for one month from June 29, 1992. [7]
On the same date, petitioner Tan contacted Engineer Edsel Ledesma, construction
manager of the Sisters of Mary of Banneaux, Inc. (hereafter, Sisters of Mary), a religious
organization interested in acquiring a property in the Minglanilla area.
In the morning of July 1, 1992, petitioner Tan visited the property with Engineer
Ledesma. Thereafter, the two men accompanied Sisters Michaela Kim and Azucena Gaviola,
representing the Sisters of Mary, to see private respondent Eduardo Gullas in his office at the
University of Visayas. The Sisters, who had already seen and inspected the land, found the
same suitable for their purpose and expressed their desire to buy it. [8] However, they
requested that the selling price be reduced to Five Hundred Thirty Pesos (P530.00) per
square meter instead of Five Hundred Fifty Pesos (P550.00) per square meter. Private
respondent Eduardo Gullas referred the prospective buyers to his wife.
It was the first time that the buyers came to know that private respondent Eduardo
Gullas was the owner of the property. On July 3, 1992, private respondents agreed to sell the
property to the Sisters of Mary, and subsequently executed a special power of attorney [9] in
favor of Eufemia Caete, giving her the special authority to sell, transfer and convey the land
at a fixed price of Two Hundred Pesos (P200.00) per square meter.
On July 17, 1992, attorney-in-fact Eufemia Caete executed a deed of sale in favor of the
Sisters of Mary for the price of Twenty Million Eight Hundred Twenty Two Thousand Eight
Hundred Pesos (P20,822,800.00), or at the rate of Two Hundred Pesos (P200.00) per square
meter.[10] The buyers subsequently paid the corresponding taxes. [11] Thereafter, the Register
of Deeds of Cebu Province issued TCT No. 75981 in the name of the Sisters of Mary of
Banneaux, Inc.[12]
Earlier, on July 3, 1992, in the afternoon, petitioners went to see private respondent
Eduardo Gullas to claim their commission, but the latter told them that he and his wife have
already agreed to sell the property to the Sisters of Mary. Private respondents refused to pay
the brokers fee and alleged that another group of agents was responsible for the sale of land
to the Sisters of Mary.
On August 28, 1992, petitioners filed a complaint [13] against the defendants for recovery
of their brokers fee in the sum of One Million Six Hundred Fifty Five Thousand Four Hundred
Twelve and 60/100 Pesos (P1,655,412.60), as well as moral and exemplary damages and
attorneys fees. They alleged that they were the efficient procuring cause in bringing about
the sale of the property to the Sisters of Mary, but that their efforts in consummating the
sale were frustrated by the private respondents who, in evident bad faith, malice and in
order to evade payment of brokers fee, dealt directly with the buyer whom petitioners
introduced to them. They further pointed out that the deed of sale was undervalued
obviously to evade payment of the correct amount of capital gains tax, documentary stamps
and other internal revenue taxes.
In their answer, private respondents countered that, contrary to petitioners claim, they
were not the efficient procuring cause in bringing about the consummation of the sale
because another broker, Roberto Pacana, introduced the property to the Sisters of Mary
ahead of the petitioners.[14] Private respondents maintained that when petitioners introduced
the buyers to private respondent Eduardo Gullas, the former were already decided in buying
the property through Pacana, who had been paid his commission. Private respondent
Eduardo Gullas admitted that petitioners were in his office on July 3, 1992, but only to ask
for the reimbursement of their cellular phone expenses.
In their reply and answer to counterclaim,[15] petitioners alleged that although the Sisters
of Mary knew that the subject land was for sale through various agents, it was petitioners
who introduced them to the owners thereof.
145
 After trial, the lower court rendered judgment in favor of petitioners, the dispositive
portion of which reads:
WHEREFORE, UPON THE AEGIS OF THE FOREGOING, judgment is hereby rendered for the
plaintiffs and against the defendants. By virtue hereof, defendants Eduardo and Norma
Gullas are hereby ordered to pay jointly and severally plaintiffs Manuel Tan, Gregg Tecson
and Alexander Saldaa;
1) The sum of SIX HUNDRED TWENTY FOUR THOUSAND AND SIX HUNDRED EIGHTY FOUR
PESOS (P624,684.00) as brokers fee with legal interest at the rate of 6% per annum from
the date of filing of the complaint; and
2) The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorneys fees and costs of
litigation.
For lack of merit, defendants counterclaim is hereby DISMISSED.
IT IS SO ORDERED.[16]
Both parties appealed to the Court of Appeals. Private respondents argued that the
lower court committed errors of fact and law in holding that it was petitioners efforts which
brought about the sale of the property and disregarding the previous negotiations between
private respondent Norma Gullas and the Sisters of Mary and Pacana. They further alleged
that the lower court had no basis for awarding brokers fee, attorneys fees and the costs of
litigation to petitioners.[17]
Petitioners, for their part, assailed the lower courts basis of the award of brokers fee
given to them. They contended that their 3% commission for the sale of the property should
be based on the price of P55,180,420.00, or at P530.00 per square meter as agreed upon
and not on the alleged actual selling price of P20,822,800.00 or at P200.00 per square meter,
since the actual purchase price was undervalued for taxation purposes. They also claimed
that the lower court erred in not awarding moral and exemplary damages in spite of its
finding of bad faith; and that the amount of P50,000.00 as attorneys fees awarded to them is
insufficient. Finally, petitioners argued that the legal interest imposed on their claim should
have been pegged at 12% per annum instead of the 6% fixed by the court. [18]
The Court of Appeals reversed and set aside the lower courts decision and rendered
another judgment dismissing the complaint.[19]
Hence, this appeal.
Petitioners raise following issues for resolution:
I.
THE APPELLATE COURT GROSSLY ERRED IN THEIR FINDING THAT THE PETITIONERS ARE
NOT ENTITLED TO THE BROKERAGE COMMISSION.
II.
IN DISMISSING THE COMPLAINT, THE APPELLATE COURT HAS DEPRIVED THE
PETITIONERS OF MORAL AND EXEMPLARY DAMAGES, ATTORNEYS FEES AND INTEREST IN
THE FOREBEARANCE OF MONEY.
The petition is impressed with merit.
