Contents

Macke vs Camps 7 Phil 553, 2-27-1907.....................................................................1

Victoria Milling vs CA gr 117356, June 19, 2000........................................................4
Villa vs Garcia Bosque 49 P 126...............................................................................17
Diolosa vs CA 130 Scra 350..................................................................................... 25
Perez vs Araneta 4 Scra 430 ***.............................................................................33

Macke vs Camps 7 Phil 553, 2-27-1907

EN BANC
G.R. No. 2962

February 27, 1907

B.
H.
MACKE,
ET
vs.
JOSE CAMPS, defendant-appellant.
Manuel
G.
Gibbs & Gale for appellees.

Gavieres

AL., plaintiffs-appellees,

for

appellant.

CARSON, J.:
The plaintiffs in this action, B. H. Macke and W. H. Chandler, partners
doing business under the firm name of Macke, Chandler & Company,
allege that during the months of February and March, 1905, they sold
to the defendant and delivered at his place of business, known as the
"Washington Cafe," various bills of goods amounting to P351.50; that
the defendant has only paid on account of said accounts the sum of
P174; that there is still due them on account of said goods the sum of
P177.50; that before instituting this action they made demand for the
payment thereof; and that defendant had failed and refused to pay the

said balance or any part of it up to the time of the filing of the

complaint.
B. H. Macke, one of the plaintiffs, testified that on the order of one
Ricardo Flores, who represented himself to be agent of the defendant,
he shipped the said goods to the defendants at the Washington Cafe;
that Flores later acknowledged the receipt of said goods and made
various payments thereon amounting in all to P174; that on demand
for payment of balance of the account Flores informed him that he did
not have the necessary funds on hand, and that he would have to wait
the return of his principal, the defendant, who was at that time visiting
in the provinces; that Flores acknowledged the bill for the goods
furnished and the credits being the amount set out in the complaint;
that when the goods were ordered they were ordered on the credit of
the defendant and that they were shipped by the plaintiffs after inquiry
which satisfied the witness as to the credit of the defendant and as to
the authority of Flores to act as his agent; that the witness always
believed and still believes that Flores was the agent of the defendant;
and that when he went to the Washington Cafe for the purpose of
collecting his bill he found Flores, in the absence of the defendant in
the provinces, apparently in charge of the business and claiming to be
the business manager of the defendant, said business being that of a
hotel with a bar and restaurant annexed.
A written contract dated May 25, 1904, was introduced in evidence,
from which it appears that one Galmes, the former owner of the
business now know as the "Washington Cafe," subrented the building
wherein the business was conducted, to the defendant for a period of
one year, for the purpose of carrying on that business, the defendant
obligating himself not to sublet or subrent the building or the business
without the consent of the said Galmes. This contract was signed by
the defendant and the name of Ricardo Flores appears thereon as a
witness, and attached thereto is an inventory of the furniture and
fittings which also is signed by the defendant with the word
"sublessee" (subarrendatario) below the name, and at the foot of this
inventory the word "received" (recibo) followed by the name "Ricardo
2

Flores," with the words "managing agent" (el manejante encargado)

immediately following his name.
Galmes was called to the stand and identified the above- described
document as the contract and inventory delivered to him by the
defendant, and further stated that he could not tell whether Flores was
working for himself or for some one else that it to say, whether
Flores was managing the business as agent or sublessee.
The defendant did not go on the stand nor call any witnesses, and
relies wholly on his contention that the foregoing facts are not
sufficient to establish the fact that he received the goods for which
payment is demanded.
In the absence of proof of the contrary we think that this evidence is
sufficient to sustain a finding that Flores was the agent of the
defendant in the management of the bar of the Washington Cafe with
authority to bind the defendant, his principal, for the payment of the
goods mentioned in the complaint.
The contract introduced in evidence sufficiently establishes the fact
that the defendant was the owner of business and of the bar, and the
title of "managing agent" attached to the signature of Flores which
appears on that contract, together with the fact that, at the time the
purchases in question were made, Flores was apparently in charge of
the business, performing the duties usually entrusted to managing
agent, leave little room for doubt that he was there as authorized
agent of the defendant. One who clothes another apparent authority
as his agent, and holds him out to the public as such, can not be
permitted to deny the authority of such person to act as his agent, to
the prejudice of innocent third parties dealing with such person in good
faith and in the following preassumptions or deductions, which the law
expressly directs to be made from particular facts, are deemed
conclusive:

(1) "Whenever a party has, by his own declaration, act, or omission,

intentionally and deliberately led another to believe a particular thing
true, and to act upon such belief, he can not, in any litigation arising
out such declaration, act, or omission, be permitted to falsify it"
(subsec. 1, sec. 333, Act no. 190); and unless the contrary appears,
the authority of an agent must be presumed to include all the
necessary and usual means of carrying his agency into effect. (15
Conn., 347; 90 N. C. 101; 15 La. Ann, 247; 43 Mich., 364; 93 N. Y.,
495; 87 Ind., 187.)
That Flores, as managing agent of the Washington Cafe, had authority
to buy such reasonable quantities of supplies as might from time to
time be necessary in carrying on the business of hotel bar may fairly
be presumed from the nature of the business, especially in view of the
fact that his principal appears to have left him in charge during more
or less prolonged periods of absence; from an examination of the
items of the account attached to the complaint, we are of opinion that
he was acting within the scope of his authority in ordering these goods
are binding on his principal, and in the absence of evidence to the
contrary, furnish satisfactory proof of their delivery as alleged in the
complaint.
The judgment of the trial court is affirmed with the costs of his
instance against the appellant. After expiration of twenty days
judgment will be rendered in accordance herewith, and ten days
thereafter the case remanded to the lower court for proper action. So
ordered.
Arellano,
C.J.,
Tracey, J., dissents.

