FIRST DIVISION [ G.R. No.

L-24332, January 31, 1978 ]

RAMON RALLOS, ADMINISTRATOR OF THE ESTATE OF CONCEPCION
RALLOS, PETITIONER, VS. FELIX GO CHAN AND SONS REALTY
CORPORATION AND COURT OF APPEALS, RESPONDENTS.
DECISION
MUOZ PALMA, J.:
This is a case of an attorney-in-fact, Simeon Rallos, who after the death of his
principal, Concepcion Rallos, sold the latter's undivided share in a parcel of land
pursuant to a special power of attorney which the principal had executed in his
favor. The administrator of the estate of the deceased principal went to court to have
the sale declared unenforceable and to recover the disposed share. The trial court
granted the relief prayed for, but upon appeal, the Court of Appeals upheld the
validity of the sale and dismissed the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed
Rallos were sisters and registered co-owners of a parcel of land known as Lot No.
5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No.
11118 of the Registry of Cebu. On April 21, 1954, the sisters executed a special
power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for
and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On
September 12, 1955, Simeon Rallos sold the undivided shares of his sisters
Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation
for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds
of Cebu, TCT No. 11118 was cancelled, and a new Transfer Certificate of Title No.
12989 was issued in the name of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of
Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court
of First Instance of Cebu, praying (1) that the sale of the undivided share of the
deceased Concepcion Rallos in lot 5983 be declared unenforceable, and said share
be reconveyed to her estate; (2) that the Certificate of Title issued in the name of
Felix Go Chan & Sons Realty Corporation be cancelled and another title be issued
in the names of the corporation and the "Intestate estate of Concepcion Rallos" in
equal undivided shares; and (3) that plaintiff be indemnified by way of attorney's
fees and payment of costs of suit. Named party defendants were Felix Go Chan &
Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but
subsequently, the latter was dropped from the complaint. The complaint was
amended twice; defendant Corporation's Answer con-tained a cross-claim against
its co-defendant, Simeon Rallos, while the latter filed a third-party complaint against
his sister, Gerundia Rallos. While the case was pending in the trial court, both
Simeon and his sister Gerundia died and they were substituted by the respective
administrators of their estates.
After trial, the court a quo rendered judgment with the following dispositive portion:
"A. On Plaintiff's Complaint (1) Declaring the deed of sale, Exh. 'C', null and void insofar as the one-half proindiviso share of Concepcion Rallos in the property in question, - Lot 5983 of the
Cadastral Survey of Cebu - is concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of
Title No. 12989 covering Lot 5983 and to issue in lieu thereof another in the names
of FELIX GO CHAN & SONS REALTY CORPORATION and the Estate of
Concepcion Rallos in the proportion of one-half (1/2) share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of
an undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of
Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of
P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and severally.
"B. On GO CHAN'S Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of
Simeon Rallos, to pay to defendant Felix Go Chan & Sons Realty Corporation the
sum of P5,343.45, representing the price of one-half (1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon
Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons
Realty Corporation the sum of P500.00.
"C. On Third-Party Complaint of defendant Juan T. Borromeo, administrator of
Estate of Simeon Rallos, against Josefina Rallos, special administratrix of the
Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a complaint
against the regular administrator of the Estate of Gerundia Rallos or a claim in the
Intestate-Estate of Gerundia Rallos, covering the same subject-matter of the thirdparty complaint, at bar." (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of
Appeals from the foregoing judgment insofar as it set aside the sale of the one-half
(1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to earlier,
resolved the appeal on November 20, 1964 in favor of the appellant corpo-ration
sustaining the sale in question.[1] The appellee-administrator, Ramon Rallos, moved
for a reconsideration of the decision but the same was denied in a resolution of
March 4, 1965.[2]
What is the legal effect of an act performed by an agent after the death of his
principal? Applied more particularly to the instant case, We have the query: is the
sale of the undivided share of Concepcion Rallos in lot 5983 valid although it was
executed by the agent after the death of his principal? What is the law in this
jurisdiction as to the effect of the death of the principal on the authority of the agent
to act for and in behalf of the latter? Is the fact of knowledge of the death of the
principal a material factor in determining the legal effect of an act performed after
such death?
Before proceeding to the issues, We shall briefly restate certain principles of law
relevant to the matter under consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may
contract in the name of another without being authorized by the latter, or unless he
has by law a right to represent him. [3] A contract entered into in the name of another
by one who has no authority or legal representation, or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revoked by the other
contracting party.[4] Article 1403 (1) of the same Code also provides:

"ART. 1403. The following contracts are unenforceable, unless they are ratified:
"(1) Those entered into in the name of another person by one who has been given
no authority or legal representation or who has acted beyond his powers; x x x."
Out of the above given principles, sprung the creation and acceptance of
the relationship of agency whereby one party, called the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there is
consent, express or implied, of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the agent
acts as a representative and not for himself; and (4) the agent acts within the scope
of his authority.[5]
Agency is basically personal, representative, and derivative in nature. The authority
of the agent to act emanates from the powers granted to him by his principal; his act
is the act of the principal if done within the scope of the authority. Qui facit per alium
facit per se. "He who acts through another acts himself." [6]
2. There are various ways of extinguishing agency,[7] but here We are concerned
only with one cause-death of the principal. Paragraph 3 of Art. 1919 of the Civil
Code which was taken from Art. 1709 of the Spanish Civil Code provides:
"ART. 1919. Agency is extinguished:
xx xx xx
"3. By the death, civil interdiction, insanity or insolvency of the principal or of the
agent; x x x." (Underline supplied)
By reason of the very nature of the relationship between principal and agent,
agency is extinguished by the death of the principal or of the agent. This is the law
in this jurisdiction.[8]
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the
rationale for the law is found in the juridical basis of agency which is representation.
There being an integration of the personality of the principal into that of the agent it
is not possible for the representation to continue to exist once the death of either is
established. Pothier agrees with Manresa that by reason of the nature of agency,
death is a necessary cause for its extinction. Laurent says that the juridical tie
between the principal and the agent is severed ipso jure upon the death of either
without necessity for the heirs of the principal to notify the agent of the fact of death
of the former.[9]
The same rule prevails at common law - the death of the principal effects
instantaneous and absolute revocation of the authority of the agent unless the
power be coupled with an interest. [10] This is the prevalent rule in American
Jurisprudence where it is well-settled that a power without an interest conferred
upon an agent is dissolved by the principal's death, and any attempted execution of
the power afterwards is not binding on the heirs or representatives of the deceased.
[11]

3. Is the general rule provided for in Article 1919 that the death of the principal or of
the agent extinguishes the agency, subject to any exception, and if so, is the instant,
case within that exception? That is the determinative point in issue in this litigation. It
is the contention of respondent corporation which was sustained by respondent
court that notwithstanding the death of the principal, Concepcion Rallos, the act of
the attorney-in-fact, Simeon Rallos, in selling the former's share in the property is
valid and enforceable inasmuch as the corporation acted in good faith in buying the
property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule
aforementioned.
ART. 1930. The agency shall remain in full force and effect even after the death of
the principal, if it has been constituted in the common interest of the latter and of the
agent, or in the interest of a third person who has accepted the stipulation in his
favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the
principal or of any other cause which extinguishes the agency, is valid and shall be
fully effective with respect to third persons who may have contracted with him in
good faith.
Article 1930 is not involved because admittedly the special power of attorney
executed in favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent
after the death of his principal is valid and effective only under two conditions, viz:
(1)that the agent acted without knowledge of the death of the principal, and (2) that
the third person who contracted with the agent himself acted in good faith. Good
faith here means that the third person was not aware of the death of the principal at
the time he contracted with said agent. These two requisites must concur: the
absence of one will render the act of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of
the death of his principal at the time he sold the latter's share in Lot No. 5983 to
respondent corporation. The knowledge of the death is clearly to be inferred from
the pleadings filed by Simeon Rallos before the trial court. [12] That Simeon Rallos
knew of the death of his sister Concepcion is also a finding of fact of the court a
quo[13] and of respondent appellate court when the latter stated that Simeon Rallos
"must have known of the death of his sister, and yet he proceeded with the sale of
the lot in the name of both his sisters Concepcion and Gerundia Rallos without
informing appellant (the realty corporation) of the death of the former." [14]
On the basis of the established knowledge of Simeon Rallos concerning the death
of his principal, Concepcion Rallos, Article 1931 of the Civil Code is inapplicable.
The law expressly requires for its application lack of knowledge on the part of the
agent of the death of his principal; it is not enough that the third person acted in
good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738 of
the old Civil Code now Art. 1931 of the new Civil Code sustained the validity of a
sale made after the death of the principal because it was not shown that the agent
knew of his principal's demise.[15] To the same effect is the case of Herrera, et al. v.
Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court
stated:
"x x x even granting arguendo that Luis-Herrera did die in 1936, plaintiffs presented
no proof and there is no indication in the record, that the agent Luy Kim Guan was
aware of the death of his principal at the time he sold the property. The death of the
principal does not render the act of an agent unenforceable, where the latter had no
knowledge of such extinguishment of the agency." (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent corporation, the Court of
Appeals reasoned out that there is no provision in the Code which provides that
whatever is done by an agent having knowledge of the death of his principal is void
even with respect to third persons who may have contracted with him in good faith
and without knowledge of the death of the principal. [16]
We cannot see the merits of the foregoing argument as it ignores the existence of
the general rule enunciated in Article 1919 that the death of the principal
extinguishes the agency. That being the general rule it follows a fortiori that any act

of an agent after the death of his principal is void ab initio unless the same falls
under the exceptions provided for in the aforementioned Articles 1930 and 1931.
Article 1931, being an exception to the general rule, is to be strictly construed; it is
not to be given an interpretation or application beyond the clear import of its terms
for otherwise the courts will be involved in a process of legislation outside of their
judicial function.
5. Another argument advanced by respondent court is that the vendee acting in
good faith relied on the power of attorney which was duly registered on the original
certificate of title recorded in the Register of Deeds of the Province of Cebu, that no
notice of the death was ever annotated on said certificate of title by the heirs of the
principal and accordingly they must suffer the consequences of such omission. [17]
To support such argument reference is made to a portion
in Manresa's Commentaries which We quote:
"If the agency has been granted for the purpose of contracting with certain persons,
the revocation must be made known to them. But if the agency is general in nature,
without reference to particular persons with whom the agent is to contract, it is
sufficient that the principal exercise due diligence to make the revocation of the
agency publicly known.
"In case of a general power which does not specify the persons to whom
representation should be made, it is the general opinion that all acts executed with
third persons who contracted in good faith, without knowledge of the revocation, are
valid. In such case, the principal may exercise his right against the agent, who,
knowing of the revocation, continued to assume a personality which he no longer
had." (Manresa, Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse, however, treats of revocation by an act of the principal as a
mode of terminating an agency which is to be distinguished from revocation
byoperation of law such as death of the principal which obtains in this case. On
page six of this Opinion We stressed that by reason of the very nature of the
relationship between principal and agent, agency is extinguished ipso jure upon the
death of either principal or agent. Although a revocation of a power of attorney to be
effective must be communicated to the parties concerned, [18] yet a revocation by
operation of law, such as by death of the principal is, as a rule, instantaneously
effective inasmuch as "by legal fiction the agent's exercise of authority is regarded
as an execution of the principal's continuing will."[19] With death, the principal's will
ceases or is terminated; the source of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death
of the principal. What the Code provides in Article 1932 is that, if the agent dies, his
heirs must notify the principal thereof, and in the meantime adopt such measures
as the circumstances may demand in the interest of the latter. Hence, the fact that
no notice of the death of the principal was registered on the certificate of title of the
property in the Office of the Register of Deeds, is not fatal to the cause of the estate
of the principal.
6. Holding that the good faith of a third person in dealing with an agent affords the
former sufficient protection, respondent court drew a "parallel" between the instant
case and that of an innocent purchaser for value of a registered land, stating that if
a person purchases a registered land from one who acquired it in bad faith - even to
the extent of forging or falsifying the deed of sale in his favor - the registered owner
has no recourse against such innocent purchaser for value but only against the
forger.[20]
To support the correctness of this "parallelism", respondent corporation, in its brief,
cites the case of Blondeau, et al. v. Nano and Vallejo, 61 Phil. 625. We quote from
the brief:
"In the case of Angela Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one
Vallejo was a co-owner of lands with Agustin Nano. The latter had a power of
attorney supposedly executed by Vallejo in his favor. Vallejo delivered to Nano his
land titles. The power was registered in the Office of the Register of Deeds. When
the lawyer husband of Angela Blondeau went to that Office, he found all in order
including the power of attorney. But Vallejo denied having executed the power. The
lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the
decision of the court a quo, the Supreme Court, quoting the ruling in the case
of Eliason v. Wilborn, 261 U.S. 457, held:
'But there is a narrower ground on which the defenses of the defendant-appellee
must be overruled. Agustin Nano had possession of Jose Vallejo's title papers.
Without those title papers handed over to Nano with the acquiescence of Vallejo, a
fraud could not have been perpetuated. When Fernando de la Cantera, a member
of the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff,
searched the registration record, he found them in due form including the power of
attorney of Vallejo in favor of Nano. If this had not been so and if thereafter the
proper notation of the encumbrance could not have been made, Angela Blondeau
would not have lent P12,000.00 to the defendant Vallejo.' An executed transfer of
registered lands placed by the registered owner thereof in the hands of another
operates as a representation to a third party that the holder of the transfer is
authorized to deal with the land.
'As between two innocent persons, one of whom must suffer the consequence of a
breach of trust, the one who made it possible by his act of confidence bear the loss.'
" (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us
because here We are confronted with one who admittedly was an agent of his sister
and who sold the property of the latter after her death with full knowledge of such
death. The situation is expressly covered by a provision of law on agency the terms
of which are clear and unmistakable leaving no room for an interpretation contrary
to its tenor, in the same manner that the ruling in Blondeau and the cases cited
therein found a basis in Section 55 of the Land Registration Law which in part
provides:
xxx xxx xxx
"The production of the owner's duplicate certificate whenever any voluntary
instrument is presented for registration shall be conclusive authority from the
registered owner to the register of deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instrument, and the new
certificate or memorandum shall be binding upon the registered owner and upon all
persons claiming under him in favor of every purchaser for value and in good faith:
Provided, however, That in all cases of registration procured by fraud the owner may
pursue all his legal and equitable remedies against the parties to such fraud, without
prejudice, however, to the rights of any innocent holder for value of a certificate of
title. xx xx xx " (Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed
decision is an 1842 rulings of the Supreme Court of Pennsylvania in Cassiday v.

McKenziewherein payments made to an agent after the death of the principal were
held to be "good", "the parties being ignorant of the death". Let us take note that the
Opinion of Justice Rogers was premised on the statement that the parties were
ignorant of the death of the principal. We quote from that decision the following:
"x x x Here the precise point is, whether a payment to an agent when the parties are
ignorant of the death is a good payment. In addition to the case in Campbell before
cited, the same judge Lord Ellenborough, has decided in 5 Esp. 117, the general
question that a payment after the death of principal is not good. Thus, a payment of
sailor's wages to a person having a power of attorney to receive them, has been
held void when the principal was dead at the time of the payment. If, by this case, it
is meant merely to decide the general proposition that by operation of law the death
of the principal is a revocation of the powers of the attorney, no objection can be
taken to it. But if it is intended to say that this principle applies where there was no
notice of death, or opportunity of notice, I must be permitted to dissent from it.
"x x x That a payment may be good today, or bad tomorrow, from accidental
circumstance of the death of the principal which he did not know, and which by no
possibility could he know? It would be unjust to the agent and unjust to the debtor.
In the civil law, the acts of the agent, done bona fide in ignorance of the death of his
principal, are held valid and binding upon the heirs of the latter. The same rule holds
in the Scottish law, and I cannot believe the common law is so unreasonable. . . .
(39 Am. Dec. 76, 80, 81; italics supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may
evoke, mention may be made that the above represents the minority view in
American jurisprudence. Thus in Clayton v. Merrett, the Court said:
" 'There are several cases which seem to hold that although, as a general principle,
death revokes an agency and renders null every act of the agent thereafter
performed, yet that where a payment has been made in ignorance of the death,
such payment will be good. The leading case so holding is that ofCassiday v.
McKenzie, 4 Watts & S. (Pa.) 282, 39 AmD 76, where, in an elaborate opinion, this
view is broadly announced. It is referred to, and seems to have been followed, in the
case of Dick v. Page, 17 Mo. 234, 57 AmD 267; but in this latter case it appeared
that the estate of the deceased principal had received the benefit of the money paid,
and therefore the representative of the estate might well have been held to be
estopped from suing for it again. . . . These cases, in so far, at least, as they
announce the doctrine under discussion, are exceptional. The Pennsylvania
Case, supra (Cassiday v. McKenzie, 4 Watts & S. 282, 39 AmD 76), is believed to
stand almost, if not quite, alone in announcing the principle in its broadest scope.' "
(52 Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out
that the opinion, except so far as it related to the particular facts, was a
mere dictum, Baldwin, J. said:
" 'The opinion, therefore, of the learned Judge may be regarded more as an
extrajudicial indication of his views on the general subject, than as the adjudication
of the Court upon the point in question. But according all proper weight to this
opinion, as the judgment of a Court of great respectability, it stands alone among
common law authorities, and is opposed by an array too formidable to permit us to
follow it.' " (15 Cal. 12, 17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in
American jurisprudence, no such conflict exists in our own for the simple reason that
our statute, the Civil Code, expressly provides for two exceptions to the general rule
that death of the principal revokes ipso jure the agency, to wit: (1) that the agency is
coupled with an interest (Art. 1930), and (2) that the act of the agent was executed
without knowledge of the death of the principal and the third person who contracted
with the agent acted also in good faith (Art. 1931). Exception No. 2 is the doctrine
followed in Cassiday, and again We stress the indispensable requirement - that the
agent acted without knowledge or notice of the death of the principal. In the case
before Us the agent Ramon Rallos executed the sale notwithstanding notice of the
death of his principal. Accordingly, the agent's act is unenforceable against the
estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the decision of respondent
appellate court, and We affirm en toto the judgment rendered by then Hon. Amador
E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3 of this
Opinion, with costs against respondent realty corporation at all instances.
SO ORDERED.
Teehankee, (Chairman), Makasiar, Fernandez, and Guerrero, JJ., concur.
FIRST DIVISION
[G.R. No. 123560. March 27, 2000]
SPOUSES YU ENG CHO and FRANCISCO TAO YU, petitioners, vs. PAN
AMERICAN WORLD AIRWAYS, INC., TOURIST WORLD SERVICES, INC.,
JULIETA CANILAO and CLAUDIA TAGUNICAR, respondents.
DECISION
PUNO, J.:
This petition for review seeks a reversal of the 31 August 1995 Decision [1] and 11
January 1998 Resolution[2] of the Court of Appeals holding private respondent
Claudia Tagunicar solely liable for moral and exemplary damages and attorneys
fees, and deleting the trial courts award for actual damages.
The facts as found by the trial court are as follows: Kycalr
"Plaintiff Yu Eng Cho is the owner of Young Hardware Co. and Achilles Marketing. In
connection with [this] business, he travels from time to time to Malaysia, Taipei and
Hongkong. On July 10, 1976, plaintiffs bought plane tickets (Exhs. A & B) from
defendant Claudia Tagunicar who represented herself to be an agent of defendant
Tourist World Services, Inc. (TWSI). The destination[s] are Hongkong, Tokyo, San
Francisco, U.S.A., for the amount of P25,000.00 per computation of said defendant
Claudia Tagunicar (Exhs. C & C-1). The purpose of this trip is to go to Fairfield, New
Jersey, U.S.A. to buy two (2) lines of infrared heating system processing textured
plastic article (Exh. K).
"On said date, only the passage from Manila to Hongkong, then to Tokyo, were
confirmed. [PAA] Flight 002 from Tokyo to San Francisco was on "RQ" status,
meaning "on request". Per instruction of defendant Claudia Tagunicar, plaintiffs
returned after a few days for the confirmation of the Tokyo-San Francisco segment
of the trip. After calling up Canilao of TWSI, defendant Tagunicar told plaintiffs that
their flight is now confirmed all the way. Thereafter, she attached the confirmation
stickers on the plane tickets (Exhs. A & B).
"A few days before the scheduled flight of plaintiffs, their son, Adrian Yu, called the
Pan Am office to verify the status of the flight. According to said Adrian Yu, a
personnel of defendant Pan Am told him over the phone that plaintiffs booking[s] are
confirmed.
"On July 23, 1978, plaintiffs left for Hongkong and stayed there for five (5) days.
They left Hongkong for Tokyo on July 28, 1978. Upon their arrival in Tokyo, they
called up Pan-Am office for reconfirmation of their flight to San Francisco. Said
office, however, informed them that their names are not in the manifest. Since
plaintiffs were supposed to leave on the 29th of July, 1978, and could not remain in

Japan for more than 72 hours, they were constrained to agree to accept airline
tickets for Taipei instead, per advise of JAL officials. This is the only option left to
them because Northwest Airlines was then on strike, hence, there was no chance
for the plaintiffs to obtain airline seats to the United States within 72 hours. Plaintiffs
paid for these tickets.
"Upon reaching Taipei, there were no flight[s] available for plaintiffs, thus, they were
forced to return back to Manila on August 3, 1978, instead of proceeding to the
United States. [Japan] Air Lines (JAL) refunded the plaintiffs the difference of the
price for Tokyo-Taipei [and] Tokyo-San Francisco (Exhs. I & J) in the total amount of
P2,602.00.
"In view of their failure to reach Fairfield, New Jersey, Radiant Heat Enterprises, Inc.
cancelled Yu Eng Chos option to buy the two lines of infra-red heating system (Exh.
K). The agreement was for him to inspect the equipment and make final
arrangement[s] with the said company not later than August 7, 1978. From this
business transaction, plaintiff Yu Eng Cho expected to realize a profit of
P300,000.00 to P400,000.00."
"[A] scrutiny of defendants respective evidence reveals the following:
"Plaintiffs, who were intending to go to the United States, were referred to defendant
Claudia Tagunicar, an independent travel solicitor, for the purchase of their plane
tickets. As such travel solicitor, she helps in the processing of travel papers like
passport, plane tickets, booking of passengers and some assistance at the airport.
She is known to defendants Pan-Am, TWSI/Julieta Canilao, because she has been
dealing with them in the past years. Defendant Tagunicar advised plaintiffs to take
Pan-Am because Northwest Airlines was then on strike and plaintiffs are passing
Hongkong, Tokyo, then San Francisco and Pan-Am has a flight from Tokyo to San
Francisco. After verifying from defendant TWSI, thru Julieta Canilao, she informed
plaintiffs that the fare would be P25,093.93 giving them a discount of P738.95
(Exhs. C, C-1). Plaintiffs, however, gave her a check in the amount of P25,000.00
only for the two round trip tickets. Out of this transaction, Tagunicar received a 7%
commission and 1% commission for defendant TWSI.
Defendant Claudia Tagunicar purchased the two round-trip Pan-Am tickets from
defendant Julieta Canilao with the following schedules:
Origin Destination Airline Date Time/Travel
Manila Hongkong CX900 7-23-78 1135/1325hrs
Hongkong Tokyo CS500 7-28-78 1615/2115hrs
Tokyo San Francisco PA002 7-29-78 1930/1640hrs
The use of another airline, like in this case it is Cathay Pacific out of Manila, is
allowed, although the tickets issued are Pan-Am tickets, as long as it is in
connection with a Pan-Am flight. When the two (2) tickets (Exhs. A & B) were issued
to plaintiffs, the letter "RQ" appears below the printed word "status" for the flights
from Tokyo to San Francisco which means "under request," (Exh. 3-A, 4-A Pan-Am).
Before the date of the scheduled departure, defendant Tagunicar received several
calls from the plaintiffs inquiring about the status of their bookings. Tagunicar in turn
called up TWSI/Canilao to verify; and if Canilao would answer that the bookings are
not yet confirmed, she would relate that to the plaintiffs. Calrky
"Defendant Tagunicar claims that on July 13, 1978, a few days before the scheduled
flight, plaintiff Yu Eng Cho personally went to her office, pressing her about their
flight. She called up defendant Julieta Canilao, and the latter told her "o sige
Claudia, confirm na." She even noted this in her index card (Exh. L), that it was
Julieta who confirmed the booking (Exh. L-1). It was then that she allegedly
attached the confirmation stickers (Exhs. 2, 2-B TWSI) to the tickets. These stickers
came from TWSI.
Defendant Tagunicar alleges that it was only in the first week of August, 1978 that
she learned from Adrian Yu, son of plaintiffs, that the latter were not able to take the
flight from Tokyo to San Francisco, U.S.A. After a few days, said Adrian Yu came
over with a gentleman and a lady, who turned out to be a lawyer and his secretary.
Defendant Tagunicar claims that plaintiffs were asking for her help so that they could
file an action against Pan-Am. Because of plaintiffs promise she will not be involved,
she agreed to sign the affidavit (Exh. M) prepared by the lawyer. Mesm
Defendants TWSI/Canilao denied having confirmed the Tokyo-San Francisco
segment of plaintiffs flight because flights then were really tight because of the ongoing strike at Northwest Airlines. Defendant Claudia Tagunicar is very much aware
that [said] particular segment was not confirmed, because on the very day of
plaintiffs departure, Tagunicar called up TWSI from the airport; defendant Canilao
asked her why she attached stickers on the tickets when in fact that portion of the
flight was not yet confirmed. Neither TWSI nor Pan-Am confirmed the flight and
never authorized defendant Tagunicar to attach the confirmation stickers. In fact, the
confirmation stickers used by defendant Tagunicar are stickers exclusively for use of
Pan-Am only. Furthermore, if it is the travel agency that confirms the booking, the
IATA number of said agency should appear on the validation or confirmation
stickers. The IATA number that appears on the stickers attached to plaintiffs tickets
(Exhs. A & B) is 2-82-0770 (Exhs. 1, 1-A TWSI), when in fact TWSIs IATA number is
2-83-0770 (Exhs. 5, 5-A TWSI)." [3]
A complaint for damages was filed by petitioners against private respondents Pan
American World Airways, Inc.(Pan Am), Tourist World Services, Inc. (TWSI), Julieta
Canilao (Canilao), and Claudia Tagunicar (Tagunicar) for expenses allegedly
incurred such as costs of tickets and hotel accommodations when petitioners were
compelled to stay in Hongkong and then in Tokyo by reason of the non-confirmation
of their booking with Pan-Am. In a Decision dated November 14, 1991, the Regional
Trial Court of Manila, Branch 3, held the defendants jointly and severally liable,
except defendant Julieta Canilao, thus: Scslx
"WHEREFORE, judgment is hereby rendered for the plaintiffs and ordering
defendants Pan American World Airways, Inc., Tourist World Services, Inc. and
Claudia Tagunicar, jointly and severally, to pay plaintiffs the sum of P200,000.00 as
actual damages, minus P2,602.00 already refunded to the plaintiffs; P200,000.00 as
moral damages; P100,000.00 as exemplary damages; an amount equivalent to 20%
of the award for and as attorneys fees, plus the sum of P30,000.00 as litigation
expenses.
Defendants counterclaims are hereby dismissed for lack of merit.
SO ORDERED."
Only respondents Pan Am and Tagunicar appealed to the Court of Appeals. On 11
August 1995, the appellate court rendered judgment modifying the amount of
damages awarded, holding private respondent Tagunicar solely liable therefor, and
absolving respondents Pan Am and TWSI from any and all liability, thus: Slxs c
"PREMISES CONSIDERED, the decision of the Regional Trial Court is hereby SET
ASIDE and a new one entered declaring appellant Tagunicar solely liable for:
1) Moral damages in the amount of P50,000.00;
2) Exemplary damages in the amount of P25,000.00; and
3) Attorneys fees in the amount of P10,000.00 plus costs of suit.
The award of actual damages is hereby DELETED.
SO ORDERED."
In so ruling, respondent court found that Tagunicar is an independent travel solicitor
and is not a duly authorized agent or representative of either Pan Am or TWSI. It
held that their business transactions are not sufficient to consider Pan Am as the
principal, and Tagunicar and TWSI as its agent and sub-agent, respectively. It
further held that Tagunicar was not authorized to confirm the bookings of, nor issue
validation stickers to, herein petitioners and hence, Pan Am and TWSI cannot be

held responsible for her actions. Finally, it deleted the award for actual damages for
lack of proof.
Hence this petition based on the following assignment of errors: slx mis
1. the Court of Appeals, in reversing the decision of the trial court, misapplied the
ruling in Nicos Industrial Corporation vs. Court of Appeals, et. al. [206 SCRA 127];
and
2. the findings of the Court of Appeals that petitioners ticket reservations in question
were not confirmed and that there is no agency relationship among PAN-AM, TWSI
and Tagunicar are contrary to the judicial admissions of PAN-AM, TWSI and
Tagunicar and likewise contrary to the findings of fact of the trial court.
We affirm.
I. The first issue deserves scant consideration. Petitioners contend that contrary to
the ruling of the Court of Appeals, the decision of the trial court conforms to the
standards of an ideal decision set in Nicos Industrial Corporation, et. al. vs. Court of
Appeals, et. al.,[4] as "that which, with welcome economy of words, arrives at the
factual findings, reaches the legal conclusions, renders its ruling and, having done
so, ends." It is averred that the trial courts decision contains a detailed statement of
the relevant facts and evidence adduced by the parties which thereafter became the
bases for the courts conclusions.
A careful scrutiny of the decision rendered by the trial court will show that after
narrating the evidence of the parties, it proceeded to dispose of the case with a oneparagraph generalization, to wit: Missdaa
"On the basis of the foregoing facts, the Court is constrained to conclude that
defendant Pan-Am is the principal, and defendants TWSI and Tagunicar, its
authorized agent and sub-agent, respectively. Consequently, defendants Pan-Am,
TWSI and Claudia Tagunicar should be held jointly and severally liable to plaintiffs
for damages. Defendant Julieta Canilao, who acted in her official capacity as Office
Manager of defendant TWSI should not be held personally liable." [5]
The trial courts finding of facts is but a summary of the testimonies of the witnesses
and the documentary evidence presented by the parties. It did not distinctly and
clearly set forth, nor substantiate, the factual and legal bases for holding
respondents TWSI, Pan Am and Tagunicar jointly and severally liable. In Del Mundo
vs. CA, et al.[6] where the trial court, after summarizing the conflicting asseverations
of the parties, disposed of the kernel issue in just two (2) paragraphs, we held: Sda
adsc
"It is understandable that courts, with their heavy dockets and time constraints, often
find themselves with little to spare in the preparation of decisions to the extent most
desirable. We have thus pointed out that judges might learn to synthesize and to
simplify their pronouncements. Nevertheless, concisely written such as they may
be, decisions must still distinctly and clearly express, at least in minimum essence,
its factual and legal bases."
For failing to explain clearly and well the factual and legal bases of its award of
moral damages, we set it aside in said case. Once more, we stress that nothing less
than Section 14 of Article VIII of the Constitution requires that "no decision shall be
rendered by any court without expressing therein clearly and distinctly the facts and
the law on which it is based." This is demanded by the due process clause of the
Constitution. In the case at bar, the decision of the trial court leaves much to be
desired both in form and substance. Even while said decision infringes the
Constitution, we will not belabor this infirmity and rather examine the sufficiency of
the evidence submitted by the petitioners. Rtc spped
II. Petitioners assert that Tagunicar is a sub-agent of TWSI while TWSI is a duly
authorized ticketing agent of Pan Am. Proceeding from this premise, they contend
that TWSI and Pan Am should be held liable as principals for the acts of Tagunicar.
Petitioners stubbornly insist that the existence of the agency relationship has been
established by the judicial admissions allegedly made by respondents herein, to wit:
(1) the admission made by Pan Am in its Answer that TWSI is its authorized ticket
agent; (2) the affidavit executed by Tagunicar where she admitted that she is a duly
authorized agent of TWSI; and (3) the admission made by Canilao that TWSI
received commissions from ticket sales made by Tagunicar. Korte
We do not agree. By the contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter.[7] The elements of agency are: (1) consent, express
or implied, of the parties to establish the relationship; (2) the object is the execution
of a juridical act in relation to a third person; (3) the agent acts as a representative
and not for himself; (4) the agent acts within the scope of his authority.[8] It is a
settled rule that persons dealing with an assumed agent are bound at their peril, if
they would hold the principal liable, to ascertain not only the fact of agency but also
the nature and extent of authority, and in case either is controverted, the burden of
proof is upon them to establish it.[9]
In the case at bar, petitioners rely on the affidavit of respondent Tagunicar where
she stated that she is an authorized agent of TWSI. This affidavit, however, has
weak probative value in light of respondent Tagunicars testimony in court to the
contrary. Affidavits, being taken ex parte, are almost always incomplete and often
inaccurate, sometimes from partial suggestion, or for want of suggestion and
inquiries. Their infirmity as a species of evidence is a matter of judicial experience
and are thus considered inferior to the testimony given in court. [10] Further, affidavits
are not complete reproductions of what the declarant has in mind because they are
generally prepared by the administering officer and the affiant simply signs them
after the same have been read to her.[11] Respondent Tagunicar testified that her
affidavit was prepared and typewritten by the secretary of petitioners lawyer, Atty.
Acebedo, who both came with Adrian Yu, son of petitioners, when the latter went to
see her at her office. This was confirmed by Adrian Yu who testified that Atty.
Acebedo brought his notarial seal and notarized the affidavit of the same day. [12] The
circumstances under which said affidavit was prepared put in doubt petitioners claim
that it was executed voluntarily by respondent Tagunicar. It appears that the affidavit
was prepared and was based on the answers which respondent Tagunicar gave to
the questions propounded to her by Atty. Acebedo.[13] They never told her that the
affidavit would be used in a case to be filed against her.[14] They even assured her
that she would not be included as defendant if she agreed to execute the affidavit.
[15]
Respondent Tagunicar was prevailed upon by petitioners son and their lawyer to
sign the affidavit despite her objection to the statement therein that she was an
agent of TWSI. They assured her that "it is immaterial" [16] and that "if we file a suit
against you we cannot get anything from you." [17] This purported admission of
respondent Tagunicar cannot be used by petitioners to prove their agency
relationship. At any rate, even if such affidavit is to be given any probative value, the
existence of the agency relationship cannot be established on its sole basis. The
declarations of the agent alone are generally insufficient to establish the fact or
extent of his authority.[18] In addition, as between the negative allegation of
respondents Canilao and Tagunicar that neither is an agent nor principal of the
other, and the affirmative allegation of petitioners that an agency relationship exists,
it is the latter who have the burden of evidence to prove their allegation, [19]failing in
which, their claim must necessarily fail. Sclaw
We stress that respondent Tagunicar categorically denied in open court that she is a
duly authorized agent of TWSI, and declared that she is an independent travel
agent.[20] We have consistently ruled that in case of conflict between statements in
the affidavit and testimonial declarations, the latter command greater weight. [21]

