1

G.R. No. 121824 January 29, 1998 Irregularity Report." 4

BRITISH AIRWAYS, petitioner, Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for
vs. damages and attorney's fees 5 against BA and Mr. Gumar before the trial court,
COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES, docketed as Civil Case No. CEB-9076.
respondents. On September 4, 1990, BA filed its answer with counter claim 6 to the complaint
raising, as special and affirmative defenses, that Mahtani did not have a cause of
action against it. Likewise, on November 9, 1990, BA filed a third-party complaint 7
ROMERO, J.: against PAL alleging that the reason for the non-transfer of the luggage was due to
In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the the latter's late arrival in Hongkong, thus leaving hardly any time for the proper
decision of respondent Court of Appeals 1 promulgated on September 7, 1995, which transfer of Mahtani's luggage to the BA aircraft bound for Bombay.
affirmed the award of damages and attorney's fees made by the Regional Trial Court On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it
of Cebu, 7th Judicial Region, Branch 17, in favor of private respondent GOP Mahtani disclaimed any liability, arguing that there was, in fact, adequate time to transfer the
as well as the dismissal of its third-party complaint against Philippine Airlines (PAL). luggage to BA facilities in Hongkong. Furthermore, the transfer of the luggage to
2
Hongkong authorities should be considered as transfer to BA. 8
The material and relevant facts are as follows: After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its
On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In decision in favor of Mahtani, 9 the dispositive portion of which reads as follows:
anticipation of his visit, he obtained the services of a certain Mr. Gumar to prepare his WHEREFORE, premises considered, judgment is rendered for the plaintiff and
travel plans. The latter, in turn, purchased a ticket from BA where the following against the defendant for which defendant is ordered to pay plaintiff the sum of
itinerary was indicated: 3 Seven Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; Four
Hundred U.S. ($400.00) Dollars representing the value of the contents of plaintiff's
CARRIER FLIGHT DATE
luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual damages and twenty
percent (20%) of the total amount imposed against the defendant for attorney's fees
MANILA MNL PR 310 Y 16 APR. and costs of this action.
The Third-Party Complaint against third-party defendant Philippine Airlines is
HONGKONG HKG BA 20 M 16 APR. DISMISSED for lack of cause of action.
SO ORDERED.
BOMBAY BOM BA 19 M 23 APR. Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial
court's findings. Thus:
HONGKONG HKG PR 311 Y WHEREFORE, in view of all the foregoing considerations, finding the Decision
appealed from to be in accordance with law and evidence, the same is hereby
MANILA MNL AFFIRMED in toto, with costs against defendant-appellant.
SO ORDERED. 10
Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to BA is now before us seeking the reversal of the Court of Appeals' decision.
Hongkong via PAL, and upon arrival in Hongkong he had to take a connecting flight In essence, BA assails the award of compensatory damages and attorney's fees, as
to Bombay on board BA. well as the dismissal of its third-party complaint against PAL. 11
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two Regarding the first assigned issue, BA asserts that the award of compensatory
pieces of luggage containing his clothings and personal effects, confident that upon damages in the separate sum of P7,000.00 for the loss of Mahtani's two pieces of
reaching Hongkong, the same would be transferred to the BA flight bound for luggage was without basis since Mahtani in his complaint 12 stated the following as
Bombay. the value of his personal belongings:
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was 8. On the said travel, plaintiff took with him the following items and its
missing and that upon inquiry from the BA representatives, he was told that the same corresponding value, to wit:
might have been diverted to London. After patiently waiting for his luggage for one 1. personal belonging P10,000.00
week, BA finally advised him to file a claim by accomplishing the "Property 2. gifts for his parents and relatives $5,000.00

Moreover, he failed to declare a higher valuation with respect to his luggage, a
condition provided for in the ticket, which reads: 13
Liability for loss, delay, or damage to baggage is limited unless a higher value is
declared in advance and additional charges are paid:
1. For most international travel (including domestic corporations of international
journeys) the liability limit is approximately U.S. $9.07 per pound (U.S. $20.000) per
kilo for checked baggage and U.S. $400 per passenger for unchecked baggage.
Before we resolve the issues raised by BA, it is needful to state that the nature of an
airline's contract of carriage partakes of two types, namely: a contract to deliver a
cargo or merchandise to its destination and a contract to transport passengers to their
destination. A business intended to serve the traveling public primarily, it is imbued
with public interest, hence, the law governing common carriers imposes an exacting
standard. 14 Neglect or malfeasance by the carrier's employees could predictably
furnish bases for an action for damages. 15
In the instant case, it is apparent that the contract of carriage was between Mahtani
and BA. Moreover, it is indubitable that his luggage never arrived in Bombay on time.
Therefore, as in a number of cases 16 we have assessed the airlines' culpability in the
form of damages for breach of contract involving misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is vital
that the claimant satisfactorily prove during the trial the existence of the factual basis
of the damages and its causal connection to defendant's acts. 17
In this regard, the trial court granted the following award as compensatory damages:
Since plaintiff did not declare the value of the contents in his luggage and even failed
to show receipts of the alleged gifts for the members of his family in Bombay, the
most that can be expected for compensation of his lost luggage (2 suit cases) is
Twenty U.S. Dollars ($20.00) per kilo, or combined value of Four Hundred ($400.00)
U.S. Dollars for Twenty kilos representing the contents plus Seven Thousand
(P7,000.00) Pesos representing the purchase price of the two (2) suit cases.
However, as earlier stated, it is the position of BA that there should have been no
separate award for the luggage and the contents thereof since Mahtani failed to
declare a separate higher valuation for the luggage, 18 and therefore, its liability is
limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher
value is needed to recover a greater amount. Article 22(1) of the Warsaw Convention,
19
provides as follows:
xxx xxx xxx
(2) In the transportation of checked baggage and goods, the liability of the carrier
shall be limited to a sum of 250 francs per kilogram, unless the consignor has made, at
time the package was handed over to the carrier, a special declaration of the value at
delivery and has paid a supplementary sum if the case so requires. In that case the
carrier will be liable to pay a sum not exceeding the declared sum, unless he proves
that the sum is greater than the actual value to the consignor at delivery.
2
American jurisprudence provides that an air carrier is not liable for the loss of
baggage in an amount in excess of the limits specified in the tariff which was filed
with the proper authorities, such tariff being binding, on the passenger regardless of
the passenger's lack of knowledge thereof or assent thereto. 20 This doctrine is
recognized in this jurisdiction. 21
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on
adhesion contracts where the facts and circumstances justify that they should be
disregarded. 22
In addition, we have held that benefits of limited liability are subject to waiver such as
when the air carrier failed to raise timely objections during the trial when questions
and answers regarding the actual claims and damages sustained by the passenger
were asked. 23
Given the foregoing postulates, the inescapable conclusion is that BA had waived the
defense of limited liability when it allowed Mahtani to testify as to the actual
damages he incurred due to the misplacement of his luggage, without any objection.
In this regard, we quote the pertinent transcript of stenographic notes of Mahtani's
direct testimony: 24
Q — How much are you going to ask from this court?
A — P100,000.00.
Q — What else?
A — Exemplary damages.
Q — How much?
A — P100,000.00.
Q — What else?
A — The things I lost, $5,000.00 for the gifts I lost and my personal belongings,
P10,000.00.
Q — What about the filing of this case?
A — The court expenses and attorney's fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed
by counsel of the adverse party to be inadmissible for any reason, the latter has the
right to object. However, such right is a mere privilege which can be waived.
Necessarily, the objection must be made at the earliest opportunity, lest silence when
there is opportunity to speak may operate as a waiver of objections. 25 BA has
precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely
objection, but even conducted his own cross-examination as well. 26 In the early case
of Abrenica v. Gonda, 27 we ruled that:
. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or objection
against the admission of any evidence must be made at the proper time, and that if
not so made it will be understood to have been waived. The proper time to make a
protest or objection is when, from the question addressed to the witness, or from the
answer thereto, or from the presentation of proof, the inadmissibility of evidence is,
or may be inferred.

