Course Outline
Ranada
Agency, Partnership & Trust
I. AGENCY
Week No. 1
The Civil Code of the Philippines is the governing law on agency. Article 1868
of the Civil Code states that by the contract of agency, a person (agent) binds
himself to render some service or to do something in representation or on behalf
of another (principal), with the consent or authority of the latter. In this
relationship
Consequently, the agent must act and is bound according to the instructions of the
principal. If there are goods involved, the principal remains the owner of the
goods and retains the right to control the handling or disposition thereof.
What then are the obligations of the agent? Under the Civil Code, the principal
obligations of an agent are:
1. To carry out the agency in accordance with its terms [Article 1884, Civil Code];
2. To answer for the damages which through his non-performance the principal
may suffer [Article 1884, Civil Code];
3. To act in accordance with the instructions of the principal [Article 1887, Civil
Code];
4. Not to carry out the agency if its execution would manifestly result in loss or
damage to the principal [Article 1888, Civil Code];
5. To answer for damages should he prefer, in case of conflict, his own interests to
those of the principal [Article 1889, Civil Code];
6. To render an account of his transactions and to deliver to the principal whatever
he may have received by virtue of the agency [Article 1891, Civil Code];
7. To be responsible for the goods received by him, to sell on credit only with the
consent of the principal and to collect with due diligence the credits of the
principal [Articles 1903-1908, Civil Code]; and
8. To answer for his fraud or negligence. [Article 1909, Civil Code]
On the other hand, in the absence of contractual stipulations to the contrary, the
following are the obligations of the principal:
a. To comply with all the obligations which the agent may have contracted within
the scope of his authority [Articles 1868 &1883, Civil Code];
1|Page
Atty. Joanne L.
First Semester, AY 2019 - 2020
b. To advance to the agent, should the latter so request, the sums necessary for the
execution of the agency [Article 1912, Civil Code];
c. To reimburse the agent for all advances made by him provided the agent is free
from fault [Ibid];
d. To indemnify the agent for all damages which the execution of the agency may
have caused the later without fault or negligence on his part [Article 1913, Civil
Code]; and
e. To pay the agent the compensation agreed upon, or if no compensation was
specified, the reasonable value of the agent‘s services. [Articles, 1875 and 1306,
Civil Code; De Leon, The Law on Sales, Agency and Credit Transactions, 1999,
pp. 277-278]
How are third parties or customers affected by the principal-agent relationship?
What if the agent acted without authority? What if he acted under his own name?
As to relations with third parties such as customers, the effects will vary
depending on the authority of the agent and for whom the act was executed.
However, the following principles may serve as a guide:
1. If the agent acts with authority and on behalf of the principal, the transaction is
valid. Hence, the principal is liable to the third party while the agent is not
personally liable unless he bound himself [Article 1897, Civil Code].
2. If the agent acts with authority but in his own name, it is not binding on the
principal who has no right of action against third persons with whom the agent has
contracted. Neither have such persons against the principal. In such case, the agent
is the one directly bound in favor of the person with whom he has contracted, as if
the transaction were his own, except when the contract involves things belonging
to the principal. This shall be without prejudice to the actions between the
principal and agent. [Article 1883, Civil Code] If it involves things belonging to
the principal, then the contract must be considered as entered into between the
principal and the third person and consequently, if the obligations belong to the
former, to him alone must also belong the rights arising from the contract. [Sy-
Juco and Viardo vs. Sy-Juco, 40 Phil. 634, 1920]
3. If the agent acted without authority and in his own name, it will not bind the
principal. However, it shall be valid, as regards the agent, whether or not the thing
belongs to the principal, provided that at the time of delivery to the third party, the
agent can legally transfer the ownership of the thing (such as when the agent
Course Outline
Agency, Partnership & Trust
becomes the owner of the thing). Otherwise, the agent shall be liable to the third
party for breach of warranty against eviction or damages. [National Bank vs.
Aguledo, 58 Phil. 655, 1933]
4. If the principal refuses to reimburse the agent for advances made by the latter
necessary to carry out the agency or does not indemnify the agent for damages
that the latter suffered in executing the agency without fault or negligence, the
agent may retain in pledge the goods and merchandise until the principal effects
the reimbursement. [Article 1914, Civil Code] However, it must be noted that
under Art. 1918 of the Civil Code, the principal is not liable for the expenses
incurred by the agent in the following cases:
(a) If the agent acted in contravention of the principal‘s instructions, unless the
latter should wish to avail himself of the benefits derived from the contract;
(b) When the expenses were due to the fault of the agent;
(c) When the agent incurred them with knowledge that an unfavorable result
would ensue, if the principal was not aware thereof; and
(d) When it was stipulated that the expenses would be borne by the agent, or that
the latter would be allowed only a certain sum.
How is agency terminated? An agency may be terminated by agreement such as
by the accomplishment of the object or purpose of the agency. [Article 1919 (5)
(6), Civil Code] Furthermore, it may be terminated by subsequent acts of the
parties which may either be by the act of both parties or by mutual consent or by
the unilateral act of one of them such as by its revocation or withdrawal of the
agent. [Article 1919 (1) (2), Civil Code] In addition, the agency may likewise be
terminated or extinguished by operation of law, such as death, civil interdiction,
insanity or insolvency of the principal or agent or the dissolution of the principal
corporation [Article 1919 (3) (4), Civil Code]
A. Historical Context
1. World Context
2. Philippine Context
Laws 28 and 32, Title 12, Partida 3
2|Page
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
That laws 28 and 32, title 12 Partida 3, refer to the expenses
incurred in things not one's own and without power of attorney
from those to whom they belong, and therefore the said laws
are not applicable to this suit where the petition of the plaintiff
is founded on the verbal request made to him by the defendant
or the latter's employees to do some hauling, and where,
consequently, questions that arise from a contract that produces
reciprocal rights and duties can not be governed by the said
laws.
Spanish Civil Code (Civil Agency)
Spanish Code of Commerce (Commercial Agency)
Civil Code –Art. 2270 (2)
B. Nature, Concept and Purpose
Eurotech vs Court of Appeals, GR No. 167552, April 23, 2007.
G.R. No. 167552 April 23, 2007
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,
vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari assailing the Decision1 of the Court
of Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-
G.R. SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon.
Antonio T. Echavez." The assailed Decision and Resolution affirmed the
Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the
dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil
Case No. CEB-19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution of various
European industrial equipment for customers here in the Philippines. It has as one
of its customers Impact Systems Sales ("Impact Systems") which is a sole
proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent
EDWIN is the sales manager of Impact Systems and was impleaded in the court a
quo in said capacity.
Course Outline
Agency, Partnership & Trust
From January to April 1995, petitioner sold to Impact Systems various products
allegedly amounting to ninety-one thousand three hundred thirty-eight
(₱91,338.00) pesos. Subsequently, respondents sought to buy from petitioner one
unit of sludge pump valued at ₱250,000.00 with respondents making a down
payment of fifty thousand pesos (₱50,000.00).4 When the sludge pump arrived
from the United Kingdom, petitioner refused to deliver the same to respondents
without their having fully settled their indebtedness to petitioner. Thus, on 28 June
1995, respondent EDWIN and Alberto de Jesus, general manager of petitioner,
executed a Deed of Assignment of receivables in favor of petitioner, the pertinent
part of which states:
1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power
Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (₱365,000.00) PESOS as payment for the purchase of one
unit of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and
CONVEY unto the ASSIGNEE6 the said receivables from Toledo Power
Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (₱365,000.00) PESOS which receivables the ASSIGNOR
is the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment.7
Following the execution of the Deed of Assignment, petitioner delivered to
respondents the sludge pump as shown by Invoice No. 12034 dated 30 June
1995.8
Allegedly unbeknownst to petitioner, respondents, despite the existence of the
Deed of Assignment, proceeded to collect from Toledo Power Company the
amount of ₱365,135.29 as evidenced by Check Voucher No. 09339prepared by
said power company and an official receipt dated 15 August 1995 issued by
Impact Systems.10Alarmed by this development, petitioner made several demands
upon respondents to pay their obligations. As a result, respondents were able to
make partial payments to petitioner. On 7 October 1996, petitioner‘s counsel sent
respondents a final demand letter wherein it was stated that as of 11 June 1996,
respondents‘ total obligations stood at ₱295,000.00 excluding interests and
attorney‘s fees.11 Because of respondents‘ failure to abide by said final demand
letter, petitioner instituted a complaint for sum of money, damages, with
application for preliminary attachment against herein respondents before the
Regional Trial Court of Cebu City.12
3|Page
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
On 8 January 1997, the trial court granted petitioner‘s prayer for the issuance of
writ of preliminary attachment.13
On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted
petitioner‘s allegations with respect to the sale transactions entered into by Impact
Systems and petitioner between January and April 1995. 15 He, however, disputed
the total amount of Impact Systems‘ indebtedness to petitioner which, according
to him, amounted to only ₱220,000.00.16
By way of special and affirmative defenses, respondent EDWIN alleged that he is
not a real party in interest in this case. According to him, he was acting as mere
agent of his principal, which was the Impact Systems, in his transaction with
petitioner and the latter was very much aware of this fact. In support of this
argument, petitioner points to paragraphs 1.2 and 1.3 of petitioner‘s Complaint
stating –
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of
Cebu City. He is the proprietor of a single proprietorship business known
as Impact Systems Sales ("Impact Systems" for brevity), with office
located at 46-A del Rosario Street, Cebu City, where he may be served
summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a
resident of Cebu City. He is the Sales Manager of Impact Systems and is
sued in this action in such capacity.17
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in
Default with Motion for Summary Judgment. The trial court granted petitioner‘s
motion to declare respondent ERWIN in default "for his failure to answer within
the prescribed period despite the opportunity granted"18 but it denied petitioner‘s
motion for summary judgment in its Order of 31 August 2001 and scheduled the
pre-trial of the case on 16 October 2001. 19 However, the conduct of the pre-trial
conference was deferred pending the resolution by the trial court of the special
and affirmative defenses raised by respondent EDWIN. 20
After the filing of respondent EDWIN‘s Memorandum21 in support of his special
and affirmative defenses and petitioner‘s opposition22 thereto, the trial court
rendered its assailed Order dated 29 January 2002 dropping respondent EDWIN
as a party defendant in this case. According to the trial court –
A study of Annex "G" to the complaint shows that in the Deed of Assignment,
defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems
Sales; that [Impact] Systems Sale is a single proprietorship entity and the
complaint shows that defendant Erwin H. Cuizon is the proprietor; that plaintiff
Course Outline
Agency, Partnership & Trust
corporation is represented by its general manager Alberto de Jesus in the contract
which is dated June 28, 1995. A study of Annex "H" to the complaint reveals that
[Impact] Systems Sales which is owned solely by defendant Erwin H. Cuizon,
made a down payment of ₱50,000.00 that Annex "H" is dated June 30, 1995 or
two days after the execution of Annex "G", thereby showing that [Impact]
Systems Sales ratified the act of Edwin B. Cuizon; the records further show that
plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin
B. Cuizon, the agent, when it accepted the down payment of ₱50,000.00. Plaintiff,
therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in
the instant case the principal has ratified the act of its agent and plaintiff knew
about said ratification. Plaintiff could not say that the subject contract was entered
into by Edwin B. Cuizon in excess of his powers since [Impact] Systems Sales
made a down payment of ₱50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be
dropped as party defendant.23
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to
the Court of Appeals which, however, affirmed the 29 January 2002 Order of the
court a quo. The dispositive portion of the now assailed Decision of the Court of
Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the
conclusions reached by the public respondent in his Order dated January 29, 2002,
it is hereby AFFIRMED.24
Petitioner‘s motion for reconsideration was denied by the appellate court in its
Resolution promulgated on 17 March 2005. Hence, the present petition raising, as
sole ground for its allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN
IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT
SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE,
BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS
AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A
FRAUD.25
To support its argument, petitioner points to Article 1897 of the New Civil Code
which states:
Art. 1897. The agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his powers.
4|Page
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Petitioner contends that the Court of Appeals failed to appreciate the effect of
ERWIN‘s act of collecting the receivables from the Toledo Power Corporation
notwithstanding the existence of the Deed of Assignment signed by EDWIN on
behalf of Impact Systems. While said collection did not revoke the agency
relations of respondents, petitioner insists that ERWIN‘s action repudiated
EDWIN‘s power to sign the Deed of Assignment. As EDWIN did not sufficiently
notify it of the extent of his powers as an agent, petitioner claims that he should be
made personally liable for the obligations of his principal. 26
Petitioner also contends that it fell victim to the fraudulent scheme of respondents
who induced it into selling the one unit of sludge pump to Impact Systems and
signing the Deed of Assignment. Petitioner directs the attention of this Court to
the fact that respondents are bound not only by their principal and agent
relationship but are in fact full-blooded brothers whose successive contravening
acts bore the obvious signs of conspiracy to defraud petitioner. 27
In his Comment,28 respondent EDWIN again posits the argument that he is not a
real party in interest in this case and it was proper for the trial court to have him
dropped as a defendant. He insists that he was a mere agent of Impact Systems
which is owned by ERWIN and that his status as such is known even to petitioner
as it is alleged in the Complaint that he is being sued in his capacity as the sales
manager of the said business venture. Likewise, respondent EDWIN points to the
Deed of Assignment which clearly states that he was acting as a representative of
Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another with the latter‘s consent. 29 The
underlying principle of the contract of agency is to accomplish results by using the
services of others – to do a great variety of things like selling, buying,
manufacturing, and transporting.30 Its purpose is to extend the personality of the
principal or the party for whom another acts and from whom he or she derives the
authority to act.31 It is said that the basis of agency is representation, that is, the
agent acts for and on behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they were personally
executed by the principal.32 By this legal fiction, the actual or real absence of the
principal is converted into his legal or juridical presence – qui facit per alium facit
per se.33
The elements of the contract of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a juridical act
Course Outline
Agency, Partnership & Trust
in relation to a third person; (3) the agent acts as a representative and not for
himself; (4) the agent acts within the scope of his authority. 34
In this case, the parties do not dispute the existence of the agency relationship
between respondents ERWIN as principal and EDWIN as agent. The only cause
of the present dispute is whether respondent EDWIN exceeded his authority when
he signed the Deed of Assignment thereby binding himself personally to pay the
obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted
beyond the authority granted by his principal and he should therefore bear the
effect of his deed pursuant to Article 1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not
personally liable to the party with whom he contracts. The same provision,
however, presents two instances when an agent becomes personally liable to a
third person. The first is when he expressly binds himself to the obligation and the
second is when he exceeds his authority. In the last instance, the agent can be held
liable if he does not give the third party sufficient notice of his powers. We hold
that respondent EDWIN does not fall within any of the exceptions contained in
this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as
the sales manager of Impact Systems. As discussed elsewhere, the position of
manager is unique in that it presupposes the grant of broad powers with which to
conduct the business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a
general agent or manager; such a position presupposes a degree of confidence
reposed and investiture with liberal powers for the exercise of judgment and
discretion in transactions and concerns which are incidental or appurtenant to the
business entrusted to his care and management. In the absence of an agreement to
the contrary, a managing agent may enter into any contracts that he deems
reasonably necessary or requisite for the protection of the interests of his principal
entrusted to his management. x x x.35
Applying the foregoing to the present case, we hold that Edwin Cuizon acted
well-within his authority when he signed the Deed of Assignment. To recall,
petitioner refused to deliver the one unit of sludge pump unless it received, in full,
the payment for Impact Systems‘ indebtedness. 36 We may very well assume that
Impact Systems desperately needed the sludge pump for its business since after it
paid the amount of fifty thousand pesos (₱50,000.00) as down payment on 3
March 1995,37 it still persisted in negotiating with petitioner which culminated in
5|Page
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
the execution of the Deed of Assignment of its receivables from Toledo Power
Company on 28 June 1995.38 The significant amount of time spent on the
negotiation for the sale of the sludge pump underscores Impact Systems‘
perseverance to get hold of the said equipment. There is, therefore, no doubt in
our mind that respondent EDWIN‘s participation in the Deed of Assignment was
"reasonably necessary" or was required in order for him to protect the business of
his principal. Had he not acted in the way he did, the business of his principal
would have been adversely affected and he would have violated his fiduciary
relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover
both from respondents ERWIN, the principal, and EDWIN, the agent. It is well to
state here that Article 1897 of the New Civil Code upon which petitioner anchors
its claim against respondent EDWIN "does not hold that in case of excess of
authority, both the agent and the principal are liable to the other contracting
party."39 To reiterate, the first part of Article 1897 declares that the principal is
liable in cases when the agent acted within the bounds of his authority. Under this,
the agent is completely absolved of any liability. The second part of the said
provision presents the situations when the agent himself becomes liable to a third
party when he expressly binds himself or he exceeds the limits of his authority
without giving notice of his powers to the third person. However, it must be
pointed out that in case of excess of authority by the agent, like what petitioner
claims exists here, the law does not say that a third person can recover from both
the principal and the agent.40
As we declare that respondent EDWIN acted within his authority as an agent, who
did not acquire any right nor incur any liability arising from the Deed of
Assignment, it follows that he is not a real party in interest who should be
impleaded in this case. A real party in interest is one who "stands to be benefited
or injured by the judgment in the suit, or the party entitled to the avails of the
suit."41 In this respect, we sustain his exclusion as a defendant in the suit before
the court a quo.
WHEREFORE, premises considered, the present petition is DENIED and the
Decision dated 10 August 2004 and Resolution dated 17 March 2005 of the Court
of Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002
of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court, Branch 8,
Cebu City, for the continuation of the proceedings against respondent Erwin
Cuizon.
Course Outline
Agency, Partnership & Trust
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
FACTS:
From January to April 1995, petitioner sold to Impact Systems various products
allegedly amounting to P91,338.00 pesos. Subsequently, respondents sought to
buy from petitioner one unit of sludge pump valued at P250,000.00 with
respondents making a down payment of P50,000.00. When the sludge pump
arrived from the United Kingdom, petitioner refused to deliver the same to
respondents without their having fully settled their indebtedness to petitioner.
Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general
manager of petitioner, executed a Deed of Assignment of receivables in favor of
petitioner. Impact systems is owed by ERWIN Cuizon.
Despite the existence of the Deed of Assignment, respondents proceeded to
collect from Toledo Power Company the amount of P365,135.29. Alarmed by
this development, petitioner made several demands upon respondents to pay their
obligations. As a result, respondents were able to make partial payments to
petitioner. On 7 October 1996, petitioner's counsel sent respondents a final
demand letter wherein it was stated that as of 11 June 1996, respondents' total
obligations stood at P295,000.00 excluding interests and attorney's fees. Because
of respondents' failure to abide by said final demand letter, petitioner instituted a
complaint for sum of money, damages, with application for preliminary
attachment against herein respondents
By way of special and affirmative defenses, respondent EDWIN alleged that he is
not a real party in interest in this case. According to him, he was acting as mere
agent of his principal, which was the Impact Systems, in his transaction with
petitioner and the latter was very much aware of this fact.
ISSUE:
Whether the act of Edwin in signing the Deed of Assignment binds his principal
Impact Systems
HELD:
6|Page
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Yes, the act of Edwin in signing the Deed of Assignment binds Impact Systems
The Supreme Court held that in a contract of agency, a person binds himself to
render some service or to do something in representation or on behalf of another
with the latter's consent. Its purpose is to extend the personality of the principal or
the party for whom another acts and from whom he or she derives the authority to
act. It is said that the basis of agency is representation, that is, the agent acts for
and on behalf of the principal on matters within the scope of his authority and said
acts have the same legal effect as if they were personally executed by the
principal.
In this case at hand, the parties do not dispute the existence of the agency
relationship between respondents ERWIN as principal and EDWIN as agent.
1. Agency as a contract
a) Definition (Art. 1868)
ARTICLE 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. (1709a)
i. Critique/ Articles
Espiritu, XV Lawyers Journal 297
J.B.L. Reyes, XVI Lawyers Journal 138
ii. Other definitions
b) Essential requisites/ elements (Art. 1318)
Rallos vs. Felix Go Chan & Sons Realty Corp., 81 SCRA 251
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION
RALLOS, petitioner,
vs.
Course Outline
Agency, Partnership & Trust
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF
APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.
MUÑOZ PALMA, J.:
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
7|Page
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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
Course Outline
Agency, Partnership & Trust
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:
8|Page
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
(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
Course Outline
Agency, Partnership & Trust
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
9|Page
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
respondent corporation. The knowledge of the death is clearly to be inferred from
the pleadings filed by Simon Rallos before the trial court. 12 That Simeon Rallos
knew of the death of his sister Concepcion is also a finding of fact of the court a
quo 13 and of respondent appellate court when the latter stated that Simon Rallos
'must have known of the death of his sister, and yet he proceeded with the sale of
the lot in the name of both his sisters Concepcion and Gerundia Rallos without
informing appellant (the realty corporation) of the death of the former. 14
On the basis of the established knowledge of Simon Rallos concerning the death
of his principal Concepcion Rallos, Article 1931 of the Civil Code is
inapplicable. The law expressly requires for its application lack of knowledge on
the part of the agent of the death of his principal; it is not enough that the third
person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court
applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code
sustained the validity , of a sale made after the death of the principal because it
was not shown that the agent knew of his principal's demise. 15 To the same effect
is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of
Justice Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936,
plaintiffs presented no proof and there is no indication in the
record, that the agent Luy Kim Guan was aware of the death of
his principal at the time he sold the property. The death 6f the
principal does not render the act of an agent unenforceable,
where the latter had no knowledge of such extinguishment of
the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of
Appeals reasoned out that there is no provision in the Code which provides that
whatever is done by an agent having knowledge of the death of his principal is
void even with respect to third persons who may have contracted with him in
good faith and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of
the general rule enunciated in Article 1919 that the death of the principal
extinguishes the agency. That being the general rule it follows a fortiorithat any
act of an agent after the 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
Course Outline
Agency, Partnership & Trust
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
10 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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
Course Outline
Agency, Partnership & Trust
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
11 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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
Course Outline
Agency, Partnership & Trust
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.
12 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3
of this Opinion, with costs against respondent realty corporation at all instances.
So Ordered.
Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.
Facts: Concepcion and Gerundia 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.They executed a
special power of attorney in favor of their brother, Simeon Rallos, authorizing him
to sell such land for and in their behalf. After Concepcion died, Simeon Rallos
sold the undivided shares of his sisters Concepcion and Gerundia to Felix Go
Chan & Sons Realty Corporation for the sum of P10,686.90. New TCTs were
issued to the latter. Petitioner Ramon Rallos, administrator of the Intestate Estate
of Concepcion filed a complaint praying (1) that the sale of the undivided share of
the deceased Concepcion Rallos in lot 5983 be 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
issuedin 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.
Issues:
1) WON sale was valid although it was executed after the death of the principal,
Concepcion.
2) WON sale fell within the exception to the general rule that death extinguishes
the authority of the
agent
3) WON agent‘s knowledge of the principal‘s death is a material factor.
4) WON petitioner must suffer the consequence of failing to annotate a notice of
death in the title
(thus there was good faith on the part of the Respondent vendee)
5) WON good faith on the part of the respondent in this case should be treated
parallel to that of an
CFI: Sale of land was null and void insofar as the one-half pro-indiviso share of
Concepcion Rallos Ordered the issuance of new TCTs to respondent corporation
and the estate of Concepcion in theproportion of ½ share each pro-indiviso and
the payment of attorney‘s fees and cost of litigation Respondent filed cross claim
against Simon Rallos(*Simon and Gerundia died during pendency of case) juan T.
Course Outline
Agency, Partnership & Trust
Borromeo, administrator of the Estate of Simeon Rallos was ordered to pay
defendant the price of the ½ share of the land (P5,343.45) plus attorney‘s fees
[Borromeo filed a third party complaint against Josefina Rallos, special
administratrix of the Estate of Gerundia] Dismissed 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
CA: CFI Decision reversed, upheld the sale of Concepcion‘s share.MR:
denied.innocent purchaser for a value of a land.
Loadmasters vs Glodel, GR No. 179446, January 10, 2011
G.R. No. 179446 January 10, 2011
LOADMASTERS CUSTOMS SERVICES, INC., Petitioner,
vs.
GLODEL BROKERAGE CORPORATION and R&B INSURANCE
CORPORATION, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of
Court assailing the August 24, 2007 Decision1 of the Court of Appeals (CA) in
CA-G.R. CV No. 82822, entitled "R&B Insurance Corporation v. Glodel
Brokerage Corporation and Loadmasters Customs Services, Inc.," which held
petitioner Loadmasters Customs Services, Inc. (Loadmasters) liable to respondent
Glodel Brokerage Corporation (Glodel) in the amount of ₱1,896,789.62
representing the insurance indemnity which R&B Insurance Corporation (R&B
Insurance) paid to the insured-consignee, Columbia Wire and Cable
Corporation (Columbia).
THE FACTS:
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001
in favor of Columbia to insure the shipment of 132 bundles of electric copper
cathodes against All Risks. On August 28, 2001, the cargoes were shipped on
board the vessel "Richard Rey" from Isabela, Leyte, to Pier 10, North Harbor,
Manila. They arrived on the same date.
Columbia engaged the services of Glodel for the release and withdrawal of the
cargoes from the pier and the subsequent delivery to its warehouses/plants.
Glodel, in turn, engaged the services of Loadmasters for the use of its delivery
trucks to transport the cargoes to Columbia‘s warehouses/plants in Bulacan and
Valenzuela City.
13 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
The goods were loaded on board twelve (12) trucks owned by Loadmasters,
driven by its employed drivers and accompanied by its employed truck helpers.
Six (6) truckloads of copper cathodes were to be delivered to Balagtas, Bulacan,
while the other six (6) truckloads were destined for Lawang Bato, Valenzuela
City. The cargoes in six truckloads for Lawang Bato were duly delivered in
Columbia‘s warehouses there. Of the six (6) trucks en route to Balagtas, Bulacan,
however, only five (5) reached the destination. One (1) truck, loaded with 11
bundles or 232 pieces of copper cathodes, failed to deliver its cargo.
Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but
without the copper cathodes. Because of this incident, Columbia filed with R&B
Insurance a claim for insurance indemnity in the amount of ₱1,903,335.39. After
the requisite investigation and adjustment, R&B Insurance paid Columbia the
amount of ₱1,896,789.62 as insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both
Loadmasters and Glodel before the Regional Trial Court, Branch 14, Manila
(RTC), docketed as Civil Case No. 02-103040. It sought reimbursement of the
amount it had paid to Columbia for the loss of the subject cargo. It claimed that it
had been subrogated "to the right of the consignee to recover from the
party/parties who may be held legally liable for the loss."2
On November 19, 2003, the RTC rendered a decision3 holding Glodel liable for
damages for the loss of the subject cargo and dismissing Loadmasters‘
counterclaim for damages and attorney‘s fees against R&B Insurance. The
dispositive portion of the decision reads:
WHEREFORE, all premises considered, the plaintiff having established by
preponderance of evidence its claims against defendant Glodel Brokerage
Corporation, judgment is hereby rendered ordering the latter:
1. To pay plaintiff R&B Insurance Corporation the sum of ₱1,896,789.62
as actual and compensatory damages, with interest from the date of
complaint until fully paid;
2. To pay plaintiff R&B Insurance Corporation the amount equivalent to
10% of the principal amount recovered as and for attorney‘s fees plus
₱1,500.00 per appearance in Court;
3. To pay plaintiff R&B Insurance Corporation the sum of ₱22,427.18 as
litigation expenses.
WHEREAS, the defendant Loadmasters Customs Services, Inc.‘s counterclaim
for damages and attorney‘s fees against plaintiff are hereby dismissed.
With costs against defendant Glodel Brokerage Corporation.
Course Outline
Agency, Partnership & Trust
SO ORDERED.4
Both R&B Insurance and Glodel appealed the RTC decision to the CA.
On August 24, 2007, the CA rendered the assailed decision which reads in part:
Considering that appellee is an agent of appellant Glodel, whatever liability the
latter owes to appellant R&B Insurance Corporation as insurance indemnity must
likewise be the amount it shall be paid by appellee Loadmasters.
WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in
that the appellee Loadmasters is likewise held liable to appellant Glodel in the
amount of ₱1,896,789.62 representing the insurance indemnity appellant Glodel
has been held liable to appellant R&B Insurance Corporation.
Appellant Glodel‘s appeal to absolve it from any liability is herein DISMISSED.
SO ORDERED.5
Hence, Loadmasters filed the present petition for review on certiorari before this
Court presenting the following
ISSUES
1. Can Petitioner Loadmasters be held liable to Respondent Glodel
in spite of the fact that the latter respondent Glodel did not file a
cross-claim against it (Loadmasters)?
2. Under the set of facts established and undisputed in the case, can
petitioner Loadmasters be legally considered as an Agent of
respondent Glodel?6
To totally exculpate itself from responsibility for the lost goods, Loadmasters
argues that it cannot be considered an agent of Glodel because it never represented
the latter in its dealings with the consignee. At any rate, it further contends that
Glodel has no recourse against it for its (Glodel‘s) failure to file a cross-claim
pursuant to Section 2, Rule 9 of the 1997 Rules of Civil Procedure.
Glodel, in its Comment,7 counters that Loadmasters is liable to it under its cross-
claim because the latter was grossly negligent in the transportation of the subject
cargo. With respect to Loadmasters‘ claim that it is already estopped from filing a
cross-claim, Glodel insists that it can still do so even for the first time on appeal
because there is no rule that provides otherwise. Finally, Glodel argues that its
relationship with Loadmasters is that of Charter wherein the transporter
(Loadmasters) is only hired for the specific job of delivering the merchandise.
Thus, the diligence required in this case is merely ordinary diligence or that of a
good father of the family, not the extraordinary diligence required of common
carriers.
14 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
R&B Insurance, for its part, claims that Glodel is deemed to have interposed a
cross-claim against Loadmasters because it was not prevented from presenting
evidence to prove its position even without amending its Answer. As to the
relationship between Loadmasters and Glodel, it contends that a contract of
agency existed between the two corporations. 8
Subrogation is the substitution of one person in the place of another with reference
to a lawful claim or right, so that he who is substituted succeeds to the rights of
the other in relation to a debt or claim, including its remedies or
securities.9 Doubtless, R&B Insurance is subrogated to the rights of the insured to
the extent of the amount it paid the consignee under the marine insurance, as
provided under Article 2207 of the Civil Code, which reads:
ART. 2207. If the plaintiff‘s property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrong-doer or the person who
has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
As subrogee of the rights and interest of the consignee, R&B Insurance has the
right to seek reimbursement from either Loadmasters or Glodel or both for breach
of contract and/or tort.
The issue now is who, between Glodel and Loadmasters, is liable to pay R&B
Insurance for the amount of the indemnity it paid Columbia.
At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are
common carriers to determine their liability for the loss of the subject cargo.
Under Article 1732 of the Civil Code, common carriers are persons, corporations,
firms, or associations engaged in the business of carrying or transporting
passenger or goods, or both by land, water or air for compensation, offering their
services to the public.
Based on the aforecited definition, Loadmasters is a common carrier because it is
engaged in the business of transporting goods by land, through its trucking
service. It is a common carrier as distinguished from a private carrier wherein the
carriage is generally undertaken by special agreement and it does not hold itself
out to carry goods for the general public. 10 The distinction is significant in the
sense that "the rights and obligations of the parties to a contract of private carriage
are governed principally by their stipulations, not by the law on common
carriers."11
Course Outline
Agency, Partnership & Trust
In the present case, there is no indication that the undertaking in the contract
between Loadmasters and Glodel was private in character. There is no showing
that Loadmasters solely and exclusively rendered services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.12
In the same vein, Glodel is also considered a common carrier within the context of
Article 1732. In its Memorandum,13 it states that it "is a corporation duly
organized and existing under the laws of the Republic of the Philippines and is
engaged in the business of customs brokering." It cannot be considered otherwise
because as held by this Court in Schmitz Transport & Brokerage Corporation v.
Transport Venture, Inc.,14 a customs broker is also regarded as a common carrier,
the transportation of goods being an integral part of its business.
Loadmasters and Glodel, being both common carriers, are mandated from the
nature of their business and for reasons of public policy, to observe the
extraordinary diligence in the vigilance over the goods transported by them
according to all the circumstances of such case, as required by Article 1733 of the
Civil Code. When the Court speaks of extraordinary diligence, it is that extreme
measure of care and caution which persons of unusual prudence and
circumspection observe for securing and preserving their own property or
rights.15 This exacting standard imposed on common carriers in a contract of
carriage of goods is intended to tilt the scales in favor of the shipper who is at the
mercy of the common carrier once the goods have been lodged for
shipment.16 Thus, in case of loss of the goods, the common carrier is presumed to
have been at fault or to have acted negligently. 17 This presumption of fault or
negligence, however, may be rebutted by proof that the common carrier has
observed extraordinary diligence over the goods.
With respect to the time frame of this extraordinary responsibility, the Civil Code
provides that the exercise of extraordinary diligence lasts from the time the goods
are unconditionally placed in the possession of, and received by, the carrier for
transportation until the same are delivered, actually or constructively, by the
carrier to the consignee, or to the person who has a right to receive them. 18
Premises considered, the Court is of the view that both Loadmasters and Glodel
are jointly and severally liable to R & B Insurance for the loss of the subject
cargo. Under Article 2194 of the New Civil Code, "the responsibility of two or
more persons who are liable for a quasi-delict is solidary."
Loadmasters‘ claim that it was never privy to the contract entered into by Glodel
with the consignee Columbia or R&B Insurance as subrogee, is not a valid
defense. It may not have a direct contractual relation with Columbia, but it is
15 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
liable for tort under the provisions of Article 2176 of the Civil Code on quasi-
delicts which expressly provide:
ART. 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this Chapter.
Pertinent is the ruling enunciated in the case of Mindanao Terminal and
Brokerage Service, Inc. v. Phoenix Assurance Company of New York,/McGee &
Co., Inc.19 where this Court held that a tort may arise despite the absence of a
contractual relationship, to wit:
We agree with the Court of Appeals that the complaint filed by Phoenix and
McGee against Mindanao Terminal, from which the present case has arisen, states
a cause of action. The present action is based on quasi-delict, arising from the
negligent and careless loading and stowing of the cargoes belonging to Del Monte
Produce. Even assuming that both Phoenix and McGee have only been subrogated
in the rights of Del Monte Produce, who is not a party to the contract of service
between Mindanao Terminal and Del Monte, still the insurance carriers may have
a cause of action in light of the Court‘s consistent ruling that the act that breaks
the contract may be also a tort. In fine, a liability for tort may arise even under a
contract, where tort is that which breaches the contract. In the present case,
Phoenix and McGee are not suing for damages for injuries arising from the
breach of the contract of service but from the alleged negligent manner by
which Mindanao Terminal handled the cargoes belonging to Del Monte Produce.
Despite the absence of contractual relationship between Del Monte Produce and
Mindanao Terminal, the allegation of negligence on the part of the defendant
should be sufficient to establish a cause of action arising from quasi-delict.
[Emphases supplied]
In connection therewith, Article 2180 provides:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for
one‘s own acts or omissions, but also for those of persons for whom one is
responsible.
xxxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though the
former are not engaged in any business or industry.
It is not disputed that the subject cargo was lost while in the custody of
Loadmasters whose employees (truck driver and helper) were instrumental in the
Course Outline
Agency, Partnership & Trust
hijacking or robbery of the shipment. As employer, Loadmasters should be made
answerable for the damages caused by its employees who acted within the scope
of their assigned task of delivering the goods safely to the warehouse.
Whenever an employee‘s negligence causes damage or injury to another, there
instantly arises a presumption juris tantum that the employer failed to exercise
diligentissimi patris families in the selection (culpa in eligiendo) or supervision
(culpa in vigilando) of its employees.20 To avoid liability for a quasi-delict
committed by its employee, an employer must overcome the presumption by
presenting convincing proof that he exercised the care and diligence of a good
father of a family in the selection and supervision of his employee. 21 In this
regard, Loadmasters failed.
Glodel is also liable because of its failure to exercise extraordinary diligence. It
failed to ensure that Loadmasters would fully comply with the undertaking to
safely transport the subject cargo to the designated destination. It should have
been more prudent in entrusting the goods to Loadmasters by taking precautionary
measures, such as providing escorts to accompany the trucks in delivering the
cargoes. Glodel should, therefore, be held liable with Loadmasters. Its defense
of force majeure is unavailing.
At this juncture, the Court clarifies that there exists no principal-agent relationship
between Glodel and Loadmasters, as erroneously found by the CA. Article 1868
of the Civil Code provides: "By the contract of agency a person binds himself to
render some service or to do something in representation or on behalf of another,
with the consent or authority of the latter." The elements of a contract of agency
are: (1) consent, express or implied, of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself; (4) the agent acts within the
scope of his authority.22
Accordingly, there can be no contract of agency between the parties. Loadmasters
never represented Glodel. Neither was it ever authorized to make such
representation. It is a settled rule that the basis for agency is representation, that is,
the agent acts for and on behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they were personally
executed by the principal. On the part of the principal, there must be an actual
intention to appoint or an intention naturally inferable from his words or actions,
while on the part of the agent, there must be an intention to accept the
appointment and act on it.23 Such mutual intent is not obtaining in this case.
16 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
What then is the extent of the respective liabilities of Loadmasters and Glodel?
Each wrongdoer is liable for the total damage suffered by R&B Insurance. Where
there are several causes for the resulting damages, a party is not relieved from
liability, even partially. It is sufficient that the negligence of a party is an efficient
cause without which the damage would not have resulted. It is no defense to one
of the concurrent tortfeasors that the damage would not have resulted from his
negligence alone, without the negligence or wrongful acts of the other concurrent
tortfeasor. As stated in the case of Far Eastern Shipping v. Court of Appeals,24
X x x. Where several causes producing an injury are concurrent and each is an
efficient cause without which the injury would not have happened, the injury may
be attributed to all or any of the causes and recovery may be had against any or all
of the responsible persons although under the circumstances of the case, it may
appear that one of them was more culpable, and that the duty owed by them to the
injured person was not the same. No actor's negligence ceases to be a proximate
cause merely because it does not exceed the negligence of other actors. Each
wrongdoer is responsible for the entire result and is liable as though his acts were
the sole cause of the injury.
There is no contribution between joint tortfeasors whose liability is solidary since
both of them are liable for the total damage. Where the concurrent or successive
negligent acts or omissions of two or more persons, although acting
independently, are in combination the direct and proximate cause of a single
injury to a third person, it is impossible to determine in what proportion each
contributed to the injury and either of them is responsible for the whole
injury. Where their concurring negligence resulted in injury or damage to a third
party, they become joint tortfeasors and are solidarily liable for the resulting
damage under Article 2194 of the Civil Code. [Emphasis supplied]
The Court now resolves the issue of whether Glodel can collect from
Loadmasters, it having failed to file a cross-claim against the latter.1avvphi1
Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach
of contract of service as the latter is primarily liable for the loss of the subject
cargo. In this case, however, it cannot succeed in seeking judicial sanction against
Loadmasters because the records disclose that it did not properly interpose a
cross-claim against the latter. Glodel did not even pray that Loadmasters be liable
for any and all claims that it may be adjudged liable in favor of R&B Insurance.
Under the Rules, a compulsory counterclaim, or a cross-claim, not set up shall be
barred.25Thus, a cross-claim cannot be set up for the first time on appeal.
Course Outline
Agency, Partnership & Trust
For the consequence, Glodel has no one to blame but itself. The Court cannot
come to its aid on equitable grounds. "Equity, which has been aptly described as
‗a justice outside legality,‘ is applied only in the absence of, and never against,
statutory law or judicial rules of procedure."26 The Court cannot be a lawyer and
take the cudgels for a party who has been at fault or negligent.
WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007
Decision of the Court of Appeals is MODIFIED to read as follows:
WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs
Services, Inc. and respondent Glodel Brokerage Corporation jointly and severally
liable to respondent R&B Insurance Corporation for the insurance indemnity it
paid to consignee Columbia Wire & Cable Corporation and ordering both parties
to pay, jointly and severally, R&B Insurance Corporation a] the amount of
₱1,896,789.62 representing the insurance indemnity; b] the amount equivalent to
ten (10%) percent thereof for attorney‘s fees; and c] the amount of ₱22,427.18 for
litigation expenses.
The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation
against petitioner Loadmasters Customs Services, Inc. is DENIED.
SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice
17 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
FACTS:
R&B Insurance issued a Marine Policy in favor of Columbia to insure the
shipment of 132 bundles of electric copper cathodes against All Risks.
Columbia engaged the services of Glodel for the release and withdrawal of the
cargoes from the pier and the subsequent delivery to its warehouses/plants.
Glodel, in turn, engaged the services of Loadmasters for the use of its delivery
trucks to transport the cargoes to Columbia‘s warehouses/plants in Bulacan and
Valenzuela City.
The goods were loaded on board twelve trucks owned by Loadmasters, driven by
its employed drivers and accompanied by its employed truck helpers.
The cargoes in six truckloads for Valenzuela City were duly delivered. However,
of the six trucks en route to Bulacan, only five reached the destination. One truck
failed to deliver its cargo.
The said truck was later recovered but without the copper cathodes. Columbia
filed with R&B Insurance a claim for insurance indemnity. R&B Insurance paid
Columbia the amount of ₱1,896,789.62 as insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both
Loadmasters and Glodel, seeking reimbursement of the amount it had paid to
Columbia for the loss of the subject cargo.
The RTC held Glodel liable for damages for the loss of the subject cargo and was
ordered to pay R&B Insurance.
On appeal, the CA rendered the assailed decision holding Loadmasters liable to
appellant Glodel for the insurance indemnity which Glodel had to pay to R&B
Insurance Corporation.
Hence, Loadmasters filed the present petition.
ISSUES:
Whether or not Glodel and Loadmasters are common carriers.
Define Extraordinary Diligence.
Who between Glodel and Loadmasters, is liable to pay R&B Insurance for the
amount of the indemnity it paid Columbia.
RULING:
1.
Loadmasters is a common carrier because it is engaged in the business of
transporting goods by land, through its trucking service. It is a common carrier as
distinguished from a private carrier wherein the carriage is generally undertaken
by special agreement and it does not hold itself out to carry goods for the general
public.
Course Outline
Agency, Partnership & Trust
The distinction is significant in the sense that ―the rights and obligations of the
parties to a contract of private carriage are governed principally by their
stipulations, not by the law on common carriers.‖
In the present case, there is no indication that the undertaking in the contract
between Loadmasters and Glodel was private in character. There is no showing
that Loadmasters solely and exclusively rendered services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.
In the same vein, Glodel is also considered a common carrier within the context of
Article 1732. In its Memorandum, it states that it ―is a corporation duly organized
and existing under the laws of the Republic of the Philippines and is engaged in
the business of customs brokering.‖
It cannot be considered otherwise because as held by this Court in Schmitz
Transport & Brokerage Corporation v. Transport Venture, Inc., a customs broker
is also regarded as a common carrier, the transportation of goods being an integral
part of its business.
2.
Loadmasters and Glodel, being both common carriers, are mandated from the
nature of their business and for reasons of public policy, to observe the
extraordinary diligence in the vigilance over the goods transported by them
according to all the circumstances of such case.
When the Court speaks of extraordinary diligence, it is that extreme measure of
care and caution which persons of unusual prudence and circumspection observe
for securing and preserving their own property or rights. This exacting standard
imposed on common carriers in a contract of carriage of goods is intended to tilt
the scales in favor of the shipper who is at the mercy of the common carrier once
the goods have been lodged for shipment. Thus, in case of loss of the goods, the
common carrier is presumed to have been at fault or to have acted negligently.
The Civil Code provides that the exercise of extraordinary diligence lasts from the
time the goods are unconditionally placed in the possession of, and received by,
the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to
receive them.
This presumption of fault or negligence, however, may be rebutted by proof that
the common carrier has observed extraordinary diligence over the goods.
3.
18 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Doubtless, R&B Insurance is subrogated to the rights of the insured to the extent
of the amount it paid the consignee under the marine insurance, as provided under
Article 2207 of the Civil Code.
As subrogee of the rights and interest of the consignee, R&B Insurance has the
right to seek reimbursement from either Loadmasters or Glodel or both for breach
of contract and/or tort.
Premises considered, the Court is of the view that both Loadmasters and Glodel
are jointly and severally liable to R & B Insurance for the loss of the subject
cargo. Under Article 2194 of the New Civil Code, ―the responsibility of two or
more persons who are liable for a quasi-delict is solidary.‖
Manila Memorial vs. Linsangan, GR No. 151319, November 22, 2004
G.R. No. 151319 November 22, 2004
MANILA MEMORIAL PARK CEMETERY, INC., petitioner,
vs.
PEDRO L. LINSANGAN, respondent.
DECISION
TINGA, J.:
For resolution in this case is a classic and interesting texbook question in the law
on agency.
This is a petition for review assailing the Decision1 of the Court of Appeals dated
22 June 2001, and its Resolution2dated 12 December 2001 in CA G.R. CV No.
49802 entitled "Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al.,"
finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally
liable with Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot
called Garden State at the Holy Cross Memorial Park owned by petitioner
(MMPCI). According to Baluyot, a former owner of a memorial lot under
Contract No. 25012 was no longer interested in acquiring the lot and had opted to
sell his rights subject to reimbursement of the amounts he already paid. The
contract was for P95,000.00. Baluyot reassured Atty. Linsangan that once
reimbursement is made to the former buyer, the contract would be transferred to
him. Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the
amount to be reimbursed to the original buyer and to complete the down payment
Course Outline
Agency, Partnership & Trust
to MMPCI.3 Baluyot issued handwritten and typewritten receipts for these
payments.4
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be
issued Contract No. 28660, a new contract covering the subject lot in the name of
the latter instead of old Contract No. 25012. Atty. Linsangan protested, but
Baluyot assured him that he would still be paying the old price of P95,000.00 with
P19,838.00 credited as full down payment leaving a balance of about P75,000.00.5
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No.
A11 (15), Block 83, Garden Estate I denominated as Contract No. 28660 and the
Official Receipt No. 118912 dated 6 April 1985 for the amount of P19,838.00.
Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected to
the new contract price, as the same was not the amount previously agreed upon.
To convince Atty. Linsangan, Baluyot executed a document 6 confirming that
while the contract price is P132,250.00, Atty. Linsangan would pay only the
original price of P95,000.00.
The document reads in part:
The monthly installment will start April 6, 1985; the amount of
P1,800.00 and the difference will be issued as discounted to conform to
the previous price as previously agreed upon. --- P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager
Holy Cross Memorial Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase under
Contract No. 28660 states that the total price of P132,250.00 your
undertaking is to pay only the total sum of P95,000.00 under the old
price. Further the total sum of P19,838.00 already paid by you under
O.R. # 118912 dated April 6, 1985 has been credited in the total purchase
price thereby leaving a balance of P75,162.00 on a monthly installment
of P1,800.00 including interests (sic) charges for a period of five (5)
years.
(Signed)
FLORENCIA C. BALUYOT
19 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted
Official Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued
twelve (12) postdated checks of P1,800.00 each in favor of MMPCI. The next
year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated
checks in favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No.
28660 was cancelled for reasons the latter could not explain, and presented to him
another proposal for the purchase of an equivalent property. He refused the new
proposal and insisted that Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement,
Atty. Linsangan filed a Complaint 7 for Breach of Contract and Damages against
the former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract
No. 28660 was cancelled conformably with the terms of the contract 8 because of
non-payment of arrearages.9 MMPCI stated that Baluyot was not an agent but an