As further proofs of agency, petitioners call our attention to TWSIs Exhibits "7", "7A", and "8" which show that Tagunicar and TWSI received sales commissions from
Pan Am. Exhibit "7"[22]is the Ticket Sales Report submitted by TWSI to Pan Am
reflecting the commissions received by TWSI as an agent of Pan Am. Exhibit "7A"[23] is a listing of the routes taken by passengers who were audited to TWSIs sales
report. Exhibit "8"[24] is a receipt issued by TWSI covering the payment made by
Tagunicar for the tickets she bought from TWSI. These documents cannot justify the
deduction that Tagunicar was paid a commission either by TWSI or Pan Am. On the
contrary, Tagunicar testified that when she pays TWSI, she already deducts in
advance her commission and merely gives the net amount to TWSI. [25] From all
sides of the legal prism, the transaction is simply a contract of sale wherein
Tagunicar buys airline tickets from TWSI and then sells it at a premium to her
clients. Sc lex
III. Petitioners included respondent Pan Am in the complaint on the supposition that
since TWSI is its duly authorized agent, and respondent Tagunicar is an agent of
TWSI, then Pan Am should also be held responsible for the acts of respondent
Tagunicar. Our disquisitions above show that this contention lacks factual and legal
bases. Indeed, there is nothing in the records to show that respondent Tagunicar
has been employed by Pan Am as its agent, except the bare allegation of
petitioners. The real motive of petitioners in suing Pan Am appears in its Amended
Complaint that "[d]efendants TWSI, Canilao and Tagunicar may not be financially
capable of paying plaintiffs the amounts herein sought to be recovered, and in such
event, defendant Pan Am, being their ultimate principal, is primarily and/or
subsidiarily liable to pay said amounts to plaintiffs." [26] This lends credence to
respondent Tagunicars testimony that she was persuaded to execute an affidavit
implicating respondents because petitioners knew they would not be able to get
anything of value from her. In the past, we have warned that this Court will not
tolerate an abuse of the judicial process by passengers in order to pry on
international airlines for damage awards, like "trophies in a safari." [27]
This meritless suit against Pan Am becomes more glaring with petitioners inaction
after they were bumped off in Tokyo. If petitioners were of the honest belief that Pan
Am was responsible for the misfortune which beset them, there is no evidence to
show that they lodged a protest with Pan Ams Tokyo office immediately after they
were refused passage for the flight to San Francisco, or even upon their arrival in
Manila. The testimony of petitioner Yu Eng Cho in this regard is of little value, viz.:
"Atty. Jalandoni: x x x
q Upon arrival at the Tokyo airport, what did you do if any in connection with your
schedule[d] trip?
a I went to the Hotel, Holiday Inn and from there I immediately called up Pan Am
office in Tokyo to reconfirm my flight, but they told me that our names were not listed
in the manifest, so next morning, very early in the morning I went to the airport, Pan
Am office in the airport to verify and they told me the same and we were not allowed
to leave.
q You were scheduled to be in Tokyo for how long Mr. Yu?
a We have to leave the next day 29th.
q In other words, what was your status as a passenger?
a Transient passengers. We cannot stay there for more than 72 hours.
xxxxxxxxx
q As a consequence of the fact that you claimed that the Pan Am office in Tokyo told
you that your names were not in the manifest, what did you do, if any?
a I ask[ed] them if I can go anywhere in the States? They told me I can go to LA via
Japan Airlines and I accepted it.
q Do you have the tickets with you that they issued for Los Angeles?
a It was taken by the Japanese Airlines instead they issue[d] me a ticket to Taipei.
xxxxxxxxx
q Were you able to take the trip to Los Angeles via Pan Am tickets that was issued
to you in lieu of the tickets to San Francisco?
a No, sir.
q Why not?
a The Japanese Airlines said that there were no more available seats.
q And as a consequence of that, what did you do, if any?
a I am so much scared and worried, so the Japanese Airlines advised us to go
to Taipei and I accepted it.
xxxxxxxxx
q Why did you accept the Japan Airlines offer for you to go to Taipei?
a Because there is no chance for us to go to the United States within 72 hours
because during that time Northwest Airlines [was] on strike so the seats are very
scarce. So they advised me better left (sic) before the 72 hours otherwise you will
have trouble with the Japanese immigration.
q As a consequence of that you were force[d] to take the trip to Taipei?
a Yes, sir."[28] (emphasis supplied)
It grinds against the grain of human experience that petitioners did not insist that
they be allowed to board, considering that it was then doubly difficult to get seats
because of the ongoing Northwest Airlines strike. It is also perplexing that
petitioners readily accepted whatever the Tokyo office had to offer as an alternative.
Inexplicably too, no demand letter was sent to respondents TWSI and Canilao.
[29]
Nor was a demand letter sent to respondent Pan Am. To say the least, the motive
of petitioners in suing Pan Am is suspect. x law
We hasten to add that it is not sufficient to prove that Pan Am did not allow
petitioners to board to justify petitioners claim for damages. Mere refusal to accede
to the passengers wishes does not necessarily translate into damages in the
absence of bad faith.[30] The settled rule is that the law presumes good faith such
that any person who seeks to be awarded damages due to acts of another has the
burden of proving that the latter acted in bad faith or with ill motive. [31] In the case at
bar, we find the evidence presented by petitioners insufficient to overcome the
presumption of good faith. They have failed to show any wanton, malevolent or
reckless misconduct imputable to respondent Pan Am in its refusal to accommodate
petitioners in its Tokyo-San Francisco flight. Pan Am could not have acted in bad
faith because petitioners did not have confirmed tickets and more importantly, they
were not in the passenger manifest. Sc
In not a few cases, this Court did not hesitable to hold an airline liable for damages
for having acted in bad faith in refusing to accommodate a passenger who had a
confirmed ticket and whose name appeared in the passenger manifest. In Ortigas
Jr. v. Lufthansa German Airlines Inc.[32] we ruled that there was a valid and binding
contract between the airline and its passenger after finding that validating sticker on
the passengers ticket had the letters "O.K." appearing in the Res. Status box which
means "space confirmed" and that the ticket is confirmed or validated. In Pan
American World Airways Inc. v. IAC, et al. [33] where a would-be-passenger had the
necessary ticket, baggage claim and clearance from immigration all clearly showing
that she was a confirmed passenger and included in the passenger manifest and
yet was denied accommodation in said flight, we awarded damages. In Armovit, et
al. v. CA, et al.,[34] we upheld the award of damages made against an airline for
gross negligence committed in the issuance of tickets with erroneous entries as to
the time of flight. In Alitalia Airways v. CA, et al.,[35] we held that when airline issues a
ticket to a passenger confirmed on a particular flight, on a certain date, a contract of
carriage arises, and the passenger has every right to expect that he would fly on
that flight and on that date. If he does not, then the carrier opens itself to a suit for

breach of contract of carriage. And finally, an award of damages was held proper in
the case of Zalamea, et al. v. CA, et al.,[36] where a confirmed passenger included in
the manifest was denied accommodation in such flight. Scmis
On the other hand, the respondent airline in Sarreal, Sr. v. Japan Airlines Co., Ltd.,
[37]
was held not liable for damages where the passenger was not allowed to board
the plane because his ticket had not been confirmed. We ruled that "[t]he stub that
the lady employee put on the petitioners ticket showed among other coded items,
under the column "status" the letters "RQ" which was understood to mean
"Request." Clearly, this does not mean a confirmation but only a request. JAL Traffic
Supervisor explained that it would have been different if what was written on the
stub were the letter "ok" in which case the petitioner would have been assured of a
seat on said flight. But in this case, the petitioner was more of a wait-listed
passenger than a regularly booked passenger." Mis sc
In the case at bar, petitioners ticket were on "RQ" status. They were not confirmed
passengers and their names were not listed in the passenger manifest. In other
words, this is not a case where Pan Am bound itself to transport petitioners and
thereafter reneged on its obligation. Hence, respondent airline cannot be held liable
for damages. Mis spped
IV. We hold that respondent Court of Appeals correctly ruled that the tickets were
never confirmed for good reasons: (1) The persistent calls made by respondent
Tagunicar to Canilao, and those made by petitioners at the Manila, Hongkong and
Tokyo offices of Pan Am, are eloquent indications that petitioners knew that their
tickets have not been confirmed. For, as correctly observed by Pan Am, why would
one continually try to have ones ticket confirmed if it had already been confirmed?
(2) The validation stickers which respondent Tagunicar attached to petitioners
tickets were those intended for the exclusive use of airline companies. She had no
authority to use them. Hence, said validation stickers, wherein the word "OK"
appears in the status box, are not valid and binding. (3) The names of petitioners do
not appear in the passenger manifest. (4) Respondent Tagunicars "Exhibit
1"[38] shows that the status of the San Francisco-New York segment was "Ok",
meaning it was confirmed, but that the status of the Tokyo-San Francisco segment
was still "on request". (5) Respondent Canilao testified that on the day that
petitioners were to depart for Hongkong, respondent Tagunicar called her from the
airport asking for confirmation of the Tokyo-San Francisco flight, and that when she
told respondent Tagunicar that she should not have allowed petitioners to leave
because their tickets have not been confirmed, respondent Tagunicar merely said
"Bahala na."[39] This was never controverted nor refuted by respondent Tagunicar.
(6) To prove that it really did not confirm the bookings of petitioners, respondent
Canilao pointed out that the validation stickers which respondent Tagunicar attached
to the tickets of petitioners had IATA No. 2-82-0770 stamped on it, whereas the IATA
number of TWSI is 28-30770.[40]
Undoubtedly, respondent Tagunicar should be liable for having acted in bad faith in
misrepresenting to petitioners that their tickets have been confirmed. Her culpability,
however, was properly mitigated. Petitioner Yu Eng Cho testified that he repeatedly
tried to follow up on the confirmation of their tickets with Pan Am because he
doubted the confirmation made by respondent Tagunicar.[41] This is clear proof that
petitioners knew that they might be bumped off at Tokyo when they decided to
proceed with the trip. Aware of this risk, petitioners exerted efforts to confirm their
tickets in Manila, then in Hongkong, and finally in Tokyo. Resultantly, we find the
modification as to the amount of damages awarded just and equitable under the
circumstances. Spped
WHEREFORE, the decision appealed from is hereby AFFIRMED. Cost against
petitioners. Jo spped
SO ORDERED.
Davide, Jr., C.J., (Chairman), Kapunan, and Pardo, JJ., concur.
Ynares-Santiago, J., no part.
FIRST DIVISION
[G.R. No. 120465. September 9, 1999]
WILLIAM UY and RODEL ROXAS, petitioners, vs. COURT OF APPEALS, HON.
ROBERT BALAO and NATIONAL HOUSING AUTHORITY, respondents.
DECISION
KAPUNAN, J.:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels
of land by the owners thereof. By virtue of such authority, petitioners offered to sell
the lands, located in Tuba, Tadiangan, Benguet to respondent National Housing
Authority (NHA) to be utilized and developed as a housing project.
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the
acquisition of said lands, with an area of 31.8231 hectares, at the cost of P23.867
million, pursuant to which the parties executed a series of Deeds of Absolute Sale
covering the subject lands. Of the eight parcels of land, however, only five were paid
for by the NHA because of the report [1] it received from the Land Geosciences
Bureau of the Department of Environment and Natural Resources (DENR) that the
remaining area is located at an active landslide area and therefore, not suitable for
development into a housing project.
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale
over the three parcels of land. The NHA, through Resolution No. 2394,
subsequently offered the amount of P1.225 million to the landowners as daos
perjuicios.
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon
City a Complaint for Damages against NHA and its General Manager Robert Balao.
After trial, the RTC rendered a decision declaring the cancellation of the contract to
be justified. The trial court nevertheless awarded damages to plaintiffs in the sum of
P1.255 million, the same amount initially offered by NHA to petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial
court and entered a new one dismissing the complaint. It held that since there was
sufficient justifiable basis in cancelling the sale, it saw no reason for the award of
damages. The Court of Appeals also noted that petitioners were mere attorneys-infact and, therefore, not the real parties-in-interest in the action before the trial court.
xxx In paragraph 4 of the complaint, plaintiffs alleged themselves to be sellers
agents for several owners of the 8 lots subject matter of the case. Obviously, William
Uy and Rodel Roxas in filing this case acted as attorneys-in-fact of the lot owners
who are the real parties in interest but who were omitted to be pleaded as partyplaintiffs in the case. This omission is fatal. Where the action is brought by an
attorney-in-fact of a land owner in his name, (as in our present action) and not in the
name of his principal, the action was properly dismissed (Ferrer vs. Villamor, 60
SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175) because the rule is that
every action must be prosecuted in the name of the real parties-in-interest (Section
2, Rule 3, Rules of Court).
When plaintiffs Uy and Roxas sought payment of damages in their favor in view of
the partial rescission of Resolution No. 1632 and the Deed of Absolute Sale
covering TCT Nos. 10998, 10999 and 11292 (Prayer complaint, page 5, RTC
records), it becomes obviously indispensable that the lot owners be included,
mentioned and named as party-plaintiffs, being the real party-in-interest. Uy and
Roxas, as attorneys-in-fact or apoderados, cannot by themselves lawfully
commence this action, more so, when the supposed special power of attorney, in
their favor, was never presented as an evidence in this case.Besides, even if herein
plaintiffs Uy and Roxas were authorized by the lot owners to commence this action,

the same must still be filed in the name of the pricipal, (Filipino Industrial
Corporation vs. San Diego, 23 SCRA 706 [1968]). As such indispensable party, their
joinder in the action is mandatory and the complaint may be dismissed if not so
impleaded (NDC vs. CA, 211 SCRA 422 [1992]).[2]
Their motion for reconsideration having been denied, petitioners seek relief from this
Court contending that:
I. COMPLAINT FINDING THE RESPONDENT CA ERRED IN DECLARING THAT
RESPONDENT NHA HAD ANY LEGAL BASIS FOR RESCINDING THE SALE
INVOLVING THE LAST THREE (3) PARCELS COVERED BY NHA RESOLUTION
NO. 1632.
II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL BASIS
TO RESCIND THE SUBJECT SALE, THE RESPONDENT CA NONETHELESS
ERRED IN DENYING HEREIN PETITIONERS CLAIM TO DAMAGES, CONTRARY
TO THE PROVISIONS OF ART. 1191 OF THE CIVIL CODE.
III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT COMPLAINT
FINDING THAT THE PETITIONERS FAILED TO JOIN AS INDISPENSABLE
PARTY PLAINTIFF THE SELLING LOT-OWNERS.[3]
We first resolve the issue raised in the third assignment of error.
Petitioners claim that they lodged the complaint not in behalf of their principles but in
their own name as agents directly damaged by the termination of the contract. The
damages prayed for were intended not for the benefit of their principals but to
indemnify petitioners for the losses they themselves allegedly incurred as a result of
such termination. These damages consist mainly of unearned income and
advances.[4] Petitioners, thus, attempt to distinguish the case at bar from those
involving agents or apoderados instituting actions in their own name but in behalf of
their principals.[5] Petitioners in this case purportedly brought the action for damages
in their own name and in their own behalf.
We find this contention unmeritorious.
Section 2, Rule 3 of the Rules of Court requires that every action must be
prosecuted and defended in the name of the real party-in-interest. The real party-ininterest is the party who stands to be benefited or injured by the judgment or the
party entitled to the avails of the suit. Interest, within the meaning of the rule, means
material interest, an interest in the issue and to be affected by the decree, as
distinguished from mere interest in the question involved, or a mere incidental
interest.[6] Cases construing the real party-in-interest provision can be more easily
understood if it is borne in mind that the true meaning of real party-in-interest may
be summarized as follows: An action shall be prosecuted in the name of the party
who, by the substantive law, has the right sought to be enforced. [7]
Do petitioners, under substantive law, possess the right they seek to enforce? We
rule in the negative.
The applicable substantive law in this case is Article 1311 of the Civil Code, which
states:
Contracts take effect only between the parties, their assigns, and heirs, except in
case where the rights and obligations arising from the contract are not transmissible
by their nature, or by stipulation, or by provision of law. x x x.
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person. (Underscoring supplied.)
Petitioners are not parties to the contract of sale between their principals and
NHA. They are mere agents of the owners of the land subject of the sale. As
agents, they only render some service or do something in representation or on
behalf of their principals.[8] The rendering of such service did not make them parties
to the contracts of sale executed in behalf of the latter. Since a contract may be
violated only by the parties thereto as against each other, the real parties-in-interest,
either as plaintiff or defendant, in an action upon that contract must, generally, either
be parties to said contract.[9]
Neither has there been any allegation, much less proof, that petitioners are
the heirs of their principals.
Are petitioners assignees to the rights under the contracts of sale? In McMicking
vs. Banco Espaol-Filipino,[10] we held that the rule requiring every action to be
prosecuted in the name of the real party-in-interest
x x x recognizes the assignments of rights of action and also recognizes that when
one has a right of action assigned to him he is then the real party in interest and
may maintain an action upon such claim or right. The purpose of [this rule] is to
require the plaintiff to be the real party in interest, or, in other words, he must be the
person to whom the proceeds of the action shall belong, and to prevent actions by
persons who have no interest in the result of the same. xxx
Thus, an agent, in his own behalf, may bring an action founded on a contract made
for his principal, as an assignee of such contract. We find the following declaration
in Section 372 (1) of the Restatement of the Law on Agency (Second): [11]
Section 372. Agent as Owner of Contract Right
(1) Unless otherwise agreed, an agent who has or who acquires an interest in a
contract which he makes on behalf of his principal can, although not a promisee,
maintain such action thereon as might a transferee having a similar interest.
The Comment on subsection (1) states:
a. Agent a transferee. One who has made a contract on behalf of another may
become an assignee of the contract and bring suit against the other party to it, as
any other transferee. The customs of business or the course of conduct between
the principal and the agent may indicate that an agent who ordinarily has merely a
security interest is a transferee of the principals rights under the contract and as
such is permitted to bring suit. If the agent has settled with his principal with the
understanding that he is to collect the claim against the obligor by way of
reimbursing himself for his advances and commissions, the agent is in the position
of an assignee who is the beneficial owner of the chose in action. He has an
irrevocable power to sue in his principals name. x x x. And, under the statutes which
permit the real party in interest to sue, he can maintain an action in his own
name. This power to sue is not affected by a settlement between the principal and
the obligor if the latter has notice of the agents interest. x x x. Even though the agent
has not settled with his principal, he may, by agreement with the principal, have a
right to receive payment and out of the proceeds to reimburse himself for advances
and commissions before turning the balance over to the principal. In such a case,
although there is no formal assignment, the agent is in the position of a transferee of
the whole claim for security; he has an irrevocable power to sue in his principals
name and, under statutes which permit the real party in interest to sue, he can
maintain an action in his own name.
Petitioners, however, have not shown that they are assignees of their principals to
the subject contracts. While they alleged that they made advances and that they
suffered loss of commissions, they have not established any agreement granting
them the right to receive payment and out of the proceeds to reimburse
[themselves] for advances and commissions before turning the balance over to the
principal[s].
Finally, it does not appear that petitioners are beneficiaries of a stipulation pour
autrui under the second paragraph of Article 1311 of the Civil Code. Indeed, there is
no stipulation in any of the Deeds of Absolute Sale clearly and deliberately
conferring a favor to any third person.

That petitioners did not obtain their commissions or recoup their advances because
of the non-performance of the contract did not entitle them to file the action below
against respondent NHA. Section 372 (2) of the Restatement of the Law on Agency
(Second) states:
(2) An agent does not have such an interest in a contract as to entitle him to
maintain an action at law upon it in his own name merely because he is entilted to a
portion of the proceeds as compensation for making it or because he is liable for its
breach.
The following Comment on the above subsection is illuminating:
The fact that an agent who makes a contract for his principal will gain or suffer loss
by the performance or nonperformance of the contract by the principal or by the
other party thereto does not entitle him to maintain an action on his own behalf
against the other party for its breach. An agent entitled to receive a commission
from his principal upon the performance of a contract which he has made on his
principals account does not, from this fact alone, have any claim against the other
party for breach of the contract, either in an action on the contract or otherwise. An
agent who is not a promisee cannot maintain an action at law against a purchaser
merely because he is entitled to have his compensation or advances paid out of the
purchase price before payment to the principal. x x x.
Thus, in Hopkins vs. Ives,[12] the Supreme Court of Arkansas, citing Section 372 (2)
above, denied the claim of a real estate broker to recover his alleged commission
against the purchaser in an agreement to purchase property.
In Goduco vs. Court of Appeals,[13] this Court held that:
x x x granting that appellant had the authority to sell the property, the same did not
make the buyer liable for the commission she claimed. At most, the owner of the
property and the one who promised to give her a commission should be the one
liable to pay the same and to whom the claim should have been directed. xxx
As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour
autrui under the contracts of sale, they do not, under substantive law, possess the
right they seek to enforce. Therefore, they are not the real parties-in-interest in this
case.
Petitioners not being the real parties-in-interest, any decision rendered herein would
be pointless since the same would not bind the real parties-in-interest.[14]
Nevertheless, to forestall further litigation on the substantive aspects of this case,
we shall proceed to rule on the merits.[15]
Petitioners submit that respondent NHA had no legal basis to rescind the sale of the
subject three parcels of land. The existence of such legal basis, notwithstanding,
petitioners argue that they are still entitled to an award of damages.
Petitioners confuse the cancellation of the contract by the NHA as a rescission of
the contract under Article 1191 of the Civil Code. The right of rescission or, more
accurately, resolution, of a party to an obligation under Article 1191 is predicated on
a breach of faith by the other party that violates the reciprocity between them. [16] The
power to rescind, therefore, is given to the injured party.[17] Article 1191 states:
The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
In this case, the NHA did not rescind the contract. Indeed, it did not have the right to
do so for the other parties to the contract, the vendors, did not commit any breach,
much less a substantial breach,[18]of their obligation. Their obligation was merely to
deliver the parcels of land to the NHA, an obligation that they fulfilled. The NHA did
not suffer any injury by the performance thereof.
The cancellation, therefore, was not a rescission under Article 1191. Rather, the
cancellation was based on the negation of the cause arising from the realization that
the lands, which were the object of the sale, were not suitable for housing.
Cause is the essential reason which moves the contracting parties to enter into it.
[19]
In other words, the cause is the immediate, direct and proximate reason which
justifies the creation of an obligation through the will of the contracting parties.
[20]
Cause, which is the essential reason for the contract, should be distinguished
from motive, which is the particular reason of a contracting party which does not
affect the other party.[21]
For example, in a contract of sale of a piece of land, such as in this case, the cause
of the vendor (petitioners principals) in entering into the contract is to obtain the
price. For the vendee, NHA, it is the acquisition of the land. [22] The motive of the
NHA, on the other hand, is to use said lands for housing. This is apparent from the
portion of the Deeds of Absolute Sale[23] stating:
WHEREAS, under the Executive Order No. 90 dated December 17, 1986, the
VENDEE is mandated to focus and concentrate its efforts and resources in
providing housing assistance to the lowest thirty percent (30%) of urban income
earners, thru slum upgrading and development of sites and services projects;
WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter of
Instruction No. 630, prescribed slum improvement and upgrading, as well as the
development of sites and services as the principal housing strategy for dealing with
slum, squatter and other blighted communities;
xxx
WHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated
purposes offers to buy and the VENDORS, in a gesture of their willing to cooperate
with the above policy and commitments, agree to sell the aforesaid property
together with all the existing improvements there or belonging to the VENDORS;
NOW, THEREFORE, for and in consideration of the foregoing premises and the
terms and conditions hereinbelow stipulated, the VENDORS hereby, sell, transfer,
cede and convey unto the VENDEE, its assigns, or successors-in-interest, a parcel
of land located at Bo. Tadiangan, Tuba, Benguet containing a total area of FIFTY
SIX THOUSAND EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS, more
or less x x x.
Ordinarily, a partys motives for entering into the contract do not affect the
contract. However, when the motive predetermines the cause, the motive may be
regarded as the cause. In Liguez vs. Court of Appeals,[24] this Court, speaking
through Justice J.B.L. Reyes, held:
xxx It is well to note, however, that Manresa himself (Vol. 8, pp. 641-642) while
maintaining the distinction and upholding the inoperativeness of the motives of the
parties to determine the validity of the contract, expressly excepts from the rule
those contracts that are conditioned upon the attainment of the motives of either
party.
The same view is held by the Supreme Court of Spain, in its decisions of February
4, 1941, and December 4, 1946, holding that the motive may be regarded
as causa when it predetermines the purpose of the contract.
In this case, it is clear, and petitioners do not dispute, that NHA would not have
entered into the contract were the lands not suitable for housing. In other words, the
quality of the land was an implied condition for the NHA to enter into the
contract. On the part of the NHA, therefore, the motive was the cause for its being a
party to the sale.
Were the lands indeed unsuitable for the housing as NHA claimed?
We deem the findings contained in the report of the Land Geosciences Bureau
dated 15 July 1991 sufficient basis for the cancellation of the sale, thus:

In Tadiangan, Tuba, the housing site is situated in an area of moderate

topography. There [are] more areas of less sloping ground apparently
habitable. The site is underlain by x x x thick slide deposits (4-45m) consisting of
huge conglomerate boulders (see Photo No. 2) mix[ed] with silty clay
materials. These clay particles when saturated have some swelling characteristics
which is dangerous for any civil structures especially mass housing development.[25]
Petitioners content that the report was merely preliminary, and not conclusive, as
indicated in its title:
MEMORANDUM
TO: EDWIN G. DOMINGO
Chief, Lands Geology Division
FROM: ARISTOTLE A. RILLON
Geologist II
SUBJECT: Preliminary Assessment of Tadiangan Housing Project in Tuba,
Benguet[26]
Thus, page 2 of the report states in part:
xxx
Actually there is a need to conduct further geottechnical [sic] studies in the NHA
property. Standard Penetration Test (SPT) must be carried out to give an estimate of
the degree of compaction (the relative density) of the slide deposit and also the
bearing capacity of the soil materials. Another thing to consider is the vulnerability of
the area to landslides and other mass movements due to thick soil cover.Preventive
physical mitigation methods such as surface and subsurface drainage and
regrading of the slope must be done in the area.[27]
We read the quoted portion, however, to mean only that further tests are required to
determine the degree of compaction, the bearing capacity of the soil materials, and
vulnerability of the area to landslides, since the tests already conducted were
inadequate to ascertain such geological attributes. It is only in this sense that the
assessment was preliminary.
Accordingly, we hold that the NHA was justified in cancelling the contract. The
realization of the mistake as regards the quality of the land resulted in the negation
of the motive/cause thus rendering the contract inexistent. [28] Article 1318 of the Civil
Code states that:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (Underscoring supplied.)
Therefore, assuming that petitioners are parties, assignees or beneficiaries to the
contract of sale, they would not be entitled to any award of damages.
WHEREFORE, the instant petition is hereby DENIED.
SO ORDERED.
Davide, C.J., (Chairman), on leave.
Puno, Pardo, and Ynares-Santiago, JJ., concur.
SECOND DIVISION [G.R. No. 130148. December 15, 1997]
JOSE BORDADOR and LYDIA BORDADOR, petitioners, vs. BRIGIDA D. LUZ,
ERNESTO M. LUZ and NARCISO DEGANOS, respondents.
DECISION
REGALADO, J.:
In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in
CA-G.R. CV No. 49175 affirming the adjudication of the Regional Trial Court of
Malolos, Bulacan which found private respondent Narciso Deganos liable to
petitioners for actual damages, but absolved respondent spouses Brigida D. Luz
and Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent
resolution of the Court of Appeals which denied their motion for reconsideration of
its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and
respondent Brigida D. Luz, also known as Aida D. Luz, was their regular
customer. On several occasions during the period from April 27, 1987 to September
4, 1987, respondent Narciso Deganos, the brother of Brigida D. Luz, received
several pieces of gold and jewelry from petitioners amounting
to P382,816.00. [1] These items and their prices were indicated in seventeen receipts
covering the same. Eleven of the receipts stated that they were received for a
certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that they
were received for Brigida D. Luz. [2]
Deganos was supposed to sell the items at a profit and thereafter remit the
proceeds and return the unsold items to petitioners. Deganos remitted only the sum
of P53,207.00. He neither paid the balance of the sales proceeds, nor did he return
any unsold item to petitioners. By January 1990, the total of his unpaid account to
petitioners, including interest, reached the sum of P725,463.98. [3] Petitioners
eventually filed a complaint in the barangay court against Deganos to recover said
amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,
appeared as a witness for Deganos and ultimately, she and her husband, together
with Deganos, signed a compromise agreement with petitioners. In that compromise
agreement, Deganos obligated himself to pay petitioners, on installment basis, the
balance of his account plus interest thereon. However, he failed to comply with his
aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional
Trial Court of Malolos, Bulacan against Deganos and Brigida D. Luz for recovery of
a sum of money and damages, with an application for preliminary attachment.
[4]
Ernesto Luz was impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged
with estafa[5] in the Regional Trial Court of Malolos, Bulacan, which was docketed as
Criminal Case No. 785-M-94. That criminal case appears to be still pending in said
trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the agent
of Brigida D. Luz when he received the subject items of jewelry and, because he
failed to pay for the same, Brigida, as principal, and her spouse are solidarily liable
with him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to
petitioners, he claimed that the same was only in the sum of P382,816.00 and
not P725,463.98. He further asserted that it was he alone who was involved in the
transaction with the petitioners; that he neither acted as agent for nor was he
authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of
the receipts indicated that the items were received by him for the latter. He further
claimed that he never delivered any of the items he received from petitioners to
Brigida.
Brigida, on her part, denied that she had anything to do with the transactions
between petitioners and Deganos. She claimed that she never authorized Deganos
to receive any item of jewelry in her behalf and, for that matter, neither did she
actually receive any of the articles in question.
After trial, the court below found that only Deganos was liable to petitioners for the
amount and damages claimed. It held that while Brigida D. Luz did have
transactions with petitioners in the past, the items involved were already paid for
and all that Brigida owed petitioners was the sum of P21,483.00 representing
interest on the principal account which she had previously paid for.[6]