Torres

and

Willard,

Victoria Milling vs CA gr 117356, June 19, 2000

SECOND DIVISION

JJ., concur.

[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
5

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
7

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
9

and is not corroborated by any positive evidence. There is

an insinuation by Arnulfo Caintic in his testimony that the
postdated checks issued by the buyer in payment of the
purchased price were dishonored. However, said witness
failed to present in Court any dishonored check or any
replacement check. Said witness likewise failed to present
any bank record showing that the checks issued by the
buyer, Teresita Ng Go, in payment of the purchase price of
the sugar covered by SLDR No. 1214 were dishonored."[10]
Petitioner appealed the trial courts decision to the Court of
Appeals.
On appeal, petitioner averred that the dealings between it and
STM were part of a series of transactions involving only one
account or one general contract of sale. Pursuant to this contract,
STM or any of its authorized agents could withdraw bags of sugar
only against cleared checks of STM. SLDR No. 21214M was only
one of 22 SLDRs issued to STM and since the latter had already
withdrawn its full quota of sugar under the said SLDR, CSC was
already precluded from seeking delivery of the 23,000 bags of
sugar.
Private respondent CSC countered that the sugar purchases
involving SLDR No. 1214M were separate and independent
transactions and that the details of the series of purchases were
contained in a single statement with a consolidated summary of
cleared check payments and sugar stock withdrawals because
this a more convenient system than issuing separate statements
for each purchase.
The appellate court considered the following issues: (a) Whether
or not the transaction between petitioner and STM involving
SLDR No. 1214M was a separate, independent, and single
transaction; (b) Whether or not CSC had the capacity to sue on
its own on SLDR No. 1214M; and (c) Whether or not CSC as
10

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
reconsideration.

seasonably

filed

separate

motions

for

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]

11

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 plaintiffappellee 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
12

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 inRallos 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
13

credits from one SLDR or contract and not to those

from two or more distinct contractsbetween 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 nonavailability 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.
14

(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:

15

"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,
16

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
17

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.

18

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.

Villa vs Garcia Bosque 49 P 126

EN BANC
G.R. No. L-24543

July 12, 1926

ROSA
VILLA
MONNA, plaintiff-appellee,
vs.
GUILLERMO
GARCIA
BOSQUE,
ET
AL., defendants.
GUILLERMO GARCIA BOSQUE, F. H. GOULETTE, and R. G.
FRANCE, appellants.
Eiguren
and
Razon
for
the
appellant
Garcia
Bosque.
Benj. S. Ohnick for the appellants France and Goulette.
Fisher, DeWitt, Perkins and Brady and John R. McFie, jr., for appellee.
STREET, J.:
19

This action was instituted in the Court of First Instance of Manila by

Rosa Villa y Monna, widow of Enrique Bota, for the purpose of
recovering from the defendants, Guillermo Garcia Bosque and Jose
Romar Ruiz, as principals, and from the defendants R. G. France and F.
H. Goulette, as solidary sureties for said principals, the sum of
P20,509.71, with interest, as a balance alleged to be due to the
plaintiff upon the purchase price of a printing establishment and
bookstore located at 89 Escolta, Manila, which had been sold to
Bosque and Ruiz by the plaintiff, acting through her attorney in fact,
one Manuel Pirretas y Monros. The defendant Ruiz put in no
appearance, and after publication judgment by default was entered
against him. The other defendants answered with a general denial and
various special defenses. Upon hearing the cause the trial judge gave
judgment in favor of the plaintiff, requiring all of the defendants,
jointly and severally, to pay to the plaintiff the sum of P19,230.01, as
capital, with stipulated interest at the rate of 7 per centum per annum,
plus the further sum of P1,279.70 as interest already accrued and
unpaid upon the date of the institution of the action, with interest upon
the latter amount at the rate of 6 per centum per annum. From this
judgment Guillermo Garcia Bosque, as principal, and R. G. France and
F.H. Goulette, as sureties. appealed.
It appears that prior to September 17, 1919, the plaintiff, Rosa Villa y
Monna, viuda de E. Bota, was the owner of a printing establishment
and bookstore located at 89 Escolta, Manila, and known as La Flor de
Cataluna, Viuda de E. Bota, with the machinery, motors, bindery, type
material furniture, and stock appurtenant thereto. Upon the date
stated, the plaintiff, then and now a resident of Barcelona, Spain,
acting through Manuel Pirretas, as attorney in fact, sold the
establishment above-mentioned to the defendants Guillermo Garcia
Bosque and Jose Pomar Ruiz, residents of the City of Manila, for the
stipulated sum of P55,000, payable as follows: Fifteen thousand pesos
(P15,000) on November 1, next ensuing upon the execution of the
contract, being the date when the purchasers were to take possession;
ten thousand pesos (P10,000) at one year from the same date; fifteen
thousand pesos (P15,000) at two years; and the remaining fifteen
20

