AGENCY

G.R. No. L-24332 January 31, 1978 RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner, vs. FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents. This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion Rallos, sold the latter's undivided share in a parcel of land pursuant to a power of attorney which the principal had executed in favor. The administrator of the estate of the went to court to have the sale declared uneanforceable and to recover the disposed share. The trial court granted the relief prayed for, but upon appeal the Court of Appeals uphold the validity of the sale and the complaint. Hence, this Petition for Review on certiorari. The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title No. 12989 was issued in the named of the vendee. On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way of attorney's fees and payment of costs of suit. Named party defendants were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped from the complaint. The complaint was amended twice; defendant Corporation's Answer contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos While the case was pending in the trial court, both Simon and his sister Gerundia died and they were substituted by the respective administrators of their estates. After trial the court a quo rendered judgment with the following dispositive portion: A. On Plaintiffs Complaint (1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso share of Concepcion Rallos in the

property in question, Lot 5983 of the Cadastral Survey of Cebu is concerned; (2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No. 12989 covering Lot 5983 and to issue in lieu thereof another in the names of FELIX GO CHAN & SONS REALTY CORPORATION and the Estate of Concepcion Rallos in the proportion of one-half (1/2) share each pro-indiviso; (3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an undivided one-half (1/2) share of Lot 5983 to the herein plaintiff; (4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00; and (5) Ordering both defendants to pay the costs jointly and severally. B. On GO CHANTS Cross-Claim: (1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the sum of P5,343.45, representing the price of one-half (1/2) share of lot 5983; (2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation the sum of P500.00. C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia Rallos: (1) Dismissing the third-party complaint without prejudice to filing either a complaint against the regular administrator of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the third-party complaint, at bar. (pp. 98-100, Record on Appeal) Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of the appellant corporation sustaining the sale in question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the decision but the same was denied in a resolution of March 4, 1965. 2

What is the legal effect of an act performed by an agent after the death of his principal? Applied more particularly to the instant case, We have the query. is the sale of the undivided share of Concepcion Rallos in lot 5983 valid although it was executed by the agent after the death of his principal? What is the law in this jurisdiction as to the effect of the death of the principal on the authority of the agent to act for and in behalf of the latter? Is the fact of knowledge of the death of the principal a material factor in determining the legal effect of an act performed after such death? Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder consideration. 1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. 3 A contract entered into in the name of another by one who has no authority or the legal representation or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. 4 Article 1403 (1) of the same Code also provides: ART. 1403. The following contracts are unenforceable, unless they are justified: (1) Those entered into in the name of another person by one who hi - been given no authority or legal representation or who has acted beyond his powers; ... Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one party, caged the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agents acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. 5 Agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself". 6 2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil Code provides: ART. 1919. Agency is extinguished. xxx xxx xxx 3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ... (Emphasis supplied) By reason of the very nature of the relationship between Principal and agent, agency is extinguished by the death of the principal or the agent. This is the law in this jurisdiction. 8

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in the juridical basis of agency which is representation Them being an in. integration of the personality of the principal integration that of the agent it is not possible for the representation to continue to exist once the death of either is establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a necessary cause for its extinction. Laurent says that the juridical tie between the principal and the agent is severed ipso jure upon the death of either without necessity for the heirs of the fact to notify the agent of the fact of death of the former. 9 The same rule prevails at common law the death of the principal effects instantaneous and absolute revocation of the authority of the agent unless the Power be coupled with an interest. 10 This is the prevalent rule in American Jurisprudence where it is well-settled that a power without an interest confer. red upon an agent is dissolved by the principal's death, and any attempted execution of the power afterward is not binding on the heirs or representatives of the deceased. 11 3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the agency, subject to any exception, and if so, is the instant case within that exception? That is the determinative point in issue in this litigation. It is the contention of respondent corporation which was sustained by respondent court that notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid and enforceable inasmuch as the corporation acted in good faith in buying the property in question. Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned. ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor. ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good. faith. Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos was not coupled with an interest. Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal is valid and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of the principal and (2) that the third person who contracted with the agent himself acted in good faith. Good faith here means that the third person was not aware of the death of the principal at the time he contracted with said agent. These two requisites must concur the absence of one will render the act of the agent invalid and unenforceable. In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the court a quo 13 and of respondent appellate court when the latter stated that Simon Rallos 'must

have known of the death of his sister, and yet he proceeded with the sale of the lot in the name of both his sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of the death of the former. 14 On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack of knowledge on the part of the agent of the death of his principal; it is not enough that the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale made after the death of the principal because it was not shown that the agent knew of his principal's demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court stated: ... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is no indication in the record, that the agent Luy Kim Guan was aware of the death of his principal at the time he sold the property. The death 6f the principal does not render the act of an agent unenforceable, where the latter had no knowledge of such extinguishment of the agency. (1 SCRA 406, 412) 4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that there is no provision in the Code which provides that whatever is done by an agent having knowledge of the death of his principal is void even with respect to third persons who may have contracted with him in good faith and without knowledge of the death of the principal. 16 We cannot see the merits of the foregoing argument as it ignores the existence of the general rule enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the general rule it follows a fortiori that any act of an agent after the death of his principal is void ab initio unless the same fags under the exception provided for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the general rule, is to be strictly construed, it is not to be given an interpretation or application beyond the clear import of its terms for otherwise the courts will be involved in a process of legislation outside of their judicial function. 5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power of attorney which was duly registered on the original certificate of title recorded in the Register of Deeds of the province of Cebu, that no notice of the death was aver annotated on said certificate of title by the heirs of the principal and accordingly they must suffer the consequences of such omission. 17 To support such argument reference is made to a portion in Manresa's Commentaries which We quote: If the agency has been granted for the purpose of contracting with certain persons, the revocation must be made known to them. But if the agency is general iii nature, without reference to particular person with whom the agent is to contract, it is sufficient that the principal exercise due diligence to make the revocation of the agency publicity known. In case of a general power which does not specify the persons to whom represents' on should be made, it is the general opinion that all acts, executed with third

persons who contracted in good faith, Without knowledge of the revocation, are valid. In such case, the principal may exercise his right against the agent, who, knowing of the revocation, continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo) The above discourse however, treats of revocation by an act of the principal as a mode of terminating an agency which is to be distinguished from revocation by operation of law such as death of the principal which obtains in this case. On page six of this Opinion We stressed that by reason of the very nature of the relationship between principal and agent, agency is extinguished ipso jure upon the death of either principal or agent. Although a revocation of a power of attorney to be effective must be communicated to the parties concerned, 18 yet a revocation by operation of law, such as by death of the principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an execution of the principal's continuing will. 19 With death, the principal's will ceases or is the of authority is extinguished. The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in the meantime adopt such measures as the circumstances may demand in the interest of the latter. Hence, the fact that no notice of the death of the principal was registered on the certificate of title of the property in the Office of the Register of Deeds, is not fatal to the cause of the estate of the principal 6. Holding that the good faith of a third person in said with an agent affords the former sufficient protection, respondent court drew a "parallel" between the instant case and that of an innocent purchaser for value of a land, stating that if a person purchases a registered land from one who acquired it in bad faith even to the extent of foregoing or falsifying the deed of sale in his favor the registered owner has no recourse against such innocent purchaser for value but only against the forger. 20 To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief: In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner of lands with Agustin Nano. The latter had a power of attorney supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land titles. The power was registered in the Office of the Register of Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he found all in order including the power of attorney. But Vallejo denied having executed the power The lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the Supreme Court, quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held: But there is a narrower ground on which the defenses of the defendant- appellee must be overruled. Agustin Nano had possession of Jose Vallejo's title papers. Without those title papers handed over to Nano with the acquiescence of Vallejo, a fraud could not have been perpetuated. When Fernando de la Canters, a member of the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff, searched the registration record, he found them in due form including the power of

attorney of Vallajo in favor of Nano. If this had not been so and if thereafter the proper notation of the encumbrance could not have been made, Angela Blondeau would not have sent P12,000.00 to the defendant Vallejo.' An executed transfer of registered lands placed by the registered owner thereof in the hands of another operates as a representation to a third party that the holder of the transfer is authorized to deal with the land. As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of coincidence bear the loss. (pp. 19-21) The Blondeau decision, however, is not on all fours with the case before Us because here We are confronted with one who admittedly was an agent of his sister and who sold the property of the latter after her death with full knowledge of such death. The situation is expressly covered by a provision of law on agency the terms of which are clear and unmistakable leaving no room for an interpretation contrary to its tenor, in the same manner that the ruling in Blondeau and the cases cited therein found a basis in Section 55 of the Land Registration Law which in part provides: xxx xxx xxx The production of the owner's duplicate certificate whenever any voluntary instrument is presented for registration shall be conclusive authority from the registered owner to the register of deeds to enter a new certificate or to make a memorandum of registration in accordance with such instruments, and the new certificate or memorandum Shall be binding upon the registered owner and upon all persons claiming under him in favor of every purchaser for value and in good faith: Provided however, That in all cases of registration provided by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud without prejudice, however, to the right, of any innocent holder for value of a certificate of title. ... (Act No. 496 as amended) 7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the death of the principal were held to be "good", "the parties being ignorant of the death". Let us take note that the Opinion of Justice Rogers was premised on the statement that the parties were ignorant of the death of the principal. We quote from that decision the following: ... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the death is a good payment. in addition to the case in Campbell before cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general question that a payment after the death of principal is not good. Thus, a payment of sailor's wages to a person having a power of attorney to receive them, has been held void when the principal was dead at the time of the payment. If, by this case, it is meant merely to decide the general proposition that by operation of law the death of the principal is a revocation of the powers of the attorney, no objection can be taken to it. But if it intended to say that his principle applies where there was 110 notice of death, or opportunity of twice I must be permitted to dissent from it.

... That a payment may be good today, or bad tomorrow, from the accident circumstance of the death of the principal, which he did not know, and which by no possibility could he know? It would be unjust to the agent and unjust to the debtor. In the civil law, the acts of the agent, done bona fide in ignorance of the death of his principal are held valid and binding upon the heirs of the latter. The same rule holds in the Scottish law, and I cannot believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81; emphasis supplied) To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made that the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a general principle, death revokes an agency and renders null every act of the agent thereafter performed, yet that where a payment has been made in ignorance of the death, such payment will be good. The leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii broadly announced. It is referred to, and seems to have been followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased principal had received the benefit of the money paid, and therefore the representative of the estate might well have been held to be estopped from suing for it again. . . . These cases, in so far, at least, as they announce the doctrine under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except so far as it related to the particular facts, was a mere dictum, Baldwin J. said: The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of his views on the general subject, than as the adjudication of the Court upon the point in question. But accordingly all power weight to this opinion, as the judgment of a of great respectability, it stands alone among common law authorities and is opposed by an array too formidable to permit us to following it. (15 Cal. 12,17, cited in 2 C.J. 549) Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no such conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides for two exceptions to the general rule that death of the principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest (Art 1930), and (2) that the act of the agent was executed without knowledge of the death of the principal and the third person who contracted with the agent acted also in good faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress the indispensable requirement that the agent acted without knowledge or notice of the death of the principal In the case before Us the agent Ramon Rallos executed the sale notwithstanding notice of the death of his principal Accordingly, the agent's act is unenforceable against the estate of his principal. IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against respondent realty corporation at all instances. So Ordered.

G.R. No. 144805 June 8, 2006 EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners, vs. ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents. On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CAG.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution2 of the CA denying the motion for reconsideration thereof. The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were conducted on eight parcels of land with a total area of 47,233 square meters. The properties, located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of Belgium.3 Jack Glanville, an Australian citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices in Belgium. In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of ECs Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that the properties could be offered for sale to prospective buyers. Glanville later showed the properties to Marquez. Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized to sell the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation.4 Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings offer and relayed the same to Delsaux in Belgium, but the latter did not respond. On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final liquidation."5 Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm full payment within 90 days after execution and preparation of all documents of sale, together with the necessary governmental clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.7 Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer, which had given him the impression that "he is prepared to press for a satisfactory conclusion to the sale."8 He also emphasized to Delsaux that the buyers were concerned because they would incur expenses in bank commitment fees as a consequence of prolonged period of inaction.9 Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the political situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising that the sale would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by his principal to inform Marquez that "the decision has been taken at a Board Meeting not to sell the properties on which Eternit Corporation is situated."10 Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided not to proceed with the sale of the subject land, to wit: May 22, 1987 Mr. L.G. Marquez L.G. Marquez, Inc. 334 Makati Stock Exchange Bldg. 6767 Ayala Avenue Makati, Metro Manila Philippines Dear Sir: Re: Land of Eternit Corporation I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you. The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. Considering [the] new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila. In fact, production has started again last week, and (sic) to recognize the participation in the Corporation. We regret that we could not make a deal with you this time, but in case the policy would change at a later state, we would consult you again. xxx Yours sincerely,

(Sgd.) C.F. DELSAUX cc. To: J. GLANVILLE (Eternit Corp.)11 When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for damages they had suffered on account of the aborted sale. EC, however, rejected their demand. The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account of their purchase of ESAC shares of stocks and were the controlling stockholders of EC. In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of Jack Glanville was his own personal making which did not bind EC. On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended complaint.12 The fallo of the decision reads: WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants. The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action. The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also dismissed for lack of merit.13 The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void and not merely unenforceable, and as such, could not have been ratified by the principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the property without a clear authorization from the corporation concerned, that is, through resolutions of the Board of Directors and stockholders. The trial court also pointed out that the supposed sale involves substantially all the assets of defendant EC which would result in the eventual total cessation of its operation.14 The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that the real estate broker in the instant case needed a written authority from appellee corporation and/or that said broker had no such written authority; and (2) the lower court committed grave error of law in holding that appellee corporation is not legally bound for specific performance and/or damages in the absence of an enabling resolution of the board of directors."15 They averred that Marquez acted merely as a broker or go-between and not as agent of the corporation; hence, it was

not necessary for him to be empowered as such by any written authority. They further claimed that an agency by estoppel was created when the corporation clothed Marquez with apparent authority to negotiate for the sale of the properties. However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected contract of sale, which the corporation was obliged to consummate. In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale involved substantially all of the corporations assets, it would necessarily need the authority from the stockholders. On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. a motion for reconsideration, which was also denied by the appellate court.
16