The trial court also found that it was petitioner Lydia Bordador who indicated in the
receipts that the items were received by Deganos for Evelyn Aquino and Brigida D.
Luz. [7] Said court was persuaded that Brigida D. Luz was behind Deganos, but
because there was no memorandum to this effect, the agreement between the
parties was unenforceable under the Statute of Frauds. [8] Absent the required
memorandum or any written document connecting the respondent Luz spouses with
the subject receipts, or authorizing Deganos to act on their behalf, the alleged
agreement between petitioners and Brigida D. Luz was unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal
interest thereon from June 25, 1990, and attorneys fees. Brigida D. Luz was ordered
to pay P21,483.00 representing the interest on her own personal loan. She and her
co-defendant spouse were absolved from any other or further liability. [9]
As stated at the outset, petitioners appealed the judgment of the court a quo to the
Court of Appeals which affirmed said judgment. [10] The motion for reconsideration
filed by petitioners was subsequently dismissed, [11] hence the present recourse to
this Court.
The primary issue in the instant petition is whether or not herein respondent
spouses are liable to petitioners for the latters claim for money and damages in the
sum of P725,463.98, plus interests and attorneys fees, despite the fact that the
evidence does not show that they signed any of the subject receipts or authorized
Deganos to receive the items of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the
court a quo that respondent spouses are not liable to them, as said conclusion of
the trial court is contradicted by the finding of fact of the appellate court that
(Deganos) acted as agent of his sister (Brigida Luz). [12] In support of this contention,
petitioners quoted several letters sent to them by Brigida D. Luz wherein the latter
acknowledged her obligation to petitioners and requested for more time to fulfill the
same. They likewise aver that Brigida testified in the trial court that Deganos took
some gold articles from petitioners and delivered the same to her.
Both the Court of Appeals and the trial court, however, found as a fact that the
aforementioned letters concerned the previous obligations of Brigida to petitioners,
and had nothing to do with the money sought to be recovered in the instant
case. Such concurrent factual findings are entitled to great weight, hence,
petitioners cannot plausibly claim in this appellate review that the letters were in the
nature of acknowledgments by Brigida that she was the principal of Deganos in the
subject transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of the
gold to her, there is no showing whatsoever that her statement referred to the items
which are the subject matter of this case. It cannot, therefore, be validly said that
she admitted her liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed
him with apparent authority as her agent and held him out to the public as such,
hence Brigida can not be permitted to deny said authority to innocent third parties
who dealt with Deganos under such belief. [13] Petitioners further represent that the
Court of Appeals recognized in its decision that Deganos was an agent of Brigida. [14]
The evidence does not support the theory of petitioners that Deganos was an agent
of Brigida D. Luz and that the latter should consequently be held solidarily liable with
Deganos in his obligation to petitioners. While the quoted statement in the findings
of fact of the assailed appellate decision mentioned that Deganos ostensibly acted
as an agent of Brigida, the actual conclusion and ruling of the Court of Appeals
categorically stated that, (Brigida Luz) never authorized her brother (Deganos) to
act for and in her behalf in any transaction with Petitioners xx x. [15] It is clear,
therefore, that even assuming arguendo that Deganos acted as an agent of Brigida,
the latter never authorized him to act on her behalf with regard to the transactions
subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to render some service
or to do something in representation or on behalf of another, with the consent or
authority of the latter.
The basis for agency is representation. Here, there is no showing that Brigida
consented to the acts of Deganos or authorized him to act on her behalf, much less
with respect to the particular transactions involved. Petitioners attempt to foist
liability on respondent spouses through the supposed agency relation with Deganos
is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of petitioners to entrust to
Deganos, not once or twice but on at least six occasions as evidenced by six
receipts, several pieces of jewelry of substantial value without requiring a written
authorization from his alleged principal. A person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent. [16]
The records show that neither an express nor an implied agency was proven to
have existed between Deganos and Brigida D. Luz. Evidently, petitioners, who were
negligent in their transactions with Deganos, cannot seek relief from the effects of
their negligence by conjuring a supposed agency relation between the two
respondents where no evidence supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that the
decision of the court below, which it affirmed, is null and void as it contradicted its
ruling in CA-G.R. SP No. 39445 holding that there is sufficient evidence/proof
against Brigida D. Luz and Deganos for estafa in the pending criminal case. They
further aver that said appellate court erred in ruling against them in this civil action
since the same would result in an inevitable conflict of decisions should the trial
court convict the accused in the criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida D.
Luz and Deganos had filed a demurrer to evidence and a motion for reconsideration
in the aforestated criminal case, both of which were denied by the trial court. They
then filed a petition for certiorari in the Court of Appeals to set aside the denial of
their demurrer and motion for reconsideration but, as just stated, their petition
therefor was dismissed.[17]
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the
petition in CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to a
finding that there is sufficient evidence in the estafa case against Brigida D. Luz and
Deganos. Hence, as already stated, petitioners theorize that the decision and
resolution of the Court of Appeals now being impugned in the case at bar would
result in a possible conflict with the prospective decision in the criminal
case. Instead of promulgating the present decision and resolution under review, so
they suggest, the Court of Appeals should have awaited the decision in the criminal
case, so as not to render academic or preempt the same or, worse, create two
conflicting rulings. [18]
Petitioners have apparently lost sight of Article 33 of the Civil Code which provides
that in cases involving alleged fraudulent acts, a civil action for damages, entirely
separate and distinct from the criminal action, may be brought by the injured
party. Such civil action shall proceed independently of the criminal prosecution and
shall require only a preponderance of evidence.
It is worth noting that this civil case was instituted four years before the criminal
case for estafa was filed, and that although there was a move to consolidate both
cases, the same was denied by the trial court. Consequently, it was the duty of the
two branches of the Regional Trial Court concerned to independently proceed with
the civil and criminal cases. It will also be observed that a final judgment rendered in

a civil action absolving the defendant from civil liability is no bar to a criminal
action. [19]
It is clear, therefore, that this civil case may proceed independently of the criminal
case [20] especially because while both cases are based on the same facts, the
quantum of proof required for holding the parties liable therein differ. Thus, it is
improvident of petitioners to claim that the decision and resolution of the Court of
Appeals in the present case would be preemptive of the outcome of the criminal
case. Their fancied fear of possible conflict between the disposition of this civil case
and the outcome of the pending criminal case is illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to
issue the denial resolution dated August 18, 1997, as the same was tainted with
irregularities and badges of fraud perpetrated by its court officers. [21] They charge
that said appellate court, through conspiracy and fraud on the part of its officers,
gravely abused its discretion in issuing that resolution denying their motion for
reconsideration. They claim that said resolution was drafted by the ponente, then
signed and issued by the members of the Eleventh Division of said court within one
and a half days from the elevation thereof by the division clerk of court to the office
of the ponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution as
the same was made without waiting for the lapse of the ten-day period for
respondents to file their comment and for petitioners to file their reply. It was
allegedly impossible for the Court of Appeals to resolve the issue in just one and a
half days, especially because its ponente, the late Justice Maximiano C. Asuncion,
was then recuperating from surgery and, that, additionally, hundreds of more
important cases were pending. [22]
These lamentable allegation of irregularities in the Court of Appeals and in the
conduct of its officers strikes us as a desperate attempt of petitioners to induce this
Court to give credence to their arguments which, as already found by both the trial
and intermediate appellate courts, are devoid of factual and legal substance. The
regrettably irresponsible attempt to tarnish the image of the intermediate appellate
tribunal and its judicial officers through ad hominem imputations could well be
contumacious, but we are inclined to let that pass with a strict admonition that
petitioners refrain from indulging in such conduct in litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the
trial courts decision. [23] Petitioners moved for reconsideration and the Court of
Appeals ordered respondents to file a comment. Respondents filed the same on
August 5, 1997 [24] and petitioners filed their reply to said comment on August 15,
1997. [25] The Eleventh Division of said court issued the questioned resolution
denying petitioners motion for reconsideration on August 18, 1997. [26]
It is ironic that while some litigants malign the judiciary for being supposedly slothful
in disposing of cases, petitioners are making a show of calling out for justice
because the Court of Appeals issued a resolution disposing of a case sooner than
expected of it. They would even deny the exercise of discretion by the appellate
court to prioritize its action on cases in line with the procedure it has adopted in
disposing thereof and in declogging its dockets. It is definitely not for the parties to
determine and dictate when and how a tribunal should act upon those cases since
they are not even aware of the status of the dockets and the internal rules and
policies for acting thereon.
The fact that a resolution was issued by said court within a relatively short period of
time after the records of the case were elevated to the office of the ponente cannot,
by itself, be deemed irregular. There is no showing whatsoever that the resolution
was issued without considering the reply filed by petitioners. In fact, that brief
pleading filed by petitioners does not exhibit any esoteric or ponderous argument
which could not be analyzed within an hour. It is a legal presumption, born of
wisdom and experience, that official duty has been regularly performed; [27] that the
proceedings of a judicial tribunal are regular and valid, and that judicial acts and
duties have been and will be duly and properly performed. [28] The burden of proving
irregularity in official conduct is on the part of petitioners and they have utterly failed
to do so. It is thus reprehensible for them to cast aspersions on a court of law on the
bases of conjectures or surmises, especially since one of the petitioners appears to
be a member of the Philippine Bar.
Lastly, petitioners fault the trial courts holding that whatever contract of agency was
established between Brigida D. Luz and Narciso Deganos is unenforceable under
the Statute of Frauds as that aspect of this case allegedly is not covered
thereby. [29] They proceed on the premise that the Statute of Frauds applies only to
executory contracts and not to executed or to partially executed ones. From there,
they move on to claim that the contract involved in this case was an executed
contract as the items had already been delivered by petitioners to Brigida D. Luz,
hence, such delivery resulted in the execution of the contract and removed the
same from the coverage of the Statute of Frauds.
Petitioners claim is speciously unmeritorious. It should be emphasized that neither
the trial court nor the appellate court categorically stated that there was such a
contractual relation between these two respondents. The trial court merely said that
if there was such an agency existing between them, the same is unenforceable as
the contract would fall under the Statute of Frauds which requires the presentation
of a note or memorandum thereof in order to be enforceable in court. That was
merely a preparatory statement of a principle of law. What was finally proven as a
matter of fact is that there was no such contract between Brigida D. Luz and Narciso
Deganos, executed or partially executed, and no delivery of any of the items subject
of this case was ever made to the former.
WHEREFORE, no error having been committed by the Court of Appeals in affirming
the judgment of the court a quo, its challenged decision and resolution are hereby
AFFIRMED and the instant petition is DENIED, with double costs against petitioners
SO ORDERED.
Puno, Mendoza, and Martinez, JJ., concur.
[ G.R. No. L-21601, December 17, 1966 ]
NIELSON & COMPANY, INC., PLAINTIFF-APPELLANT, VS. LEPANTO
CONSOLIDATED MINING COMPANY, DEFENDANT-APPELLEE.
DECISION
ZALDIVAR. J.:
On February 6, 1958, plaintiff brought this action against defendant before the Court
of First Instance of Manila to recover certain sums of money representing damages
allegedly suffered by the former in view of the refusal of the latter to comply with the
terms of a manage ment contract entered into between them on January 30, 1937,
including attorney's fees and costs.
Defendant in its answer denied the material allegations of the complaint and set up
certain special defenses, among them, prescription and laches, as bars against the
Institution of the present action.
After trial, during which the parties presented testimonial and numerous
documentary evidence, the court a quo rendered a decision dismissing the
complaint with costs. The court stated that it did not find sufficient evidence to
establish defendant's counterclaim and so it likewise dismissed the same.
The present appeal was taken to this Court directly by the plaintiff in view of the
amount involved in the case.

The facts of this case, as stated in the decision appealed from, are hereunder
quoted for purposes of this decision:
"It appears that the suit involves an operating agreement executed before World
War II between the plaintiff and the defendant whereby the former operated and
managed the mining properties owned by the latter for a management fee of
P2,500.00 a month and a 10% participation in the net profits resulting from the
operation of the mining properties. For brevity and convenience, hereafter the
plaintiff shall be referred to as NIELSON and the defendant, LEPANTO.
"The antecedents of the case are: The contract in question (Exhibit 'C') was made
by the parties on January 30, 1937 for a period of five (5) years. In the latter part of
1941,the parties agreed to renew the contract for another period of five (5) years,
but in the meantime, the Pacific War broke out in December, 1941.
"In January, 1942 operation of the mining properties was disrupted on account of
the war. In February of 1942, the mill, power plant, supplies on hand, equipment,
concentrates on hand and mines, were destroyed upon orders of the United States
Army, to prevent their utilization by the invading Japanese Army. The Japanese
forces thereafter occupied the mining properties, operated the mines during the
continuance of the war, and who were ousted from the mining properties only in
August of 1945.
"After the mining properties were liberated from the Japanese forces, LEPANTO
took possession thereof and embarked in rebuilding and reconstructing the mines
and mill; setting up new organization; clearing the mill site; repairing the mines;
erecting staff quarters and bodegas and repairing existing structures; installing new
machinery and equipment; repairing roads and maintaining the same; salvaging
equipment and storing the same within the bodegas; doing police work necessary to
take care of the materials and equipment recovered; repairing and renewing the
water system; and retimbering (Exhibits 'D' and 'E'). The rehabilitation and
reconstruction of the mine and mill was not completed until 1948 (Exhibit 'F'). On
June 26, 1948 the mines resumed operation under the exclusive management of
LEPANTO (Exhibit 'F-1').
"Shortly after the mines were liberated from the Japanese invaders in 1945, a
disagreement arose between NIELSON and LEPANTO over the status of the
operating contract in question which as renewed expired in 1947. Under the terms
thereof, the management contract shall remain in suspense in case fortuitous event
or force majeure, such as war or civil commotion, adversely affects the work of
mining and milling.
'In the event of inundations, floodings of mine, typhoon, earthquake or any other
force majeure, war, insurrection, civil commotion, organized strike, riot, injury to the
machinery or other event or cause reasonably beyond the control of NIELSON and
which adversely affects the work of mining and milling; NIELSON shall report such
fact to LEPANTO and without liability or breach of the terms of this Agreement, the
same shall remain in suspense, wholly or partially during the terms of such Inability.'
(Clause II of Exhibit 'C').
NIELSON hold the view that, on account of the war, the contract was suspended
during the war; hence the life of the contract should be considered extended for
such time of the period of suspension. On the other hand, LEPANTO contended that
the contract should expire in 1947 as originally agreed upon because the period of
suspension accorded by virtue of the war did not operate to extend further the life of
the contract.
"No understanding appeared from the record to have been had by the parties to
resolve the disagreement. In the meantime, LEPANTO rebuilt and reconstructed the
mines and was able to bring the property into operation only in June of 1948, xxx."
Appellant in its brief makes an alternative assignment of errors depending on
whether or not the management contract basis of the action has been extended for
a period equivalent to the period of suspension. If the agreement is suspended our
attention should be focused on the first set of errors claimed to have been
committed by the court a quo; but if the contrary is true, the discussion will then be
switched to the alternative set that is claimed to have been committed. We will first
take up the question whether the management agreement has been extended as a
result of the supervening war, and after this question shall have been determined in
the sense sustained by appellant, then the discussion of the defense of laches and
prescription will follow as a consequence.
The pertinent portion of the management contract (Exh. C) which refers to
suspension should any event constituting force majeure happen appears in Clause
II thereof which we quote hereunder:
"In the event of inundations, floodings of the mine, typhoon, earthquake or any other
force majeure, war, insurrection, civil commotion, organized strike, riot, injury to the
machinery or other event or cause reasonably beyond the control of NIELSON and
which adversely affects the work of mining and milling; NIELSON shall report such
fact to LEPANTO and without liability or breach of the terms of this Agreement, the
same shall remain in suspense, wholly or partially during the terms of such inability."
A careful scrutiny of the clause above-quoted will at once reveal that in order that
the management contract may be deemed suspended two events must take place
which must be brought in a satisfactory manner to the attention of defendant within
reasonable time, to wit: (1) the event constituting the force majeure must be
reasonably beyond the control of Nielson, and (2) it must adversely affect the work
of mining and milling the company is called upon to undertake. As long as these two
conditions exist the agreement is deemed suspended.
Does the evidence on record show that these two conditions had existed which may
justify the conclusion that the management agreement had been suspended in the
sense entertained by appellant? Let us go to the evidence.
It is a matter that this Court can take judicial notice of that war supervened in our
country and that the mines in the Philippines were either destroyed or taken over by
the occupation forces with a view to their operation. The Lepanto mines were no
exception for not only was the mine itself destroyed but the mill, power plant,
supplies on hand, equipment and the like that were being used there were
destroyed as well. Thus, the following is what appears in the Lepanto Company
Mining Report dated March 13, 1946 submitted by its President C. A. DeWitt to the
defendant:[1] "In February of 1942, our mill, power plant, supplies on hand,
equipment, concentrates on hand, and mine, were destroyed upon orders of the
U.S. Army to prevent their utilization by the enemy. The report also mentions the
report submitted by Mr. Blessing, an official of Nlelson, that "the original mill was
destroyed in 1942" and "the original power plant and all the installed equipment
were destroyed in 1942." It is then undeniable that beginning February, 1942 the
operation of the Lepanto mines stopped or became suspended as a result of the
destruction of the mill, power plant and other important equipment necessary for
such operation in view of a cause which was clearly beyond the control of Nielson
and that as a consequence such destruction adversely affected the work of mining
and milling which the latter was called upon to undertake under the management
contract. Consequently, by virtue of the very terms of said contract the same may be
deemed suspended from February, 1942 and as of that month the contract still had
60 months to go.
On the other hand, the record shows that the defendant admitted that the
occupation forces operated its mining properties subject of the management
contract,[2] and from the very report submitted by President DeWitt it appears that
the date of the liberation of the mine was August 1, 1945 although at the time there
were still many booby traps.[3] Similarly, in a report submitted by the defendant to its

stockholders dated August 25, 1948, the following appears: "Your Directors take
pleasure in reporting that June 26, 1948 marked the official return to operations of
this Company of its properties in Mankayan, Mountain Province, Philippines. [4]
It is, therefore, clear from the foregoing that the Lepanto mines were liberated on
August 1, 1945, but because of the period of rehabilitation and reconstruction that
had to be made as a result of the destruction of the mill, power plant and other
necessary equipment for its operation it cannot be said that the suspension of the
contract ended on that date. Hence, the contract must still be deemed suspended
during the succeeding years of reconstruction and rehabilitation, and this period can
only be said to have ended on June 26, 1948 when, as reported by the defendant,
the company officially resumed the mining operations of the Lepanto. It should here
be stated that this period of suspension from February, 1942 to June 26, 1948 is the
one urged by plaintiff.[5]
It having been shown that the operation of the Lepanto mines on the part of Nielson
had been suspended during the period set out above within the purview of the
management contract, the next question that needs to be determined is the effect of
such suspension. Stated in another way, the question now to be determined is
whether such suspension had the effect of extending the period of the management
contract for the period of said suspension. To elucidate this matter, we again need to
resort to the evidence.
For appellant Nielson two witnesses testified, declaring that the suspension had the
effect of extending the period of the contract, namely, George T. Scholey and Mark
Nestle. Scholey was a mining engineer since 1929, an incorporator, general
manager and director of Nielson and Company; and for some time he was also the
vice-president and director of the Lepanto Company during the pre-war days and,
as such, he was an officer of both appellant and appellee companies. As vicepresident of Lepanto and general manager of Nielson, Scholey participated in the
negotiation of the management contract to the extent that he initialed the same
bobh as a witness and as an officer of both corporations. This witness testified in
this case to the effect that the standard force majeure clause embodied in the
management contract was taken from similar mining contracts regarding mining
operations and the understanding regarding the nature and effect of said clause was
that when there is suspension of the operation that suspension meant the extension
of the contract. Thus, to the question, "Before the war, what was the understanding
of the people in the particular trend of business with respect to the force
majeure clause?", Scholey answered: "That was our understanding that the
suspension meant the extension of time lost.[6]
Mark Nestle, the other witness, testified along similar line. He had been connected
with Nielson since 1937 until the time he took the witness stand and had been a
director, manager, and president of the same company. When he was propounded
the question: "Do you know what was the custom or usage at that time in
connection with force majeure clause?", Nestle answered, "In the mining world
the force majeure clause is generally considered. When a calamity comes up and
stops the work like in war, flood, inundation, or fire, etc., the work is suspended for
the duration of the calamity, and the period of the contract is extended after the
calamity is over to enable the person to do the big work or recover his money which
he has invested, or accomplish what his obligation is to a third person." [7]
And the above testimonial evidence finds support in the very minutes of the special
meeting of the Board of Directors of the Lepanto Company issued on March 10,
1945 which was then chairmaned by Atty. C. A. DeWitt. We read the following from
said report:
"The Chairman also stated that the contract with Nielson and Company would soon
expire if the obligations were not suspended, in which case we should have to pay
them the retaining fee of P2,500.00 a month. He believes however, that there is a
provision in the contract suspending the effects thereof in cases like the present,
and that even if it were not there, the law itself would suspend the operations of the
contract on account of the war. Anyhow, he stated, we shall have no difficulty in
solving satisfactorily any problem we may have with Nielson and Company." [8]
Thus, we can see from the above that even in the opinion of Mr. DeWitt himself,
who at the time was the chairman of the Board of Directors of the Lepanto
Company, the management contract would then expire unless the period therein
stated is suspended but that, however, he expressed the belief that the period was
extended because of the provision contained therein suspending the effects thereof
should any of the case of force majeure happen like in the present case, and that
even if such provision did not exist the law would have the effect of suspending it on
account of the war. In substance, Atty. DeWitt expressed the opinion that as a result
of the suspension of the mining operation because of the effects of the war the
period of the contract had been extended.
Contrary to what appellant's evidence reflects insofar as the interpretation of
the force majeure clause is concerned, however, appellee gives Us an opposite
interpretation invoking in support thereof not only a letter Atty. DeWitt sent to Nielson
on October 20, 1945,[9] wherein he expressed for the first time an opinion contrary to
what he reported to the Board of Directors of Lepanto Company as stated in the
portion of the minutes of its Board of Directors as quoted above, but also the ruling
laid down by our Supreme Court in some cases decided sometime ago, to the effect
that the war does not have the effect of extending the term of a contract that the
parties may enter into regarding a particular transaction, citing infills connection the
cases of Victorias Planters Association v. Victorias Hilling Company, 51 0.G. 4010;
Rosario S. Vda. de Lacson, et al. v. Abelardo 6. Diaz, 87 Phil., 150; and Lo Ching y
So Young Chong Co. v. Court of Appeals, et al., 81 Phil., 601.
To bolster up its theory, appellee also contends that the evidence regarding the
alleged custom or usage in mining contract that appellant's witnesses tried to
introduce was incompetent because (a) said custom was not specifically pleaded;
(b) Lepanto made timely and repeated objections to the introduction of said
evidence; (c) Nielson failed to show the essential elements of usage which must be
shown to exist before any proof thereof can be given to affect the contract; and (d)
the testimony of its witnesses cannot prevail over the very terms of the management
contract which, as a rule, is supposed to contain all the terms and conditions by
which the parties intended to be bound.
It is here necessary to analyze the contradictory evidence which the parties have
presented regarding the interpretation of the force majeure clause in the
management contract.
At the outset, it should be stated that, as a rule, in the construction and
interpretation of a document the intention of the parties must be sought (Rule 130,
Section 10, Rules of Court). This is the basic rule in the interpretation of contracts
because all other rules are but ancillary to the ascertainment of the meaning
intended by the parties. And once this intention has been ascertained it becomes an
integral part of the contract as though it had been originally expressed therein in
unequivocal terms (Shoreline Oil Corp. v. Guy, App. 189, So., 348, cited in 17A
C.J.S. p. 47). How is this intention determined?
One pattern is to ascertain the contemporaneous and subsequent acts of the
contracting parties in relation to the transaction under consideration (Article 1371,
Civil Code). In this particular case, it is worthy of note what Atty. C. A. DeWitt has
stated in the special meeting of the Board of Directors of Lepanto in the portion of
the minutes already quoted above wherein, as already stated, he expressed the
opinion that the life of the contract, if not extended, would last only until January,
1947 and yet he said that there is a provision in the contract that the war has the

effect of suspending the agreement and that the effect of that suspension was that
the agreement would have to continue with the result that Lepanto would have to
pay the monthly retaining fee of P2,500.00. And this belief that the war suspended
the agreement and that the suspension meant its extension was so firm that he
went to the extent of intimating that even if there was no provision for suspension in
the agreement the law Itself would suspend it.
It is true that Mr. DeWitt later sent a letter to Nielson dated October 20, 1945
wherein apparently he changed his mind because there he stated that the con- tract
was merely suspended, but not extended, by reason of the war, contrary to the
opinion he expressed in the meeting of the Board of Directors already adverted to,
but between the two opinions of Atty. DeWitt We are inclined to give more weight
and validity to the former not only because such was given by him against his own
interest but also because it was given before the Board of Directors of Lepanto and
in the presence of some Nielson officials[10] who, on that occasion were naturally led
to believe that that was the true meaning of the suspension clause, while the
second opinion was merely self-serving and was given as a mere afterthought.
Appellee also claims that the issue of true intent of the parties was not brought out
in the complaint, but anent this matter suffice it to state that in paragraph No. 19 of
the complaint appellant pleaded that the contract was extended. [11] This is a
sufficient allegation considering that the rules on pleadings must as a rule be
liberally construed.
It is likewise noteworthy that in this issue of the intention of the parties regarding the
meaning and usage concerning the force majeure clause,the testimony adduced by
appellant is uncontradicted. If such were not true, appellee should have at least
attempted to offer contradictory evidence. This it did not do. Not even Lepanto's
President, Mr. V. E. Lednicky, who took the witness stand, contradicted said
evidence.
In holding that the suspension of the agreement meant the extension of the same
for a period equivalent to the suspension, We do not have the least intention of
overruling the cases cited by appellee. We simply want to say that the ruling laid
down in said cases does not apply here because the material facts involved therein
are not the same as those obtaining in the present. The rule of stare decisis cannot
be invoked where there is no analogy between the material facts of the decision
relied upon and those of the instant case.
Thus, in Victorias Planters Association v. Victorias Milling Company, 51 0.G. 4010,
there was no evidence at all regarding the intention of the parties to extend the
contract equivalent to the period of suspension caused by the war. Neither was
there evidence that the parties understood the suspension to mean extension; nor
was there evidence of usage and custom in the industry that the suspension meant
the extension of the agreement. All these matters, however, obtain in the instant
case.
Again, in the case of Rosario S. Vda. de Lacson v. Abelardo G. Diaz, 87 Phil., 150,
the issue referred to the interpretation of a pre-war contract of lease of sugar cane
lands and the liability of the lessee to pay rent during and immediately following the
Japanese occupation and where the defendant claimed the right of an extension of
the lease to make up for the time when no cane was planted. This Court, in holding
that the years which the lessee could not use the land because of the war could not
be discounted from the period agreed upon, held that "Nowhere is there any
insinuation that the defendant-lessee was to have possession of lands for seven
years excluding years on which he could not harvest sugar." Clearly, this ratio
decidendi is not applicable to the case at bar wherein there is evidence that the
parties understood the "suspension clause by force majeure" to mean the extension
of the period of the agreement.
Lastly, in the case of Lo Ching y So Young Chong Co. v. Court of Appeals, et al., 81
Phil., 601, appellant leased a building from appellee beginning September 13, 1940
for three years, renewable for two years. The lessee's possession was interrupted in
February, 1942 when he was ousted by the Japanese who turned the same over to
German Otto Schulze, the latter occupying the same until January, 1945 upon the
arrival of the liberation forces. Appellant contended that the period during which he
did not enjoy the leased premises because of his dispossession by the Japanese
had to be deducted from the period of the lease, but this was overruled by this
Court, reasoning, that such dispossession was merely a simple "perturbacion de
mero hecho y de la cual no responde el arrendador" under Article 1560 of the old
Civil Code (now Art. 1664). This ruling is also not applicable in the instant case
because in that case there was no evidence of the intention of the parties that any
suspension of the lease by force majeure would be understood to extend the period
of the agreement.
In resum, there is sufficient justification for Us to conclude that the cases cited by
appellee are inapplicable because the facts therein involved do not run parallel to
those obtaining in the present case.
We shall now consider appellee's defense of laches. Appellee is correct in its
contention that the defense of laches applies independently of prescription. Laches
is different from the statute of limitations. Prescription is concerned with the fact of
delay, whereas laches is concerned with the effect of delay. Prescription is a matter
of time; laches is principally a question of inequity of permitting a claim to be
enforced, this inequity being founded on some change in the condition of the
property or the relation of the parties. Prescription is statutory; laches is not. Laches
applies in equity, whereas prescription applies at law. Prescription is based on fixed
time, laches is not. (30 C.J.S., p. 522; See also Pomeroy's Equity Jurisprudence,
Vol. 2, 5th ed., 177.)
The question to determine is whether appellant Nielson is guilty of laches within the
meaning contemplated by the authorities on the matter. In the leading case of Go
Chi Gun, et al. v. Go Cho, et al., 96 Phil., 622, this Court enumerated the essential
elements of laches as follows:
"(1) conduct on the part of the defendant, or of one under whom he claims, giving
rise to the situation of which complaint is made and for which the complaint seeks a
remedy; (2) delay in asserting the complainant's rights, the complainant having had
knowledge or notice of the defendant's conduct and having been afforded an
opportunity to institute a suit; (3) lack of knowledge or notice on the part of the
defendant that the complainant would assert the right on which he bases his suit;
and (4) injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held barred."
Are these requisites present in the case at bar?
The first element is conceded by appellant Nielson when it claimed that defendant
refused to pay its management fees, its percentage of profits and refused to allow it
to resume the management operation.
Anent the second element, while it is true that appellant Nielson knew since 1945
that appellee Lepanto has refused to permit it to resume management and that
since 1948 appellee has resumed operation of the mines and it filed its complaint
only on February 6, 1958, there being apparent delay in filing the present action, We
find the delay justified and as such cannot constitute laches. It appears that
appellant had not abandoned its right to operate the mines for even before the
termination of the suspension of the agreement as early as January 20, 1946 [12] and
even before March 10, 1945, it already claimed its right to the extension of the
contract[13] and it pressed its claim for the balance of its share in the profits from the
1941 operation[14] by reason of which negotiations had taken place for the settlement
of the claim[15] and it was only on June 25, 1957 that appellee finally denied the

claim. There is, therefore, only a period of less than one year that had elapsed from
the date of the final denial of the claim to the date of the filing of the complaint,
which certainly cannot be considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said that appellee
Lepanto did not know that appellant would assert its rights on which it based its suit.
The evidence shows that Niels on had been claiming for sometime its rights under
the contract, as already shown above.
Neither is the fourth element present, for if there has been some delay in bringing
the case to court it was mainly due to the attempts at arbitration and negotiation
made by both parties. If Lepanto's documents were lost, it was not caused by the
delay of the filing of the suit but because of the war.
Another reason why appellant Nielson cannot be held guilty of laches is that the
delay in the filing of the complaint in the present case was the inevitable result of the
protracted negotiations between the parties concerning the settlement of their
differences. It appears that Nielson asked for arbitration [16] which was granted. A
committee consisting of Messrs. DeWitt, Farnell and Blessing was appointed to act
on said differences but Mr. DeWitt always tried to evade the issue [17] until he was
taken ill and died. Mr. Farnell offered to Nielson the sum of P13,000.58 by way of
compromise of all its claim arising from the management contract [18] but apparently
the offer was refused. Negotiations continued with the exchange of letters between
the parties but with no satisfactory result.[19] It can be said that the delay due to
protracted negotiations was caused by both parties. Lepanto, therefore, cannot be
permitted to take advantage of such delay or to question the propriety of the action
taken by Nielson. The defense of laches is an equitable one and equity should be
applied with an even hand. A person will not be permitted to take advantage of, or to
question the validity, or propriety of, any act or omission of another which was
committed or omitted upon his own request or was caused by bis conduct (R. H.
Stearns Co. v. United States, 291 U.S. 54, 78 L. Ed., 647, 54 S. Ct., 325; United
States v. Henry Frentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).
Had the action of Nielson prescribed? The court a quo held that the action of
Nielson is already barred by the statute of limitations, and that ruling is now assailed
by the appellant in this appeal. In urging that the court a quo erred in reaching that
conclusion the appellant has discussed the issue with reference to particular claims.
The first claim is with regard to the 10% share in profits of 1941 operations.
Inasmuch as appellee Lepanto alleges that the correct basis of the computation of
the sharing in the net profits shall be as provided for in Clause V of the Management
Contract, while appellant Nielson maintains that the basis should be what is
contained in the minutes of the special meeting of the Board of Directors of Lepanto
on August 21, 1940,[20] this question must first be elucidated before the main issue is
discussed.
The facts relative to the matter of profit sharing follow: In the management contract
entered into between the parties on January 30, 1937, which was renewed for
another five years, it was stipulated that Nielson would receive a compensation of
P2,500.00 a month plus 10% of the net profits from the operation of the properties
for the preceding month. In 1940, a dispute arose regarding the computation of the
10% share of Nielson in the profits. The Board of Directors of Lepanto, realizing that
the mechanics of the contract was unfair to Nielson, authorized its President to
enter into an agreement with Nielson modifying the pertinent provision of the
contract effective January 1, 1940 in such a way that Nielson shall receive (1) 10%
of the dividends declared and paid, when and as paid, during the period of the
contract and at the end of each year, (2) 10% of any depletion reserve that may be
set up, and (3) 10% of any amount expended during the year out of surplus
earnings for capital account.[21] Counsel for the appellee admitted during the trial that
the extract of the minutes as found in Exhibit B is a faithful copy from the original.
[22]
Mr. George Scholey testified that the foregoing modification was duly agreed
upon.[23]
Lepanto claims that this new basis of computation should be rejected (1) because
the contract was clear on the point of the 10% share and it was so alleged by
Nielson in its complaint, and (2) the minutes of the special meeting held on August
21,1940 was not signed.
It appearing that the issue concerning the sharing of the profits had been raised in
appellant's complaint and evidence on the matter was introduced [24] the same can
be taken into account even if no amendment of the pleading to make it conform to
the evidence has been made, for the same is authorized by Section 4, Rule 17, of
the old Rules of Court (now Section 5, Rule 10, of the new Rules of Court).
Coming now to the question of prescription raised by defendant Lepanto, it is
contended by the latter that the period to be considered for the prescription of the
claim regarding participation in the profits is only four years, because the
modification of the sharing embodied in the management contract is merely verbal,
no written document to that effect having been presented. This contention is
untenable. The modification appears in the minutes of the special meeting of the
Board of Directors of Lepanto held on August 21, 1940, it having been made upon
the authority of its President, and in said minutes the terms of the modification had
been specified. This is sufficient to have the agreement considered, for the purpose
of applying the statute of limitations, as a written contract even if the minutes were
not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that a writing
containing the terms of a contract if adopted by two persons may constitute a
contract in writing even if the same is not signed by either of the parties (3 A.L. R.,
2d, pp. 812-813). Another authority says that an unsigned agreement the terms of
which are embodied in a document undonditionally accepted by both parties is a
written contract (Corbin on Contracts, Vol. I, p. 85)
The modification, therefore, made in the management contract relative to the
participation in the profits by appellant, as contained in the minutes of the special
meeting of the Board of Directors of Lepanto held on August 21, 1940, should be
considered as a written contract insofar as the application of the statutes of
limitations is concerned. Hence, the action thereon prescribes within 10 years
pursuant to Section 43 of Act 190.
Coming now to the facts, We find that the right of Nielson to its 10% participation in
the 1941 operations accrued on December 31, 1941 and the right to commence an
action thereon began on January 1, 1942 so that the action may be brought within
10 years from the latter date. It is true that the complaint was filed only on February
6, 1958, that is 16 years, 1 month and 5 days after the right of action accrued, but
the action has not yet prescribed for various reasons which We will hereafter
discuss.
The first reason is the operation of the Moratorium Law, for appellant's claim is
undeniably a claim for money. Said claim accrued on December 31, 1941, and
Lepanto is a war sufferer. Hence the claim was covered by Executive Order No. 32
of March 10, 1945. It is well-settled that the operation of the Moratorium Law
suspends the running of the statute of limitations (Pacific Commercial Co. v. Aquino,
G. R. No. L-10274, February 27, 1957).
This Court has held that the Moratorium Law had been enforced for 8 years, 2
months and 8 days (Tioseco v. Day, et al., L-9944, April 30, 1957; Levy Hermanos,
Inc. v. Perez, L-14487, April 29, 1960), and deducting this period from the time that
had elapsed since the accrual of the right of action to the date of the filing of the
complaint, the extent of which is 16 years, 1 month and 5 days, we would have less
than 8 years to be counted for purposes of prescription. Hence appellant's action on
Its claim of 10% on the 1941 profits has not yet prescribed.