thousand pesos (P15,000) at the end of three years. By the contract of

sale the deferred installments bear interest at the rate of 7 per centum
per annum. In the same document the defendants France and Goulette
obligated themselves as solidary sureties with the principals Bosque
and Ruiz, to answer for any balance, including interest, which should
remain due and unpaid after the dates stipulated for payment of said
installments, expressly renouncing the benefit of exhaustion of the
property of the principals. The first installment of P15,000 was paid
conformably to agreement.
In the year 1920, Manuel Pirretas y Monros, the attorney in fact of the
plaintiff, absented himself from the Philippine Islands on a prolonged
visit to Spain; and in contemplation of his departure he executed a
document, dated January 22, 1920, purporting to be a partial
substitution of agency, whereby he transferred to "the mercantile
entity Figueras Hermanos, or the person, or persons, having legal
representation of the same," the powers that had been previously
conferred on Pirretas by the plaintiff "in order that," so the document
runs, "they may be able to effect the collection of such sums of money
as may be due to the plaintiff by reason of the sale of the bookstore
and printing establishment already mentioned, issuing for such
purpose the receipts, vouchers, letters of payment, and other
necessary documents for whatever they shall have received and
collected of the character indicated."
When the time came for the payment of the second installment and
accrued interest due at the time, the purchasers were unable to
comply with their obligation, and after certain negotiations between
said purchasers and one Alfredo Rocha, representative of Figueras
Hermanos, acting as attorney in fact for the plaintiff, an agreement
was reached, whereby Figueras Hermanos accepted the payment of
P5,800 on November 10, 1920, and received for the balance five
promissory notes payable, respectively, on December 1, 1920, January
1, 1921, February 1, 1921, March 1, 1921, and April 1, 1921. The first
three of these notes were in the amount of P1,000 each, and the last
two for P2,000 each, making a total of P7,000. It was furthermore
21

agreed that the debtors should pay 9 per centum per annum on said
deferred installments, instead of the 7 per centum mentioned in the
contract of sale. These notes were not paid promptly at maturity but
the balance due upon them was finally paid in full by Bosque on
December 24, 1921.
About this time the owners of the business La Flor de Catalua, appear
to have converted it into a limited partnership under the style of
Guillermo Garcia Bosque, S. en C.;" and presently a corporation was
formed to take over the business under the name "Bota Printing
Company, Inc." By a document executed on April 21, 1922, the
partnership appears to have conveyed all its assets to this corporation
for the purported consideration of P15,000, Meanwhile the seven notes
representing the unpaid balance of the second installment and interest
were failing due without being paid. Induced by this dilatoriness on the
part the debtor and supposedly animated by a desire to get the matter
into better shape, M. T. Figueras entered into the agreement attached
as Exhibit 1 to the answer of Bosque. In this document it is recited
that Guillermo Garcia Bosque. S. en C., is indebted to Rosa Villa, viuda
de E. Bota, in the amount of P32,000 for which R. G. France and F. H.
Goulette are bound as joint and several sureties, and that the
partnership mentioned had transferred all its assets to the Bota
Printing Company, Inc., of which one George Andrews was a principal
stockholder. It is then stipulated that France and Goulette shall be
relieved from all liability on their contract as sureties and that in lieu
thereof the creditor, Doa Rosa Villa y Monna, accepts the Bota
Printing Company, Inc., as debtor to the extent of P20,000, which
indebtedness was expressly assumed by it, and George Andrews as
debtor to the extent of P12,000, which he undertook to pay at the rate
of P200 per month thereafter. To this contract the name of the
partnership Guillermo Garcia Bosque, S. en C., was affixed by
Guillermo Garcia Bosque while the name of the Bota Printing Company,
Inc., was signed by G. Andrews, the latter also signing in his individual
capacity. The name of the plaintiff was affixed by M.T. Figueras in the
following style: "p.p. Rosa Villa, viuda de E. Bota, M. T. Figueras, party
of the second part."
22

No question is made as to the authenticity of this document or as to

the intention of Figueras to release the sureties; and the latter rely
upon the discharge as complete defense to the action. The defendant
Bosque also relies upon the same agreement as constituting a
novation such as to relieve him from personal liability. All of the
defendants furthermore maintain that even supposing that M. T.
Figueras authority to novate the original contract and discharge the
sureties therefrom, nevertheless the plaintiff has ratified the
agreement by accepting part payment of the amount due thereunder
with full knowledge of its terms. In her amended complaint the plaintiff
asserts that Figueras had no authority to execute the contract
containing the release (Exhibit 1) and that the same had never been
ratified by her.
The question thus raised as to whether the plaintiff is bound by Exhibit
1 constitutes the main controversy in the case, since if this point
should be determined in the affirmative the plaintiff obviously has no
right of action against any of the defendants. We accordingly address
ourselves to this point first.
The partial substitution of agency (Exhibit B to amended complaint)
purports to confer on Figueras Hermanos or the person or persons
exercising legal representation of the same all of the powers that had
been conferred on Pirretas by the plaintiff in the original power of
attorney. This original power of attorney is not before us, but
assuming, as is stated in Exhibit B, that this document contained a
general power to Pirretas to sell the business known as La Flor de
Catalua upon conditions to be fixed by him and power to collect
money due to the plaintiff upon any account, with a further power of
substitution, yet it is obvious upon the face of the act of substitution
(Exhibit B) that the sole purpose was to authorize Figueras Hermanos
to collect the balance due to the plaintiff upon the price of La Flor de
Catalua, the sale of which had already been affected by Pirretas. The
words of Exhibit B on this point are quite explicit ("to the end that the
said lady may be able to collect the balance of the selling price of the
Printing Establishment and Bookstore above-mentioned, which has
23