independent contractor, and as such was not authorized to represent MMPCI or to
use its name except as to the extent expressly stated in the Agency Manager
Agreement.10 Moreover, MMPCI was not aware of the arrangements entered into
by Atty. Linsangan and Baluyot, as it in fact received a down payment and
monthly installments as indicated in the contract.11 Official receipts showing the
application of payment were turned over to Baluyot whom Atty. Linsangan had
from the beginning allowed to receive the same in his behalf. Furthermore,
whatever misimpression that Atty. Linsangan may have had must have been
rectified by the Account Updating Arrangement signed by Atty. Linsangan which
states that he "expressly admits that Contract No. 28660 'on account of serious
delinquency…is now due for cancellation under its terms and conditions.'''12
The trial court held MMPCI and Baluyot jointly and severally liable. 13 It found
that Baluyot was an agent of MMPCI and that the latter was estopped from
denying this agency, having received and enchased the checks issued by Atty.
Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was
authorized to receive only the down payment, it allowed her to continue to receive
postdated checks from Atty. Linsangan, which it in turn consistently encashed. 14
The dispositive portion of the decision reads:
WHEREFORE, judgment by preponderance of evidence is hereby
rendered in favor of plaintiff declaring Contract No. 28660 as valid and
subsisting and ordering defendants to perform their undertakings thereof
which covers burial lot No. A11 (15), Block 83, Section Garden I, Holy
Course Outline
Agency, Partnership & Trust
Cross Memorial Park located at Novaliches, Quezon City. All payments
made by plaintiff to defendants should be credited for his accounts. NO
DAMAGES, NO ATTORNEY'S FEES but with costs against the
defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated as
against defendant Baluyot is GRANTED up to the extent of the costs.
SO ORDERED.15
MMPCI appealed the trial court's decision to the Court of Appeals. 16 It claimed
that Atty. Linsangan is bound by the written contract with MMPCI, the terms of
which were clearly set forth therein and read, understood, and signed by the
former.17 It also alleged that Atty. Linsangan, a practicing lawyer for over thirteen
(13) years at the time he entered into the contract, is presumed to know his
contractual obligations and is fully aware that he cannot belatedly and unilaterally
change the terms of the contract without the consent, much less the knowledge of
the other contracting party, which was MMPCI. And in this case, MMPCI did not
agree to a change in the contract and in fact implemented the same pursuant to its
clear terms. In view thereof, because of Atty. Linsangan's delinquency, MMPCI
validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with
Baluyot as the latter exceeded the terms of her agency, neither did MMPCI ratify
Baluyot's acts. It added that it cannot be charged with making any
misrepresentation, nor of having allowed Baluyot to act as though she had full
powers as the written contract expressly stated the terms and conditions which
Atty. Linsangan accepted and understood. In canceling the contract, MMPCI
merely enforced the terms and conditions imposed therein. 18
Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was
the former's obligation, as a party knowingly dealing with an alleged agent, to
determine the limitations of such agent's authority, particularly when such alleged
agent's actions were patently questionable. According to MMPCI, Atty. Linsangan
did not even bother to verify Baluyot's authority or ask copies of official receipts
for his payments.19
The Court of Appeals affirmed the decision of the trial court. It upheld the trial
court's finding that Baluyot was an agent of MMPCI at the time the disputed
contract was entered into, having represented MMPCI's interest and acting on its
behalf in the dealings with clients and customers. Hence, MMPCI is considered
estopped when it allowed Baluyot to act and represent MMPCI even beyond her
authority.20 The appellate court likewise found that the acts of Baluyot bound
20 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
MMPCI when the latter allowed the former to act for and in its behalf and stead.
While Baluyot's authority "may not have been expressly conferred upon her, the
same may have been derived impliedly by habit or custom, which may have been
an accepted practice in the company for a long period of time."21 Thus, the Court
of Appeals noted, innocent third persons such as Atty. Linsangan should not be
prejudiced where the principal failed to adopt the needed measures to prevent
misrepresentation. Furthermore, if an agent misrepresents to a purchaser and the
principal accepts the benefits of such misrepresentation, he cannot at the same
time deny responsibility for such misrepresentation.22 Finally, the Court of
Appeals declared:
There being absolutely nothing on the record that would show that the court a quo
overlooked, disregarded, or misinterpreted facts of weight and significance, its
factual findings and conclusions must be given great weight and should not be
disturbed by this Court on appeal.
WHEREFORE, in view of the foregoing, the appeal is hereby DENIED
and the appealed decision in Civil Case No. 88-1253 of the Regional
Trial Court, National Capital Judicial Region, Branch 57 of Makati, is
hereby AFFIRMED in toto.
SO ORDERED.23
MMPCI filed its Motion for Reconsideration, 24 but the same was denied for lack
of merit.25
In the instant Petition for Review, MMPCI claims that the Court of Appeals
seriously erred in disregarding the plain terms of the written contract and Atty.
Linsangan's failure to abide by the terms thereof, which justified its cancellation.
In addition, even assuming that Baluyot was an agent of MMPCI, she clearly
exceeded her authority and Atty. Linsangan knew or should have known about
this considering his status as a long-practicing lawyer. MMPCI likewise claims
that the Court of Appeals erred in failing to consider that the facts and the
applicable law do not support a judgment against Baluyot only "up to the extent of
costs."26
Atty. Linsangan argues that he did not violate the terms and conditions of the
contract, and in fact faithfully performed his contractual obligations and complied
with them in good faith for at least two years. 27 He claims that contrary to
MMPCI's position, his profession as a lawyer is immaterial to the validity of the
subject contract and the case at bar. 28 According to him, MMPCI had practically
admitted in its Petition that Baluyot was its agent, and thus, the only issue left to
Course Outline
Agency, Partnership & Trust
be resolved is whether MMPCI allowed Baluyot to act as though she had full
powers to be held solidarily liable with the latter.29
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition for review under Rule 45 of
the Rules of Court is limited to reviewing only errors of law, not fact, unless the
factual findings complained of are devoid of support by the evidence on record or
the assailed judgment is based on misapprehension of facts. 30 In BPI Investment
Corporation v. D.G. Carreon Commercial Corporation, 31 this Court ruled:
There are instances when the findings of fact of the trial court and/or
Court of Appeals may be reviewed by the Supreme Court, such as (1)
when the conclusion is a finding grounded entirely on speculation,
surmises and conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) where there is a 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 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 facts set forth in the petition as well
as in the petitioners' main and reply briefs are not disputed by the
respondents; and (10) the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and contradicted by the
evidence on record.32
In the case at bar, the Court of Appeals committed several errors in the
apprehension of the facts of the case, as well as made conclusions devoid of
evidentiary support, hence we review its findings of fact.
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.33 Thus, the elements of agency are (i) consent, express or implied, of
the parties to establish the relationship; (ii) the object is the execution of a
juridical act in relation to a third person; (iii) the agent acts as a representative and
not for himself; and (iv) the agent acts within the scope of his authority. 34
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that
under its Agency Manager Agreement; an agency manager such as Baluyot is
considered an independent contractor and not an agent. 35However, in the same
contract, Baluyot as agency manager was authorized to solicit and remit to
21 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
MMPCI offers to purchase interment spaces belonging to and sold by the
latter.36 Notwithstanding the claim of MMPCI that Baluyot was an independent
contractor, the fact remains that she was authorized to solicit solely for and in
behalf of MMPCI. As properly found both by the trial court and the Court of
Appeals, Baluyot was an agent of MMPCI, having represented the interest of the
latter, and having been allowed by MMPCI to represent it in her dealings with its
clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be
bound by the contract procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase
interment spaces obtained on forms provided by MMPCI. The terms of the offer
to purchase, therefore, are contained in such forms and, when signed by the buyer
and an authorized officer of MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated
by MMPCI showed a total list price of P132,250.00. Likewise, it was clearly
stated therein that "Purchaser agrees that he has read or has had read to him this
agreement, that he understands its terms and conditions, and that there are no
covenants, conditions, warranties or representations other than those contained
herein."37 By signing the Offer to Purchase, Atty. Linsangan signified that he
understood its contents. That he and Baluyot had an agreement different from that
contained in the Offer to Purchase is of no moment, and should not affect
MMPCI, as it was obviously made outside Baluyot's authority. To repeat,
Baluyot's authority was limited only to soliciting purchasers. She had no authority
to alter the terms of the written contract provided by MMPCI. The document/letter
"confirming" the agreement that Atty. Linsangan would have to pay the old price
was executed by Baluyot alone. Nowhere is there any indication that the same
came from MMPCI or any of its officers.
It is a settled rule that persons dealing with an agent are bound at their peril, if
they would hold the principal liable, to ascertain not only the fact of agency but
also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it. 38 The basis for agency is
representation and a person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. 39 If he does not make such an
inquiry, he is chargeable with knowledge of the agent's authority and his
ignorance of that authority will not be any excuse. 40
As noted by one author, the ignorance of a person dealing with an agent as to the
scope of the latter's authority is no excuse to such person and the fault cannot be
Course Outline
Agency, Partnership & Trust
thrown upon the principal.41 A person dealing with an agent assumes the risk of
lack of authority in the agent. He cannot charge the principal by relying upon the
agent's assumption of authority that proves to be unfounded. The principal, on the
other hand, may act on the presumption that third persons dealing with his agent
will not be negligent in failing to ascertain the extent of his authority as well as
the existence of his agency.42
In the instant case, it has not been established that Atty. Linsangan even bothered
to inquire whether Baluyot was authorized to agree to terms contrary to those
indicated in the written contract, much less bind MMPCI by her commitment with
respect to such agreements. Even if Baluyot was Atty. Linsangan's friend and
known to be an agent of MMPCI, her declarations and actions alone are not
sufficient to establish the fact or extent of her authority. 43 Atty. Linsangan as a
practicing lawyer for a relatively long period of time when he signed the contract
should have been put on guard when their agreement was not reflected in the
contract. More importantly, Atty. Linsangan should have been alerted by the fact
that Baluyot failed to effect the transfer of rights earlier promised, and was unable
to make good her written commitment, nor convince MMPCI to assent thereto, as
evidenced by several attempts to induce him to enter into other contracts for a
higher consideration. As properly pointed out by MMPCI, as a lawyer, a greater
degree of caution should be expected of Atty. Linsangan especially in dealings
involving legal documents. He did not even bother to ask for official receipts of
his payments, nor inquire from MMPCI directly to ascertain the real status of the
contract, blindly relying on the representations of Baluyot. A lawyer by
profession, he knew what he was doing when he signed the written contract, knew
the meaning and value of every word or phrase used in the contract, and more
importantly, knew the legal effects which said document produced. He is bound to
accept responsibility for his negligence.
The trial and appellate courts found MMPCI liable based on ratification and
estoppel. For the trial court, MMPCI's acts of accepting and encashing the checks
issued by Atty. Linsangan as well as allowing Baluyot to receive checks drawn in
the name of MMPCI confirm and ratify the contract of agency. On the other hand,
the Court of Appeals faulted MMPCI in failing to adopt measures to prevent
misrepresentation, and declared that in view of MMPCI's acceptance of the
benefits of Baluyot's misrepresentation, it can no longer deny responsibility
therefor.
The Court does not agree. Pertinent to this case are the following provisions of the
Civil Code:
22 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Art. 1898. If the agent contracts in the name of the principal, exceeding
the scope of his authority, and the principal does not ratify the contract, it
shall be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal. In this case, however, the
agent is liable if he undertook to secure the principal's ratification.
Art. 1910. The principal must comply with all the obligations that the
agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal
is solidarily liable with the agent if the former allowed the latter to act as
though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the
principal, unless he ratifies them, expressly or impliedly. Only the principal can
ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal
must have knowledge of the acts he is to ratify. 44
Ratification in agency is the adoption or confirmation by one person of an act
performed on his behalf by another without authority. The substance of the
doctrine is confirmation after conduct, amounting to a substitute for a prior
authority. Ordinarily, the principal must have full knowledge at the time of
ratification of all the material facts and circumstances relating to the unauthorized
act of the person who assumed to act as agent. Thus, if material facts were
suppressed or unknown, there can be no valid ratification and this regardless of
the purpose or lack thereof in concealing such facts and regardless of the parties
between whom the question of ratification may arise. 45Nevertheless, this principle
does not apply if the principal's ignorance of the material facts and circumstances
was willful, or that the principal chooses to act in ignorance of the
facts.46 However, in the absence of circumstances putting a reasonably prudent
man on inquiry, ratification cannot be implied as against the principal who is
ignorant of the facts.47
No ratification can be implied in the instant case.
A perusal of Baluyot's Answer48 reveals that the real arrangement between her and
Atty. Linsangan was for the latter to pay a monthly installment of P1,800.00
whereas Baluyot was to shoulder the counterpart amount of P1,455.00 to meet the
P3,255.00 monthly installments as indicated in the contract. Thus, every time an
installment falls due, payment was to be made through a check from Atty.
Linsangan for P1,800.00 and a cash component of P1,455.00 from
Course Outline
Agency, Partnership & Trust
Baluyot.49 However, it appears that while Atty. Linsangan issued the post-dated
checks, Baluyot failed to come up with her part of the bargain. This was supported
by Baluyot's statements in her letter50 to Mr. Clyde Williams, Jr., Sales Manager
of MMPCI, two days after she received the copy of the Complaint. In the letter,
she admitted that she was remiss in her duties when she consented to Atty.
Linsangan's proposal that he will pay the old price while the difference will be
shouldered by her. She likewise admitted that the contract suffered arrearages
because while Atty. Linsangan issued the agreed checks, she was unable to give
her share of P1,455.00 due to her own financial difficulties. Baluyot even asked
for compassion from MMPCI for the error she committed.
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement.
As far as MMPCI is concerned, the contract price was P132,250.00, as stated in
the Offer to Purchase signed by Atty. Linsangan and MMPCI's authorized officer.
The down payment of P19,838.00 given by Atty. Linsangan was in accordance
with the contract as well. Payments of P3,235.00 for at least two installments were
likewise in accord with the contract, albeit made through a check and partly in
cash. In view of Baluyot's failure to give her share in the payment, MMPCI
received only P1,800.00 checks, which were clearly insufficient payment. In fact,
Atty. Linsangan would have incurred arrearages that could have caused the earlier
cancellation of the contract, if not for MMPCI's application of some of the checks
to his account. However, the checks alone were not sufficient to cover his
obligations.
If MMPCI was aware of the arrangement, it would have refused the latter's check
payments for being insufficient. It would not have applied to his account the
P1,800.00 checks. Moreover, the fact that Baluyot had to practically explain to
MMPCI's Sales Manager the details of her "arrangement" with Atty. Linsangan
and admit to having made an error in entering such arrangement confirm that
MMCPI had no knowledge of the said agreement. It was only when Baluyot filed
her Answer that she claimed that MMCPI was fully aware of the agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are
(i) conduct of a party amounting to false representation or concealment of material
facts or at least calculated to convey the impression that the facts are otherwise
than, and inconsistent with, those which the party subsequently attempts to assert;
(ii) intent, or at least expectation, that this conduct shall be acted upon by, or at
least influence, the other party; and (iii) knowledge, actual or constructive, of the
real facts.51
23 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
While there is no more question as to the agency relationship between Baluyot
and MMPCI, there is no indication that MMPCI let the public, or specifically,
Atty. Linsangan to believe that Baluyot had the authority to alter the standard
contracts of the company. Neither is there any showing that prior to signing
Contract No. 28660, MMPCI had any knowledge of Baluyot's commitment to
Atty. Linsangan. One who claims the benefit of an estoppel on the ground that he
has been misled by the representations of another must not have been misled
through his own want of reasonable care and circumspection. 52 Even assuming
that Atty. Linsangan was misled by MMPCI's actuations, he still cannot invoke
the principle of estoppel, as he was clearly negligent in his dealings with Baluyot,
and could have easily determined, had he only been cautious and prudent, whether
said agent was clothed with the authority to change the terms of the principal's
written contract. Estoppel must be intentional and unequivocal, for when
misapplied, it can easily become a most convenient and effective means of
injustice.53 In view of the lack of sufficient proof showing estoppel, we refuse to
hold MMPCI liable on this score.
Likewise, this Court does not find favor in the Court of Appeals' findings that "the
authority of defendant Baluyot may not have been expressly conferred upon her;
however, the same may have been derived impliedly by habit or custom which
may have been an accepted practice in their company in a long period of time." A
perusal of the records of the case fails to show any indication that there was such a
habit or custom in MMPCI that allows its agents to enter into agreements for
lower prices of its interment spaces, nor to assume a portion of the purchase price
of the interment spaces sold at such lower price. No evidence was ever presented
to this effect.
As the Court sees it, there are two obligations in the instant case. One is the
Contract No. 28660 between MMPCI and by Atty. Linsangan for the purchase of
an interment space in the former's cemetery. The other is the agreement between
Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00, or
the difference between P95,000.00, the original price, and P132,250.00, the actual
contract price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the
principal unless the latter ratifies the same. It also bears emphasis that when the
third person knows that the agent was acting beyond his power or authority, the
principal cannot be held liable for the acts of the agent. If the said third person
was aware of such limits of authority, he is to blame and is not entitled to recover
Course Outline
Agency, Partnership & Trust
damages from the agent, unless the latter undertook to secure the principal's
ratification.54
This Court finds that Contract No. 28660 was validly entered into both by
MMPCI and Atty. Linsangan. By affixing his signature in the contract, Atty.
Linsangan assented to the terms and conditions thereof. When Atty. Linsangan
incurred delinquencies in payment, MMCPI merely enforced its rights under the
said contract by canceling the same.
Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on
what he claims to be the terms of Contract No. 28660. The agreement, insofar as
the P95,000.00 contract price is concerned, is void and cannot be enforced as
against MMPCI. Neither can he hold Baluyot liable for damages under the same
contract, since there is no evidence showing that Baluyot undertook to secure
MMPCI's ratification. At best, the "agreement" between Baluyot and Atty.
Linsangan bound only the two of them. As far as MMPCI is concerned, it bound
itself to sell its interment space to Atty. Linsangan for P132,250.00 under Contract
No. 28660, and had in fact received several payments in accordance with the same
contract. If the contract was cancelled due to arrearages, Atty. Linsangan's
recourse should only be against Baluyot who personally undertook to pay the
difference between the true contract price of P132,250.00 and the original
proposed price of P95,000.00. To surmise that Baluyot was acting on behalf of
MMPCI when she promised to shoulder the said difference would be to conclude
that MMPCI undertook to pay itself the difference, a conclusion that is very
illogical, if not antithetical to its business interests.
However, this does not preclude Atty. Linsangan from instituting a separate action
to recover damages from Baluyot, not as an agent of MMPCI, but in view of the
latter's breach of their separate agreement. To review, Baluyot obligated herself to
pay P1,455.00 in addition to Atty. Linsangan's P1,800.00 to complete the monthly
installment payment under the contract, which, by her own admission, she was
unable to do due to personal financial difficulties. It is undisputed that Atty.
Linsangan issued the P1,800.00 as agreed upon, and were it not for Baluyot's
failure to provide the balance, Contract No. 28660 would not have been cancelled.
Thus, Atty. Linsangan has a cause of action against Baluyot, which he can pursue
in another case.
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of
Appeals dated 22 June 2001 and its Resolution dated 12 December 2001 in CA-
G.R. CV No. 49802, as well as the Decision in Civil Case No. 88-1253 of the
Regional Trial Court, Makati City Branch 57, are hereby REVERSED and SET
24 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
ASIDE. The Complaint in Civil Case No. 88-1253 is DISMISSED for lack of
cause of action. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario,
JJ., concur.
FACTS:
Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at
the Holy Cross Memorial Park owned by petitioner (MMPCI). According to
Baluyot, a former owner of a memorial lot under Contract No. 25012 was no
longer interested in acquiring the lot and had opted to sell his rights subject to
reimbursement of the amounts he already paid. The contract was for P95,000.00.
Baluyot reassured Atty. Linsangan that once reimbursement is made to the former
buyer, the contract would be transferred to him. Atty. Linsangan agreed and gave
Baluyot P35,295.00 representing the amount to be reimbursed to the original
buyer and to complete the down payment to MMPCI. Baluyot issued handwritten
and typewritten receipts for these payments. Baluyot verbally advised Atty.
Linsangan that Contract No. 28660 was cancelled for reasons the latter could not
explain, and presented to him another proposal for the purchase of an equivalent
property. He refused the new proposal and insisted that Baluyot and MMPCI
honor their undertaking. For the alleged failure of MMPCI and Baluyot to
conform to their agreement, Atty. Linsangan filed a Complaint for Breach of
Contract and Damages against the former. For its part, MMPCI alleged that
Contract No. 28660 was cancelled conformably with the terms of the contract
because of non-payment of arrearages. MMPCI stated that Baluyot was not an
agent but an independent contractor, and as such was not authorized to represent
MMPCI or to use its name except as to the extent expressly stated in the Agency
Manager Agreement.
ISSUE: Whether or not a contract of agency exists between Baluyot and MMPCI.
RULING: NO. The acts of an agent beyond the scope of his authority do not bind
the principal, unless he ratifies them, expressly or impliedly. Only the principal
can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the
principal must have knowledge of the acts he is to ratify. No ratification can be
implied in the instant case. Atty. Linsangan failed to show that MMPCI had
knowledge of the arrangement. As far as MMPCI is concerned, the contract price
Course Outline
Agency, Partnership & Trust
was P132,250.00, as stated in the Offer to Purchase signed by Atty. Linsangan and
MMPCI's authorized officer. Likewise, this Court does not find favor in the Court
of Appeals' findings that "the authority of defendant Baluyot may not have been
expressly conferred upon her; however, the same may have been derived
impliedly by habit or custom which may have been an accepted practice in their
company in a long period of time." A perusal of the records of the case fails to
show any indication that there was such a habit or custom in MMPCI that allows
its agents to enter into agreements for lower prices of its interment spaces, nor to
assume a portion of the purchase price of the interment spaces sold at such lower
price. No evidence was ever presented to this effect.
Eurotech vs. Cuison, GR No. 167552, April 23, 2007
Tuazon vs. Heirs of Ramos, GR No. 156262, July 14, 2005
G.R. No. 156262 July 14, 2005
MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON,
Spouses ANASTACIO and MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.
DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case involves the collection of a sum of
money. Specifically, this case arose from the failure of petitioners to pay
respondents‘ predecessor-in-interest. This fact was shown by the non-encashment
of checks issued by a third person, but indorsed by herein Petitioner Maria Tuazon
in favor of the said predecessor. Under these circumstances, to enable respondents
to collect on the indebtedness, the check drawer need not be impleaded in the
Complaint. Thus, the suit is directed, not against the drawer, but against the debtor
who indorsed the checks in payment of the obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
challenging the July 31, 2002 Decision2 of the Court of Appeals (CA) in CA-GR
CV No. 46535. The decretal portion of the assailed Decision reads:
"WHEREFORE, the appeal is DISMISSED and the appealed decision is
AFFIRMED."
On the other hand, the affirmed Decision3 of Branch 34 of the Regional Trial
Court (RTC) of Gapan, Nueva Ecija, disposed as follows:
25 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against
the defendants, ordering the defendants spouses Leonilo Tuazon and Maria
Tuazon to pay the plaintiffs, as follows:
"1. The sum of ₱1,750,050.00, with interests from the filing of the second
amended complaint;
"2. The sum of ₱50,000.00, as attorney‘s fees;
"3. The sum of ₱20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988,
spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from
[the deceased Bartolome] Ramos [predecessor-in-interest of respondents]. That of
this [quantity,] x x x only 4,437 cavans [have been paid for so far], leaving unpaid
3,889 cavans valued at ₱1,211,919.00. In payment therefor, the spouses Tuazon
issued x x x [several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced due to
insufficiency of funds. [Respondents] advanced that before issuing said checks[,]
spouses Tuazon already knew that they had no available fund to support the
checks, and they failed to provide for the payment of these despite repeated
demands made on them.
"[Respondents] averred that because spouses Tuazon anticipated that they would
be sued, they conspired with the other [defendants] to defraud them as creditors
by executing x x x fictitious sales of their properties. They executed x x x
simulated sale[s] [of three lots] in favor of the x x x spouses Buenaventura x x x[,]
as well as their residential lot and the house thereon[,] all located at Nueva Ecija,
and another simulated deed of sale dated July 12, 1988 of a Stake Toyota
registered with the Land Transportation Office of Cabanatuan City on September
7, 1988. [Co-petitioner] Melecio Tuazon, a son of spouses Tuazon, registered a
fictitious Deed of Sale on July 19, 1988 x x x over a residential lot located at
Nueva Ecija. Another simulated sale of a Toyota Willys was executed on January
25, 1988 in favor of their other son, [co-petitioner] Alejandro Tuazon x x x. As a
result of the said sales, the titles of these properties issued in the names of spouses
Tuazon were cancelled and new ones were issued in favor of the [co-]defendants
spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon. Resultantly, by
Course Outline
Agency, Partnership & Trust
the said ante-dated and simulated sales and the corresponding transfers there was
no more property left registered in the names of spouses Tuazon answerable to
creditors, to the damage and prejudice of [respondents].
"For their part, defendants denied having purchased x x x rice from [Bartolome]
Ramos. They alleged that it was Magdalena Ramos, wife of said deceased, who
owned and traded the merchandise and Maria Tuazon was merely her agent. They
argued that it was Evangeline Santos who was the buyer of the rice and issued the
checks to Maria Tuazon as payments therefor. In good faith[,] the checks were
received [by petitioner] from Evangeline Santos and turned over to Ramos
without knowing that these were not funded. And it is for this reason that
[petitioners] have been insisting on the inclusion of Evangeline Santos as an
indispensable party, and her non-inclusion was a fatal error. Refuting that the sale
of several properties were fictitious or simulated, spouses Tuazon contended that
these were sold because they were then meeting financial difficulties but the
disposals were made for value and in good faith and done before the filing of the
instant suit. To dispute the contention of plaintiffs that they were the buyers of the
rice, they argued that there was no sales invoice, official receipts or like evidence
to prove this. They assert that they were merely agents and should not be held
answerable."5
The corresponding civil and criminal cases were filed by respondents against
Spouses Tuazon. Those cases were later consolidated and amended to include
Spouses Anastacio and Mary Buenaventura, with Alejandro Tuazon and Melecio
Tuazon as additional defendants. Having passed away before the pretrial,
Bartolome Ramos was substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case,
petitioners moved to file a third-party complaint against her. Allegedly, she was
primarily liable to respondents, because she was the one who had purchased the
merchandise from their predecessor, as evidenced by the fact that the checks had
been drawn in her name. The RTC, however, denied petitioners‘ Motion.
Since the trial court acquitted petitioners in all three of the consolidated criminal
cases, they appealed only its decision finding them civilly liable to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners had failed to prove the existence
of an agency between respondents and Spouses Tuazon. The appellate court
disbelieved petitioners‘ contention that Evangeline Santos should have been
impleaded as an indispensable party. Inasmuch as all the checks had been
26 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
indorsed by Maria Tuazon, who thereby became liable to subsequent holders for
the amounts stated in those checks, there was no need to implead Santos.
Hence, this Petition.6
Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners
are not agents of the respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering judgment
against the petitioners despite x x x the failure of the respondents to include in
their action Evangeline Santos, an indispensable party to the suit." 7
The Court‘s Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme Court‘s role in a petition under Rule
45 is limited to reviewing errors of law allegedly committed by the Court of
Appeals. Factual findings of the trial court, especially when affirmed by the CA,
are conclusive on the parties and this Court.8 Petitioners have not given us
sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do
something in representation or on behalf of another, with the latter‘s consent or
authority.9 The following are the elements of agency: (1) the parties‘ consent,
express or implied, to establish the relationship; (2) the object, which is the
execution of a juridical act in relation to a third person; (3) the representation, by
which the one who acts as an agent does so, not for oneself, but as a
representative; (4) the limitation that the agent acts within the scope of his or her
authority.10 As the basis of agency is representation, there must be, on the part of
the principal, an actual intention to appoint, an intention naturally inferable from
the principal‘s words or actions. In the same manner, there must be an intention
on the part of the agent to accept the appointment and act upon it. Absent such
mutual intent, there is generally no agency. 11
This Court finds no reversible error in the findings of the courts a quo that
petitioners were the rice buyers themselves; they were not mere agents of
respondents in their rice dealership. The question of whether a contract is one of
sale or of agency depends on the intention of the parties. 12
The declarations of agents alone are generally insufficient to establish the fact or
extent of their authority.13 The law makes no presumption of agency; proving its
Course Outline
Agency, Partnership & Trust
existence, nature and extent is incumbent upon the person alleging it. 14 In the
present case, petitioners raise the fact of agency as an affirmative defense, yet fail
to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline Santos for
collection of the amounts represented by the bounced checks, in a separate civil
case that they sought to be consolidated with the current one. If, as they claim,
they were mere agents of respondents, petitioners should have brought the suit
against Santos for and on behalf of their alleged principal, in accordance with
Section 2 of Rule 3 of the Rules on Civil Procedure.15 Their filing a suit against
her in their own names negates their claim that they acted as mere agents in
selling the rice obtained from Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline Santos to
be impleaded as an indispensable party. They insist that respondents‘ Complaint
against them is based on the bouncing checks she issued; hence, they point to her
as the person primarily liable for the obligation.
We hold that respondents‘ cause of action is clearly founded on petitioners‘
failure to pay the purchase price of the rice. The trial court held that Petitioner
Maria Tuazon had indorsed the questioned checks in favor of respondents, in
accordance with Sections 31 and 63 of the Negotiable Instruments Law. 16 That
Santos was the drawer of the checks is thus immaterial to the respondents‘ cause
of action.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the
checks were to be accepted or paid, or both, according to their tenor; and that in
case they were dishonored, she would pay the corresponding amount. 17After an
instrument is dishonored by nonpayment, indorsers cease to be merely secondarily
liable; they become principal debtors whose liability becomes identical to that of
the original obligor. The holder of a negotiable instrument need not even proceed
against the maker before suing the indorser. 18 Clearly, Evangeline Santos -- as the
drawer of the checks -- is not an indispensable party in an action against Maria
Tuazon, the indorser of the checks.
Indispensable parties are defined as "parties in interest without whom no final
determination can be had."19 The instant case was originally one for the collection
of the purchase price of the rice bought by Maria Tuazon from respondents‘
predecessor. In this case, it is clear that there is no privity of contract between
27 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
respondents and Santos. Hence, a final determination of the rights and interest of
the parties may be made without any need to implead her.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
Costs against petitioners.
SO ORDERED.
ARTEMIO V. PANGANIBAN
Facts
Respondents alleged that on certain dates, spouses Maria and Leonilo Tuazon
purchased cavans of rice from their predecessor-in-interest, Bartolome Ramos.
Only a portion of the purchased cavans of rice was paid. The checks that spouses
Tuazon issued for payment of the unpaid portion were dishonored. Respondents
alleged that since spouses Tuazon anticipated that they would be sued, they made
fictitious sales of their properties. For their defense, spouses Tuazon denied
buying from Bartolome and that it was his wife, Magdalena, who they bought the
product from. They alleged that Maria was Magdalena’s agent, and they argued
that the real buyer of the cavans of rice was Evangeline Santos. According to
them, it was Evangeline who issued the checks and that Maria received these
checks in good faith before indorsing them over to Ramos.
Issue
Whether or not the CA erred in ruling that the petitioners are not agents of the
respondents.
Held
The petition is unmeritorious. In a contract of agency, one binds oneself to act
as the representative of another with the latter’s authority or consent. Since the
basis of agency is representation, there must be an actual intention on the part of
the principal to appoint and an intention on the part of the agent to accept the
appointment and act on it. Absent such mutual intent, there is generally no
agency. The declarations of the agents alone are insufficient to establish the fact
or extent of their authority. The burden to prove the existence of agency lies on
the person alleging it which in the present case, the petitioners failed to do so by
their actions. The petitioners filed a suit against Evangeline Santos for the
dishonored checks on their own names. This act on their part negates their claim
that they were acting as mere agents for Ramos. If, as they claim, they were mere
agents of respondent, they instead should have filed the suit on behalf of their
alleged principal in accordance with Section 2 of Rule 3 of the Rules on Civil
Procedure.
Course Outline
Agency, Partnership & Trust
Yu Eng Cho vs. Pan American World Airways, Inc., GR No. 123560, March 27,
2000; 385 Phil. 453, 465 (2000)
G.R. No. 123560 March 27, 2000
SPOUSES YU ENG CHO and FRANCISCO TAO YU, petitioners,
vs.
PAN AMERICAN WORLD AIRWAYS, INC., TOURIST WORLD
SERVICES, INC., JULIETA CANILAO and CLAUDIA
TAGUNICAR, respondents.
PUNO, J.:
This petition for review seeks a reversal of the 31 August 1995 Decision 1 and 11
January 1998 Resolution 2 of the Court of Appeals holding private respondent
Claudia Tagunicar solely liable for moral and exemplary damages and attorney's
fees, and deleting the trial court's award for actual damages.
The facts as found by the trial court are as follows:
Plaintiff Yu Eng Cho is the owner of Young Hardware Co. and Achilles
Marketing. In connection with [this] business, he travels from time to
time to Malaysia, Taipei and Hongkong. On July 10, 1976, plaintiffs
bought plane tickets (Exhs. A & B) from defendant Claudia Tagunicar
who represented herself to be an agent of defendant Tourist World
Services, Inc. (TWSI). The destination[s] are Hongkong, Tokyo, San
Francisco, U.S.A., for the amount of P25,000.00 per computation of said
defendant Claudia Tagunicar (Exhs. C & C-1). The purpose of this trip is
to go to Fairfield, New Jersey, U.S.A. to buy to two (2) lines of infrared
heating system processing textured plastic article (Exh. K).
On said date, only the passage from Manila to Hongkong, then to Tokyo,
were confirmed. [PAA] Flight 002 from Tokyo to San Francisco was on
"RQ" status, meaning "on request". Per instruction of defendant Claudia
Tagunicar, plaintiffs returned after a few days for the confirmation of the
Tokyo-San Francisco segment of the trip. After calling up Canilao of
TWSI, defendant Tagunicar told plaintiffs that their flight is now
confirmed all the way. Thereafter, she attached the confirmation stickers
on the plane tickets (Exhs. A & B).
A few days before the scheduled flight of plaintiffs, their son, Adrian Yu,
called the Pan Am office to verify the status of the flight. According to
said Adrian Yu, a personnel of defendant Pan Am told him over the
phone that plaintiffs' booking[s] are confirmed.
28 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
On July 23, 1978, plaintiffs left for Hongkong and stayed there for five
(5) days. They left Hongkong for Tokyo on July 28, 1978. Upon their
arrival in Tokyo, they called up Pan-Am office for reconfirmation of
their flight to San Francisco. Said office, however, informed them that
their names are not in the manifest. Since plaintiffs were supposed to
leave on the 29th of July, 1978, and could not remain in Japan for more
than 72 hours, they were constrained to agree to accept airline tickets for
Taipei instead, per advise of JAL officials. This is the only option left to
them because Northwest Airlines was then on strike, hence, there was no
chance for the plaintiffs to obtain airline seats to the United States within
72 hours. Plaintiffs paid for these tickets.
Upon reaching Taipei, there were no flight[s] available for plaintiffs,
thus, they were forced to return back to Manila on August 3, 1978,
instead of proceeding to the United States. [Japan] Air Lines (JAL)
refunded the plaintiffs the difference of the price for Tokyo-Taipei [and]
Tokyo-San Francisco (Exhs. I & J) in the total amount of P2,602.00.
In view of their failure to reach Fairfield, New Jersey, Radiant Heat
Enterprises, Inc. cancelled Yu Eng Cho's option to buy the two lines of
infra-red heating system (Exh. K). The agreement was for him to inspect
the equipment and make final arrangement[s] with the said company not
later than August 7, 1978. From this business transaction, plaintiff Yu
Eng Cho expected to realize a profit of P300,000.00 to P400,000.00.
[A] scrutiny of defendants' respective evidence reveals the following:
Plaintiffs, who were intending to go to the United States, were referred to
defendant Claudia Tagunicar, an independent travel solicitor, for the
purchase of their plane tickets. As such travel solicitor, she helps in the
processing of travel papers like passport, plane tickets, booking of
passengers and some assistance at the airport. She is known to defendants
Pan-Am, TWSI/Julieta Canilao, because she has been dealing with them
in the past years. Defendant Tagunicar advised plaintiffs to take Pan-Am
because Northwest Airlines was then on strike and plaintiffs are passing
Hongkong, Tokyo, then San Francisco and Pan-Am has a flight from
Tokyo to San Francisco. After verifying from defendant TWSI, thru
Julieta Canilao, she informed plaintiffs that the fare would be P25,093.93
giving them a discount of P738.95 (Exhs. C, C-1). Plaintiffs, however,
gave her a check in the amount of P25,000.00 only for the two round trip
Course Outline
Agency, Partnership & Trust
tickets. Out of this transaction, Tagunicar received a 7% commission and
1% commission for defendant TWSI.
Defendant Claudia Tagunicar purchased the two round-trip Pan-Am
tickets from defendant Julieta Canilao with the following schedules:
Origin Destination Airline Date Time/Travel
Manila Hongkong CX900 7-23-78 1135/1325hrs
Hongkong Tokyo CS500 7-28-78 1615/2115hrs
Tokyo San Francisco PA002 7-29-78 1930/1640hrs
The use of another airline, like in this case it is Cathay Pacific out of
Manila, is allowed, although the tickets issued are Pan-Am tickets, as
long as it is in connection with a Pan-Am flight. When the two (2) tickets
(Exhs. A & B) were issued to plaintiffs, the letter "RQ" appears below
the printed word "status" for the flights from Tokyo to San Francisco
which means "under request," (Exh. 3-A, 4-A Pan-Am). Before the date
of the scheduled departure, defendant Tagunicar received several calls
from the plaintiffs inquiring about the status of their bookings. Tagunicar
in turn called up TWSI/Canilao to verify; and if Canilao would answer
that the bookings are not yet confirmed, she would relate that to the
plaintiffs.
Defendant Tagunicar claims that on July 13, 1978, a few days before the
scheduled flight, plaintiff Yu Eng Cho personally went to her office,
pressing her about their flight. She called up defendant Julieta Canilao,
and the latter told her "o sige Claudia, confirm na." She even noted this
in her index card (Exh. L), that it was Julieta who confirmed the booking
(Exh. L-1). It was then that she allegedly attached the confirmation
stickers (Exhs. 2, 2-B TWSI) to the tickets. These stickers came from
TWSI.
Defendant Tagunicar alleges that it was only in the first week of August,
1978 that she learned from Adrian Yu, son of plaintiffs, that the latter
were not able to take the flight from Tokyo to San Francisco, U.S.A.
After a few days, said Adrian Yu came over with a gentleman and a lady,
who turned out to be a lawyer and his secretary. Defendant Tagunicar
claims that plaintiffs were asking for her help so that they could file an
action against Pan-Am. Because of plaintiffs' promise she will not be
involved, she agreed to sign the affidavit (Exh. M) prepared by the
lawyer.
29 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Defendants TWSI/Canilao denied having confirmed the Tokyo-San
Francisco segment of plaintiffs' flight because flights then were really
tight because of the on-going strike at Northwest Airlines. Defendant
Claudia Tagunicar is very much aware that [said] particular segment was
not confirmed, because on the very day of plaintiffs' departure, Tagunicar
called up TWSI from the airport; defendant Canilao asked her why she
attached stickers on the tickets when in fact that portion of the flight was
not yet confirmed. Neither TWSI nor Pan-Am confirmed the flight and
never authorized defendant Tagunicar to attach the confirmation stickers.
In fact, the confirmation stickers used by defendant Tagunicar are
stickers exclusively for use of Pan-Am only. Furthermore, if it is the
travel agency that confirms the booking, the IATA number of said
agency should appear on the validation or confirmation stickers. The
IATA number that appears on the stickers attached to plaintiffs' tickets
(Exhs. A & B) is 2-82-0770 (Exhs. 1, 1-A TWSI), when in fact TWSI's
IATA number is 2-83-0770 (Exhs. 5, 5-A TWSI). 3
A complaint for damages was filed by petitioners against private respondents Pan
American World Airways, Inc. (Pan Am), Tourist World Services, Inc. (TWSI),
Julieta Canilao (Canilao), and Claudia Tagunicar (Tagunicar) for expenses
allegedly incurred such as costs of tickets and hotel accommodations when
petitioners were compelled to stay in Hongkong and then in Tokyo by reason of
the non-confirmation of their booking with Pan-Am. In a Decision dated
November 14, 1991, the Regional Trial Court of Manila, Branch 3, held the
defendants jointly and severally liable, except defendant Julieta Canilao, thus:
WHEREFORE, judgment is hereby rendered for the plaintiffs and
ordering defendants Pan American World Airways, Inc., Tourist World
Services, Inc. and Claudia Tagunicar, jointly and severally, to pay
plaintiffs the sum of P200,000.00 as actual damages, minus P2,602.00
already refunded to the plaintiffs; P200,000.00 as moral damages;
P100,000.00 as exemplary damages; an amount equivalent to 20% of the
award for and as attorney's fees, plus the sum of P30,000.00 as litigation
expenses.
Defendants' counterclaims are hereby dismissed for lack of merit.
SO ORDERED.
Only respondents Pan Am and Tagunicar appealed to the Court of Appeals. On 11
August 1995, the appellate court rendered judgment modifying the amount of
Course Outline
Agency, Partnership & Trust
damages awarded, holding private respondent Tagunicar solely liable therefor,
and absolving respondents Pan Am and TWSI from any and all liability, thus:
PREMISES CONSIDERED, the decision of the Regional Trial Court is
hereby SET ASIDE and a new one entered declaring appellant Tagunicar
solely liable for:
1) Moral damages in the amount of P50,000.00;
2) Exemplary damages in the amount of P25,000.00; and
3) Attorney's fees in the amount of P10,000.00 plus costs of
suit.
The award of actual damages is hereby DELETED.
SO ORDERED.
In so ruling, respondent court found that Tagunicar is an independent travel
solicitor and is not a duly authorized agent or representative of either Pan Am or
TWSI. It held that their business transactions are not sufficient to consider Pan
Am as the principal, and Tagunicar and TWSI as its agent and sub-agent,
respectively. It further held that Tagunicar was not authorized to confirm the
bookings of, nor issue validation stickers to, herein petitioners and hence, Pan Am
and TWSI cannot be held responsible for her actions. Finally, it deleted the award
for actual damages for lack of proof.
Hence this petition based on the following assignment of errors:
1. the Court of Appeals, in reversing the decision of the trial court,
misapplied the ruling in Nicos Industrial Corporation vs. Court of
Appeals, et. al. [206 SCRA 127]; and
2. the findings of the Court of Appeals that petitioners' ticket reservations
in question were not confirmed and that there is no agency relationship
among PAN-AM, TWSI and Tagunicar are contrary to the judicial
admissions of PAN-AM, TWSI and Tagunicar and likewise contrary to
the findings of fact of the trial court.
We affirm.
I. The first issue deserves scant consideration. Petitioners contend that contrary to
the ruling of the Court of Appeals, the decision of the trial court conforms to the
standards of an ideal decision set in Nicos Industrial Corporation, et. al. vs. Court
of Appeals, et. al., 4 as "that which, with welcome economy of words, arrives at
the factual findings, reaches the legal conclusions, renders its ruling and, having
done so, ends." It is averred that the trial court's decision contains a detailed
statement of the relevant facts and evidence adduced by the parties which
thereafter became the bases for the court's conclusions.
30 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
A careful scrutiny of the decision rendered by the trial court will show that after
narrating the evidence of the parties, it proceeded to dispose of the case with a
one-paragraph generalization, to wit:
On the basis of the foregoing facts, the Court is constrained to conclude
that defendant Pan-Am is the principal, and defendants TWSI and
Tagunicar, its authorized agent and sub-agent, respectively.
Consequently, defendants Pan-Am, TWSI and Claudia Tagunicar should
be held jointly and severally liable to plaintiffs for damages. Defendant
Julieta Canilao, who acted in her official capacity as Office Manager of
defendant TWSI should not be held personally liable. 5
The trial court's finding of facts is but a summary of the testimonies of the
witnesses and the documentary evidence presented by the parties. It did not
distinctly and clearly set forth, nor substantiate, the factual and legal bases for
holding respondents TWSI, Pan Am and Tagunicar jointly and severally liable.
In Del Mundo vs. CA, et al. 6 where the trial court, after summarizing the
conflicting asseverations of the parties, disposed of the kernel issue in just two (2)
paragraphs, we held:
It is understandable that courts, with their heavy dockets and time
constraints, often find themselves with little to spare in the preparation of
decisions to the extent most desirable. We have thus pointed out that
judges might learn to synthesize and to simplify their pronouncements.
Nevertheless, concisely written such as they may be, decisions must still
distinctly and clearly express, at least in minimum essence, its factual
and legal bases.
For failing to explain clearly and well the factual and legal bases of its award of
moral damages, we set it aside in said case. Once more, we stress that nothing less
than Section 14 of Article VIII of the Constitution requires that "no decision shall
be rendered by any court without expressing therein clearly and distinctly the facts
and the law on which it is based." This is demanded by the due process clause of
the Constitution. In the case at bar, the decision of the trial court leaves much to
be desired both in form and substance. Even while said decision infringes the
Constitution, we will not belabor this infirmity and rather examine the sufficiency
of the evidence submitted by the petitioners.
II. Petitioners assert that Tagunicar is a sub-agent of TWSI while TWSI is a duly
authorized ticketing agent of Pan Am. Proceeding from this premise, they contend
that TWSI and Pan Am should be held liable as principals for the acts of
Tagunicar. Petitioners stubbornly insist that the existence of the agency
Course Outline
Agency, Partnership & Trust
relationship has been established by the judicial admissions allegedly made by
respondents herein, to wit: (1) the admission made by Pan Am in its Answer that
TWSI is its authorized ticket agent; (2) the affidavit executed by Tagunicar where
she admitted that she is a duly authorized agent of TWSI; and (3) the admission
made by Canilao that TWSI received commissions from ticket sales made by
Tagunicar.
We do not agree. By the contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter. 7 The elements of agency are: (1) consent,
express or implied, of the parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself; (4) the agent acts within the scope of his
authority. 8 It is a settled rule that persons dealing with an assumed agent are
bound at their peril, if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it. 9
In the case at bar, petitioners rely on the affidavit of respondent Tagunicar where
she stated that she is an authorized agent of TWSI. This affidavit, however, has
weak probative value in light of respondent Tagunicar's testimony in court to the
contrary. Affidavits, being taken ex parte, are almost always incomplete and often
inaccurate, sometimes from partial suggestion, or for want of suggestion and
inquiries. Their infirmity as a species of evidence is a matter of judicial
experience and are thus considered inferior to the testimony given in
court. 10 Further, affidavits are not complete reproductions of what the declarant
has in mind because they are generally prepared by the administering officer and
the affiant simply signs them after the same have been read to her. 11 Respondent
Tagunicar testified that her affidavit was prepared and typewritten by the secretary
of petitioners' lawyer, Atty. Acebedo, who both came with Adrian Yu, son of
petitioners, when the latter went to see her at her office. This was confirmed by
Adrian Yu who testified that Atty. Acebedo brought his notarial seal and notarized
the affidavit of the same day. 12 The circumstances under which said affidavit was
prepared put in doubt petitioners' claim that it was executed voluntarily by
respondent Tagunicar. It appears that the affidavit was prepared and was based on
the answers which respondent Tagunicar gave to the questions propounded to her
by Atty. Acebedo. 13 They never told her that the affidavit would be used in a case
to be filed against her. 14 They even assured her that she would not be included as
defendant if she agreed to execute the affidavit. 15 Respondent Tagunicar was
31 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
prevailed upon by petitioners' son and their lawyer to sign the affidavit despite her
objection to the statement therein that she was an agent of TWSI. They assured
her that "it is immaterial"16 and that "if we file a suit against you we cannot get
anything from you." 17 This purported admission of respondent Tagunicar cannot
be used by petitioners to prove their agency relationship. At any rate, even if such
affidavit is to be given any probative value, the existence of the agency
relationship cannot be established on its sole basis. The declarations of the agent
alone are generally insufficient to establish the fact or extent of his authority. 18 In
addition, as between the negative allegation of respondents Canilao and Tagunicar
that neither is an agent nor principal of the other, and the affirmative allegation of
petitioners that an agency relationship exists, it is the latter who have the burden
of evidence to prove their allegation, 19 failing in which, their claim must
necessarily fail.
We stress that respondent Tagunicar categorically denied in open court that she is
a duly authorized agent of TWSI, and declared that she is an independent travel
agent. 20 We have consistently ruled that in case of conflict between statements in
the affidavit and testimonial declarations, the latter command greater weight. 21
As further proofs of agency, petitioners call our attention to TWSI's Exhibits "7",
"7-A", and "8" which show that Tagunicar and TWSI received sales commissions
from Pan Am. Exhibit "7" 22 is the Ticket Sales Report submitted by TWSI to Pan
Am reflecting the commissions received by TWSI as an agent of Pan Am. Exhibit
"7-A" 23 is a listing of the routes taken by passengers who were audited to TWSI's
sales report. Exhibit "8" 24 is a receipt issued by TWSI covering the payment made
by Tagunicar for the tickets she bought from TWSI. These documents cannot
justify the decision that Tagunicar was paid a commission either by TWSI or Pan
Am. On the contrary, Tagunicar testified that when she pays TWSI, she already
deducts in advance her commission and merely gives the net amount to
TWSI. 25 From all sides of the legal prism, the transaction is simply a contract of
sale wherein Tagunicar buys airline tickets from TWSI and then sells it at a
premium to her clients.
III. Petitioners included respondent Pan Am in the complainant on the supposition
that since TWSI is its duly authorized agent, and respondent Tagunicar is an agent
of TWSI, then Pan Am should also be held responsible for the acts of respondent
Tagunicar. Our disquisitions above show that this contention lacks factual and
legal bases. Indeed, there is nothing in the records to show that respondent
Tagunicar has been employed by Pan Am as its agent, except the bare allegation
of petitioners. The real motive of petitioners in suing Pan Am appears in its
Course Outline
Agency, Partnership & Trust
Amended Complaint that "[d]efendants TWSI, Canilao and Tagunicar may not be
financially capable of paying plaintiffs the amounts herein sought to be recovered,
and in such event, defendant Pan Am, being their ultimate principal, is primarily
and/or subsidiary liable to pay the said amounts to plaintiffs." 26 This lends
credence to respondent Tagunicar's testimony that she was persuaded to execute
an affidavit implicating respondents because petitioners knew they would not be
able to get anything of value from her. In the past, we have warned that this Court
will not tolerate an abuse of judicial process by passengers in order to pry on