Another reason that may be taken into account in support of the no-bar theory of
appellant is the arbitration clause embodied in the management contract which
requires that any disagreement as to any amount of profits before an action may be
taken to court shall be subject to arbitration.[25] This agreement to arbitrate is valid
and binding.[26] It cannot be ignored by Lepanto. Hence Nielson could not bring an
action on its participation in the 1941 operations-profits until the condition relative to
arbitration had been first complied with. [27] The evidence shows that an arbitration
committee was constituted but it failed to accomplish its purpose on June 25, 1957.
[28]
From this date to the filing of the complaint the required period for prescription
has not yet elapsed.
Nielson claims the following: (1) 10% share in the dividends declared in 1941,
exclusive of interest, amounting to P17,500.00; (2) 10% in the depletion reserves for
1941; and (3) 10% in the profits for years prior to 1948 anounting to P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar year of
1954[29] shows that it declared a 10% cash dividend in December, 1941, the amount
of which is P175,000.00. The evidence in this connection (Exhibits L and Q) was
admitted without objection by counsel for Lepanto. [30] Nielson claims 10% share in
said amount with interest thereon at 6% per annum. The document (Exhibit L) was
even recognized by Lepanto's President V. L. Lednicky,[31] and this claim is
predicated on the provision of paragraph V of the management contract as modified
pursuant to the proposal of Lepanto at the special meeting of the Board of Directors
on August 21, 1940 (Exh. B), whereby it was provided that Nielson would be entitled
to 10% of any dividends to be declared and paid during the period of the contract.
With regard to the second claim, Nielson admits that there is no evidence regarding
the amount set aside by Lepanto for depletion reserve for 1941 [32] and so the 10%
participation claimed thereon cannot be assessed.
Anent the third claim relative to the 10% participation of Nielson on the sum of
P197,647.08, which appears in Lepanto's annual report for 1948 [33] and entered as
profit for prior years in the statement of income and surplus, which amount
consisted "almost in its entirety of proceeds of copper concentrates shipped to the
United States during 1947", this claim should be denied because the amount is not
"dividend declared and paid" within the purview of the management contract.
The fifth assignment of error of appellant refers to the failure of the lower court to
order Lepanto to pay its management fees for January, 1942, and for the full period
of extension amounting to P150,000.00, or P2,500. 00 a month for sixty (60)
months, a total of P152,500.00 with interest thereon from the date of judicial
demand.
It is true that the claim of management fee for January, 1942 was not among the
causes of action in the complaint, but inasmuch as the contract was suspended in
February, 1942 and the management fees asked for included that of January, 1942,
the fact that such claim was not included in a specific manner in the complaint is of
no moment because an appellate court may treat the pleading as amended to
conform to the evidence where the facts show that the plaintiff is entitled to relief
other than what is asked for in the complaint (Alonzo v. Villamor, 16 Phil., 315). The
evidence shows that the last payment made by Lepanto for management fee was
for November and and December, 1941. [34] If, as We have declared the
management contract was suspended beginning February 1942, it follows that
Nielson is entitled to the management fee for January, 1942.
Let us now come to the management fees claimed by Nielson for the period of
extension. In this respect, it has been shown that the managment contract was
extended from June 27, 1948 to June 26, 1953, or for a period of sixty months.
During this period Nielson had a right to continue in the management of the mining
properties of Lepanto and Lepanto was under obligation to let Nielson do it and to
pay the corresponding management fees. Appellant Nielson insisted in performing
its part of the contract but Lepanto prevented it from doing so. Hence, by virtue of
Article 1186 of the Civil Code, there was a constructive fulfillment on the part of
Nielson of its obligation to manage said mining properties in accordance with the
contract and Lepanto had the reciprocal obligation to pay the corresponding
management fees and other benefits that would have accrued to Nielson if Lepanto
allowed it (Nielson) to continue in the management of the mines during the
extended period of five years.
We find that the preponderance of evidence is to the effect that Nielson had insisted
in managing the mining properties soon after liberation. In the report [35] of Lepanto,
submitted to its stockholders, for the period from 1941 to March 13, 1946, are stated
the activities of Nielson's officials in relation to Nielson's insistence in continuing the
management. This report was admitted in evidence without objection. We find the
following in the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San Fernando (La
Union) to await the liberation of the mines. (Mr. Blessing was the Treasurer and
Metallurgist of Nielson), Blessing with Clark and Stanford went to the property on
July 16 and found that while the mill site had been cleared of the enemy the latter
was still holding the area around the staff houses and putting up a strong defense.
As a result, they returned to San Fernando and later went back to the mines on July
26. Mr. Blessing made the report, dated August 6, recommending a program of
operation. Mr. Nielson himself spent a day in the mine early in December, 1945 and
reiterated the program which Mr. Blessing had outlined. Two or three weeks before
the date of the report, Mr. Coldren of the Nielson organization also visited the mine
and told President C. A. DeWitt of Lepanto that he thought that the mine could be
put in condition for the delivery of the ore within 10 days. And according to Mark
Nestle, a witness of appellant, Nielson had several men including engineers to do
the job in the mines and to resume the work. These engineers were in fact sent to
the mine site and submitted reports of what they had done. [36]
On the other hand, appellee claims that Nielson was not ready and able to resume
the work in the mines, relying mainly on the testimony of Dr. Juan Nabong, former
secretary of both Nielson and Lepanto, given in the separate case of Nancy Irving
Romero v. Lepanto Consolidated Mining Company (Civil Case No. 652, CFI,
Baguio), to the effect that as far as he knew "Nielson and Company had not
attempted to operate the Lepanto Consolidated Mining Company because Mr.
Nielson was not here in the Philippines after the last war. He came back later," and
that Nielson and Company had no money nor stocks with which to start the
operation. He was asked by counsel for the appellee if he had testified that way in
Civil Case No. 652 of the Court of First Instance of Baguio, and he answered that he
did not confirm it fully. When this witness was asked later by the same counsel
whether he confirmed that testimony, he said that when he testified in that case he
was not fully aware of what happened and that after he learned more about the
officials of the corporation it was only then that he became aware that Nielson had
really sent his men to the mines along with Mr. Blessing and that he was aware of
this fact personally. He further said that Mr. Nielson was here in 1945 and "he was
going out and contacting his people."[37]
Lepanto admits, in its own brief, that Nielson had really insisted in taking over the
management and operation of the mines but that it (Lepanto) unequivocally refused
to allow it. The following is what appears in the brief of the appellee:
"It was while defendant was in the midst of the rehabilitation work which was fully
described earlier, still reeling under the terrible devastation and destruction wrought
by war on its mine that Nielson insisted in taking over the management and
operation of the mine. Nielson thus put Lepanto in a position where defendant,
under the circumstances, had to refuse, as in fact it did, Nielson's insistence in

taking over the management and operation because, as was obvious, it was
impossible, as a result of the destruction of the mine, for the plaintiff to manage and
operate the same and because, as provided in the agreement, the contract was
suspended by reason of the war. The stand of Lepanto in disallowing Nielson to
assume again the management of the mine in 1945 was unequivocal and cannot be
misinterpreted, infra."[38]
Based on the foregoing facts and circumstances, and Our conclusion that the
management contract was extended, We believe that Nielson is entitled to the
management fees for the period of extension. Nielson should be awarded on this
claim sixty times its monthly pay of P2,500.00, or a total of P150,000.00.
In its sixth assignment of error Nielson contends that the lower court erred in not
ordering Lepanto to pay it (Nielson) the 10% share in the profits of operation
realized during the period of five years from the resumption of its post-war
operations of the Mankayan mines," in the total sum of P2,403,053.20 with interest
thereon at the rate of 6% per annum from February 6, 1958 until full payment. [39]
The above claim of Nielson refers to four categories, namely: (1) cash dividends; (2)
stock dividends; (3) depletion reserves; and (4) amount expended on capital
investment.
Anent the first category, Lepanto's report for the calendar year 1954 [40] contains a
record of the cash dividends it paid up to the date of said report, and the post-war
dividends paid by it corresponding to the years included in the period of extension of
the management contract are as follows:
"POST-WAR
November 1949 . . . . . . . . . . . . . . . . . .
8
10%
P2,000,000.00
...........
July 1950 . . . . . . . . . . . . . . . . . . . . . . .
9
10%
3,000,000.00
...........
October
10
10%
1950 . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000.00
.....
December 1950 . . . . . . . . . . . . . . . . . .
11
20%
1,000,000.00
............
March 1951 . . . . . . . . . . . . . . . . . . . . .
12
20%
1,000,000.00
............
June 1951 . . . . . . . . . . . . . . . . . . . . . .
13
20%
1,000,000.00
............
September
14
20%
1951 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000.00
...
December 1951 . . . . . . . . . . . . . . . . . .
15
40%
2,000,000.00
............
March 1952 . . . . . . . . . . . . . . . . . . . . .
16
20%
1,000,000.00
............
May
17
20%
1952 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000.00
........
July 1952 . . . . . . . . . . . . . . . . . . . . . . .
18
20%
1,000,000.00
...........
September
19
20%
1952 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000.00
...
December 1952 . . . . . . . . . . . . . . . . . .
20
20%
1,000,000.00
............
March 1953 . . . . . . . . . . . . . . . . . . . . .
21
20%
1,000,000.00
............
June 1953 . . . . . . . . . . . . . . . . . . . . . .
22
20%
1.000,000.00
............
---------------P14,000,000.00"
According to the terms of the management contract as modified,t appellant is
entitled to 10% of the P14,000,000.00 cash dividends that had been distributed, as
stated in the above-mentioned report, or the sum of P1,400,000.00.
With regard to the second category, the stock dividends declared by Lepanto during
the period of extension of the contract are: On November 28, 1949, the stock
dividend declared was 50% of the outstanding authorized capital of P2,000,000.00
of the company, or stock dividends worth P1,000,000.00; and on August 22, 1950,
the dividend declared was 66-2/3% of the standing authorized capital of
P3,000,000,00 of the company, or stock dividends worth P2,000,000.00. [41]
Appellant's claim that it should be given 10% of the cash value of said stock
dividends with interest thereon at 6% from February 6, 1958 cannot be granted for
that would not be in accordance with the management contract which entitles
Nielson to 10% of any dividends declared paid, when and as paid. Nielson,
therefore, is entitled to 10% of the stock dividends and to the fruits that may have
accrued to said stock dividends pursuant to Article 1164 of the Civil Code. Hence to
Nielson is due shares of stock worth P100,000.00, as per stock dividends declared
on November 28, 1949 and all the fruits accruing to said shares after said date; and
also shares of stock worth P200,000.00 as per stock dividends declared on August
20, 1950 and all fruits accruing thereto after said date.
Anent the third category, the depletion reserve appearing in the statement of income
and surplus submitted by Lepanto corresponding to the years covered by the period
of extension of the contract, may be itemized as follows:
In 1948, as per Exh. F. p. 36 and Exh. Q, p. 5, the depletion reserve set up was
P11,602.80.
In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion reserve set up was
P33,556.07.
In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the depletion reserve
set up was P84,963.30.
In 1951 as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the depletion reserve
set up was P129,089.88.
In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K, p. 41, the depletion reserve
was P147,141.54.
In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve set up was
P277,493.25.
Regarding the depletion reserve set up in 1948 it should be noted that the amount
given was for the whole year. Inasmuch as the contract was extended only for the
last half of the year 1948, said amount of P11,602.80 should be divided by two, and
so Nielson is only entitled to 10% of the half amounting to P5,801.40.
Likewise, the amount of depletion reserve for the year 1953 was for the whole year
and since the contract was extended only until the first half of the year, said amount
of P277,493.25 should be divided by two, and so Nielson is only entitled to 10% of
the half amounting to P138,746.62. Summing up the entire depletion reserves,
from the middle of 1948 to the middle of 1953, we would have a total of
P539,298.81, of which Nielson is entitled to 107.,or to the sum of P53,928.88.
Finally, with regard to the fourth category, there is no figure in the record
representing the value of the fixed assets as of the beginning of the period of
extension on June 27, 1948. It is possible, however, to arrive at thi amount needed
by adding to the value of the fixed assets as of December 31, 1947 one-half of the

amount spent for capital account in the year 1948. As of December 31, 1947, the
value of the fixed assets was P1,061,878.88[42] and as of December 31, 1948, the
value of the fixed assets was P3,270,408.07.[43] Hence, the increase in the value of
the fixed assets for the year 1948 was P2,208,529.19, one-half of which is
P1,104,264.59, which amount represents the expenses for capital account for the
first half of the year 1948. If to this amount we add the fixed assets as of December
31, 1947 amounting to P1,061,878.88, we would have a total of P2,166,143.47
which represents the fixed assets at the begining of the second half of the year
1948.
There is also no figure representing the value of the fixed assets when the contract,
as extended, ended on June 26, 1953; but this may be computed by getting onehalf of the expenses for capital account made in 1953 and adding the same to the
value of the fixed assets as of December 31, 1952. The value of the fixed assets as
of December 31, 1953 is P9,755,840,41[44] while the value of the fixed assets as of
December 31, 1952 is P8,463,741.82, the difference being P1,292,098.69. One-half
of this amount is P646,049.34 which would represent the expenses for capital
account up to June, 1953. This amount added to the value of the fixed assets as of
December 31, 1952 would give a total of P9,109,791.16 which would be the value of
fixed assets at the end of June, 1953.
The increase, therefore, of the value of the fixed assets of Lepanto from June, 1948
to June, 1953 is P6,943,647.69, which amount represents the difference between
the value of the fixed assets of Lepanto In the year 1948 and in the year 1953, as
stated above. On this amount Nielson is entitled to a share of 10%, or to the amount
of P694,364.76.
Considering that most of the claims of appellant have been entertained, as pointed
out in this decision, We believe that appellant is entitled to be awarded attorney's
fees, especially when, according to the undisputed testimony of Mr. Mark Nestle,
Nielson obliged himself to pay attorney's fees in connection with the institution of the
present case. In this respect, We believe, considering the Intricate nature of the
case, an award of fifty thousand (P50,000.00) pesos for attorney's fees would be
reasonable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the
decision of the court a quo and enter in lieu thereof another, ordering the appellee
Lepanto to pay appellant Nielson the different amounts as specified herein below:
(1) 10% share of cash dividends of December, 1941 in the amount of P17,500.00,
with legal interest thereon from the date of the filing of the complaint;
(2) management fee for January, 1942 in the amount of P2,500.00, with legal
interest thereon from the date of the filing of the complaint;
(3) management fees for the sixty-months period of extension of the management
contract, amounting to P150,000.00, with legal interest from the date of the filing of
the complaint;
(4) 10% share in the cash dividends during the period of extension of the
management contract, amounting to P1,400,000.00, with legal interest thereon from
the date of the filing of the complaint;
(5) 10% of the depletion reserve set up during the period of extension, amounting to
P53,928.88, with legal interest thereon from the date of the filing of the complaint;
(6) 10% of the expenses for capital account during the period of extension,
amounting to P694,364.76, with legal interest thereon from the date of the filing of
the complaint;
(7) to issue and deliver to Nielson and Co. Inc. shares of stock of Lepanto
Consolidated Mining Co. at par value Equivalent to the total of Nielson's 10% share
in the stock dividends declared on November 28, 1949 and August 22, 1950,
together with all cash and stock dividends, if any, as may have been declared and
issued subsequent to November 28, 1949 and August 22, 1950, as fruits that
accrued to said shares;
If sufficient shares of stock of Lepanto's are not available to satisfy this judgment,
defendant-appellee shall pay plaintiff-appellant an amount in cash equivalent to the
market value of said shares at the time of default (12 C.J.S., p. 130), that is, all
shares of stock that should have been delivered to Nielson before the filing of the
complaint must be paid at their market value as of the date of the filing of the
complaint; and all shares, if any, that should have been delivered after the filing of
the complaint at the market value of the shares at the time Lepanto disposed of all
its available shares, for it is only then that Lepanto placed itself in condition of not
being able to perform its obligation (Article 1160, Civil Code);
(8) the sum of P50,000.00 as attorney's fees; and
(9) the costs.
IT IS SO ORDERED.
Concepcion, C.J., Regala, Makalintal, Bengzon, J.P., Sanchez and Ruiz Castro, JJ.,
concur.
SECOND DIVISION [G.R. No. 117356. June 19, 2000]
VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and
CONSOLIDATED SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R.
CV No. 31717, as well as the respondent court's resolution of September 30, 1994
modifying said decision. Both decision and resolution amended the judgment dated
February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil
Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner
Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued
several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases.
Among these was SLDR No. 1214M, which gave rise to the instant case. Dated
October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag
contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC
Marketing No. 042 dated October 16, 1989." [1] The transaction it covered was a
"direct sale."[2] The SLDR also contains an additional note which reads: "subject for
(sic) availability of a (sic) stock at NAWACO (warehouse)." [3]
On October 25, 1989, STM sold to private respondent Consolidated Sugar
Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued
one check dated October 25, 1989 and three checks postdated November 13, 1989
in payment. That same day, CSC wrote petitioner that it had been authorized by
STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter
were a copy of SLDR No. 1214M and a letter of authority from STM authorizing
CSC "to withdraw for and in our behalf the refined sugar covered by Shipping
List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the
total quantity of 25,000 bags."[4]
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00
with petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated
October 27, 1989 acknowledging receipt of the said checks in payment of 50,000
bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO
warehouse and was allowed to withdraw sugar. However, after 2,000 bags had
been released, petitioner refused to allow further withdrawals of sugar against

SLDR No. 1214M. CSC then sent petitioner a letter dated January 23, 1990
informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had
been refused further withdrawals of sugar from petitioner's warehouse despite the
fact that only 2,000 bags had been withdrawn.[5] CSC thus inquired when it would be
allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further
withdrawals of sugar against SLDR No. 1214M because STM had already
dwithdrawn all the sugar covered by the cleared checks.[6]
On March 2, 1990, CSC sent petitioner a letter demanding the release of the
balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount
of STM's cleared checks had been fully withdrawn and hence, there would be no
more deliveries of the commodity to STM's account. Petitioner also noted that CSC
had represented itself to be STM's agent as it had withdrawn the 2,000 bags against
SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil
Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under the
name of St. Therese Merchandising) and herein petitioner. Since the former could
not be served with summons, the case proceeded only against the latter. During the
trial, it was discovered that Teresita Ng Go who testified for CSC was the same
Teresita Ng Sy who could not be reached through summons. [7] CSC, however, did
not bother to pursue its case against her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by
SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of
the sugar. CSC prayed that petitioner be ordered to deliver the 23,000 bags covered
by SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits,
P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and
litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000
bags.[8] Since STM had already drawn in full all the sugar corresponding to the
amount of its cleared checks, it could no longer authorize further delivery of sugar to
CSC. Petitioner also contended that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of
title, but mere delivery receipts issued pursuant to a series of transactions entered
into between it and STM. The SLDRs prescribed delivery of the sugar to the party
specified therein and did not authorize the transfer of said party's rights and
interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's
co-conspirator to defraud it through a misrepresentation that CSC was an innocent
purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to
pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as
exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed
that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary
damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the
merits.
As earlier stated, the trial court rendered its judgment favoring private respondent
CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in
favor of the plaintiff and against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000
bags of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00
as unrealized profits, the amount of P800,000.00 as exemplary damages and the
amount of P1,357,000.00, which is 10% of the acquisition value of the undelivered
bags of refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the
costs.
"SO ORDERED."[9]
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the
purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her
covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the
25,000 bags of sugar bought by her covered by SLDR No. 1213 on the same date,
October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15
inclusive which are post-dated checks dated October 27, 1989 issued by St.
Therese Merchandising in favor of Victorias Milling Company at the time it
purchased the 50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said
checks appear to have been honored and duly credited to the account of Victorias
Milling Company because on October 27, 1989 Victorias Milling Company issued
official receipt no. 34734 in favor of St. Therese Merchandising for the amount of
P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is further
supported by Exhibit F, which is a computer printout of defendant Victorias Milling
Company showing the quantity and value of the purchases made by St. Therese
Merchandising, the SLDR no. issued to cover the purchase, the official reciept no.
and the status of payment. It is clear in Exhibit 'F' that with respect to the sugar
covered by SLDR No. 1214 the same has been fully paid as indicated by the word
'cleared' appearing under the column of 'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the
purchase price of the 25,000 bags of sugar purchased by St. Therese
Merchandising covered by SLDR No. 1214 has not been fully paid is supported only
by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling Company.
The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren
assertion that the purchase price has not been fully paid and is not corroborated by
any positive evidence. There is an insinuation by Arnulfo Caintic in his testimony
that the postdated checks issued by the buyer in payment of the purchased price
were dishonored. However, said witness failed to present in Court any dishonored
check or any replacement check. Said witness likewise failed to present any bank
record showing that the checks issued by the buyer, Teresita Ng Go, in payment of
the purchase price of the sugar covered by SLDR No. 1214 were dishonored." [10]
Petitioner appealed the trial courts decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a
series of transactions involving only one account or one general contract of sale.
Pursuant to this contract, STM or any of its authorized agents could withdraw bags
of sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22
SLDRs issued to STM andsince the latter had already withdrawn its full quota of
sugar under the said SLDR, CSC was already precluded from seeking delivery of
the 23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No.
1214M were separate and independent transactions and that the details of the
series of purchases were contained in a single statement with a consolidated
summary of cleared check payments and sugar stock withdrawals because this a
more convenient system than issuing separate statements for each purchase.
The appellate court considered the following issues: (a) Whether or not the
transaction between petitioner and STM involving SLDR No. 1214M was a
separate, independent, and single transaction; (b) Whether or not CSC had the
capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as

buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M
could compel petitioner to deliver 23,000 bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial
court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders
defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the
undelivered bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."[11]
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its decision
to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders
defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No.
1214M;
"(2) Pay costs of suit.
"SO ORDERED."[12]
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit F' We relied upon in fixing the number of bags of sugar which remained
undelivered as 12,586 cannot be made the basis for such a finding. The rule is
explicit that courts should consider the evidence only for the purpose for which it
was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to
afford the party against whom the evidence is presented to object thereto if he
deems it necessary. Plaintiff-appellee is, therefore, correct in its argument that
Exhibit F' which was offered to prove that checks in the total amount of
P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff, Records
p. 58) cannot be used to prove the proposition that 12,586 bags of sugar remained
undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33]
and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by
plaintiff-appellee was to the effect that it had withdrawn only 2,000 bags of sugar
from SLDR after which it was not allowed to withdraw anymore. Documentary
evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had
sent demand letters to defendant-appellant asking the latter to allow it to withdraw
the remaining 23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the
other hand, alleged that sugar delivery to the STM corresponded only to the value of
cleared checks; and that all sugar corresponded to cleared checks had been
withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It did
not present evidence to show how many bags of sugar had been withdrawn against
SLDR No. 1214M, precisely because of its theory that all sales in question were a
series of one single transaction and withdrawal of sugar depended on the clearing
of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the findings of
the trial court on this point."[13]
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private respondent's
specially informing petitioner that respondent was authorized by buyer STM to
withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf," (emphasis
in the original) private respondent's withdrawing 2,000 bags of sugar for STM, and
STM's empowering other persons as its agents to withdraw sugar against the same
SLDR No. 1214M, rendered respondent like the other persons, an agent of STM as
held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from
subsequently claiming and proving being an assignee of SLDR No. 1214M and from
suing by itself for its enforcement because it was conclusively presumed to be an
agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431,
Civil Code).
" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and
disregarding certain relevant and undisputed facts which, had they been
considered, would have shown that petitioner was not liable, except for 69 bags of
sugar, and which would justify review of its conclusion of facts by this Honorable
Court.
" 3. The Court of Appeals misapplied the law on compensation under Arts. 1279,
1285 and 1626 of the Civil Code when it ruled that compensation applied only to
credits from one SLDR or contract and not to those from two or more distinct
contracts between the same parties; and erred in denying petitioner's right to setoff
all its credits arising prior to notice of assignment from other sales or SLDRs against
private respondent's claim as assignee under SLDR No. 1214M, so as to extinguish
or reduce its liability to 69 bags, because the law on compensation applies precisely
to two or more distinct contracts between the same parties (emphasis in the
original).
"4. The Court of Appeals erred in concluding that the settlement or liquidation of
accounts in Exh. F between petitioner and STM, respondent's admission of its
balance, and STM's acquiescence thereto by silence for almost one year did not
render Exh. `F' an account stated and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the assigned
SLDR No. 1214, namely, (a) its subject matter being generic, and (b) the sale of
sugar being subject to its availability at the Nawaco warehouse, made the sale
conditional and prevented STM or private respondent from acquiring title to the
sugar; and the non-availability of sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine
precluded respondent from seeking judicial reliefs (sic) from petitioner, its only
remedy being against its assignor."[14]
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent
of STM and hence, estopped to sue upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on
compensation to the transaction under SLDR No. 1214M so as to preclude
petitioner from offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar
under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed
petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in not applying
the "clean hands doctrine" to preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the
first time on appeal. It is settled that an issue which was not raised during the trial in
the court below could not be raised for the first time on appeal as to do so would be
offensive to the basic rules of fair play, justice, and due process. [15] Nonetheless, the
Court of Appeals opted to address this issue, hence, now a matter for our
consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw
sugar against SLDR No. 1214M to show that the latter was STM's agent. The
pertinent portion of said letter reads:

"This is to authorize Consolidated Sugar Corporation or its representative to

withdraw for and in our behalf (stress supplied) the refined sugar covered by
Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16,
1989 in the total quantity of 25, 000 bags." [16]
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render some service
or to do something in representation or on behalf of another, with the consent or
authority of the latter."
It is clear from Article 1868 that the basis of agency is representation. [17] On the part
of the principal, there must be an actual intention to appoint [18] or an intention
naturally inferable from his words or actions; [19] and on the part of the agent, there
must be an intention to accept the appointment and act on it, [20] and in the absence
of such intent, there is generally no agency.[21] One factor which most clearly
distinguishes agency from other legal concepts is control; one person - the agent agrees to act under the control or direction of another - the principal. Indeed, the
very word "agency" has come to connote control by the principal. [22] The control
factor, more than any other, has caused the courts to put contracts between
principal and agent in a separate category.[23] The Court of Appeals, in finding that
CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the acts
of the parties, the law makes no presumption of agency, and it is always a fact to be
proved, with the burden of proof resting upon the persons alleging the agency, to
show not only the fact of its existence, but also its nature and extent (Antonio vs.
Enriquez[CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently
establish the existence of an agency relation between plaintiff-appellee and STM.
The fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-appellee
"for and in our (STM's) behalf" should not be eyed as pointing to the existence of an
agency relation ...It should be viewed in the context of all the circumstances
obtaining. Although it would seem STM represented plaintiff-appellee as being its
agent by the use of the phrase "for and in our (STM's) behalf" the matter was
cleared when on 23 January 1990, plaintiff-appellee informed defendant-appellant
that SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I,
Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000 bags of sugar
covered by the SLDR No. 1214M were sold and transferred by STM to it ...A
conclusion that there was a valid sale and transfer to plaintiff-appellee may,
therefore, be made thus capacitating plaintiff-appellee to sue in its own name,
without need of joining its imputed principal STM as co-plaintiff." [24]
In the instant case, it appears plain to us that private respondent CSC was a buyer
of the SLDFR form, and not an agent of STM. Private respondent CSC was not
subject to STM's control. The question of whether a contract is one of sale or
agency depends on the intention of the parties as gathered from the whole scope
and effect of the language employed.[25]That the authorization given to CSC
contained the phrase "for and in our (STM's) behalf" did not establish an agency.
Ultimately, what is decisive is the intention of the parties. [26]That no agency was
meant to be established by the CSC and STM is clearly shown by CSC's
communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to
it.[27] The use of the words "sold and endorsed" means that STM and CSC intended
a contract of sale, and not an agency. Hence, on this score, no error was committed
by the respondent appellate court when it held that CSC was not STM's agent and
could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into
between petitioner and STM are but serial parts of one account, petitioner insists
that its debt has been offset by its claim for STM's unpaid purchases, pursuant to
Article 1279 of the Civil Code.[28] However, the trial court found, and the Court of
Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a
separate and independent transaction; it was not a serial part of a single transaction
or of one account contrary to petitioner's insistence. Evidence on record shows,
without being rebutted, that petitioner had been paid for the sugar purchased under
SLDR No. 1214M. Petitioner clearly had the obligation to deliver said commodity to
STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC,
as assignee of STM, were not mutually creditors and debtors of each other. No
reversible error could thereby be imputed to respondent appellate court when, it
refused to apply Article 1279 of the Civil Code to the present case.
Regarding the third issue, petitioner contends that the sale of sugar under SLDR
No. 1214M is a conditional sale or a contract to sell, with title to the sugar still
remaining with the vendor. Noteworthy, SLDR No. 1214M contains the following
terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar and/or
receipt of this document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to buyer/trader and delivery to
him/it is deemed effected and completed (stress supplied) and buyer/trader
assumes full responsibility therefore"[29]
The aforequoted terms and conditions clearly show that petitioner transferred title to
the sugar to the buyer or his assignee upon payment of the purchase price. Said
terms clearly establish a contract of sale, not a contract to sell. Petitioner is now
estopped from alleging the contrary. The contract is the law between the contracting
parties.[30] And where the terms and conditions so stipulated are not contrary to law,
morals, good customs, public policy or public order, the contract is valid and must
be upheld.[31] Having transferred title to the sugar in question, petitioner is now
obliged to deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC
have entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly
evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing
price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and (c) the
authority given by the latter to other persons to withdraw sugar against SLDR No.
1214M after she had sold her rights under said SLDR to CSC. Petitioner prays that
the doctrine of "clean hands" should be applied to preclude CSC from seeking
judicial relief. However, despite careful scrutiny, we find here the records bare of
convincing evidence whatsoever to support the petitioner's allegations of fraud. We
are now constrained to deem this matter purely speculative, bereft of concrete
proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against
petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
[ G. R. No. 5486, August 17, 1910 ]
JOSE DE LA PENA Y DE RAMON, PLAINTIFF AND APPELLANT, VS.
FEDERICO HIDALGO, DEFENDANT AND APPELLANT.
DECISION
TORRES, J.:
On May 23, 1906, Jose de la Pena y de Ramon, and Vicenta de Ramon, in her own
behalf and as the legal guardian of her son Roberto de la Pena, filed in the Court of
First Instance of Manila a written complaint against Federico Hidalgo, Antonio
Hidalgo, and Francisco Hidalgo, and, after the said complaint, already amended,
had been answered by the defendants Antonio and Francisco Hidalgo, and the
other defendant, Federico Hidalgo, had moved for the dismissal of this complaint,

the plaintiff, Jose de la Pena y de Ramon, as the judicial administrator of the estate
of the deceased Jose de la Pena y Gomiz, with the consent of the court filed a
second amended complaint prosecuting his action solely against Federico
Hidalgo, who answered the same in writing on the 21st of May and at the same time
filed a counterclaim, which was also answered by the defendant.
On October 22, 1907, the case was brought up for hearing and oral testimony was
adduced by both parties, the exhibits introduced being attached to the record. In
view of such testimony and of documentary evidence, the court, on March 24, 1908,
rendered judgment in favor of the plaintiff-administrator for the sum of P13,606.19
and legal interest from the date of the filing of the complaint on May 24, 1906, and
the costs of the trial.
Both the plaintiff and the defendant filed notice of appeal from this judgment and
also asked for the annulment of the same and for a new trial, on the ground that the
evidence did net justify the said judgment and that the latter was contrary to law.
The defendant, on April 1, 1908, presented a written motion for a new hearing,
alleging the discovery of new evidence favorable to him and which would
necessarily influence the decision of this litigation, and that he was unable to
discover such evidence or to introduce it at the trial of the case, notwithstanding the
fact that he had used all due diligence. His petition was accompanied by affidavits
from Attorney Eduardo Gutierrez Repide and Federico Hidalgo, and was granted by
order of the court of the 4th of April.
At this stage of the proceedings and on August 10, 1908, the plaintiff Pena y De
Ramon filed a third amended complaint, with the permission of the court, alleging,
among other things, as a first cause of action, that during the period of time from
November 12, 1887, to January 7, 1904, when Federico Hidalgo had possession of
and administered the following properties, to wit; one house and lot at No. 48 Calle
San Luis; another house and lot at No. 6 Calle Cortada; another house and lot at
No. 56 Calle San Luis, and a fenced lot on the same street, all of the district of
Ermita, and another house and lot at No. 81 Calle Looban de Paco, belonging to his
principal, Jose de la Pena y Gomiz, according to the power of attorney executed in
his favor and exhibited with the complaint under letter A, the defendant, as such
agent, collected the rents and income from the said properties, amounting to
P50,244, which sum, collected in partial amounts and on different dates, he should
have deposited, in accordance with the verbal agreement between the deceased
and himself, the defendant, in the general treasury of the Spanish Government at an
interest of 5 per cent per annum, which interest on accrual was likewise to be
deposited in order that it also might bear interest; that the defendant did not remit or
pay to Jose de la Pena y Gomiz, during the latter's lifetime, nor to any
representative of the said De la Pena y Gomiz, the sum aforestated nor any part
thereof, with the sole exception of P1,289.03, nor has he deposited the unpaid
balance of the said sum in the treasury, according to agreement, wherefore he has
become liable to his principal and to the defendant-administrator for the said sum,
together with its interest, which amounts to P72,548.24 and that, whereas the
defendant has not paid over all nor any part of the last-mentioned sum, he is liable
for the same, as well as for the interest thereon at 6 per cent per annum from the
time of the filing of the complaint, and for the costs of the suit.
In the said amended complaint, the plaintiff alleged as a second cause of action:
that on December 9, 1887, Gonzalo Tuason deposited in the general treasury of the
Spanish Government, to the credit of Pena y Gomiz, the sum of 6,360 pesos, at 5
per cent interest per annum, and on December 20, 1888, the defendant, as the
agent of Pena y Gomiz, withdrew the said amount with its interest, that is, 6,751.60
pesos, and disposed of the same for his own use and benefit, without having paid
all or any part of the said sum to Pena y Gomiz, or to the plaintiff after the latter's
death, notwithstanding the demands made upon him: wherefore the defendant now
owes the said sum of 6,751.60 pesos, with interest at the rate of 5 per cent per
annum, compounded annually, from the 20th of December, 1888, to the time of the
filingof this complaint, and from the latter date at 6 per cent, in accordance with law.
The complaint recites as a third cause of action: that, on or about November 25,
1887, defendant's principal, Pena y Gomiz, on his voyage to Spain, remitted from
Singapore, one of the ports of call, to Father Ramon Caviedas, a Franciscan friar
residing in this city, the sum of 6,000 pesos with the request to deliver the same,
which he did, to defendant, who, on receiving this money, appropriated it to himself
and converted, it to his own use and benefit, since he only remitted to Pena y Gomiz
in Spain, by draft, 737.24 pesos, on December 20, 1888; and, later, on December
21, 1889, he likewise remitted by another draft 860 pesos, without having returned
or paid the balance of the said sum, notwithstanding the demands made upon him
so to do: wherefore the defendant owes to the plaintiff, for the third cause of action,
the sum of P4,402.76, with interest at the rate of 5 per cent per annum,
compounded yearly, to the time of the filing of the complaint and with interest at 6
per cent from that date, as provided by law.
As a fourth cause of action the plaintiff alleges that, on or about January 28, 1904,
on his arrival from Spain and without having any knowledge or information of. the
true condition of affairs relative to the property of the deceased Pena y Gomiz and
its administration, he delivered and paid to the defendant at his request the sum of
P2,000, derived from the property of the deceased, which sum the defendant has
not returned notwithstanding the demands made upon him so to do.
Wherefore the plaintiff petitions the court to render judgment sentencing the
defendant to pay, as the first cause of action, the sum of P72,548.24, with interest
thereon at the rate of 6 per cent per annum from May 24, 1906, the date of the filing
of the complaint, and the costs; as a second cause of action, the sum of
P15,774.19, with interest at the rate of 6 per cent per annum from the said date of
the filing of the complaint, and costs; as a third cause of action, P9,811.13, with
interest from the aforesaid date, and costs; and, finally, as a fourth cause of action,
he prays that the defendant be sentenced to refund the sum of P2,000, with interest
thereon at the rate of 6 per cent per annum from the 23d of January, 1904, and to
pay the costs of trial.
The defendant, Federico Hidalgo, in his answer to the third amended complaint,
sets forth: That he admits the second, third, and fourth allegations contained in the
first, second, third, and fourth causes of action, and denies generally and
specifically each one and all of the allegations contained in the complaint, with the
exception of those expressly admitted in his answer; that, as a special defense
against the first cause of action, he, the defendant, alleges that on November 18,
1887, by virtue of the powers conferred upon him by Pefia y Gomiz, he took charge
of the administration of the latter's property and administered the same until
December 31, 1893, when for reasons of health he ceased to discharge the duties
of said position; that during the years 1889, 1890, 1891, and 1892, the defendant
continually by letter requested Pena y Gomiz, his principal, to appoint a person to
substitute him in the administration of the latter's property, inasmuch as the
defendant, for reasons of health, was unable to continue in his trust; that, on March

22, 1894, the defendant Federico Hidalgo, because of serious illness, was
absolutely obliged to leave these Islands and embarked on the steamer Isla de
Luzon for Spain, on which date the defendant notified his principal that, for the
reason aforestated, he had renounced his powers and turned over the
administration of his property to Antonio Hidalgo, to whom he should transmit a
power of attorney for the fulfillment, in due form, of the trust that the defendant had
been discharging since January 1, 1894, or else execute a power of attorney in
favor of such other person as he might deem proper;

Both parties filed written exceptions to this judgment and asked, separately, for its
annulment and that a new trial be ordered, on the grounds that the findings of fact
contained in the judgment were not supported nor justified by the evidence
produced, and because the said judgment was contrary to law, the defendant
stating in writing that his exception and motion for a new trial referred exclusively to
that part of the judgment that was condemnatory to him. By order of the 10th of
April, 1909, the motions made by both parties were denied, to which they excepted
and announced their intention to file their respective bills of exceptions.