Needless to say, factual findings of the trial court, as affirmed by the Court of
Appeals, are entitled to great respect. 28 Since the actual value of the luggage involved
appreciation of evidence, a task within the competence of the Court of Appeals, its
ruling regarding the amount is assuredly a question of fact, thus, a finding not
reviewable by this Court. 29
As to the issue of the dismissal of BA's third-party complaint against PAL, the Court
of Appeals justified its ruling in this wise, and we quote: 30
Lastly, we sustain the trial court's ruling dismissing appellant's third-party complaint
against PAL.
The contract of air transportation in this case pursuant to the ticket issued by
appellant to plaintiff-appellee was exclusively between the plaintiff Mahtani and
defendant-appellant BA. When plaintiff boarded the PAL plane from Manila to
Hongkong, PAL was merely acting as a subcontractor or agent of BA. This is shown
by the fact that in the ticket issued by appellant to plaintiff-appellee, it is specifically
provided on the "Conditions of Contract," paragraph 4 thereof that:
4. . . . carriage to be performed hereunder by several successive carriers is regarded as
a single operation.
The rule that carriage by plane although performed by successive carriers is regarded
as a single operation and that the carrier issuing the passenger's ticket is considered
the principal party and the other carrier merely subcontractors or agent, is a settled
issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko, 31 we expounded
on the nature of a third-party complaint thus:
The third-party complaint is, therefore, a procedural device whereby a "third party"
who is neither a party nor privy to the act or deed complained of by the plaintiff, may
be brought into the case with leave of court, by the defendant, who acts, as third-
party plaintiff to enforce against such third-party defendant a right for contribution,
indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The
third-party complaint is actually independent of and separate and distinct from the
plaintiff's complaint. Were it not for this provision of the Rules of Court, it would
have to be filed independently and separately from the original complaint by the
defendant against the third-party. But the Rules permit defendant to bring in a third-
party defendant or so to speak, to litigate his separate cause of action in respect of
plaintiff's claim against a third-party in the original and principal case with the object
of avoiding circuitry of action and unnecessary proliferation of law suits and of
disposing expeditiously in one litigation the entire subject matter arising from one
particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in
view of their contract of carriage. Yet, BA adamantly disclaimed its liability and
instead imputed it to PAL which the latter naturally denies. In other words, BA and
PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was
3
exclusively between Mahtani and BA, the latter merely endorsing the Manila to
Hongkong leg of the former's journey to PAL, as its subcontractor or agent. In fact,
the fourth paragraph of the "Conditions of Contracts" of the ticket 32 issued by BA to
Mahtani confirms that the contract was one of continuous air transportation from
Manila to Bombay.
4. . . . carriage to be performed hereunder by several successive carriers is regarded as
a single operation.
Prescinding from the above discussion, it is undisputed that PAL, in transporting
Mahtani from Manila to Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled
rule that an agent is also responsible for any negligence in the performance of its
function. 33 and is liable for damages which the principal may suffer by reason of its
negligent act. 34 Hence, the Court of Appeals erred when it opined that BA, being the
principal, had no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International
Air Transport Association (IATA), wherein member airlines are regarded as agents of
each other in the issuance of the tickets and other matters pertaining to their
relationship. 35 Therefore, in the instant case, the contractual relationship between BA
and PAL is one of agency, the former being the principal, since it was the one which
issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa
German Airlines v. Court of Appeals. 36 In that case, Lufthansa issued a confirmed ticket
to Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately, Air
Kenya, one of the airlines which was to carry Antiporda to a specific destination
"bumped" him off.
An action for damages was filed against Lufthansa which, however, denied any
liability, contending that its responsibility towards its passenger is limited to the
occurrence of a mishap on its own line. Consequently, when Antiporda transferred to
Air Kenya, its obligation as a principal in the contract of carriage ceased; from there
on, it merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansa's argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the principal in the contract of
carriage with Antiporda and remains to be so, regardless of those instances when actual
carriage was to be performed by various carriers. The issuance of confirmed Lufthansa
ticket in favor of Antiporda covering his entire five-leg trip abroad successive carriers
concretely attest to this.
Since the instant petition was based on breach of contract of carriage, Mahtani can
only sue BA alone, and not PAL, since the latter was not a party to the contract.
However, this is not to say that PAL is relieved from any liability due to any of its
negligent acts. In China Air Lines, Ltd. v. Court of Appeals, 37 while not exactly in point,
the case, however, illustrates the principle which governs this particular situation. In
that case, we recognized that a carrier (PAL), acting as an agent of another carrier, is
also liable for its own negligent acts or omission in the performance of its duties.
 4

Accordingly, to deny BA the procedural remedy of filing a third-party complaint

against PAL for the purpose of ultimately determining who was primarily at fault as
between them, is without legal basis. After all, such proceeding is in accord with the
doctrine against multiplicity of cases which would entail receiving the same or
similar evidence for both cases and enforcing separate judgments therefor. It must be
borne in mind that the purpose of a third-party complaint is precisely to avoid delay
and circuitry of action and to enable the controversy to be disposed of in one suit. 38 It
is but logical, fair and equitable to allow BA to sue PAL for indemnification, if it is
proven that the latter's negligence was the proximate cause of Mahtani's unfortunate
experience, instead of totally absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-
G.R. CV No. 43309 dated September 7, 1995 is hereby MODIFIED, reinstating the
third-party complaint filed by British Airways dated November 9, 1990 against
Philippine Airlines. No costs.
SO ORDERED.
Narvasa, C.J., Melo and Francisco, JJ., concur.
Panganiban, J., concurs in the result.

G.R. No. L-18058 January 16, 1923


FABIOLA SEVERINO, plaintiff-appellee,
vs.
GUILLERMO SEVERINO, defendant-appellant.
FELICITAS VILLANUEVA, intervenor-appellee.
Serafin P. Hilado and A. P. Seva for appellant.Jose Ma. Arroyo, Jose Lopez Vito, and Fisher
and DeWitt for appellees.
OSTRAND, J.:
This is an action brought by the plaintiff as the alleged natural daughter and sole heir
of one Melecio Severino, deceased, to compel the defendant Guillermo Severino to
convey to her four parcels of land described in the complaint, or in default thereof to
pay her the sum of P800,000 in damages for wrongfully causing said land to be
registered in his own name. Felicitas Villanueva, in her capacity as administratrix of
the estate of Melecio Severino, has filed a complaint in intervention claiming in the
same relief as the original plaintiff, except in so far as she prays that the conveyance
be made, or damages paid, to the estate instead of to the plaintiff Fabiola Severino.
The defendant answered both complaints with a general denial.
The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the
acknowledged natural child of the said Melecio Severino and ordering the defendant
to convey 428 hectares of the land in question to the intervenor as administratrix of
the estate of the said Melecio Severino, to deliver to her the proceeds in his possession
of a certain mortgage placed thereon by him and to pay the costs. From this judgment
only the defendant appeals.
The land described in the complaint forms one continuous tract and consists of lots
Nos. 827, 828, 834, and 874 of the cadaster of Silay, Province of Occidental Negros,
which measure, respectively, 61 hectares, 74 ares, and 79 centiares; 76 hectares, 34
ares, and 79 centiares; 52 hectares, 86 ares, and 60 centiares and 608 hectares, 77 ares
and 28 centiares, or a total of 799 hectares, 75 ares, and 46 centiares.
The evidence shows that Melecio Severino died on the 25th day of May, 1915; that
some 428 hectares of the land were recorded in the Mortgage Law Register in his
name in the year 1901 by virtue of possessory information proceedings instituted on
the 9th day of May of that year by his brother Agapito Severino in his behalf; that
during the lifetime of Melecio Severino the land was worked by the defendant,
Guillermo Severino, his brother, as administrator for and on behalf of the said
Melecio Severino; that after Melecio's death, the defendant Guillermo Severino
continued to occupy the land; that in 1916 a parcel survey was made of the lands in
the municipality of Silay, including the land here in question, and cadastral
proceedings were instituted for the registration of the lands titles within the surveyed
area; that in the cadastral proceedings the land here in question was described as four
separate lots numbered as above stated; that Roque Hofileña, as lawyer for Guillermo
Severino, filed answers in behalf of the latter in said proceedings claiming the lots
mentioned as the property of his client; that no opposition was presented in the
5
proceedings to the claims of Guillermo Severino and the court therefore decreed the
title in his favor, in pursuance of which decree certificates of title were issued to him
in the month of March, 1917.
It may be further observed that at the time of the cadastral proceedings the plaintiff
Fabiola Severino was a minor; that Guillermo Severino did not appear personally in
the proceedings and did not there testify; that the only testimony in support of his
claims was that of his attorney Hofileña, who swore that he knew the land and that he
also knew that Guillermo Severino inherited the land from his father and that he, by
himself, and through his predecessors in interest, had possessed the land for thirty
years.
The appellant presents the following nine assignments of error:
1. The trial court erred in admitting the evidence that was offered by plaintiff in order
to establish the fact that said plaintiff was the legally acknowledged natural child of
the deceased Melecio Severino.
2. The trial court erred in finding that, under the evidence presented, plaintiff was the
legally acknowledged natural child of Melecio Severino.
3. The trial court erred in rejecting the evidence offered by defendant to establish the
absence of fraud on his part in securing title to the lands in Nacayao.
4. The trial court erred in concluding that the evidence adduced by plaintiff and
intervenor established that defendant was guilty of fraud in procuring title to the
lands in question in his name.
5. The trial court erred in declaring that the land that was formerly placed in the
name of Melecio Severino had an extent of either 434 or 428 hectares at the time of his
death.
6. The trial court erred in declaring that the value of the land in litigation is P500 per
hectare.
7. The trial court erred in granting the petition of the plaintiff for an attachment
without first giving the defendant an opportunity to be heard.
8. The trial court erred in ordering the conveyance of 428 hectares of land by
defendant to the administratrix.
9. The trial court erred in failing or refusing to make any finding as to the defendant's
contention that the petition for attachment was utterly devoid of any reasonable
ground.
In regard to the first two assignments of error, we agree with the appellant that the
trial court erred in making a declaration in the present case as to the recognition of
Fabiola Severino as the natural child of Melecio Severino. We have held in the case of
Briz vs. Briz and Remigio (43 Phil., 763), that "The legitimate heirs or kin of a deceased
person who would be prejudiced by a declaration that another person is entitled to
recognition as the natural child of such decedent, are necessary and indispensable
parties to any action in which a judgment declaring the right to recognition is
sought." In the present action only the widow, the alleged natural child, and one of
the brothers of the deceased are parties; the other potential heirs have not been
included. But, inasmuch as the judgment appealed from is in favor of the intervenor