The records show that petitioner Manuel B. Tan is a licensed real estate broker, and
petitioners Gregg M. Tecson and Alexander Saldaa are his associates. In Schmid and Oberly
v. RJL Martinez Fishing Corporation,[20] we defined a broker as one who is engaged, for
others, on a commission, negotiating contracts relative to property with the custody of which
he has no concern; the negotiator between other parties, never acting in his own name but
in the name of those who employed him. x x x a broker is one whose occupation is to bring
the parties together, in matters of trade, commerce or navigation. (Emphasis supplied)
During the trial, it was established that petitioners, as brokers, were authorized by
private respondents to negotiate for the sale of their land within a period of one month
reckoned from June 29, 1992. The authority given to petitioners was non-exclusive, which
meant that private respondents were not precluded from granting the same authority to
other agents with respect to the sale of the same property. In fact, private respondent
authorized another agent in the person of Mr. Bobby Pacana to sell the same property. There
was nothing illegal or amiss in this arrangement, per se, considering the non-exclusivity of
petitioners authority to sell. The problem arose when it eventually turned out that these
agents were entertaining one and the same buyer, the Sisters of Mary.
As correctly observed by the trial court, the argument of the private respondents that
Pacana was the one entitled to the stipulated 3% commission is untenable, considering that
it was the petitioners who were responsible for the introduction of the representatives of the
Sisters of Mary to private respondent Eduardo Gullas. Private respondents, however,
maintain that they were not aware that their respective agents were negotiating to sell said
property to the same buyer.
Private respondents failed to prove their contention that Pacana began negotiations with
private respondent Norma Gullas way ahead of petitioners. They failed to present witnesses
to substantiate this claim. It is curious that Mrs. Gullas herself was not presented in court to
testify about her dealings with Pacana. Neither was Atty. Nachura who was supposedly the
one actively negotiating on behalf of the Sisters of Mary, ever presented in court.
146
 Private respondents contention that Pacana was the one responsible for the sale of the
land is also unsubstantiated. There was nothing on record which established the existence of
a previous negotiation among Pacana, Mrs. Gullas and the Sisters of Mary. The only piece of
evidence that the private respondents were able to present is an undated and unnotarized
Special Power of Attorney in favor of Pacana. While the lack of a date and an oath do not
necessarily render said Special Power of Attorney invalid, it should be borne in mind that the
contract involves a considerable amount of money. Hence, it is inconsistent with sound
business practice that the authority to sell is contained in an undated and unnotarized Special
Power of Attorney. Petitioners, on the other hand, were given the written authority to sell by
the private respondents.
The trial courts evaluation of the witnesses is accorded great respect and finality in the
absence of any indication that it overlooked certain facts or circumstances of weight and
influence, which if reconsidered, would alter the result of the case. [21]
Indeed, it is readily apparent that private respondents are trying to evade payment of
the commission which rightfully belong to petitioners as brokers with respect to the sale.
There was no dispute as to the role that petitioners played in the transaction. At the very
least, petitioners set the sale in motion. They were not able to participate in its
consummation only because they were prevented from doing so by the acts of the private
respondents. In the case of Alfred Hahn v. Court of Appeals and Bayerische Motoren Werke
Aktiengesellschaft (BMW)[22] we ruled that, An agent receives a commission upon the
successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing
the buyer and the seller together, even if no sale is eventually made. (Underscoring ours).
Clearly, therefore, petitioners, as brokers, should be entitled to the commission whether or
not the sale of the property subject matter of the contract was concluded through their
efforts.
Having ruled that petitioners are entitled to the brokers commission, we should now
resolve how much commission are petitioners entitled to?
Following the stipulation in the Special Power of Attorney, petitioners are entitled to 3%
commission for the sale of the land in question. Petitioners maintain that their commission
should be based on the price at which the land was offered for sale, i.e., P530.00 per square
meter. However, the actual purchase price for which the land was sold was only P200.00 per
square meter. Therefore, equity considerations dictate that petitioners commission must be
based on this price. To rule otherwise would constitute unjust enrichment on the part of
petitioners as brokers.
In the matter of attorneys fees and expenses of litigation, we affirm the amount of
P50,000.00 awarded by the trial court to the petitioners.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The May 29, 2000
decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional
Trial Court of Cebu City, Branch 22, in Civil Case No. CEB-12740 ordering private respondents
Eduardo Gullas and Norma S. Gullas to pay jointly and severally petitioners Manuel B. Tan,
Gregg Tecson and Alexander Saldaa the sum of Six Hundred Twenty-Four Thousand and Six
Hundred Eighty-Four Pesos (P624,684.00) as brokers fee with legal interest at the rate of 6%
per annum from the filing of the complaint; and the sum of Fifty Thousand Pesos
(P50,000.00) as attorneys fees and costs of litigation, is REINSTATED.
SO ORDERED.
45. ANDRES QUIROGA, plaintiff-appellant, vs.PARSONS HARDWARE CO., defendant-
appellee.
AVANCEA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was entered into
by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and
obligations the present defendant later subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the
Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons 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 make and allowance of a discount of 25
per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall
order the beds by the dozen, whether of the same or of different styles.
(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.
(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and
the freight, insurance, and cost of unloading from the vessel at the point where the
beds are received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said
payment when made shall be considered as a prompt payment, and as such a
deduction of 2 per cent shall be made from the amount of the invoice.
147
 The same discount shall be made on the amount of any invoice which Mr. Parsons
may deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any
alteration in price which he may plan to make in respect to his beds, and agrees that
if on the date when such alteration takes effect he should have any order pending to
be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if
the price thereby be lowered, but shall not be affected by said alteration if the price
thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to
invoice the beds at the price at which the order was given.