That prior to the said date of March 22, the defendant came, rendered accounts to
his principal, and on the date when he embarked for Spain rendered the accounts
pertaining to the years 1892 and 1893, which were those that yet remained to be
forwarded, and transmitted to him a general statement of accounts embracing the
period from November 18, 1887, to December 31, 1893, with a balance of 6,774.50
pesos in favor of Pena y Gomiz, which remained in the control of the acting
administrator, Antonio Hidalgo; that from the 22d of March, 1894, when the
defendant left these Islands, to the date of his answer to the said complaint, he has
not again intervened nor taken any part directly or indirectly in the administration of
the property of Pena y Gomiz, the latter's administrator by express authorization
having been Antonio Hidalgo, from January 1, 1894, to October, 1902, who, on this
latter date, delegated his powers to Francisco Hidalgo, who in turn administered the
said property until January 7, 1904; that the defendant, notwithstanding his having
rendered, in 1894, all his accounts to Jose Pena y Gomiz, again rendered to the
plaintiff in 1904 those pertaining to the period from 1887 to December 31, 1893,
which accounts the plaintiff approved without any protest whatever and received to
his entire satisfaction the balance due and the vouchers and documents relating to
the property of the deceased Pena y Gomiz and issued to the defendant the proper
acquittance therefor.

By a written motion of the 24th of March, 1909, the plaintiff prayed for the execution
of the said judgment, and the defendant being informed thereof solicited a
suspension of the issuance of the corresponding writ of execution until his motion
for a new trial should be decided or his bill of exceptions for the appeal be
approved, binding himself to give such bond as the court might fix. The court,
therefore, by order of the 25th of the same month, granted the suspension asked
for, conditioned upon the defendants giving a bond, fixed at ?34,000 by another
order of the same date, to guarantee compliance with the judgment rendered should
it be affirmed, or with any other decision that might be rendered in the case by the
Supreme Court. This bond was furnished by the defendant on the 26th of the same
month.

As a special defense to the second cause of action, the defendant alleged that, on
December 9, 1886, Jose de la Pena y Gomiz himself deposited in the caja general
de depositos (General Deposit Bank) the sum of 6,000 pesos, at 6 per cent interest
for the term of one year, in two deposit receipts of 3,000 pesos each, which two
deposit receipts, with the interest accrued thereon, amounted to 6,360 pesos, and
were collected by Gonzalo Tuason, through indorsement by Pena y Gomiz, on
December 9, 1887, and on this same date Tuason, in the name of Pena y Gomiz,
again deposited the said sum of 6,360 pesos in the General Deposit Bank, at the
same rate of interest, for the term of one year and in two deposit receipts of 3,180
pesos each, registered under Nos. 1336 and 1337; that, on December 20, 1888,
Father Ramon Caviedas, a Franciscan friar, delivered to the defendant, Federico
Hidalgo, by order of De la Pena y Gomiz, the said two deposit receipts with the
request to collect the interest due thereon viz., 741.60 pesos and to remit it by draft
on London, drawn in favor of De la Pena y Gomiz, to deposit again the 6,000 pesos
in the said General Deposit Bank, for one year, in a single deposit, and in the latter's
name, and to deliver to him, the said Father Caviedas, the corresponding deposit
receipt and the draft on London for their transmittal to Pena y Gomiz: all of which
was performed by the defendant who acquired the said draft in favor of De la Pena
y Gomiz from the Chartered Bank of India, Australia and China, on December 20,
1888, and delivered the draft, together with the receipt from the General Deposit
Bank, to Father Caviedas, and on the same date, by letter, notified Pena y Gomiz of
the transactions executed; that on December 20, 1889, the said Father Ramon
Caviedas delivered to the defendant, Federico Hidalgo, by order of Pena y Gomiz,
the aforesaid deposit receipt from the General Deposit Bank, with the request to
remit, in favor of his constituent, the interest thereon, amounting to 360 pesos,
besides 500 pesos of the capital, that is 860 pesos in all, and to again deposit the
rest, 5,500 pesos, in the General Deposit Bank for another year in Pena y Gomiz's
own name, and to deliver to Father Caviedas the deposit receipt and the draft on
London, for their transmittal to his constituent; all of which the defendant did; he
again deposited the rest of the capital, 5,500 pesos, in the General Deposit Bank, in
the name of Pena y Gomiz, for one year at 5 per cent interest, under registry
number 3,320, and obtained from the house of J. M. Tuason & Co. a draft on
London for 860 pesos in favor of Pena y Gomiz, on December 21, 1889, and
thereupon delivered the said receipt and draft to Father Caviedas, of which acts,
when performed, the defendant advised Pena y Gomiz by letter of December 24,
1889; and that, on December 20, 1890, the said Father Ramon Caviedas delivered
to the defendant, by order of Pefia y Gomiz, the said deposit receipt for 5,500 pesos
with the request that he withdraw from the General Deposit Bank the capital and
accrued interest, which amounted all together to 5,775 pesos, and that he deliver
this amount to Father Caviedas, which he did, in order that it might be remitted to
Pena y Gomiz.
The defendant denies each of the allegations contained in the third cause of action,
and avers that they are all false and calumnious.
He likewise makes a general and specific denial of all the allegations of the fourth
cause of action.
As a counterclaim the defendant alleges that Jose Pena y Gomiz owed and had not
paid the defendant, up to the date of his death, the sum of 4,000 pesos, with interest
at 6 per cent per annum, and 3,600 pesos, without interest, the said capital and
interest amounting all together, on January 15, 1904, to 11,000 pesos, and on the
plaintiff's being presented with the receipt subscribed by his father, Pena y Gomiz,
on the said date of January 15th, and evidencing his debt, plaintiff freely and
voluntarily offered to exchange for the said receipt another document executed by
him, and transcribed in the complaint. Defendant further alleges that, up to the date
of his counterclaim, the plaintiff has not paid him the said sum, with the exception of
2,000 pesos. Wherefore the defendant prays the court to render judgment absolving
him from the complaint with the costs against the plaintiff, and to adjudge that the
latter shall pay to the defendant the sum of 9,000 pesos, which he still owes to
defendant, with legal interest thereon from the date of the counterclaim, to wit, May
21, 1907, and to grant s.uch other and further relief as may be just and equitable.
On the 25th of September, 1908, and subsequent dates, the new trial was held; oral
testimony was adduced by both parties, and the documentary evidence was
attached to the record of the proceedings, which show that the defendant objected
and took exception to the introduction of certain oral and documentary evidence
produced by the plaintiff. On February 26, 1909, the court in deciding the case found
that the defendant, Federico Hidalgo, as administrator of the estate of the deceased
Pena y Gomiz, actually owed the plaintiff, on the date of the filing of the complaint,
the sum of f37,084.93; that the plaintiff was not entitled to recover any sum
whatever from the defendant for the alleged second, third, and fourth causes of
action; that the plaintiff actually owed the defendant, on the filing of the complaint,
the sum of P10,155, which the defendant was entitled to deduct from the sum owing
by him to the plaintiff. Judgment was therefore entered against the defendant,
Federico Hidalgo, for the payment of P26,629.93, with interest thereon at the rate of
6 per cent per annum from May 23, 1906, and the costs of the trial.

On April 16 and May 4, 1909, the defendant and the plaintiff filed their respective
bills of exceptions, which were certified to and approved by order of May 8th and
forwarded to the clerk of this court.
Before proceeding to examine the disputed facts and to make such legal findings as
follow from a consideration of the same and of the questions of law to which such
facts give rise, and for the purpose of avoiding confusion and obtaining the greatest
clearness and an easy comprehension of this decision, it is indispensable to
premise: First, that, as before related, the original and first complaint filed by the
plaintiff was drawn against Federico Hidalgo, Antonio Hidalgo, and Francisco
Hidalgo, the three persons who had successively administered the property of Jose
de la Pena y Gomiz, now deceased; but afterwards the action was directed solely
against Federico Hidalgo, to the exclusion of the other defendants, Antonio and
Francisco Hidalgo, in the second and third amended complaints, the latter of the
date of August 10, 1908, after the issuance by the court of the order of April 4th of
the same year, granting the new trial solicited by the defendant on his being notified
of the ruling of the 24th of the previous month of March; second, that the
administration of the property mentioned, from the time its owner left these Islands
and returned to Spain, lasted from November 18, 1887, to January 7, 1904; and
third, that, the administration of the said Federico, Antonio, and Francisco Hidalgo,
having lasted so long, it is necessary to divide it into three periods in order to fix the
time during which they respectively administered De la Pena's property: During the
first period, from November 18, 1887, to December 31, 1893, the property of the
absent Jose de la Pena y Gomiz was administered by his agent, Federico Hidalgo,
under power of attorney; during the second period, from January 1, 1894, to
September, 1902, Antonio Hidalgo administered the said property, and during the
third period, from October, 1902, to January 7, 1904, Francisco Hidalgo was its
administrator.
Before Jose de la Pena y Gomiz embarked for Spain, on November 12, 1887, he
executed before a notary a power of attorney in favor of Federico Hidalgo, Antonio
L. Rocha, Francisco Roxas and Isidro Llado, so that, as his agents, they might
represent him and administer, in the order in which they were appointed, various
properties he owned and possessed in Manila. The first agent, Federico Hidalgo,
took charge of the administration of the said property on the 18th of November,
1887.
After Federico Hidalgo had occupied the position of agent and administrator of De la
Pena's property for several years, the former wrote to the latter requesting him to
designate a person who might substitute him in his said position in the event of his
being obliged to absent himself from these Islands, as one of those appointed in the
said power of attorney had died and the others did not wish to take charge of the
administration of their principal's property. The defendant, Hidalgo, stated that his
constituent, Pena y Gomiz, did not even answer his letters, to approve or object to
the former's accounts, and did not appoint or designate another person who might
substitute the defendant in his administration of his constituent's property. These
statements were neither denied nor proven to be untrue by the plaintiff, Pena y de
Ramon, nor does the record show any evidence tending to disapprove them, while it
does show, attached to the record and exhibited by the defendant himself, several
letters written by Hidalgo and addressed to Pena y Gomiz, which prove the said
statements, and also a letter from the priest Pedro Gomiz, a relative of the
deceased Jose de la Pena y Gomiz, addressed to Federico Hidalgo, telling the latter
that the writer had seen among the papers of the deceased several letters from the
agent, Federico Hidalgo, in which the latter requested the designation of a
substitute, because he had to leave this country for Spain, and also asked for the
approval or disapproval of the accounts of his administration which had been
transmitted to his constituent, Pena y Gomiz.
For reasons of health and by order of his physician, Federico Hidalgo was obliged,
on March 22, 1894, to embark for Spain, and, on preparing for his departure, he
rendered the accounts of his administration corresponding to the last quarters, up to
December 31, 1893, not as yet transmitted, and forwarded them to his constituent
with a general statement of all the partial balances, which amounted to the sum total
of 6,774.50 pesos, by letter of the date of March 22, 1894, addressed to his
principal, Pena y Gomiz. In this letter the defendant informed the latter of the writer's
intended departure from this country and of his having provisionally turned over the
administration of the said property to his cousin, Antonio Hidalgo, upon whom the
writer had conferred a general power of attorney, but asking, in case that this was
not sufficient, that Pena send to Antonio Hidalgo a new power of attorney.
This notification is of the greatest importance in the decision of this case. The
plaintiff avers that he found no such letter among his father's papers after the latter's
death, for which reason he did not have it in his possession, but on the introduction
of a copy thereof by the defendant at the trial, it was admitted without objection by
the plaintiff (p. 81 of the record); wherefore, in spite of the denial of the plaintiff and
of his averment of his not having found the said original among his father's papers,
justice demands that it be concluded that this letter of the 22d of March, 1894, was
sent to, and was received by Jose de la Pena y Gomiz, during his lifetime, for its
transmittal, with inclosure of the last partial accounts of Federico Hidalgo's
administration and of the general resume of balances, being affirmed by the
defendant, the fact of the plaintiff's having found among his deceased father's
papers the said resume which he exhibited at the trial, shows conclusively that it
was received by the deceased, as well as the letter of transmittal of the 22d of
March, 1894, one of the several letters written by Hidalgo, which the said priest,
Father Gomiz, affirms that he saw among the papers of the deceased Pena, the
dates of which ran from 1890 to 1894; and it is also shown by the record that the

defendant Hidalgo positively asserted that the said letter of March was the only one
that he wrote to Pena during the year 1894: From all of which it is deduced that the
constituent, Pena y Gomiz, was informed of the departure of his agent from these
Islands for reasons of health and because of the physician's advice, of the latter's
having turned over the administration of the property to Antonio Hidalgo, and of his
agent's, the defendant's, petition that he send a new power of attorney to the
substitute.
The existence, among the papers of the deceased, of the aforementioned statement
of all accounts rendered, which comprise the whole period of the administration of
the property of the constituent by the defendant, Federico Hidalgo, from November
18, 1887, to December 31, 1893 a statement transmitted with the last partial
accounts which were a continuation of those already previously received - and the
said letter of March 22, 1894, fully prove that Jose de la Pena y Gomiz also
received the said letter, informed himself of its contents, and had full knowledge that
Antonio Hidalgo commenced to administer his property from January of that year.
They likewise prove that he did not see fit to execute a new power of attorney in the
latter's favor, nor to appoint or designate a new agent to take charge of the
administration of his property that had been abandoned by the defendant, Federico
Hidalgo.
From the procedure followed by the agent, Federico Hidalgo, it is logically inferred
that he had definitely renounced his agency and that the agency was duly
terminated, according to the provisions of article 1732 of the Civil Code, because,
although in the said letter of March 22, 1894, the word "renounce" was not
employed in connection with the agency or power of attorney executed in his favor,
yet when the agent informs his principal that for reasons of health and by medical
advice he is about to depart from the place where he is exercising his trust and
where the property subject to his administration is situated, abandons the property,
turns it over to a third party, without stating when he may return to take charge of the
administration, renders accounts of its revenues up to a certain date, December 31,
1893, and transmits to his principal a general statement which summarizes and
embraces all the balances of his accounts since he began to exercise his agency to
the date when he ceased to hold his trust, and asks that a power of attorney in due
form be executed and transmitted to another person who substituted him and took
charge of the administration of the principal's property, it is then reasonable and just
to conclude that the said agent expressly and definitely renounced his agency, and it
may not be alleged that the designation of Antonio Hidalgo to take charge of the
said administration was that of a mere provisional substitution during said agent's
absence, which indeed lasted for more than fifteen years, for such an allegation
would be in conflict with the nature of the agency.
This renouncement was confirmed by the subsequent procedure, as well of the
agent as of the principal, until the latter died, on August 2, 1902, since the principal
Pena did not disapprove the designation of Antonio Hidalgo, nor did he appoint
another, nor send a new power of attorney to the same, as he was requested to do
by the previous administrator who abandoned his charge; and the trial record
certainly contains no proof that the defendant, since he left these Islands in March,
1894, until January, 1904, when he returned to this city, took any part whatever,
directly or even indirectly, in the said administration of the principal's property, while
Antonio Hidalgo was the only person who was in charge of the aforementioned
administration of De la Pena y Gomiz's property and the one who was to represent
the latter in his business affairs, with his tacit consent. From all of which it is
perfectly concluded, (unless there be proof to the contrary, and none appears in the
record), that Antonio Hidalgo acted in the matter of the administration of the property
of Jose de la Pena y Gomiz by virtue of an implied agency derived from the latter, in
accordance with the provisions of article 1710 of the Civil Code.
The proof of the tacit consent of the principal, Jose de la Pena y Gomiz, the owner
of the property administered - a consent embracing the essential element of a
legitimate agency, article 1710 before cited consists in that Pea, knowing that on
account of the departure of Federico Hidalgo from the Philippines for reasons of
health, Antonio Hidalgo took charge of the administration of his property, for which
Federico, his agent, who was giving up his trust, requested him to send a new
power of attorney in favor of the said Antonio Hidalgo, nevertheless he, Jose de la
Pena y Gomiz, saw fit not to execute nor transmit any power of attorney whatever to
the new administrator of his property and remained silent for nearly nine years; and,
in that the said principal, being able to prohibit the party designated, Antonio
Hidalgo, from continuing in the exercise of his position as administrator, and being
able to appoint another agent, did neither the one nor the other. Wherefore, in
permitting Antonio Hidalgo to administer his property in this city during such a
number of years, it is inferred, from the procedure and silence of the owner thereof,
that he consented to have Antonio Hidalgo administer his property, and in fact
created in his favor an implied agency, as the true and legitimate administrator.
Antonio Hidalgo administered the aforementioned property of De la Pena y Gomiz,
not in the character of business manager, but as agent by virtue of an implied
agency vested in him by its owner who was not unaware of the fact, who knew
perfectly well that the said Antonio Hidalgo took charge of the administration of that
property on account of the obligatory absence of his previous agent for whom it was
an impossibility to continue in the discharge of his duties.
It is improper to compare the case where the owner of the property is ignorant of the
officious management of the third party, with the case where he had perfect
knowledge of the management and administration of the same, which administration
and management, far from being opposed by him was indeed consented to by him
for nearly nine years, as was done by Pena y Gomiz. The administration and
management, by virtue of an implied agency, is essentially distinguished from the
management of another's business, in this respect, that while the former originates
from a contract, the latter is derived only from a qausi-contract. The implied agency
is founded on the lack of contradiction or opposition, which constitutes simultaneous
agreement on the part of the presumed principal to the execution of the contract,
while in the management of another's business there is no simultaneous consent,
either express or implied, but a fiction or presumption of consent because of the
benefit received.
The distinction between an agency and a business management has been
established by the jurisprudence of the supreme court (of Spain) in its noteworthy
decision of the 7th of July, 1881, setting up the following doctrine:
"That laws 28 and 32, title 12, Partida 3, refer to the expenses incurred in things not
one's own and without power of attorney from those to whom they belong, and
therefore the said laws are not applicable to this suit where the petition of the
plaintiff is founded on the verbal request made to him by the defendant or the latter's
employees to do some hauling, and where, consequently, questions that arise from
a contract that produces reciprocal rights and duties can not be governed by the
said laws."

It being absolutely necessary for Federico Hidalgo to leave this city and abandon
the administration of the property of his principal, Pena y Gomiz, for reasons of
health, he made delivery of the property and of his administration to Antonio Hidalgo
and gave notice of what he had done to his constituent, Pena, in order that the latter
might send a new power of attorney to Antonio Hidalgo, the person charged with the
administration of the property. Pena y Gomiz did not send the power of attorney
requested, did not oppose or prohibit Antonio Hidalgo's continuing to administer his
property, and consented to his doing so for nearly nine years. Consequently the
second administrator must be considered as a legitimate agent of the said principal,
as a result of the tacit agreement on the latter's part, and the previous agent, who
necessarily abandoned and ceased to hold his position, as completely free and
clear from the consequences and results of the second administration, continued by
a third party and accepted by his principal; for it is a fact, undenied nor even
doubted, that the said first administrator had to abandon the country and the
administration of Pena's property for reasons of health, which made it impossible for
him to continue in the discharge of his duties without serious detriment to himself,
his conduct being in accordance with the provisions of article 1736 of the Civil Code.
In the power of attorney executed by Pena y Gomiz in this city on November 12,
1887, in favor of, among others, Federico Hidalgo, no authority was conferred upon
the latter by his principal to substitute the power or agency in favor of another
person; wherefore the agent could not, by virtue of the said power of attorney,
appoint any person to substitute or relieve him in the administration of the principal's
property, for the lack of a clause of substitution in the said instrument authorizing
him so to do.
The designation of Antonio Hidalgo was not made as a result of a substitution of the
power of attorney executed by Pena in favor of the defendant, but in order that the
principal's property should not be abandoned, inasmuch as, for the purposes of the
discharge of the duties of administrator of the same, the agent, who was about to
absent himself from this city, requested his principal to send to the party,
provisionally designated by the former, a new power of attorney, for the reason that
the general power of attorney which Federico Hidalgo had left, executed in favor of
his cousin Antonio Hidalgo, was so executed in his own name and for his own
affairs, and not in the name of Pena y Gomiz, as the latter had not authorized him to
take such action.
If the owner of the property provisionally administered at the time by Antonio
Plidalgo, saw fit to keep silent, even after having received the aforesaid letter of
March 22, 1894, and during the lapse of nearly ten years, without countermanding
or disapproving the designation of the person who took charge of the administration
of his property, knowing perfectly well that his previous agent was obliged, by
sickness and medical advice to leave this city where such property was situated, he
is not entitled afterwards to hold amenable the agent who had to abandon this
country for good and valid reasons, inasmuch as the latter immediately reported to
his principal the action taken by himself and informed him of the person who had
taken charge of the administration of his property, which otherwise would have been
left abandoned. From the time of that notification the agent who, for legitimate
cause, ceased to exercise his trust, was free and clear from the results and
consequences of the management of the person who substituted him with the
consent, even only a tacit one, of the principal, inasmuch as the said owner of the
property could have objected to, could have prohibited the continuance in the
administration thereof, of the party designated by his agent, and could have
opportunely appointed another agent or mandatory of his own confidence to look
after his property, and if he did not do so, he is obliged to abide by the
consequences of his negligence and abandonment and has no right to claim
damages against his previous agent, who complied with his duty and did all that he
could and ought to have done, in accordance with the law.
The defendant Federico Hidalgo, having ceased in his administration of the property
belonging to Pena y Gomiz, on account of physical impossibility, which cessation he
duly reported to his principal and also informed him of the person who relieved him
as such administrator, and for whom he had requested a new power of attorney, is
only liable for the results and consequences of his administration during the period
when the said property was in his charge, and therefore his liability can not extend
beyond the period of his management, as his agency terminated by the tacit or
implied approval of his principal, judging from the latter's silence in neither objecting
to nor in anywise prohibiting Antonio Hidalgo's continuing to administer his property,
notwithstanding the lapse of the many years since he learned by letter of the action
taken by his previous agent, Federico Hidalgo.
Moreover, this latter, in announcing the termination of his agency, transmitted the
last partial accounts that he had not rendered, up to December 31, 1893, together
with a general statement of all the resulting balances covering the period of his
administration, and Jose de la Pena y Gomiz remained silent and offered no
objection whatever to the said accounts and did not manifest his disapproval of the
same nor of the general statement, which he must have received in April or May,
1894, up to the time he died, in August, 1902; and when his son, the plaintiff, came
to this city in company with the defendant, Federico Hidalgo, they traveled together
from Spain and arrived in Manila during one of the early days of January, 1904, the
former, for the purpose of taking charge of the estate left by his father, and after the
plaintiff had examined the accounts kept by Federico Hidalgo, his deceased father's
first agent, he approved them and therefore issued in favor of the defendant the
document, Exhibit 5, found on page 936 of the second record of trial, dated January
15, 1904, in which Jose de la Pena y de Ramon acknowledged having received
from his deceased father's old agent the accounts, balances, and vouchers to his
entire satisfaction, and gave an acquittance in full settlement of the administration
that had been commended to the defendant Hidalgo.
This document, written in the handwriting of the plaintiff, Pena y de Ramon, appears
to be executed in a form considered to be sufficient by its author, and,
notwithstanding the allegations of the said plaintiff, the record contains no proof of
any kind of Federico Hidalgo's having obtained it by coercion, intimidation, deceit, or
fraud; neither is it shown to have been duly impugned as false, criminally or civilly,
for the statements therein made by the plaintiff are too explicit and definite to allow,
without proof of some vice or defect leading to nullification, of its being considered
as void and without value or legal effect.
With respect to the responsibility contracted by the defendant, as regards the
payment of the balance shown by the accounts rendered by him, it is not enough
that the agent should have satisfactorily rendered the accounts pertaining to his
trust, but it is also indispensable that it be proved that he paid to his principal, or to
the owner of the property administered, the balance resulting from his accounts,
This balance, which was allowed in the judgment appealed from, notwithstanding
the allegations of the plaintiff, whjch were not deemed as established, amounts to
P6,774.50, according to the proofs adduced at the trial. It was the imperative duty of
the administrator, Federico Hidalgo, to transmit this sum to his principal, Jose de la

Pena y Gomiz, as the final balance of the accounts of his administration, struck on
December 31, 1893, and by his failure so to do and his delivery of the said sum to
his successor, Antonio Hidalgo, he acted improperly, and must pay the same to the
plaintiff.
Antonio Hidalgo took charge of the administration of Pena y Gomiz's property from
January, 1894, to September, 1902, that fs, during the second period of
administration of the several properties that belonged to the deceased Pena.
Although the plaintiff, in his original complaint, had included the said Antonio Hidalgo
as one of the responsible defendants, yet he afterwards excluded him, as well from
the second as from the third amended complaint, and consequently the liability that
might attach to Antonio Hidalgo was not discussed, nor was it considered in the
judgment of the lower court; neither can it be in this decision, for the reason that the
said Antonio Hidalgo is not a party to this suit. However, the said liability of Antonio
Hidalgo is imputed to Federico Hidalgo, and so it is that, in the complaint, the claim
is made solely against Federico Hidalgo, in order that the latter might be adjudged
to pay the amounts which constitute the balance owing from him who might be
responsible, Antonio Hidalgo, during the period of this latter's administration.
Federico Hidalgo, in our opinion, could not and can not be responsible for the
administration of the property that belonged to the deceased Pena y Gomiz, which
was administered by Antonio Hidalgo during eight years and some months, that is,
during the second period, because of the sole fact of his having turned over to the
latter the administration of the said property on his departure from this city for Spain.
Neither law nor reason obliged Federico Hidalgo to remain in this country at the cost
of his health and perhaps of his life, even though he were the administrator of
certain property belonged to Pena y Gomiz, since the care of the property and
interests of another does not require sacrifice on the part of the agent of his own life
and interests. Federico Hidalgo was obliged to deliver the said property belonging to
Pena y Gomiz to Antonio Hidalgo, for good and valid reasons, and in proceeding in
the manner aforesaid he complied with the duty required of him by law and justice
and acted as a diligent agent. If the principal, Jose de la Pena y Gomiz, the owner
of the property mentioned, although informed opportunely of what had occurred saw
fit to keep silent, not to object to the arrangements made, not to send the power of
attorney requested by Federico Hidalgo in favor of Antonio Hidalgo, and took no
action nor made any inquiry whatever to ascertain how his property was being
administered by the second agent, although to the time of his death more than eight
years had elapsed, the previous agent, who ceased in the discharge of his duties,
can in nowise be held liable for the consequences of such abandonment, nor for the
results of the administration of property by Antonio Hidalgo, for the reason that,
since his departure from this country, he has not had the least intervention nor even
indirect participation in the aforementioned administration of the said Antonio
Hidalgo who, under the law, was the agent or administrator by virtue of an implied
agency, which is equivalent in its results to an express agency, executed by the
owner of the property. Consequently, Federico Hidalgo is not required to render
accounts of the administration corresponding to the second period mentioned, nor
to pay the balance that such accounts may show to be owing.
At the first trial of this cause, Federico Hidalgo, it appears, testified under oath that
his principal, Jose Pena y Gomiz, did not agree to the appointment of Antonio
Hidalgo, chosen by the witness, nor to such appointee's taking charge' of the
administration of his property. Aside from the fact that the trial record does not show
how nor on what date Pena expressed such disagreement, it is certain that, in view
of the theory of defense maintained by the defendant in this suit and his own denial
of his having given such a negative answer, we fail to understand how the
defendant Hidalgo could have said, by means of a no, that his principal did not
agree to the appointment of the said Antonio Hidalgo, and the intercalation of the
word no in the statement quoted is the more inexplicable in that the attorney for the
adverse party moved that the said answer be striken from the record, as he
objected to its appearing therein.
Were it true that the principal, Jose de la Pena y Gomiz, had neither agreed to the
designation of Antonio Hidalgo, nor to the latter's administering his property, he
would immediately have appointed another agent and administrator, since he knew
that Federico Hidalgo had left the place where his property was situated and tjiat it
would be abandoned, had he not wished that Antonio Hidalgo should continue to
administer it. If the latter continued in the administration of the property for so long a
time, nearly nine years, it was because the said Pena agreed and gave his consent
to the acts performed by his outgoing agent, and for this reason the answer given by
Federico Hidalgo, mistakenly, or not, that his principal, Pena, did not agree to the
appointment of Antonio Hidalgo, is immaterial and does not affect the terms of this
decision.
If the defendant is not responsible for the results of the administration of the said
property administered by Antonio Hidalgo during the second period before referred
to, neither is he responsible for that performed during the third period by Francisco
Hidalgo, inasmuch as the latter was not even chosen by the defendant who, on
October 1, 1902, when Francisco Hidalgo took charge of Peiia's property that had
been turned over to him by Antonio Hidalgo, was in Spain and had no knowledge of
nor intervention in such delivery: wherefore the defendant can in no manner be
obliged to pay to the plaintiff any sum that may be found owing by Francisco
Hidalgo.
The trial judge taking into consideration that, by the evidence adduced at the
hearing, it was proved that Francisco Hidalgo rendered accounts to the plaintiff of
the administration of the property in question during the said third period, that is, for
one year, three months, and some days, and that he delivered to the plaintiff the
balance of 1,280.03 pesos, for which the latter issued to the said third administrator
the document Exhibit 2, written in his own handwriting under date of January 7,
1904, and the signature which, affixed by himself, he admitted in his testimony was
authentic, on its being exhibited to him found that the plaintiff, Pena y de Ramon,
was not entitled to recover any sum whatever for the rents pertaining to the
administration of his property by the said Francisco Hidalgo.
All the reasons hereinbefore given relate to the first cause of action, whereby claim
is made against Federico Hidalgo for the payment of the sum of P72,548.24 and
interest at the rate of 6 per cent per annum, and they have decided some of the
errors assigned by the appellants in their briefs to the judgment appealed from.
Two amounts are claimed which have one and the same origin, yet are based on
two causes of action, the second and the third alleged by the plaintiff; and although
the latter, afterwards convinced by the truth and of the impropriety of his claim, had
to waive the said third cause of action during the second hearing of this cause (pp.
57 and 42 of the record of the evidence), the trial judge, on the grounds that the said
second and third causes of action refer to the same certificates of deposit of the
treasury of the Spanish Government, found, in the judgment appealed from, that the

plaintiff was not entitled to recover anything for the aforesaid second and third
causes of action - a finding that is proper and just, although qualified as erroneous
by the plaintiff in his brief.
It appears, from the evidence taken in this cause, that Jose de la Pena y Gomiz,
according to the certificate issued by the chief of the division of archives (p. 982 of
the record), did not again during his lifetime, after having in 1882 withdrawn from the
General Deposit Bank of the Spanish Government a deposit of 17,000 pesos and its
interest, deposit any sum therein until December 9, 1886, when he deposited two
amounts of 3,000 pesos each, that is, 6,000 pesos in all, the two deposit receipts for
the same being afterwards endorsed in favor of Gonzalo Tuason. The latter, on
December 9, 1887, withdrew the deposit and took out the said two amounts,
together with the interest due thereon, and on the same date redeposited them in
the sum of 6,360 pesos at 5 per cent per annum in the name of Jose de la Pena y
Gomiz. On the 20th of December of the following year, 1888, the defendant Hidalgo
received from his principal, Pena y Gomiz, through Father Ramon Caviedas, the
two said letters of credit, in order that he might withdraw from the General Deposit
Bank the two amounts deposited, together with the interest due thereon, amounting
to 741 pesos, and with this interest purchase a draft on London in favor of its owner
and then redeposit the original capital of 6,000 pesos. This, the defendant Hidalgo
did and then delivered the draft and the deposit receipt to Father Caviedas, of all of
which transactions he informed his principal by letter of the same date, transcribed
on page 947 of the second trial record.
In the following year, 1889, Father Ramon Caviedas again delivered to the
defendant Hidalgo the aforementioned deposit receipt with the request to withdraw
from the General Deposit Bank the sum deposited and to purchase a draft of 860
pesos on London in favor of their owner, Jose de la Pena y Gomiz, and, after
deducting the cost of the said draft from the capital and interest withdrawn from
deposit, amounting to 6,360 pesos, to redeposit the remainder, 5,500 pesos, in the
bank mentioned, in accordance with the instructions from Pena y Gomiz: All of
which was done by the defendant Hidalgo, who delivered to Father Caviedas the
receipt for the new deposit of 5,500 pesos as accredited by the reply-letter,
transcribed on page 169 of the record, and by the letter addressed by Hidalgo to
Pena, of the date of December 20 of that year and shown as an original exhibit by
the plaintiff himself on page 29 of the record of the evidence.
Lastly, in December, 1890, Father Caviedas, aforementioned, delivered to the
defendant Hidalgo the said deposit receipt for 5,500 pesos in order that he might
withdraw this amount from deposit and deliver it with the interest thereon to the
former for the purpose of remitting it by draft to Jose de la Pena; this Hidalgo did,
according to a reply-letter from Father Caviedas, the original of which appears on
page 979 of the file of exhibits and is copied on page 171 of the trial record, and is
apparently confirmed by the latter in his sworn testimony.
So that the two amounts of 3,000 pesos each, expressed in two deposit receipts
received from De la Pena y Gomiz by Father Ramon Caviedas and afterwards
delivered to Francisco Hidalgo for the successive operations of remittance and
redeposit in the bank before mentioned, are the same and only ones that were on
deposit in the said bank in the name of their owner, Pena y Gomiz. The defendant
Hidalgo made two remittances by drafts on London, one in 1888 for 741.60 pesos,
through a draft purchased from the Chartered Bank, and another in 1889 for 860
pesos, through a draft purchased from the house of Tuason & Co., and both in favor
of Pena y Gomiz, who received through Father Ramon Caviedas the remainder,
5,500 pesos, of the sums deposited. For these reasons, the trial judge was of the
opinion that the certificates of deposit sent by Pena y Gomiz to Father Ramon
Caviedas and those received from the latter by the defendant Hidalgo were
identical, as were likewise the total amounts expressed by the said receipts or
certificates of deposit, from the sum of which were deducted the amounts remitted
to Pena y Gomiz and the remainder deposited after each annual operation until,
finally, the sum of 5,500 pesos was remitted to its owner, Pena y Gomiz, according
to his instructions, through the said Father Caviedas. The lower court, in concluding
its judgment, found that the plaintiff was not entitled to recover any sum whatever for
the said second and third causes of action, notwithstanding that, as hereinbefore
stated, the said plaintiff withdrew the third cause of action. This finding of the court,
with respect to the collection of the amounts of the aforementioned deposit receipts,
is perfectly legal and in accordance with justice, inasmuch as it is sustained by
abundant and conclusive documentary evidence, which proves in an incontrovertible manner the unrighteousness of the claim made by the plaintiff in twice
seeking payment, by means of the said second and third causes of action, of the
same sum which, after various operations of deposit and remittance during three
years, was finally returned with its interest to the possession of its owner, Pena y
Gomiz.
From the trial had in this case, it also appears conclusively proved that Jose de la
Pena y Gomiz owed, during his lifetime, to Federico Hidalgo, 7,600 pesos, 4,000
pesos of which were to bear interest at the rate of 6 per cent per annum, and the
remainder without any interest, and that, notwithstanding the lapse of the period of
three years, from November, 1887, within which he bound himself to repay the
amount borrowed, and in spite of his creditor's demand of payment, made by
registered letter, the original copy of which is on page 38 of the file of exhibits and a
transcription thereof on page 930 of the first and second record of the evidence, the
debt was not paid up to the time of the debtor's death. For such reasons, the trial
court, in the judgment appealed from, found that there was a preponderance of
evidence to prove that this loan had been made and that the plaintiff actually owed
the defendant the sum loaned, as well as the interest thereon, after deducting
therefrom the 2,000 pesos which the defendant received from the plaintiff on
account of the credit, and that the former was entitled to recover.
It appears from the pleadings and evidence at the trial that in January, 1904, on the
arrival in this city of Federico Hidalgo and the plaintiff, Jose de la Pena y de Ramon,
and on the occasion of the latter's proceeding to examine the accounts previously
rendered, up to December 31, 1893, by the defendant Hidalgo to the plaintiff's
father, then deceased, Hidalgo made demand upon the plaintiff, Pena y de Ramon,
for the payment of the said debt of his father, although the creditor Hidalgo
acceeded to the requests of the plaintiff to grant the latter an extension of time until
he should be able to sell one of the properties of the estate. It was at that time,
according to the defendant, that the plaintiff Pena took up the instrument of
indebtedness, executed by his deceased father during his lifetime, and delivered to
the defendant in exchange therefor the document of the date of January 15, 1904,
found on page 924 of the second record of evidence, whereby the plaintiff, Jose de
la Pena, bound himself to pay his father's debt of 11,000 pesos, owing to the
defendant Hidalgo, out of the proceeds of the sale of some one of the properties
specified in the said document, which was written and signed by the plaintiff in his
own handwriting.
The plaintiff not only executed the said document acknowledging his father's debt