been sold to Messrs. Bosque and Pomar"). There is nothing here that
can be construed to authorize Figueras Hermanos to discharge any of
the debtors without payment or to novate the contract by which their
obligation was created. On the contrary the terms of the substitution
shows the limited extent of the power. A further noteworthy feature of
the contract Exhibit 1 has reference to the personality of the purported
attorney in fact and the manner in which the contract was signed.
Under the Exhibit B the substituted authority should be exercised by
the mercantile entity Figueras Hermanos or the person duly authorized
to represent the same. In the actual execution of Exhibit 1, M. T.
Figueras intervenes as purpoted attorney in fact without anything
whatever to show that he is in fact the legal representative of Figueras
Hermanos or that he is there acting in such capacity. The act of
substitution conferred no authority whatever on M. T. Figueras as an
individual. In view of these defects in the granting and exercise of the
substituted power, we agree with the trial judge that the Exhibit 1 is
not binding on the plaintiff. Figueras had no authority to execute the
contract of release and novation in the manner attempted; and apart
from this it is shown that in releasing the sureties Figueras acted
contrary to instructions. For instance, in a letter from Figueras in
Manila, dated March 4, 1922, to Pirretas, then in Barcelona, the former
stated that he was attempting to settle the affair to the best
advantage and expected to put through an arrangement whereby
Doa Rosa would receive P20,000 in cash, the balance to be paid in
installments, "with the guaranty of France and Goulette." In his reply
of April 29 to this letter, Pirretas expresses the conformity of Doa
Rosa in any adjustment of the claim that Figueras should see fit to
make, based upon payment of P20,000 in cash, the balance in
installments, payable in the shortest practicable periods, it being
understood, however, that the guaranty of Messrs. France and
Goulette should remain intact. Again, on May 9, Pirretas repeats his
assurance that the plaintiff would be willing to accept P20,000 down
with the balance in interest-bearing installments "with the guaranty of
France and Goulette." From this it is obvious that Figueras had no

24

actual authority whatever to release the sureties or to make a novation

of the contract without their additional guaranty.
But it is asserted that the plaintiff ratified the contract (Exhibit 1) by
accepting and retaining the sum of P14,000 which, it is asserted, was
paid by the Bota Printing Co., Inc., under that contract. In this
connection it should be noted that when the firm of Guillermo Garcia
Bosque, S. en C., conveyed all it assets on April 21, 1922 to the newly
formed corporation, Bota Printing Co., Inc., the latter obligated itself to
pay al the debts of the partnership, including the sum of P32,000 due
to the plaintiff. On April 23, thereafter, Bosque, acting for the Bota
Printing Co., Inc., paid to Figueras the sum of P8,000 upon the third
installment due to the plaintiff under the original contract of sale, and
the same was credited by Figueras accordingly. On May 16 a further
sum of P5,000 was similarly paid and credited; and on May 25, a
further sum of P200 was likewise paid, making P14,000 in all. Now, it
will be remembered that in the contract (Exhibit 1), executed on May
17, 1922, the Bota Printing Co., Inc., undertook to pay the sum of
P20,00; and the parties to the agreement considered that the sum of
P13,800 then already paid by the Bota Printing Co., Inc., should be
treated as a partial satisfaction of the larger sum of P20,000 which the
Bota Printing Co., Inc., had obligated itself to pay. In the light of these
facts the proposition of the defendants to the effect that the plaintiff
has ratified Exhibit 1 by retaining the sum of P14,000, paid by the
Bota Printing Co., Inc., as above stated, is untenable. By the
assumption of the debts of its predecessor the Bota Printing Co., Inc.,
had become a primary debtor to the plaintiff; and she therefore had a
right to accept the payments made by the latter and to apply the same
to the satisfaction of the third installment of the original indebtedness.
Nearly all of this money was so paid prior to the execution of Exhibit 1
and although the sum of P200 was paid a few days later, we are of the
opinion that the plaintiff was entitled to accept and retain the whole,
applying it in the manner above stated. In other words the plaintiff
may lawfully retain that money notwithstanding her refusal to be
bound by Exhibit 1.
25