international airlines for damage awards, like "trophies in a safari." 27
This meritless suit against Pan Am becomes more glaring with petitioner' inaction
after they were bumped off in Tokyo. If petitioners were of the honest belief that
Pan Am was responsible for the misfortune which beset them, there is no evidence
to show that they lodged a protest with Pan Am's Tokyo office immediately after
they were refused passage for the flight to San Francisco, or even upon their
arrival in Manila. The testimony of petitioner Yu Eng Cho in this regard is of title
value, viz:
Atty. Jalandoni: . . .
q Upon arrival at the Tokyo airport, what did you do if any in connection
with your schedule[d] trip?
a I went to the Hotel, Holiday Inn and from there I immediately called up
Pan Am office in Tokyo to reconfirm my flight, but they told me that our
names were not listed in the manifest, so next morning, very early in the
morning I went to the airport, Pan Am office in the airport to verify and
they told me the same and we were not allowed to leave.
q You were scheduled to be in Tokyo for how long Mr. Yu?
a We have to leave the next day 29th.
q In other words, what was your status as a passenger?
a Transient passengers. We cannot stay for more than 72 hours.
xxx xxx xxx
q As a consequence of the fact that you claimed that the Pan Am office in
Tokyo told you that your names were not in the manifest, what did you
do, if any?
a I ask[ed] them if I can go anywhere in the State? They told me I can go
to LA via Japan Airlines and I accepted it.
q Do you have the tickets with you that they issued for Los Angels?
a It was taken by the Japanese Airlines instead they issue[d] me a ticket
to Taipei.
32 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
xxx xxx xxx
q Were you able to take the trip to Los Angeles via Pan Am tickets that
was issued to you in lieu of the tickets to San Francisco?
a No, sir.
q Why not?
a The Japanese Airlines said that there were no more available seats.
q And as a consequence of that, what did you do, if any?
a I am so much scared and worried, so the Japanese Airlines advised us
to go to Taipei and I accepted it.
xxx xxx xxx
q Why did you accept the Japan Airlines offer for you to go to Taipei?
a Because there is no chance for us to go to the United States within 72
hours because during that time Northwest Airlines [was] on strike so the
seats are very scarce. So they advised me better left (sic) before the 72
hours otherwise you will have trouble with the Japanese immigration.
q As a consequence of that you were force[d] to take the trip to Taipei?
a Yes, sir. 28 (emphasis supplied)
It grinds against the grain of human experience that petitioners did not insist that
they be allowed to board, considering that it was then doubly difficult to get seats
because of the ongoing Northwest Airlines strike. It is also perplexing that
petitioners readily accepted whatever the Tokyo office had to offer as an
alternative. Inexplicably too, no demand letter was sent to respondents TWSI and
Canilao. 29 Nor was a demand letter sent to respondent Pan Am. To say the least,
the motive of petitioners in suing Pan Am is suspect.
We hasten to add that it is not sufficient to prove that Pan Am did not allow
petitioners to board to justify petitioners' claim for damages. Mere refusal to
accede to the passenger's wishes does not necessarily translate into damages in the
absence of bad faith. 30 The settled rule is that the law presumes good faith such
that any person who seeks to be awarded damages due to acts of another has the
burden of proving that the latter acted in bad faith or with ill motive. 31 In the case
at bar, we find the evidence presented by petitioners insufficient to overcome the
presumption of good faith. They have failed to show any wanton, malevolent or
reckless misconduct imputable to respondent Pan Am in its refusal to
accommodate petitioners in its Tokyo-San Francisco flight. Pan Am could not
have acted in bad faith because petitioners did not have confirmed tickets and
more importantly, they were not in the passenger manifest.
Course Outline
Agency, Partnership & Trust
In not a few cases, this Court did not hesitable to hold an airline liable for
damages for having acted in bad faith in refusing to accommodate a passenger
who had a confirmed ticket and whose name appeared in the passenger manifest.
In Ortigas Jr. v. Lufthansa German Airlines Inc., 32 we ruled that there was a valid
and binding contract between the airline and its passenger after finding that
validating sticker on the passenger's ticket had the letters "O.K." appearing in the
"Res. Status" box which means "space confirmed" and that the ticket is confirmed
or validated. In Pan American World Airways Inc. v. IAC, et al. 33 where a would-
be-passenger had the necessary ticket, baggage claim and clearance from
immigration all clearly showing that she was a confirmed passenger and included
in the passenger manifest and yet was denied accommodation in said flight, we
awarded damages. In Armovit, et al. v. CA, et al., 34 we upheld the award of
damages made against an airline for gross negligence committed in the issuance
of tickets with erroneous entries as to the time of flight. In Alitalia Airways
v. CA, et al., 35we held that when airline issues a ticket to a passenger confirmed
on a particular flight, on a certain date, a contract of carriage arises, and the
passenger has every right to expect that he would fly on that flight and on that
date. If he does not, then the carrier opens itself to a suit for breach of contract of
carriage. And finally, an award of damages was held proper in the case
of Zalamea, et al. v. CA, et al., 36 where a confirmed passenger included in the
manifest was denied accommodation in such flight.
On the other hand, the respondent airline in Sarreal, Sr. v. Japan Airlines
Co., Ltd., 37 was held not liable for damages where the passenger was not allowed
to board the plane because his ticket had not been confirmed. We ruled that "[t]he
stub that the lady employee put on the petitioner's ticket showed among other
coded items, under the column "status" the letters "RQ" — which was understood
to mean "Request." Clearly, this does not mean a confirmation but only a request.
JAL Traffic Supervisor explained that it would have been different if what was
written in the stub were the letter "ok" in which case the petitioner would have
been assured of a seat on said flight. But in this case, the petitioner was more of a
wait-listed passenger than a regularly booked passenger."
In the case at bar, petitioners' ticket were on "RQ" status. They were not
confirmed passengers and their names were not listed in the passenger manifest.
In other words, this is not a case where Pan Am bound itself to transport
petitioners and thereafter reneged on its obligation. Hence, respondent airline
cannot be held liable for damages.
33 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
IV. We hold that respondent Court of Appeals correctly rules that the tickets were
never confirmed for good reasons: (1) The persistent calls made by respondent
Tagunicar to Canilao, and those made by petitioners at the Manila, Hongkong and
Tokyo offices in Pan Am, are eloquent indications that petitioners knew that their
tickets have not been confirmed. For, as correctly observed by Pan Am, why
would one continually try to have one's ticket confirmed if it had already been
confirmed? (2) The validation stickers which respondent Tagunicar attached to
petitioners' tickets were those intended for the exclusive use of airline companies.
She had no authority to use them. Hence, said validation stickers, wherein the
word "OK" appears in the status box, are not valid and binding. (3) The names of
petitioners do not appear in the passengers manifest. (4) Respondent Tagunicar's
"Exhibit 1" 38 shows that the status of the San Francisco-New York segment was
"Ok", meaning it was confirmed, but that the status of the Tokyo-San Francisco
segment was still "on request". (5) Respondent Canilao testified that on the day
that petitioners were to depart for Hongkong, respondent Tagunicar called her
from the airport asking for confirmation of the Tokyo-San Francisco flight, and
that when she told respondent Tagunicar that she should not have allowed
petitioners to leave because their tickets have not been confirmed, respondent
Tagunicar merely said "Bahala na." 39This was never controverted nor refuted by
respondent Tagunicar. (6) To prove that it really did not confirm the bookings of
petitioners, respondent Canilao pointed out that the validation stickers which
respondent Tagunicar attached to the tickets of petitioners had IATA No. 2-82-
0770 stamped on it, whereas the IATA number of TWSI is 28-30770. 40
Undoubtedly, respondent Tagunicar should be liable for having acted in bad faith
in misrepresenting to petitioners that their tickets have been confirmed. Her
culpability, however, was properly mitigated. Petitioner Yu Eng Cho testified that
he repeatedly tried to follow up on the confirmation of their tickets with Pan Am
because he doubted the confirmation made by respondent Tagunicar. 41 This is
clear proof that petitioners knew that they might be bumped off at Tokyo when
they decided to proceed with the trip. Aware of this risk, petitioners exerted
efforts to confirm their tickets in Manila, then in Hongkong, and finally in Tokyo.
Resultantly, we find the modification as to the amount of damages awarded just
and equitable under the circumstances.
WHEREFORE, the decision appealed from is hereby AFFIRMED. Cost against
petitioners.1âwphi1.nêt
SO ORDERED.
Davide, Jr., C.J., Kapunan and Pardo, JJ., concur.
Course Outline
Agency, Partnership & Trust
Ynares-Santiago, J., took no part.
Orient Air Service vs. Court of Appeals, GR No. 76931, May 29, 1991
G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES
INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL
REPRESENTATIVES, INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel
Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a
decision1 of the Court of Appeals in CA-G.R. No. CV-04294, entitled "American
Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which
affirmed, with modification, the decision2 of the Regional Trial Court of Manila,
Branch IV, which dismissed the complaint and granted therein defendant's
counterclaim for agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American
Air), an air carrier offering passenger and air cargo transportation in the
Philippines, and Orient Air Services and Hotel Representatives (hereinafter
referred to as Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former authorized the
latter to act as its exclusive general sales agent within the Philippines for the sale
of air passenger transportation. Pertinent provisions of the agreement are
reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties
hereto agree as follows:
1. Representation of American by Orient Air Services
34 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Orient Air Services will act on American's behalf as its exclusive General
Sales Agent within the Philippines, including any United States military
installation therein which are not serviced by an Air Carrier
Representation Office (ACRO), for the sale of air passenger
transportation. The services to be performed by Orient Air Services shall
include:
(a) soliciting and promoting passenger traffic for the services of
American and, if necessary, employing staff competent and
sufficient to do so;
(b) providing and maintaining a suitable area in its place of
business to be used exclusively for the transaction of the
business of American;
(c) arranging for distribution of American's timetables, tariffs
and promotional material to sales agents and the general public
in the assigned territory;
(d) servicing and supervising of sales agents (including such
sub-agents as may be appointed by Orient Air Services with the
prior written consent of American) in the assigned territory
including if required by American the control of remittances and
commissions retained; and
(e) holding out a passenger reservation facility to sales agents
and the general public in the assigned territory.
In connection with scheduled or non-scheduled air passenger
transportation within the United States, neither Orient Air Services nor
its sub-agents will perform services for any other air carrier similar to
those to be performed hereunder for American without the prior written
consent of American. Subject to periodic instructions and continued
consent from American, Orient Air Services may sell air passenger
transportation to be performed within the United States by other
scheduled air carriers provided American does not provide substantially
equivalent schedules between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United States dollars to American the
ticket stock or exchange orders, less commissions to which Orient Air
Services is entitled hereunder, not less frequently than semi-monthly, on
Course Outline
Agency, Partnership & Trust
the 15th and last days of each month for sales made during the preceding
half month.
All monies collected by Orient Air Services for transportation sold
hereunder on American's ticket stock or on exchange orders, less
applicable commissions to which Orient Air Services is entitled
hereunder, are the property of American and shall be held in trust by
Orient Air Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation
sold hereunder by Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all
sales of transportation by Orient Air Services or its sub-agents over
American's services and any connecting through air transportation, when
made on American's ticket stock, equal to the following percentages of
the tariff fares and charges:
(i) For transportation solely between points within the United
States and between such points and Canada: 7% or such other
rate(s) as may be prescribed by the Air Traffic Conference of
America.
(ii) For transportation included in a through ticket covering
transportation between points other than those described above:
8% or such other rate(s) as may be prescribed by the
International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air
Services an overriding commission of 3% of the tariff fares and charges
for all sales of transportation over American's service by Orient Air
Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or
performing any of the provisions of this Agreement or shall become
bankrupt or make any assignment for the benefit of or enter into any
agreement or promise with its creditors or go into liquidation, or suffer
any of its goods to be taken in execution, or if it ceases to be in business,
this Agreement may, at the option of American, be terminated forthwith
35 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
and American may, without prejudice to any of its rights under this
Agreement, take possession of any ticket forms, exchange orders, traffic
material or other property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or
resolutions of the International Air Transport Association and the Air
Traffic Conference of America, and such rules or resolutions shall
control in the event of any conflict with the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event
Orient Air Services is unable to transfer to the United States the funds
payable by Orient Air Services to American under this Agreement. Either
party may terminate the Agreement without cause by giving the other 30
days' notice by letter, telegram or cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of
January to March 1981 in the amount of US $254,400.40, American Air by itself
undertook the collection of the proceeds of tickets sold originally by Orient Air
and terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted
suit against Orient Air with the Court of First Instance of Manila, Branch 24, for
Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction
and Restraining Order4 averring the aforesaid basis for the termination of the
Agreement as well as therein defendant's previous record of failures "to promptly
settle past outstanding refunds of which there were available funds in the
possession of the defendant, . . . to the damage and prejudice of plaintiff."5
In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied
the material allegations of the complaint with respect to plaintiff's entitlement to
alleged unremitted amounts, contending that after application thereof to the
commissions due it under the Agreement, plaintiff in fact still owed Orient Air a
balance in unpaid overriding commissions. Further, the defendant contended that
the actions taken by American Air in the course of terminating the Agreement as
well as the termination itself were untenable, Orient Air claiming that American
Air's precipitous conduct had occasioned prejudice to its business interests.
Course Outline
Agency, Partnership & Trust
Finding that the record and the evidence substantiated the allegations of the
defendant, the trial court ruled in its favor, rendering a decision dated 16 July
1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is
hereby rendered in favor of defendant and against plaintiff dismissing the
complaint and holding the termination made by the latter as affecting the
GSA agreement illegal and improper and order the plaintiff to reinstate
defendant as its general sales agent for passenger tranportation in the
Philippines in accordance with said GSA agreement; plaintiff is ordered
to pay defendant the balance of the overriding commission on total flown
revenue covering the period from March 16, 1977 to December 31, 1980
in the amount of US$84,821.31 plus the additional amount of
US$8,000.00 by way of proper 3% overriding commission per month
commencing from January 1, 1981 until such reinstatement or said
amounts in its Philippine peso equivalent legally prevailing at the time of
payment plus legal interest to commence from the filing of the
counterclaim up to the time of payment. Further, plaintiff is directed to
pay defendant the amount of One Million Five Hundred Thousand
(Pl,500,000.00) pesos as and for exemplary damages; and the amount of
Three Hundred Thousand (P300,000.00) pesos as and by way of
attorney's fees.
Costs against plaintiff.7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision
promulgated on 27 January 1986, affirmed the findings of the court a quo on their
material points but with some modifications with respect to the monetary awards
granted. The dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum
of US$53,491.11 representing the balance of the latter's overriding
commission covering the period March 16, 1977 to December 31,
1980, or its Philippine peso equivalent in accordance with the official
rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the
latter's overriding commission per month starting January 1, 1981 until
date of termination, May 9, 1981 or its Philippine peso equivalent in
36 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
accordance with the official rate of exchange legally prevailing on July
10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July
10, 1981 the date the answer with counterclaim was filed, until full
payment;
4) American is ordered to pay Orient exemplary damages of
P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's
fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing
the substance thereof and arguing for its reversal. The appellate court's decision
was also the subject of a Motion for Partial Reconsideration by Orient Air which
prayed for the restoration of the trial court's ruling with respect to the monetary
awards. The Court of Appeals, by resolution promulgated on 17 December 1986,
denied American Air's motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for
affirmance of the trial court's award of exemplary damages and attorney's
fees, but granted insofar as the rate of exchange is concerned. The
decision of January 27, 1986 is modified in paragraphs (1) and (2) of the
dispositive part so that the payment of the sums mentioned therein
shall be at their Philippine peso equivalent in accordance with the
official rate of exchange legally prevailing on the date of actual
payment.9
Both parties appealed the aforesaid resolution and decision of the respondent
court, Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner
in G.R. No. 76933. By resolution10 of this Court dated 25 March 1987 both
petitions were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to
the 3% overriding commission. It is the stand of American Air that such
commission is based only on sales of its services actually negotiated or transacted
by Orient Air, otherwise referred to as "ticketed sales." As basis thereof, primary
reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration, is
quoted as follows:
5. Commissions
a) . . .
Course Outline
Agency, Partnership & Trust
b) Overriding Commission
In addition to the above commission, American will pay Orient Air
Services an overriding commission of 3% of the tariff fees and charges
for all sales of transportation over American's services by Orient Air
Services or itssub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and
the former not having opted to appoint any sub-agents, it is American Air's
contention that Orient Air can claim entitlement to the disputed overriding
commission based only on ticketed sales. This is supposed to be the clear meaning
of the underscored portion of the above provision. Thus, to be entitled to the 3%
overriding commission, the sale must be made by Orient Air and the sale must be
done with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3%
overriding commission covers the total revenue of American Air and not merely
that derived from ticketed sales undertaken by Orient Air. The latter, in
justification of its submission, invokes its designation as the exclusive General
Sales Agent of American Air, with the corresponding obligations arising from
such agency, such as, the promotion and solicitation for the services of its
principal. In effect, by virtue of such exclusivity, "all sales of transportation over
American Air's services are necessarily by Orient Air."11
It is a well settled legal principle that in the interpretation of a contract, the
entirety thereof must be taken into consideration to ascertain the meaning of its
provisions.12 The various stipulations in the contract must be read together to give
effect to all.13 After a careful examination of the records, the Court finds merit in
the contention of Orient Air that the Agreement, when interpreted in accordance
with the foregoing principles, entitles it to the 3% overriding commission based
on total revenue, or as referred to by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air's services for air
passenger transportation, and the solicitation of sales therefor. In return for such
efforts and services, Orient Air was to be paid commissions of two (2) kinds: first,
a sales agency commission, ranging from 7-8% of tariff fares and charges from
sales by Orient Air when made on American Air ticket stock; and second, an
overriding commission of 3% of tariff fares and charges for all sales of passenger
transportation over American Air services. It is immediately observed that the
precondition attached to the first type of commission does not obtain for the
second type of commissions. The latter type of commissions would accrue for
37 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
sales of American Air services made not on its ticket stock but on the ticket stock
of other air carriers sold by such carriers or other authorized ticketing facilities or
travel agents. To rule otherwise, i.e., to limit the basis of such overriding
commissions to sales from American Air ticket stock would erase any distinction
between the two (2) types of commissions and would lead to the absurd
conclusion that the parties had entered into a contract with meaningless
provisions. Such an interpretation must at all times be avoided with every effort
exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the
records that American Air was the party responsible for the preparation of the
Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be
taken "contra proferentem", i.e., construed against the party who caused the
ambiguity and could have avoided it by the exercise of a little more care. Thus,
Article 1377 of the Civil Code provides that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity. 14 To
put it differently, when several interpretations of a provision are otherwise equally
proper, that interpretation or construction is to be adopted which is most favorable
to the party in whose favor the provision was made and who did not cause the
ambiguity.15 We therefore agree with the respondent appellate court's declaration
that:
Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement.
The respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds
justification from paragraph 4 of the Agreement, Exh. F, which provides
for remittances to American less commissions to which Orient is entitled,
and from paragraph 5(d) which specifically allows Orient to retain the
full amount of its commissions. Since, as stated ante, Orient is entitled to
the 3% override. American's premise, therefore, for the cancellation of
the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier
established, Orient Air was entitled to an overriding commission based on total
flown revenue. American Air's perception that Orient Air was remiss or in default
of its obligations under the Agreement was, in fact, a situation where the latter
acted in accordance with the Agreement—that of retaining from the sales
proceeds its accrued commissions before remitting the balance to American Air.
Course Outline
Agency, Partnership & Trust
Since the latter was still obligated to Orient Air by way of such commissions.
Orient Air was clearly justified in retaining and refusing to remit the sums claimed
by American Air. The latter's termination of the Agreement was, therefore,
without cause and basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction
the trial court's award of exemplary damages and attorney's fees. This Court sees
no error in such modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest
of the decision of the trial court.1âwphi1We refer particularly to the lower court's
decision ordering American Air to "reinstate defendant as its general sales agent
for passenger transportation in the Philippines in accordance with said GSA
Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect,
compels American Air to extend its personality to Orient Air. Such would be
violative of the principles and essence of agency, defined by law as a contract
whereby "a person binds himself to render some service or to do something in
representation or on behalf of another, WITH THE CONSENT OR AUTHORITY
OF THE LATTER .17 (emphasis supplied) In an agent-principal relationship, the
personality of the principal is extended through the facility of the agent. In so
doing, the agent, by legal fiction, becomes the principal, authorized to perform all
acts which the latter would have him do. Such a relationship can only be effected
with the consent of the principal, which must not, in any way, be compelled by
law or by any court. The Agreement itself between the parties states that "either
party may terminate the Agreementwithout cause by giving the other 30 days'
notice by letter, telegram or cable." (emphasis supplied) We, therefore, set aside
the portion of the ruling of the respondent appellate court reinstating Orient Air as
general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the
decision and resolution of the respondent Court of Appeals, dated 27 January
1986 and 17 December 1986, respectively. Costs against petitioner American Air.
SO ORDERED.
Bordador vs. Luz, GR No. 130148, December 15, 1997
[G.R. No. 130148. December 15, 1997]
JOSE BORDADOR and LYDIA BORDADOR, Petitioners, v. BRIGIDA D.
LUZ, ERNESTO M. LUZ and NARCISO DEGANOS, Respondents.
DECISION
38 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
REGALADO, J.:
In this appeal by certiorari, petitioners assail the judgment of the Court of
Appeals in CA-G.R. CV No. 49175 affirming the adjudication of the Regional
Trial Court of Malolos, Bulacan which found private respondent Narciso Deganos
liable to petitioners for actual damages, but absolved respondent spouses Brigida
D. Luz and Ernesto M. Luz of liability. Petitioners likewise belabor the
subsequent resolution of the Court of Appeals which denied their motion for
reconsideration of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and
respondent Brigida D. Luz, also known as Aida D. Luz, was their regular
customer. On several occasions during the period from April 27, 1987 to
September 4, 1987, respondent Narciso Deganos, the brother of Brigida D. Luz,
received several pieces of gold and jewelry from petitioners amounting
to P382,816.00. 1These items and their prices were indicated in seventeen receipts
covering the same. Eleven of the receipts stated that they were received for a
certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that
they were received for Brigida D. Luz. 2cräläwvirtualibräry
Deganos was supposed to sell the items at a profit and thereafter remit the
proceeds and return the unsold items to petitioners. Deganos remitted only the
sum of P53,207.00. He neither paid the balance of the sales proceeds, nor did he
return any unsold item to petitioners. By January 1990, the total of his unpaid
account to petitioners, including interest, reached the sum
of P725,463.98. 3Petitioners eventually filed a complaint in the barangay court
against Deganos to recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,
appeared as a witness for Deganos and ultimately, she and her husband, together
with Deganos, signed a compromise agreement with petitioners. In that
compromise agreement, Deganos obligated himself to pay petitioners, on
installment basis, the balance of his account plus interest thereon. However, he
failed to comply with his aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional
Trial Court of Malolos, Bulacan against Deganos and Brigida D. Luz for recovery
of a sum of money and damages, with an application for preliminary
attachment.4 Ernesto Luz was impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged
with estafa5 in the Regional Trial Court of Malolos, Bulacan, which was docketed
Course Outline
Agency, Partnership & Trust
as Criminal Case No. 785-M-94. That criminal case appears to be still pending in
said trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the
agent of Brigida D. Luz when he received the subject items of jewelry and,
because he failed to pay for the same, Brigida, as principal, and her spouse are
solidarily liable with him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to
petitioners, he claimed that the same was only in the sum of P382,816.00 and
not P725,463.98. He further asserted that it was he alone who was involved in the
transaction with the petitioners; that he neither acted as agent for nor was he
authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six
of the receipts indicated that the items were received by him for the latter. He
further claimed that he never delivered any of the items he received from
petitioners to Brigida.
Brigida, on her part, denied that she had anything to do with the transactions
between petitioners and Deganos. She claimed that she never authorized Deganos
to receive any item of jewelry in her behalf and, for that matter, neither did she
actually receive any of the articles in question.
After trial, the court below found that only Deganos was liable to petitioners for
the amount and damages claimed. It held that while Brigida D. Luz did have
transactions with petitioners in the past, the items involved were already paid for
and all that Brigida owed petitioners was the sum of P21,483.00 representing
interest on the principal account which she had previously paid
for.6cräläwvirtualibräry
The trial court also found that it was petitioner Lydia Bordador who indicated in
the receipts that the items were received by Deganos for Evelyn Aquino and
Brigida D. Luz. 7 Said court was persuaded that Brigida D. Luz was behind
Deganos, but because there was no memorandum to this effect, the agreement
between the parties was unenforceable under the Statute of Frauds. 8 Absent the
required memorandum or any written document connecting the respondent Luz
spouses with the subject receipts, or authorizing Deganos to act on their behalf,
the alleged agreement between petitioners and Brigida D. Luz was unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal
interest thereon from June 25, 1990, and attorneys fees. Brigida D. Luz was
ordered to pay P21,483.00 representing the interest on her own personal loan. She
and her co-defendant spouse were absolved from any other or further
liability. 9chanroblesvirtuallawlibrary
39 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
As stated at the outset, petitioners appealed the judgment of the court a quo to the
Court of Appeals which affirmed said judgment. 10The motion for reconsideration
filed by petitioners was subsequently dismissed, 11 hence the present recourse to
this Court.
The primary issue in the instant petition is whether or not herein respondent
spouses are liable to petitioners for the latters claim for money and damages in the
sum of P725,463.98, plus interests and attorneys fees, despite the fact that the
evidence does not show that they signed any of the subject receipts or authorized
Deganos to receive the items of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the
court a quo that respondent spouses are not liable to them, as said conclusion of
the trial court is contradicted by the finding of fact of the appellate court that
(Deganos) acted as agent of his sister (Brigida Luz). 12In support of this
contention, petitioners quoted several letters sent to them by Brigida D. Luz
wherein the latter acknowledged her obligation to petitioners and requested for
more time to fulfill the same. They likewise aver that Brigida testified in the trial
court that Deganos took some gold articles from petitioners and delivered the
same to her.
Both the Court of Appeals and the trial court, however, found as a fact that the
aforementioned letters concerned the previous obligations of Brigida to
petitioners, and had nothing to do with the money sought to be recovered in the
instant case. Such concurrent factual findings are entitled to great weight, hence,
petitioners cannot plausibly claim in this appellate review that the letters were in
the nature of acknowledgments by Brigida that she was the principal of Deganos
in the subject transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of
the gold to her, there is no showing whatsoever that her statement referred to the
items which are the subject matter of this case. It cannot, therefore, be validly said
that she admitted her liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter
clothed him with apparent authority as her agent and held him out to the public as
such, hence Brigida can not be permitted to deny said authority to innocent third
parties who dealt with Deganos under such belief. 13Petitioners further represent
that the Court of Appeals recognized in its decision that Deganos was an agent of
Brigida.14cräläwvirtualibräry
The evidence does not support the theory of petitioners that Deganos was an agent
of Brigida D. Luz and that the latter should consequently be held solidarily liable
Course Outline
Agency, Partnership & Trust
with Deganos in his obligation to petitioners. While the quoted statement in the
findings of fact of the assailed appellate decision mentioned that Deganos
ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the
Court of Appeals categorically stated that, (Brigida Luz) never authorized her
brother (Deganos) to act for and in her behalf in any transaction with Petitioners x
x x. 15 It is clear, therefore, that even assuming arguendo that Deganos acted as an
agent of Brigida, the latter never authorized him to act on her behalf with regard
to the transactions subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter.
The basis for agency is representation. Here, there is no showing that Brigida
consented to the acts of Deganos or authorized him to act on her behalf, much less
with respect to the particular transactions involved. Petitioners attempt to foist
liability on respondent spouses through the supposed agency relation with
Deganos is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of petitioners to entrust to
Deganos, not once or twice but on at least six occasions as evidenced by six
receipts, several pieces of jewelry of substantial value without requiring a written
authorization from his alleged principal. A person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the
agent. 16chanroblesvirtuallawlibrary
The records show that neither an express nor an implied agency was proven to
have existed between Deganos and Brigida D. Luz. Evidently, Petitioners, who
were negligent in their transactions with Deganos, cannot seek relief from the
effects of their negligence by conjuring a supposed agency relation between the
two respondents where no evidence supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that the
decision of the court below, which it affirmed, is null and void as it contradicted
its ruling in CA-G.R. SP No. 39445 holding that there is sufficient evidence/proof
against Brigida D. Luz and Deganos for estafa in the pending criminal case. They
further aver that said appellate court erred in ruling against them in this civil
action since the same would result in an inevitable conflict of decisions should the
trial court convict the accused in the criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida
D. Luz and Deganos had filed a demurrer to evidence and a motion for
40 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
reconsideration in the aforestated criminal case, both of which were denied by the
trial court. They then filed a petition for certiorari in the Court of Appeals to set
aside the denial of their demurrer and motion for reconsideration but, as just
stated, their petition therefor was dismissed. 17cräläwvirtualibräry
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the
petition in CA-G.R. SP No. 39445 with respect to the criminal case is equivalent
to a finding that there is sufficient evidence in the estafa case against Brigida D.
Luz and Deganos. Hence, as already stated, petitioners theorize that the decision
and resolution of the Court of Appeals now being impugned in the case at bar
would result in a possible conflict with the prospective decision in the criminal
case. Instead of promulgating the present decision and resolution under review, so
they suggest, the Court of Appeals should have awaited the decision in the
criminal case, so as not to render academic or preempt the same or, worse, create
two conflicting rulings. 18cräläwvirtualibräry
Petitioners have apparently lost sight of Article 33 of the Civil Code which
provides that in cases involving alleged fraudulent acts, a civil action for damages,
entirely separate and distinct from the criminal action, may be brought by the
injured party. Such civil action shall proceed independently of the criminal
prosecution and shall require only a preponderance of evidence.
It is worth noting that this civil case was instituted four years before the criminal
case for estafa was filed, and that although there was a move to consolidate both
cases, the same was denied by the trial court. Consequently, it was the duty of the
two branches of the Regional Trial Court concerned to independently proceed
with the civil and criminal cases. It will also be observed that a final judgment
rendered in a civil action absolving the defendant from civil liability is no bar to a
criminal action. 19cräläwvirtualibräry
It is clear, therefore, that this civil case may proceed independently of the criminal
case 20 especially because while both cases are based on the same facts, the
quantum of proof required for holding the parties liable therein differ. Thus, it is
improvident of petitioners to claim that the decision and resolution of the Court of
Appeals in the present case would be preemptive of the outcome of the criminal
case. Their fancied fear of possible conflict between the disposition of this civil
case and the outcome of the pending criminal case is illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction
to issue the denial resolution dated August 18, 1997, as the same was tainted with
irregularities and badges of fraud perpetrated by its court officers. 21They charge
that said appellate court, through conspiracy and fraud on the part of its officers,
Course Outline
Agency, Partnership & Trust
gravely abused its discretion in issuing that resolution denying their motion for
reconsideration. They claim that said resolution was drafted by the ponente, then
signed and issued by the members of the Eleventh Division of said court within
one and a half days from the elevation thereof by the division clerk of court to the
office of the ponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution as
the same was made without waiting for the lapse of the ten-day period for
respondents to file their comment and for petitioners to file their reply. It was
allegedly impossible for the Court of Appeals to resolve the issue in just one and a
half days, especially because its ponente, the late Justice Maximiano C. Asuncion,
was then recuperating from surgery and, that, additionally, hundreds of more
important cases were pending. 22chanroblesvirtuallawlibrary
These lamentable allegation of irregularities in the Court of Appeals and in the
conduct of its officers strikes us as a desperate attempt of petitioners to induce this
Court to give credence to their arguments which, as already found by both the trial
and intermediate appellate courts, are devoid of factual and legal substance. The
regrettably irresponsible attempt to tarnish the image of the intermediate appellate
tribunal and its judicial officers through ad hominem imputations could well be
contumacious, but we are inclined to let that pass with a strict admonition that
petitioners refrain from indulging in such conduct in litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming
the trial courts decision. 23 Petitioners moved for reconsideration and the Court of
Appeals ordered respondents to file a comment. Respondents filed the same on
August 5, 1997 24and petitioners filed their reply to said comment on August 15,
1997. 25 The Eleventh Division of said court issued the questioned resolution
denying petitioners motion for reconsideration on August 18,
1997.26cräläwvirtualibräry
It is ironic that while some litigants malign the judiciary for being supposedly
slothful in disposing of cases, petitioners are making a show of calling out for
justice because the Court of Appeals issued a resolution disposing of a case sooner
than expected of it. They would even deny the exercise of discretion by the
appellate court to prioritize its action on cases in line with the procedure it has
adopted in disposing thereof and in declogging its dockets. It is definitely not for
the parties to determine and dictate when and how a tribunal should act upon
those cases since they are not even aware of the status of the dockets and the
internal rules and policies for acting thereon.
41 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
The fact that a resolution was issued by said court within a relatively short period
of time after the records of the case were elevated to the office of
the ponente cannot, by itself, be deemed irregular. There is no showing
whatsoever that the resolution was issued without considering the reply filed by
petitioners. In fact, that brief pleading filed by petitioners does not exhibit any
esoteric or ponderous argument which could not be analyzed within an hour. It is
a legal presumption, born of wisdom and experience, that official duty has been
regularly performed; 27 that the proceedings of a judicial tribunal are regular and
valid, and that judicial acts and duties have been and will be duly and properly
performed. 28The burden of proving irregularity in official conduct is on the part
of petitioners and they have utterly failed to do so. It is thus reprehensible for
them to cast aspersions on a court of law on the bases of conjectures or surmises,
especially since one of the petitioners appears to be a member of the Philippine
Bar.
Lastly, petitioners fault the trial courts holding that whatever contract of agency
was established between Brigida D. Luz and Narciso Deganos is unenforceable
under the Statute of Frauds as that aspect of this case allegedly is not covered
thereby. 29 They proceed on the premise that the Statute of Frauds applies only to
executory contracts and not to executed or to partially executed ones. From there,
they move on to claim that the contract involved in this case was an executed
contract as the items had already been delivered by petitioners to Brigida D. Luz,
hence, such delivery resulted in the execution of the contract and removed the
same from the coverage of the Statute of Frauds.
Petitioners claim is speciously unmeritorious. It should be emphasized that neither
the trial court nor the appellate court categorically stated that there was such a
contractual relation between these two respondents. The trial court merely said
that if there was such an agency existing between them, the same is unenforceable
as the contract would fall under the Statute of Frauds which requires the
presentation of a note or memorandum thereof in order to be enforceable in court.
That was merely a preparatory statement of a principle of law. What was finally
proven as a matter of fact is that there was no such contract between Brigida D.
Luz and Narciso Deganos, executed or partially executed, and no delivery of any
of the items subject of this case was ever made to the former.
WHEREFORE, no error having been committed by the Court of Appeals in
affirming the judgment of the court a quo, its challenged decision and resolution
are hereby AFFIRMED and the instant petition is DENIED,with double costs
against petitioners
Course Outline
Agency, Partnership & Trust
SO ORDERED.
Puno, Mendoza, and Martinez, JJ., concur.
Apex Mining Co., Inc. vs. Southeast Mindanao Gold Corp., GR Nos. 152613 &
152628, June 23, 2006
G.R. No. 152613 & No. 152628 June 23, 2006
APEX MINING CO., INC., petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication
board, provincial mining regulatory board (PMRB-DAVAO), MONKAYO
INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC.,
ROSENDO VILLAFLOR, BALITE COMMUNAL PORTAL MINING
COOPERATIVE, DAVAO UNITED MINERS COOPERATIVE, ANTONIO
DACUDAO, PUTING-BATO GOLD MINERS COOPERATIVE, ROMEO
ALTAMERA, THELMA CATAPANG, LUIS GALANG, RENATO
BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN
ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO
BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL
GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and joel
brillantes management mining corporation, Respondents.
x--------------------------------------x
G.R. No. 152619-20 June 23, 2006
BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, APEX
MINING CO., INC., the mines adjudication board, provincial mining
regulatory board (PMRB-DAVAO), MONKAYO INTEGRATED SMALL
SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR,
DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO,
PUTING-BATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA,
THELMA CATAPANG, LUIS GALANG, RENATO BASMILLO,
FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION, MACARIO
HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO,
PRIMITIVA LICAYAN, LETICIA ALQUEZA and joel brillantes
management mining corporation, Respondents.
42 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
x--------------------------------------x
G.R. No. 152870-71 June 23, 2006
THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON.
VICTOR O. RAMOS (Chairman), UNDERSECRETARY VIRGILIO
MARCELO (Member) and DIRECTOR HORACIO RAMOS
(Member), petitioners,
vs.
SOUTHEAST MINADANAO GOLD MINING
CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
On 27 February 1931, Governor General Dwight F. Davis issued Proclamation
No. 369, establishing the Agusan-Davao-Surigao Forest Reserve consisting of
approximately 1,927,400 hectares.1
The disputed area, a rich tract of mineral land, is inside the forest reserve located
at Monkayo, Davao del Norte, and Cateel, Davao Oriental, consisting of
4,941.6759 hectares.2 This mineral land is encompassed by Mt. Diwata, which is
situated in the municipalities of Monkayo and Cateel. It later became known as
the "Diwalwal Gold Rush Area." It has since the early 1980‘s been stormed by
conflicts brought about by the numerous mining claimants scrambling for gold
that lies beneath its bosom.
On 21 November 1983, Camilo Banad and his group, who claimed to have first
discovered traces of gold in Mount Diwata, filed a Declaration of Location (DOL)
for six mining claims in the area.
Camilo Banad and some other natives pooled their skills and resources and
organized the Balite Communal Portal Mining Cooperative (Balite). 3
On 12 December 1983, Apex Mining Corporation (Apex) entered into operating
agreements with Banad and his group.
From November 1983 to February 1984, several individual applications for
mining locations over mineral land covering certain parts of the Diwalwal gold
rush area were filed with the Bureau of Mines and Geo-Sciences (BMG).
On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or
mining claims for areas adjacent to the area covered by the DOL of Banad and his
group. After realizing that the area encompassed by its mining claims is a forest
reserve within the coverage of Proclamation No. 369 issued by Governor General
Davis, MMC abandoned the same and instead applied for a prospecting permit
with the Bureau of Forest Development (BFD).
Course Outline
Agency, Partnership & Trust
On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of
4,941.6759 hectares traversing the municipalities of Monkayo and Cateel, an area
within the forest reserve under Proclamation No. 369. The permit embraced the
areas claimed by Apex and the other individual mining claimants.
On 11 November 1985, MMC filed Exploration Permit Application No. 84-40
with the BMG. On 10 March 1986, the BMG issued to MCC Exploration Permit
No. 133 (EP 133).
Discovering the existence of several mining claims and the proliferation of small-
scale miners in the area covered by EP 133, MMC thus filed on 11 April 1986
before the BMG a Petition for the Cancellation of the Mining Claims of Apex and
Small Scale Mining Permit Nos. (x-1)-04 and (x-1)-05 which was docketed as
MAC No. 1061. MMC alleged that the areas covered by its EP 133 and the
mining claims of Apex were within an established and existing forest reservation
(Agusan-Davao-Surigao Forest Reserve) under Proclamation No. 369 and that
pursuant to Presidential Decree No. 463,4 acquisition of mining rights within a
forest reserve is through the application for a permit to prospect with the BFD and
not through registration of a DOL with the BMG.
On 23 September 1986, Apex filed a motion to dismiss MMC‘s petition alleging
that its mining claims are not within any established or proclaimed forest reserve,
and as such, the acquisition of mining rights thereto must be undertaken via
registration of DOL with the BMG and not through the filing of application for
permit to prospect with the BFD.
On 9 December 1986, BMG dismissed MMC‘s petition on the ground that the
area covered by the Apex mining claims and MMC‘s permit to explore was not a
forest reservation. It further declared null and void MMC‘s EP 133 and sustained
the validity of Apex mining claims over the disputed area.
MMC appealed the adverse order of BMG to the Department of Environment and
Natural Resources (DENR).
On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996
order of BMG and declared MMC‘s EP 133 valid and subsisting.
Apex filed a Motion for Reconsideration with the DENR which was subsequently
denied. Apex then filed an appeal before the Office of the President. On 27 July
1989, the Office of the President, through Assistant Executive Secretary for Legal
Affairs, Cancio C. Garcia,5 dismissed Apex‘s appeal and affirmed the DENR
ruling.
Apex filed a Petition for Certiorari before this Court. The Petition was docketed
as G.R. No. 92605 entitled, "Apex Mining Co., Inc. v. Garcia."6 On 16 July 1991,
43 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
this Court rendered a Decision against Apex holding that the disputed area is a
forest reserve; hence, the proper procedure in acquiring mining rights therein is by
initially applying for a permit to prospect with the BFD and not through a
registration of DOL with the BMG.
On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued
Department Administrative Order No. 66 (DAO No. 66) declaring 729 hectares of
the areas covered by the Agusan-Davao-Surigao Forest Reserve as non-forest
lands and open to small-scale mining purposes.
As DAO No. 66 declared a portion of the contested area open to small scale
miners, several mining entities filed applications for Mineral Production Sharing
Agreement (MPSA).
On 25 August 1993, Monkayo Integrated Small Scale Miners Association
(MISSMA) filed an MPSA application which was denied by the BMG on the
grounds that the area applied for is within the area covered by MMC EP 133 and
that the MISSMA was not qualified to apply for an MPSA under DAO No.
82,7 Series of 1990.
On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a
Petition for Cancellation of EP 133 and for the admission of their MPSA
Application. The Petition was docketed as RED Mines Case No. 8-8-94. Davao
United Miners Cooperative (DUMC) and Balite intervened and likewise sought
the cancellation of EP 133.
On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold
Mining Corporation (SEM), a domestic corporation which is alleged to be a 100%
-owned subsidiary of MMC.
On 14 June 1994, Balite filed with the BMG an MPSA application within the
contested area that was later on rejected.
On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759
hectares under EP 133, which was also denied by reason of the pendency of RED
Mines Case No. 8-8-94. On 1 September 1995, SEM filed another MPSA
application.
On 20 October 1995, BMG accepted and registered SEM‘s MPSA application and
the Deed of Assignment over EP 133 executed in its favor by MMC. SEM‘s
application was designated MPSA Application No. 128 (MPSAA 128). After
publication of SEM‘s application, the following filed before the BMG their
adverse claims or oppositions:
a) MAC Case No. 004 (XI) – JB Management Mining Corporation;
b) MAC Case No. 005(XI) – Davao United Miners Cooperative;
Course Outline
Agency, Partnership & Trust
c) MAC Case No. 006(XI) – Balite Integrated Small Scale Miner‘s
Cooperative;
d) MAC Case No. 007(XI) – Monkayo Integrated Small Scale Miner‘s
Association, Inc. (MISSMA);
e) MAC Case No. 008(XI) – Paper Industries Corporation of the
Philippines;
f) MAC Case No. 009(XI) – Rosendo Villafor, et al.;
g) MAC Case No. 010(XI) – Antonio Dacudao;
h) MAC Case No. 011(XI) – Atty. Jose T. Amacio;
i) MAC Case No. 012(XI) – Puting-Bato Gold Miners Cooperative;
j) MAC Case No. 016(XI) – Balite Communal Portal Mining
Cooperative;
k) MAC Case No. 97-01(XI) – Romeo Altamera, et al.8
To address the matter, the DENR constituted a Panel of Arbitrators (PA) to
resolve the following:
(a) The adverse claims on MPSAA No. 128; and
(b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as
RED Case No. 8-8-94.9
On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94.
As to the Petition for Cancellation of EP 133 issued to MMC, the PA relied on the
ruling in Apex Mining Co., Inc. v. Garcia,10 and opined that EP 133 was valid and
subsisting. It also declared that the BMG Director, under Section 99 of the
Consolidated Mines Administrative Order implementing Presidential Decree No.
463, was authorized to issue exploration permits and to renew the same without
limit.
With respect to the adverse claims on SEM‘s MPSAA No. 128, the PA ruled that
adverse claimants‘ petitions were not filed in accordance with the existing rules
and regulations governing adverse claims because the adverse claimants failed to
submit the sketch plan containing the technical description of their respective
claims, which was a mandatory requirement for an adverse claim that would allow
the PA to determine if indeed there is an overlapping of the area occupied by them
and the area applied for by SEM. It added that the adverse claimants were not
claim owners but mere occupants conducting illegal mining activities at the
contested area since only MMC or its assignee SEM had valid mining claims over
the area as enunciated in Apex Mining Co., Inc. v. Garcia. 11 Also, it maintained
that the adverse claimants were not qualified as small-scale miners under DENR
Department Administrative Order No. 34 (DAO No. 34),12 or the Implementing
44 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Rules and Regulation of Republic Act No. 7076 (otherwise known as the
"People‘s Small-Scale Mining Act of 1991"), as they were not duly licensed by
the DENR to engage in the extraction or removal of minerals from the ground,
and that they were large-scale miners. The decretal portion of the PA resolution
pronounces:
VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Expoloration
Permit No. 133 is hereby reiterated and all the adverse claims against MPSAA
No. 128 are DISMISSED.13
Undaunted by the PA ruling, the adverse claimants appealed to the Mines
Adjudication Board (MAB). In a Decision dated 6 January 1998, the MAB
considered erroneous the dismissal by the PA of the adverse claims filed against
MMC and SEM over a mere technicality of failure to submit a sketch plan. It
argued that the rules of procedure are not meant to defeat substantial justice as the
former are merely secondary in importance to the latter. Dealing with the question
on EP 133‘s validity, the MAB opined that said issue was not crucial and was
irrelevant in adjudicating the appealed case because EP 133 has long expired due
to its non-renewal and that the holder of the same, MMC, was no longer a
claimant of the Agusan-Davao-Surigao Forest Reserve having relinquished its
right to SEM. After it brushed aside the issue of the validity of EP 133 for being
irrelevant, the MAB proceeded to treat SEM‘s MPSA application over the
disputed area as an entirely new and distinct application. It approved the MPSA
application, excluding the area segregated by DAO No. 66, which declared 729
hectares within the Diwalwal area as non-forest lands open for small-scale
mining. The MAB resolved:
WHEREFORE, PREMISES CONSIDERED, the decision of the Panel of
Arbitrators dated 13 June 1997 is hereby VACATED and a new one entered in the
records of the case as follows:
1. SEM‘s MPSA application is hereby given due course subject to the
full and strict compliance of the provisions of the Mining Act and its
Implementing Rules and Regulations;
2. The area covered by DAO 66, series of 1991, actually occupied and
actively mined by the small-scale miners on or before August 1, 1987 as
determined by the Provincial Mining Regulatory Board (PMRB), is
hereby excluded from the area applied for by SEM;
3. A moratorium on all mining and mining-related activities, is hereby
imposed until such time that all necessary procedures, licenses, permits,
and other requisites as provided for by RA 7076, the Mining Act and its
Course Outline
Agency, Partnership & Trust
Implementing Rules and Regulations and all other pertinent laws, rules
and regulations are complied with, and the appropriate environmental
protection measures and safeguards have been effectively put in place;
4. Consistent with the spirit of RA 7076, the Board encourages SEM and
all small-scale miners to continue to negotiate in good faith and arrive at
an agreement beneficial to all. In the event of SEM‘s strict and full
compliance with all the requirements of the Mining Act and its
Implementing Rules and Regulations, and the concurrence of the small-
scale miners actually occupying and actively mining the area, SEM may
apply for the inclusion of portions of the areas segregated under
paragraph 2 hereof, to its MPSA application. In this light, subject to the
preceding paragraph, the contract between JB [JB Management Mining
Corporation] and SEM is hereby recognized. 14
Dissatisfied, the Villaflor group and Balite appealed the decision to this Court.
SEM, aggrieved by the exclusion of 729 hectares from its MPSA application,
likewise appealed. Apex filed a Motion for Leave to Admit Petition for
Intervention predicated on its right to stake its claim over the Diwalwal gold rush
which was granted by the Court. These cases, however, were remanded to the
Court of Appeals for proper disposition pursuant to Rule 43 of the 1997 Rules of
Civil Procedure. The Court of Appeals consolidated the remanded cases as CA-
G.R. SP No. 61215 and No. 61216.