The Litonjuas filed

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from ECs board of directors to bind such corporation to the sale of its proper ties. Delsaux, who was merely the representative of ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel had been created between the parties. In the instant petition for review, petitioners aver that I THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE. II THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED. III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES.17 Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that they had accepted the counter-offer of respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance was made known to them through real estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his authority was of a special and limited character in most respects. His only job as a broker was to look for a buyer and to bring together the parties to the transaction. He was not authorized to sell the properties or to make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does not apply. In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate both the offer and counter-offer and their acceptance of respondent ECs counter-offer, resulting in a perfected contract of sale. Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who was the President and General Manager of respondent EC, and Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to sell the subject property or, at least, had been allowed by respondent EC to hold themselves out in the public as having the power to sell the subject properties. Petitioners identified such evidence, thus: 1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of Eternit, to sell the properties of said corporation to any interested party, which authority, as hereinabove discussed, need not be in writing. 2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS, from 1986 to 1987; 3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners; 4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as evidenced by the Petitioners ACCEPTANCE of the counter-offer; 5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an ESCROW agreement was drafted over the subject properties; 6. Glanvilles telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND SELL"; 7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.18 Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners offer and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit: Dear Sir, Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you. The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. Considering the new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact production started again last week, and (sic) to reorganize the participation in the Corporation. We regret that we could not make a deal with you this time, but in case the policy would change at a later stage we would consult you again. In the meantime, I remain Yours sincerely, C.F. DELSAUX19 Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist that respondents held themselves to the public as possessing power to sell the subject properties. By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and Marquez had no authority from the stockholders of respondent EC and its Board of Directors to offer the properties for sale to the petitioners, or to any other person or entity for that matter. They assert that the decision and resolution of the CA are in accord with law and the evidence on record, and should be affirmed in toto. Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to the written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in respondent EC at the time of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a formal resolution of the Board of Directors would be a mere ceremonial formality. What is important, petitioners maintain, is that Marquez was able to communicate the offer of respondent EC and the petitioners acceptance thereof. There was no time that they acted without the knowledge of respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and Delsaux. The petition has no merit. Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In the absence of express written

terms creating the relationship of an agency, the existence of an agency is a fact question.20 Whether an agency by estoppel was created or whether a person acted within the bounds of his apparent authority, and whether the principal is estopped to deny the apparent authority of its agent are, likewise, questions of fact to be resolved on the basis of the evidence on record.21 The findings of the trial court on such issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and appellate courts ignored, misconstrued, or misapplied facts and circumstances of substance which, if considered, would warrant a modification or reversal of the outcome of the case.22 It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether testimonial and documentary. There are, however, recognized exceptions where the Court may delve into and resolve factual issues, namely: (1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.23 We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported by the evidence on record and the law. It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof.24 Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, provides: SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not affected by the personal rights,

obligations and transactions of the latter.25 It may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law.26 Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the limitations prescribed by law and the Constitution, as follows: SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has the power and capacity: xxxx 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of a lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by the law and the Constitution. The property of a corporation, however, is not the property of the stockholders or members, and as such, may not be sold without express authority from the board of directors.27 Physical acts, like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property, can be performed by the corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board of directors.28 Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are not binding on the corporation.29 While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws.30 An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void. The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority.31 By the contract of agency, a person binds himself to render some service or to do something in representation on behalf of another, with the consent or authority of the latter.32 Consent of both principal and agent is necessary to create an agency. The principal must intend that the agent shall act for him; the agent must intend to accept the authority and act on it, and the intention of the parties must find expression either in words or conduct between them.33 An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure to repudiate the agency knowing that another person is acting on his behalf without authority. Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances.34 Agency may be oral unless the law requires a specific form.35 However, to create or convey real rights over immovable property, a special power of attorney is necessary.36 Thus, when a sale of a piece of land or any

portion thereof is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.37 In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent EC including the improvements thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners claim that he had likewise been authorized by respondent EC to sell the parcels of land. Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia, 38 the Board of Directors of respondent ESAC,39 and the Belgian/Swiss component of the management of respondent ESAC.40 As such, Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale the property for P27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners offered to purchase the property for P20,000,000.00, through Marquez, the latter relayed petitioners offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners offer. However, as admitted by petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the entire management or Board of Directors of respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party to the transaction between them; hence, EC was not bound by such acceptance. While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed to bind EC to any agreement regarding the sale of the subject properties. Such board resolution is not a mere formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent EC; however, the mere fact that a corporation owns a majority of the shares of stocks of another, or even all of such shares of stocks, taken alone, will not justify their being treated as one corporation.43 It bears stressing that 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.44 The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to the petitioners. A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority.45 The settled rule is that, persons dealing with an assumed agent are bound at their peril, and 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 prove it.46 In this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC. It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the improvements thereon. However, we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties. A real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell.47 Equally barren of merit is petitioners contention that respondent EC is estopped to deny the existence of a principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the following must be established: (1) the principal manifested a representation of the agents authority or knowlingly allowed the agent to assume such authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such representation, such third person has changed his position to his detriment.48 An agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.49 Such proof is lacking in this case. In their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC. Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners. SO ORDERED. =================

G.R. No. 149353

June 26, 2006

JOCELYN B. DOLES, Petitioner, vs. MA. AURA TINA ANGELES, Respondent. This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the Decision1 dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila; and the CA Resolution2 dated August 6, 2001 which denied petitioners Motion for Reconsideration. The antecedents of the case follow: On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 9782716. Respondent alleged that petitioner was indebted to the former in the concept of a personal loan amounting to P405,430.00 representing the principal amount and interest; that on October 5, 1996, by virtue of a "Deed of Absolute Sale",3 petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as the improvements thereon, with an area of 42 square meters, covered by Transfer Certificate of Title No. 382532,4 and located at a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her personal loan with respondent; that this property was mortgaged to National Home Mortgage Finance Corporation (NHMFC) to secure petitioners loan in the sum of P337,050.00 with that entity; that as a condition for the foregoing sale, respondent shall assume the undue balance of the mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years which began on September 3, 1994; that the property was at that time being occupied by a tenant paying a monthly rent of P3,000.00; that upon verification with the NHMFC, respondent learned that petitioner had incurred arrearages amounting to P26,744.09, inclusive of penalties and interest; that upon informing the petitioner of her arrears, petitioner denied that she incurred them and refused to pay the same; that despite repeated demand, petitioner refused to cooperate with respondent to execute the necessary documents and other formalities required by the NHMFC to effect the transfer of the title over the property; that petitioner collected rent over the property for the month of January 1997 and refused to remit the proceeds to respondent; and that respondent suffered damages as a result and was forced to litigate. Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she borrowed money from respondent, and averred that from June to September 1995, she referred her friends to respondent whom she knew to be engaged in the business of lending money in exchange for personal checks through her capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed money from respondent and issued personal checks in payment of the loan; that the checks bounced for insufficiency of funds; that despite her efforts to assist respondent to collect from the borrowers, she could no longer locate them; that, because of this, respondent became furious and threatened petitioner that if the accounts were not settled, a criminal case will be filed against her; that she was forced to issue eight checks amounting to P350,000 to answer for the bounced checks of the borrowers she referred; that prior to the issuance of the checks she informed respondent that they were not sufficiently funded but the latter nonetheless deposited the checks and for which reason they were subsequently dishonored; that respondent then threatened to initiate a criminal case against her for violation of Batas Pambansa Blg. 22; that she was forced by respondent to execute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal prosecution; that the

said deed had no valid consideration; that she did not appear before a notary public; that the Community Tax Certificate number on the deed was not hers and for which respondent may be prosecuted for falsification and perjury; and that she suffered damages and lost rental as a result. The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second; if valid, whether petitioner is obliged to sign and execute the necessary documents to effect the transfer of her rights over the property to the respondent; and third, whether petitioner is liable for damages. On July 29, 1998, the RTC rendered a decision the dispositive portion of which states: WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for insufficiency of evidence. With costs against plaintiff. SO ORDERED. The RTC held that the sale was void for lack of cause or consideration:5 Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further admission that the checks issued by these borrowers in payment of the loan obligation negates [sic] the cause or consideration of the contract of sale executed by and between plaintiff and defendant. Moreover, the property is not solely owned by defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A, Complaint), thus: "Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico Doles on the parcel of land described in this certificate of title by virtue of the special power of attorney to mortgage, executed before the notary public, etc." The rule under the Civil Code is that contracts without a cause or consideration produce no effect whatsoever. (Art. 1352, Civil Code). Respondent appealed to the CA. In her appeal brief, respondent interposed her sole assignment of error: THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF EVIDENCE.6 On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads: WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered ordering defendant-appellee to execute all necessary documents to effect transfer of subject property to plaintiff-appellant with the arrearages of the formers loan with the NHMFC, at the latters expense. No costs. SO ORDERED.

10

The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale was supported by a valid consideration, which is the sum of money petitioner owed respondent amounting to P405,430.00, representing both principal and interest. The CA took into account the following circumstances in their entirety: the supposed friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent;7 that the money borrowed was deposited with the bank account of the petitioner, while payments made for the loan were deposited by the latter to respondents bank account;8 that petitioner herself admitted in open court that she was "re-lending" the money loaned from respondent to other individuals for profit;9 and that the documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent.10 Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate consent, since the same is considered just or legal if made to enforce ones claim through comp etent authority under Article 133511 of the Civil Code;12 that with respect to the arrearages of petitioner on her monthly amortization with the NHMFC in the sum of P26,744.09, the same shall be deemed part of the balance of petitioners loan with the NHMFC which respondent agreed to assume; and that the amount of P3,000.00 representing the rental for January 1997 supposedly collected by petitioner, as well as the claim for damages and attorneys fees, is denied for insufficiency of evidence.13 On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that respondent categorically admitted in open court that she acted only as agent or representative of Arsenio Pua, the principal financier and, hence, she had no legal capacity to sue petitioner; and that the CA failed to consider the fact that petitioners father, who co -owned the subject property, was not impleaded as a defendant nor was he indebted to the respondent and, hence, she cannot be made to sign the documents to effect the transfer of ownership over the entire property. On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing matters had already been passed upon. On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001, petitioner filed the present Petition and raised the following issues: I. WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE RESPONDENT. II. WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR. III. WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14

Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower courts, jurisprudence has recognized several exceptions, at least three of which are present in the instant case, namely: when the judgment is based on a misapprehension of facts; when the findings of facts of the courts a quo are conflicting; and when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, could justify a different conclusion.15 To arrive at a proper judgment, therefore, the Court finds it necessary to re-examine the evidence presented by the contending parties during the trial of the case. The Petition is meritorious. The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration. 1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is not a party to the loan; and that the Deed of Sale executed between her and the respondent in their own names, which was predicated on that pre-existing debt, is void for lack of consideration. Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently held that a contract of sale is null and void and produces no effect whatsoever where the same is without cause or consideration.17 The question that has to be resolved for the moment is whether this debt can be considered as a valid cause or consideration for the sale. To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the amount borrowed from respondent to her friends: first, the friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent;18 second; the money passed through the bank accounts of petitioner and respondent;19 third, petitioner herself admitted that she was "re-lending" the money loaned to other individuals for profit;20 and fourth, the documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent.21 On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during her cross-examination:22 Atty. Diza: q. You also mentioned that you were not the one indebted to the plaintiff? witness: a. Yes, sir. Atty. Diza: q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are your friends? witness:

11

a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were just referred. Atty. Diza: q. And you have transact[ed] with the plaintiff? witness: a. Yes, sir. Atty. Diza: q. What is that transaction? witness: a. To refer those persons to Aura and to refer again to Arsenio Pua, sir. Atty. Diza: q. Did the plaintiff personally see the transactions with your friends? witness: a. No, sir. Atty. Diza: q. Your friends and the plaintiff did not meet personally? witness: a. Yes, sir. Atty. Diza: q. You are intermediaries? witness: a. We are both intermediaries. As evidenced by the checks of the debtors they were deposited to the name of Arsenio Pua because the money came from Arsenio Pua.

xxxx Atty. Diza: q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one you mentioned [a] while ago? witness: a. Yes, she knows the money will go to those persons. Atty. Diza: q. You are re-lending the money? witness: a. Yes, sir. Atty. Diza: q. What profit do you have, do you have commission? witness: a. Yes, sir. Atty. Diza: q. How much? witness: a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none, sir. Based on the foregoing, the CA concluded that petitioner is the real borrower, while the respondent, the real lender. But as correctly noted by the RTC, respondent, then plaintiff, made the following admission during her cross examination:23 Atty. Villacorta:

12

q. Who is this Arsenio Pua? witness: a. Principal financier, sir. Atty. Villacorta: q. So the money came from Arsenio Pua? witness: a. Yes, because I am only representing him, sir. Other portions of the testimony of respondent must likewise be considered:24 Atty. Villacorta: q. So it is not actually your money but the money of Arsenio Pua? witness: a. Yes, sir. Court: q. It is not your money? witness: a. Yes, Your Honor. Atty. Villacorta: q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate somebody, are you aware of that? witness: a. I am aware of that. Atty. Villacorta:

q. More or less she [accommodated] several friends of the defendant? witness: a. Yes, sir, I am aware of that. xxxx Atty. Villacorta: q. And these friends of the defendant borrowed money from you with the assurance of the defendant? witness: a. They go direct to Jocelyn because I dont know them. xxxx Atty. Villacorta: q. And is it not also a fact Madam witness that everytime that the defendant borrowed money from you her friends who [are] in need of money issued check[s] to you? There were checks issued to you? witness: a. Yes, there were checks issued. Atty. Villacorta: q. By the friends of the defendant, am I correct? witness: a. Yes, sir. Atty. Villacorta: q. And because of your assistance, the friends of the defendant who are in need of money were able to obtain loan to [sic] Arsenio Pua through your assistance? witness:

13

a. Yes, sir. Atty. Villacorta: q. So that occasion lasted for more than a year? witness: a. Yes, sir. Atty. Villacorta: q. And some of the checks that were issued by the friends of the defendant bounced, am I correct? witness: a. Yes, sir. Atty. Villacorta: q. And because of that Arsenio Pua got mad with you? witness: a. Yes, sir. Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed principal. She is also estopped to deny that petitioner acted as agent for the alleged debtors, the friends whom she (petitioner) referred. This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is representation.25 The question of whether an agency has been created is ordinarily a question which may be established in the same way as any other fact, either by direct or circumstantial evidence. The question is ultimately one of intention.26 Agency may even be implied from the words and conduct of the parties and the circumstances of the particular case.27 Though the fact or extent of authority of the agents may not, as a general rule, be established from the declarations of the agents alone, if one professes to act as agent for another, she may be estopped to deny her agency both as against the asserted principal and the third persons interested in the transaction in which he or she is engaged.28 In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the borrowers are friends of petitioner.