A contention submitted exclusively in behalf of France and Goulette,

the appellant sureties, is that they were discharged by the agreement
between the principal debtor and Figueras Hermanos, as attorney in
fact for the plaintiff, whereby the period for the payment of the second
installment was extended, without the assent of the sureties, and new
promissory notes for unpaid balance were executed in the manner
already mentioned in this opinion. The execution of these new
promissory notes undoubtedly constituted and extension of time as to
the obligation included therein, such as would release a surety, even
though of the solidary type, under article 1851 of the Civil Code.
Nevertheless it is to be borne in mind that said extension and novation
related only to the second installment of the original obligation and
interest accrued up to that time. Furthermore, the total amount of
these notes was afterwards paid in full, and they are not now the
subject of controversy. It results that the extension thus effected could
not discharge the sureties from their liability as to other installments
upon which alone they have been sued in this action. The rule that an
extension of time granted to the debtor by the creditor, without the
consent of the sureties, extinguishes the latter's liability is common
both to Spanish jurisprudence and the common law; and it is well
settled in English and American jurisprudence that where a surety is
liable for different payments, such as installments of rent, or upon a
series of promissory notes, an extension of time as to one or more will
not affect the liability of the surety for the others. (32 Cyc., 196;
Hopkirk vs. McConico, 1 Brock., 220; 12 Fed. Cas., No. 6696; Coe vs.
Cassidy, 72 N. Y., 133; Cohn vs. Spitzer, 129 N. Y. Supp., 104;
Shephard Land Co. vs. Banigan, 36 R. I., 1; I. J. Cooper Rubber Co.
vs. Johnson, 133 Tenn., 562; Bleeker vs. Johnson, 190, N. W. 1010.)
The contention of the sureties on this point is therefore untenable.
There is one stipulation in the contract (Exhibit A) which, at first
suggests a doubt as to propriety of applying the doctrine above stated
to the case before us. We refer to cause (f) which declares that the
non-fulfillment on the part of the debtors of the stipulation with
respect to the payment of any installment of the indebtedness, with
interest, will give to the creditor the right to treat and declare all of
26

said installments as immediately due. If the stipulation had been to

the effect that the failure to pay any installment when due would ipso
facto cause to other installments to fall due at once, it might be
plausibly contended that after default of the payment of one
installment the act of the creditor in extending the time as to such
installment would interfere with the right of the surety to exercise his
legal rights against the debtor, and that the surety would in such case
be discharged by the extension of time, in conformity with articles
1851 and 1852 of the Civil Code. But it will be noted that in the
contract now under consideration the stipulation is not that the
maturity of the later installments shall be ipso facto accelerated by
default in the payment of a prior installment, but only that it shall give
the creditor a right to treat the subsequent installments as due, and in
this case it does not appear that the creditor has exercised this
election. On the contrary, this action was not instituted until after all of
the installments had fallen due in conformity with the original contract.
It results that the stipulation contained in paragraph (f) does not affect
the application of the doctrine above enunciated to the case before us.
Finally, it is contended by the appellant sureties that they were
discharged by a fraud practiced upon them by the plaintiff in failing to
require the debtor to execute a mortgage upon the printing
establishment to secure the debt which is the subject of this suit. In
this connection t is insisted that at the time France and Goulette
entered into the contract of suretyship, it was represented to them
that they would be protected by the execution of a mortgage upon the
printing establishment by the purchasers Bosque and Pomar. No such
mortgage was in fact executed and in the end another creditor appears
to have obtained a mortgage upon the plant which is admitted to be
superior to the claim of the plaintiff. The failure of the creditor to
require a mortgage is alleged to operate as a discharge of the sureties.
With this insistence we are unable to agree, for the reason that the
proof does not show, in our opinion, that the creditor, on her attorney
in fact, was a party to any such agreement. On the other hand it is to
be collected from the evidence that the suggestion that a mortgage
would be executed on the plant to secure the purchase price and that
27

this mortgage would operate for the protection of the sureties came
from the principal and not from any representative of the plaintiff.
As a result of our examination of the case we find no error in the
record prejudicial to any of the appellants, and the judgment appealed
from will be affirmed, So ordered, with costs against the appellants.
Avancea, C. J., Villamor, Ostrand, Johns, Romualdez and Villa-Real,
JJ., concur.

Diolosa vs CA 130 Scra 350

FIRST DIVISION
G.R. No. L-36585 July 16, 1984
MARIANO
DIOLOSA
and
ALEGRIA
VILLANUEVADIOLOSA, petitioners,
vs.
THE HON. COURT OF APPEALS, and QUIRINO BATERNA (As
owner and proprietor of QUIN BATERNA REALTY), respondents.
Enrique L. Soriano for petitioners.
Domingo Laurea for private respondent.

RELOVA, J.:
Appeal by certiorari from a decision of the then Court of Appeals
ordering herein petitioners to pay private respondent "the sum of
P10,000.00 as damages and the sum of P2,000.00 as attorney's fees,
and the costs."
This case originated in the then Court of First Instance of Iloilo where
private respondents instituted a case of recovery of unpaid commission
28

against petitioners over some of the lots subject of an agency

agreement that were not sold. Said complaint, docketed as Civil Case
No. 7864 and entitled: "Quirino Baterna vs. Mariano Diolosa and
Alegria Villanueva-Diolosa", was dismissed by the trial court after
hearing. Thereafter, private respondent elevated the case to
respondent court whose decision is the subject of the present petition.
The parties petitioners and respondents-agree on the findings of
facts made by respondent court which are based largely on the pretrial order of the trial court, as follows:
PRE-TRIAL ORDER
When this case was called for a pre-trial conference today,
the plaintiff, assisted by Atty. Domingo Laurea, appeared
and the defendants, assisted by Atty. Enrique Soriano, also
appeared.
A. During the pre-trial conference the parties, in addition
to what have been admitted in the pleadings, have agreed
and admitted that the following facts are attendant in this
case and that they will no longer adduce evidence to prove
them:
1. That the plaintiff was and still is a licensed
real estate broker, and as such licensed real
estate broker on June 20, 1968, an agreement
was entered into between him as party of the
second part and the defendants spouses as party
of the first part, whereby the former was
constituted as exclusive sales agent of the
defendants, its successors, heirs and assigns, to
dispose of, sell, cede, transfer and convey the
lots included in VILLA ALEGRE SUBDIVISION
owned by the defendants, under the terms and
conditions embodied in Exhibit "A", and pursuant
29