In the assailed Decision15 dated 13 March 2002, the Court of Appeals affirmed in
toto the decision of the PA and declared null and void the MAB decision.
The Court of Appeals, banking on the premise that the SEM is the agent of MMC
by virtue of its assignment of EP 133 in favor of SEM and the purported fact that
SEM is a 100% subsidiary of MMC, ruled that the transfer of EP 133 was valid. It
argued that since SEM is an agent of MMC, the assignment of EP 133 did not
violate the condition therein prohibiting its transfer except to MMC‘s duly
designated agent. Thus, despite the non-renewal of EP 133 on 6 July 1994, the
Court of Appeals deemed it relevant to declare EP 133 as valid since MMC‘s
mining rights were validly transferred to SEM prior to its expiration.
The Court of Appeals also ruled that MMC‘s right to explore under EP 133 is a
property right which the 1987 Constitution protects and which cannot be divested
without the holder‘s consent. It stressed that MMC‘s failure to proceed with the
extraction and utilization of minerals did not diminish its vested right to explore
because its failure was not attributable to it.
45 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and
Sections 6, 7, and 8 of Presidential Decree No. 463, the Court of Appeals
concluded that the issuance of DAO No. 66 was done by the DENR Secretary
beyond his power for it is the President who has the sole power to withdraw from
the forest reserve established under Proclamation No. 369 as non-forest land for
mining purposes. Accordingly, the segregation of 729 hectares of mining areas
from the coverage of EP 133 by the MAB was unfounded.
The Court of Appeals also faulted the DENR Secretary in implementing DAO No.
66 when he awarded the 729 hectares segregated from the coverage area of EP
133 to other corporations who were not qualified as small-scale miners under
Republic Act No. 7076.
As to the petitions of Villaflor and company, the Court of Appeals argued that
their failure to submit the sketch plan to the PA, which is a jurisdictional
requirement, was fatal to their appeal. It likewise stated the Villaflor and
company‘s mining claims, which were based on their alleged rights under DAO
No. 66, cannot stand as DAO No. 66 was null and void. The dispositive portion of
the Decision decreed:
WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold
Mining Corporation is GRANTED while the Petition of Rosendo Villaflor, et al.,
is DENIED for lack of merit. The Decision of the Panel of Arbitrators dated 13
June 1997 is AFFIRMED in toto and the assailed MAB Decision is hereby SET
ASIDE and declared as NULL and VOID.16
Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules
of Court filed by Apex, Balite and MAB.
During the pendency of these Petitions, President Gloria Macapagal-Arroyo
issued Proclamation No. 297 dated 25 November 2002. This proclamation
excluded an area of 8,100 hectares located in Monkayo, Compostela Valley, and
proclaimed the same as mineral reservation and as environmentally critical area.
Subsequently, DENR Administrative Order No. 2002-18 was issued declaring an
emergency situation in the Diwalwal gold rush area and ordering the stoppage of
all mining operations therein. Thereafter, Executive Order No. 217 dated 17 June
2003 was issued by the President creating the National Task Force Diwalwal
which is tasked to address the situation in the Diwalwal Gold Rush Area.
In G.R. No. 152613 and No. 152628, Apex raises the following issues:
I
Course Outline
Agency, Partnership & Trust
WHETHER OR NOT SOUTHEAST MINDANAO GOLD MINING‘S [SEM]
E.P. 133 IS NULL AND VOID DUE TO THE FAILURE OF MARCOPPER TO
COMPLY WITH THE TERMS AND CONDITIONS PRESCRIBED IN EP 133.
II
WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL
RIGHT TO STAKE IT‘S CLAIM OVER THE ENTIRE 4,941 HECTARES
AGAINST SEM AND THE OTHER CLAIMANTS PURSUANT TO THE
TIME-HONORED PRINCIPLE IN MINING LAW THAT "PRIORITY IN TIME
IS PRIORITY IN RIGHT."17
In G.R. No. 152619-20, Balite anchors its petition on the following grounds:
I thus, MMC and its successor-in-interest SEM lost their rights in the Diwalwal
WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9)
DAYS LATE (JUNE 23, 1994) FROM THE FILING OF THE MPSA OF
BALITE WHICH WAS FILED ON JUNE 14, 1994 HAS A PREFERENTIAL
RIGHT OVER THAT OF BALITE.
II
WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS
OF THE ADVERSE CLAIM OF BALITE ON THE GROUND THAT BALITE
FAILED TO SUBMIT THE REQUIRED SKETCH PLAN DESPITE THE FACT
THAT BALITE, HAD IN FACT SUBMITTED ON TIME WAS A VALID
DISMISSAL OF BALITE‘S ADVERSE CLAIM.
III
WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING
OPERATIONS OF BALITE PURSUANT TO DAO 66 IN THE 729 HECTARES
WHICH WAS PART OF THE 4,941.6759 HECTARES COVERED BY ITS
MPSA WHICH WAS REJECTED BY THE BUREAU OF MINES AND
GEOSCIENCES WAS ILLEGAL.18
In G.R. No. 152870-71, the MAB submits two issues, to wit:
I reserved lands in order to acquire priority right over the area. MMC, Apex claims,
WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.
II
WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT
SUCH AS THE ISSUANCE OF DAO NO. 66, PROCLAMATION NO. 297,
AND EXECUTIVE ORDER 217 CAN OUTWEIGH EP NO. 133 AS WELL AS
OTHER ADVERSE CLAIMS OVER THE DIWALWAL GOLD RUSH AREA. 19
The common issues raised by petitioners may be summarized as follows:
46 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
I. Whether or not the Court of Appeals erred in upholding the validity
and continuous existence of EP 133 as well as its transfer to SEM;
II. Whether or not the Court of Appeals erred in declaring that the DENR
Secretary has no authority to issue DAO No. 66; and
III. Whether or not the subsequent acts of the executive department such
as the issuance of Proclamation No. 297, and DAO No. 2002-18 can
outweigh Apex and Balite‘s claims over the Diwalwal Gold Rush Area.
On the first issue, Apex takes exception to the Court of Appeals‘ ruling upholding
the validity of MMC‘s EP 133 and its subsequent transfer to SEM asserting that
MMC failed to comply with the terms and conditions in its exploration permit,
Gold Rush Area. Apex pointed out that MMC violated four conditions in its
permit. First, MMC failed to comply with the mandatory work program, to
complete exploration work, and to declare a mining feasibility. Second, it reneged
on its duty to submit an Environmental Compliance Certificate. Third, it failed to
comply with the reportorial requirements. Fourth, it violated the terms of EP 133
when it assigned said permit to SEM despite the explicit proscription against its
transfer.
Apex likewise emphasizes that MMC failed to file its MPSA application required
under DAO No. 8220 which caused its exploration permit to lapse because DAO
No. 82 mandates holders of exploration permits to file a Letter of Intent and a
MPSA application not later than 17 July 1991. It said that because EP 133 expired
prior to its assignment to SEM, SEM‘s MPSA application should have been
evaluated on its own merit.
As regards the Court of Appeals recognition of SEM‘s vested right over the
disputed area, Apex bewails the same to be lacking in statutory bases. According
to Apex, Presidential Decree No. 463 and Republic Act No. 7942 impose upon the
claimant the obligation of actually undertaking exploration work within the
failed to conduct the necessary exploration work, thus, MMC and its successor-in-
interest SEM lost any right over the area.
In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-
interest of SEM, is an expired and void permit which cannot be made the basis of
SEM‘s MPSA application.
Similarly, the MAB underscores that SEM did not acquire any right from MMC
by virtue of the transfer of EP 133 because the transfer directly violates the
express condition of the exploration permit stating that "it shall be for the
Course Outline
Agency, Partnership & Trust
exclusive use and benefit of the permittee or his duly authorized agents." It added
that while MMC is the permittee, SEM cannot be considered as MMC‘s duly
designated agent as there is no proof on record authorizing SEM to represent
MMC in its business dealings or undertakings, and neither did SEM pursue its
interest in the permit as an agent of MMC. According to the MAB, the assignment
by MMC of EP 133 in favor of SEM did not make the latter the duly authorized
agent of MMC since the concept of an agent under EP 133 is not equivalent to the
concept of assignee. It finds fault in the assignment of EP 133 which lacked the
approval of the DENR Secretary in contravention of Section 25 of Republic Act
No. 794221 requiring his approval for a valid assignment or transfer of exploration
permit to be valid.
SEM, on the other hand, counters that the errors raised by petitioners Apex, Balite
and the MAB relate to factual and evidentiary matters which this Court cannot
inquire into in an appeal by certiorari.
The established rule is that in the exercise of the Supreme Court‘s power of
review, the Court not being a trier of facts, does not normally embark on a re-
examination of the evidence presented by the contending parties during the trial of
the case considering that the findings of facts of the Court of Appeals are
conclusive and binding on the Court.22 This rule, however, admits of exceptions as
recognized by jurisprudence, to wit:
(1) [w]hen the findings are grounded entirely on speculation, 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 misapprehension of facts; (5) when the findings of facts are conflicting;
(6) when in making its findings the Court of Appeals went beyond the issues of
the case, or its findings are contrary to the admissions of both the appellant and
the appellee; (7) when the findings are contrary to the trial court; (8) when the
findings are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the petitioner‘s main
and reply briefs are not disputed by the respondent; (10) when the findings of fact
are premised on the supposed absence of evidence and contradicted by the
evidence on record; and (11) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.23
Also, in the case of Manila Electric Company v. Benamira,24 the Court in a
Petition for Review on Certiorari, deemed it proper to look deeper into the factual
circumstances of the case since the Court of Appeal‘s findings are at odds to those
47 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
of the National Labor Relations Commission (NLRC). Just like in the foregoing
case, it is this Court‘s considered view that a re-evaluation of the attendant facts
surrounding the present case is appropriate considering that the findings of the
MAB are in conflict with that of the Court of Appeals.
I
At the threshold, it is an undisputed fact that MMC assigned to SEM all its rights
under EP 133 pursuant to a Deed of Assignment dated 16 February 1994. 25
EP 133 is subject to the following terms and conditions26 :
1. That the permittee shall abide by the work program submitted with the
application or statements made later in support thereof, and which shall
be considered as conditions and essential parts of this permit;
2. That permittee shall maintain a complete record of all activities and
accounting of all expenditures incurred therein subject to periodic
inspection and verification at reasonable intervals by the Bureau of
Mines at the expense of the applicant;
3. That the permittee shall submit to the Director of Mines within 15 days
after the end of each calendar quarter a report under oath of a full and
complete statement of the work done in the area covered by the permit;
4. That the term of this permit shall be for two (2) years to be effective
from this date, renewable for the same period at the discretion of the
Director of Mines and upon request of the applicant;
5. That the Director of Mines may at any time cancel this permit for
violation of its provision or in case of trouble or breach of peace arising
in the area subject hereof by reason of conflicting interests without any
responsibility on the part of the government as to expenditures for
exploration that might have been incurred, or as to other damages that
might have been suffered by the permittee; and
6. That this permit shall be for the exclusive use and benefit of the
permittee or his duly authorized agents and shall be used for mineral
exploration purposes only and for no other purpose.
Under Section 9027 of Presidential Decree No. 463, the applicable statute during
the issuance of EP 133, the DENR Secretary, through Director of BMG, is
charged with carrying out the said law. Also, under Commonwealth Act No. 136,
also known as "An Act Creating The Bureau of Mines," which was approved on 7
November 1936, the Director of Mines has the direct charge of the administration
of the mineral lands and minerals, and of the survey, classification, lease or any
other form of concession or disposition thereof under the Mining Act.28 This
Course Outline
Agency, Partnership & Trust
power of administration includes the power to prescribe terms and conditions in
granting exploration permits to qualified entities. Thus, in the grant of EP 133 in
favor of the MMC, the Director of the BMG acted within his power in laying
down the terms and conditions attendant thereto.
Condition number 6 categorically states that the permit shall be for the exclusive
use and benefit of MMC or its duly authorized agents. While it may be true that
SEM, the assignee of EP 133, is a 100% subsidiary corporation of MMC, records
are bereft of any evidence showing that the former is the duly authorized agent of
the latter. For a contract of agency to exist, it is essential that the principal
consents that the other party, the agent, shall act on its behalf, and the agent
consents so as to act.29 In the case of Yu Eng Cho v. Pan American World
Airways, Inc.,30this Court had the occasion to set forth the elements of agency,
viz:
(1) consent, express or implied, of the parties to establish the
relationship;
(2) the object is the execution of a juridical act in relation to a third
person;
(3) the agent acts as a representative and not for himself;
(4) the agent acts within the scope of his authority.
The existence of the elements of agency is a factual matter that needs to be
established or proven by evidence. The burden of proving that agency is extant in
a certain case rests in the party who sets forth such allegation. This is based on the
principle that he who alleges a fact has the burden of proving it.31 It must likewise
be emphasized that the evidence to prove this fact must be clear, positive and
convincing.32
In the instant Petitions, it is incumbent upon either MMC or SEM to prove that a
contract of agency actually exists between them so as to allow SEM to use and
benefit from EP 133 as the agent of MMC. SEM did not claim nor submit proof
that it is the designated agent of MMC to represent the latter in its business
dealings or undertakings. SEM cannot, therefore, be considered as an agent of
MMC which can use EP 133 and benefit from it. Since SEM is not an authorized
agent of MMC, it goes without saying that the assignment or transfer of the permit
in favor of SEM is null and void as it directly contravenes the terms and
conditions of the grant of EP 133.
Furthermore, the concept of agency is distinct from assignment. In agency, the
agent acts not on his own behalf but on behalf of his principal. 33 While in
assignment, there is total transfer or relinquishment of right by the assignor to the
48 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
assignee.34 The assignee takes the place of the assignor and is no longer bound to
the latter. The deed of assignment clearly stipulates:
1. That for ONE PESO (P1.00) and other valuable consideration received by the
ASSIGNOR from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS,
TRANSFERS and CONVEYS unto the ASSIGNEE whatever rights or interest
the ASSIGNOR may have in the area situated in Monkayo, Davao del Norte and
Cateel, Davao Oriental, identified as Exploration Permit No. 133 and Application
for a Permit to Prospect in Bunawan, Agusan del Sur respectively. 35
Bearing in mind the just articulated distinctions and the language of the Deed of
Assignment, it is readily obvious that the assignment by MMC of EP 133 in favor
of SEM did not make the latter the former‘s agent. Such assignment involved
actual transfer of all rights and obligations MMC have under the permit in favor
of SEM, thus, making SEM the permittee. It is not a mere grant of authority to
SEM, as an agent of MMC, to use the permit. It is a total abdication of MMC‘s
rights over the permit. Hence, the assignment in question did not make SEM the
authorized agent of MMC to make use and benefit from EP 133.
The condition stipulating that the permit is for the exclusive use of the permittee
or its duly authorized agent is not without any reason. Exploration permits are
strictly granted to entities or individuals possessing the resources and capability to
undertake mining operations. Without such a condition, non-qualified entities or
individuals could circumvent the strict requirements under the law by the simple
expediency acquiring the permit from the original permittee.
We cannot lend recognition to the Court of Appeals‘ theory that SEM, being a
100% subsidiary of MMC, is automatically an agent of MMC.
A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes, and properties expressly authorized by law
or incident to its existence.36 It is an artificial being invested by law with a
personality separate and distinct from those of the persons composing it as well as
from that of any other legal entity to which it may be related. 37 Resultantly, absent
any clear proof to the contrary, SEM is a separate and distinct entity from MMC.
The Court of Appeals pathetically invokes the doctrine of piercing the corporate
veil to legitimize the prohibited transfer or assignment of EP 133. It stresses that
SEM is just a business conduit of MMC, hence, the distinct legal personalities of
the two entities should not be recognized. True, the corporate mask may be
removed when the corporation is just an alter ego or a mere conduit of a person or
of another corporation.38 For reasons of public policy and in the interest of justice,
the corporate veil will justifiably be impaled only when it becomes a shield for
Course Outline
Agency, Partnership & Trust
fraud, illegality or inequity committed against a third person. 39 However, this
Court has made a caveat in the application of the doctrine of piercing the
corporate veil. Courts should be mindful of the milieu where it is to be applied.
Only in cases where the corporate fiction was misused to such an extent that
injustice, fraud or crime was committed against another, in disregard of its rights
may the veil be pierced and removed. Thus, a subsidiary corporation may be made
to answer for the liabilities and/or illegalities done by the parent corporation if the
former was organized for the purpose of evading obligations that the latter may
have entered into. In other words, this doctrine is in place in order to expose and
hold liable a corporation which commits illegal acts and use the corporate fiction
to avoid liability from the said acts. The doctrine of piercing the corporate veil
cannot therefore be used as a vehicle to commit prohibited acts because these acts
are the ones which the doctrine seeks to prevent.
To our mind, the application of the foregoing doctrine is unwarranted. The
assignment of the permit in favor of SEM is utilized to circumvent the condition
of non-transferability of the exploration permit. To allow SEM to avail itself of
this doctrine and to approve the validity of the assignment is tantamount to
sanctioning illegal act which is what the doctrine precisely seeks to forestall.
Quite apart from the above, a cursory consideration of the mining law pertinent to
the case, will, indeed, demonstrate the infraction committed by MMC in its
assignment of EP 133 to SEM.
Presidential Decree No. 463, enacted on 17 May 1974, otherwise known as the
Mineral Resources Development Decree, which governed the old system of
exploration, development, and utilization of mineral resources through "license,
concession or lease" prescribed:
SEC. 97. Assignment of Mining Rights. – A mining lease contract or any interest
therein shall not be transferred, assigned, or subleased without the prior approval
of the Secretary: Provided, That such transfer, assignment or sublease may be
made only to a qualified person possessing the resources and capability to
continue the mining operations of the lessee and that the assignor has complied
with all the obligations of the lease: Provided, further, That such transfer or
assignment shall be duly registered with the office of the mining recorder
concerned. (Emphasis supplied.)
The same provision is reflected in Republic Act No. 7942, otherwise known as the
Philippine Mining Act of 1995, which is the new law governing the exploration,
development and utilization of the natural resources, which provides:
49 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
SEC. 25. Transfer or Assignment. - An exploration permit may be transferred or
assigned to a qualified person subject to the approval of the Secretary upon the
recommendation of the Director.
The records are bereft of any indication that the assignment bears the imprimatur
of the Secretary of the DENR. Presidential Decree No. 463, which is the
governing law when the assignment was executed, explicitly requires that the
transfer or assignment of mining rights, including the right to explore a mining
area, must be with the prior approval of the Secretary of DENR. Quite
conspicuously, SEM did not dispute the allegation that the Deed of Assignment
was made without the prior approval of the Secretary of DENR. Absent the prior
approval of the Secretary of DENR, the assignment of EP 133, was, therefore,
without legal effect for violating the mandatory provision of Presidential Decree
No. 463.
An added significant omission proved fatal to MMC/SEM‘s cause. While it is true
that the case of Apex Mining Co., Inc. v. Garcia40 settled the issue of which
between Apex and MMC validly acquired mining rights over the disputed area,
such rights, though, had been extinguished by subsequent events. Records indicate
that on 6 July 1993, EP 133 was extended for 12 months or until 6 July
1994.41 MMC never renewed its permit prior and after its expiration. Thus, EP
133 expired by non-renewal.
With the expiration of EP 133 on 6 July 1994, MMC lost any right to the
Diwalwal Gold Rush Area. SEM, on the other hand, has not acquired any right to
the said area because the transfer of EP 133 in its favor is invalid. Hence, both
MMC and SEM have not acquired any vested right over the 4,941.6759 hectares
which used to be covered by EP 133.
II
The Court of Appeals theorizes that DAO No. 66 was issued beyond the power of
the DENR Secretary since the power to withdraw lands from forest reserves and
to declare the same as an area open for mining operation resides in the President.
Under Proclamation No. 369 dated 27 February 1931, the power to convert forest
reserves as non-forest reserves is vested with the DENR Secretary. Proclamation
No. 369 partly states:
From this reserve shall be considered automatically excluded all areas which had
already been certified and which in the future may be proclaimed as classified and
certified lands and approved by the Secretary of Agriculture and Natural
Resources.42
Course Outline
Agency, Partnership & Trust
However, a subsequent law, Commonwealth Act No. 137, otherwise known as
"The Mining Act" which was approved on 7 November 1936 provides:
Sec. 14. Lands within reservations for purposes other than mining, which, after
such reservation is made, are found to be more valuable for their mineral contents
than for the purpose for which the reservation was made, may be withdrawn from
such reservations by the President with the concurrence of the National Assembly,
and thereupon such lands shall revert to the public domain and be subject to
disposition under the provisions of this Act.
Unlike Proclamation No. 369, Commonwealth Act No. 137 vests solely in the
President, with the concurrence of the National Assembly, the power to withdraw
forest reserves found to be more valuable for their mineral contents than for the
purpose for which the reservation was made and convert the same into non-forest
reserves. A similar provision can also be found in Presidential Decree No. 463
dated 17 May 1974, with the modifications that (1) the declaration by the
President no longer requires the concurrence of the National Assembly and (2) the
DENR Secretary merely exercises the power to recommend to the President which
forest reservations are to be withdrawn from the coverage thereof. Section 8 of
Presidential Decree No. 463 reads:
SEC. 8. Exploration and Exploitation of Reserved Lands. – When lands within
reservations, which have been established for purposes other than mining, are
found to be more valuable for their mineral contents, they may, upon
recommendation of the Secretary be withdrawn from such reservation by the
President and established as a mineral reservation.
Against the backdrop of the applicable statutes which govern the issuance of DAO
No. 66, this Court is constrained to rule that said administrative order was issued
not in accordance with the laws. Inescapably, DAO No. 66, declaring 729 hectares
of the areas covered by the Agusan-Davao-Surigao Forest Reserve as non-forest
land open to small-scale mining operations, is null and void as, verily, the DENR
Secretary has no power to convert forest reserves into non-forest reserves.
III
It is the contention of Apex that its right over the Diwalwal gold rush area is
superior to that of MMC or that of SEM because it was the first one to occupy and
take possession of the area and the first to record its mining claims over the area.
For its part, Balite argues that with the issuance of DAO No. 66, its occupation in
the contested area, particularly in the 729 hectares small-scale mining area, has
entitled it to file its MPSA. Balite claims that its MPSA application should have
been given preference over that of SEM because it was filed ahead.
50 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
The MAB, on the other hand, insists that the issue on who has superior right over
the disputed area has become moot and academic by the supervening events. By
virtue of Proclamation No. 297 dated 25 November 2002, the disputed area was
declared a mineral reservation.
Proclamation No. 297 excluded an area of 8,100 hectares located in Monkayo,
Compostela Valley, and proclaimed the same as mineral reservation and as
environmentally critical area, viz:
WHEREAS, by virtue of Proclamation No. 369, series of 1931, certain tracts of
public land situated in the then provinces of Davao, Agusan and Surigao, with an
area of approximately 1,927,400 hectares, were withdrawn from settlement and
disposition, excluding, however, those portions which had been certified and/or
shall be classified and certified as non-forest lands;
WHEREAS, gold deposits have been found within the area covered by
Proclamation No. 369, in the Municipality of Monkayo, Compostela Valley
Province, and unregulated small to medium-scale mining operations have, since
1983, been undertaken therein, causing in the process serious environmental,
health, and peace and order problems in the area;
WHEREAS, it is in the national interest to prevent the further degradation of the
environment and to resolve the health and peace and order problems spawned by
the unregulated mining operations in the said area;
WHEREAS, these problems may be effectively addressed by rationalizing mining
operations in the area through the establishment of a mineral reservation;
WHEREAS, after giving due notice, the Director of Mines and Geoxciences
conducted public hearings on September 6, 9 and 11, 2002 to allow the concerned
sectors and communities to air their views regarding the establishment of a
mineral reservation in the place in question;
WHEREAS, pursuant to the Philippine Mining Act of 1995 (RA 7942), the
President may, upon the recommendation of the Director of Mines and
Geosciences, through the Secretary of Environment and Natural Resources, and
when the national interest so requires, establish mineral reservations where mining
operations shall be undertaken by the Department directly or thru a contractor;
WHEREAS, as a measure to attain and maintain a rational and orderly balance
between socio-economic growth and environmental protection, the President may,
pursuant to Presidential Decree No. 1586, as amended, proclaim and declare
certain areas in the country as environmentally critical;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the
Philippines, upon recommendation of the Secretary of the Department of
Course Outline
Agency, Partnership & Trust
Environment and Natural Resources (DENR), and by virtue of the powers vested
in me by law, do hereby exclude certain parcel of land located in Monkayo,
Compostela Valley, and proclaim the same as mineral reservation and as
environmentally critical area, with metes and bound as defined by the following
geographical coordinates;
xxxx
with an area of Eight Thousand One Hundred (8,100) hectares, more or less.
Mining operations in the area may be undertaken either by the DENR directly,
subject to payment of just compensation that may be due to legitimate and
existing claimants, or thru a qualified contractor, subject to existing rights, if any.
The DENR shall formulate and issue the appropriate guidelines, including the
establishment of an environmental and social fund, to implement the intent and
provisions of this Proclamation.
Upon the effectivity of the 1987 Constitution, the State assumed a more dynamic
role in the exploration, development and utilization of the natural resources of the
country.43 With this policy, the State may pursue full control and supervision of
the exploration, development and utilization of the country‘s natural mineral
resources. The options open to the State are through direct undertaking or by
entering into co-production, joint venture, or production-sharing agreements, or
by entering into agreement with foreign-owned corporations for large-scale
exploration, development and utilization. 44 Thus, Article XII, Section 2, of the
1987 Constitution, specifically states:
SEC. 2. All lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State. With
the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources shall
be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such
citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. x x x
xxxx
The President may enter into agreements with foreign-owned corporations
involving either technical or financial assistance for large-scale exploration,
51 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
development, and utilization of minerals, petroleum, and other mineral oils
according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. x x x
(Underscoring supplied.)
Recognizing the importance of the country‘s natural resources, not only for
national economic development, but also for its security and national defense,
Section 5 of Republic Act No. 7942 empowers the President, when the national
interest so requires, to establish mineral reservations where mining operations
shall be undertaken directly by the State or through a contractor.
To implement the intent and provisions of Proclamation No. 297, the DENR
Secretary issued DAO No. 2002-18 dated 12 August 2002 declaring an
emergency situation in the Diwalwal Gold Rush Area and ordering the stoppage
of all mining operations therein.
The issue on who has priority right over the disputed area is deemed overtaken by
the above subsequent developments particularly with the issuance of Proclamation
297 and DAO No. 2002-18, both being constitutionally-sanctioned acts of the
Executive Branch. Mining operations in the Diwalwal Mineral Reservation are
now, therefore, within the full control of the State through the executive branch.
Pursuant to Section 5 of Republic Act No. 7942, the State can either directly
undertake the exploration, development and utilization of the area or it can enter
into agreements with qualified entities, viz:
SEC 5. Mineral Reservations. – When the national interest so requires, such as
when there is a need to preserve strategic raw materials for industries critical to
national development, or certain minerals for scientific, cultural or ecological
value, the President may establish mineral reservations upon the recommendation
of the Director through the Secretary. Mining operations in existing mineral
reservations and such other reservations as may thereafter be established, shall be
undertaken by the Department or through a contractor x x x .
It is now up to the Executive Department whether to take the first option, i.e., to
undertake directly the mining operations of the Diwalwal Gold Rush Area. As
already ruled, the State may not be precluded from considering a direct takeover
of the mines, if it is the only plausible remedy in sight to the gnawing
complexities generated by the gold rush. The State need be guided only by the
demands of public interest in settling on this option, as well as its material and
logistic feasibility.45 The State can also opt to award mining operations in the
mineral reservation to private entities including petitioners Apex and Balite, if it
Course Outline
Agency, Partnership & Trust
wishes. The exercise of this prerogative lies with the Executive Department over
which courts will not interfere.
WHEREFORE, premises considered, the Petitions of Apex, Balite and the MAB
are PARTIALLY GRANTED, thus:
1. We hereby REVERSE and SET ASIDE the Decision of the Court of
Appeals, dated 13 March 2002, and hereby declare that EP 133 of MMC
has EXPIRED on 7 July 1994 and that its subsequent transfer to SEM on
16 February 1994 is VOID.
2. We AFFIRM the finding of the Court of Appeals in the same Decision
declaring DAO No. 66 illegal for having been issued in excess of the
DENR Secretary‘s authority.
Consequently, the State, should it so desire, may now award mining operations in
the disputed area to any qualified entity it may determine. No costs.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
FACTS:
A motion for reconsideration was filed by SEM. The Assailed Decision held that
the assignment of Exploration Permit (EP) 133 in favor of SEM violated one of
the conditions stipulated in the permit. It also ruled that the transfer of EP 133
violated Presidential Decree No. 463, which requires that the assignment of a
mining right be made with the prior approval of the Secretary of the Department
of Environment and Natural Resources (DENR). Moreover, the Assailed Decision
pointed out that EP 133 expired by non-renewal since it was not renewed before
or after its expiration. It likewise upheld the validity of Proclamation No. 297
absent any question against its validity. In view of this, and
considering that under Section 5 of Republic Act No. 7942, otherwise known as
the ―Mining Act of 1995,‖ mining operations in mineral re
servations may be undertaken directly by the State or through a contractor, the
Court deemed the issue of ownership of priority right over the contested Diwalwal
Gold Rush Area as having been overtaken by the said proclamation. Thus, it was
held in the Assailed Decision that it is now within the prerogative of the Executive
Department to undertake directly the mining operations of the disputed area or to
award the operations to private entities including petitioners Apex and Balite,
subject to applicable laws, rules and regulations, and provided that these private
52 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
entities are qualified. Apex, for its part, filed a Motion for Clarification of the
Assailed Decision, praying that the
Court elucidate on the Decision‘s pronouncement that ―mining operations, are
now, therefore within the
full control of the State through the executive branch.‖ Moreover, Apex asks this
Court to order the
Mines and Geosciences Board (MGB) to accept its application for an exploration
permit. Balite echoes the same concern as that of Apex on the actual takeover by
the State of the mining industry in the disputed area to the exclusion of the private
sector. In addition, Balite prays for this Court to direct MGB to accept its
application for an exploration permit. CamiloBanad, et al., likewise filed a motion
for reconsideration and prayed that the disputed area be awarded to them. In the
Resolution, the Court En Banc resolved to accept the instant cases.
ISSUES:
1. Whether the transfer or assignment of Exploration Permit (EP) 133 by MMC to
SEM was validly made without violating any of the terms and conditions set forth
in Presidential Decree No. 463 and EP 133 itself.
2. Whether Southeast Mindanao Mining Corp. acquired a vested right over the
disputed area, which constitutes a property right protected by the Constitution.
3. Whether the assailed Decision dated 23 June 2006 of the Third Division in this
case is contrary to and overturns the earlier Decision of this Court in Apex v.
Garcia (G.R. No. 92605, 16 July 1991, 199 SCRA 278).
4. Whether the issuance of Proclamation No. 297 declaring the disputed area as
mineral reservation outweighs the claims of SEM, Apex Mining Co. Inc. and
Balite Communal Portal Mining Cooperative over the Diwalwal Gold Rush Area.
5. Whether the issue of the legality/constitutionality of Proclamation No. 297 was
belatedly raised.
HELD:
Course Outline
Agency, Partnership & Trust
1. The assailed Decision did not overturn the 16 July 1991 Decision in Apex
Mining Co., Inc. v. Garcia. The former was decided on facts and issues that were
not attendant in the latter, such as the expiration of EP 133, the violation of the
condition embodied in EP 133 prohibiting its assignment, and the unauthorized
and invalid assignment of EP 133 by MMC to SEM, since this assignment was
effected without the approval of the Secretary of DENR;
2. SEM did not acquire vested right over the disputed area because its supposed
right was extinguished by the expiration of its exploration permit and by its
violation of the condition prohibiting the assignment of EP 133 by MMC to SEM.
In addition, even assuming that SEM has a valid exploration permit, such is a
mere license that can be withdrawn by the State. In fact, the same has been
withdrawn by the issuance of Proclamation No. 297, which places the disputed
area under the full control of the State through the Executive Department;
3. The approval requirement under Section 97 of Presidential Decree No. 463
applies to the assignment of EP 133 by MMC to SEM, since the exploration
permit is an interest in a mining lease contract;
4. The issue of the constitutionality and the legality of Proclamation No. 297 was
raised belatedly, as SEM questions the same for the first time in its Motion for
Reconsideration. Even if the issue were to be entertained, the said proclamation is
found to be in harmony with the Constitution and other existing statutes;
5. The motion for reconsideration of CamiloBanad, et al. cannot be passed upon
because they are not parties to the instant cases;
6. The prayers of Apex and Balite asking the Court to direct the MGB to accept
their applications for exploration permits cannot be granted, since it is the
Executive Department that has the prerogative to accept such applications, if ever
it decides to award the mining operations in the disputed area to a private entity;
Victorias Milling vs. CA, GR No. 117356, June 19, 2000
[G.R. No. 117356. June 19, 2000.]
VICTORIAS MILLING CO., INC., Petitioner, v. COURT OF APPEALS and
53 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
CONSOLIDATED SUGAR CORPORATION, Respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the decision of the Court of Appeals dated February 24, 1994, in
CA-G.R. CV No. 31717, as well as the respondent court‘s resolution of
September 30, 1994 modifying said decision. Both decision and resolution
amended the judgment dated February 13, 1991, of the Regional Trial Court of
Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from
petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings,
petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as
proof of purchases. Among these was SLDR No. 1214M, which gave rise to the
instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of
sugar. Each bag contained 50 kilograms and priced at P638.00 per bag as "per
sales order VMC Marketing No. 042 dated October 16, 1989." 1 The transaction it
covered was a "direct sale." 2 The SLDR also contains an additional note which
reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)." 3
On October 25, 1989, STM sold to private respondent Consolidated Sugar
Corporation (CSC) its rights in SLDR No. 1214M for P14,750,000.00. 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
Course Outline
Agency, Partnership & Trust
On October 27, 1989, STM issued 16 checks in the total amount of
P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official
Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said
checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks
also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner‘s
NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000
bags had been released, petitioner refused to allow further withdrawals of sugar
against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23,
1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but
that it had been refused further withdrawals of sugar from petitioner‘s warehouse
despite the fact that only 2,000 bags had been withdrawn. 5 CSC thus inquired
when it would be allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further
withdrawals of sugar against SLDR No. 1214M because STM had already
withdrawn all the sugar covered by the cleared checks. 6
On March 2, 1990, CSC sent petitioner a letter demanding the release of the
balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the
amount of STM‘s cleared checks had been fully withdrawn and hence, there
would be no more deliveries of the commodity to STM‘s account. Petitioner also
noted that CSC had represented itself to be STM‘s agent as it had withdrawn the
2,000 bags against SLDR No. 1214M "for and in behalf" of STM.chanrobles
virtuallawlibrary:red
On April 27, 1990, CSC filed a complaint for specific performance, docketed as
Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under
the name of St. Therese Merchandising) and herein petitioner. Since the former
could not be served with summons, the case proceeded only against the latter.
During the trial, it was discovered that Teresita Ng Go who testified for CSC was
the same Teresita Ng Sy who could not be reached through summons. 7 CSC,
however, did not bother to pursue its case against her, but instead used her as its
witness.
54 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
CSC‘s complaint alleged that STM had fully paid petitioner for the sugar covered
by SLDR No. 1214M. Therefore, the latter had no justification for refusing
delivery of the sugar. CSC prayed that petitioner be ordered to deliver the 23,000
bags covered by SLDR No. 1214M and sought the award of P1,104,000.00 in
unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as
attorney‘s fees and litigation expenses.
Petitioner‘s primary defense a quo was that it was an unpaid seller for the 23,000
bags. 8 Since STM had already drawn in full all the sugar corresponding to the
amount of its cleared checks, it could no longer authorize further delivery of sugar
to CSC. Petitioner also contended that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of
title, but mere delivery receipts issued pursuant to a series of transactions entered
into between it and STM. The SLDRs prescribed delivery of the sugar to the party
specified therein and did not authorize the transfer of said party‘s rights and
interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually
STM‘s co-conspirator to defraud it through a misrepresentation that CSC was an
innocent purchaser for value and in good faith. Petitioner then prayed that CSC be
ordered to pay it the following sums: P10,000,000.00 as moral damages;
P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney‘s fees.
Petitioner also prayed that cross-defendant STM be ordered to pay it
P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney‘s fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the
merits.
As earlier stated, the trial court rendered its judgment favoring private respondent
CSC, as follows:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in
favor of the plaintiff and against defendant Victorias Milling Company:
Course Outline
Agency, Partnership & Trust
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff
23,000 bags of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of
P920,000.00 as unrealized profits, the amount of P800,000.00 as exemplary
damages and the amount of P1,357,000.00, which is 10% of the acquisition value
of the undelivered bags of refined sugar in the amount of P13,570,000.00, as
attorney‘s fees, plus the costs.
"SO ORDERED." 9
It made the following observations:
" [T]he testimony of plaintiff‘s witness Teresita Ng Go, that she had fully paid the
purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her
covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for
the 25,000 bags of sugar bought by her covered by SLDR No. 1213 on the same
date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C
to C-15 inclusive which are post-dated checks dated October 27, 1989 issued by
St. Therese Merchandising in favor of Victorias Milling Company at the time it
purchased the 50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said
checks appear to have been honored and duly credited to the account of Victorias
Milling Company because on October 27, 1989 Victorias Milling Company issued
official receipt no. 34734 in favor of St. Therese Merchandising for the amount of
P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is further
supported by Exhibit F. which is a computer printout of defendant Victorias
Milling Company showing the quantity and value of the purchases made by St.
Therese Merchandising, the SLDR no. issued to cover the purchase, the official
receipt 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
55 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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 purchase price were dishonored check or any replacement check. Said
witness likewise failed to present any bank record showing that the checks issued
by the buyer, Teresita Ng Go, in payment of the purchase price of the sugar
covered by SLDR No. 1214 were dishonored." 10
Petitioner appealed the trial court‘s 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:
Course Outline
Agency, Partnership & Trust
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No.
1214M;
"2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the
undelivered bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED." 11
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its
decision to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders
defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No.
1214M;
"(2) Pay costs of suit.
"SO ORDERED." 12
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee‘s position.
"Exhibit ‗F‘ We relied upon in fixing the number of bags of sugar which remained
undelivered as 12,586 cannot be made the basis for such a finding. The rule is
explicit that courts should consider the evidence only for the purpose for which it
was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to
afford the party against whom the evidence is presented to object thereto if he
deems it necessary. Plaintiff-appellee is, therefore, correct in its argument that
Exhibit ‗F‘ which was offered to prove that checks in the total amount of
56 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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 1214M, after which it was not allowed to withdraw anymore.
Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, id., p. 80) showed that
plaintiff-appellee had sent demand letters to defendant-appellant asking the latter
to allow it to withdraw the remaining 23,000 bags of sugar from SLDR 1214M.
Defendant-appellant, on the other hand, alleged that sugar delivery to the STM
corresponded only to the value of cleared checks; and that all sugar corresponded
to cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-
appellee‘s assertions. It did not present evidence to show how many bags of sugar
had been withdrawn against SLDR No. 1214M, precisely because of its theory
that all sales in question were a series of one single transaction and withdrawal of
sugar depended on the clearing of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the findings of
the trial court on this point." 13
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM‘s and private
respondent‘s specially informing petitioner that respondent was authorized by
buyer STM to withdraw sugar against SLDR No. 1214M "for and in our (STM)
behalf," (emphasis in the original) private respondent‘s withdrawing 2,000 bags of
sugar for STM, and STM‘s empowering other persons as its agents to withdraw
sugar against the same SLDR No. 1214M, rendered respondent like the other
persons, an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81
SCRA 252, and precluded it from subsequently claiming and proving being an
assignee of SLDR No. 1214M and from suing by itself for its enforcement
because it was conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of
Court) and estopped from doing so. (Art. 1431, Civil Code).
"2. The Court of Appeals erred in manifestly and arbitrarily ignoring and
Course Outline
Agency, Partnership & Trust
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 set
off all its credits arising prior to notice of assignment from other sales or SLDRs
against private respondent‘s claim as assignee under SLDR No. 1214M, so as to
extinguish or reduce its liability to 69 bags, because the law on compensation
applies precisely to two or more distinct contracts between the same parties
(emphasis in the original).
4. The Court of Appeals erred in concluding that the settlement or liquidation of
accounts in Exh.‘F" between petitioner and STM, respondent‘s admission of its
balance, and STM‘s acquiescence thereto by silence for almost one year did not
render Exh.‘F‘ an account stated and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the assigned
SLDR No. 1214, namely, (a) its subject matter being generic, and (b) the sale of
sugar being subject to its availability at the Nawaco warehouse, made the sale
conditional and prevented STM or private respondent from acquiring title to the
sugar; and the non-availability of sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine
precluded respondent from seeking judicial reliefs (sic) from petitioner, its only
remedy being against its assignor." 14
Simply stated, the issues now to be resolved are:chanrob1es virtual 1aw library
(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
57 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
compensation to the transaction under SLDR No. 1214M so as to preclude
petitioner from offsetting its credits on the other SLDRs.
(3) Whether or not the Court of Appeals erred in not ruling that the sale of sugar
under SLDR No. 1214M was a conditional sale or a contract to sell and hence
freed petitioner from further obligations.
(4) Whether or not the Court of Appeals committed an error of law in not applying
the "clean hands doctrine" to preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for
the first time on appeal. It is settled that an issue which was not raised during the
trial in the court below could not be raised for the first time on appeal as to do so
would be offensive to the basic rules of fair play, justice, and due process. 15
Nonetheless, the Court of Appeals opted to address this issue, hence, now a matter
for our consideration.
Petitioner heavily relies upon STM‘s letter of authority allowing CSC to withdraw
sugar against SLDR No. 1214M to show that the latter was STM‘s agent. The
pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to
withdraw for and in our behalf (Emphasis supplied) the refined sugar covered by
Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October
16, 1989 in the total quantity of 25,000 bags." 16
The Civil Code defines a contract of agency as follows:
"ARTICLE 1868. By the contract of agency a person binds himself to render
some service or to do something in representation or on behalf of another, with the
consent or authority of the latter."
It is clear from Article 1868 that the basis of agency is representation. 17 On the
part of the principal, there must be an actual intention to appoint 18 or an intention
naturally inferable from his words or actions; 19 and on the part of the agent, there
Course Outline
Agency, Partnership & Trust
must be an intention to accept the appointment and act on it, 20 and in the absence
of such intent, there is generally no agency. 21 One factor which most clearly
distinguishes agency from other legal concepts is control; one person — the agent
— agrees to act under the control or direction of another — the principal. Indeed,
the very word "agency" has come to connote control by the principal. 22 The
control factor, more than any other, has caused the courts to put contracts between
principal and agent in a separate category. 23 The Court of Appeals, in finding
that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the acts
of the parties, the law makes no presumption of agency, and it is always a fact to
be proved, with the burden of proof resting upon the persons alleging the agency,
to show not only the fact of its existence, but also its nature and extent (Antonio v.
Enriquez [CA], 51 O.G. 3536]. Here, Defendant-Appellant failed to sufficiently
establish the existence of an agency relation between plaintiff-appellee and STM.
The fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-
appellee "for and in our (STM‘s) behalf" should not be eyed as pointing to the
existence of an agency relation. . . It should be viewed in the context of all the
circumstances obtaining. Although it would seem STM represented plaintiff-
appellee as being its agent by the use of the phrase "for and in our (STM‘s)
behalf" the matter was cleared when on 23 January 1990, plaintiff-appellee
informed defendant-appellant that SLDFR No. 1214M had been "sold and
endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has
shown that the 25,000 bags of sugar covered by the SLDR No. 1214M were sold
and transferred by STM to it. . . A conclusion that there was a valid sale and
transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiff-
appellee to sue in its own name, without need of joining its imputed principal
STM as co-plaintiff." 24
In the instant case, it appears plain to us that private respondent CSC was a buyer
of the SLDFR form, and not an agent of STM. Private respondent CSC was not
subject to STM‘s control. The question of whether a contract is one of sale or
agency depends on the intention of the parties as gathered from the whole scope
and effect of the language employed. 25 That the authorization given to CSC
contained the phrase "for and in our (STM‘s) behalf" did not establish an agency.
Ultimately, what is decisive is the intention of the parties. 26 That no agency was
meant to be established by the CSC and STM is clearly shown by CSC‘s
58 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
communication to petitioner that SLDR No. 1214M had been "sold and endorsed"
to it. 27 The use of the words "sold and endorsed" means that STM and CSC
intended a contract of sale, and not an agency. Hence, on this score, no error was
committed by the respondent appellate court when it held that CSC was not
STM‘s agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into
between petitioner and STM are but serial parts of one account, petitioner insists
that its debt has been offset by its claim for STM‘s unpaid purchases, pursuant to
Article 1279 of the Civil Code. 28 However, the trial court found, and the Court
of Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M
was a separate and independent transaction; it was not a serial part of a single
transaction or of one account contrary to petitioner‘s insistence. Evidence on
record shows, without being rebutted, that petitioner had been paid for the sugar
purchased under SLDR No. 1214M. Petitioner clearly had the obligation to
deliver said commodity to STM or its assignee. Since said sugar had been fully
paid for, petitioner and CSC, as assignee of STM, were not mutually creditors and
debtors of each other. No reversible error could thereby be imputed to respondent
appellate court when it refused to apply Article 1279 of the Civil Code to the
present case.
Regarding the third issue, petitioner contends that the sale of sugar under SLDR
No. 1214M is a conditional sale or a contract to sell, with title to the sugar still
remaining with the vendor. Noteworthy, SLDR No. 1214M contains the following
terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar
and/or receipt of this document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to buyer/trader and delivery to
him/it is deemed effected and completed (Emphasis supplied) and buyer/trader
assumes full responsibility therefore. . ." 29
The aforequoted terms and conditions clearly show that petitioner transferred title
to the sugar to the buyer or his assignee upon payment of the purchase price. Said
terms clearly establish a contract of sale, not a contract to sell. Petitioner is now
estopped from alleging the contrary. The contract is the law between the
contracting parties. 30 And where the terms and conditions so stipulated are not
Course Outline
Agency, Partnership & Trust
contrary to law, morals, good customs, public policy or public order, the contract
is valid and must be upheld. 31 Having transferred title to the sugar in question,
petitioner is now obliged to deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC
have entered into a conspiracy to defraud it of its sugar. This conspiracy is
allegedly evidenced by: (a) the fact that STM‘s selling price to CSC was below its
purchasing price; (b) CSC‘s refusal to pursue its case against Teresita Ng Go; and
(c) the authority given by the latter to other persons to withdraw sugar against
SLDR No. 1214M after she had sold her rights under said SLDR to CSC.
Petitioner prays that the doctrine of "clean hands" should be applied to preclude
CSC from seeking judicial relief. However, despite careful scrutiny, we find here
the records bare of convincing evidence whatsoever to support the petitioner‘s
allegations of fraud. We are now constrained to deem this matter purely
speculative, bereft of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against
petitioner.
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
Dominion Insurance vs. Court of Appeals, GR No. 129919, February 6, 2002
[G.R. No. 129919. February 6, 2002.]
DOMINION INSURANCE CORPORATION, Petitioner, v. COURT OF
APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, Respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari 1 from the decision of the Court of Appeals 2
affirming the decision 3 of the Regional Trial Court, Branch 44, San Fernando,
59 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Pampanga, which ordered petitioner Dominion Insurance Corporation (Dominion)
to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the
total amount advanced by Guevarra in the payment of the claims of Dominion‘s
clients.chanrob1es virtua1 1aw 1ibrary
The Facts
The facts, as found by the Court of Appeals, are as follows:jgc:chanrobles.com.ph
"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No.
8855 for sum of money against defendant Dominion Insurance Corporation.
Plaintiff sought to recover thereunder the sum of P156,473.90 which he claimed
to have advanced in his capacity as manager of defendant to satisfy certain claims
filed by defendant‘s clients.
"In its traverse, defendant denied any liability to plaintiff and asserted a
counterclaim for P249,672.53, representing premiums that plaintiff allegedly
failed to remit.
"On August 8, 1991, defendant filed a third-party complaint against Fernando
Austria, who, at the time relevant to the case, was its Regional Manager for
Central Luzon area.
"In due time, third-party defendant Austria filed his answer.
"Thereafter the pre-trial conference was set on the following dates: October 18,
1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17,
1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in
all of which dates no pre-trial conference was held. The record shows that except
for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which
were cancelled at the instance of defendant, third-party defendant and plaintiff,
respectively, the rest were postponed upon joint request of the parties.
"On May 22, 1992 the case was again called for pre-trial conference. Only
plaintiff and counsel were present. Despite due notice, defendant and counsel did
not appear, although a messenger, Roy Gamboa, submitted to the trial court a
handwritten note sent to him by defendant‘s counsel which instructed him to
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