The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual borrowers, did not present themselves to [respondent]" as evidence that negates the agency relationshipit is sufficient that petitioner disclosed to respondent that the former was acting in behalf of her principals, her friends whom she referred to respondent. For an agency to arise, it is not necessary that the principal personally encounter the third person with whom the agent interacts. The law in fact contemplates, and to a great degree, impersonal dealings where the principal need not personally know or meet the third person with whom her agent transacts: precisely, the purpose of agency is to extend the personality of the principal through the facility of the agent.29 In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are representing someone else, and so both of them are estopped to deny the same. It is evident from the record that petitioner merely refers actual borrowers and then collects and disburses the amounts of the loan upon which she received a commission; and that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua. If their respective principals do not actually and personally know each other, such ignorance does not affect their juridical standing as agents, especially since the very purpose of agency is to extend the personality of the principal through the facility of the agent. With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to other individuals for profit, it must be stressed that the manner in which the parties designate the relationship is not controlling. If an act done by one person in behalf of another is in its essential nature one of agency, the former is the agent of the latter notwithstanding he or she is not so called.30 The question is to be determined by the fact that one represents and is acting for another, and if relations exist which will constitute an agency, it will be an agency whether the parties understood the exact nature of the relation or not.31 That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued checks in payment of the loan in the name of Pua. If it is true that petitioner was "re-lending", then the checks should have been drawn in her name and not directly paid to Pua. With respect to the second point, particularly, the finding of the CA that the disbursements and payments for the loan were made through the bank accounts of petitioner and respondent, suffice it to say that in the normal course of commercial dealings and for reasons of convenience and practical utility it can be reasonably expected that the facilities of the agent, such as a bank account, may be employed, and that a sub-agent be appointed, such as the bank itself, to carry out the task, especially where there is no stipulation to the contrary.32 In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan between their principals. Since the sale is predicated on that loan, then the sale is void for lack of consideration. 2. A further scrutiny of the record shows, however, that the sale might have been backed up by another consideration that is separate and distinct from the debt: respondent averred in her complaint and testified that the parties had agreed that as a condition for the conveyance of the property the respondent shall assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC.33 This Court in the recent past has declared that an assumption of a mortgage debt may constitute a valid consideration for a sale.34

14

Although the record shows that petitioner admitted at the time of trial that she owned the property described in the TCT,35 the Court must stress that the Transfer Certificate of Title No. 38253236 on its face shows that the owner of the property which admittedly forms the subject matter of the Deed of Absolute Sale refers neither to the petitioner nor to her father, Teodorico Doles, the alleged coowner. Rather, it states that the property is registered in the name of "Household Development Corporation." Although there is an entry to the effect that the petitioner had been granted a special power of attorney "covering the shares of Teodorico Doles on the parcel of land described in this certificate,"37 it cannot be inferred from this bare notation, nor from any other evidence on the record, that the petitioner or her father held any direct interest on the property in question so as to validly constitute a mortgage thereon38 and, with more reason, to effect the delivery of the object of the sale at the consummation stage.39 What is worse, there is a notation that the TCT itself has been "cancelled."40 In view of these anomalies, the Court cannot entertain the possibility that respondent agreed to assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC, especially since the record is bereft of any factual finding that petitioner was, in the first place, endowed with any ownership rights to validly mortgage and convey the property. As the complainant who initiated the case, respondent bears the burden of proving the basis of her complaint. Having failed to discharge such burden, the Court has no choice but to declare the sale void for lack of cause. And since the sale is void, the Court finds it unnecessary to dwell on the issue of whether duress or intimidation had been foisted upon petitioner upon the execution of the sale. Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that the mortgage with the NHMFC was for 25 years which began September 3, 1994. Respondent filed her Complaint for Specific Performance in 1997. Since the 25 years had not lapsed, the prayer of respondent to compel petitioner to execute necessary documents to effect the transfer of title is premature. WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No. 97-82716 is DISMISSED. SO ORDERED. ================

[G.R. No. 117356. June 19, 2000] VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents. 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[1] The transaction it covered was a "direct sale."2[2] The SLDR also contains an additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)."3[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[4]

15

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[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[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[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[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 coconspirator 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.

16

"SO ORDERED."9[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[10] Petitioner appealed the trial courts decision to the Court of Appeals.

On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions involving only one account or one general contract of sale. Pursuant to this contract, STM or any of its authorized agents could withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM and since the latter had already withdrawn its full quota of sugar under the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of sugar. Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate and independent transactions and that the details of the series of purchases were contained in a single statement with a consolidated summary of cleared check payments and sugar stock withdrawals because this a more convenient system than issuing separate statements for each purchase. The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver 23,000 bags allegedly unwithdrawn. 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[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:

17

"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[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[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.

18

"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[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[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[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[17] On the part of the principal, there must be an actual intention to appoint18[18] or an intention naturally inferable from his words or actions;19[19] and on the part of the agent, there must be an intention to accept the appointment and act on it,20[20] and in the absence of such intent, there is generally no agency.21[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[22] The control factor, more than any other, has caused the

19

courts to put contracts between principal and agent in a separate category.23[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[24]

and endorsed" to it.27[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[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[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[30] And where the terms and conditions so

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[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[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

20

stipulated are not contrary to law, morals, good customs, public policy or public order, the contract is valid and must be upheld.31[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

On May 29, 1989, private respondent Francisco Artigo (Artigo for brevity) sued petitioners Constante A. De Castro (Constante for brevity) and Corazon A. De Castro (Corazon for brevity) to collect the unpaid balance of his brokers commission from the De Castros.iv[4] The Court of Appeals summarized the facts in this wise: x x x. Appellantsv[5] were co-owners of four (4) lots located at EDSA corner New York and Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit A -1, p. 144, Records), appelleevi[6] was authorized by appellants to act as real estate broker in the sale of these properties for the amount of P23,000,000.00, five percent (5%) of which will be given to the agent as commission. It was appellee who first found Times Transit Corporation, represented by its president Mr. Rondaris, as prospective buyer which desired to buy two (2) lots only, specifically lots 14 and 15. Eventually, sometime in May of 1985, the sale of lots 14 and 15 was consummated. Appellee received from appellants P48,893.76 as commission. It was then that the rift between the contending parties soon emerged. Appellee apparently felt short changed because according to him, his total commission should be P352,500.00 which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2) lots, and that it was he who introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately led to the consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after having received P48,893.76 in advance. On the other hand, appellants completely traverse appellees claims and essentially argue that appellee is selfishly asking for more than what he truly deserved as commission to the prejudice of other agents who were more instrumental in the consummation of the sale. Although appellants readily concede that it was appellee who first introduced Times Transit Corp. to them, appellee was not designated by them as their exclusive real estate agent but that in fact there were more or less eighteen (18) others whose collective efforts in the long run dwarfed those of appellees, considering that the first negotiation for the sale where appellee took active participation failed and it was these other agents who successfully brokered in the second negotiation. But despite this and out of appellants pure liberality, beneficence and magnanimity, appellee nevertheless was given the largest cut in the commission (P48,893.76), although on the principle of quantum meruit he would have certainly been entitled to less. So appellee should not have been heard to complain of getting only a pittance when he actually got the lions share of the commission and worse, he should not have been allowed to get the entire commission. Furthermore, the purchase price for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05 million as alleged by appellee. Thus, even assuming that appellee is entitled to the entire commission, he would only be getting 5% of the P3.6 million, or P180,000.00. Ruling of the Court of Appeals The Court of Appeals affirmed in toto the decision of the trial court. First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly established a contract of agency between Constante and Artigo. Thus, Artigo sought prospective buyers and found Times Transit Corporation (Times Transit for brevity). Artigo facilitated the negotiations which eventually led to the sale of the two lots. Therefore, the Court of Appeals decided that Artigo is entitled to the 5% commission on the purchase price as provided in the contract of agency.

this matter purely speculative, bereft of concrete proof.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner. SO ORDERED. [G.R. No. 115838. July 18, 2002] CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners, vs. COURT OF APPEALS and FRANCISCO ARTIGO, respondents. The Case Before us is a Petition for Review on Certiorarii[1] seeking to annul the Decision of the Court of Appealsii[2] dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the decisioniii[3] of the Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-2631. The trial court disposed as follows: WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and solidarily liable to plaintiff the sum of: a) P303,606.24 representing unpaid commission; b) P25,000.00 for and by way of moral damages; c) P45,000.00 for and by way of attorneys fees; d) To pay the cost of this suit. Quezon City, Metro Manila, December 20, 1991. The Antecedent Facts

21

Second. The Court of Appeals ruled that Artigos complaint is not dismissible for failure to implead as indispensable parties the other co-owners of the two lots. The Court of Appeals explained that it is not necessary to implead the other co-owners since the action is exclusively based on a contract of agency between Artigo and Constante. Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol evidence to prove the true amount paid by Times Transit to the De Castros for the two lots. The Court of Appeals ruled that evidence aliunde could be presented to prove that the actual purchase price was P7.05 million and not P3.6 million as appearing in the deed of sale. Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness in the deed of sale between the De Castros and Times Transit. The Court of Appeals explained that, the rule that oral evidence is inadmissible to vary the terms of written instruments is generally applied only in suits between parties to the instrument and strangers to the contract are not bound by it. Besides, Artigo was not suing under the deed of sale, but solely under the contract of agency. Thus, the Court of Appeals upheld the trial courts finding that the purchase price was P7.05 million and not P3.6 million. Hence, the instant petition. The Issues According to petitioners, the Court of Appeals erred in I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD INDISPENSABLE PARTIES-IN-INTEREST; II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT ARTIGOS CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR ABANDONMENT; III. CONSIDERING INCOMPETENT EVIDENCE; IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY; V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEYS FEES;

co-owned by Constante and Corazon with their other siblings Jose and Carmela whom Constante merely represented. The De Castros contend that failure to implead such indispensable parties is fatal to the complaint since Artigo, as agent of all the four co-owners, would be paid with funds coowned by the four co-owners. The De Castros contentions are devoid of legal basis. An indispensable party is one whose interest will be affected by the courts action in the litigation, and without whom no final determination of the case can be had.vii[7] The joinder of indispensable parties is mandatory and courts cannot proceed without their presence.viii[8] Whenever it appears to the court in the course of a proceeding that an indispensable party has not been joined, it is the duty of the court to stop the trial and order the inclusion of such party.ix[9] However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case. There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent commission. The authority was on a first come, first serve basis. The authority reads in full:24 Jan. 84 To Whom It May Concern: This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection with the sale of our property located at Edsa Corner New York & Denver, Cubao, Quezon City. Asking price P23,000,000.00 with 5% commission as agents fee. C.C. de Castro owner & representing co-owners This authority is on a first-come First serve basis CAC Constante signed the note as owner and as representative of the other co-owners. Under this note, a contract of agency was clearly constituted between Constante and Artigo. Whether Constante appointed Artigo as agent, in Constantes individual or representative capacity, or both, the De Castros cannot seek the dismissal of the case for failure to implead the other co-owners as indispensable parties. The De Castros admit that the other co-owners are solidarily liable under the contract of agency,x[10] citing Article 1915 of the Civil Code, which reads: Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency. The solidary liability of the four co-owners, however, militates against the De Castros theory that the other co-owners should be impleaded as indispensable parties. A noted commentator explained Article 1915 thus

VI. NOT AWARDING THE DE CASTROS MORAL AND EXEMPLARY DAMAGES, AND ATTORNEYS FEES. The Courts Ruling The petition is bereft of merit. First Issue: whether the complaint merits dismissal for failure to implead other co-owners as indispensable parties The De Castros argue that Artigos complaint should have been dismissed for failure to implead all the co-owners of the two lots. The De Castros claim that Artigo always knew that the two lots were

22

The rule in this article applies even when the appointments were made by the principals in separate acts, provided that they are for the same transaction. The solidarity arises from the common interest of the principals, and not from the act of constituting the agency. By virtue of this solidarity, the agent can recover from any principal the whole compensation and indemnity owing to him by the others. The parties, however, may, by express agreement, negate this solidary responsibility. The solidarity does not disappear by the mere partition effected by the principals after the accomplishment of the agency. If the undertaking is one in which several are interested, but only some create the agency, only the latter are solidarily liable, without prejudice to the effects of negotiorum gestio with respect to the others. And if the power granted includes various transactions some of which are common and others are not, only those interested in each transaction shall be liable for it. xi[11] When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract of agency, each obligor may be compelled to pay the entire obligation.xii[12] The agent may recover the whole compensation from any one of the co-principals, as in this case. Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors. This article reads: Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.xiii[13] that x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the creditor. Article 1216 of the Civil Code says that the creditor `may proceed against anyone of the solidary debtors or some or all of them simultaneously. (Emphasis supplied) Second Issue: whether Artigos claim has been extinguished by full payment, waiver or abandonment The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given his proportionate share and no longer entitled to any balance. According to them, Artigo was just one of the agents involved in the sale and entitled to a proportionate share in the commission. They assert that Artigo did absolutely nothing during the second negotiation but to sign as a witness in the deed of sale. He did not even prepare the documents for the transaction as an active real estate broker usually does. The De Castros arguments are flimsy. A contract of agency which is not contrary to law, public order, public policy, morals or good custom is a valid contract, and constitutes the law between the parties.xiv[14] The contract of agency entered into by Constante with Artigo is the law between them and both are bound to comply with its terms and conditions in good faith.

The mere fact that other agents intervened in the consummation of the sale and were paid their respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent commission based on the selling price. These other agents turned out to be employees of Times Transit, the buyer Artigo introduced to the De Castros. This prompted the trial court to observe: The alleged `second group of agents came into the picture only during the so -called `second negotiation and it is amusing to note that these (sic) second group, prominent among whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of Times Transit, the buyer of the properties. And their efforts were limited to convincing Constante to part away with the properties because the redemption period of the foreclosed properties is around the corner, so to speak. (tsn. June 6, 1991). xxx To accept Constantes version of the story is to open the floodgates of fraud and deceit. A seller could always pretend rejection of the offer and wait for sometime for others to renew it who are much willing to accept a commission far less than the original broker. The immorality in the instant case easily presents itself if one has to consider that the alleged `second group are the employees of the buyer, Times Transit and they have not bettered the offer secured by Mr. Artigo for P7 million. It is to be noted also that while Constante was too particular about the unrenewed real estate brokers license of Mr. Artigo, he did not bother at all to inquire as to the licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40).xv[15] (Emphasis supplied) In any event, we find that the 5 percent real estate brokers commission is reasonable and within the standard practice in the real estate industry for transactions of this nature. The De Castros also contend that Artigos inaction as well as failure to protest estops him from recovering more than what was actually paid him. The De Castros cite Article 1235 of the Civil Code which reads: Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. The De Castros reliance on Article 1235 of the Civil Code is misplaced. Artigos acceptance of partial payment of his commission neither amounts to a waiver of the balance nor puts him in estoppel. This is the import of Article 1235 which was explained in this wise: The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or agree to an incomplete or irregular performance. Hence, the mere receipt of a partial payment is not equivalent to the required acceptance of performance as would extinguish the whole obligation.xvi[16] (Emphasis supplied) There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that Artigo merely received the partial payment without waiving the balance. Thus, there is no estoppel to speak of.