to said agreement (Exhibit "A"), the plaintiff

acted for and in behalf of the defendants as their
agent in the sale of the lots included in the VILLA
ALEGRE SUBDIVISION;
2. That on September 27, 1968, the defendants
terminated the services of plaintiff as their
exclusive sales agent per letter marked as
Exhibit "B", for the reason stated in the latter.
B. During the trial of this case on the merit, the plaintiff
will adduce by competent evidence the following facts:
1. That as a real estate broker, he had sold the
lots comprised in several subdivisions, to wit:
Greenfield
Subdivision,
the
Villa
Beach
Subdivision, the Juntado Subdivision, the St.
Joseph Village, the Ledesma Subdivision, the
Brookside
Subdivision,
the
Villa
Alegre
Subdivision, and Cecilia Subdivision, all in the
City of Iloilo except St. Joseph which is in Pavia
Iloilo.
2. That the plaintiff, as a licensed real estate
broker, has been seriously damaged by the
action of the defendants in rescinding, by Exhibit
"B", the contract (Exhibit "A") for which the
plaintiff suffered moral damages in the amount
of P50,000.00, damages to his good will in the
amount of P100,000.00, for attorney's fees in
the amount of P10,000.00 to protect his rights
and interests, plus exemplary damages to be
fixed by the Court.

30

3. That the plaintiff is entitled to a commission

on the lots unsold because of the rescission of
the contract.
C. The defendants during the trial will ill prove by
competent evidence the following:
1. That the plaintiff's complaint was filed to
make money out of the suit from defendants, to
harrass and to molest defendants;
2. That because of the unjustified and unfounded
complaint of the plaintiff, the defendants
suffered moral damages in the amount of
P50,000.00, and that for the public good, the
court may order the plaintiff to pay the
defendants exemplary damages in the amount of
P20,000.00, plus attorney's fees of P10,000.00.
D. Contentions of the parties:
1. The plaintiff contends:
(a) That under the terms of the
contract (Exhibit "A") the plaintiff had
unrevocable authority to sell all the
lots included in the Villa Alegre
Subdivision and to act as exclusive
sales agent of the defendants until all
the lots shall have been disposed of;
(b) That the rescission of the contract
under Exhibit "B", contravenes the
agreement of the parties.
2. The defendants contend:

31

(a) That they were within their legal

right to terminate the agency on the
ground
that
they
needed
the
undisposed lots for the use of the
family;
(b) That the plaintiff has no right in
law to case for commission on lots
that they have not sold.
E. The parties hereby submit to the Court the following
issues:
1. Whether under the terms of Exhibit "A" the
plaintiff has the irrevocable right to sen or
dispose of all the lots included within Villa Alegre
Subdivision;
2. Can the defendants terminate their agreement
with the plaintiff by a letter like Exhibit "B"?
F. The plaintiff submitted the following exhibits which
were admitted by the defendants:
Exhibit "A" agreement entered into between
the parties on June 20, 1968 whereby the
plaintiff had the authority to sell the subdivision
lots included in Villa Alegre subdivision;
Exhibit "B" Letter of the defendant Alegria V.
Diolosa dated September 27, 1968 addressed to
the plaintiff terminating the agency and
rescinding Exhibit "A" for the reason that the lots
remained unsold lots were for reservation for
their grandchildren.

32

The Court will decide this case based on the facts admitted
in the pleadings, those agreed by the parties during the
pre-trial conference, and those which they can prove during
the trial of this case, in accordance with the contention of
the parties based on the issues submitted by them during
the pre-trial conference.
SO ORDERED.
Iloilo City, Philippines, August 14, 1969.
(SGD
)
VALE
RIO
V.
ROVI
RA
Judg
e
(pp.
2225,
Rollo
)
The only issue in this case is whether the petitioners could terminate
the agency agreement, Exhibit "A", without paying damages to the
private respondent. Pertinent portion of said Exhibit "A" reads:
That the PARTY OF THE FIRST PART is the lawful and
absolute owner in fee simple of VILLA ALEGRE
SUBDIVISION situated in the District of Mandurriao, Iloilo
City, which parcel of land is more particularly described as
follows, to wit:

33

A parcel of land, Lot No. 2110-b-2-C, PSD

74002, Transfer Certificate of Title No. T_____
situated in the District of Mandurriao, Iloilo,
Philippines, containing an area of 39016 square
meters, more or less, with improvements
thereon.
That the PARTY OF THE FIRST PART by virtue of these
presents, to enhance the sale of the lots of the abovedescribed subdivision, is engaging as their EXCLUSIVE
SALES AGENT the PARTY OF THE SECOND PART, its
successors, heirs and assigns to dispose of, sell, cede,
transfer and convey the above-described property in
whatever manner and nature the PARTY OF THE SECOND
PART, with the concurrence of the PARTY OF THE FIRST
PART, may deem wise and proper under the premises,
whether it be in cash or installment basis, until all the
subject property as subdivided is fully disposed of. (p. 7 of
Petitioner's brief. Emphasis supplied).
Respondent court, in its decision which is the subject of review said:
Article 1920 of the Civil Code of the Philippines
notwithstanding, the defendants could not terminate the
agency agreement, Exh. "A", at will without paying
damages.
The
said
agency
agreement
expressly
stipulates ... until all the subject property as subdivided is
fully disposed of ..." The testimony of Roberto
Malundo(t.s.n. p. 99) that the plaintiff agreed to the
intention of Mrs. Diolosa to reserve some lots for her own
famay use cannot prevail over the clear terms of the agency
agreement. Moreover, the plaintiff denied that there was an
agreement to reserve any of the lots for the family of the
defendants. (T.s.n. pp. 16).