request for postponement. Plaintiff‘s counsel objected to the desired

postponement and moved to have defendant declared as in default. This was "On September 28, 1992 defendant moved for reconsideration of the aforesaid
granted by the trial court in the following order: order. For the first time counsel revealed to the trial court that the reason for his
nonappearance at the pre-trial conference was his illness. An Affidavit of Merit
"ORDER executed by its Executive Vice-President purporting to explain its meritorious
defense was attached to the said Motion. Just the same, in an Order dated
"When this case was called for pre-trial this afternoon only plaintiff and his November 13, 1992, the trial court denied said Motion.
counsel Atty. Romeo Maglalang appeared. When shown a note dated May 21,
1992 addressed to a certain Roy who was requested to ask for postponement, Atty. "On November 18, 1992, the court a quo rendered judgment as
Maglalang vigorously objected to any post-ponement on the ground that the note follows:jgc:chanrobles.com.ph
is but a mere scrap of paper and moved that the defendant corporation be declared
as in default for its failure to appear in court despite due notice. "WHEREFORE, premises considered, judgment is hereby rendered
ordering:jgc:chanrobles.com.ph
"Finding the verbal motion of plaintiff‘s counsel to be meritorious and
considering that the pre-trial conference has been repeatedly postponed on motion "1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of
of the defendant Corporation, the defendant Dominion Insurance Corporation is P156,473.90 representing the total amount advanced by plaintiff in the payment of
hereby declared (as) in default and plaintiff is allowed to present his evidence on the claims of defendant‘s clients;
June 16, 1992 at 9:00 o‘clock in the morning.
"2. The defendant to pay plaintiff P10,000.00 as and by way of attorney‘s fees;
"The plaintiff and his counsel are notified of this order in open court.
"3. The dismissal of the counter-claim of the defendant and the third-party
"SO ORDERED. complaint;

"Plaintiff presented his evidence on June 16, 1992. This was followed by a written "4. The defendant to pay the costs of suit." 4
offer of documentary exhibits on July 8 and a supplemental offer of additional
exhibits on July 13, 1992. The exhibits were admitted in evidence in an order On December 14, 1992, Dominion appealed the decision to the Court of Appeals.
dated July 17, 1992. 5

"On August 7, 1992 defendant corporation filed a ‗MOTION TO LIFT ORDER On July 19, 1996, the Court of Appeals promulgated a decision affirming that of
OF DEFAULT.‘ It alleged therein that the failure of counsel to attend the pre-trial the trial court. 6 On September 3, 1996, Dominion filed with the Court of Appeals
conference was ‗due to an unavoidable circumstance‘ and that counsel had sent a motion for reconsideration. 7 On July 16, 1997, the Court of Appeals denied the
his representative on that date to inform the trial court of his inability to appear. motion. 8
The Motion was vehemently opposed by plaintiff.
Hence, this appeal. 9
"On August 25, 1992 the trial court denied defendant‘s motion for reasons, among The Issues
others, that it was neither verified nor supported by an affidavit of merit and that it
further failed to allege or specify the facts constituting his meritorious defense.

60 | P a g e
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

The issues raised are: (1) whether respondent Guevarra acted within his authority and Bonds for and on our behalf.
as agent for petitioner, and (2) whether respondent Guevarra is entitled to
reimbursement of amounts he paid out of his personal money in settling the claims "3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and
of several insured. transfer for and receive and give effectual receipts and discharge for all money to
which the FIRST CONTINENTAL ASSURANCE COMPANY, INC., 18 may
The Court‘s Ruling hereafter become due, owing payable or transferable to said Corporation by
reason of or in connection with the above-mentioned appointment.
The petition is without merit.
"4. To receive notices, summons, and legal processes for and in behalf of the
By the contract of agency, a person binds himself to render some service or to do FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with
something in representation or on behalf of another, with the consent or authority actions and all legal proceedings against the said Corporation." 19 [Emphasis
of the latter. 10 The basis for agency is representation. 11 On the part of the supplied]
principal, there must be an actual intention to appoint 12 or an intention naturally
inferrable from his words or actions; 13 and on the part of the agent, there must be The agency comprises all the business of the principal, 20 but, couched in general
an intention to accept the appointment and act on it, 14 and in the absence of such terms, it is limited only to acts of administration. 21
intent, there is generally no agency. 15
A general power permits the agent to do all acts for which the law does not
A perusal of the Special Power of Attorney 16 would show that petitioner require a special power. 22 Thus, the acts enumerated in or similar to those
(represented by third-party defendant Austria) and respondent Guevarra intended enumerated in the Special Power of Attorney do not require a special power of
to enter into a principal-agent relationship. Despite the word "special" in the title attorney.
of the document, the contents reveal that what was constituted was actually a
general agency. The terms of the agreement read:jgc:chanrobles.com.ph Article 1878, Civil Code, enumerates the instances when a special power of
attorney is required. The pertinent portion that applies to this case provides
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC., 17 a that:jgc:chanrobles.com.ph
corporation duly organized and existing under and by virtue of the laws of the
Republic of the Philippines, . . . represented by the undersigned as Regional "Article 1878. Special powers of attorney are necessary in the following
Manager, . . . do hereby appoint RSG Guevarra Insurance Services represented by cases:jgc:chanrobles.com.ph
Mr. Rodolfo Guevarra . . . to be our Agency Manager in San Fdo., for our place
and instead, to do and perform the following acts and "(1) To make such payments as are not usually considered as acts of
things:jgc:chanrobles.com.ph administration;
x x x
"1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance
business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR
CAR, PERSONAL ACCIDENT, and BONDING with the right, upon our prior "(15) Any other act of strict dominion."cralaw virtua1aw library
written consent, to appoint agents and sub-agents.
The payment of claims is not an act of administration. The settlement of claims is
"2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance not included among the acts enumerated in the Special Power of Attorney, neither

61 | P a g e
Course Outline
Agency, Partnership & Trust
is it of a character similar to the acts enumerated therein. A special power of
attorney is required before respondent Guevarra could settle the insurance claims
of the insured.
Respondent Guevarra‘s authority to settle claims is embodied in the Memorandum
of Management Agreement 23 dated February 18, 1987 which enumerates the
scope of respondent Guevarra‘s duties and responsibilities as agency manager for
San Fernando, Pampanga, as follows:jgc:chanrobles.com.ph
"x x x
"1. You are hereby given authority to settle and dispose of all motor car claims in
the amount of P5,000.00 with prior approval of the Regional Office.
"2. Full authority is given you on TPPI claims settlement.
"x x x" 24
In settling the claims mentioned above, respondent Guevarra‘s authority is further
limited by the written standard authority to pay, 25 which states that the payment
shall come from respondent Guevarra‘s revolving fund or collection. The
authority to pay is worded as follows:jgc:chanrobles.com.ph
"This is to authorize you to withdraw from your revolving fund/collection the
amount of PESOS __________________(P _______) representing the payment
on the _______________ claim of assured ________________ under Policy No.
________ in that accident of __________ at __________________________.
"It is further expected, release papers will be signed and authorized by the
concerned and attached to the corresponding claim folder after effecting payment
of the claim.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager" 26
[Emphasis supplied]
62 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
The instruction of petitioner as the principal could not be any clearer. Respondent
Guevarra was authorized to pay the claim of the insured, but the payment shall
come from the revolving fund or collection in his possession.
Having deviated from the instructions of the principal, the expenses that
respondent Guevarra incurred in the settlement of the claims of the insured may
not be reimbursed from petitioner Dominion. This conclusion is in accord with
Article 1918, Civil Code, which states that:jgc:chanrobles.com.ph
"The principal is not liable for the expenses incurred by the agent in the following
cases:jgc:chanrobles.com.ph
"(1) If the agent acted in contravention of the principal‘s instructions, unless the
latter should wish to avail himself of the benefits derived from the contract;
"x x x"
However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on
obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:jgc:chanrobles.com.ph
"Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial to the debtor."cralaw
virtua1aw library
In this case, when the risk insured against occurred, petitioner‘s liability as insurer
arose. This obligation was extinguished when respondent Guevarra paid the
claims and obtained Release of Claim Loss and Subrogation Receipts from the
insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished,
respondent Guevarra may demand for reimbursement from his principal. To rule
otherwise would result in unjust enrichment of petitioner.
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

The extent to which petitioner was benefited by the settlement of the insurance a) Fiduciary character
claims could best be proven by the Release of Claim Loss and Subrogation
Receipts 27 which were attached to the original complaint as Annexes C-2, D-1, b) Representative character
E-1, F-1, G-1, H-1, I-1 and J-1, in the total amount of P116,276.95.

However, the amount of the revolving fund/collection that was then in the
possession of respondent Guevarra as reflected in the statement of account dated
July 11, 1990 would be deducted from the above amount.

The outstanding balance and the production/remittance for the period

corresponding to the claims was P3,604.84. Deducting this from P116,276.95, we
get P112,672.11. This is the amount that may be reimbursed to respondent
Guevarra.

The Fallo

IN VIEW WHEREOF, we DENY the petition.

However, we MODIFY the decision of the Court of Appeals 28 and that of the
Regional Trial Court, Branch 44, San Fernando, Pampanga, 29 in that petitioner is
ordered to pay respondent Guevarra the amount of P112,672.11 representing the
total amount advanced by the latter in the payment of the claims of petitioner‘s
clients.chanrob1es virtua1 1aw 1ibrary

No costs in this instance.