and binding himself to settle it, but also, several days after the sale of a lot
belonging to the estate, paid to the creditor on account the sum of 2,000 pesos,
according to the receipt issued by the latter and exhibited on page 108 of the first
record of evidence. The said document, expressive of the obligation contracted by
the plaintiff, Pena y de Ramon, that he would pay to the defendant the debt of
plaintiff's deceased father, amounting to 11,000 pesos, out of the proceeds from
some of the properties of the estate, has not been denied nor impugned as false;
and notwithstanding the averment made by the plaintiff that when he signed he
lacked information and knowledge of the true condition of the affairs concerning
Hidalgo's connection with the property that belonged, to De la Pena's father, it can
not be denied that absolutely no proof whatever is shown in the trial record of the
creditor's having obtained the said document through deceit or fraud circumstances
in a certain manner incompatible with the explicit statements contained therein. For
these reasons, the trial court, weighing the whole of the evidence furnished by the
record, found that the loan of the said 7,600 pesos was truly and positively made,
and that the plaintiff must pay the same to the defendant, with the interest thereon,
and that he was not entitled to recover the 2,000 pesos, as an undue payment
made by him to the defendant creditor. For the foregoing reason the other errors
assigned by the plaintiff to the judgment appealed from are dismissed.
With respect to the obligation to pay the interest due on the amounts concerned in
this decision, it must be borne in mind that, as provided by article 1755 of the Civil
Code, interest shall only be owed when it has been expressly stipulated, and that
should the debtor, who is obliged to pay a certain sum of money, be in default and
fail to fulfill the agreement made with his creditor, he must pay, as indemnity for
losses and damages, should there not be a stipulation to the contrary, the interest
agreed upon, and should there be no express stipulation, the legal interest (art.
1108 of the Civil Code); but, in order that the debtor may be considered to be in
default and obliged to pay the indemnity, it is required, as a general rule, that his
creditor shall demand of such debtor the fulfillment of his obligation, judicially or
extrajudicially, except in such cases as are limitedly specified in article 1100 of the
Civil Code.
It was not expressly stipulated that either the balance of the last account rendered
by the defendant Federico Hidalgo in 1893, or the sum which the plaintiff bound
himself to pay to the defendant, in the instrument of the 15th of January, 1904,
should bear interest; nor is there proof that a judicial or extrajudicial demand was
made, on the part of the respective creditors concerned, until the date of the
complaint, on the part of the plaintiff, and that of the counterclaim, on the part of the
defendant. Therefore no legal interest is owing for the time prior to the respective
dates of the complaint and counterclaim.
By virtue, then, of the reasons hereinbefore set forth, it is proper, in our opinion, to
adjudge, as we do hereby adjudge, that the defendant, Federico Hidalgo, shall pay
to the plaintiff, Jose de la Pena y de Ramon, as administrator of the estate of the
deceased Jose de la Pena y Gomiz, the sum of P6,774.50, and the legal interest
thereon at the rate of 6 per cent per annum from the 23d of May, 1906, the date of
the filing of the original complaint in this case; that we should and hereby do declare
that the said defendant, Federico Hidalgo, is not bound to give nor render accounts
of the administration of the property of the said deceased Jose de la Pena y Gomiz,
administered, respectively, by Antonio Hidalgo, from January, 1894, to September
80, 1902, and by Francisco Hidalgo, from October 1, 1902, to January 7, 1904, and
therefore the defendant, Federico Hidalgo, not being responsible for the results of
the administration of the said property administered by the said Antonio and
Francisco Hidalgo, we do absolve the said defendant from the complaint filed by the
plaintiff, in so far as it concerns the accounts pertaining to the aforesaid two periods
of administration and relates to the payment of the balances resulting from such
accounts; and that we should and hereby do absolve the defendant Hidalgo from
the complaint with respect to the demand for the payment of the sums of
P15,774.19 and P2,000, with their respective interests, on account of the second
and the fourth cause of action, respectively, and, because the plaintiff renounced
and withdrew his complaint, with respect to the third cause of action; and that we
should and do likewise adjudge, that the plaintiff, Jose de la Pena y de Ramon, shall
pay to Federico Hidalgo, by reason of the counterclaim, the sum of P9,000 with
legal interest thereon at the rate of 6 per cent per annum from the 21st of May,
1907, the date of the counterclaim.
The judgment appealed from, together with that part thereof relative to the
statement it contains concerning the equivalence between the Philippine peso and
the Mexican peso, is affirmed in so far as it is in agreement with the findings of this
decision, and the said judgment is reversed in so far as it is not in accordance
herewith. No special finding is made as to costs assessed in either instance, and to
the plaintiff is reserved any right that he may be entitled to enforce against Antonio
Hidalgo.
Arellano, C J., Johnson, Moreland, and Trent, JJ., concur.
SECOND DIVISION
[ G.R. No. 76931, May 29, 1991 ]
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, PETITIONER, VS.
COURT OF APPEALS AND AMERICAN AIRLINES INCORPORATED,
RESPONDENTS.
[G.R. NO. 76933. MAY 29, 1991]
AMERICAN AIRLINES, INCORPORATED, PETITIONER, VS. COURT OF
APPEALS AND ORIENT AIR SERVICES & HOTEL
REPRESENTATIVES,INCORPORATED RESPONDENTS.
DECISION
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a
decision[1] of the Court of Appeals in CA-G.R. No. CV-04294, entitled "American
Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which affirmed,
with modification, the decision[2] of the Regional Trial Court of Manila, Branch IV,
which dismissed the complaint and granted therein defendant's counterclaim for
agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American
Air), an air carrier offering passenger and air cargo transportation in the Philippines,
and Orient Air Services and Hotel Representatives (hereinafter referred to as Orient
Air), entered into a General Sales Agency Agreement (hereinafter referred to as the
Agreement), whereby the former authorized the latter to act as its exclusive general
sales agent within the Philippines for the sale of air passenger transportation.
Pertinent provisions of the agreement are reproduced, to wit:
"WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto

agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales
Agent within the Philippines, including any United States military installation therein
which are not serviced by an Air Carrier Representation Office (ACRO), for the sale
of air passenger transportation. The services to be performed by Orient Air Services
shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if
necessary, employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used
exclusively for the transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and promotional
material to sales agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be
appointed by Orient Air Services with the prior written consent of American) in
the assigned territory including if required by American the control of
remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general
public in the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within
the United States, neither Orient Air Services nor its sub-agents will perform
services for any other air carrier similar to those to be performed hereunder for
American without the prior written consent of American. Subject to periodic
instructions and continued consent from American, Orient Air Services may sell air
passenger transportation to be performed within the United States by other
scheduled air carriers provided American does not provide substantially equivalent
schedules between the points involved.
...
...
...
4.
Remittances
Orient Air Services shall remit in United States dollars to American the
ticket stock or exchange orders, less commissions to which Orient Air
Services is entitled hereunder, not less frequently than semi-monthly, on
the 15th and last days of each month for sales made during the
preceding half month.
All monies collected by Orient Air Services for transportation sold
hereunder on American's ticket stock or on exchange orders, less
applicable commissions to which Orient Air Services is entitled
hereunder, are the property of American and shall be held in trust by
Orient Air Services until satisfactorily accounted for to American.
5.
Commissions
American will pay Orient Air Services commission on transportation sold
hereunder by Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales
of transportation by Orient Air Services or its sub-agents over American's
services and any connecting through air transportation, when made on
American's ticket stock, equal to the following percentages of the tariff fares
and charges:
(i) For transportation solely between points within the United States and
between such points and Canada: 7% or such other rate(s) as may be
prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation
between points other than those described above: 8% or such other rate(s)
as may be prescribed by the International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an
overriding commission of 3% of the tariff fares and charges for all sales of
transportation over American's service by Orient Air Service or its sub-agents.
10. Default
If Orient Air Services shall at any time default in observing or performing
any of the provisions of this Agreement or shall become bankrupt or
make any assignment for the benefit of or enter into any agreement or
promise with its creditors or go into liquidation, or suffer any of its goods
to be taken in execution, or if it ceases to be in business, this Agreement
may, at the option of American, be terminated forthwith and American
may, without prejudice to any of its rights under this Agreement, take
possession of any ticket forms, exchange orders, traffic material or other
property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or
resolutions of the International Air Transport Association and the Air
Traffic Conference of America, and such rules or resolutions shall control
in the event of any conflict with the provisions hereof.
...
...
..
13. Termination
American may terminate the Agreement on two days' notice in the event
Orient Air Services is unable to transfer to the United States the funds
payable by Orient Air Services to American under this Agreement.
Either party may terminate the Agreement without cause by giving the
other 30 days' notice by letter, telegram or cable.
...
...
..
."[3]
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of
January to March 1981 in the amount of US $254,400.40, American Air by itself
undertook the collection of the proceeds of tickets sold originally by Orient Air and
terminated forthwith the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against
Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting with
Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining
Order,[4] averring the aforesaid basis for the termination of the Agreement as well as
therein defendant's previous record of failures "to promptly settle past outstanding
refunds of which, there were available funds in the possession of the defendant, x x
x to the damage and prejudice of plaintiff." [5]

In its Answer[6] with counterclaim dated 9 July 1981, defendant Orient Air denied the
material allegations of the complaint with respect to plaintiff's entitlement to alleged
unremitted amounts, contending that after application thereof to the commissions
due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid
overriding commissions. Further, the defendant contended that the actions taken by
American Air in the course of terminating the Agreement as well as the termination
itself were untenable, Orient Air claiming that American Air's precipitous conduct
had occassioned prejudice to its business interests.
Finding that the record and the evidence substantiated the allegations of the
defendant, the trial court ruled in its favor, rendering a decision dated 16 July 1984,
the dispositive portion of which reads:
"WHEREFORE, all the foregoing premises considered, judgment is hereby
rendered in favor of defendant and against plaintiff dismissing the complaint and
holding the termination made by the latter as affecting the GSA agreement illegal
and improper and order the plaintiff to reinstate defendant as its general sales agent
for passenger transportation in the Philippines in accordance with said GSA
agreement; plaintiff is ordered to pay defendant the balance of the overriding
commission on total flown revenue covering the period from March 16, 1977 to
December 31, 1980 in the amount of US$84,821.31 plus the additional amount of
US$8,000.00 by way of proper 3% overriding commission per month commencing
from January 1, 1981 until such reinstatment or said amounts in its Philippine peso
equivalent legally prevailing at the time of payment plus legal interest to commence
from the filing of the counterclaim up to the time of payment. Further, plaintiff is
directed to pay defendant the amount of One Million Five Hundred Thousand
(P1,500,000.00) pesos as and for exemplary damages; and the amount of Three
Hundred Thousand (P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff."[7]
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision
promulgated on 27 January 1986, affirmed the findings of the court a quo on their
material points but with some modifications with respect to the monetary awards
granted. The dispositive portion of the appellate court's decision is as follows:
"WHEREFORE, with the following modifications 1) American is ordered to pay Orient the sum of US$53,491.11 representing the
balance of the latter's overriding commission covering the period March 16, 1977 to
December 31, 1980, or its Philippine peso equivalent in accordance with the
official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's
overriding commission per month starting January 1, 1981 until date of termination,
May 9, 1981, or its Philippine peso equivalent in accordance with the official rate of
exchange legally prevailing on July 10, 1981, the date the counterclaim was filed;
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981
the date the answer with counterclaim was filed, until full payment;
4)

American is ordered to pay Orient exemplary damages of P200,000.00;

5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.

the rest of the appealed decision is affirmed.
Costs against American."[8]
American Air moved for reconsideration of the aforementioned decision, assailing
the substance thereof and arguing for its reversal. The appellate court's decision
was also the subject of a Motion for Partial Reconsideration by Orient Air which
prayed for the restoration of the trial court's ruling with respect to the monetary
awards. The Court of Appeals, by resolution promulgated on 17 December 1986,
denied American Air's motion and with respect to that of Orient Air, ruled thus:
"Orient's motion for partial reconsideration is denied insofar as it prays for
affirmance of the trial courts award of exemplary damages and attorney's fees, but
granted insofar as the rate of exchange is concerned. The decision of January 27,
1986 is modified in paragraphs (1) and (2) of the dispositive part so that the
payment of the sums mentioned therein shall be at their Philippine peso equivalent
in accordance with the official rate of exchange legally prevailing on the date of
actual payment."[9]
Both parties appealed the aforesaid resolution and decision of the respondent court,
Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No.
76933. By resolution[10] of this Court dated 25 March 1987, both petitions were
consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the
3% overriding commission. It is the stand of American Air that such commission is
based only on sales of its services actually negotiated or transacted by Orient Air,
otherwise referred to as "ticketed sales." As basis thereof, primary reliance is placed
upon paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:
"5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an
overriding commission of 3% of the tariff fees and charges for all sales of
transportation over American's services by Orient Air Services or its sub-agents."
(underscoring supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the
former not having opted to appoint any sub-agents, it is American Air's contention
that Orient Air can claim entitlement to the disputed overriding commission based
only on ticketed sales. This is supposed to be the clear meaning of the underscored
portion of the above provision. Thus, to be entitled to the 3% overriding
commission, the sale must be made by Orient Air and the sale must be done with
the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3%
overriding commission covers the total revenue of American Air and not merely that
derived from ticketed sales undertaken by Orient Air. The latter, in justification of its
submission, invokes its designation as the exclusive General Sales Agent of
American Air, with the corresponding obligations arising from such agency, such as,
the promotion and solicitation for the services of its principal. In effect, by virtue of
such exclusivity, "all sales of transportation over American Air's services are
necessarily by Orient Air." [11]
It is a well settled legal principle that in the interpretation of a contract, the entirety
thereof must be taken into consideration to ascertain the meaning of its provisions.
[12]
The various stipulations in the contract must be read together to give effect to all.
[13]
After a careful examination of the records, the Court finds merit in the contention
of Orient Air that the Agreement, when interpreted in accordance with the foregoing

principles, entitles it to the 3% overriding commission based on total revenue, or as

referred to by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air's services for air
passenger transportation, and the solicitation of sales therefor. In return for such
efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a
sales agency commission, ranging from 7-8% of tariff fares and charges from sales
by Orient Air when made on American Air ticket stock; and second, an overriding
commission of 3% of tariff fares and charges for all sales of passenger
transportation over American Air services. It is immediately observed that the
precondition attached to the first type of commission does not obtain for the second
type of commissions. The latter type of commissions would accrue for sales of
American Air services made not on its ticket stock but on the ticket stock of other air
carriers sold by such carriers or other authorized ticketing facilities or travel agents.
To rule otherwise, i.e., to limit the basis of such overriding commissions to sales
from American Air ticket stock would erase any distinction between the two (2) types
of commissions and would lead to the absurd conclusion that the parties had
entered into a contract with meaningless provisions. Such an interpretation must at
all times be avoided with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records
that American Air was the party responsible for the preparation of the Agreement.
Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra
proferentem", i.e., construed against the party who caused the ambiguity and could
have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil
Code provides that the interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.[14] To put it differently, when
several interpretations of a provision are otherwise equally proper, that interpretation
or construction is to be adopted which is most favorable to the party in whose favor
the provision was made and who did not cause the ambiguity.[15] We therefore agree
with the respondent appellate court's declaration that:
"Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it." [16]
We now turn to the propriety of American Air's termination of the Agreement. The
respondent appellate court, on this issue, ruled thus:
"It is not denied that Orient withheld remittances but such action finds justification
from paragraph 4 of the Agreement, Exh. F, which provides for remittances to
American less commissions to which Orient is entitled, and from paragraph 5(d)
which specifically allows Orient to retain the full amount of its commissions. Since,
as stated ante, Orient is entitled to the 3% override, American's premise, therefore,
for the cancellation of the Agreement did not exist. . . .."
We agree with the findings of the respondent appellate court. As earlier established,
Orient Air was entitled to an overriding commission based on total flown revenue.
American Air's perception that Orient Air was remiss or in default of its obligations
under the Agreement was, in fact, a situation where the latter acted in accordance
with the Agreement that of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air. Since the latter was still
obligated to Orient Air by way of such commissions. Orient Air was clearly justified
in retaining and refusing to remit the sums claimed by American Air. The latter's
termination of the Agreement was, therefore, without cause and basis, for which it
should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the
trial court's award of exemplary damages and attorney's fees. This Court sees no
error in such modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of
the decision of the trial court. We refer particularly to the lower court's decision
ordering American Air to "reinstate defendant as its general sales agent for
passenger transportation in the Philippines in accordance with said GSA
Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect,
compels American Air to extend its personality to Orient Air. Such would be violative
of the principles and essence of agency, defined by law as a contract whereby "a
person binds himself to render some service or to do something in representation or
on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE
LATTER."[17] (emphasis supplied) In an agent-principal relationship, the personality
of the principal is extended through the facility of the agent. In so doing, the agent,
by legal fiction, becomes the principal, authorized to perform all acts which the latter
would have him do. Such a relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by any court. The
Agreement itself between the parties states that "either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or
cable." (emphasis supplied) We, therefore, set aside the portion of the ruling of the
respondent appellate court reinstating Orient Air as general sales agent of American
Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision
and resolution of the respondent Court of Appeals, dated 27 January 1986 and 17
December 1986, respectively. Costs against petitioner American Air.
SO ORDERED.
Melencio-Herrera, (Chairman), and Regalado, JJ., concur. Paras, J., no part. Son is
a partner in one of the counsel. Sarmiento, J., on leave.
[ Adm. Case No. 738, March 29, 1972 ]
FLORA BAGUISA & RUFINO BAGUISA, COMPLAINANTS, VS. ALEJANDRO A.
DE GUZMAN, RESPONDENT.
DECISION
CASTRO, J.:
The respondent Alejandro A. de Guzman (admitted to the practice of law on January
21, 1955) was charged administratively before this Court by the spouses Flora
Baguisa and Rufino Baguisa on two counts: (a) gross negligence in the
performance of his duties as lawyer for the said spouses, and (b) betrayal of
confidential communications made to him by them as his clients. Following the filing
by de Guzman of his answer, this Court, by resolution of February 3, 1967, referred
the case to the Solicitor General for investigation, report and recommendation.
On February 24, 1972, after inquiry duly had, the Solicitor General filed his report,
recommending dismissal of the charges. Our thoroughgoing examination of this
report and the entire record of the case show no cogent reason why we should not
accept the said recommendation.
The complainants Baguisas claim that sometime in May, 1961 they requested de
Guzman to prepare a deed of sale, covering a bulldozer, for the signature of one
Jacinto Matias and the latter's wife, in favor of the Baguisas. They allege that this
document would put in proper form the verbal agreement between the parties
respecting such sale. The complainants charge that de Guzman negligently omitted

the preparation of the said document; de Guzman denies that any such request was
ever made to him.
At all events, it would appear that on June 9, 1961, an option sale covering the
same bulldozer was executed by the Baguisas in favor of one Gloria Gener. Three
days thereafter, or on June 12, 1961, the Baguisas executed a special power of
attorney in favor of Guzman, authorizing the latter to negotiate with Gener or any
other party for the final sale of the bulldozer. On the following day, June 13, de
Guzman, as attorney-in-fact of the Baguisas, executed a deed of sale covering the
equipment in favor of Gener for the sum of P18,000, with P6,125 as down payment,
the balance to be paid in installments during a period of six months, secured by
chattel mortgage in favor of the Baguisas.
The subsequent happenings are not altogether clear. It appears, however, that the
Baguisas later commenced two separate civil actions: (a) the first, in the Court of
First Instance of Nueva Ecija against Loreto Sta. Ines and Jacinto Matias to compel
execution of the proper deed of sale covering the transfer of the bulldozer from the
latter to the Baguisas, and (b) the second, in Quezon City against Gloria Gener for
replevin directed at the recovery of the possession of the same bulldozer.
Upon a subsequent date, Jacinto Matias in turn lodged with the City Fiscal's Office
of Manila a criminal action for estafa, charging the Baguisas and de Guzman with
unauthorized disposal of the bulldozer. On March 7, 1963 de Guzman moved the
Fiscal to drop the charges as him, declaring in substance that all his actuations
relative to the bulldozer were in accordance with the special power of attorney
executed in his favor by the Baguisas. Further, de Guzman averred in his motion to
dismiss that he received assurance from the Baguisas that the bulldozer, "subject
matter of the Special Power of Attorney, really belong[ed] to them * * * that
furthermore, the respondent/movant has personal knowledge that [due to] the failure
of the party in whose favor the subject bulldozer was sold, to make the stipulated
payments, the complainants Rufino Baguisa and Flora Baguisa instituted a court
action in Quezon City against the said party [Gloria Gener]" The City Fiscal heeded
his motion and dismissed the charges against de Guzman.
The present administrative charges against de Guzman are two-pronged. First, de
Guzman allegedly neglected to prepare the deed of sale which supposedly would
put in proper form the verbal agreement covering the transfer of the bulldozer from
the Matias spouses to the Baguisas. This negligence allegedly resulted in the
latter's having to litigate, as they did, in court for the protection of their interest over
the said equipment. Second, in filing the above-mentioned motion to dismiss with
the City Fiscal of Manila, de Guzman betrayed the confidence entrusted to him by
the Baguisas.
As with the Solicitor General, this Court is confronted with the contradicting
declarations of the Baguisas and de Guzman respecting the nature and extent of
the legal relation that existed between them during the whole period that the
bulldozer was being peddled about. The believable circumstances surrounding their
dealings, however, lend credence to the claim of de Guzman that the Baguisas
never sought his legal advice and opinion concerning their rights or obligations
relative to the bulldozer. Absent any indubitable evidence that some other legal
relation existed between the parties to this case, we cannot but assume that the
written special power of attorney executed by the Baguisas in favor of de Guzman
contains all the material and relevant terms of their legal relationship. De Guzman
was therein authorized merely to negotiate for the final sale of the equipment
because, as he puts it, the Baguisas were apprehensive about the alleged wily
character of the buyer, Gloria Gener.
We have carefully examined the said power of attorney, having an eye for an
indication, however tangential, that an attorney-client relationship was envisioned by
the parties thereto. The word "attorney" in the document, while too often confused
by laymen with the title associated with members of the Bar, is far from controlling
the substance of the authority conferred therein. As it happens, the text of the said
power of attorney comes in the familiar form that may be lifted out of any of the legal
formsbooks widely available to anyone. It contemplated nothing more than the civil
law concept of agency. It did not and could not create a distinct legal relation of
attorney and client. For, if indeed the Baguisas had, in the premises, retained de
Guzman as a lawyer, why was there need for the limited and special power of
attorney? Morever, the complainants have not shown that subsequent to the
execution of the said document a relationship avowedly professional came into
being between them and de Guzman. As a matter of fact, in the two separate civil
suits brought by them against the Matias spouses and Gener, the Baguisas availed
of the legal services of some other lawyer.
The Baguisas claim that they paid de Guzman P600 precisely in consideration for
the "legal services" rendered by the latter. De Guzman, upon the other hand,
admits having received the sum of only P400, and this not by way of attorney's fees
but as reimbursement for expenses actually incurred by him plus compensation as
agent of the Baguisas De Guzman's claim is consistent with the terms of the special
power of attorney. He had to travel from Gapan, Nueva Ecija to Quezon City on
several occasions to negotiate with Gener and finalize with the latter the deed of
sale of June 13, 1961. It is understandable that as agent he should be reimbursed
for his expenses and compensated for his efforts.
In the totality of the circumstances above-described, any subsequent testimony of
de Guzman respecting the contract of agency he had with the Baguisas, although
tending to inculpate the latter, does not fall in the category of privileged
communications protected by the Rules of Court. [1] "There are many cases in which
an attorney is employed in transacting business, not properly professional, and
where the same might have been transacted by another agent. In such cases the
fact that the agent sustains the character of an attorney does not render the
communications attending it, privileged; and they may be testified to by him, as by
any other agent."[2]
Nor can this Court believe the complainants' charge that, inspite of their persistent
request, de Guzman neglected to prepare the deed of sale transferring the
ownership of the bulldozer from the Matias spouses to them. In the civil action
brought by the Baguisas against the Matias spouses to compel execution of the
deed of sale, Flora Baguisa testified:
"That was probably around July since the bulldozer was not paid to me in full by
Mrs. Gener and we agreed she would pay me P2,000 a month and since I still have
a balance of more than P2,000 in favor of Mr. Matias, we agreed that I would pay it
to him little by little in as much as Mrs. Gener has not yet completed the payment
and we also agreed that the deed of sale would be made after payment is
completed."
No doubt then that the Baguisas could not have contemplated, as early as May
1961, the execution of any such deed of sale, let alone requested de Guzman to
prepare the same in final form. There is thus no basis for the charge of gross
negligence.
ACCORDINGLY , we dismiss the present complaint against the respondent
Alejandro A. de Guzman.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee,
Barredo, Villamor, and Makasiar, concur.

FIRST DIVISION [ G.R. No. L-34338, November 21, 1984 ]

LOURDES VALERIO LIM, PETITIONER, VS. PEOPLE OF THE PHILIPPINES,
RESPONDENT. DECISION
RELOVA, J.:
Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was
sentenced "to suffer an imprisonment of four (4) months and one (1) day as
minimum to two (2) years and four (4) months as maximum, to indemnify the
offended party in the amount of P559.50, with subsidiary imprisonment in case of
insolvency, and to pay the costs." (p. 14, Rollo)
From this judgment, appeal was taken to the then Court of Appeals which affirmed
the decision of the lower court but modified the penalty imposed by sentencing her
"to suffer an indeterminate penalty of one (1) month and one (1) day of arresto
mayor as minimum to one (1) year and one (1) day of prision correccional as
maximum, to indemnify the complainant in the amount of P550.50 without
subsidiary imprisonment, and to pay the costs of suit." (p. 24, Rollo)
The question involved in this case is whether the receipt, Exhibit "A", is a contract of
agency to sell or a contract of sale of the subject tobacco between petitioner and the
complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability
of petitioner for the crime charged.
The findings of fact of the appellate court are as follows:
"x x x The appellant is a businesswoman. On January 10,1966, the appellant went
to the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed
to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30
a kilo. The appellant was to receive the overprice for which she could seU the
tobacco. This agreement was made in the presence of plaintiffs sister, Salud G.
Bantug. Salvador Bantug drew the document, Exh. A, dated January 10, 1966,
which reads:
'To Whom It May Concern:
This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso, of
Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be sold at P1.30 per
kilo. The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100
(P 799.50) will be given to her as soon as it was sold.'
This was signed by the appellant and witnessed by the complainant's sister, Salud
Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that time was
bringing a jeep, and the tobacco was loaded in the jeep and brought by the
appellant. Of the total value of P799.50, the appellant had paid to Ayroso only
P240.00, and this was paid on three different times. Demands for the payment of
the balance of the value of the tobacco were made upon the appellant by Ayroso,
and particularly by her sister, Saiud Bantug. Salud Bantug further testified that she
had gone to the house of the appellant several times, but the appellant often eluded
her; and that the 'camarin' of the appellant was empty. Although the appellant
denied that demands for payment were made upon her, it is a fact that on October
19, 1966, she wrote a letter to Salud Bantug which reads as follows:
'Dear Salud,
'Hindi ako nakapunta dian noon a 17 nitong nakaraan, dabil kokonte pa ang
nasisingil kong pera, magintay ka hanggang dito sa linggo ito at tiak na ako ay
magdadala sa iyo. Gosto ko Salud ay makapagbigay man lang ako ng marami para
hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay
bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon. Salud kung talagang
kailangan mo ay bukas ay dadalhan kita ng pera.
'Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang
mga suki ko ng puesto. Huwag kang mabahala , at tiyak na babayaran kita.
'Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
Ludy'
"Pursuant to this letter, the appellant sent a money order for P100.00 on October 24,
1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on
April 18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of
P240.00. As no further amount was paid, the complainant filed a complaint against
the appellant for estafa." (pp. 14, 15. 16, Rollo)
In this petition for review by certiorari, Lourdes Valerio Lim poses the following
questions of law, to wit;
1. Whether or not the Honorable Court of Appeals was legally right in holding that
the foregoing document (Exhibit "A")
2. "fixed a period" and "the obligation was therefore, immediately demandable as
soon as the tobacco was sold" (Decision, p. 6) as against the theory of the petitioner
that the obligation does not fix a period, but from its nature and the circumstances it
can be interred that a period was intended in which case the only action that can be
maintained is a petition to ask the court to fix the duration thereof;
3. Whether or not the Honorable Court of Appeals was legally right in holding that
"Art. 1197 of the New Civil Code does not apply" as against the alternative theory of
the petitioner that the foregoing receipt (Exhibit "A") gives rise to an obligation
wherein the duration of the period depends upon the will of the debtor in which case
the only action that can be maintained is a petition to ask the court to fix the duration
of the period; and
4. Whether or not the Honorable Court of Appeals was legally right in holding that
the foregoing receipt is a contract of agency to sell as against the theory of the
petitioner that it is a contract of sale. (pp. 3-4, Rollo)
It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco
should be turned over to the complainant as soon as the same was sold, or, that the
obligation was immediately demandable as soon as the tobacco was disposed 'of.
Hence, Article 1197 of the New Civil Code, which provides that the courts may fix
the duration of the obligation if it does not fix a period, does not apply.
Anent the argument that petitioner was not an agent because Exhibit "A" does not
say that she would be paid the commission if the goods were sold, the Court of
Appeals correctly resolved the matter as follows:
"x x x Aside from the fact that Maria Ayroso testified that the appellant asked her to
be her agent in selling Ayrosos tobacco, the appellant herself admitted that there
was an agreement that upon the sale of the tobacco she would be given something.
The appellant is a businesswoman, and it is unbelievable that she would go to the
extent of going to Ayrosos house and take the tobacco with a jeep which she had
brought if she did not intend to make a profit out of the transaction. Certainly, if she
was doing a favor to Maria Ayroso and it was Ayroso who had requested her to sell
her tobacco, it would not have been the appellant who would have gone to the
house of Ayroso, but it would have been Ayroso who would have gone to the house
of the appellant and deliver the tobacco to the appellant." (p. 19, Rollo)
The fact that appellant received the tobacco to be sold at P1.30 per kilo and the
proceeds to be given to complainant as soon as it was sold, strongly negates
transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A")
constituted her as an agent with the obligation to return the tobacco if the same was
not sold.
ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit.
With costs.
SO ORDERED.
Teehankee (Chairman), MelencioHerrera, Plana, Gutierrez, Jr., and de la Fuente, JJ., concur.