(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 the benefit of
both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga
assumes the obligation to offer and give the preference to Mr. Parsons in case
anyone should apply for the exclusive agency for any island not comprised with the
Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of
"Quiroga" beds in all the towns of the Archipelago where there are no exclusive
agents, and shall immediately report such action to Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated by
either of the contracting parties on a previous notice of ninety days to the other
party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of them
constitute the subject matter of this appeal and both substantially 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 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 order the beds by the dozen and in no other manner. As may be seen, with
the exception of the obligation on the part of the defendant to order the beds by the dozen
and in no other manner, none of the obligations imputed to the defendant in the two causes
of action are expressly set forth in the contract. But the plaintiff alleged that the defendant
was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a
contract of commercial agency. The whole question, therefore, reduced itself to a
determination as to whether the defendant, by reason of the contract hereinbefore
transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the
contract in question, what was essential, as constituting its 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 defendant was to pay the price in the manner stipulated. The
price agreed 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 request, or in cash, if the
defendant so preferred, and in these last two cases an additional discount was to be allowed
for prompt payment. These are precisely the essential features of a contract of purchase and
sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part
of the defendant, to pay their price. These features exclude the legal conception of an
agency or order to sell whereby the mandatory or agent received the thing to sell it, and
does not pay its price, but delivers to the principal the price he obtains from the sale of the
thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the
contract between the plaintiff and the defendant, the latter, on receiving the beds, was
necessarily obliged to pay their price within the term fixed, without any other consideration
and regardless as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the defendant and
the plaintiff is one of purchase and sale, in order to show that it was not one made on the
basis of a commission on sales, as the plaintiff 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 substantially supports the plaintiff's contention. Not a single one of these
clauses necessarily conveys the idea of an agency. The words commission on 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 one that could sell the plaintiff's beds in the Visayan Islands.
With regard to the remaining clauses, the least that can be said is that they are not
incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the
defendant corporation and who established and managed the latter's business in Iloilo. It
appears that this witness, prior to the time of his testimony, had serious trouble with the
defendant, had maintained a civil suit against it, and had even accused one of its partners,
Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit
A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied
that it was to be an agent for his beds and to collect a commission on sales . However,
according to the defendant's evidence, it was Mariano Lopez 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 the agreements contained in Exhibit A which he claims to have
drafted, constitute, as we have said, a contract of purchase and sale, and not one of
148
commercial agency. This only means that Ernesto Vidal was mistaken in his 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. 49. DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS,
RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents.
The plaintiff also endeavored to prove that the defendant had returned beds that it could not
sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and DECISION
that the defendant received its commission for the beds sold by the plaintiff directly to PARDO, J.:
persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there
was mutual tolerance in the performance of the contract in disregard of its terms; and it
gives no right to have the contract considered, not as the parties stipulated it, but as they
performed it. Only the acts of the contracting parties, subsequent to, and in connection with, The Case
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 This is an appeal via certiorari[1] from the decision of the Court of Appeals [2] affirming the
essential agreements are clearly set forth and plainly show that the contract belongs to a decision[3] of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered
certain kind and not to another. Furthermore, the return made was of certain brass beds, petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo
and was not effected in exchange for the price paid for them, but was for other beds of S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount advanced
another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with by Guevarra in the payment of the claims of Dominions clients.
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 The Facts
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
The facts, as found by the Court of Appeals, are as follows:
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. On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of
money against defendant Dominion Insurance Corporation. Plaintiff sought to
recover thereunder the sum of P156,473.90 which he claimed to have advanced in his
In respect to the defendant's obligation to order by the dozen, the only one expressly
capacity as manager of defendant to satisfy certain claims filed by defendants clients.
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 In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for
own free will. P249,672.53, representing premiums that plaintiff allegedly failed to remit.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at
and the defendant was one of purchase and sale, and that the obligations the breach of the time relevant to the case, was its Regional Manager for Central Luzon area.
which is alleged as a cause of action are not imposed upon the defendant, either by
agreement or by law. In due time, third-party defendant Austria filed his answer.

The judgment appealed from is affirmed, with costs against the appellant. So ordered.
46-47-48 (NIBALIK NA)
Thereafter the pre-trial conference was set on the following dates: October 18, 1991,
November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29,
1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial
149
conference was held. The record shows that except for the settings on October 18,
1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of
defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon
joint request of the parties.
On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and
counsel were present. Despite due notice, defendant and counsel did not appear, although a
messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by
defendants counsel which instructed him to request for postponement. Plaintiffs counsel
objected to the desired postponement and moved to have defendant declared as in default.
This was granted by the trial court in the following order:
ORDER
When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty.
Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain
Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to any
postponement on the ground that the note is but a mere scrap of paper and moved that the
defendant corporation be declared as in default for its failure to appear in court despite due
notice.
Finding the verbal motion of plaintiffs counsel to be meritorious and considering that the pre-
trial conference has been repeatedly postponed on motion of the defendant Corporation, the
defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is
allowed to present his evidence on June 16, 1992 at 9:00 oclock in the morning.
The plaintiff and his counsel are notified of this order in open court.
SO ORDERED.
Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of
documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13,
1992. The exhibits were admitted in evidence in an order dated July 17, 1992.
On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF DEFAULT. It
alleged therein that the failure of counsel to attend the pre-trial conference was due to an
unavoidable circumstance and that counsel had sent his representative on that date to inform
the trial court of his inability to appear. The Motion was vehemently opposed by plaintiff.
On August 25, 1992 the trial court denied defendants motion for reasons, among others, that
it was neither verified nor supported by an affidavit of merit and that it further failed to
allege or specify the facts constituting his meritorious defense.
On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the
first time counsel revealed to the trial court that the reason for his nonappearance at the pre-
trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-President
purporting to explain its meritorious defense was attached to the said Motion. Just the same,
in an Order dated November 13, 1992, the trial court denied said Motion.
On November 18, 1992, the court a quo rendered judgment as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering:
1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90
representing the total amount advanced by plaintiff in the payment of the claims of
defendants clients;
2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees;
3. The dismissal of the counter-claim of the defendant and the third-party complaint;
4. The defendant to pay the costs of suit.[4]
On December 14, 1992, Dominion appealed the decision to the Court of Appeals. [5]
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial
court.[6] On September 3, 1996, Dominion filed with the Court of Appeals a motion for
reconsideration.[7] On July 16, 1997, the Court of Appeals denied the motion.[8]
Hence, this appeal.[9]
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his authority as
agent for petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of
amounts he paid out of his personal money in settling the claims of several insured.