23

The De Castros further argue that laches should apply because Artigo did not file his complaint in court until May 29, 1989, or almost four years later. Hence, Artigos claim for the balance of his commission is barred by laches. Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.xvii[17] Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January 24, 1984. The two lots were finally sold in June 1985. As found by the trial court, Artigo demanded in April and July of 1985 the payment of his commission by Constante on the basis of the selling price of P7.05 million but there was no response from Constante.xviii[18] After it became clear that his demands for payment have fallen on deaf ears, Artigo decided to sue on May 29, 1989. Actions upon a written contract, such as a contract of agency, must be brought within ten years from the time the right of action accrues.xix[19] The right of action accrues from the moment the breach of right or duty occurs. From this moment, the creditor can institute the action even as the ten-year prescriptive period begins to run.xx[20] The De Castros admit that Artigos claim was filed within the ten-year prescriptive period. The De Castros, however, still maintain that Artigos cause of action is barred by laches. Laches does not apply because only four years had lapsed from the time of the sale in June 1985. Artigo made a demand in July 1985 and filed the action in court on May 29, 1989, well within the ten-year prescriptive period. This does not constitute an unreasonable delay in asserting ones right. The Court has ruled, a delay within the prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief.xxi[21] In explaining that laches applies only in the absence of a statutory prescriptive period, the Court has stated Laches is recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abate a collection suit filed within the prescriptive period mandated by the Civil Code.xxii[22] Clearly, the De Castros defense of laches finds no support in law, equity or jurisprudence. Third issue: whether the determination of the purchase price was made in violation of the Rules on Evidence The De Castros want the Court to re-examine the probative value of the evidence adduced in the trial court to determine whether the actual selling price of the two lots was P7.05 million and not P3.6 million. The De Castros contend that it is erroneous to base the 5 percent commission on a purchase price of P7.05 million as ordered by the trial court and the appellate court. The De Castros insist that the purchase price is P3.6 million as expressly stated in the deed of sale, the due execution and authenticity of which was admitted during the trial. The De Castros believe that the trial and appellate courts committed a mistake in considering incompetent evidence and disregarding the best evidence and parole evidence rules. They claim that the Court of Appeals erroneously affirmed sub silentio the trial courts reliance on the various correspondences between Constante and Times Transit which were mere photocopies that do not

satisfy the best evidence rule. Further, these letters covered only the first negotiations between Constante and Times Transit which failed; hence, these are immaterial in determining the final purchase price. The De Castros further argue that if there was an undervaluation, Artigo who signed as witness benefited therefrom, and being equally guilty, should be left where he presently stands. They likewise claim that the Court of Appeals erred in relying on evidence which were not offered for the purpose considered by the trial court. Specifically, Exhibits B, C, D and E were not offered to prove that the purchase price was P7.05 Million. Finally, they argue that the courts a quo erred in giving credence to the perjured testimony of Artigo. They want the entire testimony of Artigo rejected as a falsehood because he was lying when he claimed at the outset that he was a licensed real estate broker when he was not. Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of fact and not of law. Inevitably, this calls for an inquiry into the facts and evidence on record. This we can not do. It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or weigh the evidence again.xxiii[23] This Court is not the proper venue to consider a factual issue as it is not a trier of facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner can only raise questions of law. Our pronouncement in the case of Cormero vs. Court of Appealsxxiv[24] bears reiteration: At the outset, it is evident from the errors assigned that the petition is anchored on a plea to review the factual conclusion reached by the respondent court. Such task however is foreclosed by the rule that in petitions for certiorari as a mode of appeal, like this one, only questions of law distinctly set forth may be raised. These questions have been defined as those that do not call for any examination of the probative value of the evidence presented by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA 751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence and eventually, to the totality of the evidence of one party or the other, the court cannot and will not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the absence of any showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals, 197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966]). We find no reason to depart from this principle. The trial and appellate courts are in a much better position to evaluate properly the evidence. Hence, we find no other recourse but to affirm their finding on the actual purchase price. Fourth Issue: whether award of moral damages and attorneys fees is proper The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorneys fees. The De Castros, however, cite no concrete reason except to say that they are the ones entitled to damages since the case was filed to harass and extort money from them.

24

Law and jurisprudence support the award of moral damages and attorneys fees in favor of Artigo. The award of damages and attorneys fees is left to the sound discretion of the court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal.xxv[25] Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or in wanton disregard of his contractual obligation.xxvi[26] On the other hand, attorneys fees are awarded in instances where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim.xxvii[27] There is no reason to disturb the trial courts finding that the defendants lack of good faith and unkind treatment of the plaintiff in refusing to give his due commission deserve censure. This warrants the award of P25,000.00 in moral damages and P45,000.00 in attorneys fees. The amounts are, in our view, fair and reasonable. Having found a buyer for the two lots, Artigo had already performed his part of the bargain under the contract of agency. The De Castros should have exercised fairness and good judgment in dealing with Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent brokers commission based on the actual purchase price of the two lots. WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto. SO ORDERED. ================= G.R. No. L-62100 May 30, 1986 RICARDO L. MANOTOC, JR., petitioner, vs. THE COURT OF APPEALS, HONS. SERAFIN E. CAMILON and RICARDO L. PRONOVE, JR., as Judges of the Court of First Instance of Rizal, Pasig branches, THE PEOPLE OF THE PHILIPPINES, the SECURITIES & EXCHANGE COMISSION, HON. EDMUNDO M. REYES, as Commissioner of Immigration, and the Chief of the Aviation Security Command (AVSECOM), respondents. The issue posed for resolution in this petition for review may be stated thus: Does a person facing a criminal indictment and provisionally released on bail have an unrestricted right to travel? Petitioner Ricardo L. Manotoc, Jr., is one of the two principal stockholders of Trans-Insular Management, Inc. and the Manotoc Securities, Inc., a stock brokerage house. Having transferred the management of the latter into the hands of professional men, he holds no officer-position in said business, but acts as president of the former corporation. Following the "run" on stock brokerages caused by stock broker Santamaria's flight from this jurisdiction, petitioner, who was then in the United States, came home, and together with his costockholders, filed a petition with the Securities and Exchange Commission for the appointment of a management committee, not only for Manotoc Securities, Inc., but likewise for Trans-Insular Management, Inc. The petition relative to the Manotoc Securities, Inc., docketed as SEC Case No. 001826, entitled, "In the Matter of the Appointment of a Management Committee for Manotoc Securities, Inc., Teodoro Kalaw, Jr., Ricardo Manotoc, Jr., Petitioners", was granted and a management committee was organized and appointed. Pending disposition of SEC Case No. 001826, the Securities and Exchange Commission requested the then Commissioner of Immigration, Edmundo Reyes, not to clear petitioner for departure and a

memorandum to this effect was issued by the Commissioner on February 4, 1980 to the Chief of the Immigration Regulation Division. When a Torrens title submitted to and accepted by Manotoc Securities, Inc. was suspected to be a fake, six of its clients filed six separate criminal complaints against petitioner and one Raul Leveriza, Jr., as president and vice-president, respectively, of Manotoc Securities, Inc. In due course, corresponding criminal charges for estafa were filed by the investigating fiscal before the then Court of First Instance of Rizal, docketed as Criminal Cases Nos. 45399 and 45400, assigned to respondent Judge Camilon, and Criminal Cases Nos. 45542 to 45545, raffled off to Judge Pronove. In all cases, petitioner has been admitted to bail in the total amount of P105,000.00, with FGU Instance Corporation as surety. On March 1, 1982, petitioner filed before each of the trial courts a motion entitled, "motion for permission to leave the country," stating as ground therefor his desire to go to the United States, "relative to his business transactions and opportunities." 1 The prosecution opposed said motion and after due hearing, both trial judges denied the same. The order of Judge Camilon dated March 9, 1982, reads: Accused Ricardo Manotoc Jr. desires to leave for the United States on the all embracing ground that his trip is ... relative to his business transactions and opportunities. The Court sees no urgency from this statement. No matter of any magnitude is discerned to warrant judicial imprimatur on the proposed trip. In view thereof, permission to leave the country is denied Ricardo Manotoc, Jr. now or in the future until these two (2) cases are terminated . 2 On the other hand, the order of Judge Pronove dated March 26, 1982, reads in part: 6.-Finally, there is also merit in the prosecution's contention that if the Court would allow the accused to leave the Philippines the surety companies that filed the bail bonds in his behalf might claim that they could no longer be held liable in their undertakings because it was the Court which allowed the accused to go outside the territorial jurisdiction of the Philippine Court, should the accused fail or decide not to return. WHEREFORE, the motion of the accused is DENIED.
3

It appears that petitioner likewise wrote the Immigration Commissioner a letter requesting the recall or withdrawal of the latter's memorandum dated February 4, 1980, but said request was also denied in a letter dated May 27, 1982. Petitioner thus filed a petition for certiorari and mandamus before the then Court of Appeals 4 seeking to annul the orders dated March 9 and 26, 1982, of Judges Camilon and Pronove, respectively, as well as the communication-request of the Securities and Exchange Commission, denying his leave to travel abroad. He likewise prayed for the issuance of the appropriate writ

25

commanding the Immigration Commissioner and the Chief of the Aviation Security Command (AVSECOM) to clear him for departure. On October 5, 1982, the appellate court rendered a decision merit.
5

dismissing the petition for lack of

... the result of the obligation assumed by appellee (surety) to hold the accused amenable at all times to the orders and processes of the lower court, was to prohibit said accused from leaving the jurisdiction of the Philippines, because, otherwise, said orders and processes will be nugatory, and inasmuch as the jurisdiction of the courts from which they issued does not extend beyond that of the Philippines they would have no binding force outside of said jurisdiction. Indeed, if the accused were allowed to leave the Philippines without sufficient reason, he may be placed beyond the reach of the courts. The effect of a recognizance or bail bond, when fully executed or filed of record, and the prisoner released thereunder, is to transfer the custody of the accused from the public officials who have him in their charge to keepers of his own selection. Such custody has been regarded merely as a continuation of the original imprisonment. The sureties become invested with full authority over the person of the principal and have the right to prevent the principal from leaving the state. 14 If the sureties have the right to prevent the principal from leaving the state, more so then has the court from which the sureties merely derive such right, and whose jurisdiction over the person of the principal remains unaffected despite the grant of bail to the latter. In fact, this inherent right of the court is recognized by petitioner himself, notwithstanding his allegation that he is at total liberty to leave the country, for he would not have filed the motion for permission to leave the country in the first place, if it were otherwise. To support his contention, petitioner places reliance upon the then Court of Appeals' ruling in People vs. Shepherd (C.A.-G.R. No. 23505-R, February 13, 1980) particularly citing the following passage: ... The law obliges the bondsmen to produce the person of the appellants at the pleasure of the Court. ... The law does not limit such undertaking of the bondsmen as demandable only when the appellants are in the territorial confines of the Philippines and not demandable if the appellants are out of the country. Liberty, the most important consequence of bail, albeit provisional, is indivisible. If granted at all, liberty operates as fully within as without the boundaries of the granting state. This principle perhaps accounts for the absence of any law or jurisprudence expressly declaring that liberty under bail does not transcend the territorial boundaries of the country. The faith reposed by petitioner on the above-quoted opinion of the appellate court is misplaced. The rather broad and generalized statement suffers from a serious fallacy; for while there is, indeed, neither law nor jurisprudence expressly declaring that liberty under bail does not transcend the territorial boundaries of the country, it is not for the reason suggested by the appellate court. Also, petitioner's case is not on all fours with the Shepherd case. In the latter case, the accused was able to show the urgent necessity for her travel abroad, the duration thereof and the conforme of her sureties to the proposed travel thereby satisfying the court that she would comply with the conditions of her bail bond. in contrast, petitioner in this case has not satisfactorily shown any of the above. As aptly observed by the Solicitor General in his comment:

Dissatisfied with the appellate court's ruling, petitioner filed the instant petition for review on certiorari. Pending resolution of the petition to which we gave due course on April 14, 1983 6 petitioner filed on August 15, 1984 a motion for leave to go abroad pendente lite. 7 In his motion, petitioner stated that his presence in Louisiana, U.S.A. is needed in connection "with the obtention of foreign investment in Manotoc Securities, Inc." 8 He attached the letter dated August 9, 1984 of the chief executive officer of the Exploration Company of Louisiana, Inc., Mr. Marsden W. Miller 9 requesting his presence in the United States to "meet the people and companies who would be involved in its investments." Petitioner, likewise manifested that on August 1, 1984, Criminal Cases Nos. 4933 to 4936 of the Regional Trial Court of Makati (formerly Nos. 45542-45545) had been dismissed as to him "on motion of the prosecution on the ground that after verification of the records of the Securities and Exchange Commission ... (he) was not in any way connected with the Manotoc Securities, Inc. as of the date of the commission of the offenses imputed to him." 10 Criminal Cases Nos. 45399 and 45400 of the Regional Trial Court of Makati, however, remained pending as Judge Camilon, when notified of the dismissal of the other cases against petitioner, instead of dismissing the cases before him, ordered merely the informations amended so as to delete the allegation that petitioner was president and to substitute that he was "controlling/majority stockholder,'' 11 of Manotoc Securities, Inc. On September 20, 1984, the Court in a resolution en banc denied petitioner's motion for leave to go abroad pendente lite. 12 Petitioner contends that having been admitted to bail as a matter of right, neither the courts which granted him bail nor the Securities and Exchange Commission which has no jurisdiction over his liberty, could prevent him from exercising his constitutional right to travel. Petitioner's contention is untenable. A court has the power to prohibit a person admitted to bail from leaving the Philippines. This is a necessary consequence of the nature and function of a bail bond. Rule 114, Section 1 of the Rules of Court defines bail as the security required and given for the release of a person who is in the custody of the law, that he will appear before any court in which his appearance may be required as stipulated in the bail bond or recognizance. Its object is to relieve the accused of imprisonment and the state of the burden of keeping him, pending the trial, and at the same time, to put the accused as much under the power of the court as if he were in custody of the proper officer, and to secure the appearance of the accused so as to answer the call of the court and do what the law may require of him. 13 The condition imposed upon petitioner to make himself available at all times whenever the court requires his presence operates as a valid restriction on his right to travel. As we have held in People vs. Uy Tuising, 61 Phil. 404 (1935).

26

A perusal of petitioner's 'Motion for Permission to Leave the Country' will show that it is solely predicated on petitioner's wish to travel to the United States where he will, allegedly attend to some business transactions and search for business opportunities. From the tenor and import of petitioner's motion, no urgent or compelling reason can be discerned to justify the grant of judicial imprimatur thereto. Petitioner has not sufficiently shown that there is absolute necessity for him to travel abroad. Petitioner's motion bears no indication that the alleged business transactions could not be undertaken by any other person in his behalf. Neither is there any hint that petitioner's absence from the United States would absolutely preclude him from taking advantage of business opportunities therein, nor is there any showing that petitioner's non-presence in the United States would cause him irreparable damage or prejudice. 15 Petitioner has not specified the duration of the proposed travel or shown that his surety has agreed to it. Petitioner merely alleges that his surety has agreed to his plans as he had posted cash indemnities. The court cannot allow the accused to leave the country without the assent of the surety because in accepting a bail bond or recognizance, the government impliedly agrees "that it will not take any proceedings with the principal that will increase the risks of the sureties or affect their remedies against him. Under this rule, the surety on a bail bond or recognizance may be discharged by a stipulation inconsistent with the conditions thereof, which is made without his assent. This result has been reached as to a stipulation or agreement to postpone the trial until after the final disposition of other cases, or to permit the principal to leave the state or country." 16 Thus, although the order of March 26, 1982 issued by Judge Pronove has been rendered moot and academic by the dismissal as to petitioner of the criminal cases pending before said judge, We see the rationale behind said order. As petitioner has failed to satisfy the trial courts and the appellate court of the urgency of his travel, the duration thereof, as well as the consent of his surety to the proposed travel, We find no abuse of judicial discretion in their having denied petitioner's motion for permission to leave the country, in much the same way, albeit with contrary results, that We found no reversible error to have been committed by the appellate court in allowing Shepherd to leave the country after it had satisfied itself that she would comply with the conditions of her bail bond. The constitutional right to travel being invoked by petitioner is not an absolute right. Section 5, Article IV of the 1973 Constitution states: The liberty of abode and of travel shall not be impaired except upon lawful order of the court, or when necessary in the interest of national security, public safety or public health. To our mind, the order of the trial court releasing petitioner on bail constitutes such lawful order as contemplated by the above-quoted constitutional provision. Finding the decision of the appellate court to be in accordance with law and jurisprudence, the Court finds that no gainful purpose will be served in discussing the other issues raised by petitioner. WHEREFORE, the petition for review is hereby dismissed, with costs against petitioner. SO ORDERED.