34

There are twenty seven (27) lots of the subdivision

remaining unsold on September 27, 1968 when the
defendants rescinded the agency agreement, Exhibit "A".
On that day the defendants had only six grandchildren. That
the defendants wanted to reserve the twenty seven
remaining lots for the six grandchildren is not a legal reason
for defendants rescind the agency agreement. Even if the
grandchildren were to be given one lot each, there would
still be twenty-one lots available for sale. Besides it is
undisputed that the defendants have other lands which
could be reserved for their grandchildren. (pp. 26-27, Rollo)
The present appeal is manifestly without merit.
Under the contract, Exhibit "A", herein petitioners allowed the private
respondent "to dispose of, sell, cede, transfer and convey ... until out
the subject property as subdivided is fully disposed of." The authority
to sell is not extinguished until all the lots have been disposed of.
When, therefore, the petitioners revoked the contract with private
respondent in a letter, Exhibit "B"
Dear Mr. Baterna:
Please be informed that we have finally decided to reserve
the remaining unsold lots, as of this date of our VILLA
ALEGRE Subdivision for our grandchildren.
In view thereof, notice is hereby served upon you to the
effect that our agreement dated June 20, 1968 giving you
the authority to sell as exclusive sales agent of our
subdivision is hereby rescinded.
Please be duly guided.
Very
truly

35

your
s,
(SGD) ALEGRIA
V.
DIOLOSA
Subdivision
Owner
(p. 11 of Petitioner's Brief)
they become liable to the private respondent for damages for breach
of contract.
And, it may be added that since the agency agreement, Exhibit "A", is
a valid contract, the same may be rescinded only on grounds specified
in Articles 1381 and 1382 of the Civil Code, as follows:
ART. 1381. The following contracts are rescissible:
(1) Those which are entered in to by guardians
whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of
the things which are the object thereof;
(2) Those agreed upon in representation of
absentees, if the latter suffer the lesion stated in
the preceding number;
(3) Those undertaken in fraud of creditors when
the latter cannot in any other name collect the
claims due them;
(4) Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the
litigants or of competent judicial authority;

36

(5) All other contracts specially declared by law

to be subject to rescission.
ART. 1382. Payments made in a state of insolvency for
obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also
rescissible."
In the case at bar, not one of the grounds mentioned above is present
which may be the subject of an action of rescission, much less can
petitioners say that the private respondent violated the terms of their
agreement-such as failure to deliver to them (Subdivision owners) the
proceeds of the purchase price of the lots.
ACCORDINGLY,
the
petition
pronouncement as to costs.

is

hereby

dismissed

without

SO ORDERED.

Perez vs Araneta 4 Scra 430 ***

EN BANC
G.R. No. L-16962

February 27, 1962

TRUSTEESHIP OF THE MINORS BENIGNO, ANGELA and

ANTONIO,
all
surnamed
PEREZ
Y
TUASON,
ANTONIO
M.
PEREZ, judicial-guardian-appellant,
vs.
J. ANTONIO ARANETA, trustee-appellee.
Alfonso
L.
Felix,
Jr.
for
judicial-guardian-appellant.
Araneta and Araneta for trustee-appellee.
CONCEPCION, J.:

37

Appeal from an order denying a motion.

Sometime in 1948, Angela S. Tuason died leaving a will, paragraph 4
of which reads:
Instituyo como mis unicos herederos a mis mencionados tres
hijos, a rason de una novena parte del caudal hereditario que
dejare para cada uno de ellos. Lego a mi hijo Antonio otra
porcion equivalente a dos novenas partes del caudal hereditario.
Lego asimismo a mis nietos que fueren de mi hija Nieves, otra
porcion equivalente a dos novenas partes del caudal
hereditario. Y finalmente lego a mis nietos que fueren hijos de mi
hija Angela otra porcion equivalente de dos novenas partes del
caudal hereditario. Dichos tres legados, sin embargo, estan
sujetos a la manda que se menciona en el parrafo siguiente. Los
dos legados, a favor de mis mencionados nietos seran
administrados por mi albacea, J. Antonio Araneta (y en defecto
de este, su hermano, Salvador Araneta), con amplios poderes de
vender los mismos, y con suproducto adquirir otros bienes, y con
derecho a cobrar por su administracion, honorarios razonables.
Los poderos de dicho administrador seran los de un trustee con
los poderes mas amplios permitidos por la ley. Deberasin
embargo, rendir trimestralmente, cuenta de su administracion a
los legatarious que fueren mayores de edad. Y asimismo, debera
hacerles entrega de la participacion que a cada legatario
corresponda en las rentas netas de la administracion. La
administracion sobre un grupo cesara cuando todos misnietos de
dicho grupo llegare a su mayoria de edad, y una mayoria de los
mismos acordaren la terminacion de la administracion. Por
nietos, debe entederse no solamente a los nietos varones sino
tambien a los nietos mujeres.
In conformity with this provision of said will, the present trusteeship
proceedings was instituted and certain properties of the estate of the
deceased, valued P900,00 were turned over in 1950 to J. Antonio
Araneta, as trustee for the benefit of Benigno, Angela and Antonio, all
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surnamed Perez y Tuason, the grandchildren of the decedent referred