and not of the plaintiff, except to the extent of holding that the latter is a recognized
natural child of the deceased, this question is, from the view we take of the case, of no
importance in its final disposition. We may say, however, in this connection, that the
point urged in appellant's brief that it does not appear affirmatively from the
evidence that, at the time of the conception of Fabiola, her mother was a single
woman, may be sufficiently disposed of by a reference to article 130 of the Civil Code
and subsection 1 of section 334 of the Code of Civil Procedure which create the
presumption that a child born out of wedlock is natural rather than illegitimate. The
question of the status of the plaintiff Fabiola Severino and her right to share in the
inheritance may, upon notice to all the interested parties, be determined in the
probate proceedings for the settlement of the estate of the deceased.
The fifth assignment of error relates to the finding of the trial court that the land
belonging to Melecio Severino had an area of 428 hectares. The appellant contends
that the court should have found that there were only 324 hectares inasmuch as one
hundred hectares of the original area were given to Melecio's brother Donato during
the lifetime of the father Ramon Severino. As it appears that Ramon Severino died in
1896 and that the possessory information proceedings, upon which the finding of the
trial court as to the area of the land is principally based, were not instituted until the
year 1901, we are not disposed to disturb the conclusions of the trial court on this
point. Moreover, in the year 1913, the defendant Guillermo Severino testified under
oath, in the case of Montelibano vs. Severino, that the area of the land owned by
Melecio Severino and of which he (Guillermo) was the administrator, embraced an
area of 424 hectares. The fact that Melecio Severino, in declaring the land for taxation
in 1906, stated that the area was only 324 hectares and 60 ares while entitled to some
weight is not conclusive and is not sufficient to overcome the positive statement of the
defendant and the recitals in the record of the possessory information proceedings.
The sixth assignment of error is also of minor importance in view of the fact that in
the dispositive part of the decision of the trial court, the only relief given is an order
requiring the appellant to convey to the administratrix the land in question, together
with such parts of the proceeds of the mortgage thereon as remain in his hands. We
may say further that the court's estimate of the value of the land does not appear
unreasonable and that, upon the evidence before us, it will not be disturbed.
The seventh and within assignments of error relate to the ex parte granting by the trial
court of a preliminary attachment in the case and the refusal of the court to dissolve
the same. We find no merit whatever in these assignments and a detailed discussion
of them is unnecessary.
The third, fourth, and eight assignments of error involve the vital points in the case,
are inter-related and may be conveniently considered together.
The defendant argues that the gist of the instant action is the alleged fraud on his part
in causing the land in question to be registered in his name; that the trial court
therefore erred in rejecting his offer of evidence to the effect that the land was owned
in common by all the heirs of Ramon Severino and did not belong to Melecio
Severino exclusively; that such evidence, if admitted, would have shown that he did
6
not act with fraudulent intent in taking title to the land; that the trial court erred in
holding him estopped from denying Melecio's title; that more than a year having
elapsed since the entry of the final decree adjudicating the land to the defendant, said
decree cannot now be reopened; that the ordering of the defendant to convey the
decreed land to the administratrix is, for all practical purposes, equivalent to the
reopening of the decree of registration; that under section 38 of the Land Registration
Act the defendant has an indefeasible title to the land; and that the question of
ownership of the land being thus judicially settled, the question as to the previous
relations between the parties cannot now be inquired into.
Upon no point can the defendant's contentions be sustained. It may first be observed
that this is not an action under section 38 of the Land Registration Act to reopen or set
aside a decree; it is an action in personam against an agent to compel him to return, or
retransfer, to the heirs or the estate of its principal, the property committed to his
custody as such agent, to execute the necessary documents of conveyance to effect
such retransfer or, in default thereof, to pay damages.
That the defendant came into the possession of the property here in question as the
agent of the deceased Melecio Severino in the administration of the property, cannot
be successfully disputed. His testimony in the case of Montelibano vs. Severino (civil
case No. 902 of the Court of First Instance of Occidental Negros and which forms a
part of the evidence in the present case) is, in fact, conclusive in this respect. He there
stated under oath that from the year 1902 up to the time the testimony was given, in
the year 1913, he had been continuously in charge and occupation of the land as the
encargado or administrator of Melecio Severino; that he had always known the land as
the property of Melecio Severino; and that the possession of the latter had been
peaceful, continuous, and exclusive. In his answer filed in the same case, the same
defendant, through his attorney, disclaimed all personal interest in the land and
averred that it was wholly the property of his brother Melecio.
Neither is it disputed that the possession enjoyed by the defendant at the time of
obtaining his decree was of the same character as that held during the lifetime of his
brother, except in so far as shortly before the trial of the cadastral case the defendant
had secured from his brothers and sisters a relinguishment in his favor of such rights
as they might have in the land.
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. Upon this ground, and substantially in
harmony with the principles of the Civil Law (see sentence of the supreme court of
Spain of May 1, 1900), the English Chancellors held that in general whatever a trustee
does for the advantage of the trust estate inures to the benefit of the cestui que trust.
(Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex parte Hughes, 6 Ves., 617;
Ex parte James, 8 Ves., 337; Oliver vs. Court, 8 Price, 127.) The same principle has been