150
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.[10]The basis for agency is representation. [11] On the part of the principal, there must be
an actual intention to appoint[12] or an intention naturally inferrable from his words or actions;
[13]
and on the part of the agent, there must be an intention to accept the appointment and
act on it,[14] and in the absence of such intent, there is generally no agency. [15]
A perusal of the Special Power of Attorney [16] would show that petitioner (represented by
third-party defendant Austria) and respondent Guevarra intended to enter into a principal-
agent relationship. Despite the word special in the title of the document, the contents reveal
that what was constituted was actually a general agency. The terms of the agreement read:
That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC., [17] a corporation duly organized
and existing under and by virtue of the laws of the Republic of the Philippines, xxx
represented by the undersigned as Regional Manager, xxx do hereby appoint
RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our Agency
Manager in San Fdo., for our place and stead, to do and perform the following acts and
things:
1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance
business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR,
PERSONAL ACCIDENT, and BONDING with the right, upon our prior written
consent, to appoint agents and sub-agents.
2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance
and Bonds for and on our behalf.
3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer
for and receive and give effectual receipts and discharge for all money to which
the FIRST CONTINENTAL ASSURANCE COMPANY, INC.,[18] may hereafter
become due, owing payable or transferable to said Corporation by reason of or
in connection with the above-mentioned appointment.
4. To receive notices, summons, and legal processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all
legal proceedings against the said Corporation. [19] [Emphasis supplied]
The agency comprises all the business of the principal, [20] but, couched in general terms,
it is limited only to acts of administration.[21]
A general power permits the agent to do all acts for which the law does not require a
special power.[22] Thus, the acts enumerated in or similar to those enumerated in the Special
Power of Attorney do not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special power of attorney is
required. The pertinent portion that applies to this case provides that:
Article 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of administration;
xxx xxx xxx
(15) Any other act of strict dominion.
The payment of claims is not an act of administration. The settlement of claims is not
included among the acts enumerated in the Special Power of Attorney, neither is it of a
character similar to the acts enumerated therein. A special power of attorney is required
before respondent Guevarra could settle the insurance claims of the insured.
Respondent Guevarras authority to settle claims is embodied in the Memorandum of
Management Agreement[23] dated February 18, 1987 which enumerates the scope of
respondent Guevarras duties and responsibilities as agency manager for San
Fernando, Pampanga, as follows:
xxx xxx xxx
1. You are hereby given authority to settle and dispose of all motor car claims in the amount
of P5,000.00 with prior approval of the Regional Office.
2. Full authority is given you on TPPI claims settlement.
xxx xxx xxx[24]
In settling the claims mentioned above, respondent Guevarras authority is further
limited by the written standard authority to pay, [25] which states that the payment shall come
from respondent Guevarras revolving fund or collection. The authority to pay is worded as
follows:
This is to authorize you to withdraw from your revolving fund/collection the amount of
PESOS __________________ (P ) representing the payment on the _________________
claim of assured _______________ under Policy No. ______ in that accident of
___________ at ____________.
151
It is further expected, release papers will be signed and authorized by the concerned and
attached to the corresponding claim folder after effecting payment of the claim.
(sgd.) FERNANDO C. AUSTRIA
Regional Manager[26]
[Emphasis supplied]
The instruction of petitioner as the principal could not be any clearer.
Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall
come from the revolving fund or collection in his possession.
Having deviated from the instructions of the principal, the expenses that
respondent Guevarra incurred in the settlement of the claims of the insured may not be
reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil
Code, which states that:
The principal is not liable for the expenses incurred by the agent in the following cases:
(1) If the agent acted in contravention of the principals instructions, unless the latter should
wish to avail himself of the benefits derived from the contract;
xxx xxx xxx
However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on obligations
and contracts.
Article 1236, second paragraph, Civil Code, provides:
Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.
In this case, when the risk insured against occurred, petitioners liability as insurer arose.
This obligation was extinguished when respondent Guevarra paid the claims and obtained
Release of Claim Loss and Subrogation Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished,
respondent Guevarra may demand for reimbursement from his principal. To rule otherwise
would result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance claims
could best be proven by the Release of Claim Loss and Subrogation Receipts [27] which were
attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the
total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the possession of
respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be
deducted from the above amount.
The outstanding balance and the production/remittance for the period corresponding to
the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the
amount that may be reimbursed to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the
Court of Appeals[28] and that of the Regional Trial Court, Branch 44, San Fernando,Pampanga,
[29]
in that petitioner is ordered to pay respondent Guevarra the amount of P112,672.11
representing the total amount advanced by the latter in the payment of the claims of
petitioners clients.
No costs in this instance.
SO ORDERED.
50. VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and
CONSOLIDATED SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV
No. 31717, as well as the respondent court's resolution of September 30, 1994
modifying said decision. Both decision and resolution amended the judgment dated
February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil
Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
152
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner
Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued
several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases.
Among these was SLDR No. 1214M, which gave rise to the instant case. Dated
October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag
contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC
Marketing No. 042 dated October 16, 1989." [1] The transaction it covered was a
"direct sale."[2] The SLDR also contains an additional note which reads: "subject for
(sic) availability of a (sic) stock at NAWACO (warehouse)." [3]
On October 25, 1989, STM sold to private respondent Consolidated Sugar
Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one
check dated October 25, 1989 and three checks postdated November 13, 1989 in
payment. That same day, CSC wrote petitioner that it had been authorized by STM to
withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy
of SLDR No. 1214M and a letter of authority from STM authorizing CSC "to withdraw
for and in our behalf the refined sugar covered by Shipping List/Delivery Receipt-
Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000
bags."[4]
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00
with petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated
October 27, 1989 acknowledging receipt of the said checks in payment of 50,000
bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO
warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been
released, petitioner refused to allow further withdrawals of sugar against SLDR No.