FIRST DIVISION [ G.R. No. L-39949, October 31, 1984 ]

MANUEL H. SANTIAGO, ET AL., PETITIONERS, VS. COURT OF APPEALS AND
THE SOCIAL SECURITY SYSTEM, RESPONDENTS.
DECISION
MELENCIO-HERRERA, J.:
A Petition to review the Decision of the then Court of Appeals (in CA-G.R. No. SP01897-R), which affirmed the Resolution of the Social Security Commission (in Case
No. 1073-SSC), denying the petition of Manuel H. Santiago, et al., to credit in their
favor the salary deductions, by way of premium contributions and salary loan
installment payments, made by their former employer, I-Feng Enamelling Company
(Phil.) Inc., (the Employer, for brevity), but which the latter failed to remit to the
Social Security System (the System, for short).
There is no dispute as to the facts, as found by the then Court of Appeals.
"There is no dispute that petitioners were employees of I-Feng Enamelling
Company (Phil.) Inc. for several years, some from 1950 up to the time the company
closed its business on May 1, 1965, and that since the enactment of the Social
Security Act, Republic Act No. 1161, as amended, said employees have been
paying, through salary deductions, their personal contributions to the System. There
is likewise no dispute that appellants, during their employment, also enjoyed salary
loan benefits, their installment payments thereto were likewise deducted and
collected by their employer, and that said employer failed to remit to the System not
only the installment payments to their salary loans in the amount of P7,940.13 but
also the back premiums in the amount of P137,187.90 as of July 1966, excluding of
course the penalties therefor in the amount of P63,734.97 as of August 9, 1966
(Exhibit 'B' ).[1]
Petitioners sought to have the amounts credited in their favor but the Commission
denied their petition, stating:
"WHEREFORE, in the light of the foregoing discussion, the stand taken by
petitioners in this case is untenable, hence their petition is hereby dismissed. If it is
the claim of petitioner that there are deductions made on their salaries which were
not remitted to the System then petitioners should have proceeded against the IFeng Enamelling Company (Phil.) Inc., their alleged employer.
The System is likewise directed to study and determine what action to take under
the premises in order to protect the interest of the System."
Petitioners appealed to the then Court of Appeals, which, in its Decision
promulgated on December 23, 1974, upheld the findings of the Commission and
affirmed the challenged Resolution. Petitioners are now before us assailing the
foregoing Resolution and Decision on the following grounds:
I
"The Respondents erred in holding that there exists no contract of agency between
the Social Security System and I-Feng Enamelling Company (Phil.) Inc. in the
collection of the salary loan installment payments from the petitioners and,
therefore, the said unremitted salary loan installment payments may not be credited
to petitioners.
II
"The Respondents likewise erred in holding that the collections of premium
contributions by the I-Feng Enamelling Company (Phil.) Inc. is not a collection by
the System and, therefore, such unremitted premium contributions collected thru
salary deductions from the salaries of the petitioners by the I-Feng Enamelling
Company (Phil.) Inc. and which the latter failed to remit to the System may not be
credited to the petitioners."
The sole issue for consideration is whether or not the premium contributions and
payments of salary loans by petitioners, which were deducted and collected from
their salaries by their Employer, but not remitted to the System, should be credited
in their favor by the System.
Petitioners argue that they are entitled to full credit for the unremitted premium
contributions and salary loan installment payments deducted from their wages
because, by law, a contract of agency exists between the SSS and the Employer in
the collection of the salary loan installment payments, and therefore, as such agent,
payment to the Employer is payment to the principal, which is the System.
On the matter of payments of salary loans, SSS Circular No. 52 provides:
"(2) In case the borrower is in active employment, payment shall be made thru his
employer by means of salary deductions. For this purpose, he shall expressly
authorize in the application form his employer and the subsequent employers to
whom he may later on transfer to deduct from his salaries the installments due. The
employer, in turn shall remit to the System these installments in accordance with the
procedure laid down in heading VII hereof."
It should be noted from the above-quoted rule that it is the borrower who expressly
authorizes his employer and subsequent employers to deduct from his salary the
installments due on his salary loan. The employer then remits the installments due
to the System in accordance with rules that the System has laid down. The
employer, in so deducting the installment payments from the borrower, does so
upon the latter's authorization. The employer is merely the conduit for remitting the
premiums for reasons of administrative convenience and expediency in order that
SSS members may be served efficiently and expeditiously. No contract of agency, in
the legal sense, therefore may be said to exist between the employer and the
System.
But petitioners also rely on the "Current Employer's Certification/Agreement"
(Exhibits "N-1", "U-1", "V-1" and "W-1") providing that the employer is empowered:
"1. To deduct monthly from the salaries of said employee the installments due on
the loan that may be granted by virtue of this application and to remit the same to
the System not later than the 20th day of the month following the end of each
calendar quarter, the employer being entitled to deduct from the total quarterly
collections P.07 for every P10.00 thereof as his collection fee".
The foregoing reiterates the proviso in SSS Circular No. 52, reading:
"V. Service and Collection Fee. - The System shall charge a service fee of P3.50 for
every approved application deductible in advance from the proceeds of the loan.
"However, the employer shall be entitled to deduct from the total quarterly
collections that he remits to the System a collection fee of seven centavos (P0.07)
for every ten pesos (P10.00) or fraction thereof."
The entitlement to the collection fee by the employer neither makes the latter the
agent of the System. The fee was devised to encourage employers to be prompt in
the remittance of their collections to the System. As held by respondent Appellate
Court:
"To us, this negligible collection fee is only an incentive granted to all employers
throughout the country covered by the Social Security Act for their efforts in helping
the System collect the necessary contributions and payments made to the latter by
the innumerable individual members. This incentive is for administrative policy,
efficiency and expediency with the end in view that the purposes for which the
System has been created by law shall be effectively carried out. x x x "
To rule otherwise would be to open the door for unscrupulous employers to
circumvent the law by not remitting their collections of salary loans installment
payments from employees since, anyway, the System would credit them with what
they had paid to the Employer even though the latter fails to remit them to the
System.
There is a difference, however, in respect of premium contributions, by reason of the
explicit provision of Section 22(b) of the Social Security Act, reading:

"(b) The contributions payable under this Act in cases where an employer refuses or
neglects to pay the same shall be collected by the System in the same manner as
taxes are made collectible under the National Internal Revenue Code, as amended.
Failure or refusal of the employer to pay or remit the contributions herein prescribed
shall not prejudice the right of the covered employee to the benefits of the
coverage."
Clearly, if the employer neglects to pay the premium contributions, the System may
proceed with the collection in the same manner as the Bureau of Internal Revenue
in case of unpaid taxes. Plainly, too, notwithstanding non-remittance by employers
of the premium contributions, covered employees are entitled to the benefits of the
coverage, such as death, sickness, retirement, and permanent disability benefits.
[2]
These benefits continue to be enjoyed by the employees by operation of law and
not, as petitioners allege, because the premium contributions and salary loan
installment payments have already became the money of the System upon payment
by the employees to the employer. It should be remembered that funds contributed
to the System by compulsion of law are funds belonging to the members, which are
merely held in trust by the government. [3] The mentioned benefits, however, do not
include the salary loan privileges that member-employees apply for. The System
may or may not grant those loans pursuant to its rules and regulations. The salary
loans are not covered by law but by contract between the System as lender, and the
private employee, as borrower.
Contrary to petitioners' contention, the penalty of 3% per month imposed on the
employer, if any premium contribution is not paid to the System, prescribed by
Section 22 of the Act from the date the contribution falls due until paid, does not
necessarily make the employer the agent of the System. The prescribed penalty is
intended to exact compliance by the employer. It is evidently of a punitive character
to assure that employers do not take lightly the State's exercise of the police power
in the implementation of the Republic's declared policy to develop, establish
gradually, and perfect a Social Security System which shall be suitable to the needs
of the people throughout the Philippines and to provide protection to employees
against the hazards of disability, sickness, old age, and death. [4]
WHEREFORE, the judgment under review is hereby modified in that only the
premium contributions paid by petitioners to its employer, the I-Feng Enamelling
Company (Phil.) Inc., shall be credited in petitioners' favor so that they may continue
to enjoy the benefits of the coverage as provided by law. No costs.
SO ORDERED.
Relova, Gutierrez, Jr., and De La Fuente, JJ., concur.
Teehankee, (Chairman), J., concurs and joins with the separate concurring opinion
of J. Plana; let copy of this decision be furnished to the Honorable Minister of
Justice for the filing of appropriate criminal action against the employer companys
officials who misappropriated the employees premium contributions and salary loan
installment payments received in trust by them for remittance to the SSS.
Plana, J., see separate concurrence.
[ G.R. No. 47538, June 20, 1941 ]
GONZALO PUYAT & SONS, INC., PETITIONER, VS. ARCO AMUSE MENT
COMPANY (FORMERLY KNOWN AS TEATRO ARCO), RESPONDENT.
DECISION
LAUREL, J.:
This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the
purpose of reviewing its decision in civil case G. R. No. 1023, entitled "Arco
Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs.
Gonzalo Puyat and Sons, Inc., defendant-appellee."
It appears that the respondent herein brought an action against the herein petitioner
in the Court of First Instance of Manila to secure a reimbursement of certain
amounts al- legedly overpaid by it on account of the purchase price of sound
reproducing equipment and machinery ordered by the petitioner from the Starr
Piano Company of Richmond, Indiana, U. S. A. The facts of the case as found by
the trial court and confirmed by the appellate court, which are ad- mitted by the
respondent, are as follows:
"In the year 1929, the Teatro Arco', a corporation duly organized under the laws of
the Philippine Islands, with its office in Manila, was engaged in the business of
operating cinematographs. In 1930, its name was changed to Arco Amusement
Company. C. S. Salmon was the president, while A. B. Coulette was the business
manager. About the same time, Gonzalo Puyat & Sons, Inc., another corporation
doing business in the Philippine Islands, with office in Manila, in addition to its other
business, was acting as exclusive agents in the Philippines for the Starr Piano
Company of Richmond, Indiana, U. S. A. It would seem that this last company dealt
in cinematograph equipment and ma- chinery, and the Arco Amusement Company
desiring to equip its cinematograph with sound reproducing devices, approached
Gonzalo Puyat & Sons, Inc., thru its then president and acting manager, Gil Puyat,
and an employee named Santos. After some .negotiations, it was agreed between
the parties, that is to say, Salmon and Coulette on one side, representing the
plaintiff, and Gil Puyat on the other, representing the defendant, that the latter
would, on hebalf of the plaintiff, order sound reproducing equipment from the Star
Piano Company and that the plaintiff would pay the defendant, in addition to the
price of the equipment, a 10 per cent commission, plus all expenses, such as,
freight, insurance, banking charges, cables, etc. At the expense of the plaintiff, the
defendant sent a cable, Exhibit '3', to the Starr Piano Company, inquiring about the
equipment desired and making the said company to quote its price with-out
discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the price,
evidently the list price of $1,700 f. o. b. factory Richmond, Indiana. The defendant
did not show the plaintiff the cable of inquiry nor the reply but merely informed the
plaintiff of the price of 1,700. Being agreeable to this price, the plaintiff, by means
of Exhibit '1', which is a letter, signed by C. S. Salmon dated November 19, 1929,
formally authorized the order. The equipment arrived about the end of the year
1929, and upon delivery of the same to the plaintiff and the presentation of
necessary papers, the price of $1,700, plus the 10 per cent commission agreed
upon and plus all the expenses and charges, was duly paid by the plaintiff to the
defendant. "Sometime the following year, and after some negotiations between the
same parties, plaintiff and defendant, another order for sound reproducing
equipment was placed by the plaintiff with the defendant, on the same terms as the
first order. This agreement or order was confirmed by the plaintiff by its letter Exhibit
'2', without date, that is to say, that the plaintiff would pay for the equipment the
amount of $1,600, which was supposed to be the price quoted by the Starr Piano
Company, plus 10 per cent commission, plus all expenses incurred. The equipment
under the second order arrived in due time, and the defendant was duly paid the
price, of $1,600 with its 10 per cent commission, and $160, for all expenses and
charges. This amount of $160 does not represent actual out-of-pocket expenses
paid by the defendant, but a mere flat charge and rough estimate made by the
defendant equivalent to 10 per cent of the price of $1,600 of the equipment.
"About three years later, in connection with a civil case in Vigan, filed by one Fidel
Reyes against the defendant herein Gonzalo Puyat & Sons, Inc., the officials of the
Arco Amusement Company discovered that the price quoted to them by the
defendant with regard to their two orders above mentioned was not the net price but
rather the list price, and that the defendant had obtained a discount from the Starr
Piano Company. Moreover, by reading-reviews and literature on prices of machinery

and cinematograph equipment, said officials of the plaintiff were convinced that the
prices charged them by the defendant were much too high including the charges for
out-of-pocket expenses. For these reasons, they sought to obtain a reduction from
the defendant or rather a reimbursement, and failing in this they brought the present
action."
The trial court held that the contract between the peti- tioner and the respondent
was one of outright purchase and sale, and absolved that petitioner from the
complaint. The appellate court, however,by a division of four, with one justice
dissentingheld that the relation between petitioner and respondent was that of
agent and principal, the petitioner acting as agent of the respondent in the purchase
of the equipment in question, and sentenced the petitioner to pay the respondent
alleged overpayments in the total sum of $1,335.52 or P2,671.04, together with
legal interest there- on from the date of the filing of the complaint until said amount
is fully paid, as well as to pay the costs of the suit in both instances. The appellate
court further argued that even if the contract between the petitioner and the
respondent was one of purchase and sale, the petitioner was guilty of fraud in
concealing the true price and hence would still be liable to reimburse the respondent
for the overpayments made by the latter.
The petitioner now claims that the following errors have been incurred by the
appellate court:
"I. El Tribunal de Apelaciones incurri6 en error de derecho al declarar que, segun
hechos, entre la recurrente y la recurrida existia una relacion implicita de
mandataria a mandante en la transacci6n de que se trata, en vez de la de
vendedora a compradora como ha declarado el Juzgado de Primera Instancia de
Manila, presidido entonces por el hoy Magistrado Honorable Marceliano
Montemayor.
"II. El Tribunal de Apelaciones incurri6 en error de derecho al declarar que,
suponiendo que dicha relaci6n fuera de vendedora a compradora, la recurrente
obtuvo, mediante dolo, el consentimiento de la recurrida en cuanto al precio de
$1,700 y $1,600 de las maquinarias y equipos en cuestion, y condenar a la
recurrente a devolver a la recurrida la diferencia o descuento de 25 por ciento que
la recurrente ha obtenido de la Starr Piano Company of Richmond, Indiana."
We sustain the theory of the trial court that the contract between the petitioner and
the respondent was one of pur- chase and sale, and not one of agency, for the
reasons now to be stated.
In the first place, the contract is the law between the parties and should inelude all
the things they are supposed to have been agreed upon. What does not appear on
the face of the contract should be regarded merely as "dealer's" or "trader's talk",
which can not bind either party. (Nol- brook v. Conner, 56 So., 576, 11 Am. Rep.,
212; Bank v. Brosscell, 120 111., 161; Bank v. Palmer, 47 111., 92; Hosser v.
Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1 and 2,
by which the respondent ac- cepted the prices of $1,700 and $1,600, respectively,
for the sound reproducing equipment subject of its contract with the petitioner, are
clear in their terms and admit of no other interpretation than that the respondent
agreed to purchase from the petitioner the equipment in question at the prices
indicated which are fixed and determinate. The respond- ent admitted in its
complaint hied with the Court of First Instance of Manila that the petitioner agreed to
sell to it the first sound reproducing equipment and machinery. The third paragraph
of the respondent's cause of action states: "3. That on or about November 19, 1929,
the herein plaintiff (respondent) and defendant (petitioner) entered into an
agreement, under and by virtue of which the herein defendant was to secure from
the United States, and sell and deliver to the herein plaintiff, certain sound
reproducing equipment and machinery, for which the said defendant, un- der and by
virtue of said agreement, was to receive the actual cost price plus ten per cent
(10%), and was also to be reimbursed for all out of pocket expenses in con- nection
with the purchase and delivery of such equipment, such as cost^ of telegrams,
freight, and similar expenses." (Italics ours.)
We agree with the trial judge that "whatever unforseen events might have taken
place unfavorable to the defendant (petitioner), such as change in prices, mistake in
their quotation, loss of the goods not covered by insurance or failure of the Starr
Piano Company to properly fill the or- ders as per specifications, the plaintiff
(respondent) might still legally hold the defendant (petitioner) to the prices fixed of $
1,700 and $1,600." This is incompatible with the pretended relation of agency
between the petitioner and the respondent, because in agency, the agent is
exempted from all liability in the discharge of his commission provided he acts in
accordance with the instructions received from his principal (section 254, Code of
Commerce), and the prin- cipal must indemnify the agent for all damages which the
latter may incur in carrying out the agency without fault or imprudence on his part
(article 1729, Civil Code).
While the letters, Exhibits 1 and 2, state that the petitioner was to receive ten per
cent (10 %) commission, this does not necessarily make the petitioner an agent of
the respondent, as this provision is only an additional price which the respondent
bound itself to pay, and which sti- pulation is not incompatible with the contract of
purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.)
In the second place, to hold the petitioner an agent of the respondent in the
purchase of equipment and machin- ery from the Starr Piano Company of
Richmond, Indiana, is incompatible with the admitted fact that the petitioner is the
exclusive agent of the same company in the Philippines. It is out of the ordinary for
one to be the agent of both the vendor and the purchaser. The facts and
circumstances indicated do not point to anything but plain ordinary transaction
where the respondent enters into a contract of purchase and sale with the petitioner,
the latter as exclusive agent of the Starr Piano Company in the United States.
It follows that the petitioner as vendor is not bound to reimburse the respondent as
vendee for any difference between the cost price and the sales price which
represents the profit realized by the vendor out of the transaction. This is the very
essence of commerce without which mer- chants or middleman would not exist.
The respondent contends that it merely agreed to pay the cost price as
distinguished from the list price, plus ten per cent (10%) commission and all out-ofpocket expenses incurred by the petitioner. The distinction which the respondent
seeks to draw between the cost price and the list price we consider to be spacious.
It is to be observed that the twenty-five per cent (25%) discount granted by the Starr
Piano Company to the petitioner is available only to the latter as the former's
exclusive agent in the Philippines. The respondent could not have secured this
discount from the Starr Piano Company and neither was the petitioner willing to
waive that discount in favor of the respondent. As a matter of fact, no reason is
advanced by the respondent why the petitioner should waive the 25 per cent
discount granted it by the Starr Piano Company in exchange for the 10 per cent
commission offered by the respondent. Moreover, the petitioner was not duty bound
to reveal the private arrangement it had with the Starr Piano Company relative to
such discount to its prospective customers, and the respondent was not even aware
of such an arrangement. The respondent, therefore, could not have offered to pay a
10 per cent commission to the petitioner provided it was given the benefit.of the 25
per cent discount enjoyed by the petitioner. It is well known that local dealers acting
as agents of foreign manufacturers, aside from obtaining a discount from the home

office, sometimes add to the list price when they resell to local purchasers. It was
apparently to guard against an exhorbitant additional price that the respondent
sought to limit it to 10 per cent, and the respondent is estopped from questioning
that additional price. If the respondent later on discovers itself at the short end of a
bad bargain, it alone must bear the blame, and it cannot rescind the contract, much
less compel a reimbursement of the excess price, on that ground alone. The
respondent could not secure equipment and machinery manufactured by the Starr
Piano Company except from the petitioner alone; it willingly paid the price quoted; it
received the equipment and machinery as represented; and that was the end of the
matter as far as the respondent was concerned. The fact that the petitioner obtained
more or less profit than the respondent calculated before entering into the contract
of purchase and sale, is no ground for rescinding the contract or reducing the price
agreed upon between the petitioner and the respondent. Not every concealment is
fraud; and short of fraud, it were better that, within certain limits, business acumen
permit of the loosening1 of the sleeves and of the sharpening of the intellect of men
and women in the business world.
The writ of certiorari should be, as it is hereby, granted. The decision of the
appellate court is accordingly reversed and the petitioner is absolved from the
respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company
(formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons,
Inc., defendant-appellee," without pronouncement regarding costs. So ordered.
Avancea, C. J., Diaz, Moran and Horrilleno, JJ., concur.
[ G.R. No. L-8169, January 29, 1957 ]
THE SHELL COMPANY OF THE PHILIPPINES, LTD., PETITIONER, VS.
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY
COMMERCIAL CASUALTY INSURANCE CO., SALVADOR SISON, PORFIRIO DE
LA FUENTE AND THE COURT OF APPEALS (FIRST DIVISION),
RESPONDENTS.
DECISION
PADILLA, J.:
Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals
which reversed that of the Court of First Instance of Manila and sentenced "* * * the
defendants-appellees to pay, jointly and severally, the plaintiffs-appellants the sum
of P1,651.38, with legal interest from December 6, 1947 (Gutierrez vs. Gutierrez, 56
Phil., 177, 180), and the costs in both instances."
The Court of Appeals found the following:
Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee, the Shell
Company of the Philippine Islands, Ltd. accept the statement of facts made by the
trial court in its decision and appearing on pages 23 to 37 of the Record on Appeal,
we quote hereunder such statement:
"This is an action for recovery of sum of money, based on alleged negligence of the
defendants.
"It is a fact that a Plymouth car owned by Salvador R. Sison was brought, on
September 3, 1947 to the Shell Gasoline and Service Station, located at the corner
of Marques de Comillas and Isaac Peral Streets, Manila, for washing, greasing and
spraying. The operator of the station, having agreed to do service upon payment of
P8.00, the car was placed on the hydraulic lifter under the direction of the personnel
of the station.
"What happened to the car is recounted by Perlito Sison, as follows:
'Q.
Will you please describe how they proceeded to do the work?
A.
Yes, sir. The first thing that was done, as I saw, was to drive the car over
the lifter. Then by the aid of the two grease-men they raised up my car up
to six feet high, and then washing was done. After, washing the next step
was greasing. Before greasing was finished, there is a part near the shelf
of the right fender, right frontfertder, of my car to be greased, but the
grease-men cannot reach that part, so the next thing to be done was to
loosen the lifter just a few feet lower. Then upon releasing the valve to
make the car lower, a little bit lower ...
Q.
Who released the valve?
A.
The greaseman, for the escape of the air. As the escape of the air is too
strong for my ear I faced backward. I faced toward Isaac Peral Street, and
covered my ear. After the escape of the air has been finished, the air
coming out from the valve, I turned to face the car and I saw the car
swaying at that time, and just for a few second the car fell., (t.s.n., pp. 2223.)
The case was immediately reported to the Manila Adjustor Company, the adjustor
for the Firemen's Insurance Company and the Commercial Casualty Insurance
Company, as the car was insured with these insurance companies. After having
been inspected by one Mr. Baylon, representative of the Manila Adjustors Company,
the damaged car was taken to the shops of the Philippine Motors, Incorporated, for
repair upon order of the Firemen's Insurance Company and the Commercial
Casualty Company, with the consent of Salvador R. Sison. The car was restored to
running condition after repairs amounting to P1,651.38, and was delivered to
Salvador R. Sison, who, in turn made assignment of his rights to recover damages
in favor of the Firemen's Insurance Company and the Commercial Casualty
Insurance Company.
"On the other hand, the fall of the car from the hydraulic lifter has been explained by
Alfonse M. Adriano, a greaseman in the Shell Gasoline and Service Station, as
follows:
Were you able to lift the car on the hydraulic lifter on the occasion,
'Q.
September 3, 1947?
A.
Yes, sir.
Q.
To what height did you raise more or less?
A.
More or less five feet, sir.
Q.
After lifting that car that height, what did you do with the car?
A.
I also washed it, sir.
Q.
And after washing?
A.
I greased it.
On that occasion, have you been able to finish greasing and washing the
Q.
car?
A.
There is one point which I could not reach.
Q.
And what did you do then?
A.
I lowered the lifter in order to reach that point.
Q.
After lowering it a little, what did you do then?
A.
I pushed and pressed the valve in its gradual pressure.
Were you able to reach the portion which you were not able to reach
Q.
while it was lower?
A.
No more, sir.
Q.
Why?
Because when I was lowering the lifter I saw that, the car was swinging
A.
and it fell. THE COURT. Why did the car swing and fall?
WITNESS:'That is what I do not know, sir.' (t.s.n., p. 67.)"

The position of Defendant Porfirio de la Fuente is stated in his counter-statement of

facts which is hereunder also reproduced:
"In the afternoon of September 3, 1947, an automobile belonging to the plaintiff
Salvador Sison was brought by his son, Perlito Sison, to the gasoline and service
station at the corner of Marques de Comillas and Isaac Peral Streets, City of Manila,
Philippines, owned by the defendant The Shell Company of the Philippine Islands,
Limited, but operated by the defendant Porfirio de la Fuente, for the purpose of
having said car washed and greased for a consideration of P8.00. (t.s.n., pp. 19-20.)
Said car was insured against loss or damage by Firemen's Insurance Company of
Newark, New Jersey, and Commercial Casualty Insurance Company jointly for the
sum of P10,000 (Exhibits "A", "B", and "D").
"The job of washing and greasing was undertaken by defendant Porfirio de la
Fuente through his two employees, Alfonso M. Adriano, as greaseman and one
surnamed de los Reyes, a helper and washer (t.s.n., pp. 65-67). To perform the job
the car was carefully and centrally placed on the platform of the lifter in the gasoline
and service station aforementioned before raising up said platform to a height of
about 5 feet and then the servicing job was started. After more than one hour of
washing and greasing, the job was about to be completed except for an ungreased
portion underneath the vehicle which could not be reached by the greasemen. So,
the lifter was lowered a little by Alfonso M. Adriano and while doing so, the car for
unknown reason accidentally fell and suffered damage to the value of P1,651.38
(t.s.n., pp. 65-67).
"The insurance companies after paying the sum of P1,651.38 for the damage and
charging the balance of P100.00 to Salvador Sison in accordance with the terms of
the insurance contracts, have filed this action together with said Salvador Sison for
the recovery of the total amount of the damage from the defendants on the ground
of negligence (Record on Appeal, pp. 1-6).
"The defendant Porfirio de la Fuente denied negligence in the operation of the lifter
in his separate answer and contended further that the accidental fall of the car was
caused by unforseen event (Record on Appeal, pp. 17-19)."
The owner of the car forthwith notified the insurers who ordered their adjustor, the
Manila Adjustors Company, to investigate the incident and after such investigation
the damaged car, upon order of the insurers and with the consent of the owner, was
brought to the shop of the Philippine Motors, Inc. The car was restored to running
condition after repairs thereon which amounted to P1,651.38 and returned to the
owner who assigned his right to collect the aforesaid amount to the Firemen's
Insurance Company and the Commercial Casualty Insurance Company.
On 6 December 1947 the insurers and the owner of the car brought an action in the
Court of First Instance of Manila against the Shell Company of the Philippines, Ltd.
and Porfirio de la Fuente to recover from them, jointly and severally, the sum of
P1,651.38, interest thereon at the legal rate from the filing of the complaint until fully
paid, and costs. After trial the Court dismissed the complaint. The plaintiffs
appealed. The Court of Appeals reversed the judgment and sentenced the
defendant to pay the amount sought to be recovered, legal interest and costs, as
stated at the beginning of this opinion.
In arriving at the conclusion that on 3
September 1947 when the car was brought to the station for servicing Porfirio de la
Fuente, the operator of the gasoline and service station, was an agent of the Shell
Company of the Philippines, Ltd., the Court of Appeals found that
* * * De la Fuente owed his position to the Shell Company which could remove him
or terminate his services at any time from the said Company, and he undertook to
sell the Shell Company's products exclusively at the said Station. For this purpose,
De la Fuente was placed in possession of the gasoline and service station under
consideration, and was provided with all the equipments needed to operate it, by the
said Company, such as the tools and articles listed on Exhibit 2 which included the
hydraulic lifter (hoist) and accessories, from which Sison's automobile fell on the
date in question (Exhibits 1 and 2). These equipments were delivered to De la
Fuente on a so-called loan basis. The Shell Company took charge of its care and
maintenance and rendered to the public or its customers at that station for the
proper functioning of the equipment. Witness Antonio Tiongson, who was sales
superintendent of the Shell Company, and witness Augusto Sawyer, foreman of the
same Company, supervised the operators and conducted periodic inspections of
the Company's gasoline and service stations, the service station in question
inclusive. Explaining his duties and responsibilities and the reason for the loan,
Tiongson said: "mainly on the supervision of sales or (of) our dealers and routinary
inspection of the equipment loaned by the company" (t.s.n., 107); "we merely inquire
about how the equipments are, whether they have complaint, and whether if said
equipments are in proper order * * *", (t.s.n., 110); station equipments are "loaned
for the exclusive use of the dealer on condition that all supplies to be sold by said
dealer should be exclusively Shell, so as a concession we loan equipments for their
use * * *," "for the proper functioning of the equipments, we answer and see to it that
the equipments are in good running order and usable condition * * *," "with respect
to the public." (t.s.n., 111-112). De la Fuente, as operator, was given special prices
by the Company for the gasoline products sold therein. Exhibit 1Shell, which was
a receipt by Antonio Tiongson and signed by De la Fuente, acknowledging the
delivery of equipments of the gasoline and service station in question was
subsequently replaced by Exhibit 2Shell, an official form of the inventory of the
equipment which De la Fuente signed above the words: "Agent's signature". And the
service station in question had been marked "SHELL, and all advertisements therein
bore the same sign.
* * *. * * * De la Fuente was the operator of the station "by grace" of the Defendant
Company which could and did remove him as it pleased; that all the equipments
needed to operate the station was. owned by the Defendant Company which took
charge of their proper care and maintenance, despite the fact that they were loaned
to him; that the Defendant company did not leave the fixing of price for gasoline to
De la Fuente; on the other hand, the Defendant company had complete control
thereof; and that Tiongsqn, the sales representative of the Defendant Company, had
supervision over De la Fuente in the operation of the station, and in the sale of
Defendant Company's products therein. * * *.
Taking into consideration the fact that the operator owed his position to the company
and the latter could remove him or terminate his services at will; that the service
station belonged to the company and bore its tradename and the operator sold only
the products of the company; that the equipment used by the operator belonged to
the company and were just loaned to the operator and the company took charge of
their repair and maintenance; that an employee of the Company supervised the
operator and conducted periodic inspection of the company's gasoline and service
station; that the price of the products sold by the operator was fixed by the company
and not by the operator; and that the receipts signed by the operator indicated that
He was a mere agent, the finding of the Court of Appeals that the operator was an
agent of the 764 PHILIPPINE REPORTS Shell Co, of the Phils., Ltd. vs. Firemen's
Ins. Co. of Newark, N. J., et al, company and not an independent contractor should
not be disturbed.
To determine the nature of a contract courts do not have or are not bound to rely

upon the name or title given it by the contracting parties, should there be a
controversy as to what they really had intended to enter into, but the way the
contracting parties do or perform their respective obligations stipulated or agreed
upon may be shown and inquired into, and should such performance conflict with
the name or title given the contract by the parties, the former must" prevail over the
latter.
It was admitted by the operator of the gasoline and service station that "the car was
carefully and centrally placed on the platform of the lifter * * *" and the Court of
Appeals found that* * * the fall of Appellant Sison's car from the hydraulic lift and the damage caused
therefor, were the result of the jerking and swaying- of the lift when the valve was
released, and that the jerking was due to some accident and unforeseen
shortcoming of the mechanism itself, which caused its faulty or defective operation
or functioning, and that * * *the servicing 'job on Appellant Sison's automobile was accepted by De la
Fuente in the normal and ordinary conduct of his business as operator of his coappellee's service station, and that the jerking and swaying of the hydraulic lift which
caused the fall of the subject car were due to its defective condition, resulting in its
faulty operation. * * *.
As the act of the agent or his employees acting within the scope of his authority is
the act of the principal, the breach of the undertaking by the agent is one for which
the principal is answerable. Moreover, the company undertook to "answer and see
to it that the equipments are in good running order and usable condition;" and the
Court of Appeals found that the Company's mechanic failed to make a thorough
check up of the hydraulic lifter and the check up made by its mechanic was "merely
VOL. 100, JANUARY 29, 1957, 765 People vs. Arpon, et al. routine" by raising "the
lifter once or twice and after observing that the operation was satisfactory, he (the
mechanic) left the place." The latter was negligent and the company must answer
for the negligent act of its mechanic which was the caiise of the fall of the car from
the hydraulic lifter.
The judgment under review is affirmed, with costs against the petitioner.
Paras, C. J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador,
Conception, Reyes, J. B. L., Endencia and Felix, JJ., concur.
[ G.R. No. L-19265, May 29, 1964 ]
MOISES SAN DIEGO, SR., PETITIONER, VS. ADELO NOMBRE AND PEDRO
ESCANLAR, RESPONDENTS. D E C I S I O N
PAREDES, J.:
The case at bar had its origin in Special Proceedings No. 7279 of the CFI of Negros
Occidental, wherein respondent Adelo Nombre was the duly constituted judicial
administrator. On May 1, 1960, Nombre, in his capacity as judicial administrator of
the intestate estate subject of the Sp. Proc. stated above, leased one of the
properties of the estate (a fishpond identified as Lot No. 1617 of the cadastral
survey of Kabangkalan, Negros Occidental), to Pedro Escanlar, the other
respondent. The terms of the lease was for three (3) years, with a yearly rental of
P3,000.00 to expire on May 1, 1963, the transaction having been done, admittedly,
without previous authority of approval of the Court where the proceedings was
pending. On January 17, 1961, Nombre was removed as administrator by Order of
the court and one Sofronio Campillanos was appointed in his stead. The appeal on
the Order of Nombre's removal is supposedly pending with the Court of Appeals.
Respondent Escanlar was cited for contempt, allegedly for his refusal to surrender
the fishpond to the newly appointed administrator.
On March 20, 1961, Campillanos filed a motion asking for authority to execute a
lease contract of the same fishpond, in favor of petitioner herein, Moises San Diego,
Sr., for 5 years from 1961, at a yearly rental of P5,000.00. Escanlar was not notified
of such motion. Nombre, the deposed administrator, presented a written opposition
to the motion of Campillanos on April 11, 1961, pointing out that the fishpond had
been leased by him to Escanlar for 3 years, the period of which was going to expire
on May 1, 1963. In a supplemental opposition, he also invited the attention of the
Court that to grant the motion of the new administrator would in effect nullify the
contract in favor of Escanlar, a person on whom the Court has no jurisdiction. He
also intimated that the validity of the lease contract entered into by a judicial
administrator, must be recognized unless so declared void in a separate action. The
opposition notwithstanding, the Court on April 8, 1951, in effect, declared that the
contract in favor of Escanlar was null and void, for want of judicial authority and that
unless he would offer the same as or better conditions than the prospective lessee,
San Diego, there was no good reason why the motion for authority to lease the
property to San Diego should not be granted. Nombre moved to reconsider the
Order of April 8, stating that Escanlar was willing to increase the rental to P5,000.00,
but only after the termination of his original contract. The motion for reconsideration
was denied on April 24, 1961, the trial judge stating that the contract in favor of
Escanlar was executed in bad faith and was fraudulent because of the imminence of
Nombre's removal as administrator, one of the causes of which was his
indiscriminate leasing of the property with inadequate rentals.
From this Order, a petition for Certiorari asking for the annulment of the Orders of
April 8 and 24, 1961 was presented by Nombre and Escanlar with the Court of
Appeals. A Writ of preliminary injunction was likewise prayed for to restrain the new
administrator Campillanos from possessing the fishpond and from executing a new
lease contract covering it; requiring him to return the possession thereof to Escanlar,
plus damages and attorney's fees in the amount of P10,000.00 and costs. The
Court of Appeals issued the injunctive writ and required respondents therein to
Answer. Campillanos insisted on the invalidity of the contract in favor of Escanlar;
the lower court alleged that it did not exactly annul or invalidate the lease in his
questioned orders but suggested merely that Escanlar "may file a separate ordinary
action in the Court of general jurisdiction."
The Court of Appeals, in dismissing the petition for certiorari, among others said
"The controlling issue in this case is the legality of the contract of lease entered into
by the former administrator, Nombre, and Pedro Escanlar on May 1, 1960.
Respondents contend that this contract, not having been authorized or approved by
the Court, is null and void and cannot be an obstacle to the execution of another
contract of lease by the new administrator, Campillanos. This contention is without
merit. * * *. It has been held that even in the absence of such special power, a
contract of lease for more than 6 years is not entirely invalid; it is invalid only in so
far as it exceeds the six-year limit (Enrique vs. Watson Company, et al., 6 Phil. 84).[1]
No such limitation on the power of a judicial administrator to grant a lease of
property placed under his custody is provided for in the present law. Under Article
1647 of the present Civil Code, it is only when the lease is to be recorded in the
Registry of Property that it cannot be instituted without special authority. Thus,
regardless of the period of lease, there is no need of special authority unless the
contract is to be recorded in the Registry of Property. As to whether the contract in
favor of Escanlar is to be so recorded is not material to our inquiry.
On the contrary, Rule 85, Section 3, of the Rules of Court authorizes a judicial
administrator, among other things, to administer the estate of the deceased not
disposed of by will. Commenting on this Section in the light of several Supreme