=================

G.R. No. 34642

September 24, 1931

FABIOLA SEVERINO, accompanied by her husband RICARDO VERGARA, plaintiffs-appellees, vs. GUILLERMO SEVERINO, ET AL., defendants. ENRIQUE ECHAUS, appellant. This action was instituted in the Court of First Instance of the Province of Iloilo by Fabiola Severino, with whom is joined her husband Ricardo Vergara, for the purpose of recovering the sum of P20,000 from Guillermo Severino and Enrique Echaus, the latter in the character of guarantor for the former. Upon hearing he cause the trial court gave judgment in favor of the plaintiffs to recover the sum of P20,000 with lawful from November 15, 1929, the date of the filing of the complaint, with costs. But it was declared that execution of this judgment should issue first against the property of Guillermo Severino, and if no property should be found belonging to said defendant sufficient to satisfy the judgment in whole or in part, execution for the remainder should be issued against the property of Enrique Echaus as guarantor. From this judgment the defendant Echaus appealed, but his principal, Guillermo Severino, did not. The plaintiff Fabiola Severino is the recognized natural daughter of Melecio Severino, deceased, former resident of Occidental Negros. Upon the death of Melecio Severino a number of years ago, he left considerable property and litigation ensued between his widow, Felicitas Villanueva, and Fabiola Severino, on the one part, and other heirs of the deceased on the other part. In order to make an end of this litigation a compromise was effected by which Guillermo Severino, a son of Melecio Severino, took over the property pertaining to the estate of his father at the same time agreeing to pay P100,000 to Felicitas Villanueva and Fabiola Severino. This sum of money was made payable, first, P40,000 in cash upon the execution of the document of compromise, and the balance in three several payments of P20,000 at the end of one year; two years, and three years respectively. To this contract the appellant Enrique Echaus affixed his name as guarantor. The first payment of P40,000 was made on July 11, 1924, the date when the contract of compromise was executed; and of this

27

amount the plaintiff Fabiola Severino received the sum of P10,000. Of the remaining P60,000, all as yet unpaid, Fabiola Severino is entitled to the sum of P20,000. It appears that at the time of the compromise agreement above-mentioned was executed Fabiola Severino had not yet been judicially recognized as the natural daughter of Melecio Severino, and it was stipulated that the last P20,000 corresponding to Fabiola and the last P5,000 corresponding to Felicitas Villanueva should retained on deposit until the definite status of Fabiola Severino as natural daughter of Melecio Severino should be established. The judicial decree to this effect was entered in the Court of First Instance of Occidental Negros on June 16, 1925, and as the money which was contemplated to be held in suspense has never in fact been paid to the parties entitled thereto, it results that the point respecting the deposit referred to has ceased to be of moment. The proof shows that the money claimed in this action has never been paid and is still owing to the plaintiff; and the only defense worth noting in this decision is the assertion on the part of Enrique Echaus that he received nothing for affixing his signature as guarantor to the contract which is the subject of suit and that in effect the contract was lacking in consideration as to him. The point is not well taken. A guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. (Pyle vs. Johnson, 9 Phil., 249.) The compromise and dismissal of a lawsuit is recognized in law as a valuable consideration; and the dismissal of the action which Felicitas Villanueva and Fabiola Severino had instituted against Guillermo Severino was an adequate consideration to support the promise on the part of Guillermo Severino to pay the sum of money stipulated in the contract which is the subject of this action. The promise of the appellant Echaus as guarantor therefore binding. It is never necessary that the guarantor or surety should receive any part of the benefit, if such there be, accruing to his principal. But the true consideration of this contract was the detriment suffered by the plaintiffs in the former action in dismissing that proceeding, and it is immaterial that no benefit may have accrued either to the principal or his guarantor. The judgment appealed from is in all respects correct, and the same will be affirmed, with costs against the appellant. So ordered. =================

G.R. No. L-7089

August 31, 1954

DOMINGO DE LA CRUZ, plaintiff-appellant, vs. NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees. 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 defendant 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

28

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 or 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 of 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 Act 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 normal obligation, it does not at present count with the sanction of man-made laws. If the employer is not legally obliged to give, legal assistance to its employee and provide him with a lawyer, naturally said employee may not recover the amount he may have paid a lawyer hired by him. Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of the expenses incurred by him in remunerating his lawyer, 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 now 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 special 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. G.R. No. L-10918 March 4, 1916

WILLIAM FRESSEL, ET AL., plaintiffs-appellants, vs. MARIANO UY CHACO SONS & COMPANY, defendant-appellee. This is an appeal from a judgment sustaining the demurrer on the ground that the complaint does not state a cause of action, followed by an order dismissing the case after the plaintiffs declined to amend. The complaint, omitting the caption, etc., reads: 2. That during the latter part of the year 1913, the defendant entered into a contract with one E. Merritt, whereby the said Merritt undertook and agreed with the defendant to build for the defendant a costly edifice in the city of Manila at the corner of Calle Rosario and Plaza del Padre Moraga. In the contract it was agreed between the parties thereto, that the defendant at any time, upon certain contingencies, before the completion of said edifice could take possession of said edifice in the course of construction and of all the materials in and about said premises acquired by Merritt for the construction of said edifice. 3. That during the month of August land past, the plaintiffs delivered to Merritt at the said edifice in the course of construction certain materials of the value of P1,381.21, as per detailed list hereto attached and marked Exhibit A, which price Merritt had agreed to pay on the 1st day of September, 1914. 4. That on the 28th day of August, 1914, the defendant under and by virtue of its contract with Merritt took possession of the incomplete edifice in course of construction together with

29

all the materials on said premises including the materials delivered by plaintiffs and mentioned in Exhibit A aforesaid. 5. That neither Merritt nor the defendant has paid for the materials mentioned in Exhibit A, although payment has been demanded, and that on the 2d day of September, 1914, the plaintiffs demanded of the defendant the return or permission to enter upon said premises and retake said materials at the time still unused which was refused by defendant. 6. That in pursuance of the contract between Merritt and the defendant, Merritt acted as the agent for defendant in the acquisition of the materials from plaintiffs. The appellants insist that the above quoted allegations show that Merritt acted as the agent of the defendant in purchasing the materials in question and that the defendant, by taking over and using such materials, accepted and ratified the purchase, thereby obligating itself to pay for the same. Or, viewed in another light, if the defendant took over the unfinished building and all the materials on the ground and then completed the structure according to the plans, specifications, and building permit, it became in fact the successor or assignee of the first builder, and as successor or assignee, it was as much bound legally to pay for the materials used as was the original party. The vendor can enforce his contract against the assignee as readily as against the assignor. While, on the other hand, the appellee contends that Merritt, being "by the very terms of the contract" an independent contractor, is the only person liable for the amount claimed. It is urged that, as the demurrer admits the truth of all the allegations of fact set out in the complaint, the allegation in paragraph 6 to the effect that Merritt "acted as the agent for defendant in the acquisition of the materials from plaintiffs," must be, at this stage of the proceedings, considered as true. The rule, as thus broadly stated, has many limitations and restrictions. A more accurate statement of the rule is that a demurrer admits the truth of all material and relevant facts which are well pleaded. . . . .The admission of the truth of material and relevant facts well pleaded does not extend to render a demurrer an admission of inferences or conclusions drawn therefrom, even if alleged in the pleading; nor mere inferences or conclusions from facts not stated; nor conclusions of law. (Alzua and Arnalot vs. Johnson, 21 Phil. Rep., 308, 350.) Upon the question of construction of pleadings, section 106 of the Code of Civil Procedure provides that: In the construction of a pleading, for the purpose of determining its effects, its allegations shall be liberally construed, with a view of substantial justice between the parties. This section is essentially the same as section 452 of the California Code of Civil Procedure. "Substantial justice," as used in the two sections, means substantial justice to be ascertained and determined by fixed rules and positive statutes. (Stevens vs. Ross, 1 Cal. 94, 95.) "Where the language of a pleading is ambiguous, after giving to it a reasonable intendment, it should be resolved against the pleader. This is especially true on appeal from a judgment rendered after refusal to amend; where a general and special demurrer to a complaint has been sustained, and the plaintiff had refused to amend, all ambiguities and uncertainties must be construed against him." (Sutherland on Code Pleading, vol. 1, sec. 85, and cases cited.)

The allegations in paragraphs 1 to 5, inclusive, above set forth, do not even intimate that the relation existing between Merritt and the defendant was that of principal and agent, but, on the contrary, they demonstrate that Merritt was an independent contractor and that the materials were purchased by him as such contractor without the intervention of the defendant. The fact that "the defendant entered into a contract with one E. Merritt, where by the said Merritt undertook and agreed with the defendant to build for the defendant a costly edifice" shows that Merritt was authorized to do the work according to his own method and without being subject to the defendant's control, except as to the result of the work. He could purchase his materials and supplies from whom he pleased and at such prices as he desired to pay. Again, the allegations that the "plaintiffs delivered the Merritt . . . . certain materials (the materials in question) of the value of P1,381.21, . . . . which price Merritt agreed to pay," show that there were no contractual relations whatever between the sellers and the defendant. The mere fact that Merritt and the defendant had stipulated in their building contract that the latter could, "upon certain contingencies," take possession of the incompleted building and all materials on the ground, did not change Merritt from an independent contractor to an agent. Suppose that, at the time the building was taken over Merritt had actually used in the construction thus far P100,000 worth of materials and supplies which he had purchased on a credit, could those creditors maintain an action against the defendant for the value of such supplies? Certainly not. The fact that the P100,000 worth of supplies had been actually used in the building would place those creditors in no worse position to recover than that of the plaintiffs, although the materials which the plaintiffs sold to Merritt had not actually gone into the construction. To hold that either group of creditors can recover would have the effect of compelling the defendants to pay, as we have indicated, just such prices for materials as Merritt and the sellers saw fit to fix. In the absence of a statute creating what is known as mechanics' liens, the owner of a building is not liable for the value of materials purchased by an independent contractor either as such owner or as the assignee of the contractor. The allegation in paragraph 6 that Merritt was the agent of the defendant contradicts all the other allegations and is a mere conclusion drawn from them. Such conclusion is not admitted, as we have said, by the demurrer. The allegations in the complaint not being sufficient to constitute a cause of action against the defendant, the judgment appealed from is affirmed, with costs against the appellants. So ordered. =============

G.R. No. L-21601

December 17, 1966

NIELSON & COMPANY, INC., plaintiff-appellant, vs. LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee. On February 6, 1958, plaintiff brought this action against defendant before the Court of First Instance of Manila to recover certain sums of money representing damages allegedly suffered by the former in view of the refusal of the latter to comply with the terms of a management contract entered into between them on January 30, 1937, including attorney's fees and costs.

30

Defendant in its answer denied the material allegations of the complaint and set up certain special defenses, among them, prescription and laches, as bars against the institution of the present action. After trial, during which the parties presented testimonial and numerous documentary evidence, the court a quo rendered a decision dismissing the complaint with costs. The court stated that it did not find sufficient evidence to establish defendant's counterclaim and so it likewise dismissed the same. The present appeal was taken to this Court directly by the plaintiff in view of the amount involved in the case. The facts of this case, as stated in the decision appealed from, are hereunder quoted for purposes of this decision: It appears that the suit involves an operating agreement executed before World War II between the plaintiff and the defendant whereby the former operated and managed the mining properties owned by the latter for a management fee of P2,500.00 a month and a 10% participation in the net profits resulting from the operation of the mining properties. For brevity and convenience, hereafter the plaintiff shall be referred to as NIELSON and the defendant, LEPANTO. The antecedents of the case are: The contract in question (Exhibit `C') was made by the parties on January 30, 1937 for a period of five (5) years. In the latter part of 1941, the parties agreed to renew the contract for another period of five (5) years, but in the meantime, the Pacific War broke out in December, 1941. In January, 1942 operation of the mining properties was disrupted on account of the war. In February of 1942, the mill, power plant, supplies on hand, equipment, concentrates on hand and mines, were destroyed upon orders of the United States Army, to prevent their utilization by the invading Japanese Army. The Japanese forces thereafter occupied the mining properties, operated the mines during the continuance of the war, and who were ousted from the mining properties only in August of 1945. After the mining properties were liberated from the Japanese forces, LEPANTO took possession thereof and embarked in rebuilding and reconstructing the mines and mill; setting up new organization; clearing the mill site; repairing the mines; erecting staff quarters and bodegas and repairing existing structures; installing new machinery and equipment; repairing roads and maintaining the same; salvaging equipment and storing the same within the bodegas; doing police work necessary to take care of the materials and equipment recovered; repairing and renewing the water system; and remembering (Exhibits "D" and "E"). The rehabilitation and reconstruction of the mine and mill was not completed until 1948 (Exhibit "F"). On June 26, 1948 the mines resumed operation under the exclusive management of LEPANTO (Exhibit "F-l"). 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 held the view that, on account of the war, the contract was suspended during the war; hence the life of the contract should be considered extended for such time of the period of suspension. On the other hand, LEPANTO contended that the contract should expire in 1947 as originally agreed upon because the period of suspension accorded by virtue of the war did not operate to extend further the life of the contract. No understanding appeared from the record to have been bad by the parties to resolve the disagreement. In the meantime, LEPANTO rebuilt and reconstructed the mines and was able to bring the property into operation only in June of 1948, . . . . Appellant in its brief makes an alternative assignment of errors depending on whether or not the management contract basis of the action has been extended for a period equivalent to the period of suspension. If the agreement is suspended our attention should be focused on the first set of errors claimed to have been committed by the court a quo; but if the contrary is true, the discussion will then be switched to the alternative set that is claimed to have been committed. We will first take up the question whether the management agreement has been extended as a result of the supervening war, and after this question shall have been determined in the sense sustained by appellant, then the discussion of the defense of laches and prescription will follow as a consequence. The pertinent portion of the management contract (Exh. C) which refers to suspension should any event 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 a reasonable time, to wit: (1) the event constituting the force majeure must be reasonably beyond the control of Nielson, and (2) it must adversely affect the work of mining and milling the company is called upon to undertake. As long as these two condition exist the agreement is deem suspended. Does the evidence on record show that these two conditions had existed which may justify the conclusion that the management agreement had been suspended in the sense entertained by appellant? Let us go to the evidence.