1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that
SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused
further withdrawals of sugar from petitioner's warehouse despite the fact that only
2,000 bags had been withdrawn.[5] CSC thus inquired when it would be allowed to
withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further
withdrawals of sugar against SLDR No. 1214M because STM had already dwithdrawn
all the sugar covered by the cleared checks.[6]
On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance
of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount
of STM's cleared checks had been fully withdrawn and hence, there would be no
more deliveries of the commodity to STM's account. Petitioner also noted that CSC
had represented itself to be STM's agent as it had withdrawn the 2,000 bags against
SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil
Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name
of St. Therese Merchandising) and herein petitioner. Since the former could not be
served with summons, the case proceeded only against the latter. During the trial, it
was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng
Sy who could not be reached through summons.[7] CSC, however, did not bother
to pursue its case against her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by
SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of the
sugar. CSC prayed that petitioner be ordered to deliver the 23,000 bags covered by
SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits,
P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and
litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000
bags.[8] Since STM had already drawn in full all the sugar corresponding to the
amount of its cleared checks, it could no longer authorize further delivery of sugar to
CSC. Petitioner also contended that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title,
but mere delivery receipts issued pursuant to a series of transactions entered into
between it and STM. The SLDRs prescribed delivery of the sugar to the party
specified therein and did not authorize the transfer of said party's rights and
interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-
conspirator to defraud it through a misrepresentation that CSC was an innocent
purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to
pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as
exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed
that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary
damages, and P1,500,000.00 as attorney's fees.
153
Since no settlement was reached at pre-trial, the trial court heard the case on the
merits.
As earlier stated, the trial court rendered its judgment favoring private respondent
CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment
in favor of the plaintiff and against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff
23,000 bags of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of
P920,000.00 as unrealized profits, the amount of P800,000.00 as exemplary
damages and the amount of P1,357,000.00, which is 10% of the acquisition
value of the undelivered bags of refined sugar in the amount of
P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."[9]
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid
the purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by
her covered by SLDR No. 1214 as well as the purchase price of
P15,950,000.00 for the 25,000 bags of sugar bought by her covered by SLDR
No. 1213 on the same date, October 16, 1989 (date of the two SLDRs) is
duly supported by Exhibits C to C-15 inclusive which are post-dated checks
dated October 27, 1989 issued by St. Therese Merchandising in favor of
Victorias Milling Company at the time it purchased the 50,000 bags of sugar
covered by SLDR No. 1213 and 1214. Said checks appear to have been
honored and duly credited to the account of Victorias Milling Company
because on October 27, 1989 Victorias Milling Company issued official receipt
no. 34734 in favor of St. Therese Merchandising for the amount of
P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is
further supported by Exhibit F, which is a computer printout of defendant
Victorias Milling Company showing the quantity and value of the purchases
made by St. Therese Merchandising, the SLDR no. issued to cover the
purchase, the official reciept no. and the status of payment. It is clear in
Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same
has been fully paid as indicated by the word 'cleared' appearing under the
column of 'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that
the purchase price of the 25,000 bags of sugar purchased by St. Therese
Merchandising covered by SLDR No. 1214 has not been fully paid is
supported only by the testimony of Arnulfo Caintic, witness for defendant
Victorias Milling Company. The Court notes that the testimony of Arnulfo
Caintic is merely a sweeping barren assertion that the purchase price has not
been fully paid and is not corroborated by any positive evidence. There is an
insinuation by Arnulfo Caintic in his testimony that the postdated checks
issued by the buyer in payment of the purchased price were dishonored.
However, said witness failed to present in Court any dishonored check or any
replacement check. Said witness likewise failed to present any bank record
showing that the checks issued by the buyer, Teresita Ng Go, in payment of
the purchase price of the sugar covered by SLDR No. 1214 were
dishonored."[10]
Petitioner appealed the trial courts decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a
series of transactions involving only one account or one general contract of sale.
Pursuant to this contract, STM or any of its authorized agents could withdraw bags of
sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22
SLDRs issued to STM and since the latter had already withdrawn its full quota of
sugar under the said SLDR, CSC was already precluded from seeking delivery of the
23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No.
1214M were separate and independent transactions and that the details of the series
of purchases were contained in a single statement with a consolidated summary of
cleared check payments and sugar stock withdrawals because this a more convenient
system than issuing separate statements for each purchase.
The appellate court considered the following issues: (a) Whether or not the
transaction between petitioner and STM involving SLDR No. 1214M was a separate,
independent, and single transaction; (b) Whether or not CSC had the capacity to sue
on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of
the rights to 25,000 bags of sugar covered by SLDR No. 1214M could compel
petitioner to deliver 23,000 bags allegedly unwithdrawn.
154
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial
court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders
defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No.
1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the
undelivered bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."[11]
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its decision
to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders
defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR
No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."[12]
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit F' We relied upon in fixing the number of bags of sugar which
remained undelivered as 12,586 cannot be made the basis for such a finding.
The rule is explicit that courts should consider the evidence only for the
purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783).
The rationale for this is to afford the party against whom the evidence is
presented to object thereto if he deems it necessary. Plaintiff-appellee is,
therefore, correct in its argument that Exhibit F' which was offered to prove
that checks in the total amount of P15,950,000.00 had been
cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be
used to prove the proposition that 12,586 bags of sugar remained
undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990,
p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and
36]) presented by plaintiff-appellee was to the effect that it had withdrawn
only 2,000 bags of sugar from SLDR after which it was not allowed to
withdraw anymore. Documentary evidence ( Exhibit I, Id., p. 78, Exhibit K,
Id., p. 80) show that plaintiff-appellee had sent demand letters to defendant-
appellant asking the latter to allow it to withdraw the remaining 23,000 bags
of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged
that sugar delivery to the STM corresponded only to the value of cleared
checks; and that all sugar corresponded to cleared checks had been
withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions.
It did not present evidence to show how many bags of sugar had been
withdrawn against SLDR No. 1214M, precisely because of its theory that all
sales in question were a series of one single transaction and withdrawal of
sugar depended on the clearing of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the
findings of the trial court on this point."[13]
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private
respondent's specially informing petitioner that respondent was authorized
by buyer STM to withdraw sugar against SLDR No. 1214M "for and in our
(STM) behalf," (emphasis in the original) private respondent's withdrawing
2,000 bags of sugar for STM, and STM's empowering other persons as its
agents to withdraw sugar against the same SLDR No. 1214M, rendered
respondent like the other persons, an agent of STM as held in Rallos v. Felix
Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently
claiming and proving being an assignee of SLDR No. 1214M and from suing
by itself for its enforcement because it was conclusively presumed to be an
agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art.
1431, Civil Code).