consistently adhered to in so many American cases and is so well established that
exhaustive citations of authorities are superfluous and we shall therefore limit
ourselves to quoting a few of the numerous judicial expressions upon the subject. The
principle is well stated in the case of Gilbert vs. Hewetson (79 Minn., 326):
A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations
respecting property or persons, is 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 the trustee. It is to avoid the necessity of
any such inquiry that the rule takes so general a form. The rule stands on the moral
obligation to refrain from placing one's self in positions which ordinarily excite
conflicts between self-interest and integrity. It seeks to remove the temptation that
might arise out of such a relation to serve one's self-interest at the expense of one's
integrity and duty to another, by making it impossible to profit by yielding to
temptation. It applies universally to all who come within its principle.
In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court,
speaking through Chief Justice Marshall, said:
But Massie, the agent of Oneale, has entered and surveyed a portion of that land for
himself and obtained a patent for it in his own name. According to the clearest and
best established principles of equity, the agent who so acts becomes a trustee for his
principal. He cannot hold the land under an entry for himself otherwise than as
trustee for his principal.
In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court, after
examining the authorities, said:
The substance of these authorities is that, wherever a person obtains the legal title to
land by any artifice or concealment, or by making use of facilities intended for the
benefit of another, a court of equity will impress upon the land so held by him a trust
in favor of the party who is justly entitled to them, and will order the trust executed
by decreeing their conveyance to the party in whose favor the trust was created.
(Citing Bank of Metropolis vs. Guttschlick, 14 Pet., 19, 31; Moses vs. Murgatroyd, 1
Johns. Ch., 119; Cumberland vs. Codrington, 3 Johns. Ch., 229, 261; Neilson vs. Blight,
1 Johns. Cas., 205; Weston vs. Barker, 12 Johns., 276.)
The same doctrine has also been adopted in the Philippines. In the case of Uy Aloc vs.
Cho Jan Ling (19 Phil., 202), the facts are stated by the court as follows:
From the facts proven at the trial it appears that a number of Chinese merchants
raised a fund by voluntary subscription with which they purchased a valuable tract
of land and erected a large building to be used as a sort of club house for the mutual
benefit of the subscribers to the fund. The subscribers organized themselves into an
irregular association, which had no regular articles of association, and was not
incorporated or registered in the commercial registry or elsewhere. The association
not having any existence as a legal entity, it was agreed to have the title to the
property placed in the name of one of the members, the defendant, Cho Jan Ling,
who on his part accepted the trust, and agreed to hold the property as the agent of the
7
members of the association. After the club building was completed with the funds of
the members of the association, Cho Jan Ling collected some P25,000 in rents for
which he failed and refused to account, and upon proceedings being instituted to
compel him to do so, he set up title in himself to the club property as well as to the
rents accruing therefrom, falsely alleging that he had bought the real estate and
constructed the building with his own funds, and denying the claims of the members
of the association that it was their funds which had been used for that purpose.
The decree of the court provided, among other things, for the conveyance of the club
house and the land on which it stood from the defendant, Cho Jan Ling, in whose
name it was registered, to the members of the association. In affirming the decree, this
court said:
In the case at bar the legal title of the holder of the registered title is not questioned; it
is admitted that the members of the association voluntarily obtained the inscription in
the name of Cho Jan Ling, and that they had no right to have that inscription
cancelled; they do not seek such cancellation, and on the contrary they allege and
prove that the duly registered legal title to the property is in Cho Jan Ling, but they
maintain, and we think that they rightly maintain, that he holds it under an
obligation, both express and implied, to deal with it exclusively for the benefit of the
members of the association, and subject to their will.
In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho,
took title to the land in his own name, while acting as agent for the municipality. The
court said:
There have been a number of cases before this court in which a title to real property
was acquired by a person in his own name, while acting under a fiduciary capacity,
and who afterwards sought to take advantage of the confidence reposed in him by
claiming the ownership of the property for himself. This court has invariably held
such evidence competent as between the fiduciary and the cestui que trust.
xxx xxx xxx
What judgment ought to be entered in this case? The court below simply absolved the
defendant from the complaint. The defendant municipality does not ask for a
cancellation of the deed. On the contrary, the deed is relied upon the supplement the
oral evidence showing that the title to the land is in the defendant. As we have
indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc vs. Cho Jan Ling, 19 Phil., 202,
the proper procedure in such a case, so long as the rights of innocent third persons
have not intervened, is to compel a conveyance to the rightful owner. This ought and
can be done under the issues raised and the proof presented in the case at bar.
The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.
As will be seen from the authorities quoted, and agent is not only estopped from
denying his principal's title to the property, but he is also disable from acquiring
interests therein adverse to those of his principal during the term of the agency. But
the defendant argues that his title has become res adjudicata through the decree of
registration and cannot now be disturbed.
This contention may, at first sight, appear to possess some force, but on closer

examination it proves untenable. The decree of registration determined the legal title
to the land as the date of the decree; as to that there is no question. That, under
section 38 of the Land Registration Act, this decree became conclusive after one year
from the date of the entry is not disputed and no one attempts to disturb the decree or
the proceedings upon which it is based; the plaintiff in intervention merely contends
that in equity the legal title so acquired inured to the benefit of the estate of Melecio
Severino, the defendant's principal and cestui que trust and asks that this superior
equitable right be made effective by compelling the defendant, as the holder of the
legal title, to transfer it to the estate.
We have already shown that before the issuance of the decree of registration it was
the undoubted duty of the defendant to restore the property committed to his
custody to his principal, or to the latter's estate, and that the principal had a right of
action in personam to enforce the performance of this duty and to compel the
defendant to execute the necessary conveyance to that effect. The only question
remaining for consideration is, therefore, whether the decree of registration
extinguishing this personal right of action.
In Australia and New Zealand, under statutes in this respect similar to ours, courts of
equity exercise general jurisdiction in matters of fraud and error with reference to
Torrens registered lands, and giving attention to the special provisions of the Torrens
acts, will issue such orders and direction to all the parties to the proceedings as may
seem just and proper under the circumstances. They may order parties to make deeds
of conveyance and if the order is disobeyed, they may cause proper conveyances to be
made by a Master in Chancery or Commissioner in accordance with the practice in
equity (Hogg, Australian Torrens System, p. 847).
In the Untied States courts have even gone so far in the exercise of their equity
jurisdiction as to set aside final decrees after the expiration of the statutory period of
limitation for the reopening of such decrees (Baart vs. Martin, 99 Minn., 197). But,
considering that equity follows the law and that our statutes expressly prohibit the
reopening of a decree after one year from the date of its entry, this practice would
probably be out of question here, especially so as the ends of justice may be attained
by other equally effective, and less objectionable means.
Turning to our own Land Registration Act, we find no indication there of an intention
to cut off, through the issuance of a decree of registration, equitable rights or
remedies such as those here in question. On the contrary, section 70 of the Act
provides:
Registered lands and ownership therein, shall in all respects be subject to the same
burdens and incidents attached by law to unregistered land. Nothing contained in
this Act shall in any way be construed to relieve registered land or the owners thereof
from any rights incident to the relation of husband and wife, or from liability to
attachment on mesne process or levy on execution, or from liability to any lien of any
description established by law on land and the buildings thereon, or the interest of
the owner in such land or buildings, or to change the laws of descent, or the rights of
partition between coparceners, joint tenants and other cotenants, or the right to take
8
the same by eminent domain, or to relieve such land from liability to be appropriated
in any lawful manner for the payment of debts, or to change or affect in any other
way any other rights or liabilities created by law and applicable to unregistered land,
except as otherwise expressly provided in this Act or in the amendments hereof.
Section 102 of the Act, after providing for actions for damages in which the Insular
Treasurer, as the Custodian of the Assurance Fund is a party, contains the following
proviso:
Provided, however, That nothing in this Act shall be construed to deprive the plaintiff
of any action which he may have against any person for such loss or damage or
deprivation of land or of any estate or interest therein without joining the Treasurer
of the Philippine Archipelago as a defendant therein.
That an action such as the present one is covered by this proviso can hardly admit of
doubt. Such was also the view taken by this court in the case of Medina Ong-Quingco
vs. Imaz and Warner, Barnes & Co. (27 Phil., 314), in which the plaintiff was seeking to
take advantage of his possession of a certificate of title to deprive the defendant of
land included in that certificate and sold to him by the former owner before the land
was registered. The court decided adversely to plaintiff and in so doing said:
As between them no question as to the indefeasibility of a Torrens title could arise.
Such an action could have been maintained at any time while the property remained
in the hands of the purchaser. The peculiar force of a Torrens title would have been
brought into play only when the purchaser had sold to an innocent third person for
value the lands described in his conveyance. . . . Generally speaking, as between the
vendor and the purchaser the same rights and remedies exist with reference to land
registered under Act No. 496, as exist in relation to land not so registered.
In Cabanos vs. Register of Deeds of Laguna and Obiñana (40 Phil., 620), it was held that,
while a purchaser of land under a pacto de retro cannot institute a real action for the
recovery thereof where the vendor under said sale has caused such lands to be
registered in his name without said vendee's consent, yet he may have his personal
action based on the contract of sale to compel the execution of an unconditional deed
for the said lands when the period for repurchase has passed.
Torrens titles being on judicial decrees there is, of course, a strong presumption in
favor of their regularity or validity, and in order to maintain an action such as the
present the proof as to the fiduciary relation of the parties and of the breach of trust
must be clear and convincing. Such proof is, as we have seen, not lacking in this case.
But once the relation and the breach of trust on the part of the fiduciary in thus
established, there is no reason, neither practical nor legal, why he should not be
compelled to make such reparation as may lie within his power for the injury caused
by his wrong, and as long as the land stands registered in the name of the party who
is guilty of the breach of trust and no rights of innocent third parties are adversely
affected, there can be no reason why such reparation should not, in the proper case,
take the form of a conveyance or transfer of the title to the cestui que trust. No reasons
of public policy demand that a person guilty of fraud or breach of trust be permitted
to use his certificate of title as a shield against the consequences of his own wrong.
 9