31

It is a matter that this Court can take judicial notice of that war supervened in our country and that the mines in the Philippines were either destroyed or taken over by the occupation forces with a view to their operation. The Lepanto mines were no exception for not was the mine itself destroyed but the mill, power plant, supplies on hand, equipment and the like that were being used there were destroyed as well. Thus, the following is what appears in the Lepanto Company Mining Report dated March 13, 1946 submitted by its President C. A. DeWitt to the defendant:1 "In February of 1942, our mill, power plant, supplies on hand, equipment, concentrates on hand, and mine, were destroyed upon orders of the U.S. Army to prevent their utilization by the enemy." The report also mentions the report submitted by Mr. Blessing, an official of Nielson, that "the original mill was destroyed in 1942" and "the original power plant and all the installed equipment were destroyed in 1942." It is then undeniable that beginning February, 1942 the operation of the Lepanto mines stopped or became suspended as a result of the destruction of the mill, power plant and other important equipment necessary for such operation in view of a cause which was clearly beyond the control of Nielson and that as a consequence such destruction adversely affected the work of mining and milling which the latter was called upon to undertake under the management contract. Consequently, by virtue of the very terms of said contract the same may be deemed suspended from February, 1942 and as of that month the contract still had 60 months to go. On the other hand, the record shows that the defendant admitted that the occupation forces operated its mining properties subject of the management contract,2 and from the very report submitted by President DeWitt it appears that the date of the liberation of the mine 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 both as witness and as an officer of both corporations. This witness testified in this case to the effect that the standard force majeure clause embodied in the management contract was taken from similar mining contracts regarding

mining operations and the understanding regarding the nature and effect of said clause was that when there is suspension of the operation that suspension meant the extension of the contract. Thus, to the question, "Before the war, what was the understanding of the people in the particular trend of business with respect to the force majeure clause?", Scholey answered: "That was our understanding that the suspension meant the extension of time lost."6 Mark Nestle, the other witness, testified along similar line. He had been connected with Nielson since 1937 until the time he took the witness stand and had been a director, manager, and president of the same company. When he was propounded the question: "Do you know what was the custom or usage at that time in connection with force majeure clause?", Nestle answered, "In the mining world the force majeure clause is generally considered. When a calamity comes up and stops the work like in war, flood, inundation or fire, etc., the work is suspended for the duration of the calamity, and the period of the contract is extended after the calamity is over to enable the person to do the big work or recover his money which he has invested, or accomplish what his obligation is to a third person ." 7 And the above testimonial evidence finds support in the very minutes of the special meeting of the Board of Directors of the Lepanto Company issued on March 10, 1945 which was then chairmaned by Atty. C. A. DeWitt. We read the following from said report: The Chairman also stated that the contract with Nielson and Company would soon expire if the obligations were not suspended, in which case we should have to pay them the retaining fee of P2,500.00 a month. He believes however, that there is a provision in the contract suspending the effects thereof in cases like the present, and that even if it were not there, the law itself would suspend the operations of the contract on account of the war. Anyhow, he stated, we shall have no difficulty in solving satisfactorily any problem we may have with Nielson and Company.8 Thus, we can see from the above that even in the opinion of Mr. DeWitt himself, who at the time was the chairman of the Board of Directors of the Lepanto Company, the management contract would then expire unless the period therein rated is suspended but that, however, he expressed the belief that the period was extended because of the provision contained therein suspending the effects thereof should any of the case of force majeure happen like in the present case, and that even if such provision did not exist the law would have the effect of suspending it on account of the war. In substance, Atty. DeWitt expressed the opinion that as a result of the suspension of the mining operation because of the effects of the war the period of the contract had been extended. Contrary to what appellant's evidence reflects insofar as the interpretation of the force majeure clause is concerned, however, appellee gives Us an opposite interpretation invoking in support thereof not only a letter Atty. DeWitt sent to Nielson on October 20, 1945,9 wherein he expressed for the first time an opinion contrary to what he reported to the Board of Directors of Lepanto Company as stated in the portion of the minutes of its Board of Directors as quoted above, but also the ruling laid down by our Supreme Court in some cases decided sometime ago, to the effect that the war does not have the effect of extending the term of a contract that the parties may enter into regarding a particular transaction, citing in this connection the cases of Victorias Planters Association v. Victorias Milling Company, 51 O.G. 4010; Rosario S. Vda. de Lacson, et al. v. Abelardo G. Diaz, 87 Phil. 150; and Lo Ching y So Young Chong Co. v. Court of Appeals, et al., 81 Phil. 601. To bolster up its theory, appellee also contends that the evidence regarding the alleged custom or usage in mining contract that appellant's witnesses tried to introduce was incompetent because (a) said custom was not specifically pleaded; (b) Lepanto made timely and repeated objections to the

32

introduction of said evidence; (c) Nielson failed to show the essential elements of usage which must be shown to exist before any proof thereof can be given to affect the contract; and (d) the testimony of its witnesses cannot prevail over the very terms of the management contract which, as a rule, is supposed to contain all the terms and conditions by which the parties intended to be bound. It is here necessary to analyze the contradictory evidence which the parties have presented regarding the interpretation of the force majeure clause in the management contract. At the outset, it should be stated that, as a rule, in the construction and interpretation of a document the intention of the parties must be sought (Rule 130, Section 10, Rules of Court). This is the basic rule in the interpretation of contracts because all other rules are but ancilliary to the ascertainment of the meaning intended by the parties. And once this intention has been ascertained it becomes an integral part of the contract as though it had been originally expressed therein in unequivocal terms (Shoreline Oil Corp. v. Guy, App. 189, So., 348, cited in 17A C.J.S., p. 47). How is this intention determined? One pattern is to ascertain the contemporaneous and subsequent acts of the contracting parties in relation to the transaction under consideration (Article 1371, Civil Code). In this particular case, it is worthy of note what Atty. C. A. DeWitt has stated in the special meeting of the Board of Directors of Lepanto in the portion of the minutes already quoted above wherein, as already stated, he expressed the opinion that the life of the contract, if not extended, would last only until January, 1947 and yet he said that there is a provision in the contract that the war had the effect of suspending the agreement and that the effect of that suspension was that the agreement would have to continue with the result that Lepanto would have to pay the monthly retaining fee of P2,500.00. And this belief that the war suspended the agreement and that the suspension meant its extension was so firm that he went to the extent that even if there was no provision for suspension in the agreement the law itself would suspend it. It is true that Mr. DeWitt later sent a letter to Nielson dated October 20, 1945 wherein apparently he changed his mind because there he stated that the contract was merely suspended, but not extended, by reason of the war, contrary to the opinion he expressed in the meeting of the Board of Directors already adverted to, but between the two opinions of Atty. DeWitt We are inclined to give more weight and validity to the former not only because such was given by him against his own interest but also because it was given before the Board of Directors of Lepanto and in the presence, of some Nielson officials 10 who, on that occasion were naturally led to believe that that was the true meaning of the suspension clause, while the second opinion was merely self-serving and was given as a mere afterthought. Appellee also claims that the issue of true intent of the parties was not brought out in the complaint, but anent this matter suffice it to state that in paragraph No. 19 of the complaint appellant pleaded that the contract was extended. 11 This is a sufficient allegation considering that the rules on pleadings must as a rule be liberally construed. It is likewise noteworthy that in this issue of the intention of the parties regarding the meaning and usage concerning the force majeure clause, the testimony adduced by appellant is uncontradicted. If such were not true, appellee should have at least attempted to offer contradictory evidence. This it did not do. Not even Lepanto's President, Mr. V. E. Lednicky who took the witness stand, contradicted said evidence.

In holding that the suspension of the agreement meant the extension of the same for a period equivalent to the suspension, We do not have the least intention of overruling the cases cited by appellee. We simply want to say that the ruling laid down in said cases does not apply here because the material facts involved therein are not the same as those obtaining in the present. The rule of stare decisis cannot be invoked where there is no analogy between the material facts of the decision relied upon and those of the instant case. Thus, in Victorias Planters Association vs. Victorias Milling Company, 51 O.G. 4010, there was no evidence at all regarding the intention of the parties to extend the contract equivalent to the period of suspension caused by the war. Neither was there evidence that the parties understood the suspension to mean extension; nor was there evidence of usage and custom in the industry that the suspension meant the extension of the agreement. All these matters, however, obtain in the instant case. Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz, 87 Phil. 150, the issue referred to the interpretation of a pre-war contract of lease of sugar cane lands and the liability of the lessee to pay rent during and immediately following the Japanese occupation and where the defendant claimed the right of an extension of the lease to make up for the time when no cane was planted. This Court, in holding that the years which the lessee could not use the land because of the war could not be discounted from the period agreed upon, held that "Nowhere is there any insinuation that the defendant-lessee was to have possession of lands for seven years excluding years on which he could not harvest sugar." Clearly, this ratio decidendi is not applicable to the case at bar wherein there is evidence that the parties understood the "suspension clause by force majeure" to mean the extension of the period of agreement. Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of Appeals, et al., 81 Phil. 601, appellant leased a building from appellee beginning September 13, 1940 for three years, renewable for two years. The lessee's possession was interrupted in February, 1942 when he was ousted by the Japanese who turned the same over to German Otto Schulze, the latter occupying the same until January, 1945 upon the arrival of the liberation forces. Appellant contended that the period during which he did not enjoy the leased premises because of his dispossession by the Japanese had to be deducted from the period of the lease, but this was overruled by this Court, reasoning that such dispossession was merely a simple "perturbacion de merohecho y de la cual no responde el arrendador" under Article 1560 of the old Civil Code Art. 1664). This ruling is also not applicable in the instant case because in that case there was no evidence of the intention of the parties that any suspension of the lease by force majeure would be understood to extend the period of the agreement. In resume, there is sufficient justification for Us to conclude that the cases cited by appellee are inapplicable because the facts therein involved do not run parallel to those obtaining in the present case. We shall now consider appellee's defense of laches. Appellee is correct in its contention that the defense of laches applies independently of prescription. Laches is different from the statute of limitations. Prescription is concerned with the fact of delay, whereas laches is concerned with the effect of delay. Prescription is a matter of time; laches is principally a question of inequity of permitting a claim to be enforced, this inequity being founded on some change in the condition of the property or the relation of the parties. Prescription is statutory; laches is not. Laches applies in equity, whereas prescription applies at law. Prescription is based on fixed time, laches is not. (30 C.J.S., p. 522; See also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177).

33

The question to determine is whether appellant Nielson is guilty of laches within the meaning contemplated by the authorities on the matter. In the leading case of Go Chi Gun, et al. vs. Go Cho, et al., 96 Phil. 622, this Court enumerated the essential elements of laches as follows: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy; (2) delay in asserting the complainant's rights, the complainant having had knowledge or notice of the defendant's conduct and having been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred. Are these requisites present in the case at bar? The first element is conceded by appellant Nielson when it claimed that defendant refused to pay its management fees, its percentage of profits and refused to allow it to resume the management operation. Anent the second element, while it is true that appellant Nielson knew since 1945 that appellee Lepanto has refused to permit it to resume management and that since 1948 appellee has resumed operation of the mines and it filed its complaint only on February 6, 1958, there being apparent delay in filing the present action, We find the delay justified and as such cannot constitute laches. It appears that appellant had not abandoned its right to operate the mines for even before the termination of the suspension of the agreement as early as January 20, 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 operation14 by reason of which negotiations had taken place for the settlement of the claim15 and it was only on June 25, 1957 that appellee finally denied the claim. There is, therefore, only a period of less than one year that had elapsed from the date of the final denial of the claim to the date of the filing of the complaint, which certainly cannot be considered as unreasonable delay. The third element of laches is absent in this case. It cannot be said that appellee Lepanto did not know that appellant would assert its rights on which it based suit. The evidence shows that Nielson had been claiming for some time its rights under the contract, as already shown above. Neither is the fourth element present, for if there has been some delay in bringing the case to court it was mainly due to the attempts at arbitration and negotiation made by both parties. If Lepanto's documents were lost, it was not caused by the delay of the filing of the suit but because of the war. Another reason why appellant Nielson cannot be held guilty of laches is that the delay in the filing of the complaint in the present case was the inevitable of the protracted negotiations between the parties concerning the settlement of their differences. It appears that Nielson asked for arbitration16 which was granted. A committee consisting of Messrs. DeWitt, Farnell and Blessing was appointed to act on said differences but Mr. DeWitt always tried to evade the issue17 until he was taken ill and died. Mr. Farnell offered to Nielson the sum of P13,000.58 by way of compromise of all its claim arising from the management contract18 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 his conduct (R. H. Stearns Co. vs. United States, 291 U.S. 54, 78 L. Ed. 647, 54 S. Ct., 325; United States vs. Henry Prentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283). Had the action of Nielson prescribed? The court a quo held that the action of Nielson is already barred by the statute of limitations, and that ruling is now assailed by the appellant in this appeal. In urging that the court a quo erred in reaching that conclusion the appellant has discussed the issue with reference to particular claims. The first claim is with regard to the 10% share in profits of 1941 operations. Inasmuch as appellee Lepanto alleges that the correct basis of the computation of the sharing in the net profits shall be as provided for in Clause V of the Management Contract, while appellant Nielson maintains that the basis should be what is contained in the minutes of the special meeting of the Board of Directors of Lepanto on August 21, 1940, this question must first be elucidated before the main issue is discussed. The facts relative to the matter of profit sharing follow: In the management contract entered into between the parties on January 30, 1937, which was renewed for another five years, it was stipulated that Nielson would receive a compensation of P2,500.00 a month plus 10% of the net profits from the operation of the properties for the preceding month. In 1940, a dispute arose regarding the computation of the 10% share of Nielson in the profits. The Board of Directors of Lepanto, realizing that the mechanics of the contract was unfair to Nielson, authorized its President to enter into an agreement with Nielson modifying the pertinent provision of the contract effective January 1, 1940 in such a way that Nielson shall receive (1) 10% of the dividends declared and paid, when and as paid, during the period of the contract and at the end of each year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of any amount expended during the year out of surplus earnings for capital account. 20 Counsel for the appellee admitted during the trial that the extract of the minutes as found in Exhibit B is a faithful copy from the original. 21 Mr. George Scholey testified that the foregoing modification was agreed upon. 22 Lepanto claims that this new basis of computation should be rejected (1) because the contract was clear on the point of the 10% share and it was so alleged by Nielson in its complaint, and (2) the minutes of the special meeting held on August 21, 1940 was not signed. It appearing that the issue concerning the sharing of the profits had been raised in appellant's complaint and evidence on the matter was introduced 23 the same can be taken into account even if no amendment of the pleading to make it conform to the evidence has been made, for the same is authorized by Section 4, Rule 17, of the old Rules of Court (now Section 5, Rule 10, of the new Rules of Court). Coming now to the question of prescription raised by defendant Lepanto, it is contended by the latter that the period to be considered for the prescription of the claim regarding participation in the profits is only four years, because the modification of the sharing embodied in the management contract is merely verbal, no written document to that effect having been presented. This contention is untenable. The modification appears in the minutes of the special meeting of the Board of Directors of Lepanto held on August 21, 1940, it having been made upon the authority of its President, and in said minutes the terms of the modification had been specified. This is sufficient to have the agreement considered, for the purpose of applying the statute of limitations, as a written contract