155
 " 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and
disregarding certain relevant and undisputed facts which, had they been
considered, would have shown that petitioner was not liable, except for 69
bags of sugar, and which would justify review of its conclusion of facts by
this Honorable Court.
" 3. The Court of Appeals misapplied the law on compensation under Arts.
1279, 1285 and 1626 of the Civil Code when it ruled that compensation
applied only to credits from one SLDR or contract and not to those from two
or more distinct contracts between the same parties; and erred in denying
petitioner's right to setoff all its credits arising prior to notice of assignment
from other sales or SLDRs against private respondent's claim as assignee
under SLDR No. 1214M, so as to extinguish or reduce its liability to 69 bags,
because the law on compensation applies precisely to two or more distinct
contracts between the same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or
liquidation of accounts in Exh. F between petitioner and STM, respondent's
admission of its balance, and STM's acquiescence thereto by silence for
almost one year did not render Exh. `F' an account stated and its balance
binding.
"5. The Court of Appeals erred in not holding that the conditions of the
assigned SLDR No. 1214, namely, (a) its subject matter being generic, and
(b) the sale of sugar being subject to its availability at the Nawaco
warehouse, made the sale conditional and prevented STM or private
respondent from acquiring title to the sugar; and the non-availability of
sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine
precluded respondent from seeking judicial reliefs (sic) from petitioner, its
only remedy being against its assignor."[14]
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC was
an agent of STM and hence, estopped to sue upon SLDR No. 1214M as an
assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on
compensation to the transaction under SLDR No. 1214M so as to preclude
petitioner from offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of
sugar under SLDR No. 1214M was a conditional sale or a contract to sell and
hence freed petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in not
applying the "clean hands doctrine" to preclude CSC from seeking judicial
relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the
first time on appeal. It is settled that an issue which was not raised during the trial in
the court below could not be raised for the first time on appeal as to do so would be
offensive to the basic rules of fair play, justice, and due process. [15] Nonetheless, the
Court of Appeals opted to address this issue, hence, now a matter for our
consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw
sugar against SLDR No. 1214M to show that the latter was STM's agent. The
pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to
withdraw for and in our behalf (stress supplied) the refined sugar covered by
Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated
October 16, 1989 in the total quantity of 25, 000 bags."[16]
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render some
service or to do something in representation or on behalf of another, with
the consent or authority of the latter."
It is clear from Article 1868 that the basis of agency is representation. [17] On the part
of the principal, there must be an actual intention to appoint [18] or an intention
naturally inferable from his words or actions; [19] and on the part of the agent, there
must be an intention to accept the appointment and act on it, [20] and in the absence
156
of such intent, there is generally no agency. [21] One factor which most clearly
distinguishes agency from other legal concepts is control; one person - the agent -
agrees to act under the control or direction of another - the principal. Indeed, the
very word "agency" has come to connote control by the principal. [22] The control
factor, more than any other, has caused the courts to put contracts between
principal and agent in a separate category.[23] The Court of Appeals, in finding that
CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon
the acts of the parties, the law makes no presumption of agency, and it is
always a fact to be proved, with the burden of proof resting upon the
persons alleging the agency, to show not only the fact of its existence, but
also its nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here,
defendant-appellant failed to sufficiently establish the existence of an agency
relation between plaintiff-appellee and STM. The fact alone that it (STM) had
authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's)
behalf" should not be eyed as pointing to the existence of an agency relation
...It should be viewed in the context of all the circumstances obtaining.
Although it would seem STM represented plaintiff-appellee as being its agent
by the use of the phrase "for and in our (STM's) behalf" the matter was
cleared when on 23 January 1990, plaintiff-appellee informed defendant-
appellant that SLDFR No. 1214M had been "sold and endorsed" to it by STM
(Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25,
000 bags of sugar covered by the SLDR No. 1214M were sold and
transferred by STM to it ...A conclusion that there was a valid sale and
transfer to plaintiff-appellee may, therefore, be made thus capacitating
plaintiff-appellee to sue in its own name, without need of joining its imputed
principal STM as co-plaintiff."[24]
In the instant case, it appears plain to us that private respondent CSC was a buyer of
the SLDFR form, and not an agent of STM. Private respondent CSC was not subject
to STM's control. The question of whether a contract is one of sale or agency
depends on the intention of the parties as gathered from the whole scope and effect
of the language employed.[25] That the authorization given to CSC contained the
phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what
is decisive is the intention of the parties. [26] That no agency was meant to be
established by the CSC and STM is clearly shown by CSC's communication to
petitioner that SLDR No. 1214M had been "sold and endorsed" to it. [27] The use of
the words "sold and endorsed" means that STM and CSC intended a contract of sale,
and not an agency. Hence, on this score, no error was committed by the respondent
appellate court when it held that CSC was not STM's agent and could independently
sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into
between petitioner and STM are but serial parts of one account, petitioner insists
that its debt has been offset by its claim for STM's unpaid purchases, pursuant to
Article 1279 of the Civil Code.[28] However, the trial court found, and the Court of
Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a
separate and independent transaction; it was not a serial part of a single transaction
or of one account contrary to petitioner's insistence. Evidence on record shows,
without being rebutted, that petitioner had been paid for the sugar purchased under
SLDR No. 1214M. Petitioner clearly had the obligation to deliver said commodity to
STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC, as
assignee of STM, were not mutually creditors and debtors of each other. No
reversible error could thereby be imputed to respondent appellate court when, it
refused to apply Article 1279 of the Civil Code to the present case.
Regarding the third issue, petitioner contends that the sale of sugar under SLDR No.
1214M is a conditional sale or a contract to sell, with title to the sugar still remaining
with the vendor. Noteworthy, SLDR No. 1214M contains the following terms and
conditions:
"It is understood and agreed that by payment by buyer/trader of refined
sugar and/or receipt of this document by the buyer/trader personally or
through a representative, title to refined sugar is transferred to buyer/trader
and delivery to him/it is deemed effected and completed (stress supplied)
and buyer/trader assumes full responsibility therefore"[29]
The aforequoted terms and conditions clearly show that petitioner transferred title to
the sugar to the buyer or his assignee upon payment of the purchase price. Said
terms clearly establish a contract of sale, not a contract to sell. Petitioner is now
estopped from alleging the contrary. The contract is the law between the contracting
parties.[30] And where the terms and conditions so stipulated are not contrary to law,
morals, good customs, public policy or public order, the contract is valid and must be
upheld.[31] Having transferred title to the sugar in question, petitioner is now obliged
to deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC have
entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly
evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing
price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and (c) the
authority given by the latter to other persons to withdraw sugar against SLDR No.