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.

c) Characteristics

d) Purpose

2. Agency as a relation

63 | P a g e
Course Outline
Agency, Partnership & Trust
Week No. 2
3. Agency distinguished from/ compared with other relations
a) Partnership (Art. 1767)
ARTICLE 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession.
(1665a)
ARTICLE 1768. The partnership has a juridical personality separate and distinct
from that of each of the partners, even in case of failure to comply with the
requirements of article 1772, first paragraph. (n)
b) Lease of Work or Service (Art. 1644)
Nielson & Company, Inc. v. Lepanto Consolidated Mining Company, 26 SCRA
540
G.R. No. L-21601 December 17, 1966
NIELSON & COMPANY, INC., plaintiff-appellant,
vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.
W. H. Quasha and Associates for plaintiff-appellant.
Ponce Enrile, Siguion-Reyna, Montecillo and Belo for defendant-appellee.
ZALDIVAR, J.:
On February 6, 1958, plaintiff brought this action against defendant before the
Court of First Instance of Manila to recover certain sums of money representing
damages allegedly suffered by the former in view of the refusal of the latter to
comply with the terms of a management contract entered into between them on
January 30, 1937, including attorney's fees and costs.
Defendant in its answer denied the material allegations of the complaint and set up
certain special defenses, among them, prescription and laches, as bars against the
institution of the present action.
After trial, during which the parties presented testimonial and numerous
documentary evidence, the court a quo rendered a decision dismissing the
complaint with costs. The court stated that it did not find sufficient evidence to
establish defendant's counterclaim and so it likewise dismissed the same.
64 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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
Course Outline
Agency, Partnership & Trust
status of the operating contract in question which as renewed expired in
1947. Under the terms thereof, the management contract shall remain in
suspense in case fortuitous event orforce majeure, such as war or civil
commotion, adversely affects the work of mining and milling.
"In the event of inundations, floodings of mine, typhoon,
earthquake or any other force majeure, war, insurrection, civil
commotion, organized strike, riot, injury to the machinery or
other event or cause reasonably beyond the control of
NIELSON and which adversely affects the work of mining and
milling; NIELSON shall report such fact to LEPANTO and
without liability or breach of the terms of this Agreement, the
same shall remain in suspense, wholly or partially during the
terms of such inability." (Clause II of Exhibit "C").
NIELSON held the view that, on account of the war, the contract was
suspended during the war; hence the life of the contract should be
considered extended for such time of the period of suspension. On the
other hand, LEPANTO contended that the contract should expire in 1947
as originally agreed upon because the period of suspension accorded by
virtue of the war did not operate to extend further the life of the contract.
No understanding appeared from the record to have been bad by the
parties to resolve the disagreement. In the meantime, LEPANTO rebuilt
and reconstructed the mines and was able to bring the property into
operation only in June of 1948, . . . .
Appellant in its brief makes an alternative assignment of errors depending on
whether or not the management contract basis of the action has been extended for
a period equivalent to the period of suspension. If the agreement is suspended our
attention should be focused on the first set of errors claimed to have been
committed by the court a quo; but if the contrary is true, the discussion will then
be switched to the alternative set that is claimed to have been committed. We will
first take up the question whether the management agreement has been extended
as a result of the supervening war, and after this question shall have been
determined in the sense sustained by appellant, then the discussion of the defense
of laches and prescription will follow as a consequence.
The pertinent portion of the management contract (Exh. C) which refers to
suspension should any event constitutingforce majeure happen appears in Clause
II thereof which we quote hereunder:
65 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
In the event of inundations, floodings of the mine, typhoon, earthquake
or any other force majeure, war, insurrection, civil commotion, organized
strike, riot, injury to the machinery or other event or cause reasonably
beyond the control of NIELSON and which adversely affects the work of
mining and milling; NIELSON shall report such fact to LEPANTO and
without liability or breach of the terms of this Agreement, the same shall
remain in suspense, wholly or partially during the terms of such inability.
A careful scrutiny of the clause above-quoted will at once reveal that in order that
the management contract may be deemed suspended two events must take place
which must be brought in a satisfactory manner to the attention of defendant
within a reasonable time, to wit: (1) the event constituting the force majeure must
be reasonably beyond the control of Nielson, and (2) it must adversely affect the
work of mining and milling the company is called upon to undertake. As long as
these two condition exist the agreement is deem suspended.
Does the evidence on record show that these two conditions had existed which
may justify the conclusion that the management agreement had been suspended in
the sense entertained by appellant? Let us go to the evidence.
It is a matter that this Court can take judicial notice of that war supervened in our
country and that the mines in the Philippines were either destroyed or taken over
by the occupation forces with a view to their operation. The Lepanto mines were
no exception for not was the mine itself destroyed but the mill, power plant,
supplies on hand, equipment and the like that were being used there were
destroyed as well. Thus, the following is what appears in the Lepanto Company
Mining Report dated March 13, 1946 submitted by its President C. A. DeWitt to
the defendant:1 "In February of 1942, our mill, power plant, supplies on hand,
equipment, concentrates on hand, and mine, were destroyed upon orders of the
U.S. Army to prevent their utilization by the enemy." The report also mentions the
report submitted by Mr. Blessing, an official of Nielson, that "the original mill
was destroyed in 1942" and "the original power plant and all the installed
equipment were destroyed in 1942." It is then undeniable that beginning February,
1942 the operation of the Lepanto mines stopped or became suspended as a result
of the destruction of the mill, power plant and other important equipment
necessary for such operation in view of a cause which was clearly beyond the
control of Nielson and that as a consequence such destruction adversely affected
the work of mining and milling which the latter was called upon to undertake
under the management contract. Consequently, by virtue of the very terms of said
Course Outline
Agency, Partnership & Trust
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 vice-
president of Lepanto and general manager of Nielson, Scholey participated in the
negotiation of the management contract to the extent that he initialed the same
both as witness and as an officer of both corporations. This witness testified in this
66 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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
Course Outline
Agency, Partnership & Trust
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 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?
67 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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
Course Outline
Agency, Partnership & Trust
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
68 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
parties that any suspension of the lease by force majeure would be understood to
extend the period of the agreement.
In resume, there is sufficient justification for Us to conclude that the cases cited
by appellee are inapplicable because the facts therein involved do not run parallel
to those obtaining in the present case.
We shall now consider appellee's defense of laches. Appellee is correct in its
contention that the defense of laches applies independently of prescription. Laches
is different from the statute of limitations. Prescription is concerned with the fact
of delay, whereas laches is concerned with the effect of delay. Prescription is a
matter of time; laches is principally a question of inequity of permitting a claim to
be enforced, this inequity being founded on some change in the condition of the
property or the relation of the parties. Prescription is statutory; laches is not.
Laches applies in equity, whereas prescription applies at law. Prescription is based
on fixed time, laches is not. (30 C.J.S., p. 522; See also Pomeroy's Equity
Jurisprudence, Vol. 2, 5th ed., p. 177).
The question to determine is whether appellant Nielson is guilty of laches within
the meaning contemplated by the authorities on the matter. In the leading case of
Go Chi Gun, et al. vs. Go Cho, et al., 96 Phil. 622, this Court enumerated the
essential elements of laches as follows:
(1) conduct on the part of the defendant, or of one under whom he
claims, giving rise to the situation of which complaint is made and for
which the complaint seeks a remedy; (2) delay in asserting the
complainant's rights, the complainant having had knowledge or notice of
the defendant's conduct and having been afforded an opportunity to
institute a suit; (3) lack of knowledge or notice on the part of the
defendant that the complainant would assert the right on which he bases
his suit; and (4) injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held barred.
Are these requisites present in the case at bar?
The first element is conceded by appellant Nielson when it claimed that defendant
refused to pay its management fees, its percentage of profits and refused to allow
it to resume the management operation.
Anent the second element, while it is true that appellant Nielson knew since 1945
that appellee Lepanto has refused to permit it to resume management and that
since 1948 appellee has resumed operation of the mines and it filed its complaint
only on February 6, 1958, there being apparent delay in filing the present action,
We find the delay justified and as such cannot constitute laches. It appears that
Course Outline
Agency, Partnership & Trust
appellant had not abandoned its right to operate the mines for even before the
termination of the suspension of the agreement as early as January 20, 194612 and
even before March 10, 1945, it already claimed its right to the extension of the
contract,13 and it pressed its claim for the balance of its share in the profits from
the 1941 operation14 by reason of which negotiations had taken place for the
settlement of the claim15 and it was only on June 25, 1957 that appellee finally
denied the claim. There is, therefore, only a period of less than one year that had
elapsed from the date of the final denial of the claim to the date of the filing of the
complaint, which certainly cannot be considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said that appellee
Lepanto did not know that appellant would assert its rights on which it based suit.
The evidence shows that Nielson had been claiming for some time its rights under
the contract, as already shown above.
Neither is the fourth element present, for if there has been some delay in bringing
the case to court it was mainly due to the attempts at arbitration and negotiation
made by both parties. If Lepanto's documents were lost, it was not caused by the
delay of the filing of the suit but because of the war.
Another reason why appellant Nielson cannot be held guilty of laches is that the
delay in the filing of the complaint in the present case was the inevitable of the
protracted negotiations between the parties concerning the settlement of their
differences. It appears that Nielson asked for arbitration16 which was granted. A
committee consisting of Messrs. DeWitt, Farnell and Blessing was appointed to
act on said differences but Mr. DeWitt always tried to evade the issue 17 until he
was taken ill and died. Mr. Farnell offered to Nielson the sum of P13,000.58 by
way of compromise of all its claim arising from the management 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).
69 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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).
Course Outline
Agency, Partnership & Trust
Coming now to the question of prescription raised by defendant Lepanto, it is
contended by the latter that the period to be considered for the prescription of the
claim regarding participation in the profits is only four years, because the
modification of the sharing embodied in the management contract is merely
verbal, no written document to that effect having been presented. This contention
is untenable. The modification appears in the minutes of the special meeting of the
Board of Directors of Lepanto held on August 21, 1940, it having been made upon
the authority of its President, and in said minutes the terms of the modification
had been specified. This is sufficient to have the agreement considered, for the
purpose of applying the statute of limitations, as a written contract even if the
minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that
a writing containing the terms of a contract if adopted by two persons may
constitute a contract in writing even if the same is not signed by either of the
parties (3 A.L.R., 2d, pp. 812-813). Another authority says that an unsigned
agreement the terms of which are embodied in a document unconditionally
accepted by both parties is a written contract (Corbin on Contracts, Vol. 1, p. 85)
The modification, therefore, made in the management contract relative to the
participation in the profits by appellant, as contained in the minutes of the special
meeting of the Board of Directors of Lepanto held on August 21, 1940, should be
considered as a written contract insofar as the application of the statutes of
limitations is concerned. Hence, the action thereon prescribes within ten (10)
years pursuant to Section 43 of Act 190.
Coming now to the facts, We find that the right of Nielson to its 10% participation
in the 1941 operations accrued on December 21, 1941 and the right to commence
an action thereon began on January 1, 1942 so that the action must be brought
within ten (10) years from the latter date. It is true that the complaint was filed
only on February 6, 1958, that is sixteen (16) years, one (1) month and five (5)
days after the right of action accrued, but the action has not yet prescribed for
various reasons which We will hereafter discuss.
The first reason is the operation of the Moratorium Law, for appellant's claim is
undeniably a claim for money. Said claim accrued on December 31, 1941, and
Lepanto is a war sufferer. Hence the claim was covered by Executive Order No.
32 of March 10, 1945. It is well settled that the operation of the Moratorium Law
suspends the running of the statue of limitations (Pacific Commercial Co. vs.
Aquino, G.R. No. L-10274, February 27, 1957).
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
70 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
30, 1957; Levy Hermanos, Inc. vs. Perez, L-14487, April 29, 1960), and
deducting this period from the time that had elapsed since the accrual of the right
of action to the date of the filing of the complaint, the extent of which is sixteen
(16) years, one (1) month and five (5) days, we would have less than eight (8)
years to be counted for purposes of prescription. Hence appellant's action on its
claim of 10% on the 1941 profits had not yet prescribed.
Another reason that may be taken into account in support of the no-bar theory of
appellant is the arbitration clause embodied in the management contract which
requires that any disagreement as to any amount of profits before an action may
be taken to court shall be subject to arbitration. 24 This agreement to arbitrate is
valid and binding. 25 It cannot be ignored by Lepanto. Hence Nielson could not
bring an action on its participation in the 1941 operations-profits until the
condition relative to arbitration had been first complied with. 26 The evidence
shows that an arbitration committee was constituted but it failed to accomplish its
purpose on June 25, 1957. 27 From this date to the filing of the complaint the
required period for prescription has not yet elapsed.
Nielson claims the following: (1) 10% share in the dividends declared in 1941,
exclusive of interest, amounting to P17,500.00; (2) 10% in the depletion reserves
for 1941; and (3) 10% in the profits for years prior to 1948 amounting to
P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar year of
1954 28 shows that it declared a 10% cash dividend in December, 1941, the
amount of which is P175,000.00. The evidence in this connection (Exhibits L and
O) was admitted without objection by counsel for Lepanto. 29 Nielson claims 10%
share in said amount with interest thereon at 6% per annum. The document
(Exhibit L) was even recognized by Lepanto's President V. L. Lednicky, 30 and
this claim is predicated on the provision of paragraph V of the management
contract as modified pursuant to the proposal of Lepanto at the special meeting of
the Board of Directors on August 21, 1940 (Exh. B), whereby it was provided that
Nielson would be entitled to 10% of any dividends to be declared and paid during
the period of the contract.
With regard to the second claim, Nielson admits that there is no evidence
regarding the amount set aside by Lepanto for depletion reserve for 1941 31 and so
the 10% participation claimed thereon cannot be assessed.
Anent the third claim relative to the 10% participation of Nielson on the sum of
P197,647.08, which appears in Lepanto's annual report for 1948 32 and entered as
profit for prior years in the statement of income and surplus, which amount
Course Outline
Agency, Partnership & Trust
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
71 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
insistence in continuing the management. This report was admitted in evidence
without objection. We find the following in the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San Fernando
(La Union) to await the liberation of the mines. (Mr. Blessing was the Treasurer
and Metallurgist of Nielson). Blessing with Clark and Stanford went to the
property on July 16 and found that while the mill site had been cleared of the
enemy the latter was still holding the area around the staff houses and putting up a
strong defense. As a result, they returned to San Fernando and later went back to
the mines on July 26. Mr. Blessing made the report, dated August 6,
recommending a program of operation. Mr. Nielson himself spent a day in the
mine early in December, 1945 and reiterated the program which Mr. Blessing had
outlined. Two or three weeks before the date of the report, Mr. Coldren of the
Nielson organization also visited the mine and told President C. A. DeWitt of
Lepanto that he thought that the mine could be put in condition for the delivery of
the ore within 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
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

Lepanto admits, in its own brief, that Nielson had really insisted in taking over the
10 10% October 1950 500,000.00
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: 11 20% December 1950 1,000,000.00
It was while defendant was in the midst of the rehabilitation work which
was fully described earlier, still reeling under the terrible devastation and 12 20% March 1951 1,000,000.00
destruction wrought by war on its mine that Nielson insisted in taking
over the management and operation of the mine. Nielson thus put 13 20% June 1951 1,000,000.00
Lepanto in a position where defendant, under the circumstances, had to
refuse, as in fact it did, Nielson's insistence in taking over the 14 20% September 1951 1,000,000.00
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 15 40% December 1951 2,000,000.00
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 16 20% March 1952 1,000,000.00
Nielson to assume again the management of the mine in 1945 was
unequivocal and cannot be misinterpreted, infra.37 17 20% May 1952 1,000,000.00
Based on the foregoing facts and circumstances, and Our conclusion that the
management contract was extended, We believe that Nielson is entitled to the 18 20% July 1952 1,000,000.00
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. 19 20% September 1952 1,000,000.00
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 20 20% December 1952 1,000,000.00
realized during the period of five (5) years from the resumption of its post-war
21 20% March 1953 1,000,000.00
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 22 20% June 1953 1,000,000.00
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 TOTAL P14,000,000.00
investment.
Anent the first category, Lepanto's report for the calendar year 1954 39 contains a According to the terms of the management contract as modified, appellant is
record of the cash dividends it paid up to the date of said report, and the post-war entitled to 10% of the P14,000,000.00 cash dividends that had been distributed, as
dividends paid by it corresponding to the years included in the period of extension stated in the above-mentioned report, or the sum of P1,400,000.00.
of the management contract are as follows: With regard to the second category, the stock dividends declared by Lepanto
POST-WAR 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
8 10% November 1949 P 200,000.00 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
9 10% July 1950 300,000.00 authorized capital of P3,000,000.00 of the company, or stock dividends worth
P2,000,000.00. 40

72 | P a g e
Course Outline
Agency, Partnership & Trust
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
73 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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:
Course Outline
Agency, Partnership & Trust
(1) 10% share of cash dividends of December, 1941 in the amount of P17,500.00,
with legal interest thereon from the date of the filing of the complaint;
(2) management fee for January, 1942 in the amount of P2,500.00, with legal
interest thereon from the date of the filing of the complaint;
(3) management fees for the sixty-month period of extension of the management
contract, amounting to P150,000.00, with legal interest from the date of the filing
of the complaint;
(4) 10% share in the cash dividends during the period of extension of the
management contract, amounting to P1,400,000.00, with legal interest thereon
from the date of the filing of the complaint;
(5) 10% of the depletion reserve set up during the period of extension, amounting
to P53,928.88, with legal interest thereon from the date of the filing of the
complaint;
(6) 10% of the expenses for capital account during the period of extension,
amounting to P694,364.76, with legal interest thereon from the date of the filing
of the complaint;
(7) to issue and deliver to Nielson and Co., Inc. shares of stock of Lepanto
Consolidated Mining Co. at par value equivalent to the total of Nielson's l0%
share in the stock dividends declared on November 28, 1949 and August 22, 1950,
together with all cash and stock dividends, if any, as may have been declared and
issued subsequent to November 28, 1949 and August 22, 1950, as fruits that
accrued to said shares;
If sufficient shares of stock of Lepanto's are not available to satisfy this judgment,
defendant-appellee shall pay plaintiff-appellant an amount in cash equivalent to
the market value of said shares at the time of default (12 C.J.S., p. 130), that is, all
shares of the stock that should have been delivered to Nielson before the filing of
the complaint must be paid at their market value as of the date of the filing of the
complaint; and all shares, if any, that should have been delivered after the filing of
the complaint at the market value of the shares at the time Lepanto disposed of all
its available shares, for it is only then that Lepanto placed itself in condition of not
being able to perform its obligation (Article 1160, Civil Code);
(8) the sum of P50,000.00 as attorney's fees; and
(9) the costs. It is so ordered.
Concepcion, C.J., Regala, Makalintal, Bengzon, J.P., Sanchez and Castro,
JJ., concur.
Reyes, J.B.L. and Barrera, JJ., took no part.
74 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Facts: [GR L-21601, 17 December 1966; Zaldivar (J): 6 concur, 2 took no part]
An operating agreement was executed before World War II (on 30 January 1937)
between Nielson & Co. Inc. and the Lepanto Consolidated Mining Co. 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 a period of 5 years. 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 1 January
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.
In the latter part of 1941, the parties agreed to renew the contract for another
period of 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 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 1945. After the mining properties were liberated from
the Japanese forces, LEPANTO took possession thereof and embarked in
rebuilding and reconstructing the mines and mill; setting up new organization;
clearing the mill site; repairing the mines; erecting staff quarters and bodegas and
repairing existing structures; installing new machinery and equipment; repairing
roads and maintaining the same; salvaging equipment and storing the same within
the bodegas; doing police work necessary to take care of the materials and
equipment recovered; repairing and renewing the water system; and retimbering.
The rehabilitation and reconstruction of the mine and mill was not completed until
1948. On 26 June 1948 the mines resumed operation under the exclusive
management of LEPANTO. 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 which as renewed expired in
1947. Under the terms thereof, the management contract shall remain in suspense
Course Outline
Agency, Partnership & Trust
in case fortuitous event or force majeure, such as war or civil commotion,
adversely affects the work of mining and milling. On 6 February 1958, NIELSON
brought an action against LEPANTO 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 30 January 1937, including
attorney's fees and costs. LEPANTO 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 action.
After trial, the court a quo rendered a decision dismissing the complaint with
costs. The court stated that it did not find sufficient evidence to establish
LEPANTO's counterclaim and so it likewise dismissed the same. NIELSON
appealed. The Supreme Court reversed the decision of the trial court and enter in
lieu thereof another, ordering Lepanto to pay Nielson (1) 10% share of cash
dividends of December, 1941 in the amount of P17,500.00, with legal interest
thereon from the date of the filing of the complaint; (2) management fee for
January, 1942 in the amount of P2,500.00, with legal interest thereon from the
date of the filing of the complaint; (3) management fees for the sixty-month
period of extension of the management contract, amounting to P150,000.00, with
legal interest from the date of the filing of the complaint; (4) 10% share in the
cash dividends during the period of extension of the management contract,
amounting to P1,400,000.00, with legal interest thereon from the date of the filing
of the complaint; (5) 10% of the depletion reserve set up during the period of
extension, amounting to P53,928.88, with legal interest thereon from the date of
the filing of the complaint; (6) 10% of the expenses for capital account during the
period of extension, amounting to P694,364.76, with legal interest thereon from
the date of the filing of the complaint; (7) to issue and deliver to Nielson and Co.
Inc. shares of stock of Lepanto Consolidated Mining Co. at par value equivalent to
the total of Nielson's 10% share in the stock dividends declared on November 28,
1949 and August 22, 1950, together with all cash and stock dividends, if any, as
may have been declared and issued subsequent to November 28, 1949 and August
22, 1950, as fruits that accrued to said shares; provided that if sufficient shares of
stock of Lepanto's are not available to satisfy this judgment, Lepanto shall pay
Nielson an amount in cash equivalent to the market value of said shares at the
time of default, that is, all shares of stock that should have been delivered to
Nielson before the filing of the complaint must be paid at their market value as of
75 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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; (8) the sum of
P50,000.00 as attorney's fees; and (9) the costs.
Lepanto seeks the reconsideration of the decision rendered on 17 December 1966.
Issue: Whether the management contract is a contract of agency or a contract of
lease of services.
Held: Article 1709 of the Old Civil Code, defining contract of agency, provides
that "By the contract of agency, one person binds himself to render some service
or do something for the account or at the request of another." Article 1544,
defining contract of lease of service, provides that "In a lease of work or services,
one of the parties binds himself to make or construct something or to render a
service to the other for a price certain." In both agency and lease of services one of
the parties binds himself to render some service to the other party. Agency,
however, is distinguished from lease of work or services in that the basis of
agency is representation, while in the lease of work or services the basis is
employment. The lessor of services does not represent his employer, while the
agent represents his principal. Further, agency is a preparatory contract, as agency
"does not stop with the agency because the purpose is to enter into other
contracts." The most characteristic feature of an agency relationship is the agent's
power to bring about business relations between his principal and third persons.
"The agent is destined to execute juridical acts (creation, modification or
extinction of relations with third parties). Lease of services contemplate only
material (non-juridical) acts." Herein, the principal and paramount undertaking of
Nielson under the management contract was the operation and development of the
mine and the operation of the mill. All the other undertakings mentioned in the
contract are necessary or incidental to the principal undertaking — these other
undertakings being dependent upon the work on the development of the mine and
the operation of the mill. In the performance of this principal undertaking Nielson
was not in any way executing juridical acts for Lepanto, destined to create, modify
or extinguish business relations between Lepanto and third persons. In other
words, in performing its principal undertaking Nielson was not acting as an agent
of Lepanto, in the sense that the term agent is interpreted under the law of agency,
Course Outline
Agency, Partnership & Trust
but as one who was performing material acts for an employer, for a compensation.
It is true that the management contract provides that Nielson would also act as
purchasing agent of supplies and enter into contracts regarding the sale of mineral,
but the contract also provides that Nielson could not make any purchase, or sell
the minerals, without the prior approval of Lepanto. It is clear, therefore, that even
in these cases Nielson could not execute juridical acts which would bind Lepanto
without first securing the approval of Lepanto. Nielson, then, was to act only as an
intermediary, not as an agent. Further, from the statements in the annual report for
1936, and from the provision of paragraph XI of the Management contract, that
the employment by Lepanto of Nielson to operate and manage its mines was
principally in consideration of the know-how and technical services that Nielson
offered Lepanto. The contract thus entered into pursuant to the offer made by
Nielson and accepted by Lepanto was a "detailed operating contract". It was not a
contract of agency. Nowhere in the record is it shown that Lepanto considered
Nielson as its agent and that Lepanto terminated the management contract because
it had lost its trust and confidence in Nielson.
De la Cruz v. Northern Theatrical Enterprises, 95 Phil. 739
G.R. No. L-7089 August 31, 1954
DOMINGO DE LA CRUZ, plaintiff-appellant,
vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-
appellees.
Conrado Rubio for appellant.
Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year
1941 the Northern Theatrical Enterprises Inc., a domestic corporation operated a
movie house in Laoag, Ilocos Norte, and among the persons employed by it was
the plaintiff DOMINGO DE LA CRUZ, hired as a special guard whose duties
were to guard the main entrance of the cine, to maintain peace and order and to
report the commission of disorders within the premises. As such guard he carried
a revolver. In the afternoon of July 4, 1941, one Benjamin Martin wanted to crash
the gate or entrance of the movie house. Infuriated by the refusal of plaintiff De la
Cruz to let him in without first providing himself with a ticket, Martin attacked
him with a bolo. De la Cruz defendant himself as best he could until he was
76 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
cornered, at which moment to save himself he shot the gate crasher, resulting in
the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449
of the Court of First Instance of Ilocos Norte. After a re-investigation conducted
by the Provincial Fiscal the latter filed a motion to dismiss the complaint, which
was granted by the court in January 1943. On July 8, 1947, De la Cruz was again
accused of the same crime of homicide, in Criminal Case No. 431 of the same
Court. After trial, he was finally acquitted of the charge on January 31, 1948. In
both criminal cases De la Cruz employed a lawyer to defend him. He demanded
from his former employer reimbursement of his expenses but was refused, after
which he filed the present action against the movie corporation and the three
members of its board of directors, to recover not only the amounts he had paid his
lawyers but also moral damages said to have been suffered, due to his worry, his
neglect of his interests and his family as well in the supervision of the cultivation
of his land, a total of P15,000. On the basis of the complaint and the answer filed
by defendants wherein they asked for the dismissal of the complaint, as well as the
agreed statement of facts, the Court of First Instance of Ilocos Norte after
rejecting the theory of the plaintiff that he was an agent of the defendants and that
as such agent he was entitled to reimbursement of the expenses incurred by him in
connection with the agency (Arts. 1709-1729 of the old Civil Code), found that
plaintiff had no cause of action and dismissed the complaint without costs. De la
Cruz appealed directly to this Tribunal for the reason that only questions of law
are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation
and the plaintiff was not that of principal and agent because the principle of
representation was in no way involved. Plaintiff was not employed to represent
the defendant corporation in its dealings with third parties. He was a mere
employee hired to perform a certain specific duty or task, that of acting as special
guard and staying at the main entrance of the movie house to stop gate crashers
and to maintain peace and order within the premises. The question posed by this
appeal is whether an employee or servant who in line of duty and while in the
performance of the task assigned to him, performs an act which eventually results
in his incurring in expenses, caused not directly by his master or employer 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.
Course Outline
Agency, Partnership & Trust
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
77 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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.
Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes,
J.B.L., JJ., concur.
Facts:
1941, The Northern Theatrical Enterprises Inc., a domestic corporation operated a
movie house in Laoag, Ilocos Norte. Domingo De La Cruz was employed whose
duties were to guard the main entrance, to maintain peace and order and to report
the commission of disorders within premises. He carried a revolver.
Benjamin Martin wanted to crash the gate or entrance of the movie house.
Infuriated by the refusal of 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
Martin, resulting in Benjamin Martin‘s death.
Course Outline
Agency, Partnership & Trust
De la Cruz was charged with homicide. After a re-investigation conducted by the
Provincial Fiscal the latter filed a motion to dismiss the complaint, which was
granted by the court. De la Cruz was again accused of the same crime of
homicide. After trial, he was finally acquitted of the charge.
He then demanded from former employer to repay the expenses but was refused
thus filed present action against the Northern Theatrical Enterprises Inc company
and to three members of its Board of Directors to recover amounts he had paid his
lawyers including moral damages said to have been suffered due to his worry,
neglect of his interests and his family as well in the supervision of the cultivation
of his land, a total of P 15,000.
Court of First Instance of Ilocos Norte rejected the theory of De la Cruz because
he was an agent of Northern Theatrical Enterprises Inc. and that as such agent he
was entitled to compensate the expenses incurred by him in connection with the
agency.
The court found and decided that De La Cruz had no cause of action and
dismissed the complaint without costs.
Issue:
Whether or not an agent who‘s in the line of duty performs an act that resulted in
his incurring expenses caused by a stranger. May the latter recover the said
expenses against his former employer.
Held:
No, because the relationship between the Northern Theatrical Enterprises Inc. and
plaintiff was not that of principal and agent because the principle of representation
as a characteristic of agency was in no way involved. Plaintiff was not employed
to represent corporation in its dealings with third parties. Plaintiff is a mere
employee hired to perform a certain specific duty or task, that of acting as a
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.
c) Independent Contractor (Art. 1713)
Fressel v. Mariano Uy Chaco & Co., 34 Phil 122
G.R. No. L-10918 March 4, 1916
WILLIAM FRESSEL, ET AL., plaintiffs-appellants,
vs.
MARIANO UY CHACO SONS & COMPANY, defendant-appellee.
78 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Rohde and Wright for appellants.
Gilbert, Haussermann, Cohn and Fisher for appellee.
TRENT, J.:
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 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
Course Outline
Agency, Partnership & Trust
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.)
79 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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.
Course Outline
Agency, Partnership & Trust
Arellano, C.J., Torres, Johnson and Araullo, JJ., concur.
Moreland, J., concurs in the result.
Carson, J., dissents.
Shell Company of the Phil. V. Firemen’s Insurance, 100 Phil. 757
[G.R. No. L-8169. January 29, 1957.]
THE SHELL COMPANY OF THE PHILIPPINES, LTD., Petitioner, v.
FIREMEN’S INSURANCE COMPANY OF NEWARK, NEW JERSEY
COMMERCIAL CASUALTY INSURANCE CO., SALVADOR SISON,
PORFIRIO DE LA FUENTE and THE COURT OF APPEALS (First
Division), Respondents.
Ross, Selph, Carrascoso & Janda for Petitioner.
J. A. Wolfson and Manuel Y. Macias for Respondents.
SYLLABUS
1. PRINCIPAL AND AGENT; WHEN AGENCY EXISTS AND NOT AN
INDEPENDENT CONTRACTOR. — Where the operator of a gasoline and
service station owed his position to the company and the latter could remove him
or terminate his services at will; that the service station belonged to the company
and bore its tradename and the operator sold only the products of the company;
that the equipment used by the operator belonged to the company and were just
loaned to the operator and the company took charge of their repair and
maintenance; that an employee of the company supervised the operator and
conducted periodic inspection of the company‘s gasoline and service station; that
the price of the products sold by the operator was fixed by the company and not
by the operator; and that the receipts signed by the operator indicated that he was
a mere agent. Held: that the operator is an agent of the company and not an
independent contractor.
2. CONTRACTS; NATURE OF CONTRACT; COURTS NOT BOUND UPON
THE NAME GIVEN BY PARTIES. — To determine the nature of a contracts
courts do not have or are not bound to rely upon the name or title given it by the
contracting parties, should there be a controversy as to what they really had
intended to enter into, but the way the contracting parties do or perform their
80 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
respective obligations stipulated or agreed upon may be shown and inquired into,
and should such performance conflict with the name or title given the contract by
the parties, the former must prevail over the later.
DECISION
PADILLA, J.:
Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals
which reversed that of the Court of First Instance of Manila and sentenced." . . the
defendants-appellees to pay, jointly and severally, the plaintiff-appellants the sum
of P1,651.38, with the legal interest from December 6, 1947 (Gutierrez v.
Gutierrez, 56 Phil., 177, 180), and the costs in both instances."cralaw virtua1aw
library
The Court of Appeals found the following:chanrob1es virtual 1aw library
Inasmuch as both the Plaintiffs-Appellants and the Defendant- Appellee, the Shell
Company of the Philippine Islands, Ltd. accept the statement of facts made by the
trial court in its decision and appearing on pages 23 to 37 of that Record on
Appeal, we quote thereunder such statement:jgc:chanrobles.com.ph
" "This is an action for recovery of sum of money, based on alleged negligence of
the defendants.
"It is a fact that a Plymouth car owned by Salvador P. Sison was brought, on
September 3, 1947 to the Shell Gasoline and Service Station, located at the corner
of Marqués de Comillas and Isaac Peral Streets, Manila, for washing, greasing and
spraying. The operator of the station, having agreed to do service upon payment of
P8.00, the car was placed on the hydraualic lifter under the direction of the
personnel of the station.
"What happened to the car is recounted by Perlito Sison, as follows:chanrob1es
virtual 1aw library
‗Q. Will you please describe how they proceeded to do the work?
A. Yes, sir. The first thing that was done, as I saw, was to drive the car over the
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

lifter. Then by the aid of the two greasemen they raised up my car up to six feet
high, and then washing was done. After washing the next step was greasing. A. More or less five feet, sir.
Before greasing was finished, there is a part near the shelf of the right fender, right
front fender, of my car to be greased, but the greasemen cannot reach that part, so Q. After lifting that car that height, what did you do to the car?
the next thing to be done was to loosen the lifter just a few feet lower. Then upon
releasing the value to make the car lower, a little bit lower . . . A. I also washed it, sir.

Q. Who released the valve? Q. And after washing?

A. The greaseman, for the escape of the air. As the escape of the air is too strong A. I greased it.
for my ear I faced backward. I faced toward Isaac Peral Street, and covered my
ear. After the escape of the air has been finished, the air coming out from the Q. On that occasion, have you been able to finish greasing and washing the car?
valve, I turned to face the car and I saw the ear swaying at that time, and just for a
few second the car fell. (t.s.n., pp. 22-23.) A. There is one point which I could not reach.

The case was immediately reported to the Manila Adjustor Company, the adjustor Q. And what did you do then?
for the Firemen‘s Insurance Company and the Commercial Casualty Insurance,
Company, as the car was insured with these insurance companies. After having A. I lowered the lifter in order to reach that point.
been inspected by one Mr. Baylon, representative of the Manila Adjustors
Company, the damaged car was taken to the shops of the Philippine Motors, Q. After lowering it a little, what did you do then?
Incorporated, for repair upon order of the Firemen‘s Insurance Company and the
Commercial Casualty Company, with the consent of Salvador R. Sison. The car A. I pushed and pressed the valve in its gradual pressure.
was restored to running condition after repairs amounting to P1,651.38, and was
delivered to Salvador R. Sison, who, in turn made assignment of his rights to Q. Were you able to reach the portion which you were not able to reach while it
recover damage in favor of the Firemen‘s Insurance Company and the was lower?
Commercial Casualty Insurance Company.
A. No more, sir.
"On the other hand, the fall of the car from the hydraulic lifter has been explained
by Alfonse M. Adriano, a greaseman in the Shell Gasoline and Service Station, as Q. Why?
follows:chanrob1es virtual 1aw library
A. Because when I was lowering the lifter I saw that the car was swinging and it
‗Q. Were you able to lift the car on the hydraulic lifter on the occasion, September fell.
3, 1947?
THE COURT.
A. Yes, sir.
Why did the car swing and fall?
Q. To what height did you raise more or less?