34

even if the minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that a writing containing the terms of a contract if adopted by two persons may constitute a contract in writing even if the same is not signed by either of the parties (3 A.L.R., 2d, pp. 812-813). Another authority says that an unsigned agreement the terms of which are embodied in a document unconditionally accepted by both parties is a written contract (Corbin on Contracts, Vol. 1, p. 85) The modification, therefore, made in the management contract relative to the participation in the profits by appellant, as contained in the minutes of the special meeting of the Board of Directors of Lepanto held on August 21, 1940, should be considered as a written contract insofar as the application of the statutes of limitations is concerned. Hence, the action thereon prescribes within ten (10) years pursuant to Section 43 of Act 190. Coming now to the facts, We find that the right of Nielson to its 10% participation in the 1941 operations accrued on December 21, 1941 and the right to commence an action thereon began on January 1, 1942 so that the action must be brought within ten (10) years from the latter date. It is true that the complaint was filed only on February 6, 1958, that is sixteen (16) years, one (1) month and five (5) days after the right of action accrued, but the action has not yet prescribed for various reasons which We will hereafter discuss. The first reason is the operation of the Moratorium Law, for appellant's claim is undeniably a claim for money. Said claim accrued on December 31, 1941, and Lepanto is a war sufferer. Hence the claim was covered by Executive Order No. 32 of March 10, 1945. It is well settled that the operation of the Moratorium Law suspends the running of the statue of limitations (Pacific Commercial Co. vs. Aquino, G.R. No. L-10274, February 27, 1957). This Court has held that the Moratorium Law had been enforced for eight (8) years, two (2) months and eight (8) days (Tioseco vs. Day, et al., L-9944, April 30, 1957; Levy Hermanos, Inc. vs. Perez, L14487, April 29, 1960), and deducting this period from the time that had elapsed since the accrual of the right of action to the date of the filing of the complaint, the extent of which is sixteen (16) years, one (1) month and five (5) days, we would have less than eight (8) years to be counted for purposes of prescription. Hence appellant's action on its claim of 10% on the 1941 profits had not yet prescribed. Another reason that may be taken into account in support of the no-bar theory of appellant is the arbitration clause embodied in the management contract which requires that any disagreement as to any amount of profits before an action may be taken to court shall be subject to arbitration. 24 This agreement to arbitrate is valid and binding. 25 It cannot be ignored by Lepanto. Hence Nielson could not bring an action on its participation in the 1941 operations-profits until the condition relative to arbitration had been first complied with. 26 The evidence shows that an arbitration committee was constituted but it failed to accomplish its purpose on June 25, 1957. 27 From this date to the filing of the complaint the required period for prescription has not yet elapsed. Nielson claims the following: (1) 10% share in the dividends declared in 1941, exclusive of interest, amounting to P17,500.00; (2) 10% in the depletion reserves for 1941; and (3) 10% in the profits for years prior to 1948 amounting to P19,764.70. With regard to the first claim, the Lepanto's report for the calendar year of 1954 28 shows that it declared a 10% cash dividend in December, 1941, the amount of which is P175,000.00. The evidence in this connection (Exhibits L and O) was admitted without objection by counsel for Lepanto. 29

Nielson claims 10% share in said amount with interest thereon at 6% per annum. The document (Exhibit L) was even recognized by Lepanto's President V. L. Lednicky, 30 and this claim is predicated on the provision of paragraph V of the management contract as modified pursuant to the proposal of Lepanto at the special meeting of the Board of Directors on August 21, 1940 (Exh. B), whereby it was provided that Nielson would be entitled to 10% of any dividends to be declared and paid during the period of the contract. With regard to the second claim, Nielson admits that there is no evidence regarding the amount set aside by Lepanto for depletion reserve for 1941 31 and so the 10% participation claimed thereon cannot be assessed. Anent the third claim relative to the 10% participation of Nielson on the sum of P197,647.08, which appears in Lepanto's annual report for 1948 32 and entered as profit for prior years in the statement of income and surplus, which amount consisted "almost in its entirety of proceeds of copper concentrates shipped to the United States during 1947," this claim should to denied because the amount is not "dividend declared and paid" within the purview of the management contract. The fifth assignment of error of appellant refers to the failure of the lower court to order Lepanto to pay its management fees for January, 1942, and for the full period of extension amounting to P150,000.00, or P2,500.00 a month for sixty (60) months, a total of P152,500.00 with interest thereon from the date of judicial demand. It is true that the claim of management fee for January, 1942 was not among the causes of action in the complaint, but inasmuch as the contract was suspended in February, 1942 and the management fees asked for included that of January, 1942, the fact that such claim was not included in a specific manner in the complaint is of no moment because an appellate court may treat the pleading as amended to conform to the evidence where the facts show that the plaintiff is entitled to relief other than what is asked for in the complaint (Alonzo vs. Villamor, 16 Phil. 315). The evidence shows that the last payment made by Lepanto for management fee was for November and December, 1941. 33 If, as We have declared, the management contract was suspended beginning February 1942, it follows that Nielson is entitled to the management fee for January, 1942. Let us now come to the management fees claimed by Nielson for the period of extension. In this respect, it has been shown that the management contract was extended from June 27, 1948 to June 26, 1953, or for a period of sixty (60) months. During this period Nielson had a right to continue in the management of the mining properties of Lepanto and Lepanto was under obligation to let Nielson do it and to pay the corresponding management fees. Appellant Nielson insisted in performing its part of the contract but Lepanto prevented it from doing so. Hence, by virtue of Article 1186 of the Civil Code, there was a constructive fulfillment an the part of Nielson of its obligation to manage said mining properties in accordance with the contract and Lepanto had the reciprocal obligation to pay the corresponding management fees and other benefits that would have accrued to Nielson if Lepanto allowed it (Nielson) to continue in the management of the mines during the extended period of five (5) years. We find that the preponderance of evidence is to the effect that Nielson had insisted in managing the mining properties soon after liberation. In the report 34 of Lepanto, submitted to its stockholders for the period from 1941 to March 13, 1946, are stated the activities of Nielson's officials in relation to Nielson's insistence in continuing the management. This report was admitted in evidence without objection. We find the following in the report:

35

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 ten (10) days. And according to Mark Nestle, a witness of appellant, Nielson had several men including engineers to do the job in the mines and to resume the work. These engineers were in fact sent to the mine site and submitted reports of what they had done. 35 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 vs. 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 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." 36 Lepanto admits, in its own brief, that Nielson had really insisted in taking over the management and operation of the mines but that it (Lepanto) unequivocally refuse to allow it. The following is what appears in the brief of the appellee: 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.37 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 (5) years from the resumption of its post-war operations of the Mankayan mines, in the total sum of P2,403,053.20 with interest thereon at the rate of 6% per annum from February 6, 1958 until full payment. 38 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 39 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 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 10% 10% 10% 20% 20% 20% 20% 40% 20% 20% 20% 20% 20% 20% 20% November July October December March June September December March May July September December March June TOTAL 1949 1950 1950 1950 1951 1951 1951 1951 1952 1952 1952 1952 1952 1953 1953 P 200,000.00 300,000.00 500,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 2,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 P14,000,000.00

36

According to the terms of the management contract as modified, 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 stock dividends 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. 40 Appellant's claim that it should be given 10% of the cash value of said stock dividends with interest thereon at 6% from February 6, 1958 cannot be granted for that would not be in 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 as P277,493.25. Regarding the depletion reserve set up in 1948 it should be noted that the amount given was for the whole year. Inasmuch as the contract was extended only for the last half of the year 1948, said amount of P11,602.80 should be divided by two, and so Nielson is only entitled to 10% of the half amounting to P5,801.40. Likewise, the amount of depletion reserve for the year 1953 was for the whole year and since the contract was extended only until the first half of the year, said amount of P277,493.25 should be divided by two, and so Nielson is only entitled to 10% of the half amounting to P138,746.62.

Summing up the entire depletion reserves, from the middle of 1948 to the middle of 1953, we would have a total of P539,298.81, of which Nielson is entitled to 10%, or to the sum of P53,928.88. Finally, with regard to the fourth category, there is no figure in the record representing the value of the fixed assets as of the beginning of the period of extension on June 27, 1948. It is possible, however, to arrive at the amount needed by adding to the value of the fixed assets as of December 31, 1947 one-half of the amount spent for capital account in the year 1948. As of December 31, 1947, the value of the fixed assets was P1,061,878.88 41 and as of December 31, 1948, the value of the fixed assets was P3,270,408.07. 42 Hence, the increase in the value of the fixed assets for the year 1948 was P2,208,529.19, one-half of which is P1,104,264.59, which amount represents the expenses for capital account for the first half of the year 1948. If to this amount we add the fixed assets as of December 31, 1947 amounting to P1,061,878.88, we would have a total of P2,166,143.47 which represents the fixed assets at the beginning of the second half of the year 1948. There is also no figure representing the value of the fixed assets when the contract, as extended, ended on June 26, 1953; but this may be computed by getting one-half of the expenses for capital account made in 1953 and adding the same to the value of the fixed assets as of December 31, 1953 is P9,755,840.41 43 which the value of the fixed assets as of December 31, 1952 is P8,463,741.82, the difference being P1,292,098.69. One-half of this amount is P646,049.34 which would represent the expenses for capital account up to June, 1953. This amount added to the value of the fixed assets as of December 31, 1952 would give a total of P9,109,791.16 which would be the value of fixed assets at the end of June, 1953. The increase, therefore, of the value of the fixed assets of Lepanto from June, 1948 to June, 1953 is P6,943,647.69, which amount represents the difference between the value of the fixed assets of Lepanto in the year 1948 and in the year 1953, as stated above. On this amount Nielson is entitled to a share of 10% or to the amount of P694,364.76. Considering that most of the claims of appellant have been entertained, as pointed out in this decision, We believe that appellant is entitled to be awarded attorney's fees, especially when, according to the undisputed testimony of Mr. Mark Nestle, Nielson obliged himself to pay attorney's fees in connection with the institution of the present case. In this respect, We believe, considering the intricate nature of the case, an award of fifty thousand (P50,000.00) pesos for attorney's fees would be reasonable. IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the court a quo and enter in lieu thereof another, ordering the appellee Lepanto to pay appellant Nielson the different amounts as specified hereinbelow:
(1) 10% share of cash dividends of December, 1941 in the amount of P17,500.00, with legal interest thereon from the date of the filing of the complaint; (2) management fee for January, 1942 in the amount of P2,500.00, with legal interest thereon from the date of the filing of the complaint; (3) management fees for the sixty-month period of extension of the management contract, amounting to P150,000.00, with legal interest from the date of the filing of the complaint;

37

(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 l0% share in the stock dividends declared on November 28, 1949 and August 22, 1950, together with all cash and stock dividends, if any, as may have been declared and issued subsequent to November 28, 1949 and August 22, 1950, as fruits that accrued to said shares; If sufficient shares of stock of Lepanto's are not available to satisfy this judgment, defendant-appellee shall pay plaintiff-appellant an amount in cash equivalent to the market value of said shares at the time of default (12 C.J.S., p. 130), that is, all shares of the stock that should have been delivered to Nielson before the filing of the complaint must be paid at their market value as of the date of the filing of the complaint; and all shares, if any, that should have been delivered after the filing of the complaint at the market value of the shares at the time Lepanto disposed of all its available shares, for it is only then that Lepanto placed itself in condition of not being able to perform its obligation (Article 1160, Civil Code); (8) the sum of P50,000.00 as attorney's fees; and

(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 be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash. (E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given. (F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.

(9) the costs. It is so ordered. G.R. No. L-11491 August 23, 1918 ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group. ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval. ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party. Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal and both substantially amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.

ANDRES QUIROGA, plaintiff-appellant, vs. PARSONS HARDWARE CO., defendant-appellee. On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part: CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions: (A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles.

38

In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. However, according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of 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 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. G.R. No. 75198 October 18, 1988 SCHMID & OBERLY, INC., petitioner, vs. RJL MARTINEZ FISHING CORPORATION, respondent. Petitioner seeks reversal of the decision and the resolution of the Court of Appeals, ordering Schmid & Oberly Inc. (hereafter to be referred to simply as "SCHMID") to refund the purchase price paid by RJL Martinez Fishing Corporation (hereafter to be referred to simply as "RJL MARTINEZ") to D. Nagata Co., Ltd. of Japan (hereafter to be referred to simply as NAGATA CO.") for twelve (12) defective "Nagata"-brand generators, plus consequential damages, and attorneys fees. The facts as found by the Court of Appeals, are as follows: The findings of facts by the trial court (Decision, pp. 21-28, Record on Appeal) shows: that the plaintiff RJL Martinez Fishing Corporation is engaged in deep-sea fishing, and in the course of its business, needed electrical generators for the operation of its business; that the defendant sells electrical generators with the brand of "Nagata", a Japanese product; that the supplier is the manufacturer, the D. Nagata Co. Ltd., of Japan, that the defendant Schmid & Oberly Inc. advertised the 12 Nagata generators for sale; that the plaintiff purchased 12 brand new Nagata generators, as advertised by herein defendant; that through an irrevocable line of credit, the D. Nagata Co., Ltd., shipped to the plaintiff 12 electric generators, and the latter paid the amount of the purchase price; that the 12 generators were found to be factory defective; that the plaintiff informed the

39

defendant herein that it shall return the 12 generators as in fact three of the 12 were actually returned to the defendant; that the plaintiff sued the defendant on the warranty; asking for rescission of the contract; that the defendant be ordered to accept the generators and be ordered to pay back the purchase money; and that the plaintiff asked for damages. (Record on Appeal, pp. 27-28) [CA Decision, pp. 34; Rollo, pp. 47-48.] On the basis thereof, the Court of Appeals affirmed the decision of the trial court ordering petitioner to refund to private respondent the purchase price for the twelve (12) generators and to accept delivery of the same and to pay s and attorney's fees, with a slight modification as to the amount to be refunded. In its resolution of the motion for reconsideration, the Court of Appeals further modified the trial courts decision as to the award of consequential damages. Ordinarily, the Court will not disturb the findings of fact of the Court of Appeals in petitions to review the latter's decisions under Rule 45 of the Revised Rules of Court, the scope of the Court's inquiry being limited to a review of the imputed errors of law [Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 77; Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. 62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court of Appeals, G.R. No. L-47531, January 30, 1984, 127 SCRA 596.] However, when, as in this case, it is the petitioner's position that the appealed judgment is premised on a misapprehension of facts, * the Court is compelled to review the Court of Appeal's factual findings [De la Cruz v. Sosing, 94 Phil. 26 (1953); Castillo v. Court of Appeals, G.R. No. I,48290, September 29, 1983, 124 SCRA 808.] Considering the sketchiness of the respondent court's narration of facts, whether or not the Court of Appeals indeed misapprehended the facts could not be determined without a thorough review of the records. Thus, after a careful scrutiny of the records, the Court has found the appellate court's narration of facts incomplete. It failed to include certain material facts. The facts are actually as follows: RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed electric generators for some of its boats and SCHMIID sold electric generators of different brands, negotiations between them for the acquisition thereof took place. The parties had two separate transactions over "Nagata"-brand generators. The first transaction was the sale of three (3) generators. In this transaction, it is not disputed that SCHMID was the vendor of the generators. The company supplied the generators from its stockroom; it was also SCHMID which invoiced the sale. The second transaction, which gave rise to the present controversy, involves twelve (12) "Nagata"brand generators. 'These are the facts surrounding this particular transaction: As RJL MARTINEZ was canvassing for generators, SC gave RJL MARTINEZ its Quotation dated August 19, 1975 [Exhibit 'A"] for twelve (12) "Nagata'-brand generators with the following specifications:

"NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800 rpm, unity power factor, rectifier type and radio suppressor,, 5KVA (5KW) $546.75 @ It was stipulated that payment would be made by confirming an irrevocable letter of credit in favor of NAGATA CO. Furthermore, among the General Conditions of Sale appearing on the dorsal side of the Quotation is the following: Buyer will, upon request, promptly open irrevocable Letter of Credit in favor of seller, in the amount stated on the face of this memorandum, specifying shipment from any Foreign port to Manila or any safe Philippine port, permitting partial shipments and providing that in the event the shippers are unable to ship within the specified period due to strikes, lack of shipping space or other circumstances beyond their reasonable control, Buyer agrees to extend the said Letter of Credit for later shipment. The Letter of Credit shall otherwise be subject to the conditions stated in this memorandum of contract. [Emphasis supplied.] Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of credit in favor of NAGATA CO. Accordingly, on November 20,1975, SCHMID transmitted to NAGATA CO. an order [Exhibit "4"] for the twelve (12) generators to be shipped directly to RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill of lading and its own invoice (Exhibit "B") and, in accordance with the order, shipped the generators directly to RJL MARTINEZ. The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting of twelve sets wasbought by order and for account risk of Messrs. RJL Martinez Fishing Corporation. For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale of the twelve generators to RJL MARTINEZ. [Exhibits "9", "9-A", "9-B" and "9-C".] All fifteen (15) generators subject of the two transactions burned out after continuous use. RJL MARTINEZ informed SCHMID about this development. In turn, SCHMID brought the matter to the attention of NAGATA CO. In July 1976, NAGATA CO. sent two technical representatives who made an ocular inspection and conducted tests on some of the burned out generators, which by then had been delivered to the premises of SCHMID. The tests revealed that the generators were overrated. As indicated both in the quotation and in the invoice, the capacity of a generator was supposed to be 5 KVA (kilovolt amperes). However, it turned out that the actual capacity was only 4 KVA. SCHMID replaced the three (3) generators subject of the first sale with generators of a different brand. As for the twelve (12) generators subject of the second transaction, the Japanese technicians advised RJL MARTINEZ to ship three (3) generators to Japan, which the company did. These three (3) generators were repaired by NAGATA CO. itself and thereafter returned to RJL MARTINEZ; the remaining nine (9) were neither repaired nor replaced. NAGATA CO., however, wrote SCHMID suggesting that the latter check the generators, request for spare parts for replacement free of charge, and send to NAGATA CO. SCHMID's warranty claim including the labor cost for repairs [Exhibit "I".] In its reply letter, SCHMID indicated that it was not agreeable to these terms [Exhibit "10".]