The judgment of the trial court is in accordance with the facts and the law. In order to
prevent unnecessary delay and further litigation it may, however, be well to attach
some additional directions to its dipositive clauses. It will be observed that lots Nos.
827, 828, and 834 of a total area of approximately 191 hectares, lie wholly within the
area to be conveyed to the plaintiff in intervention and these lots may, therefore, be so
conveyed without subdivision. The remaining 237 hectares to be conveyed lie within
the western part of lot No. 874 and before a conveyance of this portion can be effected
a subdivision of that lot must be made and a technical description of the portion to be
conveyed, as well as of the remaining portion of the lot, must be prepared. The
subdivision shall be made by an authorized surveyor and in accordance with the
provisions of Circular No. 31 of the General Land Registration Office, and the
subdivision and technical descriptions shall be submitted to the Chief of that office for
his approval. Within thirty days after being notified of the approval of said
subdivision and technical descriptions, the defendant Guillermo Severino shall
execute good and sufficient deed or deeds of conveyance in favor of the
administratrix of the estate of the deceased Melecio Severino for said lots Nos. 827,
828, 834, and the 237 hectares segregated from the western part of lot No. 874 and
shall deliver to the register of deeds his duplicate certificates of title for all of the four
lots in order that said certificates may be cancelled and new certificates issued. The
cost of the subdivision and the fees of the register of deeds will be paid by the
plaintiff in intervention. It is so ordered
With these additional directions the judgment appealed from is affirmed, with the
costs against the appellant. The right of the plaintiff Fabiola Severino to establish in
the probate proceedings of the estate of Melecio Severino her status as his recognized
natural child is reserved.
Araullo, C. J., Johnson, Street, Malcolm, Avanceña, Villamor, Johns, and Romualdez, JJ.,
concur.

G.R. No. L-30573 October 29, 1971

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.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-respondent.

MAKASIAR, J.:
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.
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
10
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 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:
11
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 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
12
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 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
 13

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.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo
and Villamor, JJ., concur.

[G.R. No. 141485. June 30, 2005]

PABLITO MURAO and NELIO HUERTAZUELA, petitioners, vs. PEOPLE OF THE
PHILIPPINES, respondent.
DECISION

CHICO-NAZARIO, J.:

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court,
petitioners pray for the reversal of the Decision of the Court of Appeals in CA-G.R.
CR No. 21134, dated 31 May 1999, [1] affirming with modification the Judgment of the
Regional Trial Court (RTC) of Puerto Princesa City, Palawan, in Criminal Case No.
11943, dated 05 May 1997,[2] finding petitioners guilty beyond reasonable doubt of the
crime of estafa under Article 315(1)(b) of the Revised Penal Code.
Petitioner Pablito Murao is the sole owner of Lorna Murao Industrial Commercial
Enterprises (LMICE), a company engaged in the business of selling and refilling fire
extinguishers, with branches in Palawan, Naga, Legaspi, Mindoro, Aurora, Quezon,
Isabela, and Laguna. Petitioner Nelio Huertazuela is the Branch Manager of LMICE
in Puerto Princesa City, Palawan.[3]
On 01 September 1994, petitioner Murao and private complainant Chito Federico

entered into a Dealership Agreement for the marketing, distribution, and refilling of
fire extinguishers within Puerto Princesa City.[4] According to the Dealership
Agreement, private complainant Federico, as a dealer for LMICE, could obtain fire
extinguishers from LMICE at a 50% discount, provided that he sets up his own sales
force, acquires and issues his own sales invoice, and posts a bond with LMICE as
security for the credit line extended to him by LMICE. Failing to comply with the
conditions under the said Dealership Agreement, private complainant Federico,
nonetheless, was still allowed to act as a part-time sales agent for LMICE entitled to a
percentage commission from the sales of fire extinguishers.[5]
The amount of private complainant Federicos commission as sales agent for LMICE
was under contention. Private complainant Federico claimed that he was entitled to a
commission equivalent to 50% of the gross sales he had made on behalf of LMICE, [6]
while petitioners maintained that he should receive only 30% of the net sales.
Petitioners even contended that as company policy, part-time sales agents were
entitled to a commission of only 25% of the net sales, but since private complainant
Federico helped in establishing the LMICE branch office in Puerto Princesa City, he
was to receive the same commission as the full-time sales agents of LMICE, which
was 30% of the net sales.[7]
Private complainant Federicos first successful transaction as sales agent of LMICE
involved two fire extinguishers sold to Landbank of the Philippines (Landbank),
Puerto Princesa City Branch, for the price of P7,200.00. Landbank issued a check,
dated 08 November 1993, pay to the order of L.M. Industrial Comml. Enterprises c/o
Chito Federico, for the amount of P5,936.40,[8] after deducting from the original sales
price the 15% discount granted by private complainant Federico to Landbank and the
3% withholding tax. Private complainant Federico encashed the check at Landbank
and remitted only P2,436.40 to LMICE, while he kept P3,500.00 for himself as his
commission from the sale.[9]
Petitioners alleged that it was contrary to the standard operating procedure of LMICE
that private complainant Federico was named payee of the Landbank check on behalf
of LMICE, and that private complainant Federico was not authorized to encash the
said check. Despite the supposed irregularities committed by private complainant
Federico in the collection of the payment from Landbank and in the premature
withholding of his commission from the said payment, petitioners forgave private
complainant Federico because the latter promised to make-up for his misdeeds in the
next transaction.[10]
Private complainant Federico, on behalf of LMICE, subsequently facilitated a
transaction with the City Government of Puerto Princesa for the refill of 202 fire
extinguishers. Because of the considerable cost, the City Government of Puerto
Princesa requested that the transaction be split into two purchase orders, and the City
Government of Puerto Princesa shall pay for each of the purchase orders separately.
[11]
Pursuant to the two purchase orders, LMICE refilled and delivered all 202 fire
extinguishers to the City Government of Puerto Princesa: 154 units on 06 January
1994, 43 more units on 12 January 1994, and the last five units on 13 January 1994.[12]
14
The subject of this Petition is limited to the first purchase order, Purchase Order No.
GSO-856, dated 03 January 1994, for the refill of 99 fire extinguishers, with a total cost
of P309,000.00.[13] On 16 June 1994, the City Government of Puerto Princesa issued
Check No. 611437 to LMICE to pay for Purchase Order No. GSO-856, in the amount
of P300,572.73, net of the 3% withholding tax. [14] Within the same day, petitioner
Huertazuela claimed Check No. 611437 from the City Government of Puerto Princesa
and deposited it under the current account of LMICE with PCIBank. [15]
On 17 June 1994, private complainant Federico went to see petitioner Huertazuela at
the LMICE branch office in Puerto Princesa City to demand for the amount of
P154,500.00 as his commission from the payment of Purchase Order No. GSO-856 by
the City Government of Puerto Princesa. Petitioner Huertazuela, however, refused to
pay private complainant Federico his commission since the two of them could not
agree on the proper amount thereof.[16]
Also on 17 June 1994, private complainant Federico went to the police station to file
an Affidavit-Complaint for estafa against petitioners. [17] Petitioners submitted their
Joint Counter-Affidavit on 12 July 1994. [18] The City Prosecution Office of Puerto
Princesa City issued a Resolution, dated 15 August 1994, finding that a prima facie case
for estafa existed against the petitioners and recommending the filing of an
information for estafa against both of them.[19]
The Information, docketed as Criminal Case No. 11943 and raffled to the RTC of
Puerto Princesa City, Palawan, Branch 52, reads as follows
INFORMATION
The undersigned accuses PABLITO MURAO and NELIO C. HUERTAZUELA of the
crime of ESTAFA, committed as follows:
That on or about the 16 th day of June, 1994, at Puerto Princesa City, Philippines, and
within the jurisdiction of this Honorable Court, the said accused, conspiring and
confederating together and mutually helping one another, after having received the
amount of P309,000.00 as payment of the 99 tanks of refilled fire extinguisher (sic)
from the City Government of Puerto Princesa, through deceit, fraud and
misrepresentation, did then and there willfully, unlawfully and feloniously defraud
one Chito Federico in the following manner, to wit: said accused, well knowing that
Chito Federico agent of LM Industrial Commercial Enterprises is entitled to 50%
commission of the gross sales as per their Dealership Contract or the amount of
P154,500.00 as his commission for his sale of 99 refilled fire extinguishers worth
P309,000.00, and accused once in possession of said amount of P309,000.00
misappropriate, misapply and convert the amount of P154,500.00 for their own
personal use and benefit and despite repeated demands made upon them by
complainant to deliver the amount of P154,500.00, accused failed and refused and still
fails and refuses to do so, to the damage and prejudice of said Chito Federico in the
amount of P154,500.00, Philippine Currency.[20]
After holding trial, the RTC rendered its Judgment on 05 May 1997 finding petitioners
guilty beyond reasonable doubt as co-principals of the crime of estafa defined and
penalized in Article 315(1)(b) of the Revised Penal Code. Estafa, under the said