Court decisions (Jocson de Hilado vs. Nava, 69 Phil., 1; Gamboa vs. Gamboa, 68
Phil. 304; Ferraris vs. Rodas, 65 Phil. 732; Rodriguez vs. Borromeo, 43 Phil., 479),
Moran says: 'Under this provision, the executor or administrator has the power of
administering the estate of the deceased for purposes of liquidation and distribution.
He may, therefore, exercise all acts of administration without special authority of the
Court. For instance, he may lease the property without securing previously any
permission from the court. And where the lease has formally been entered into, the
court cannot, in the same proceeding, annul the same, to the prejudice of the
lessee, over whose person it has no jurisdiction. The proper remedy would be a
separate action by the administrator or the heirs to annul the lease. * * *.
On September 13, 1961, petitioner herein Moises San Diego, Sr., who was not a
party in the case, intervened and moved for a reconsideration of the above
judgment. The original parties (the new administrator and respondent judge) also
filed motions for reconsideration, but we do not find them in the record. On
November 18, 1961, the Court of Appeals denied the motions for reconsideration.
With the denial of the said motions, only San Diego, appealed therefrom, raising
legal questions, which center on "whether a judicial administrator can validly lease
property of the estate without prior judicial authority and approval", and "whether the
provisions of the New Civil Code on agency should apply to judicial administrators."
The Rules of Court provide that
"An executor or administrator shall have the right to the possession of the real as
well as the personal estate of the deceased so long as it is necessary for the
payment of the debts and the expenses of administration, and shall administer the
estate of the deceased not disposed of by his will." (Sec. 3, Rule 85, old Rules.)
Lease has been considered an act of administration (Jocson vs. Nava; Gamboa vs.
Gamboa, Rodriguez vs. Borromeo, Ferraris vs. Rodas, supra).
The Civil Code, on lease provides:
"If a lease is to be recorded in the Registry of Property, the following person cannot
constitute the same without proper authority, the husband with respect to the wife's
paraphernal real estate, the father or guardian as to the property of the minor or
ward, and the manager without special power." (Art. 1647).
The same code, or Agency, states:
"Special powers of attorneys are necessary in the following cases: (8) To lease any
real property to another person for more than one year." (Art. 1878).
Petitioner contends, that No. 8, Art. 1878 is the limitation to the right of a judicial
administrator to lease real property without prior court authority and approval, if it
exceeds one year. The lease contract in favor of Escanlar being for 3 years and
without such court approval and authority is, therefore, null and void. Upon the other
hand, respondents maintain that there is no limitation of such right; and that Article
1878 does not apply in the instant case.
We believe that the Court of Appeals was correct in sustaining the validity of the
contract of lease in favor of Escanlar, notwithstanding the lack of prior authority and
approval. The law and prevailing jurisprudence on the matter militates in favor of this
view. While it may be admitted that the duties of a judicial administrator and an
agent (petitioner alleges that both act in representative capacity), are in some
respects, identical, the provisions on agency (Art. 1878, C.C.), should not apply to a
judicial administrator. A judicial administrator is appointed by the Court. He is not
only the representative of said Court, but also the heirs and creditors of the estate
(Chua Tan vs. del Rosario, 57 Phil., 411). A judicial administrator before entering into
his duties, is required to file a bond. These circumstances are not true in case of
agency. The agent is only answerable to his principal. The protection which the law
gives the principal, in limiting the powers and rights of an agent, stems from the fact
that control by the principal can only be thru agreements, whereas the acts of a
judicial administrator are subject to specific provisions of law and orders of the
appointing court. The observation of former Chief Justice Moran, as quoted in the
decision of the Court of Appeals, is indeed sound, and we are not prone to alter the
same, at the moment.
We, likewise, seriously doubt petitioner's legal standing to pursue this appeal. And, if
we consider the fact that after the expiration of the original period of the lease
contract executed by respondent Nombre in favor of Escanlar, a new contract in
favor of said Escanlar, was executed on May 1, 1963, by the new administrator
Campillanos, who, incidentally, did not take any active participation in the present
appeal, the right of petitioner to the fishpond becomes a moot and academic issue,
which We need not pass upon.
Wherefore, the decision appealed from should be, as it is hereby AFFIRMED, in all
respects, with costs against petitioner Moises San Diego, Sr.
Bengzon, C. J., Bautista Angelo, Concepcion, Reyes, J. B. L., Barrera,
Regala, and Makalintal, JJ., concur.
[ G.R. No. 11491, August 23, 1918 ]
ANDRES QUIROGA, PLAINTIFF AND APPELLANT, VS. PARSONS HARDWARE
CO., DEFENDANT AND APPELLEE.
DECISION
AVANCEA, J.:
On January 24, 1911, in this city of Manila, a contract in the following tenor was
entered into by and between the plaintiff, as party of the first part, and J. Parsons (to
whose rights and obligations the present defendant later subrogated itself), as party
of the second part:
"CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF 'QUIROGA' BEDS IN THE VISAYAN ISLANDS.
"Article 1. Don Andres Quiroga grants the exclusive right to sell his beds in the
Visayan Islands to J. Parsons uncjer the following conditions:
"(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's
establishment in Iloilo, and shall invoice them at the same price he has fixed for
sales, in Manila, and, in the invoices, shall make an allowance of a discount of 25
per cent of the invoiced prices, as commission on the sales; and Mr. Parsons shall
order the beds by the dozen, whether of the same or of different styles.
"(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a
period of sixty days from the date of their shipment.
"(C) The expenses for transportation and shipment shall be borne by M. Quiroga,
and the freight, insurance, and cost of unloading from the vessel at the point where
the beds are received, shall be paid by Mr. Parsons.
"(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said
payment when made shall be considered as a prompt payment, and as such a
deduction of 2 per cent shall be made from the amount of the invoice. "The same
discount shall he made on the amount of any invoice which Mr. Parsons may deem
convenient to pay in cash.
"(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any
alteration in price which he may plan to make in respect to his beds, and agrees that
if on the date when such alteration takes effect he should have any order pending to
be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if
the price thereby be lowered, but shall not be affected by said alteration if the price
thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to
invoice the beds at the price at which the order was given.
"(F) Mr. Parsons binds himself not to sell any other kind except the 'Quiroga' beds.
"Art. 2. In compensation for the expenses of advertisement which, for the benefit of
both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga
assumes the obligation to offer and give the preference to Mr. Parsons in case

anyone should apply for the exclusive agency for any island not comprised within
the Visayan group.
"Art. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of
'Quiroga' beds in all the towns of the Archipelago where there are no exclusive
agents, and shall immediately report such action to Mr. Quiroga for his approval.
"Art. 4. This contract is made for an unlimited period, and may be terminated by
either of the contracting parties on a previous notice of ninety days to the other
party."
Of the three causes of action alleged by the plaintiff in his complaint, only two of
them constitute the subject matter of this appeal and both substantially amount to
the averment that the defendant violated the following obligations: not to sell the
beds at higher prices than those of the invoices; to have an open establishment in
Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay
for the advertisement expenses for the same; and to order the beds by the dozen
and in no other manner. As may be seen, with the exception of the obligation on the
part of the defendant to order the beds by the dozen and in no other manner, none
of the obligations imputed toA the defendant in the two causes of action are
expressly set forth in the contract. But the plaintiff alleged that the defendant was his
agent for the sale of his beds in Iloilo, and that said obligations are implied in a
contract of commercial agency. The whole question, therefore, reduces itself to a
determination as to whether the defendant, by reason of the contract hereinbefore
transcribed, was a purchaser or any agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In
the contract in question, what was essential, as constituting its cause and subject
matter, is that the plaintiff was to furnish the defendant with the beds which the latter
might order, at the price stipulated, and that the defendant was to pay the price in
the manner stipulated. The price agreed upon was the one determined by the
plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per
cent, according to their class. Payment was to be made at the end of sixty days, or
before, at the plaintiff's request, or in cash, if the defendant so preferred, and in
these last two, cases an additional discount was to be allowed for prompt payment.
These are precisely the essential features of a contract of purchase and sale. There
was the obligation on the part of the plaintiff to supply the beds, and, on the part of
the defendant, to pay their price. These features exclude the legal conception of an
agency or order to sell whereby the mandatory or agent received the thing to sell it,
and. does not pay its price, but delivers to the principal the price he obtains from the
sale of the thing to a third person, and if he does not succeed in selling it$ he
returns it. I By virtue of the contract between the plaintiff and the defendant, the
latter, on receiving the beds, was necessarily obliged to pay their price within the
term fixed, without any other consideration and regardless as to whether he had or
had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the
defendant and the plaintiff is one of purchase and sale, in order to show that it was
not one made on the basis of a commission on sales, as the plaintiff claims it was,
for these contracts are incompatible with each other. But, besides, examining the
clauses of this contract, none of them is found that substantially supports the
plaintiff's contention. Not a single one of these clauses necessarily conveys the idea
of an agency. The words commission on sales used in clause (A) of article 1 mean
nothing else, as stated, in the contract itself, than a mere discount on the invoice
price. The wordagency, also used in articles 2 and 3, only expresses that the
defendant was the only one that could sell the plaintiff's beds in the Visayan
Islands'. With regard to the remaining clauses, the least that can be said is that they
are not incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president
of the defendant corporation and who established and managed the latter's
business in Tloilo. It appears that this witness, prior to the time of his testimony, had
serious trouble with the defendant, had maintained a civil suit against it, and had
even accused one of its partners, Guillermo Parsons, of falsification. He testified
that it was he who drafted the contract Exhibit A, and, when questioned as to what
was his purpose in contracting with the plaintiff, replied that it was to be an agent for
his beds and to collect a commission on sales. However, according to the
defendant's evidence, it was Mariano Lopez Santos, a director of the corporation,
who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth,
his statement as to what was his idea in contracting with the plaintiff is of no
importance, inasmuch as the agreements contained in Exhibit A which he claims to
have drafted, constitute, as we have said, a contract of purchase and sale, and not
one of commercial agency. This only means that Ernesto Vidal was mistaken in his
classification of the contract. But it must be understood that a contract is what the
law defines it to be, and not what it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it
could not sell; that, without previous notice, it forwarded to the defendant the beds
that it wanted; and that the defendant received its commission for the beds sold by
the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on
the part of both of them, there was mutual tolerance in the performance of the
contract in disregard of its terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as they performed it. Only the acts of
the contracting parties, subsequent to, and in connection with, the execution of the
contract, must be considered for the purpose of interpreting the contract, when such
interpretation is necessary, but not when, as in the instant case, its essential
agreements are clearly set forth and plainly show that the contract belongs to a
certain kind and not to another. Furthermore, the return made was of certain brass
beds, and was not effected in exchange for the price paid for them, but was for other
beds of another kind; and for the purpose of making this return, the defendant, in its
letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds,
which shows that it was not considered that the defendant had a right, by virtue of
the contract, to make this return. As regards the shipment of beds without previous
notice, it is insinuated in the record that these brass beds were precisely the ones
so shipped, and that, for this very reason, the plaintiff agreed to their return. And
with respect to the so-called commissions, we have said that they merely
constituted a discount on the invoice price, and the reason for applying this benefit
to the beds sold directly by the plaintiff to persons in Iloilo was because, as the
defendant obligated itself in the contract to incur the expenses of advertisement of
the plaintiff's beds, such sales were to be considered as a result of that
advertisement.
In respect to the defendant's obligation to order by the dozen, the only one
expressly imposed by the contract, the effect of its breach would only entitle the
plaintiff to disregard the orders which the defendant might place under other
conditions; but if the plaintiff consents to fill them, he waives his right and cannot
complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the
plaintiff and the defendant was one of purchase and sale, and that the obligations
the breach of which is alleged as a cause of action are not imposed upon the
defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So
ordered.
Arellano, C. J., Torres, Johnson, Street, and Malcolm, JJ., concur.
[ G.R. No. L-7089, August 31, 1954 ]

DOMINGO DE LA CRUZ, PLAINTIFF AND APPELLANT, VS. THEATRICAL

ENTERPRISES INC., ET AL, DEFENDANTS AND APPELLEES.
DECISION
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year
1941 the Northern Theatrical Enterprises Inc., a domestic corporation operated a
movie house in Laoag, Ilocos Norte, and among the persons employed by it was the
plaintiff DOMINGO DE LA CRUZ, hired as a special guard whose duties were to
guard the main entrance of the cine, to maintain peace and order and to report the
commission of disorders within the premises. As such guard he carried a revolver. In
the afternoon of July 4, 1941, one Benjamin Martin wanted to crash the gate or
entrance of the movie house, infuriated by the refusal of plaintiff De la Cruz to let
him in without first providing himself with a ticket, Martin attacked him with a bolo.
De la Cruz defended himself as best he could until he was cornered, at which
moment to save himself he shot the gate crasher, resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of
the Court of First Instance of Ilocos Norte. After a re-investigation conducted by the
Provincial Fiscal the latter filed a motion to dismiss the complaint, which was
granted by the court in January 1943. On July 8, 1947, De la Cruz was again
accused of the same crime of homicide, in Criminal Case No. 431 of the same
Court. After trial, he was finally acquitted of the charge on January 31, 1948. In both
criminal cases De la Cruz employed a lawyer to defend him. He demanded from his
former employer reimbursement of his expenses but was refused, after which he
filed the present action against the movie corporation and the three members of its
board of directors, to recover not only the amounts he had paid his lawyers but also
moral damages said to have been suffered, due to his worry, his neglect of his
interests and his family as well in the supervision of the cultivation of his land, a total
of P15,000. On the basis of the complaint and the answer filed by defendants
wherein they asked for the dismissal of the complaint, as well as the agreed
statement of facts, the Court of First Instance of Ilocos Norte after rejecting the
theory of the plaintiff that he was an agent of the defendants and that as such agent
he was entitled to reimbursement of the expenses incurred by him in connection
with the agency (Arts. 1709-1729 of the old Civil Code), found that plaintiff had no
cause of action and dismissed the complaint without costs. De la Cruz appealed
directly to this Tribunal for the reason that only questions of law are involved in the
appeal.
We agree with the trial court that the relationship between the movie corporation
and the plaintiff was not that of principal and agent because the principle of
representation Was in no way involved. Plaintiff was not employed to represent the
defendant corporation in its dealings with third parties. He was a mere employee
hired to perform a certain specific duty or task, that of acting as special guard and
staying at the, main entrance of the movie house to stop gate crashers and to
maintain peace and order within the premises. The question posed by this appeal, is
whether an employee or servant who in line of duty and while in the performance of
the task assigned to him performs an act which eventually results in his incurring in
expenses, caused not directly by his master or employer of his fellow servants or by
reason of his performance of his duty, but rather by a third party or stranger' not in
the employ of his employer, may recover said damages against his employer.
The learned trial court in the last paragraph of its decision dismissing the complaint
said that "after studying many laws or provisions of law to find out what law is
applicable to the facts submitted and admitted by the parties has found none and it
has no other alternative than to dismiss the complaint." The trial court is right. We
confess that we are not aware of any law or judicial authority that is directly
applicable to the present case, and realizing the importance and far-reaching effect
of a ruling on the subject-matter we have searched, though vainly for judicial
authorities and enlightenment. All: the laws and principles of law we have found, as
regards master and servants, or employer and employee, refer to cases nor
physical injuries, light or serious, resulting in loss of a member of the body or of any
one of the senses, or permanent physical disability or even death, suffered in line of
duty and in the course of the performance of the duties assigned to the servant or
employee, and these cases are mainly governed by the Employer's Liability Mt and
the Workmen's Compensation Act. But a case involving damages caused to an
employee by a stranger or outsider while said employee was in, the performance of
his duties, presents a novel question, which under present legislation we are neither
able nor prepared to decide in favor of the employee.
In a case like the present or a similar case of say a driver employed by a
transportation company, who while in the course of employment runs over and
inflicts physical injuries on or causes the death of a pedestrian; and such driver is
later charged criminally in court, one can imagine that it would be to the interest of
the employer to give legal help to and defend its employee in order to show that the
latter was not guilty of any crime either deliberately or through negligence, because
should the employee be finally held criminally liable and he is found to be insolvent,
the employer would be subsidiarily liable. That is why, we repeat, it is to the interest
of the employer to render legal assistance to its employee. But we are not prepared
to say and to hold that the giving of said legal assistance to its employees is a legal
obligation. While it might yet and possibly be regarded as a moral obligation, it does
not at present count with the sanction of man-made laws.
If the employer is not legally obliged to give, legal assistance to its employee and
provide him with a lawyer, naturally said employee may not recover the amount he
may have paid a lawyer hired by him.
Viewed from another angle it may be said that the damage suffered by the plaintiff
by reason of the expenses incurred by him in remunerating his lawyer, is not caused
by his act of shooting to death the gate crasher but rather by the filing of the charge
of homicide which made it necessary for him to defend himself with the aid of
counsel. Had no criminal charge been filed against him, there would have been no
expenses incurred or damage suffered. So the damage suffered by plaintiff was
caused rather by the improper filing of the criminal charge, possibly at the instance
of the heirs of the deceased gate crasher and by the State through the Fiscal. We
say improper filing, judging by the results of the court proceedings, namely,
acquittal. In other words, the plaintiff was innocent and blameless. If despite his
innocence and despite the absence of any criminal responsibility on his part he was
accused of homicide, then the responsibility for the improper accusation may be laid
at the door of the heirs of the deceased and the State, and so theoretically, they are
the parties that may be held responsible civilly for damages and if this is so, we fail
to see how this responsibility can be transferred to the employer who in no way
intervened, much less initiated the criminal proceedings and whose only connection
or relation to the whole affairs was that he employed plaintiff to perform a specific
duty or task, which task or duty was performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the
payment of the lawyer's fee did not flow directly from the performance of his duties
but only indirectly because there was an efficient, intervening cause, namely, the
filing of the criminal charges. In other words, the shooting to death of the deceased
by the plaintiff was not the proximate cause of the damages suffered but may be
regarded as only a remote cause, because from the shooting to the damages
suffered there was not that natural and continuous sequence required to fix civil
responsibility.
In view of the foregoing, the judgment of the lower court is affirmed. No costs.

Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.
B. L., JJ., concur.
SECOND DIVISION [ G.R. Nos. L-41182-3, April 15, 1988 ]
DR. CARLOS L. SEVILLA AND LINA O. SEVILLA, PETITIONERS-APPELLANTS,
VS. THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.
CANILAO, AND SEGUNDINA NOGUERA, RESPONDENTS-APPELLEES.
DECISION
SARMIENTO, J.:
The petitioners invoke the provisions on human relations of the Civil Code in this
appeal by certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees)
entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the
first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party
of the second part, and hereinafter referred to as appellants, the Tourist World
Service, Inc. leased the premises belonging to the party of the first part at Mabini
St., Manila for the former's use as a branch office. In the said contract the party of
the third part held herself solidarily liable with the party of the second part for the
prompt payment of the monthly rental agreed on. When the branch office was
opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist
World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina
Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World
Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears
to have been informed that Lina Sevilla was connected with a rival firm, the
Philippine Travel Bureau, and, since the branch office was anyhow losing, the
Tourist World Service considered closing down its office. This was firmed up by two
resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2,
1961 (Exhibits 12 and 13), the first abolishing the office of the manager and vicepresident of the Tourist World Service, Inc., Ermita Branch, and the second,
authorizing the corporate secretary to receive the properties of the Tourist World
Service then located at the said branch office. It further appears that on Jan. 3,
1962, the contract with the appellees for the use of the Branch Office premises was
terminated and while the effectivity thereof was Jan. 31, 1962, the appellees no
longer used it. As a matter of fact appellants used it since Nov. 1961. Because of
this, and to comply with the mandate of the Tourist World Service, the corporate
secretary Gabino Canilao went over to the branch office, and, finding the premises
locked, and, being unable to contact Lina Sevilla, he padlocked the premises on
June 4, 1962 to protect the interests of the Tourist World Service. When neither the
appellant Lina Sevilla nor any of her employees could enter the locked premises, a
complaint was filed by the herein appellants against the appellees with a prayer for
the issuance of mandatory preliminary injunction. Both appellees answered with
counterclaims. For apparent lack of interest of the parties therein, the trial court
ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the order dismissing
her counterclaim which the court a quo, in an order dated June 8, 1963, granted
permitting her to present evidence in support of her counterclaim.
On June 17, 1963, the appellant Lina Sevilla refiled her case against the herein
appellees and after the issues were joined, the reinstated counterclaim of
Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly
heard following which the court a quo ordered both cases dismissed for lack of
merit, on the basis of which was elevated the instant appeal on the following
assignment of errors:
"I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
"II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA O.
SEVILLA'S ARRANGEMENT ('WITH APPELLEE TOURIST WORLD SERVICE,
INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN
FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT
BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT
MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A
MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD
SERVICE, INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO
RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI
OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT ALL APPELLEE
NOGUERAS RESPONSIBILITY FOR APPELLANT MRS. LINA O. SEVILLA'S
FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.
"VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT MRS. LINA O.
SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS."
On the foregoing facts and in the light of the errors assigned the isues to be
resolved are:
1.
Whether the appellee Tourist World Service unilaterally disconnected the
telephone line at the branch office on Ermita;
2.
Whether or not the padlocking of the office by the Tourist World Service
was actionable or not; and
3.
Whether or not the lessee to the office premises belonging to the
appellee Noguera was appellee TWS or TWS and the appellant.
In this appeal, appellant Lina Sevilla claims that a joint business venture was
entered into by and between her and appellee TWS with offices at the Ermita
branch office and that she was not an employee of the TWS to the end that her
relationship with TWS was one of a joint business venture appellant made
declarations showing:
"1. Appellant Mrs. Lina O. Sevilla, a prominent social figure and wife of an eminent
eye, ear and nose specialist as well as a society columnist, had been in the
travel business prior to the establishment of the joint business venture with
appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre,
she being the godmother of one of his children, with her own clientele, coming
mostly from her own social circle (pp. 3-6 tsn. February 16, 1965).
"2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October
1960 (Exh. "A") covering the premises at A. Mabini St., she expressly
warranting and holding [sic] herself solidarily liable with appellee Tourist World
Service, Inc. for the prompt payment of the monthly rentals thereof to other
appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18, 1964).

"3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World
Service, Inc., which had its own separate office located at the Trade &
Commerce Building; nor was she an employee thereof, having no participation
in nor connection with said business at the Trade & Commerce Building (pp. 1618 tsn. id.)
4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own
bookings, her own business (and not for any of the business of appellee Tourist
World Service, Inc.) obtained from the airline companies. She shared the 7%
commissions given by the airline companies, giving appellee Tourist World
Service, Inc. 3% thereof and retaining 4% for herself (pp. 18 tsn. id.)
5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A.
Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and
other sundry expenses, aside from designing the office furniture and supplying
some office furnishings (pp. 15, 18 tsn. April 6, 1965), appellee Tourist World
Service, Inc. shouldering the rental and other expenses in consideration for the
3% split in the commissions procured by appellant Mrs. Sevilla (p. 35 tsn. Feb.
16, 1965).
6. It was the understanding between them that appellant Mrs. Sevilla would be
given the title of branch manager for appearance's sake only (p. 31 tsn. id.),
appellee Eliseo Canilao admitting that it was just a title for dignity (p. 36 tsn.
June 18, 1965 -- testimony of appellee Eliseo Canilao; pp. 38-39 tsn. April 6,
1965 -- testimony of corporate secretary Gabino Canilao)." (pp. 2-5, Appellants'
Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was an employee of
the appellee Tourist World Service, Inc. and as such was designated manager.[1]
xxx xxx xxx
The trial court[2] held for the private respondents on the premise that the private
respondent, Tourist World Service, Inc., being the true lessee, it was within its
prerogative to terminate the lease and padlock the premises. [3] It likewise found the
petitioner, Lina Sevilla, to be a more employee of said Tourist World Service, Inc.
and as such, she was bound by the acts of her employer.[4] The respondent Court of
Appeals[5] rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining the lower court,
erred. Specifically, they state:
I.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE
PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE
AND CONSENT OF THE APPELLANT LINA SEVILLA X X X WITHOUT
NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND
WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILLA), WHO
IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE
WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE
(ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR
ATTEMPT TO AMICABLY SETTLE THE CONTROVERSY BETWEEN THE
APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE X X X (DID NOT)
ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7, 8 AND
ANNEX "B" P. 2) - A DECISION AGAINST DUE PROCESS WHICH ADHERES TO
THE RULE OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF
BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMPLAINT PROVIDED
THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES
WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING - IN FACT NOT PASSING AND
RESOLVING - APPELLANT SEVILLA'S CAUSE OF ACTION FOUNDED ON
ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON HUMAN RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF YET NOT
RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST
WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN
INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED
UNILATERALLY BY TOURIST WORLD SERVICE INC.[6]
As a preliminary inquiry, the Court is asked to declare the true nature of the relation
between Lina Sevilla and Tourist World Service, Inc. The respondent Court of
Appeals did not see fit to rule on the question, the crucial issue, in its opinion being
"whether or not the padlocking of the premises by the Tourist World Service, Inc.
without the knowledge and consent of the appellant Lina Sevilla entitled the latter to
the relief of damages prayed for and whether or not the evidence for the said
appellant supports the contention that the appellee Tourist World Service, Inc.
unilaterally and without the consent of the appellant disconnected the telephone
lines of the Ermita branch office of the appellee Tourist World Service, Inc. [7] Tourist
World Service, Inc., insists, on the other hand, that Lina Sevilla was a mere
employee, being "branch manager" of its Ermita "branch" office and that
inferentially, she had no say on the lease executed with the private respondent,
Segundina Noguera. The petitioners contend, however, that relation between the
parties was one of joint venture, but concede that "whatever might have been the
true relationship between Sevilla and Touristir World Service," the Rule of Law
enjoined Tourist World Service and Canilao from taking the law into their own
hands,"[8] in reference to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the private respondent,
Tourist World Service, Inc., maintains, that the relation between the parties was in
the character of employer and employee, the courts would have been without
jurisdiction to try the case, labor disputes being the exclusive domain of the Court of
Industrial Relations, later, the Bureau of Labor Relations, pursuant to statutes then
in force.[9]
In this jurisdiction, there has been no uniform test to determine the existence of an
employer-employee relation. In general, we have relied on the so-called right of
control test, "where the person for whom the services are performed reserves a right
to control not only the end to be achieved but also the means to be used in reaching
such end."[10] Subsequently, however, we have considered, in addition to the
standard of right-of-control, the existing economic conditions prevailing between the

parties, like the inclusion of the employee in the payrolls, in determining the
existence of an employer-employee relationship.[11]
The records will show that the petitioner, Lina Sevilla, was not subject to control by
the private respondent Tourist World Service, Inc., either as to the result of the
enterprise or as to the means used in connection therewith. In the first place, under
the contract of lease covering the Tourist World's Ermita office, she had bound
herself in solidum as and for rental payments, an arrangement that would belie
claims of a master-servant relationship. True, the respondent Court would later
minimize her participation in the lease as one of mere guaranty,[12] that does not
make her an employee of Tourist World, since in any case, a true employee cannot
be made to part with his own money in pursuance of his employer's business, or
otherwise, assume any liability thereof. In that event, the parties must be bound by
some other relation, but certainly not employment.
In the second place, and as found by the Appellate Court, "[w]hen the branch office
was opened, the same was run by the herein appellant Lina O. Sevilla payable to
Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs.
Lina Sevilla."[13] Under these circumstances, it cannot be said that Sevilla was under
the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing
the business, obviously relied on her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll. For her efforts,
she retained 4% in commissions from airline bookings, the remaining 3% going to
Tourist World. Unlike an employee then, who earns a fixed salary usually, she
earned compensation in fluctuating amounts depending on her booking successes.
The fact that Sevilla had been designated "branch manager" does not make her,
ergo, Tourist World's employee. As we said, employment is determined by the rightof-control test and certain economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a
consequence, accepting Lina Sevilla's own, that is, that the parties had embarked
on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not
recognize the existence of such a relation. In her letter of November 28, 1961, she
expressly "concedes your [Tourist World Service, Inc.'s] right to stop the operation of
your branch office,[14] in effect, accepting Tourist World Service, Inc.'s control over
the manner in which the business was run. A joint venture, including a partnership,
presupposes generally a parity of standing between the joint co-venturers or
partners, in which each party has an equal proprietary interest in the capital or
property contributed[15] and where each party exercises equal rights in the conduct
of the business.[16] Furthermore, the parties did not hold themselves out as partners,
and the building itself was embellished with the electric sign "Tourist World Service,
Inc.,"[17] in lieu of a distinct partnership name.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to
(wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she
must have done so pursuant to a contract of agency. It is the essence of this
contract that the agent renders services "in representation or on behalf of
another."[18] In the case at bar, Sevilla solicited airline fares, but she did so for and on
behalf of her principal, Tourist World Service, Inc. As compensation, she received
4% of the proceeds in the concept of commissions. And as we said, Sevilla herself,
based on her letter of November 28, 1961, presumed her principal's authority as
owner of the business undertaking. We are convinced, considering the
circumstances and from the respondent Court's recital of facts, that the parties had
contemplated a principal-agent relationship, rather than a joint management or a
partnership.
But unlike simple grants of a power of attorney, the agency that we hereby declare
to be compatible with the intent of the parties, cannot be revoked at will. The reason
is that it is one coupled with an interest, the agency having been created for the
mutual interest of the agent and the principal.[19] It appears that Lina Sevilla is a
bona fide travel agent herself, and as such, she had acquired an interest in the
business entrusted to her. Moreover, she had assumed a personal obligation for the
operation thereof, holding herself solidarily liable for the payment of rentals. She
continued the business, using her own name, after Tourist World had stopped
further operations. Her interest, obviously, is not limited to the commissions she
earned as a result of her business transactions, but one that extends to the very
subject matter of the power of management delegated to her. It is an agency that,
as we said, cannot be revoked at the pleasure of the principal. Accordingly, the
revocation complained of should entitle the petitioner, Lina Sevilla, to damages.
As we have stated, the respondent Court avoided this issue, confining itself to the
telephone disconnection and padlocking incidents. Anent the disconnection issue, it
is the holding of the Court of Appeals that there is "no evidence showing that the
Tourist World Service, Inc. disconnected the telephone lines at the branch
office."[20]Yet, what cannot be denied is the fact that Tourist World Service, Inc. did
not take pains to have them re-connected. Assuming, therefore, that it had no hand
in the disconnection now complained of, it had clearly condoned it, and as owner of
the telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the
padlocking incident. For the fact that Tourist World Service, Inc. was the lessee
named in the lease contract did not accord it any authority to terminate that contract
without notice to its actual occupant, and to padlock the premises in such blitzkrieg
fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal
stake in the business itself, and necessarily, in the equipment pertaining thereto.
Furthermore, Sevilla was not a stranger to that contract having been explicitly
named therein as a third party in charge of rental payments (solidarily with Tourist
World, Inc.). She could not be ousted from possession as summarily as one would
eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some
malevolent design to put the petitioner, Lina Sevilla, in a bad light following
disclosures that she had worked for a rival firm. To be sure, the respondent court
speaks of alleged business losses to justify the closure,[21] but there is no clear
showing that Tourist World Ermita Branch had in fact sustained such reverses, let
alone, the fact that Sevilla had moonlit for another company. What the evidence
discloses, on the other hand, is that following such an information (that Sevilla was
working for another company), Tourist World's board of directors adopted two
resolutions abolishing the office of "manager" and authorizing the corporate
secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office
properties. On January 3, 1962, the private respondents ended the lease over the
branch office premises, incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office
was padlocked, personally by the respondent Canilao, on the pretext that it was

necessary "to protect the interests of the Tourist World Service." [22] It is strange
indeed that Tourist World Service, Inc. did not find such a need when it cancelled
the lease five months earlier. While Tourist World Service, Inc. would now pretend
that it sought to locate Sevilla to inform her of the closure, but surely, it was aware
that after office hours, she could not have been anywhere near the premises.
Capping these series of "offensives," it cut the office's telephone lines, paralyzing
completely its business operations, and in the process, depriving Sevilla of her
participation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to
punish Sevilla for what it had perceived to be disloyalty on her part. It is offensive, in
any event, to elementary norms of justice and fair play.
We rule, therefore, that for its unwarranted revocation of the contract of agency, the
private respondent, Tourist World Service, Inc., should be sentenced to pay
damages. Under the Civil Code, moral damages may be awarded for "breaches of
contract where the defendant acted ... in bad faith." [23]
We likewise condemn Tourist World Service, Inc. to pay further damages for the
moral injury done to Lina Sevilla arising from its brazen conduct subsequent to the
cancellation of the power of attorney granted to her on the authority of Article 21 of
the Civil Code, in relation to Article 2219(10) thereof:

(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor, is likewise hereby ordered to
respond for the same damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no
evidence has been shown that she had connived with Tourist World Service, Inc. in
the disconnection and padlocking incidents. She cannot therefore be held liable as a
co-tortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages,
[24]
P10,000.00 as exemplary damages,[25] and P5,000.00 as nominal[26] and/or
temperate[27]damages, to be just, fair, and reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the
Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby
REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc.,
and Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner,
Lina Sevilla, the sum of P25,000.00, as and for moral damages, the sum of
P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for
nominal and/or temperate damages.

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.

Costs against said private respondents.

ART. 2219. Moral damages may be recovered in the following and analogous cases:
xxx xxx xxx

Yap, (Chairman), Melencio-Herrera, Paras, and Padilla, JJ., concur.

SO ORDERED.