40

As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded that it be refunded the cost of the generators and paid damages. SCHMID in its reply maintained that it was not the seller of the twelve (12) generators and thus refused to refund the purchase price therefor. Hence, on February 14, 1977, RJL MARTINEZ brought suit against SCHMID on the theory that the latter was the vendor of the twelve (12) generators and, as such vendor, was liable under its warranty against hidden defects. Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that SCHMID was the vendor in the second transaction and was liable under its warranty. Accordingly, the courts a quo rendered judgment in favor of RJL MARTINEZ. Hence, the instant recourse to this Court. In this petition for review, SCHMID seeks reversal on the following grounds: (i) Schmid was merely the indentor in the sale [of the twelve (12) generators] between Nagata Co., the exporter and RJL Martinez, the importer; (ii) as mere indentor, Schmid is not liable for the seller's implied warranty against hidden defects, Schmid not having personally assumed any such warranty. (iii) in any event, conformably with Article 1563 of the Civil Code, there was no implied warranty against hidden defects in the sale of these twelve (12) generators because these were sold under their trade name "Nagata"; and (iv) Schmid, accordingly, is not liable for the reimbursement claimed by RJL Martinez nor for the latter's unsubstantiated claim of PI 10.33 operational losses a day nor for exemplary damages, attorney's fees and costs. [Petition, p. 6.] 1. As may be expected, the basic issue confronting this Court is whether the second transaction between the parties was a sale or an indent transaction. SCHMID maintains that it was the latter; RJL MARTINEZ claims that it was a sale. At the outset, it must be understood that a contract is what the law defines it to be, considering its essential elements, and not what it is caged by the contracting parties [Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).] The Civil Code defines a contract of sale, thus: ART. 458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. It has been said that the essence of the contract of sale is transfer of title or agreement to transfer it for a price paid or promised [Commissioner of Internal Revenue v. Constantino, G.R. No. L-25926, February 27, 1970, 31 SCRA 779, 785, citing Salisbury v. Brooks, 94 SE 117,118-19.] "If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is, a sale." [Ibid.]

On the other hand, there is no statutory definition of "indent" in this jurisdiction. However, the Rules and Regulations to Implement Presidential Decree No. 1789 (the Omnibus Investments Code) lumps "indentors" together with "commercial brokers" and "commission merchants" in this manner: ... A foreign firm which does business through the middlemen acting in their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines [Part I, Rule I, Section 1, par. g (1).] Therefore, an indentor is a middlemen in the same class as commercial brokers and commission merchants. To get an Idea of what an indentor is, a look at the definition of those in his class may prove helpful. A broker is generally defined as one who is engaged, for others, on a commission, negotiating contracts relative to property with the custody of which he has no concern; the negotiator between other parties, never acting in his own name but in the name of those who employed him; he is strictly a middleman and for some purpose the agent of both parties. (1 9 Cyc 186; Henderson vs. The State, 50 Ind., 234; Black's Law Dictionary.) A broker is one whose occupation it is to bring parties together to bargain, or to bargain for them, in matters of trade, commerce or navigation. Mechem on Agency, sec. 13; Wharton on Agency, sec. 695.) Judge Storey, in his work on Agency, defines a broker as an agent employed to make bargains and contracts between other persons, in matters of trade, commerce or navigation, for compensation commonly called brokerage. (Storey on Agency, sec. 28.) [Behn Meyer and Co., Ltd. v. Nolting and Garcia, 35 Phil. 274, 279-80 (1916).] A commission merchant is one engaged in the purchase or sale for another of personal property which, for this purpose, is placed in his possession and at his disposal. He maintains a relation not only with his principal and the purchasers or vendors, but also with the property which is subject matter of the transaction. [Pacific Commercial Co. v. Yatco, 68 Phil. 398, 401 (1939).] Thus, the chief feature of a commercial broker and a commercial merchant is that in effecting a sale, they are merely intermediaries or middle-men, and act in a certain sense as the agent of both parties to the transaction. Webster defines an indent as "a purchase order for goods especially when sent from a foreign country." [Webster's Ninth New Collegiate Dictionary 612 (1986).] It would appear that there are three parties to an indent transaction, namely, the buyer, the indentor, and the supplier who is usually a non-resident manufacturer residing in the country where the goods are to be bought [Commissioner of Internal Revenue v. Cadwallader Pacific Company, G.R. No. L-20343, September 29, 1976, 73 SCRA 59.] An indentor may therefore be best described as one who, for compensation, acts as a middleman in bringing about a purchase and sale of goods between a foreign supplier and a local purchaser. Coming now to the case at bar, the admissions of the parties and the facts appearing on record more than suffice to warrant the conclusion that SCHMID was not a vendor, but was merely an indentor, in the second transaction.

41

In its complaint, RJL MARTINEZ admitted that the generators were purchased "through indent order" [Record on Appeal, p. 6.] In the same vein, it admitted in its demand letter previously sent to SCHMID that twelve (12) of en (15) Nagata-brand generators "were purchased through your company (SCHMID), by indent order and three (3) by direct purchase." [Exhibit "D".] The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for the generators, and that the latter company itself invoiced the sale [Exhibit "B"], and shipped the generators directly to the former. The only participation of SCHMID was to act as an intermediary or middleman between NAGATA CO. and RJL MARTINEZ, by procuring an order from RJL MARTINEZ and forwarding the same to NAGATA CO. for which the company received a commission from NAGATA CO. [Exhibits "9", "9-A", "9-B" and "9C".] The above transaction is significantly different from the first transaction wherein SCHMID delivered the goods from its own stock (which it had itself imported from NAGATA CO.), issued its own invoice, and collected payment directly from the purchaser. These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the vendor of the twelve generators on the following grounds: First, it is contended that the Quotation and the General Conditions of Sale on the dorsal side thereof do not necessarily lead to the conclusion that NAGATA CO., and not SCHMID, was the real seller in the case of the twelve (12) generators in that: (i) the signing of the quotation, which was under SCHMID's letter-head, perfected the contract of sale (impliedly, as between the signatories theretoi.e., RJL MARTINEZ and SCHMID); (ii) the qualification that the letter of credit shall be in favor of NAGATA CO. constituted simply the manner of payment requested by SCHMID (implying that SCHMID, as seller, merely chose to waive direct payment, stipulating delivery of payment instead to NAGATA CO. as supplier); Second, it is asserted that the acts of SCHMID after it was informed of the defect in the generators were indicative of its awareness that it was the vendor and acknowledgment of its liability as such vendor. Attention is called to these facts: When RJL MARTINEZ complained to SCHMID that the generators were defective, SCHMID immediately asked RJL MARTINEZ to send the defective generators to its shop to determine what was wrong. SCHMID likewise informed NAGATA CO. about the complaint of RJL MARTINEZ. When the Japanese technicians arrived, SCHMID made available its technicians, its shop and its testing equipment. After the generators were found to have factory defects, SCHMID facilitated the shipment of three (3) generators to Japan and, after their repair, back to the Philippines [Memorandum for the Respondent, p. 8.] Third, it is argued that the contents of the letter from NAGATA CO. to SCHMID regarding the repair of the generators indicated that the latter was "within the purview of a seller." [Ibid.] Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA CO., a foreign corporation not licensed to do business in the Philippines, then the officers and employees of the former may be penalized for violation of the old Corporation Law which provided:

Sec. 69 ... Any officer or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for not less than six months nor more than two years or by a fine 'of not less than two hundred pesos nor more than one thousand pesos or both such imprisonment and fine, in the discretion of the Court. The facts do not bear out these contentions. The first contention disregards the circumstances surrounding the second transaction as distinguished from those surrounding the first transaction, as noted above. Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's complaint prove that the former was the seller of the generators. As aptly stated by counsel, no indentor will just fold its hands when a client complains about the goods it has bought upon the indentor's mediation. In its desire to promote the product of the seller and to retain the goodwill of the buyer, a prudent indentor desirous of maintaining his business would have to act considerably. towards his clients. Note that in contrast to its act of replacing the three (3) generators subject of the first transaction, SCHMID did not replace any of the twelve (12) generators, but merely rendered assistance to both RJL TINES and NAGATA CO. so that the latter could repair the defective generators. The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the repair of the nine (9) other defective generators, with the former supplying the replacement parts free of charge and subsequently reimbursing the latter for labor costs [Exhibit "I"], cannot support the conclusion that SCHMID is vendor of the generators of the second transaction or was acting "within the purview of a seller." Finally, the afore-quoted penal provision in the Corporation Law finds no application to SCHMID and its officers and employees relative to the transactions in the instant case. What the law seeks to prevent, through said provision, is the circumvention by foreign corporations of licensing requirements through the device of employing local representatives. An indentor, acting in his own name, is not, however, covered by the above-quoted provision. In fact, the provision of the Rules and Regulations implementing the Omnibus Investments Code quoted above, which was copied from the Rules implementing Republic Act No. 5455, recognizes the distinct role of an indentor, such that when a foreign corporation does business through such indentor, the foreign corporation is not deemed doing business in the Philippines. In view of the above considerations, this Court rules that SCHMID was merely acting as an indentor in the purchase and sale of the twelve (12) generators subject of the second transaction. Not being the vendor, SCHMID cannot be held liable for the implied warranty for hidden defects under the Civil Code [Art. 1561, et seq.] 2. However, even as SCHMID was merely an indentor, there was nothing to prevent it from voluntarily warranting that twelve (12) generators subject of the second transaction are free from any hidden defects. In other words, SCHMID may be held answerable for some other contractual obligation, if indeed it had so bound itself. As stated above, an indentor is to some extent an agent of both the vendor and the vendee. As such agent, therefore, he may expressly obligate himself to undertake the obligations of his principal (See Art. 1897, Civil Code.)

42

The Court's inquiry, therefore, shifts to a determination of whether or not SCHMID expressly bound itself to warrant that the twelve (12) generators are free of any hidden defects. Again, we consider the facts. The Quotation (Exhibit A is in writing. It is the repository of the contract between RJL MARTINEZ and SCHMID. Notably, nowhere is it stated therein that SCHMID did bind itself to answer for the defects of the things sold. There being no allegation nor any proof that the Quotation does not express the true intent and agreement of the contracting parties, extrinsic parol evidence of warranty will be to no avail [See Rule 123, Sec. 22.] The trial court, however, relied on the testimony of Patrocinio Balagtas, the head of the Electrical Department of RJL MARTINEZ, to support the finding that SCHMID did warrant the twelve (12) generators against defects. Upon careful examination of Balagtas' testimony, what is at once apparent is that Balagtas failed to disclose the nature or terms and conditions of the warranty allegedly given by SC Was it a warranty that the generators would be fit for the fishing business of the buyer? Was it a warranty that the generators to be delivered would meet the specifications indicated in the Quotation? Considering the different kinds of warranties that may be contracted, unless the nature or terms and conditions of the warranty are known, it would not be possible to determine whether there has been a breach thereof. Moreover, a closer examination of the statements allegedly made by the representative of SCHMID reveals that they merely constituted an expression of opinion which cannot by any means be construed as a warranty [See Art. 1546, Civil Code.] We quote from Balagtas' testimony: Atty. CATRAL: Q Did you not say at the start of your cross examination, Mr. Balagtas, that the only participation you had in the acquisition of those twelve (12) units [of] generators was your having issued a purchase order to your own company for the purchase of the units? ATTY. AQUINO: Misleading, your Honor. Atty. CATRAL: I am asking the witness. COURT:

He has the right to ask that question because he is on cross. Moreover, if I remember, he mentioned something like that. Witness may answer. A Yes, sir. Before I submitted that, we negotiated with Schmid and Oberly the beat generators they can recommend because we are looking for generators. The representative of Schmid and Oberly said that Nagata is very good. That is why I recommended that to the management. [t.s.n., October 14, 1977, pp. 23-25.] At any rate, when asked where SCHMID's warranty was contained, Balagtas testified initially that it was in the receipts covering the sale. (At this point, it may be stated that the invoice [Exhibit "B-l"] was issued by NAGATA CO. and nowhere is it stated therein that SCHMID warranted the generators against defects.) When confronted with a copy of the invoice issued by NAGATA CO., he changed his assertion and claimed that what he meant was that the date of the commencement of the period of SCHMID's warranty would be based on the date of the invoice. On further examination, he again changed his mind and asserted that the warranty was given verbally [TSN, October 14, 1977, pp. 1922.] But then again, as stated earlier, the witness failed to disclose the nature or terms and conditions of the warranty allegedly given by SCHMID. On the other hand, Hernan Adad SCHMID's General Manager, was categorical that the company does not warrant goods bought on indent and that the company warrants only the goods bought directly from it, like the three generators earlier bought by RJL MARTINEZ itself [TSN, December 19, 1977, pp. 63-64.] It must be recalled that SCHMID readily replaced the three generators from its own stock. In the face of these conflicting testimonies, this Court is of the view that RJL has failed to prove that SCHMID had given a warranty on the twelve (12) generators subject of the second transaction. Even assuming that a warranty was given, there is no way to determine whether there has been a breach thereof, considering that its nature or terms and conditions have not been shown. 3. In view of the foregoing, it becomes unnecessary to pass upon the other issues. WHEREFORE, finding the Court of Appeals to have committed a reversible error, the petition is GRANTED and the appealed Decision and Resolution of the Court of Appeals are REVERSED. The complaint of RJL Martinez Fishing Corporation is hereby DISMISSED. No costs. SO ORDERED.

43

44

45