provision, is committed by
ART. 315. Swindling (estafa). Any person who shall defraud another by any of the
means mentioned hereinbelow . . .
1. With unfaithfulness or abuse of confidence, namely:
(a)
(b) By misappropriating or converting, to the prejudice of another, money, goods, or
any other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of
or to return the same, even though such obligation be totally or partially guaranteed
by a bond; or by denying having received such money, goods, or other property; . . .
In the same Judgment, the RTC expounded on its finding of guilt, thus
For the afore-quoted provision of the Revised Penal Code to be committed, the
following requisites must concur:
1. That money, goods or other personal property be received by the offender in trust,
or on commission, or for administration, or under any other obligation involving the
duty to make delivery of, or to return, the same;
2. That there be misappropriation or conversion of such money or property by the
offender, or denial on his part of such receipt;
3. That such misappropriation or conversion or denial is to the prejudice of another;
and
4. That there is demand made by the offended party to the offender. (Reyes, Revised
Penal Code of the Philippines, p. 716; Manuel Manahan, Jr. vs. Court of Appeals, Et
Al., G.R. No. 111656, March 20, 1996)
All the foregoing elements are present in this case. The aborted testimony of Mrs.
Norma Dacuan, Cashier III of the Treasurers Office of the City of Puerto Princesa
established the fact that indeed, on June 16, 1994, co-accused Nelio Huertazuela took
delivery of Check No. 611437 with face value of P300,572.73, representing payment
for the refill of 99 cylinders of fire extinguishers. Although the relationship between
complaining witness Chito Federico and LMIC is not fiduciary in nature, still the
clause any other obligation involving the duty to make delivery of or to return
personal property is broad enough to include a civil obligation (Manahan vs. C.A., Et.
Al., Mar. 20, 1996).
The second element cannot be gainsaid. Both Pablito Murao and Nelio Huertazuela
categorically admitted that they did not give to Chito Federico his commission.
Instead, they deposited the full amount of the consideration, with the PCIBank in the
Current Account of LMIC.
The refusal by the accused to give Chito Federico what ever percentage his
commission necessarily caused him prejudice which constitute the third element of
estafa. Demand for payment, although not an essential element of estafa was
nonetheless made by the complainant but was rebuffed by the accused. The
fraudulent intent by the accused is indubitably indicated by their refusal to pay Chito
Federico any percentage of the gross sales as commission. If it were true that what the
15
dealer/sales Agent is entitled to by way of commission is only 30% of the gross sales,
then by all means the accused should have paid Chito Federico 30%. If he refused,
they could have it deposited in his name. In that way they may not be said to have
misappropriated for themselves what pertained to their Agent by way of commission.
WHEREFORE, premises considered judgment is hereby rendered finding the accused
PABLITO MURAO and NELIO HUERTAZUELA guilty beyond reasonable doubt as
co-principals, of the crime of estafa defined and penalized in Article 315 par. 1(b) of
the Revised Penal Code, and applying the provisions of the Indeterminate Sentence
Law, both accused are hereby sentenced to an indeterminate penalty ranging from a
minimum of TWO (2) YEARS, FOUR (4) MONTHS and ONE (1) DAY of prision
correccional in its medium period, to a maximum of TWENTY (20) YEARS of
reclusion temporal in its maximum period; to pay Chito Federico, jointly and
severally:
a. Sales Commission equivalent to
50% of P309,000.00 or ------------------- P154,500.00
with legal interest thereon from
June 17, 1994 until fully paid;
b. Attorneys fees ---------------------------- P 30,0000.00.[21]
Resolving the appeal filed by the petitioners before it, the Court of Appeals, in its
Decision, dated 31 May 1999, affirmed the aforementioned RTC Judgment, finding
petitioners guilty of estafa, but modifying the sentence imposed on the petitioners.
The dispositive portion of the Decision of the Court of Appeals reads
WHEREFORE, the appealed decision is hereby AFFIRMED with the
MODIFICATION that appellants PABLITO MURAO and NELIO HUERTAZUELA
are hereby each sentenced to an indeterminate penalty of eight (8) years and One (1)
day of prision mayor, as minimum, to Twenty (20) years of reclusion temporal, as
maximum. The award for attorneys fee of P30,000.00 is deleted because the
prosecution of criminal action is the task of the State prosecutors. All other aspects of
the appealed decision are maintained.[22]
When the Court of Appeals, in its Resolution, dated 19 January 2000, [23] denied their
Motion for Reconsideration, petitioners filed the present Petition for Review [24] before
this Court, raising the following errors allegedly committed by the Court of Appeals
in its Decision, dated 31 May 1999
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED
WHEN IT RULED THAT PETITIONERS ARE LIABLE FOR ESTAFA UNDER
ARTICLE 315 1(B) OF THE REVISED PENAL CODE UNDER THE FOREGOING SET
OF FACTS, WHEN IT IS CLEAR FROM THE SAID UNDISPUTED FACTS THAT
THE LIABILITY IS CIVIL IN NATURE.
II
WITH DUE RESPECT, THE HONORABLE COURT ERRED WHEN IT UPHOLD (sic)
PRIVATE COMPLAINANTS CLAIM THAT HE IS ENTITLED TO A FIFTY (50%)

PERCENT COMMISSION WITHOUT EVIDENCE TO SUPPORT SUCH CLAIM.
This Court finds the instant Petition impressed with merit. Absent herein are two
essential elements of the crime of estafa by misappropriation or conversion under
Article 315(1)(b) of the Revised Penal Code, namely: (1) That money, goods or other
personal property be received by the offender in trust, or on commission, or for
administration, or under any other obligation involving the duty to make delivery of,
or to return, the same; and (2) That there be a misappropriation or conversion of such
money or property by the offender.
The findings of the RTC and the Court of Appeals that petitioners committed estafa
rest on the erroneous belief that private complainant Federico, due to his right to
commission, already owned 50% of the amount paid by the City Government of
Puerto Princesa to LMICE by virtue of Check No. 611437, so that the collection and
deposit of the said check by petitioners under the account of LMICE constituted
misappropriation or conversion of private complainant Federicos commission.
However, his right to a commission does not make private complainant Federico a
joint owner of the money paid to LMICE by the City Government of Puerto Princesa,
but merely establishes the relation of agent and principal. [25] It is unequivocal that an
agency existed between LMICE and private complainant Federico. Article 1868 of the
Civil Code defines agency as a special contract whereby 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. Although private complainant Federico
never had the opportunity to operate as a dealer for LMICE under the terms of the
Dealership Agreement, he was allowed to act as a sales agent for LMICE. He can
negotiate for and on behalf of LMICE for the refill and delivery of fire extinguishers,
which he, in fact, did on two occasions with Landbank and with the City Government
of Puerto Princesa. Unlike the Dealership Agreement, however, the agreement that
private complainant Federico may act as sales agent of LMICE was based on an oral
agreement.[26]
As a sales agent, private complainant Federico entered into negotiations with
prospective clients for and on behalf of his principal, LMICE. When negotiations for
the sale or refill of fire extinguishers were successful, private complainant Federico
prepared the necessary documentation. Purchase orders, invoices, and receipts were
all in the name of LMICE. It was LMICE who had the primary duty of picking up the
empty fire extinguishers, filling them up, and delivering the refilled tanks to the
clients, even though private complainant Federico personally helped in hauling and
carrying the fire extinguishers during pick-up from and delivery to clients.
All profits made and any advantage gained by an agent in the execution of his agency
should belong to the principal. [27] In the instant case, whether the transactions
negotiated by the sales agent were for the sale of brand new fire extinguishers or for
the refill of empty tanks, evidently, the business belonged to LMICE. Consequently,
payments made by clients for the fire extinguishers pertained to LMICE. When
petitioner Huertazuela, as the Branch Manager of LMICE in Puerto Princesa City,
with the permission of petitioner Murao, the sole proprietor of LMICE, personally
16
picked up Check No. 611437 from the City Government of Puerto Princesa, and
deposited the same under the Current Account of LMICE with PCIBank, he was
merely collecting what rightfully belonged to LMICE. Indeed, Check No. 611437
named LMICE as the lone payee. Private complainant Federico may claim
commission, allegedly equivalent to 50% of the payment received by LMICE from the
City Government of Puerto Princesa, based on his right to just compensation under
his agency contract with LMICE,[28] but not as the automatic owner of the 50% portion
of the said payment.
Since LMICE is the lawful owner of the entire proceeds of the check payment from
the City Government of Puerto Princesa, then the petitioners who collected the
payment on behalf of LMICE did not receive the same or any part thereof in trust, or
on commission, or for administration, or under any other obligation involving the
duty to make delivery of, or to return, the same to private complainant Federico, thus,
the RTC correctly found that no fiduciary relationship existed between petitioners
and private complainant Federico. A fiduciary relationship between the complainant
and the accused is an essential element of estafa by misappropriation or conversion,
without which the accused could not have committed estafa. [29]
The RTC used the case of Manahan, Jr. v. Court of Appeals [30] to support its position that
even in the absence of a fiduciary relationship, the petitioners still had the civil
obligation to return and deliver to private complainant Federico his commission. The
RTC failed to discern the substantial differences in the factual background of the
Manahan case from the present Petition. The Manahan case involved the lease of a
dump truck. Although a contract of lease may not be fiduciary in character, the lessee
clearly had the civil obligation to return the truck to the lessor at the end of the lease
period; and failure of the lessee to return the truck as provided for in the contract
may constitute estafa. The phrase or any other obligation involving the duty to make
delivery of, or to return the same refers to contracts of bailment, such as, contract of
lease of personal property, contract of deposit, and commodatum, wherein juridical
possession of the thing was transferred to the lessee, depositary or borrower, and
wherein the latter is obligated to return the same thing.[31]
In contrast, the current Petition concerns an agency contract whereby the principal
already received payment from the client but refused to give the sales agent, who
negotiated the sale, his commission. As has been established by this Court in the
foregoing paragraphs, LMICE had a right to the full amount paid by the City
Government of Puerto Princesa. Since LMICE, through petitioners, directly collected
the payment, then it was already in possession of the amount, and no transfer of
juridical possession thereof was involved herein. Given that private complainant
Federico could not claim ownership over the said payment or any portion thereof,
LMICE had nothing at all to deliver and return to him. The obligation of LMICE to
pay private complainant Federico his commission does not arise from any duty to
deliver or return the money to its supposed owner, but rather from the duty of a
principal to give just compensation to its agent for the services rendered by the latter.
Furthermore, the Court of Appeals, in its Decision, dated 31 May 1999, defined the