81 | P a g e
Course Outline
Agency, Partnership & Trust
WITNESS:chanrob1es virtual 1aw library
‗That is what I do not know, sir.‘ (t.s.n., p. 67.)"
The position of Defendant Porfirio de la Fuente is stated in his counter-statement
of facts which is hereunder also reproduced:jgc:chanrobles.com.ph
"In the afternoon of September 3, 1947, an automobile belonging to the plaintiff
Salvador Sison was brought by his son, Perlito Sison, to the gasoline and service
station at the corner of Marqués de Comillas and Isaac Peral Streets, City of
Manila, Philippines owned by the defendant The Shell Company of the Philippine
Islands, Limited, but operated by the defendant Porfirio de la Fuente, for the
purpose of having said car washed and greased for a consideration of P8.00.
(t.s.n., pp. 19-20.) Said car was insured against loss or damage by Firemen‘s
Insurance Company of Newark, New Jersey, and Commercial Casualty Insurance
Company jointly for the sum of P10,000 (Exhibits "A", "B", and "D").
"The job of washing and greasing was undertaken by defendant Porfirio de la
Fuente through his two employees, Alfonso M. Adriano, as treaseman and one
surnamed de los Reyes, a helper and washer (t.s.n., pp. 65-67). To perform the job
the car was carefully and centrally placed on the platform of the lifter in the
gasoline and service station aforementioned before raising up said platform to a
height of about 5 feet and then the servicing job was started. After more than one
hour of washing and greasing, the job was about to be completed except for an
ungreased portion underneath the vehicle which could not be reached by the
greasemen. So, the lifter was lowered a little by Alfonso M. Adriano and while
doing so, the car for unknown reason accidentally fell and suffered damage to the
value of P1,651.88 (t.s.n., pp. 65-67).
"The insurance companies after paying the sum of P1,651.38 for the damage and
charging the balance of P100.00 to Salvador Sison in accordance with the terms of
the insurance contracts, have filed this action together with said Salvador Sison
for the recovery of the total amount of the damage from the defendants on the
ground of negligence (Record on Appeal, pp. 1-6).
"The defendant Porfirio de la Fuente denied negligence in the operation of the
lifter in his separate answer and contended further that the accidental fall of the
82 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
car was caused by unforseen event (Record on Appeal, pp. 17-19)."cralaw
virtua1aw library
The owner of the car forth with notified the insurers who ordered their adjustor,
the Manila Adjustors Company, to investigate the incident and after such
investigation the damaged car, upon order of the insurers and with the consent of
the owner, was brought to the shop of the Philippine Motors, Inc. The car was
restored to running condition after repairs thereon which amounted to P1,651.38
and returned to the owner who assigned his right to collect the aforesaid amount
to the Firemen‘s Insurance Company and the Commercial Casualty Insurance
Company.
On 6 December 1947 the insurers and the owner of the car brought an action in
the Court of First Instance of Manila against the Shell Company of the
Philippines, Ltd. and Porfirio de la Fuente to recover from them, jointly and
severally, the sum of P1,651.38, interest thereon at the legal rate from the filing of
the complaint until fully paid, and costs. After trial the Court dismissed the
complaint. The plaintiffs appealed. The Court of Appeals reversed the judgment
and sentenced the defendant to pay the amount sought to recovered, legal interest
and costs, as stated at the beginning of this opinion.
In arriving at the conclusion that on 3 September 1947 when the car was bought to
the station for servicing Porfirio de la Fuente, the operator of the gasoline and
service station, was an agent of the Shell Company of the Philippines, Ltd., the
Court of Appeals found that —
. . . De la Fuente owed his position to the Shell Company which could remove him
or terminate his services at any time from the said Company, and he undertook to
sell the Shell Company‘s products exclusively at the said Station. For this
purpose, De la Fuente was placed in possession of the gasoline and service station
under consideration, and was provided with all the equipments needed to operate
it, by the said Company, such as to tools and articles listed on Exhibit 2 which
included the hydraulic lifter (hoist) and accessories, from which Sison‘s
automobile fell on the date in question (Exhibits 1 and 2). These equipments were
delivered to De la Fuente on a so-called loan basis. The Shell Company took
charge of its care and maintenance and rendered to the public or its customers at
that station for the proper functioning of the equipment. Witness Antonio
Course Outline
Agency, Partnership & Trust
Tiongson, who was sales superintendent of the Shell Company, and witness
Augusto Sawyer, foreman of the same Company, supervised the operators and
conducted periodic inspections of the Company‘s gasoline and service stations,
the service station in question inclusive. Explaining his duties and responsibilities
and the reason for the loan, Tiongson said: "mainly on the supervision of sales or
(of) our dealers and routinary inspection of the equipment loaned by the
company" (t.s.n., 107); "we merely inquire about how the equipments are, whether
they have complaint, and whether if said equipments are in proper order . . .",
(t.s.n., 110); station equipments are "loaned for the exclusive use of the dealer on
condition that all supplies to be sold by said dealer should be exclusively Shell, so
as a concession we loan equipments for their use . . .," "for the proper functioning
of the equipments, we answer and see to it that the equipments are in good
running order and usable condition . . .," "with respect to the public." (t.s.n., 111-
112). De la Fuente, as operator, was given special prices by the Company for the
gasoline products sold therein. Exhibit 1 — Shell, which was a receipt by Antonio
Tiongson and signed by De la Fuente, acknowledging the delivery of equipments
of the gasoline and service station in question was subsequently replaced by
Exhibit 2 — Shell, an official form of the inventory of the equipment which De la
Fuente signed above the words: "Agent‘s signature." And the service station in
question had been marked "SHELL, and all advertisements therein bore the same
sign. . . .
. . . De la Fuente was the operator of the station "by grace" of the Defendant
Company which could and did remove him as it pleased; that all the equipments
needed to operate the station was owned by the Defendant Company which took
charge of their proper care and maintenance, despite the fact that they were loaned
to him; that the Defendant company did not leave the fixing of price for gasoline
to De la Fuente; on the other hand, the Defendant company had complete control
thereof; and that Tiongson, the sales representative of the Defendant Company,
had supervision over De ka Fuente in the operation of the station, and in the sale
of Defendant Company‘s products therein. . . .
Taking into consideration the facts that the operator owed his position to the
company and the latter could remove him or terminate his services at will; that the
service station belonged to the company and bore its tradename and the operator
sold only the products of the company; that the equipment used by the operator
belonged to the company and were just loaned to the operator and the company
83 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
took charge of their repair and maintenance; that an employee of the company
supervised the operator and conducted periodic inspection of the company‘s
gasoline and service station; that the price of the products sold by the operator was
fixed by the company and not by the operator; and that he was a mere agent, the
finding of the Court of Appeals that the operator was an agent of the company and
not an independent contractor should be disturbed.
To determine the nature of a contract courts do not have or are not bound to rely
upon the name or title give it by the contracting parties, should there be a
controversy as to what they really had intended to enter into, but the way the
contracting parties do or perform their respective obligations stipulated or agreed
upon may be shown and inquired into, and should such performance conflict with
the name or title given the contract by the parties, the former must prevail over the
latter.
It was admitted by the operator of the gasoline and service station that "the car
was carefully and centrally placed on the platform of the lifter . . ." and the Court
of Appeals found that —
. . . the fall of Appellant Sison‘s car from the hydraulic lift and the damage caused
therefor, were the result of the jerking and swaying of the lift when the valve was
released, and that the jerking was due to some accident and unforeseen
shortcoming of the mechanism itself, which caused its faulty or defective
operation or functioning,
and that —
. . . the servicing job on Appellant Sison‘s automobile was accepted by De la
Fuente in the normal and ordinary conduct of his business as operator of his co-
appellees‘s service station, and that the jerking and swaying of the hydraulic lift
which caused the fall of the subject car were due to its defective condition,
resulting in its faulty operation.
As the act of the agent or his employees acting within the scope of his authority is
the act of the principal, the breach of the undertaking by the agent is one for which
the principal is answerable. Moreover, the company undertook to "answer and see
to it that the equipments are in good running order and usable condition;" and the
Course Outline
Agency, Partnership & Trust
Court of Appeals found that the Company‘s mechanic failed to make a thorough
check up of the hydraulic lifter and the check up made by its mechanic was
"merely routine" by raising "the lifter once or twice and after observing that the
operation was satisfactory, he (the mechanic) left the place." The latter was
negligent and the company must answer for the negligent act of its mechanic
which was the cause of the fall of the car from the hydraulic lifter.
The judgment under review is affirmed, with costs against the petitioner.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador,
Concepcion, Reyes, J. B. L., Endencia and Felix, JJ., concur.
Africa v. Caltex Phil., Inc., 16 SCRA 448
G.R. No. L-12986 March 31, 1966
THE SPOUSES BERNABE AFRICA and SOLEDAD C. AFRICA, and the
HEIRS OF DOMINGA ONG, petitioners-appellants,
vs.
CALTEX (PHIL.), INC., MATEO BOQUIREN and THE COURT OF
APPEALS, respondents-appellees.
Ross, Selph, Carrascoso and Janda for the respondents.
Bernabe Africa, etc. for the petitioners.
MAKALINTAL., J.:
This case is before us on a petition for review of the decision of the Court of
Appeals, which affirmed that of the Court of First Instance of Manila dismissing
petitioners' second amended complaint against respondents.
The action is for damages under Articles 1902 and 1903 of the old Civil Code. It
appears that in the afternoon of March 18, 1948 a fire broke out at the Caltex
service station at the corner of Antipolo street and Rizal Avenue, Manila. It started
while gasoline was being hosed from a tank truck into the underground storage,
right at the opening of the receiving tank where the nozzle of the hose was
inserted. The fire spread to and burned several neighboring houses, including the
personal properties and effects inside them. Their owners, among them petitioners
here, sued respondents Caltex (Phil.), Inc. and Mateo Boquiren, the first as alleged
owner of the station and the second as its agent in charge of operation. Negligence
on the part of both of them was attributed as the cause of the fire.
84 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
The trial court and the Court of Appeals found that petitioners failed to prove
negligence and that respondents had exercised due care in the premises and with
respect to the supervision of their employees.
The first question before Us refers to the admissibility of certain reports on the
fire prepared by the Manila Police and Fire Departments and by a certain Captain
Tinio of the Armed Forces of the Philippines. Portions of the first two reports are
as follows:
1. Police Department report: —
Investigation disclosed that at about 4:00 P.M. March 18, 1948,
while Leandro Flores was transferring gasoline from a tank
truck, plate No. T-5292 into the underground tank of the Caltex
Gasoline Station located at the corner of Rizal Avenue and
Antipolo Street, this City, an unknown Filipino lighted a
cigarette and threw the burning match stick near the main valve
of the said underground tank. Due to the gasoline fumes, fire
suddenly blazed. Quick action of Leandro Flores in pulling off
the gasoline hose connecting the truck with the underground
tank prevented a terrific explosion. However, the flames
scattered due to the hose from which the gasoline was spouting.
It burned the truck and the following accessorias and residences.
2. The Fire Department report: —
In connection with their allegation that the premises was (sic) subleased
for the installation of a coca-cola and cigarette stand, the complainants
furnished this Office a copy of a photograph taken during the fire and
which is submitted herewith. it appears in this picture that there are in the
premises a coca-cola cooler and a rack which according to information
gathered in the neighborhood contained cigarettes and matches, installed
between the gasoline pumps and the underground tanks.
The report of Captain Tinio reproduced information given by a certain Benito
Morales regarding the history of the gasoline station and what the chief of the fire
department had told him on the same subject.
The foregoing reports were ruled out as "double hearsay" by the Court of Appeals
and hence inadmissible. This ruling is now assigned as error. It is contended: first,
that said reports were admitted by the trial court without objection on the part of
respondents; secondly, that with respect to the police report (Exhibit V-Africa)
which appears signed by a Detective Zapanta allegedly "for Salvador Capacillo,"
the latter was presented as witness but respondents waived their right to cross-
Course Outline
Agency, Partnership & Trust
examine him although they had the opportunity to do so; and thirdly, that in any
event the said reports are admissible as an exception to the hearsay rule under
section 35 of Rule 123, now Rule 130.
The first contention is not borne out by the record. The transcript of the hearing of
September 17, 1953 (pp. 167-170) shows that the reports in question, when
offered as evidence, were objected to by counsel for each of respondents on the
ground that they were hearsay and that they were "irrelevant, immaterial and
impertinent." Indeed, in the court's resolution only Exhibits J, K, K-5 and X-6
were admitted without objection; the admission of the others, including the
disputed ones, carried no such explanation.
On the second point, although Detective Capacillo did take the witness stand, he
was not examined and he did not testify as to the facts mentioned in his alleged
report (signed by Detective Zapanta). All he said was that he was one of those
who investigated "the location of the fire and, if possible, gather witnesses as to
the occurrence, and that he brought the report with him. There was nothing,
therefore, on which he need be cross-examined; and the contents of the report, as
to which he did not testify, did not thereby become competent evidence. And even
if he had testified, his testimony would still have been objectionable as far as
information gathered by him from third persons was concerned.
Petitioners maintain, however, that the reports in themselves, that is, without
further testimonial evidence on their contents, fall within the scope of section 35,
Rule 123, which provides that "entries in official records made in the performance
of his duty by a public officer of the Philippines, or by a person in the
performance of a duty specially enjoined by law, are prima facie evidence of the
facts therein stated."
There are three requisites for admissibility under the rule just mentioned: (a) that
the entry was made by a public officer, or by another person specially enjoined by
law to do so; (b) that it was made by the public officer in the performance of his
duties, or by such other person in the performance of a duty specially enjoined by
law; and (c) that the public officer or other person had sufficient knowledge of the
facts by him stated, which must have been acquired by him personally or through
official information (Moran, Comments on the Rules of Court, Vol. 3 [1957] p.
398).
Of the three requisites just stated, only the last need be considered here. Obviously
the material facts recited in the reports as to the cause and circumstances of the
fire were not within the personal knowledge of the officers who conducted the
investigation. Was knowledge of such facts, however, acquired by them through
85 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
official information? As to some facts the sources thereof are not even identified.
Others are attributed to Leopoldo Medina, referred to as an employee at the gas
station were the fire occurred; to Leandro Flores, driver of the tank truck from
which gasoline was being transferred at the time to the underground tank of the
station; and to respondent Mateo Boquiren, who could not, according to Exhibit
V-Africa, give any reason as to the origin of the fire. To qualify their statements
as "official information" acquired by the officers who prepared the reports, the
persons who made the statements not only must have personal knowledge of the
facts stated but must have the duty to give such statements for record.1
The reports in question do not constitute an exception to the hearsay rule; the facts
stated therein were not acquired by the reporting officers through official
information, not having been given by the informants pursuant to any duty to do
so.
The next question is whether or not, without proof as to the cause and origin of the
fire, the doctrine of res ipsa loquitur should apply so as to presume negligence on
the part of appellees. Both the trial court and the appellate court refused to apply
the doctrine in the instant case on the grounds that "as to (its) applicability ... in
the Philippines, there seems to he nothing definite," and that while the rules do not
prohibit its adoption in appropriate cases, "in the case at bar, however, we find no
practical use for such doctrine." The question deserves more than such summary
dismissal. The doctrine has actually been applied in this jurisdiction, in the case
of Espiritu vs. Philippine Power and Development Co. (CA-G.R. No. 3240-R,
September 20, 1949), wherein the decision of the Court of Appeals was penned by
Mr. Justice J.B.L. Reyes now a member of the Supreme Court.
The facts of that case are stated in the decision as follows:
In the afternoon of May 5, 1946, while the plaintiff-appellee and other
companions were loading grass between the municipalities of Bay and
Calauan, in the province of Laguna, with clear weather and without any
wind blowing, an electric transmission wire, installed and maintained by
the defendant Philippine Power and Development Co., Inc. alongside the
road, suddenly parted, and one of the broken ends hit the head of the
plaintiff as he was about to board the truck. As a result, plaintiff received
the full shock of 4,400 volts carried by the wire and was knocked
unconscious to the ground. The electric charge coursed through his body
and caused extensive and serious multiple burns from skull to legs,
leaving the bone exposed in some parts and causing intense pain and
Course Outline
Agency, Partnership & Trust
wounds that were not completely healed when the case was tried on June
18, 1947, over one year after the mishap.
The defendant therein disclaimed liability on the ground that the plaintiff had
failed to show any specific act of negligence, but the appellate court overruled the
defense under the doctrine of res ipsa loquitur. The court said:
The first point is directed against the sufficiency of plaintiff's evidence to
place appellant on its defense. While it is the rule, as contended by the
appellant, that in case of noncontractual negligence, or culpa aquiliana,
the burden of proof is on the plaintiff to establish that the proximate
cause of his injury was the negligence of the defendant, it is also a
recognized principal that "where the thing which caused injury, without
fault of the injured person, is under the exclusive control of the defendant
and the injury is such as in the ordinary course of things does not occur if
he having such control use proper care, it affords reasonable evidence, in
the absence of the explanation, that the injury arose from defendant's
want of care."
And the burden of evidence is shifted to him to establish that he has
observed due care and diligence. (San Juan Light & Transit Co. v.
Requena, 244, U.S. 89, 56 L. ed. 680.) This rule is known by the name
of res ipsa loquitur (the transaction speaks for itself), and is peculiarly
applicable to the case at bar, where it is unquestioned that the plaintiff
had every right to be on the highway, and the electric wire was under the
sole control of defendant company. In the ordinary course of events,
electric wires do not part suddenly in fair weather and injure people,
unless they are subjected to unusual strain and stress or there are defects
in their installation, maintenance and supervision; just as barrels do not
ordinarily roll out of the warehouse windows to injure passersby, unless
some one was negligent. (Byrne v. Boadle, 2 H & Co. 722; 159 Eng.
Reprint 299, the leading case that established that rule). Consequently, in
the absence of contributory negligence (which is admittedly not present),
the fact that the wire snapped suffices to raise a reasonable presumption
of negligence in its installation, care and maintenance. Thereafter, as
observed by Chief Baron Pollock, "if there are any facts inconsistent with
negligence, it is for the defendant to prove."
It is true of course that decisions of the Court of Appeals do not lay down
doctrines binding on the Supreme Court, but we do not consider this a reason for
not applying the particular doctrine of res ipsa loquitur in the case at bar. Gasoline
86 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
is a highly combustible material, in the storage and sale of which extreme care
must be taken. On the other hand, fire is not considered a fortuitous event, as it
arises almost invariably from some act of man. A case strikingly similar to the one
before Us is Jones vs. Shell Petroleum Corporation, et al., 171 So. 447:
Arthur O. Jones is the owner of a building in the city of Hammon which
in the year 1934 was leased to the Shell Petroleum Corporation for a
gasoline filling station. On October 8, 1934, during the term of the lease,
while gasoline was being transferred from the tank wagon, also operated
by the Shell Petroleum Corporation, to the underground tank of the
station, a fire started with resulting damages to the building owned by
Jones. Alleging that the damages to his building amounted to $516.95,
Jones sued the Shell Petroleum Corporation for the recovery of that
amount. The judge of the district court, after hearing the testimony,
concluded that plaintiff was entitled to a recovery and rendered judgment
in his favor for $427.82. The Court of Appeals for the First Circuit
reversed this judgment, on the ground the testimony failed to show with
reasonable certainty any negligence on the part of the Shell Petroleum
Corporation or any of its agents or employees. Plaintiff applied to this
Court for a Writ of Review which was granted, and the case is now
before us for decision.1äwphï1.ñët
In resolving the issue of negligence, the Supreme Court of Louisiana held:
Plaintiff's petition contains two distinct charges of negligence — one
relating to the cause of the fire and the other relating to the spreading of
the gasoline about the filling station.
Other than an expert to assess the damages caused plaintiff's building by
the fire, no witnesses were placed on the stand by the defendant.
Taking up plaintiff's charge of negligence relating to the cause of the fire,
we find it established by the record that the filling station and the tank
truck were under the control of the defendant and operated by its agents
or employees. We further find from the uncontradicted testimony of
plaintiff's witnesses that fire started in the underground tank attached to
the filling station while it was being filled from the tank truck and while
both the tank and the truck were in charge of and being operated by the
agents or employees of the defendant, extended to the hose and tank
truck, and was communicated from the burning hose, tank truck, and
escaping gasoline to the building owned by the plaintiff.
Course Outline
Agency, Partnership & Trust
Predicated on these circumstances and the further circumstance of
defendant's failure to explain the cause of the fire or to show its lack of
knowledge of the cause, plaintiff has evoked the doctrine of res ipsa
loquitur. There are many cases in which the doctrine may be successfully
invoked and this, we think, is one of them.
Where the thing which caused the injury complained of is shown to be
under the management of defendant or his servants and the accident is
such as in the ordinary course of things does not happen if those who
have its management or control use proper care, it affords reasonable
evidence, in absence of explanation by defendant, that the accident arose
from want of care. (45 C.J. #768, p. 1193).
This statement of the rule of res ipsa loquitur has been widely approved
and adopted by the courts of last resort. Some of the cases in this
jurisdiction in which the doctrine has been applied are the following, viz.:
Maus v. Broderick, 51 La. Ann. 1153, 25 So. 977; Hebert v. Lake
Charles Ice, etc., Co., 111 La. 522, 35 So. 731, 64 L.R.A. 101, 100 Am.
St. Rep. 505; Willis v. Vicksburg, etc., R. Co., 115 La. 63, 38 So. 892;
Bents v. Page, 115 La. 560, 39 So. 599.
The principle enunciated in the aforequoted case applies with equal force here.
The gasoline station, with all its appliances, equipment and employees, was under
the control of appellees. A fire occurred therein and spread to and burned the
neighboring houses. The persons who knew or could have known how the fire
started were appellees and their employees, but they gave no explanation thereof
whatsoever. It is a fair and reasonable inference that the incident happened
because of want of care.
In the report submitted by Captain Leoncio Mariano of the Manila Police
Department (Exh. X-1 Africa) the following appears:
Investigation of the basic complaint disclosed that the Caltex Gasoline
Station complained of occupies a lot approximately 10 m x 10 m at the
southwest corner of Rizal Avenue and Antipolo. The location is within a
very busy business district near the Obrero Market, a railroad crossing
and very thickly populated neighborhood where a great number of people
mill around t
Until
gasoline
87 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
tever be theWactjvities of these peopleor lighting a cigarette cannot be
excluded and this constitute a secondary hazard to its operation which in
turn endangers the entire neighborhood to conflagration.
Furthermore, aside from precautions already taken by its operator the
concrete walls south and west adjoining the neighborhood are only 2-1/2
meters high at most and cannot avoid the flames from leaping over it in
case of fire.
Records show that there have been two cases of fire which caused not
only material damages but desperation and also panic in the
neighborhood.
Although the soft drinks stand had been eliminated, this gasoline service
station is also used by its operator as a garage and repair shop for his
fleet of taxicabs numbering ten or more, adding another risk to the
possible outbreak of fire at this already small but crowded gasoline
station.
The foregoing report, having been submitted by a police officer in the
performance of his duties on the basis of his own personal observation of the facts
reported, may properly be considered as an exception to the hearsay rule. These
facts, descriptive of the location and objective circumstances surrounding the
operation of the gasoline station in question, strengthen the presumption of
negligence under the doctrine of res ipsa loquitur, since on their face they called
for more stringent measures of caution than those which would satisfy the
standard of due diligence under ordinary circumstances. There is no more
eloquent demonstration of this than the statement of Leandro Flores before the
police investigator. Flores was the driver of the gasoline tank wagon who, alone
and without assistance, was transferring the contents thereof into the underground
storage when the fire broke out. He said: "Before loading the underground tank
there were no people, but while the loading was going on, there were people who
went to drink coca-cola (at the coca-cola stand) which is about a meter from the
hole leading to the underground tank." He added that when the tank was almost
filled he went to the tank truck to close the valve, and while he had his back
turned to the "manhole" he, heard someone shout "fire."
Even then the fire possibly would not have spread to the neighboring houses were
it not for another negligent omission on the part of defendants, namely, their
failure to provide a concrete wall high enough to prevent the flames from leaping
over it. As it was the concrete wall was only 2-1/2 meters high, and beyond that
height it consisted merely of galvanized iron sheets, which would predictably
Course Outline
Agency, Partnership & Trust
crumple and melt when subjected to intense heat. Defendants' negligence,
therefore, was not only with respect to the cause of the fire but also with respect to
the spread thereof to the neighboring houses.
There is an admission on the part of Boquiren in his amended answer to the
second amended complaint that "the fire was caused through the acts of a stranger
who, without authority, or permission of answering defendant, passed through the
gasoline station and negligently threw a lighted match in the premises." No
evidence on this point was adduced, but assuming the allegation to be true —
certainly any unfavorable inference from the admission may be taken against
Boquiren — it does not extenuate his negligence. A decision of the Supreme
Court of Texas, upon facts analogous to those of the present case, states the rule
which we find acceptable here. "It is the rule that those who distribute a dangerous
article or agent, owe a degree of protection to the public proportionate to and
commensurate with a danger involved ... we think it is the generally accepted rule
as applied to torts that 'if the effects of the actor's negligent conduct actively and
continuously operate to bring about harm to another, the fact that the active and
substantially simultaneous operation of the effects of a third person's innocent,
tortious or criminal act is also a substantial factor in bringing about the harm, does
not protect the actor from liability.' (Restatement of the Law of Torts, vol. 2, p.
1184, #439). Stated in another way, "The intention of an unforeseen and
unexpected cause, is not sufficient to relieve a wrongdoer from consequences of
negligence, if such negligence directly and proximately cooperates with the
independent cause in the resulting injury." (MacAfee, et al. vs. Traver's Gas
Corporation, 153 S.W. 2nd 442.)
The next issue is whether Caltex should be held liable for the damages caused to
appellants. This issue depends on whether Boquiren was an independent
contractor, as held by the Court of Appeals, or an agent of Caltex. This question,
in the light of the facts not controverted, is one of law and hence may be passed
upon by this Court. These facts are: (1) Boquiren made an admission that he was
an agent of Caltex; (2) at the time of the fire Caltex owned the gasoline station
and all the equipment therein; (3) Caltex exercised control over Boquiren in the
management of the state; (4) the delivery truck used in delivering gasoline to the
station had the name of CALTEX painted on it; and (5) the license to store
gasoline at the station was in the name of Caltex, which paid the license fees.
(Exhibit T-Africa; Exhibit U-Africa; Exhibit X-5 Africa; Exhibit X-6 Africa;
Exhibit Y-Africa).
88 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
In Boquiren's amended answer to the second amended complaint, he denied that
he directed one of his drivers to remove gasoline from the truck into the tank and
alleged that the "alleged driver, if one there was, was not in his employ, the driver
being an employee of the Caltex (Phil.) Inc. and/or the owners of the gasoline
station." It is true that Boquiren later on amended his answer, and that among the
changes was one to the effect that he was not acting as agent of Caltex. But then
again, in his motion to dismiss appellants' second amended complaint the ground
alleged was that it stated no cause of action since under the allegations thereof he
was merely acting as agent of Caltex, such that he could not have incurred
personal liability. A motion to dismiss on this ground is deemed to be an
admission of the facts alleged in the complaint.
Caltex admits that it owned the gasoline station as well as the equipment therein,
but claims that the business conducted at the service station in question was
owned and operated by Boquiren. But Caltex did not present any contract with
Boquiren that would reveal the nature of their relationship at the time of the fire.
There must have been one in existence at that time. Instead, what was presented
was a license agreement manifestly tailored for purposes of this case, since it was
entered into shortly before the expiration of the one-year period it was intended to
operate. This so-called license agreement (Exhibit 5-Caltex) was executed on
November 29, 1948, but made effective as of January 1, 1948 so as to cover the
date of the fire, namely, March 18, 1948. This retroactivity provision is quite
significant, and gives rise to the conclusion that it was designed precisely to free
Caltex from any responsibility with respect to the fire, as shown by the clause that
Caltex "shall not be liable for any injury to person or property while in the
property herein licensed, it being understood and agreed that LICENSEE
(Boquiren) is not an employee, representative or agent of LICENSOR (Caltex)."
But even if the license agreement were to govern, Boquiren can hardly be
considered an independent contractor. Under that agreement Boquiren would pay
Caltex the purely nominal sum of P1.00 for the use of the premises and all the
equipment therein. He could sell only Caltex Products. Maintenance of the station
and its equipment was subject to the approval, in other words control, of Caltex.
Boquiren could not assign or transfer his rights as licensee without the consent of
Caltex. The license agreement was supposed to be from January 1, 1948 to
December 31, 1948, and thereafter until terminated by Caltex upon two days prior
written notice. Caltex could at any time cancel and terminate the agreement in
case Boquiren ceased to sell Caltex products, or did not conduct the business with
due diligence, in the judgment of Caltex. Termination of the contract was
Course Outline
Agency, Partnership & Trust
therefore a right granted only to Caltex but not to Boquiren. These provisions of
the contract show the extent of the control of Caltex over Boquiren. The control
was such that the latter was virtually an employee of the former.
Taking into consideration the fact that the operator owed his position to
the company and the latter could remove him or terminate his services at
will; that the service station belonged to the company and bore its
tradename and the operator sold only the products of the company; that
the equipment used by the operator belonged to the company and were
just loaned to the operator and the company took charge of their repair
and maintenance; that an employee of the company supervised the
operator and conducted periodic inspection of the company's gasoline
and service station; that the price of the products sold by the operator was
fixed by the company and not by the operator; and that the receipts
signed by the operator indicated that he was a mere agent, the finding of
the Court of Appeals that the operator was an agent of the company and
not an independent contractor should not be disturbed.
To determine the nature of a contract courts do not have or are not bound
to rely upon the name or title given it by the contracting parties, should
thereby a controversy as to what they really had intended to enter into,
but the way the contracting parties do or perform their respective
obligations stipulated or agreed upon may be shown and inquired into,
and should such performance conflict with the name or title given the
contract by the parties, the former must prevail over the latter. (Shell
Company of the Philippines, Ltd. vs. Firemens' Insurance Company of
Newark, New Jersey, 100 Phil. 757).
The written contract was apparently drawn for the purpose of creating the
apparent relationship of employer and independent contractor, and of
avoiding liability for the negligence of the employees about the station;
but the company was not satisfied to allow such relationship to exist. The
evidence shows that it immediately assumed control, and proceeded to
direct the method by which the work contracted for should be performed.
By reserving the right to terminate the contract at will, it retained the
means of compelling submission to its orders. Having elected to assume
control and to direct the means and methods by which the work has to be
performed, it must be held liable for the negligence of those performing
service under its direction. We think the evidence was sufficient to
89 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
sustain the verdict of the jury. (Gulf Refining Company v. Rogers, 57
S.W. 2d, 183).
Caltex further argues that the gasoline stored in the station belonged to Boquiren.
But no cash invoices were presented to show that Boquiren had bought said
gasoline from Caltex. Neither was there a sales contract to prove the same.
As found by the trial court the Africas sustained a loss of P9,005.80, after
deducting the amount of P2,000.00 collected by them on the insurance of the
house. The deduction is now challenged as erroneous on the ground that Article
2207 of the New Civil Code, which provides for the subrogation of the insurer to
the rights of the insured, was not yet in effect when the loss took place. However,
regardless of the silence of the law on this point at that time, the amount that
should be recovered be measured by the damages actually suffered, otherwise the
principle prohibiting unjust enrichment would be violated. With respect to the
claim of the heirs of Ong P7,500.00 was adjudged by the lower court on the basis
of the assessed value of the property destroyed, namely, P1,500.00, disregarding
the testimony of one of the Ong children that said property was worth P4,000.00.
We agree that the court erred, since it is of common knowledge that the
assessment for taxation purposes is not an accurate gauge of fair market value,
and in this case should not prevail over positive evidence of such value. The heirs
of Ong are therefore entitled to P10,000.00.
Wherefore, the decision appealed from is reversed and respondents-appellees are
held liable solidarily to appellants, and ordered to pay them the aforesaid sum of
P9,005.80 and P10,000.00, respectively, with interest from the filing of the
complaint, and costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Regala,
Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
Dizon, J., took no part.
d) Negotiorum Gestio (Art. 2144-2145)
ARTICLE 2144. Whoever voluntarily takes charge of the agency or management
of the business or property of another, without any power from the latter, is
obliged to continue the same until the termination of the affair and its incidents, or
to require the person concerned to substitute him, if the owner is in a position to
do so. This juridical relation does not arise in either of these instances:
(1) When the property or business is not neglected or abandoned;
(2) If in fact the manager has been tacitly authorized by the owner.
Course Outline
Agency, Partnership & Trust
In the first case, the provisions of articles 1317, 1403, No. 1, and 1404 regarding
unauthorized contracts shall govern.
In the second case, the rules on agency in Title X of this Book shall be applicable.
(1888a)
ARTICLE 2145. The officious manager shall perform his duties with all the
diligence of a good father of a family, and pay the damages which through his
fault or negligence may be suffered by the owner of the property or business
under management.
The courts may, however, increase or moderate the indemnity according to the
circumstances of each case. (1889a)
De la Peña v. Hidalgo, 16 Phil. 450
G.R. No. L-5486 August 17, 1910
JOSE DE LA PEA Y DE RAMON, plaintiff-appellant,
vs.
FEDERICO HIDALGO, defendant-appellant.
O'Brien and DeWitt, for plaintiff and appellant.
E. Gutierrez Repilde, for defendant and appellant.
TORRES, J.:
On May 23, 1906, Jose dela Peña y de Ramon, and Vicenta de Ramon, in her own
behalf and as the legal guardian of her son Roberto de la Peña, filed in the Court
of First Instance of Manila a written complaint against of Federico Hidalgo,
Antonio Hidalgo, and Francisco Hidalgo, and, after the said complaint, already
amended, had been answered by the defendants Antonio and Francisco Hidalgo,
and the other defendant, Federico Hidalgo, had moved for the dismissal of this
complaint, the plaintiff, Jose de la Peña y de Ramon, as the judicial administrator
of the estate of the deceased Jose de la Peña y Gomiz, with the consent of the
court filed a second amended complaintprosecuting his action solely against
Federico Hidalgo, who answered the same in writing on the 21st of may and at
the same time filed a counterclaim, which was also answered by the defendant.
On October 22, 1907, the case was brought up for hearing and oral testimony was
adduced by both parties, the exhibits introduced being attached to the record. In
view of such testimony and of documentary evidence, the court, on March 24,
1908, rendered judgment in favor of the plaintiff-administrator for the sum of
P13,606.19 and legal interest from the date of the filing of the complaint on May
24, 1906, and the costs of the trial.
90 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Both the plaintiff and the defendant filed notice of appeal from this judgment and
also asked for the annulment of the same and for a new trial, on the ground that
the evidence did not justify the said judgment and that the latter was contrary to
law. The defendant, on April 1, 1908, presented a written motion for new hearing,
alleging the discovery of new evidence favorable to him and which would
necessarily influence the decision such evidence or to introduce it at the trial of
the case, notwithstanding the fact that he had used all due diligence. His petition
was accompanied by affidavits from Attorney Eduardo Gutierrez Repilde and
Federico Hidalgo, and was granted by order of the court of the 4th of April.
At this stage of the proceedings and on August 10, 1908, the plaintiff Peña y De
Ramon filed a third amended complaint, with the permission of the court,
alleging, among other things, as a first cause of action, that during the period of
time from November 12, 1887, to January 7, 1904, when Federico Hidalgo had
possession of and administered the following properties, to wit; one house and lot
at No. 48 Calle San Luis; another house and lot at No. 6 Calle Cortada; another
house and lot at 56 Calle San Luis, and a fenced lot on the same street, all of the
district of Ermita, and another house and lot at No. 81 Calle Looban de Paco,
belonging to his principal, Jose de la Peña y Gomiz, according to the power of
attorney executed in his favor and exhibited with the complaint under letter A, the
defendant, as such agent, collected the rents and income from the said properties,
amounting to P50,244, which sum, collected in partial amounts and on different
dates, he should have deposited, in accordance with the verbal agreement between
the deceased and himself, the defendant, in the general treasury of the Spanish
Government at an interest of 5 per cent per annum, which interest on accrual was
likewise to be deposited in order that it also might bear interest; that the defendant
did not remit or pay to Jose de la Peña y Gomiz, during the latter's lifetime, nor to
nay representative of the said De la Peña y Gomiz, the sum aforestated nor any
part thereof, with the sole exception of P1,289.03, nor has he deposited the unpaid
balance of the said sum in the treasury, according to agreement, wherefore he has
become liable to his principal and to the defendant-administrator for the said sum,
together with its interest, which amounts to P72,548.24 and that, whereas the
defendant has not paid over all nor any part of the last mentioned sum, he is liable
for the same, as well as for the interest thereon at 6 per cent per annum from the
time of the filing of the complaint, and for the costs of the suit.
In the said amended complaint, the plaintiff alleged as a second cause of action:
That on December 9, 1887, Gonzalo Tuason deposited in the general treasury of
the Spanish Government, to the credit of Peña y Gomiz, the sum of 6,360 pesos, at
Course Outline
Agency, Partnership & Trust
5 per cent interest per annum, and on December 20, 1888, the defendant, as the
agent of Peña y Gomiz, withdrew the said amount with its interest, that is,
6,751.60 pesos, and disposed of the same for his own use and benefit, without
having paid all or any part of the said sum to Peña y Gomiz, or to the plaintiff
after the latter's death, notwithstanding the demands made upon him: wherefore
the defendant now owes the said sum of 6,751.60 pesos, with interest at the rate of
5 per cent per annum, compounded annually, from the 20th of December, 1888, to
the time of the filing of this complaint, and from the latter date at 6 per cent, in
accordance with law.
The complaint recites as a third cause of action: that, on or about November 25,
1887, defendant's principal, Peña y Gomiz, on his voyage to Spain, remitted from
Singapore, one of the ports to call, to Father Ramon Caviedas, a Franciscan friar
residing in this city, the sum of 6,000 pesos with the request to deliver the same,
which he did, to defendant, who, on receiving this money, appropriated it to
himself and converted it to his own use and benefit, since he only remitted to Peña
y Gomiz in Sapin, by draft, 737.24 pesos, on December 20, 1888; and, later, on
December 21, 1889, he likewise remitted by another draft 860 pesos, without
having returned or paid the balance of the said sum, notwithstanding the demands
made upon him so to do: wherefore the defendant owes to the plaintiff, for the
third cause of action, the sum of P4,402.76, with interest at the rate of 5 per cent
per annum, compounded yearly, to the time of the filing of the complaint and with
interest at 6 per cent from that date, as provided by law.
As a fourth cause of action the plaintiff alleges that, on or about January 23, 1904,
on his arrival from Spain and without having any knowledge or information of the
true condition of affairs relative to the property of the deceased Peña y Gomiz and
its administration, he delivered and paid to the defendant at his request the sum of
P2,000, derived from the property of the deceased, which sum the defendant has
not returned notwithstanding the demands made upon him so to do.
Wherefore the plaintiff petitions the court to render judgment sentencing the
defendant to pay, as first cause of action, the sum of P72,548.24, with interest
thereon at the rate of 6 per cent per annum from May 24, 1906, the date of the
filing of the complaint, and the costs; as a second cause of action, the sum of
P15,774.19, with interest at the rate of 6 per cent per annum from the said date of
the filing of the complaint, and costs; as a third cause of action, P9,811.13, with
interest from the aforesaid date, and costs; and, finally, as a fourth cause of action,
he prays that the defendant be sentenced to refund the sum of P2,000, with interest
91 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
thereon at the rate of 6 per cent per annum from the 23d of January, 1904, and to
pay the costs of trial.
The defendant, Federico Hidalgo, in his answer to the third amended complaint,
sets forth: That he admits the second, third, and fourth allegations contained in the
first, second, third, and fourth causes of action, and denies generally and
specifically each one and all of the allegations contained in the complaint, with
the exception of those expressly admitted in his answer; that, as a special defense
against the first cause of action, he, the defendant, alleges that on November 18,
1887, by virtue of the powers conferred upon him by Peña y Gomiz, he took
charge of the administration of the latter's property and administered the same
until December 31, 1893, when for reasons of health he ceased to discharge the
duties of said position; that during the years 1889, 1890, 1891, and 1892, the
defendant continually by letter requested Peña y Gomiz, his principal, to appoint a
person to substitute him in the administration of the latter's property, inasmuch as
the defendant, for reasons of health, was unable to continue in his trust; that, on
March 22, 1894, the defendant Federico Hidalgo, because of serious illness, was
absolutely obliged to leave these Islands and embarked on the steamer Isla de
Luzon for Sapin, on which date the defendant notified his principal that, for the
reason aforestated, he had renounced his powers and turned over the
administration of his property to Antonio Hidalgo, to whom he should transmit a
power of attorney for the fulfillment, in due form, of the trust that the defendant
had been discharging since January 1, 1894, or else execute a power of attorney in
favor of such other person as he might deem proper;
That prior to the said date of March 22, the defendant came, rendered accounts to
his principal, and on the date when he embarked for Spain rendered the accounts
pertaining to the years 1892 and 1893, which were those that yet remained to be
forwarded, and transmitted to him a general statement of accounts embracing the
period from November 18, 1887, to December 31, 1893, with a balance of
6,774.50 pesos in favor of Peña y Gomiz, which remained in the control of the
acting administrator, Antonio Hidalgo; that from the 22nd of March, 1894, when
the defendant left these Islands, to the date of his answer to the said complaint, he
has not again intervened nor taken any part directly or indirectly in the
administration of the property of Peña y Gomiz, the latter's administrator by
express authorization having been Antonio Hidalgo, from January 1, 1894, to
October, 1902, who, on this latter date, delegated his powers to Francisco
Hidalgo, who in turn administered the said property until January 7, 1904; that the
defendant, notwithstanding his having rendered, in 1894, all his accounts to Jose
Course Outline
Agency, Partnership & Trust
Peña y Gomiz, again rendered to the plaintiff in 1904 those pertaining to the
period from 1887 to December 31, 1893, which accounts the plaintiff approved
without any protest whatever and received to his entire satisfaction the balance
due and the vouchers and documents and documents relating to the property of the
deceased Peña y Gomiz and issued to the defendant the proper acquaintance
therefor.
As a special defense to the second cause of action, the defendant alleged that, on
December 9, 1886, Jose de la Peña y Gomiz himself deposited in the caja general
de depositos (General Deposit Bank) the sum of 6,000 pesos, at 6 per cent interest
for the term of one year, in two deposit receipts of 3,000 pesos each, which two
deposit receipts, with the interest accrued thereon, amounted to 6,360 pesos, ad
were collected by Gonzalo Tuason, through indorsement by Peña y Gomiz, on
December 9, 1887, and on this same date Tuason, in the name of Peña y Gomiz,
again deposited the said sum of 6,360 pesos in the General Deposit Bank, at the
same rate of interest, for the term of one year and in two deposit receipts of 3,180
pesos each, registered under Nos. 1336 and 1337; that, on December 20, 1888,
father Ramon Caviedas, a Franciscan friar, delivered to the defendant, Federico
Hidalgo, by order of De la Peña y Gomiz, the said two deposit receipts with the
request to collect the interest due thereon viz., 741.60 pesos an to remit it by draft
on London, drawn in favor of De la Peña y Gomiz, to deposit again the 6,000
pesos in the said General Deposit Bank, for one year, in a single deposit, and in
the latter's name, and to deliver to him, the said Father Caviedas, the
corresponding deposit receipt and the draft on London for their transmittal to Peña
y Gomiz: all of which was performed by the defendant who acquired the said draft
in favor of De la Peña y Gomiz from the Chartered Bank of India, Australia and
China, on December 20, 1888, and delivered the draft, together with the receipt
from the General Deposit Bank, to Father Caviedas, and on the same date, by
letter, notified Peña y Gomiz of the transactions executed; that on December 20,
1889, the said Father Hidalgo, by order of Peña y Gomiz, the aforesaid deposit
receipt from the General Deposit Bank, with the request to remit, in favor of his
constituent, the interest thereon, amounting to 360 pesos, besides 500 pesos of the
capital, that is 860 pesos in all, and to again deposit the rest, 5,500 pesos, in the
General Deposit Bank for another year in Peña y Gomiz's own name, and to
deliver to Father Caviedas the deposit receipt and the draft on London, for their
transmittal to his constituent; all of which the defendant did; he again deposited
the rest of the capital, 5,500 pesos, in the General Deposit Bank, in the name of
Peña y Gomiz, for one year at 5 per cent interest, under registry number 3,320,
92 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
and obtained from the house of J. M. Tuason and Co. a draft on London for 860
pesos in favor of Peña y Gomiz, on December 21, 1889, and thereupon delivered
the said receipt and draft to Father Caviedas, of which acts, when performed, the
defendant advised Peña y Gomiz by letter of December 24, 1889' and that, on
December 20, 1890, the said Father Ramon Caviedas delivered to the defendant,
by order of Peña y Gomiz, the said deposit receipt for 5,500 pesos with the request
that he withdraw from the General Deposit Bank the capital and accrued interest,
which amounted all together to 5,775 pesos, and that he deliver this amount to
Father Caviedas, which he did, in order that it might be remitted to Peña y Gomiz.
The defendant denied each of the allegations contained in the third cause of
action, and avers that they are all false and calumnious.
He likewise makes a general and specific denial of all the allegations of the fourth
cause of action.
As a counterclaim the defendant alleges that Jose Peña y Gomiz owed and had not
paid the defendant, up to the date of his death, the sum of 4,000 pesos with
interest at 6 per cent per annum, and 3,600 pesos, and on the plaintiff's being
presented with the receipt subscribed by his father, Peña y Gomiz, on the said date
of January 15th, and evidencing his debt, plaintiff freely and voluntarily offered to
exchange for the said receipt another document executed by him, and transcribed
in the complaint. Defendant further alleges that, up to the date of his counterclaim,
the plaintiff has not paid him the said sum, with the exception of 2,000 pesos.
Wherefore the defendant prays the court to render judgment absolving him from
the complaint with the costs against the plaintiff, and to adjudge that the latter
shall pay to the defendant the sum 9,000 pesos, which he still owes defendant,
with legal interest thereon from the date of the counterclaim, to wit, May 21,
1907, and to grant such other and further relief as may be just and equitable.
On the 25th of September, 1908, and subsequent dates, the new trial was held;
oral testimony was adduced by both parties, and the documentary evidence was
attached to the record of the proceedings, which show that the defendant objected
and took exception to the introduction of certain oral and documentary evidence
produced by the plaintiff. On February 26, 1909, the court in deciding the case
found that the defendant, Federico Hidalgo, as administrator of the estate of the
deceased Peña y Gomiz, actually owed by the plaintiff, on the date of the filing of
the complaint, the sum of P37,084.93; that the plaintiff was not entitled to recover
any sum whatever from the defendant for the alleged second, third, and fourth
causes of action; that the plaintiff actually owed the defendant, on the filing of the
complaint, the sum of P10,155, which the defendant was entitled to deduct from
Course Outline
Agency, Partnership & Trust
the sum owing by him to the plaintiff. Judgment was therefore entered against the
defendant, Federico Hidalgo, for the payment of P26,629.93, with interest thereon
at the rate of 6 per cent per annum from May 23, 1906, and the costs of the trial.
Both parties filed written exceptions to this judgment and asked, separately, for its
annulment and that a new trial be ordered, on the grounds that the findings of fact
contained in the judgment were not supported nor justified by the evidence
produced, and because the said judgment was contrary to law, the defendant
stating in writing that his exception and motion for a new trial referred exclusively
to that part of the judgment that was condemnatory to him. By order of the 10th of
April, 1909, the motions made by both parties were denied, to which they
excepted and announced their intention to file their respective bills of exceptions.
By written motions of the 24th of March, 1909, the plaintiff prayed for the
execution of the said judgment, and the defendant being informed thereof solicited
a suspension of the issuance of the corresponding writ of execution until his
motion for a new trial should be decided or his bill of exceptions for the appeal be
approved, binding himself to give such bond as the court might fix. The court,
therefore, by order of the 25th of the same month, granted the suspension asked
for, conditioned upon the defendants giving a bond, fixed at P34,000 by another
order of the same date, to guarantee compliance with the judgment rendered
should it be affirmed, or with any other decision that might be rendered in the case
by the Supreme Court. This bond was furnished by the defendant on the 26th of
the same month.
On April 16 and May 4, 1909, the defendant and the plaintiff filed their respective
bills of exceptions, which were certified to and approved by order of May 8th and
forwarded to the clerk of this court.
Before proceeding to examine the disputed facts to make such legal findings as
follows from a consideration of the same and of the questions of law to which
such facts give rise, and for the purpose of avoiding confusion and obtaining the
greatest clearness and an easy comprehension of this decision, it is indispensable
to premise: First, that as before related, the original and first complaint filed by
the plaintiff was drawn against Federico Hidalgo, Antonio Hidalgo, and Francisco
Hidalgo, the three persons who had successively administered the property of Jose
de la Peña y Gomiz, now deceased; but afterwards the action was directed solely
against Federico Hidalgo, to the exclusion of the other defendants, Antonio and
Francisco Hidalgo, in the second and third amended complaints, the latter of the
date of August 10, 1908, after the issuance by the court of the order of April 4th of
the same year, granting the new trial solicited by the defendant on his being
93 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
notified of the ruling of the 24th of the previous month of March; second, that the
administration of the property mentioned, from the time its owner left these
Islands and returned to Spain, lasted from November 18, 1887, to January 7, 1904;
and third that, the administration of the said Federico, Antonio, and Francisco
Hidalgo, having lasted so long, it is necessary to divide it into three periods in
order to fix the time during which they respectively administered De la Peña's
property: During the first period, from November 18, 1887, to December 31,
1893, the property of the absent Jose de la Peña y Gomiz was administered by his
agent, Federico Hidalgo, under power of attorney; during the second period, from
January 1, 1894, to September, 1902, Antonio Hidalgo administered the said
property, and during the third period, from October, 1902, to January 7, 1904,
Francisco Hidalgo was its administrator.
Before Jose de la Peña y Gomiz embarked for Spain, on November 12, 1887, he
executed before a notary a power of attorney in favor of Federico Hidalgo,
Antonio L. Rocha, Francisco Roxas and Isidro Llado, so that, as his agents, they
might represent him and administer, in the order in which they were appointed,
various properties he owned and possessed in Manila. The first agent, Federico
Hidalgo, took charge of the administration of the said property on the 18th of
November, 1887.
After Federico Hidalgo had occupied the position of agent and administrator of
De la Peña's property for several years, the former wrote to the latter requesting
him to designate a person who might substitute him in his said position in the
event of his being obliged to absent himself from these Islands, as one of those
appointed in the said power of attorney had died and the others did not wish to
take charge of the administration of their principal's property. The defendant,
Hidalgo, stated that his constituent, Peña y Gomiz, did not even answer his letters,
to approve or object to the former's accounts, and did not appoint or designate
another person who might substitute the defendant in his administration of his
constituent's property. These statements were neither denied nor proven to be the
record show any evidence tending to disapprove them, while it does show,
attached to the record and exhibited by the defendant himself, several letters
written by Hidalgo and addressed to Peña y Gomiz, which prove the said
statements, and also a letter from the priest Pedro Gomiz, a relative of the
deceased Jose de la Peña y Gomiz, addressed to Federico Hidalgo, telling the
latter that the writer had seen among the papers of the deceased several letters
from the agent, Federico Hidalgo, in which the latter requested the designation of
a substitute, because he had to leave this country for Spain, and also asked for the
Course Outline
Agency, Partnership & Trust
approval or disapproval of the accounts of his administration which had been
transmitted to his constituent, Peña y Gomiz.
For reasons of health and by order of his physician, Federico Hidalgo was obliged,
on March 22, 1894, to embark for Spain, and, on preparing for his departure, he
rendered the accounts of his administration corresponding to the last quarters, up
to December 31, 1893, not as yet transmitted, and forwarded them to his
constituent with a general statement of all the partial balances, which amounted to
the sum total of 6,774.50 pesos, by letter of the date of March 22, 1894, addressed
to his principal, Peña y Gomiz. In this letter the defendant informed the latter of
the writer's intended departure from this country and of his having provisionally
turned over the administration of the said property to his cousin, Antonio Hidalgo,
upon whom the writer had conferred a general power of attorney, but asking, in
case that this was not sufficient, that Peña send to Antonio Hidalgo a new power
of attorney.
This notifications is of the greatest importance in the decision of this case. The
plaintiff avers that he found no such letter among his father's papers after the
latter's death, for which reason he did not have it in his possession, but on the
introduction of a copy thereof by the defendant at the trial, it was admitted without
objection by the plaintiff (p. 81 of the record); wherefore, in spite of the denial of
the plaintiff and of his averment of his not having found that said original among
his father's papers, justice demands that it be concluded that this letter of the 22d
of March, 1894, was sent to, and was received by Jose de la Peña y Gomiz, during
his lifetime, for its transmittal, with inclosure of the last partial accounts of
Federico Hidalgo's administration and of the general resume of balances, being
affirmed by the defendant, the fact of the plaintiff's having found among his
deceased father's paper's the said resume which he exhibited at the trial, shows
conclusively that it was received by the deceased, as well as the letter of
transmittal of the 22nd of March, 1894, one of the several letters written by
Hidalgo, which the said priest, Father Gomiz, affirms that he saw among the
papers of the deceased Peña, the dates of which ran from 1890 to 1894; and it is
also shown by the record that the defendant Hidalgo positively asserted that the
said letter of March was the only one that he wrote to Peña during the year 1894;
From all of which it is deduced that the constituent, Peña y Gomiz, was informed
of the departure of his agent from these Islands for reasons of health and because
of the physician's advice, of the latter's having turned over the administration of
the property to Antonio Hidalgo, and of his agent's the defendant's petition that he
send a new power of attorney to the substitute.
94 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
The existence, amount the papers of the deceased, of the aforementioned
statement of all accounts rendered, which comprise the whole period of the
administration of the property of the constituent by the defendant, Federico
Hidalgo, from November 18, 1887, to December 31, 1893 — a statement
transmitted with the last partial accounts which were a continuation of those
already previously received — and the said letter of March 22, 1894, fully prove
that Jose de la Peña y Gomiz also received the said letter, informed himself of its
contents, and had full knowledge that Antonio Hidalgo commenced to administer
his property from January of that year. They likewise prove that he did no see fit
to execute a new power of attorney in the letter's favor, nor to appoint or designate
a new agent to take charge of the administration of his property that had been
abandoned by the defendant, Federico Hidalgo.
From the procedure followed by the agent, Federico Hidalgo, it is logically
inferred that he had definitely renounced his agency was duly terminated,
according to the provisions of article 1732 of the Civil Code, because, although in
the said letter of March 22, 1894, the word "renounce" was not employed in
connection with the agency or power of attorney executed in his favor, yet when
the agent informs his principal that for reasons of health and by medical advice he
is about to depart from the place where he is exercising his trust and where the
property subject to his administration is situated, abandons the property, turns it
over a third party, without stating when he may return to take charge of the
administration, renders accounts of its revenues up to a certain date, December 31,
1893, and transmits to his principal a general statement which summarizes and
embraces all the balances of his accounts since he began to exercise his agency to
the date when he ceased to hold his trust, and asks that a power of attorney in due
form in due form be executed and transmitted to another person who substituted
him and took charge of the administration of the principal's property, it is then
reasonable and just to conclude that the said agent expressly and definitely
renounced his agency, and it may not be alleged that the designation of Antonio
Hidalgo to take charge of the said administration was that of a mere proceed
lasted for more than fifteen years, for such an allegation would be in conflict with
the nature of the agency.
This renouncement was confirmed by the subsequent procedure, as well as of the
agent as of the principal, until the latter died, on August 2, 1902, since the
principal Peña did not disapprove the designation of Antonio Hidalgo, nor did he
appoint another, nor send a new power of attorney to the same, as he was
requested to by the previous administrator who abandoned his charge; and the trial
Course Outline
Agency, Partnership & Trust
record certainly contains no proof that the defendant, since he left these Islands in
March, 1894, until January, 1904, when he returned to this city, took any part
whatever, directly or even indirectly, in the said administration of the principal's
property, while Antonio Hidalgo was the only person who was in charge of the
aforementioned administration of De la Peña y Gomiz's property and the one who
was to represent the latter in his business affairs, with his tacit consent. From all
of which it is perfectly concluded (unless here be proof to the contrary, and none
appears in the record), that Antonio Hidalgo acted in the matter of the
administration of the property of Jose de la Peña y Gomiz by virtue of an implied
agency derived from the latter, in accordance with the provisions of article 1710
of the Civil Code.
The proof of the tacit consent of the principal, Jose de la Peña y Gomiz, the owner
of the property administered — a consent embracing the essential element of a
legitimate agency, article 1710 before cited — consists in that Peña, knowing that
on account of the departure of Federico Hidalgo from the Philippines for reasons
of health, Antonio Hidalgo took charge of the administration of his property, for
which Federico Hidalgo, his agent, who was giving up his trust, requested him to
send a new power of attorney in favor of the said Antonio Hidalgo, nevertheless
he, Jose de la Peña y Gomiz, saw fit not to execute nor transmit any power of
attorney whatever to the new administrator of his property and remained silent for
nearly nine years; and, in that the said principal, being able to prohibit the party
designated, Antonio Hidalgo, from continuing in the exercise of his position as
administrator, and being able to appoint another agent, did neither the one nor the
other. Wherefore, in permitting Antonio Hidalgo to administer his property in this
city during such a number of years, it is inferred, from the procedure and silence
of the owner thereof, that he consented to have Antonio Hidalgo administer his
property, and in fact created in his favor an implied agency, as the true and
legitimate administrator.
Antonio Hidalgo administered the aforementioned property of De la Peña y
Gomiz, not in the character of business manager, but as agent by virtue of an
implied agency vested in him by its owner who was not unaware of the fact, who
knew perfectly well that the said Antonio Hidalgo took charge of the
administration of that property on account of the obligatory absence of his
previous agent for whom it was an impossibility to continue in the discharge of
his duties.
It is improper to compare the case where the owner of the property is ignorant of
the officious management of the third party, with the case where he had perfect
95 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
knowledge of the management and administration of the same, which
administration and management, far from being opposed by him was indeed
consented to by him for nearly nine years, as was done by Peña y Gomiz. The
administration and management, by virtue of an implied agency, is essentially
distinguished from that management of another's business, in this respect, that
while the former originated from a contract, the latter is derived only from a
qausi-contract.
The implied agency is founded on the lack of contradiction or opposition, which
constitutes simultaneous agreement on the part of the presumed principal to the
execution of the contract, while in the management of another's business there is
no simultaneous consent, either express or implied, but a fiction or presumption of
consent because of the benefit received.
The distinction between an agency and a business management has been
established by the jurisprudence of the supreme court (of Spain) in its noteworthy
decision of the 7th of July, 1881, setting up the following doctrine:
That laws 28 and 32, title 12 Partida 3, refer to the expenses incurred in
things not one's own and without power of attorney from those to whom
they belong, and therefore the said laws are not applicable to this suit
where the petition of the plaintiff is founded on the verbal request made
to him by the defendant or the latter's employees to do some hauling, and
where, consequently, questions that arise from a contract that produces
reciprocal rights and duties can not be governed by the said laws.
It being absolutely necessary for Federico Hidalgo to leave this city and abandon
the administration of the property of his principal, Peña y Gomiz, for reasons of
health, he made delivery of the property and of his administration to Antonio
Hidalgo and gave notice of what he had done to his constituent, Peña, in order that
the latter might send a new power of attorney to Antonio Hidalgo, the person
charged with the administration of the property. Peña y Gomiz did not send the
power of attorney requested, did not oppose or prohibit Antonio Hidalgo's
containing to administer his property, and consented to his doing so for nearly
nine years. Consequently the second administrator must be considered as a
legitimate agent of the said principal, as a result of the tacit agreement on the
latter's part, and the previous agent, who necessarily abandoned and ceased to
hold his position, as completely free and clear from the consequences and results
of the second administration, continued by a third party and accepted by his
principal; for it is a fact, undenied nor even doubted, that the said first
administrator had to abandon this country and the administration of Peña's
Course Outline
Agency, Partnership & Trust
property for reasons of health, which made it possible for him to continue in the
discharge of his duties without serious detriment to himself, his conduct being in
accordance with the provisions of article 1736 of the Civil Code.
In the power of attorney executed by Peña y Gomiz in this city on November 12,
1887, in favor of, among others, Federico Hidalgo, no authority was conferred
upon the latter by his principal to substitute the power or agency in favor of
another person; wherefore the agent could not, by virtue of the said power of
attorney, appoint any person to substitute or relieve him in the administration of
the principal's property, for the lack of a clause of substitution in the said
instrument authorizing him so to do.
The designation of Antonio Hidalgo was not made as a result of substitution of the
power of attorney executed by Peña in favor of the defendant, but in order that the
principal's property should not be abandoned, inasmuch as, for the purposes of the
discharge of the duties of administrator of the same, the agent, who was about to
absent himself from this city, requested his principal to send to the party,
provisionally designated by the former, a new power of attorney, for the reason
that the general power of attorney which Federico Hidalgo had left, executed in
favor of his cousin Antonio Hidalgo, was so executed in his own name and for his
own affairs, and not in the name of Peña y Gomiz, as the latter had not authorized
him to take such action.
If the owner of the property provisionally administered at the time by Antonio
Hidalgo, saw fit to keep silent, even after having received the aforesaid letter of
March 22, 1894, and during the lapse of nearly ten years, without counter
commanding or disapproving the designation of the person who took charge of the
administration of his property, knowing perfectly well that his previous agent was
obliged, by sickness and medical advice to leave this city where such property
was situated, he is not entitled afterwards to hold amenable the agent who had to
abandon this country for good and valid reasons, inasmuch as the latter
immediately reported to his principal the action taken by himself and informed
him of the person who had taken charge of the administration of his property,
which otherwise would have been left abandoned. From the time of that
notification the agent who, for legitimate cause, ceased to exercise his trust, was
free and clear from the results and consequences of the management of the person
who substituted him with the consent, even only a tacit one, of the principal,
inasmuch as the said owner of the property could have objected to could have
prohibited the continuance in the administration thereof, of the party designated
by his agent, and could have opportunely appointed another agent or mandatory of
96 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
his own confidence to look after his property and if he did not do so, he is obliged
to abide by the consequences of his negligence and abandonment and has no right
to claim damages against his previous agent, who complied with his duty and did
all that he could and ought to have done, in accordance with the law.
The defendant Federico Hidalgo, having ceased in his administration of the
property belonging to Peña y Gomiz, on account of physical impossibility, which
cessation he duly reported to his principal and also informed him of the person
who relieved him as such administrator, and for whom he had requested a new
power of attorney, is only liable for the results and consequences of his
administration during the period when the said property was in his charge, and
therefore his liability can not extend beyond the period of his management, as his
agency terminated by the tacit or implied approval of his principal, judging from
the latter's silence in neither objecting to nor in anywise prohibiting Antonio
Hidalgo's continuing to administer his property, notwithstanding the lapse of the
many years since he learned by letter of the action taken by his previous agent,
Federico Hidalgo.
Moreover, this latter, in announcing the termination of his agency, transmitted the
last partial accounts that he had not rendered, up to December 31, 1893, together
with a general statement of all the resulting balances covering the period of his
administration, and Jose de la Peña y Gomiz remained silent and offered no
objection whatever to the said accounts and did not manifest his disapproval of the
same nor of the general statement, which he must have received in April or may,
1894, to the time he died, in August, 1902; and when his son, the plaintiff, came
to this city in company with the defendant, Federico Hidalgo, they traveled
together from Spain and arrived in Manila during one of the early days of January,
1904, the former, for the purpose of taking charge of the estate left by his father,
and after the plaintiff had examined the accounts kept by Federico Hidalgo, his
deceased father's first agent, he approved them and therefore issued in favor of the
defendant the document, Exhibit 5, found on page 936 of the second record of
trial, dated January 15, 1904, in which Jose de la Peña y de Ramon acknowledged
having received from his deceased father's old agent the accounts, balances, and
vouchers to his entire satisfaction, and gave an acquittance in full settlement of the
administration that had been commended to the defendant Hidalgo.
This document, written in the handwriting of the plaintiff, Peña y de Ramon,
appears to be executed in a form considered to be sufficient by its author, and,
notwithstanding the allegations of the said plaintiff, the record contains no proof
of any kind of Federico Hidalgo's having obtained it by coercion, intimidation,
Course Outline
Agency, Partnership & Trust
deceit, or fraud; neither is its shown to have been duly impugned as false,
criminally or civilly, for the statements therein made by the plaintiff are too
explicit and definite to allow, without proof of some vice or defect leading to
nullification, of its being considered as void and without value or legal effect.
With respect to the responsibility contracted by the defendant, as regards the
payment of the balance shown by the accounts rendered by him, it is not enough
that the agent should have satisfactorily rendered the accounts pertaining to his
trust, but it is also indispensable that it be proved that he had paid to his principal,
or to the owner of the property administered, the balance resulting from his
accounts. This balance, which was allowed in the judgment appealed from,
notwithstanding the allegations of the plaintiff, which were not deemed as
established, amounts to P6,774.50, according to the proofs adduced at the trial. It
was the imperative duty of the administrator, Federico Hidalgo, to transmit this
sum to his principal, Jose de la Peña y Gomiz, as the final balance of the accounts
of his administration, struck on December 31, 1893, and by his failure so to do
and delivery of the said sum to his successor, Antonio Hidalgo, he acted
improperly, and must pay the same to the plaintiff.
Antonio Hidalgo took charge of the administration of Peña y Gomiz's property
from January, 1894, to September, 1902, that is, during the second period of
administration of the several properties that belonged to the deceased Peña.
Although the plaintiff, in his original complaint, had included the said Antonio
Hidalgo as one of the responsible defendants, yet he afterwards excluded him, as
well from the second as from the third amended complaint, and consequently the
liability that might attach to Antonio Hidalgo was not discussed, nor was it
considered in the judgment of the lower court; neither can it be in the decision, for
the reason that the said Antonio Hidalgo is not a party to this suit. However, the
said liability of Antonio Hidalgo is imputed to Federico Hidalgo, and so it is that,
in the complain t, the claim is made solely against Federico Hidalgo, in order that
the latter might be adjudged to pay the amounts which constitute the balance
owing from him who might be responsible, Antonio Hidalgo, during the period of
this latter's administration.
Federico Hidalgo, in our opinion, could not and can not be responsible for the
administration of the property that belonged to the deceased Peña y Gomiz, which
was administered by Antonio Hidalgo during eight years and some months, that
is, during the second period, because of the sole fact of his having turned over to
the latter the administration of the said property on his departure from this city of
Spain. Neither law nor reason obliged Federico Hidalgo to remain in this country
97 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
at the cost of his health and perhaps of his life, even though he were the
administrator of certain property belonged to Peña y Gomiz, since the care of the
property and interests of another does not require sacrifice on the part of the agent
of his own life and interests. Federico Hidalgo was obliged to deliver the said
property belonging to Peña y Gomiz to Antonio Hidalgo for good and valid
reasons, and reasons, and in proceeding in the manner aforesaid he complied with
the duty required of him by law and justice and acted as a diligent agent. If the
principal, Jose de la Peña Gomiz, the owner of the property mentioned, although
informed opportunely of what had occurred saw fit to keep silent, not to object to
the arrangements made, not to send the power of attorney requested by Federico
Hidalgo in favor of Antonio Hidalgo, and took no action nor made any inquiry
whatever to ascertain how his property was being administered by the second
agent, although to the time of his death more than eight years had elapsed, the
previous agent, who ceased in the discharge of his duties, can in nowise be held
liable for the consequences of such abandonment, nor for the results of the
administration of property by Antonio Hidalgo, for the reason that, since his
departure from this country, he has not had the least intervention nor even indirect
participation in the aforementioned administration of the said Antonio Hidalgo
who, under the law, was the agent or administrator by virtue of an implied agency,
which is equivalent in its results to an express agency, executed by the owner of
the property. Consequently, Federico Hidalgo is not required to render accounts of
the administration corresponding to the second period mentioned, nor to pay the
balance that such accounts may show to be owing.
At the first trial of this cause, Federico Hidalgo, testified under oath that his
principal, Jose Peña y Gomiz, did not agree to the appointment of Antonio
Hidalgo, chosen by the witness, not to such appointee's taking charge of the
administration of his property. Aside from the fact that the trial record does not
show honor on what date Peña expressed such disagreement it is certain that, in
view of the theory of defense maintained by the defendant Hidalgo could have
said, by means of a no, that his principal did not agree to the appointment of the
said Antonio Hidalgo, and the intercalation of the word no in the statement quoted
is more inexplicable in that the attorney for the adverse party moved that the said
answer be stricken from the record, as he objected to its appearing therein.
Were it true that the principal Jose de la Peña by Gomiz, had neither agreed to the
designation of Antonio Hidalgo, nor to the latter's administering his property, he
would immediately have appointed another agent and administrator, since he
knew that Federico Hidalgo had left the place where his property was situated and
Course Outline
Agency, Partnership & Trust
that it would be abandoned, had he not wished that Antonio Hidalgo should
continue to administer it. If the latter continued in the administration of the
property for so long a time, nearly nine years, it was because the said Peña agreed
and gave his consent to the acts performed by his outgoing agent, and for this
reason the answer given by Federico Hidalgo mistakenly, or not, that his principal,
Peña, did not agree to the appointment of Antonio Hidalgo, is immaterial and does
not affect the terms of this decision.
If the defendant is not responsible for the results of the administration of said
property administered by Antonio Hidalgo during the second period before
referred to, neither is he responsible for that performed during the third period by
Francisco Hidalgo, inasmuch as the latter was not even chosen by the defendant
who, on October 1, 1902, when Francisco Hidalgo took charge of Peñas' property
that had been turned over to him by Antonio Hidalgo, was in Spain and had no
knowledge of nor intervention in such delivery; wherefore the defendant can in no
manner be obliged to pay to the plaintiff any sum that may be found owing by
Francisco Hidalgo.
The trial judge — taking into consideration that, by the evidence adduced at the
hearing, it was proved that Francisco Hidalgo rendered accounts to the plaintiff of
the administration of the property in question during the said third period, that is,
for one year, three months, and someday, and that he delivered to the plaintiff the
balance of 1,280.03 pesos, for which the latter issued to the said third
administrator the document Exhibit 2, written in his own handwriting under date
of January 7, 1904, and the signature which, affixed by himself, he admitted in his
testimony was authentic, on its being exhibited to him — found that the plaintiff,
Peña y de Ramon, was not entitled to recover any sum whatever for the rents
pertaining to the administration of his property by the said Francisco Hidalgo.
All the reasons hereinbefore given relate to the first cause of action, whereby
claim is made against Federico Hidalgo for the payment of the sum of P72,548.24
and interest at the rate of 6 per cent per centum, and they have decided some of
the errors assigned by the appellants in their briefs to the judgment appealed from.
Two amounts are have claimed which have one and the same origin, yet are based
on two causes of action, the second and the third alleged by the plaintiff; and
although the latter, afterwards convinced by the truth and of the impropriety of his
claim, had to waive the said third cause of action during the second hearing of this
cause (pp. 57 and 42 of the record of the evidence), the trial judge, on the grounds
that the said second and third causes of action refer to the same certificates of
deposit of the treasury of the Spanish Government, found, in the judgment
98 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
appealed from, that the plaintiff was not entitled to recover anything for the
aforesaid second and third causes of action — a finding that is proper and just,
although qualified as erroneous by the plaintiff in his brief.
It appears, from the evidence taken in this cause, that Jose de la Peña y Gomiz,
according to the certificates issued by the chief of the division his lifetime, after
having in 1882 withdrawn from the General Deposit Bank of the Spanish
Government a deposit of 17,000 pesos and its interest deposit any sum therein
until December 9, 1886, when he deposited two amounts of 3,000 pesos each, that
is, 6,000 pesos in all, the two deposit receipts for the same being afterwards
endorsed in favor of Gonzalo Tuason. The latter, on December 9, 1887, withdrew
the deposit and took out the said two amounts, together with the interest due
thereon, and on the same date redeposited them in the sum of 6,360 pesos at 5 per
cent per annum in the name of Jose de la Peña y Gomiz. On the 20th of December
of the following year, 1888, the defendant Hidalgo received from his principal,
Peña y Gomiz, through Father Ramon Caviedas, the two said letters of credit, in
order that he might withdraw from the General Deposit Bank the two amounts
deposited, together with the interest due thereon, amounting to 741 pesos, and
with this interest purchase a draft on London in favor of its owner and then
redeposit the original capital of 6,000 pesos. This, the defendant Hidalgo did and
then delivered the draft and the deposit receipt to Father Caviedas, of all of which
transactions he informed his principal by letter of the same date, transcribed on
page 947 of the second trial record.
In the following year, 1889, Father Ramon Caviedas again delivered to the
defendant Hidalgo the aforementioned deposit receipt with the request to
withdraw from the General Deposit bank the sum deposited and to purchase a
draft of 860 pesos on London in favor of their owner, Jose de la Peña y Gomiz,
and, after deducting the cost of the said draft from the capital and interest
withdrawn from deposit, amounting to 6,360 pesos, to redeposit the remainder,
5,500 pesos, in the bank mentioned, in accordance with the instructions from Peña
y Gomiz: All of which was done by the defendant Hidalgo, who delivered to
Father Caviedas the receipt for the new deposit of 5,500 pesos as accredited by the
reply-letter, transcribed on page 169 of the record, and by the letter addressed by
Hidalgo to Peña, of the date of December 20 of that year and shown as an original
exhibit by the plaintiff himself on page 29 of the record of the evidence.
Lastly, in December, 1890, Father Caviedas, aforementioned, delivered to the
defendant Hidalgo the said deposit receipt for 5,500 pesos in order that he might
withdraw this amount from deposit and deliver it with the interest thereon to the
Course Outline
Agency, Partnership & Trust
former for the purpose of remitting it by draft to Jose de la Peña; this Hidalgo did,
according to a reply-letter from Father Caviedas, the original of which appears on
page 979 of the file of exhibits and is copied on page 171 of the trial record, and is
apparently confirmed by the latter in his sworn testimony.
So that the two amounts of 3,000 pesos each, expressed in two deposit receipts
received from De la Peña y Gomiz by Father Ramon Caviedas and afterwards
delivered to Francisco Hidalgo for the successive operations of remittance and
redeposit in the bank before mentioned, are the same and only ones that were on
deposit in the said bank in the name of their owner, Peña y Gomiz. The defendant
Hidalgo made two remittances by drafts of London, one in 1888 for 741.60 pesos,
through a draft purchased from the Chartered Bank, and another in 1889 for 860
pesos, through a draft purchased from the house of Tuason & Co., and both in
favor of Peña y Gomiz, who received through Father Ramon Caviedas the
remainder, 5,500 pesos, of the sums deposited. For these reasons, the trial judge
was of the opinion that the certificates of deposit sent by Peña y Gomiz to Father
Ramon Caviedas and those received from the latter by the defendant Hidalgo were
identicals, as were likewise the total amounts expressed by the said receipts or
certificates of deposit, from the sum of which were deducted the amounts remitted
to Peña y Gomiz and the remainder deposited after each anual operation until,
finally, the sum of 5,500 pesos was remitted to its owner, Peña y Gomiz,
according to his instructions, through the said Father Caviedas. The lower court,
in concluding its judgment, found that the plaintiff was entitled to recover any
sum whatever for the said second and third causes of action, notwithstanding that,
as hereinbefore stated, the said plaintiff withdrew the third cause of action. This
finding of the court, with respect to the collection of the amounts of the
aforementioned deposit receipts, is perfectly legal and in accordance with justice,
inasmuch as it is a sustained by abundant and conclusive documentary evidence,
which proves in an incontrovertible manner the unrighteousness of the claim made
by the plaintiff in twice seeking payment, by means of the said second and third
causes of action, of the said sum which, after various operations of deposit and
remittance during three years, was finally returned with its interest to the
possession of its owner, Peña y Gomiz.
From the trial had in this case, it also appears conclusively proved that Jose de la
Peña y Gomiz owed, during his lifetime, to Federico Hidalgo, 7,600 pesos, 4,000
pesos of which were to bear interest at the rate of 6 per cent per annum, and the
remainder without any interest, and that, notwithstanding the lapse of the period
of three years, from November, 1887, within which he bound himself to repay the
99 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
amount borrowed, and in spite of his creditor's demand of payment, made by
registered letter, the original copy of which is on page 38 of the file of exhibits
and a transcription thereof on page 930 of the first and second record of the
evidence, the debt was not paid up to the time of the debtor's death. For such
reasons, the trial court, in the judgment appealed from, found that there was a
preponderance of evidence to prove that this loan had been made and that the
plaintiff actually owed the defendant the sum loaned, as well as the interest
thereon, after deducting therefrom the 2,000 pesos which the defendant received
from the plaintiff on account of the credit, and that the former was entitled to
recover.
It appears from the pleadings and evidence at the trial that in January, 1904, on the
arrival in this city of Federico de la Peña de Ramon, and on the occasion of the
latter's proceeding to examine the accounts previously rendered, up to December
31, 1893, by the defendant Hidalgo to the plaintiff's father, then deceased, Hidalgo
made demand upon the plaintiff, Peña y de Ramon, for the payment of the said
debt of his father, although the creditor Hidalgo acceded to the requests of the
plaintiff to grant the latter an extension of time until he should be able to sell one
of the properties of the estate. It was at that time, according to the defendant, that
the plaintiff Peña took up the instrument of indebtedness, executed by his
deceased father during his lifetime, and delivered to the defendant in exchange
therefor the document of the date of January 15, 1904, found on page 924 of the
second record of evidence, whereby the plaintiff, Jose de la Peña, bound himself
to pay his father's debt of 11,000 pesos, owing to the defendant Hidalgo, out of the
proceeds of the sale of some of the properties specified in the said document,
which was written and signed by the plaintiff in his own handwriting.
The plaintiff not only executed the said document acknowledging his father's debt
and binding himself to settle it, but also, several days after the sale of a lot
belonging to the estate, paid to the creditor on account the sum of 2,000 pesos,
according to the receipt issued by the latter and exhibited on page 108 of the first
record of evidence.
The said document, expressive of the obligation contracted by the plaintiff Peña y
de Ramon that he would pay to the defendant the debt of plaintiff's deceased
father, amounting to 11,000 pesos, out of the proceeds from some of the
properties of the estate, has not been denied nor impugned as false; and not
withstanding the averment made by the plaintiff that when he signed he lacked
information and knowledge of the true condition of the affairs concerning
Hidalgo's connection with the property that be absolutely no proof whatever is
Course Outline
Agency, Partnership & Trust
shown in the trial record of the creditor's having obtained the said document
through deceit or fraud — circumstances in a certain manner incompatible with
the explicit statements contained therein. For these reasons, the trial court,
weighing the whole of the evidence furnished by the record, found that the loan of
the said 7,600 pesos was truly and positively made, and that the plaintiff must pay
the same to the defendant, with the interest thereon, and that he was not entitled to
recover the 2,000 pesos, as an undue payment made by him to the defendant
creditor. For the foregoing reason the others errors assigned by the plaintiff to the
judgment appealed from are dismissed.
With respect to the obligation to pay the interest due on the amounts concerned in
this decision, it must be borne in mind that, as provided by article 1755 of the
Civil Code, interest shall only be owed when it has been expressly stipulated, and
that should the debtor, who is obliged to pay a certain sum of money, be in default
and fail to fulfill the agreement made with his creditor, he must pay, as indemnity
for losses and damages, the interest agreed upon, and should there be no express
stipulation, the legal interest (art. 1108 of the Civil Code); but, in order that the
debtor may be considered to be in default and obliged to pay the indemnity, it is
required, as a general rule, that his creditor shall demand of such debtor the
fulfillment of his obligation, judicially or extrajudicially, except in such cases as
are limitedly specified in article 1100 of the Civil Code.
It was not expressly stipulated that either the balance of the last account rendered
by the defendant Federico Hidalgo in 1893, or the sum which the plaintiff bound
himself to pay to the defendant, in the instrument of the 15th of January, 1904,
should bear interest; nor is there proof that a judicial or extrajudicial demand was
made, on the part of the respective creditors concerned, until the date of
complaint, on the part of the plaintiff, and that of the counterclaim, on the part of
the defendant. Therefore no legal interest is owing for the time prior to the
respectives dates of the complaint and counterclaim.
By virtue, then, of the reasons herein before set forth, it is proper, in our opinion,
to adjudge, as we do hereby adjudge, that the defendant, Federico Hidalgo, shall
pay to the plaintiff, Jose de la Peña y de Ramon, as administrator of the estate of
the deceased Jose de la Peña y Gomiz, the sum of P6,774.50, and the legal interest
thereon at the rate of 6 per cent per annum from 23rd of May, 1906, the date of
the filing of the original complaint in this case; that we should and hereby do
declare that the said defendant Federico Hidalgo, is not bound to gibe nor render
accounts of the administration of the property of the said deceased Jose de la Peña
y Gomiz administered, respectively, by Antonio Hidalgo, from January, 1894, to
100 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
September 30, 1902, and by Francisco Hidalgo, from October 1, 1902, to January
7, 1904, and therefore the defendant, Federico Hidalgo, not being responsible for
the results of the administration of the said property administered by the said
Antonio and Francisco Hidalgo, we do absolve the said defendant from the
complaint filed by the plaintiff, in so far as it concerns the accounts pertaining to
the aforesaid two periods of administration and relates to the payment of the
balances resulting from such accounts; and that we should and hereby do absolve
the defendant Hidalgo from the complaint with respect to the demand for the
payment of the sums of P15,774.19 and P2,000, with their respective interests, on
account of the second and the fourth cause of action, respectively, and because the
plaintiff renounced and withdrew his complaint, with respect to the third cause of
action; and that we should and do likewise adjudge, that the plaintiff, Jose de la
Peña y de Ramon, shall pay to Federico Hidalgo, by reason of the counterclaim,
the sum of P9,000 with legal interest thereon at the rate of 6 per cent per annum
from 21st of may, 1907, the date of the counterclaim.
The judgment appealed from, together with that part thereof relative to the
statement it contains concerning the equivalence between the Philippine peso and
the Mexican peso, is affirmed in so far as it is in agreement with the findings of
this decision, and the said judgment is reversed in so far as it is not in accordance
herewith. No special finding is made as to costs assessed in either instance, and to
the plaintiff is reserved any right that he may be entitled to enforce against
Antonio Hidalgo.
Arellano, C.J., Johnson, Moreland and Trent, JJ., concur.
e) Loan (Art. 1933)
ARTICLE 1933. By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a certain
time and return it, in which case the contract is called a commodatum; or money
or other consumable thing, upon the condition that the same amount of the same
kind and quality shall be paid, in which case the contract is simply called a loan or
mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in
simple loan, ownership passes to the borrower. (1740a)
2 C.J.S. 1030
Course Outline
Agency, Partnership & Trust
Jai Alai Corp. v. BPI, 66 SCRA 29
[G.R. No. L-29432. August 6, 1975.]
JAI-ALAI CORPORATION OF THE PHILIPPINES, Petitioner, v. BANK
OF THE PHILIPPINE ISLAND, Respondent.
Bausa, Ampil & Suarez for Petitioner.
Aviado & Aranda for Respondent.
SYNOPSIS
Petitioner deposited in its current account with respondent bank several checks
with a total face value of P8,030.58, all acquired from Antonio J. Ramirez, a
regular bettor at the jai-alai games and a sale agent of the Inter-Island Gas Service,
Inc., the payee of the checks. The deposits were all temporarily credited to
petitioner‘s account in accordance with the clause printed on the bank‘s deposit
slip. Subsequently, Ramirez resigned and after the checks had been submitted to
inter-bank clearing, the Inter-Island Gas discovered that all the indorsement made
on the cheeks purportedly by its cashiers, as well as the rubber stamp impression
thereon reading "Inter-Island Gas Service, Inc.", were forgeries. It informed
petitioner, the respondent, the drawers and the drawee banks of the said checks
and forgeries and filed a criminal complaint against its former employee. In view
of these circumstances, the respondent Bank debited the petitioner‘s current
account and forwarded to the latter the checks containing the forged indorsements,
which petitioner refused to accept. Later, petitioner drew against its current
account a check for P135,000.00. This check was dishonored by respondent as its
records showed that petitioner‘s balance after netting out the value of the checks
with the forged indorsement, was insufficient to cover the value of the check
drawn. A complaint was filed by petitioner with the Court of First Instance of
Manila. The same was dismissed by the said court after due trial, as well as by the
Court of Appeals, on appeal. Hence, this petition for review.
The Supreme Court ruled that respondent acted within legal bounds when it
debited petitioner‘s account; that the payments made by the drawee banks to the
respondent on account of the checks with forged indorsements were ineffective;
that on account thereof, no creditor-debtor relationship was created between the
parties; that petitioner was grossly recreant in accepting the checks in question
from Ramirez without making any inquiry as to authority to exchange checks
belonging to the payee-corporation; and that petitioner, in indorsing the said
101 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
checks when it deposited them with respondent, guaranteed the genuineness of all
prior indorsement thereon so that the respondent, which relied upon its warranty,
cannot be held liable for the resulting loss.
Judgment affirmed
SYLLABUS
1. NEGOTIABLE INSTRUMENT; CHECKS; FORGED INDORSEMENTS
EFFECT. — A forged signature in a negotiable instrument makes it wholly
inoperative and no right to discharge it or enforce its payment can be acquired
through or under the forged signature except against a party who cannot invoke
the forgery.
2. ID.; ID.; ID.; NO RELATION OF CREDITOR-DEBTOR BETWEEN THE
PARTIES CREATED EVEN IF DEPOSITARY OR COLLECTING BANK
HAD ALREADY COLLECTED THE PROCEEDS OF THE CHECKS WHEN
IT DEBITED PETITIONER‘S ACCOUNT; REASON. — Where the indorsement
made on the checks were forged prior to their delivery to depositor, the payments
made by the drawee-banks to the collecting bank on account of the said checks
were ineffective. Such being the case, the relationship of creditor and debtor
between the depositor and the depository had not been validly effected, the checks
not having properly and legitimately converted into cash.
3. ID.; ID.; ID.; COLLECTING BANKS HAS DUTY TO REIMBURSE TO
DRAWEE-BANKS THE VALUE OF CHECKS CONTAINING FORGED
INDORSEMENT; RULING IN THE CASE OF GREAT EASTERN LIFE
INSURANCE CO. v. HONGKONG & SHANGHAI BANK. — In Great Eastern
Life Ins. Co. v. Hongkong & Shanghai Bank, 43 Phil. 678 (1992), the Court ruled
that it is the obligation of the collecting bank to reimburse the drawee-bank the
value of the checks subsequently found to contain the forged indorsement of the
payee. The reason is that the bank with which the check was deposited has no
right to pay the sum stated therein to the forger "or to anyone else upon a forged
signature." "It was its duty to know," said the Court, "that (the payee‘s)
endorsement was genuine before cashing the check." The depositor must in turn
shoulder the loss of the amounts which the respondent, as its collecting agent, had
no reimburse to the drawee-banks.
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