1214M after she had sold her rights under said SLDR to CSC. Petitioner prays that
the doctrine of "clean hands" should be applied to preclude CSC from seeking judicial
157
 relief. However, despite careful scrutiny, we find here the records bare of convincing
evidence whatsoever to support the petitioner's allegations of fraud. We are now
constrained to deem this matter purely speculative, bereft of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against
petitioner.
SO ORDERED.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution of various European
industrial equipment for customers here in the Philippines. It has as one of its customers
Impact Systems Sales (Impact Systems) which is a sole proprietorship owned by respondent
ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact Systems and
was impleaded in the court a quo in said capacity.

51. EUROTECH INDUSTRIAL G.R. No. 167552

From January to April 1995, petitioner sold to Impact Systems various products allegedly
TECHNOLOGIES, INC.,
Petitioner, Present: amounting to ninety-one thousand three hundred thirty-eight (P91,338.00)
pesos.Subsequently, respondents sought to buy from petitioner one unit of sludge pump
YNARES-SANTIAGO, J., valued at P250,000.00 with respondents making a down payment of fifty thousand pesos
Chairperson,
(P50,000.00).[4] When the sludge pump arrived from the United Kingdom, petitioner refused
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR., to deliver the same to respondents without their having fully settled their indebtedness to
CHICO-NAZARIO, and petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general
NACHURA, JJ. manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner,
the pertinent part of which states:
EDWIN CUIZON and ERWIN CUIZON, Promulgated:
Respondents.
April 23, 2007 1.) That ASSIGNOR[5] has an outstanding receivables from Toledo
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS as payment for the purchase of one unit
of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and
DECISION CONVEY unto the ASSIGNEE[6] the said receivables from Toledo Power
Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND
(P365,000.00) PESOS which receivables the ASSIGNOR is the lawful
recipient;
CHICO-NAZARIO, J.:
3.) That the ASSIGNEE does hereby accept this assignment. [7]
Before Us is a petition for review by certiorari assailing the Decision of the Court of Appeals
[1]
Following the execution of the Deed of Assignment, petitioner delivered to respondents the
dated 10 August 2004 and its Resolution[2] dated 17 March 2005 in CA-G.R. SP No. 71397 sludge pump as shown by Invoice No. 12034 dated 30 June 1995.[8]
entitled, Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez. The assailed
Decision and Resolution affirmed the Order[3] dated 29 January 2002 rendered by Judge Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed
Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party of Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29
defendant in Civil Case No. CEB-19672. as evidenced by Check Voucher No. 0933 [9] prepared by said power company and an official
receipt dated 15 August 1995 issued by Impact Systems. [10]Alarmed by this development,
158
petitioner made several demands upon respondents to pay their obligations. As a result,
respondents were able to make partial payments to petitioner. On 7 October 1996,
petitioners counsel sent respondents a final demand letter wherein it was stated that as of 11
June 1996, respondents total obligations stood at P295,000.00 excluding interests and
attorneys fees.[11] Because of respondents failure to abide by said final demand letter,
petitioner instituted a complaint for sum of money, damages, with application for preliminary
attachment against herein respondents before the Regional Trial Court of Cebu City.[12]
On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ
of preliminary attachment.[13]
On 25 June 1997, respondent EDWIN filed his Answer [14] wherein he admitted
petitioners allegations with respect to the sale transactions entered into by Impact Systems
and petitioner between January and April 1995. [15] He, however, disputed the total amount of
Impact Systems indebtedness to petitioner which, according to him, amounted to
only P220,000.00.[16]
By way of special and affirmative defenses, respondent EDWIN alleged that he is not
a real party in interest in this case. According to him, he was acting as mere agent of his
principal, which was the Impact Systems, in his transaction with petitioner and the latter was
very much aware of this fact. In support of this argument, petitioner points to paragraphs 1.2
and 1.3 of petitioners Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident
of Cebu City. He is the proprietor of a single proprietorship business known
as Impact Systems Sales (Impact Systems for brevity), with office located at
46-A del Rosario Street, Cebu City, where he may be served summons and
other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident
of Cebu City. He is the Sales Manager of Impact Systems and is sued in this
action in such capacity.[17]
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default
with Motion for Summary Judgment. The trial court granted petitioners motion to declare
respondent ERWIN in default for his failure to answer within the prescribed period despite
the opportunity granted[18] but it denied petitioners motion for summary judgment in its
Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October 2001.
[19]
However, the conduct of the pre-trial conference was deferred pending the resolution by
the trial court of the special and affirmative defenses raised by respondent EDWIN. [20]
After the filing of respondent EDWINs Memorandum [21] in support of his special and
affirmative defenses and petitioners opposition [22] thereto, the trial court rendered its assailed
Order dated 29 January 2002 dropping respondent EDWIN as a party defendant in this
case. According to the trial court
A study of Annex G to the complaint shows that in the Deed of
Assignment, defendant Edwin B. Cuizon acted in behalf of or represented
[Impact] Systems Sales; that [Impact] Systems Sale is a single
proprietorship entity and the complaint shows that defendant Erwin H.
Cuizon is the proprietor; that plaintiff corporation is represented by its
general manager Alberto de Jesus in the contract which is dated June 28,
1995. A study of Annex H to the complaint reveals that [Impact] Systems
Sales which is owned solely by defendant Erwin H. Cuizon, made a down
payment of P50,000.00 that Annex H is dated June 30, 1995 or two days
after the execution of Annex G, thereby showing that [Impact] Systems
Sales ratified the act of Edwin B. Cuizon; the records further show that
plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of
Edwin B. Cuizon, the agent, when it accepted the down payment
of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by
defendant Edwin B. Cuizon, since in the instant case the principal has ratified
the act of its agent and plaintiff knew about said ratification. Plaintiff could
not say that the subject contract was entered into by Edwin B. Cuizon in
excess of his powers since [Impact] Systems Sales made a down payment
of P50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant Edwin B.