to in her aforementioned will. Portions of said properties constituting
the trust were sold in 1956, 1957 and 1958 at prices exceedingly by
P13,418.42, P4,023.52 and P81,386.94, respectively aggregating
P98,828.88 the original appraised value thereof. On September 28,
1959, the judicial guardian and father of said minors filed a motion in
the trusteeship proceedings alleging that said sum of P98,828.88
represents profits or income of the trusteeship to which said minors
are entitled, pursuant to the above quoted provision of the will, and
praying that the trustee be accordingly instructed to deliver said sum
to the movant. The trustee objected to the motion, which, after due
hearing, was denied by an order dated March 10, 1960, from which
said guardian has appealed.
The appeal hinges on whether or not the aforesaid sum of P98,828.88
is a profit or income which should be turned over to the guardian of
said minors according to the provisions of the will quoted above.
Appellant maintains that it is, because said sum was included as profit
in the statements of profits and losses attached to the corresponding
income tax returns. This pretense is untenable.
To begin with, the issue as to whether or not the minors are entitled to
the delivery of said sum of P98,828.88 is a matter dependent
exclusively upon the conditions upon which the trust had been
established, as provided in the above quoted paragraph of the will of
the decedent, which in turn depends upon the latter's intent, as set
forth in said paragraph. Upon the other hand, the question whether
the sum in question is a profit or not within the purview of our internal
revenue law depends upon the provisions of the latter, regardless of
the will of the decedent. 1wph1.t
Secondly, the proceeds of the sale of portions of the real estate held in
trust, merely take the place of the property sold. What is more, the
provision of the will of the decedent explicitly authorizing the trustee
to sell the property held in trust and to acquire, with the proceeds of
the sale, other property ("con amplios poderos de vender los mismos,
39

y con su producto adquirir otros bienes,") leaves no room for doubt

about the intent of the testatrix to keep, as part of the trust, said
proceeds of the sale, and not to turn the same over to the beneficiary
as net rentals ("rentas netas").
Thirdly, under the principles of general law on trust, insofar as not in
conflict with the Civil Code, the Code of Commerce, the Rules of Court
and Special laws, are now part of our laws (Article 1442, Civil Code of
the Philippines). Pursuant to the general law on trust, "a provision in
the instrument to the effect that the beneficiary shall be entitled to the
'income and profits of' of the trust estate is not ordinarily sufficient to
indicate an intention that he should be entitled to receive gains arising
from the sale of trust property ..." ( In re Account of Houston's
Trustees, 165 Atl. 132; Lauman v. Foster, 50 A.L.R. 531; Guthrie's
Trustee v. Akers, 157 Ky. 649; Estate of Gartenlaule, 198 Cal. 204,
244 Pac. 348, 48 A.L.R. [M.S. 793]). Indeed:.
The corpus of the estate, no matter what changes of form it
undergoes, should be regarded as the same property. That the
trust property is originally money, later becomes bonds, and still
later real estate, ought not to affect the status of the property as
the capital fund. (In re Graham's Estate, 198 Pa. 216, 219, 47 A.
1108; See Bogert on Trusts, 2d Ed., p. 436.)
Hence, it is well settled that profits realized in the sale of trust
properties are part of the capital held in trust to which the
beneficiaries are not entitled as income. (First Nat. Bank of Carlisle v.
Lee, 23 Ky. L. Rep. 1897; Coleman vs. Grimes, 33 Ky. L. Rep. 455;
Bains v. Globe Bank & Trust Co., 136 Ky. 332; Smith v. Hooper, 95 Md.
16; Chase v. Union National Bank, 275 Mass. 503; First National Bank
of Canton vs. Mulholland, 13 A.L.R. 1000 [1920] [land]; Stewart v.
Phelps, 75 N. & Supp. 526 Rathbun v. Colton, 15 Pick. 471; Gibson v.
Cooke, 1 Met. 75; See Scott on Trusts Vol. 2 p. 1259.) In the language
of the Restatement of the Law:.

40

Subject to the allocation of receipts from unproductive or wasting

property, and except as stated in Comment c, money or other
property received by the trustee as the proceeds of a sale or
exchange of the principal of trust property is principal. Similarly,
where trust property is taken on eminent domain, the proceeds
received by the trustee are principal. If trust property is
destroyed by fire or other casualty, the proceeds of insurance
thereon received by the trustee are principal. .... "Where it is
provided by the terms of the trust that the 'income and profits' of
the trust estate shall be paid to the life beneficiary, it is a
question of interpretation whether the life beneficiary is to
receive more than he would receive if it were provided that the
'income' should be paid to him. Ordinarily the inference is that he
is not to receive more, and if trust property is sold at a profit, the
profit is principal. (Restatement of the Law, Trusts, Vol. I, pp. 682
and 691.)
WHEREFORE, the order appealed from is hereby affirmed, with costs
against appellant, Antonio M. Perez. It is so ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Reyes, J.B.L.,
Barrera, Paredes, Dizon and De Leon, JJ., concur.

41