words convert and misappropriate in the following manner
The High Court in Saddul v. Court of Appeals [192 SCRA 277] enunciated that the
words convert and misappropriate in the crime of estafa punished under Art. 315,
par. 1(b) connote an act of using or disposing of anothers property as if it were ones
own, or if devoting it to a purpose or use different from that agreed upon. To
misappropriate to ones use includes, not only conversion to ones personal advantage,
but also every attempt to dispose of the property of another without right.[32]
Based on the very same definition, this Court finds that petitioners did not convert
nor misappropriate the proceeds from Check No. 611437 because the same belonged
to LMICE, and was not anothers property. Petitioners collected the said check from
the City Government of Puerto Princesa and deposited the same under the Current
Account of LMICE with PCIBank. Since the money was already with its owner,
LMICE, it could not be said that the same had been converted or misappropriated for
one could not very well fraudulently appropriate to himself money that is his own. [33]
Although petitioners refusal to pay private complainant Federico his commission
caused prejudice or damage to the latter, said act does not constitute a crime,
particularly estafa by conversion or misappropriation punishable under Article 315(1)
(b) of the Revised Penal Code. Without the essential elements for the commission
thereof, petitioners cannot be deemed to have committed the crime.
While petitioners may have no criminal liability, petitioners themselves admit their
civil liability to the private complainant Federico for the latters commission from the
sale, whether it be 30% of the net sales or 50% of the gross sales. However, this Court
is precluded from making a determination and an award of the civil liability for the
reason that the said civil liability of petitioners to pay private complainant Federico
his commission arises from a violation of the agency contract and not from a criminal
act.[34] It would be improper and unwarranted for this Court to impose in a criminal
action the civil liability arising from a civil contract, which should have been the
subject of a separate and independent civil action.[35]
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CR
No. 21134, dated 31 May 1999, affirming with modification the Judgment of the RTC
of Puerto Princesa City, Palawan, in Criminal Case No. 11943, dated 05 May 1997,
finding petitioners guilty beyond reasonable doubt of estafa by conversion or
misappropriation under Article 315(1)(b) of the Revised Penal Code, and awarding
the amount of P154,500.00 as sales commission to private complainant Federico, is
hereby REVERSED and SET ASIDE. A new Judgment is hereby entered
ACQUITTING petitioners based on the foregoing findings of this Court that their
actions did not constitute the crime of estafa by conversion or misappropriation
under Article 315(1)(b) of the Revised Penal Code. The cash bonds posted by the
petitioners for their provisional liberty are hereby ordered RELEASED and the
amounts thereof RETURNED to the petitioners, subject to the usual accounting and
auditing procedures.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
17
G.R. No. L-42465 November 19, 1936
INTERNATIONAL FILMS (CHINA), LTD., plaintiff-appellant,
vs.
THE LYRIC FILM EXCHANGE, INC., defendant-appellee.
J. W. Ferrier for appellant.Juan T. Santos and Arsenio Solidum for appellee.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff company International Films (China), Ltd.
from the judgment of the Court of First Instance of Manila dismissing the complaint
filed by it against the defendant company the Lyric Film Exchange, Inc., with costs to
said plaintiff.
In support of its appeal the appellant assigns six alleged errors as committed by the
court a quo in its said judgment, which will be discussed in the course of this decision.
The record shows that Bernard Gabelman was the Philippine agent of the plaintiff
company International Films (China), Ltd. by virtue of a power of attorney executed
in his favor on April 5, 1933 (Exhibit 1). On June 2, 1933, the International Films
(China), Ltd., through its said agent, leased the film entitled "Monte Carlo Madness"
to the defendant company, the Lyric Film Exchange, Inc., to be shown in Cavite for
two consecutive days, that is, on June 1 and 2, 1933, for 30 per cent of the receipts; in
the Cuartel de España for one day, or on June 6, 1933, for P45; in the University
Theater for two consecutive days, or on June 8, and 9, 1933, for 30 per cent of the
receipts; in Stotsenburg for two consecutive days, or on June 18 and 19, 1933, for 30
per cent of the receipts, and in the Paz Theater for two consecutive days, or on June 21
and 22, 1933, for 30 per cent of the receipts (Exhibit C). One of the conditions of the
contract was that the defendant company would answer for the loss of the film in
question whatever the cause. On June 23, 1933, following the last showing of the film
in question in the Paz Theater, Vicente Albo, then chief of the film department of the
Lyric Film Exchange, Inc., telephoned said agent of the plaintiff company informing
him that the showing of said film had already finished and asked, at the same time,
where he wished to have the film returned to him. In answer, Bernard Gabelman
informed Albo that he wished to see him personally in the latter's office. At about 11