Cuizon be dropped as party defendant.[23]
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court
of Appeals which, however, affirmed the 29 January 2002 Order of the court a quo. The
dispositive portion of the now assailed Decision of the Court of Appeals states:
159

WHEREFORE, finding no viable legal ground to reverse or modify the
conclusions reached by the public respondent in his Order dated January 29,
2002, it is hereby AFFIRMED.[24]
Petitioners motion for reconsideration was denied by the appellate court in its Resolution
promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its
allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT
RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT
SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE
HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID
HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.[25]
To support its argument, petitioner points to Article 1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the party
with whom he contracts, unless he expressly binds himself or exceeds the
limits of his authority without giving such party sufficient notice of his
powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act of
collecting the receivables from the Toledo Power Corporation notwithstanding the existence
of the Deed of Assignment signed by EDWIN on behalf of Impact Systems. While said
collection did not revoke the agency relations of respondents, petitioner insists that ERWINs
action repudiated EDWINs power to sign the Deed of Assignment. As EDWIN did not
sufficiently notify it of the extent of his powers as an agent, petitioner claims that he should
be made personally liable for the obligations of his principal. [26]
Petitioner also contends that it fell victim to the fraudulent scheme of respondents who
induced it into selling the one unit of sludge pump to Impact Systems and signing the Deed
of Assignment. Petitioner directs the attention of this Court to the fact that respondents are
bound not only by their principal and agent relationship but are in fact full-blooded brothers
whose successive contravening acts bore the obvious signs of conspiracy to defraud
petitioner.[27]
In his Comment,[28] respondent EDWIN again posits the argument that he is not a real party
in interest in this case and it was proper for the trial court to have him dropped as a
defendant. He insists that he was a mere agent of Impact Systems which is owned by
ERWIN and that his status as such is known even to petitioner as it is alleged in the
Complaint that he is being sued in his capacity as the sales manager of the said business
venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly states
that he was acting as a representative of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another with the latters consent. [29] The underlying principle of
the contract of agency is to accomplish results by using the services of others to do a great
variety of things like selling, buying, manufacturing, and transporting. [30] Its purpose is to
extend the personality of the principal or the party for whom another acts and from whom he
or she derives the authority to act. [31] It is said that the basis of agency is representation,
that is, the agent acts for and on behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they were personally executed by the
principal.[32] By this legal fiction, the actual or real absence of the principal is converted into
his legal or juridical presence qui facit per alium facit per se.[33]
The elements of the contract of agency are: (1) consent, express or implied, of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a
third person; (3) the agent acts as a representative and not for himself; (4) the agent acts
within the scope of his authority.[34]
In this case, the parties do not dispute the existence of the agency relationship between
respondents ERWIN as principal and EDWIN as agent. The only cause of the present dispute
is whether respondent EDWIN exceeded his authority when he signed the Deed of
Assignment thereby binding himself personally to pay the obligations to petitioner. Petitioner
firmly believes that respondent EDWIN acted beyond the authority granted by his principal
160
and he should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil
Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally
liable to the party with whom he contracts. The same provision, however, presents two
instances when an agent becomes personally liable to a third person. The first is when he
expressly binds himself to the obligation and the second is when he exceeds his authority. In
the last instance, the agent can be held liable if he does not give the third party sufficient
notice of his powers. We hold that respondent EDWIN does not fall within any of the
exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales
manager of Impact Systems. As discussed elsewhere, the position of manager is unique in
that it presupposes the grant of broad powers with which to conduct the business of the
principal, thus:
The powers of an agent are particularly broad in the case of one
acting as a general agent or manager; such a position presupposes a degree
of confidence reposed and investiture with liberal powers for the exercise of
judgment and discretion in transactions and concerns which are incidental or
appurtenant to the business entrusted to his care and management. In the
absence of an agreement to the contrary, a managing agent may enter into
any contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his management. x x
x.[35]
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his
authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver
the one unit of sludge pump unless it received, in full, the payment for Impact Systems
indebtedness.[36] We may very well assume that Impact Systems desperately needed the
sludge pump for its business since after it paid the amount of fifty thousand pesos
(P50,000.00) as down payment on 3 March 1995, [37] it still persisted in negotiating with
petitioner which culminated in the execution of the Deed of Assignment of its receivables
from Toledo Power Company on 28 June 1995. [38]The significant amount of time spent on
the negotiation for the sale of the sludge pump underscores Impact Systems perseverance
to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent
EDWINs participation in the Deed of Assignment was reasonably necessary or was required
in order for him to protect the business of his principal. Had he not acted in the way he did,
the business of his principal would have been adversely affected and he would have violated
his fiduciary relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from
respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article
1897 of the New Civil Code upon which petitioner anchors its claim against respondent
EDWIN does not hold that in case of excess of authority, both the agent and the principal are
liable to the other contracting party.[39] To reiterate, the first part of Article 1897 declares
that the principal is liable in cases when the agent acted within the bounds of his
authority. Under this, the agent is completely absolved of any liability. The second part of the
said provision presents the situations when the agent himself becomes liable to a third party
when he expressly binds himself or he exceeds the limits of his authority without giving
notice of his powers to the third person. However, it must be pointed out that in case of
excess of authority by the agent, like what petitioner claims exists here, the law does not say
that a third person can recover from both the principal and the agent.[40]
As we declare that respondent EDWIN acted within his authority as an agent, who did not
acquire any right nor incur any liability arising from the Deed of Assignment, it follows that
he is not a real party in interest who should be impleaded in this case. A real party in interest
is one who stands to be benefited or injured by the judgment in the suit, or the party entitled
to the avails of the suit.[41] In this respect, we sustain his exclusion as a defendant in the suit
before the court a quo.
WHEREFORE, premises considered, the present petition is DENIED and the Decision
dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-
G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the Regional Trial Court,
Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court, Branch
8, Cebu City, for the continuation of the proceedings against respondent ERWIN CUIZON.
161
SO ORDERED.

52. NIBALIK NA.

162