o'clock the next morning, Gabelman went to Vicente Albo's office and asked whether
he could deposit the film in question in the vault of the Lyric Film Exchange, Inc., as
the International Films (China) Ltd. did not yet have a safety vault, as required by the
regulations of the fire department. After the case had been referred to O'Malley,
Vicente Albo's chief, the former answered that the deposit could not be made
inasmuch as the film in question would not be covered by the insurance carried by
the Lyric Film Exchange, Inc. Bernard Gabelman then requested Vicente Albo to
permit him to deposit said film in the vault of the Lyric Film Exchange, Inc., under
Gabelman's own responsibility. As there was a verbal contract between Gabelman
and the Lyric Film Exchange Inc., whereby the film "Monte Carlo Madness" would be
shown elsewhere, O'Malley agreed and the film was deposited in the vault of the
defendant company under Bernard Gabelman's responsibility.
About July 27, 1933, Bernard Gabelman severed his connection with the plaintiff
company, being succeeded by Lazarus Joseph. Bernard Gabelman, upon turning over
the agency to the new agent, informed the latter of the deposit of the film "Monte
Carlo Madness" in the vault of the defendant company as well as of the verbal
contract entered into between him and the Lyric Film Exchange, Inc., whereby the
latter would act as a subagent of the plaintiff company, International Films (China)
Ltd., with authority to show this film "Monte Carlo Madness" in any theater where
said defendant company, the Lyric Film Exchange, Inc., might wish to show it after
the expiration of the contract Exhibit C. As soon as Lazarus Joseph had taken
possession of the Philippine agency of the International Films (China) Ltd., he went to
the office of the Lyric Film Exchange, Inc., to ask for the return not only of the film
"Monte Carlo Madness" but also of the films "White Devils" and "Congress Dances".
On August 13 and 19, 1933, the Lyric Film Exchange, Inc., returned the films entitled
"Congress Dances" and "White Devils" to Lazarus Joseph, but not the film "Monte
Carlo Madness" because it was to be shown in Cebu on August 29 and 30, 1933.
Inasmuch as the plaintiff would profit by the showing of the film "Monte Carlo
Madness", Lazarus Joseph agreed to said exhibition. It happened, however, that the
bodega of the Lyric Film Exchange, Inc., was burned on August 19, 1933, together with
the film "Monte Carlo Madness" which was not insured.
The first question to be decided in this appeal, which is raised in the first assignment
of alleged error, is whether or not the court a quo erred in allowing the defendant
company to amend its answer after both parties had already rested their respective
cases.
In Torres Viuda de Nery vs. Tomacruz (49 Phil., 913, 915), this court, through Justice
Malcolm, said:
Sections 109 and 110 of the Philippine Code of Civil Procedure, relating to the
subjects of Variance and Amendments in General, should be equitably applied to the
end that cases may be favorably and fairly presented upon their merits, and that
equal and exact justice may be done between the parties. Under code practice,
amendments to pleadings are favored, and should be liberally allowed in furtherance
of justice. This liberality, it has been said, is greatest in the early stages of a lawsuit,
18
decreases as it progresses, and changes at times to a strictness amounting to a
prohibition. The granting of leave to file amended pleadings is a matter peculiarly
within the sound discretion of the trial court. The discretion will not be disturbed on
appeal, except in case of an evident abuse thereof. But the rule allowing amendments
to pleadings is subject to the general but not inflexible limitation that the cause of
action or defense shall not be substantially changed, or that the theory of the case
shall not be altered. (21 R. C. L., pp. 572 et seq.; 3 Kerr's Cyc. Codes of California,
sections 469, 470 and 473; Ramirez vs. Murray [1855], 5 Cal., 222; Hayden vs. Hayden
[1873], 46 Cal., 332; Hackett vs. Bank of California [1881], 57 Cal., 335; Hancock vs.
Board of Education of City of Santa Barbara [1903], 140 Cal., 554; Dunphy vs. Dunphy
[1911], 161 Cal., 87; 38 L. R. A. [N. S.], 818.)lawphi1.net
In the case of Gould vs. Stafford (101 Cal., 32, 34), the Supreme Court of California,
interpreting section 473 of the Code of Civil Procedure of said State, from which
section 110 of our Code was taken, stated as follows:
The rule is that courts will be liberal in allowing an amendment to a pleading when it
does not seriously impair the rights of the opposite party — and particularly an
amendment to an answer. A defendant can generally set up as many defenses as he
may have. Appellant contends that the affidavits upon which the motion to amend
was made show that it was based mainly on a mistake of law made by respondent's
attorney; but, assuming that to be, so, still the power of a court to allow an
amendment is not limited by the character of the mistake which calls forth its
exercise. The general rule that a party cannot be relieved from an ordinary contract
which is in its nature final, on account of a mistake of law, does not apply to
proceedings in an action at law while it is pending and undetermined. Pleadings are
not necessarily final until after judgment. Section 473 of the Code of Civil Procedure
provides that the court may allow an amendment to a pleading to correct certain
enumerated mistakes or "a mistake in any other respect," and "in other particulars."
The true rule is well stated in Ward vs. Clay (62 Cal. 502). In the case at bar evidence
of the lease was given at the first trial; and we cannot see that the amendment before
the second trial put plaintiff in a position any different from that which he would
have occupied if the amendment had been made before the first trial.
In the case of Ward vs. Clay (82 Cal., 502, 510), the Supreme Court of said State stated:
The principal purpose of vesting the court with this discretionary power is to enable
it "to mold and direct its proceedings so as to dispose of cases upon their substantial
merits," when it can be done without injustice to either party, whether the obstruction
to such a disposition of cases be a mistake of fact or a mistake as to the law; although
it may be that the court should require a stronger showing to justify relief from the
effect of a mistake in law than in case of a mistake as to matter of fact. The exercise of
the power conferred by section 473 of the code, however, should appear to have, been
"in furtherance of justice," and the relief, if any, should be granted upon just terms.
Lastly, in the case of Simpson vs. Miller (94 Pac., 253), the said Supreme Court of
California said:
In an action to recover property which had vested in plaintiff's trustee in bankruptcy

prior to the suit, an amendment to the answer, made after both parties had rested, but
before the cause was submitted, pleading plaintiff's bankruptcy in bar to the action,
was properly allowed in the discretion of the court.
Under the above-cited doctrines, it is discretionary in the court which has cognizance
of a case to allow or not the amendment of an answer for the purpose of questioning
the personality of the plaintiff to bring the action, even after the parties had rested
their cases, as it causes no injustice to any of the parties, and this court will not
interfere in the exercise of said discretion unless there is an evident abuse thereof,
which does not exist in this case.
The second question to be decided is whether or not the defendant company, the
Lyric Film Exchange, Inc., is responsible to the plaintiff, International Films (China)
Ltd., for the destruction by fire of the film in question, entitled "Monte Carlo
Madness".
The plaintiff company claims that the defendant's failure to return the film "Monte
Carlo Madness" to the former was due to the fact that the period for the delivery
thereof, which expired on June 22, 1933, had been extended in order that it might be
shown in Cebu on August 29 and 30, 1933, in accordance with an understanding had
between Lazarus Joseph, the new agent of the plaintiff company, and the defendant.
The defendant company, on the other hand, claims that when it wanted to return the
film "Monte Carlo Madness" to Bernard Gabelman, the former agent of the plaintiff
company, because of the arrival of the date for the return thereof, under the contract
Exhibit C, said agent, not having a safety vault, requested Vicente Albo, chief of the
film department of the defendant company, to keep said film in the latter's vault
under Gabelman's own responsibility, verbally stipulating at the same time that the
defendant company, as subagent of the International Films (China) Ltd., might show
the film in question in its theaters.
It does not appear sufficiently proven that the understanding had between Lazarus
Joseph, second agent of the plaintiff company, and Vicente Albo, chief of the film
department of the defendant company, was that the defendant company would
continue showing said film under the same contract Exhibit C. The preponderance of
evidence shows that the verbal agreement had between Bernard Gabelman, the
former agent of the plaintiff company, and Vicente Albo, chief of the film department
of the defendant company, was that said film "Monte Carlo Madness" would remain
deposited in the safety vault of the defendant company under the responsibility of
said former agent and that the defendant company, as his subagent, could show it in
its theaters, the plaintiff company receiving 5 per cent of the receipts up to a certain
amount, and 15 per cent thereof in excess of said amount.
If, as it has been sufficiently proven in our opinion, the verbal contract had between
Bernard Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief
of the film department of the defendant company, was a sub-agency or a
submandate, the defendant company is not civilly liable for the destruction by fire of
the film in question because as a mere submandatary or subagent, it was not obliged
to fulfill more than the contents of the mandate and to answer for the damages
19
caused to the principal by his failure to do so (art. 1718, Civil Code). The fact that the
film was not insured against fire does not constitute fraud or negligence on the part of
the defendant company, the Lyric Film Exchange, Inc., because as a subagent, it
received no instruction to that effect from its principal and the insurance of the film
does not form a part of the obligation imposed upon it by law.
As to the question whether or not the defendant company having collected the entire
proceeds of the fire insurance policy of its films deposited in its vault, should pay the
part corresponding to the film in question which was deposited therein, the evidence
shows that the film "Monte Carlo Madness" under consideration was not included in
the insurance of the defendant company's films, as this was one of the reasons why
O'Malley at first refused to receive said film for deposit and he consented thereto only
when Bernard Gabelman, the former agent of the plaintiff company, insisted upon his
request, assuming all responsibility. Furthermore, the defendant company did not
collect from the insurance company an amount greater than that for which its films
were insured, notwithstanding the fact that the film in question was included in the
vault, and it would have collected the same amount even if said film had not been
deposited in its safety vault. Inasmuch as the defendant company, The Lyric Film
Exchange, Inc., had not been enriched by the destruction by fire of the plaintiff
company's film, it is not liable to the latter.
For the foregoing considerations, we are of the opinion and so hold: (1) That the court
a quo acted within its discretionary power in allowing the defendant company to
amend its answer by pleading the special defense of the plaintiff company's lack of
personality to bring the action, after both parties had already rested their respective
cases; (2) that the defendant company, as subagent of the plaintiff in the exhibition of
the film "Monte Carlo Madness", was not obliged to insure it against fire, not having
received any express mandate to that effect, and it is not liable for the accidental
destruction thereof by fire.
Wherefore, and although on a different ground, the appealed judgment is affirmed,
with the costs to the appellant. So ordered.
Avanceña, C. J., Abad Santos, Imperial, Diaz, Laurel, and Concepcion, JJ., concur.