C.A.-G.R. 34042-R dated June 25, 1968 in favor of the Bank of the Philippine
4. ID.; ID.; ACCEPTANCE OF CHECKS INDORSED BY AN AGENT; Islands (hereinafter referred to as the respondent).
RULING IN THE CASE OF INSULAR DRUG CO. v. NATIONAL. — In
Insular Drug Co. v. National, 58 Phil. 685 (1933), the Court made the From April 2, 1959 to May 18, 1959, ten checks with a total face value of
pronouncement that." . .The right of an agent to indorse commercial paper is a P8,030.58 were deposited by the petitioner in its current account with the
very responsible power and will not be lightly inferred. A salesman with authority respondent bank. The particulars of these checks are as follows:chanrob1es virtual
to collect money belonging to his principal does not have the implied authority to 1aw library
indorse checks received in payment. Any person taking checks made payable to a
corporation which can act by agents, does so at his peril, and must abide by the 1. Drawn by the Delta Engineering Service upon the Pacific Banking Corporation
consequences if the agent who endorses the same is without authority."cralaw and payable to the Inter-Island Gas Service Inc. or order:chanrob1es virtual 1aw
virtua1aw library library

5. ID.; ID.; LIABILITY OF AN INDORSER; NO LOSS TO BE SUFFERED BY Date Check Exhibit

A BANK WHO RELIED ON INDORSER‘S WARRANTY. — Under Section 67
of the Negotiable Instruments Law, "Where a person places his indorsement on an Deposited Number Amount Number
instrument negotiable by delivery he incurs all the liability of an indorser," and
under Section 66 of the same statute a general indorser warrants that the 4/2/59 B-352680 P500.00 18
instrument "is genuine and in all respects what it purports to be." Where the
depositor indorsed the checks with forged indorsement when it deposited them 4/20/59 A-156907 372.32 19
with the collecting bank, the former as an endorser guaranteed the genuineness of
all prior indorsement thereon. The collecting bank which relied upon this warranty 4/24/59 A-156924 397.82 20
cannot be held liable for the resulting loss.
5/4/59 B-364764 250.00 23
6. ID.; ID.; FORGED CHECKS; TRANSFER OF FUNDS FROM DRAWEE TO
COLLECTING BANK; APPLICATION OF ART. 2154 OF THE CIVIL CODE. 5/6/59 B-364775 250.00 24
— The transfer by the drawee-banks of funds to the collecting bank on account of
forged checks would be ineffectual when made under the mistaken and valid 2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation and
assumption that the indorsement of the payee thereon were genuine. Under Article payable to the Inter-Island Gas Service, Inc. or bearer:chanrob1es virtual 1aw
2154 of the New Civil Code "If something is received when there is no right to library
demand it and it was unduly delivered through mistake, the obligation to return it
arises," By virtue thereof, there can be no valid payment of money by drawee- 4/13/59 B-335063 P 2108.70 21
banks to the collecting bank on account of forged checks.
DECISION 4/27/59 B-335072 P2210.94 22
CASTRO, J.:
3. Drawn by the Luzon Tinsmith & Company upon the China Banking
This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter Corporation and payable to the Inter-Island Gas Service, Inc. or bearer:chanrob1es
referred to as the petitioner) for review of the decision of the Court of Appeals in virtual 1aw library

102 | P a g e
Course Outline
Agency, Partnership & Trust
5/18/59 VN430188 P940.8025cralaw:red
4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank
and payable to the Inter-Island Gas Service, Inc. order:chanrob1es virtual 1aw
library
5/14/59 1860160 P 500.00 26
5/18/59 1860660 P 500.00 27
All the foregoing checks, which were acquired by the petitioner from one Antonio
J. Ramirez, a sales agent of the Inter-Island Gas and a regular bettor at jai-alai
games, were, upon deposit, temporarily credited to the petitioner‘s account in
accordance with the clause printed on the deposit slips issued by the respondent
and which reads:jgc:chanrobles.com.ph
"Any credit allowed the depositor on the books of the Bank for checks or drafts
hereby received for deposit, is provisional only, until such time as the proceeds
thereof, in current funds or solvent credits, shall have been actually received by
the Bank and the latter reserves to itself the right to charge back the item to the
account of its depositor, at any time before that event, regardless of whether or not
the item itself can be returned."cralaw virtua1aw library
About the latter part of July 1959, after Ramirez had resigned from the Inter-
Island Gas and after the checks had been submitted to inter-bank clearing, the
Inter-Island Gas discovered that all the indorsements made on the checks
purportedly by its cashiers, Santiago Amplayo and Vicenta Mucor (who were
merely authorized to deposit checks issued payable to the said company) as well
as the rubber stamp impression thereon reading "Inter-Island Gas Service, Inc.,"
were forgeries. In due time, the Inter-Island Gas advised the petitioner, the
respondent, the drawers and the drawee-banks of the said checks about the
forgeries, and filed a criminal complaint against Ramirez with the Office of the
City Fiscal of Manila. 1 amount of P8,030.58, representing the total value of the checks with the forged
The respondent‘s cashier, Ramon Sarthou, upon receipt of the latter of Inter-Island
Gas dated August 31, 1959, called up the petitioner‘s cashier, Manuel Garcia, and
advised the latter that in view of the circumstances he would debit the value of the
103 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
checks against the petitioner‘s account as soon as they were returned by the
respective drawee-banks.
Meanwhile, the drawers of the checks, having been notified of the forgeries,
demanded reimbursement to their respective accounts from the drawee-banks,
which in turn demanded from the respondent, as collecting bank, the return of the
amounts they had paid on account thereof. When the drawee-banks returned the
checks to the respondent, the latter paid their value which the former in turn paid
to the Inter-Island Gas. The respondent, for its part, debited the petitioner‘s
current account and forwarded to the latter the checks containing the forged
indorsements, which the petitioner, however, refused to accept.
On October 8, 1959 the petitioner drew against its current account with the
respondent a check for P135,000 payable to the order of the Mariano Olondriz y
Cia. in payment of certain shares of stock. The check was, however, dishonored
by the respondent as its records showed that as of October 8, 1959 the current
account of the petitioner, after netting out the value of the checks P8,030.58) with
the forged indorsements, had a balance of only P128,257.65.
The petitioner then filed a complaint against the respondent with the Court of First
Instance of Manila, which was however dismissed by the trial court after due trial,
and as well by the Court of Appeals, on appeal.
Hence, the present recourse.
The issues posed by the petitioner in the instant petition may be briefly stated as
follows:chanrob1es virtual 1aw library
(a) Whether the respondent had the right to debit the petitioner‘s current account
in the amount corresponding to the total value of the checks in question after more
than three months had elapsed from the date their value was credited to the
petitioner‘s account:(b) Whether the respondent is estopped from claiming that the
indorsements, had not been properly credited to the petitioner‘s account, since the
same had already been paid by the drawee-banks and received in due course by
the respondent; and(c) On the assumption that the respondent had improperly
debited the petitioner‘s current account, whether the latter is entitled to damages.
Course Outline
Agency, Partnership & Trust
These three issues interlock and will be resolved jointly.
In our opinion, the respondent acted within legal bounds when it debited the
petitioner‘s account. When the petitioner deposited the checks with the
respondent, the nature of the relationship created at that stage was one of agency,
that is, the bank was to collect from the drawees of the checks the corresponding
proceeds. It is true that the respondent had already collected the proceeds of the
checks when it debited the petitioner‘s account, so that following the rule in
Gullas v. Philippine National Bank 2 it might be argued that the relationship
between the parties had become that of creditor and debtor as to preclude the
respondent from using the petitioner‘s funds to make payments not authorized by
the latter. It is our view nonetheless that no creditor-debtor relationship was
created between the parties.
Section 23 of the Negotiable Instruments Law (Act 2031) states that 3 —
"When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against
any party thereto, can be acquired through or under such signature, unless the
party against whom it is sought to enforce such right is precluded from setting up
the forgery or want of authority."cralaw virtua1aw library
Since under the foregoing provision, a forged signature in a negotiable instrument
is wholly inoperative and no right to discharge it or enforce its payment can be
acquired through or under the forged signature except against a party who cannot
invoke the forgery, it stands to reason, upon the facts of record, that the
respondent, as a collecting bank which indorsed the checks to the drawee-banks
for clearing, should be liable to the latter for reimbursement, for, as found by the
court a quo and by the appellate court, the indorsements on the checks had been
forged prior to their delivery to the petitioner. In legal contemplation, therefore,
the payments made by the drawee-banks to the respondent on account of the said
checks were ineffective; and, such being the case, the relationship of creditor and
debtor between the petitioner and the respondent had not been validly effected, the
checks not having been properly and legitimately converted into cash. 4
104 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
In Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, 5 the Court ruled
that it is the obligation of the collecting bank to reimburse the drawee-bank the
value of the checks subsequently found to contain the forged indorsement of the
payee. The reason is that the bank with which the check was deposited has no
right to pay the sum stated therein to the forger "or anyone else upon a forged
signature." "It was its duty to know," said the Court, "that [the payee‘s]
endorsement was genuine before cashing the check." The petitioner must in turn
shoulder the loss of the amounts which the respondent; as its collecting agent, had
to reimburse to the drawee-banks.
We do not consider material for the purposes of the case at bar that more than
three months had elapsed since the proceeds of the checks in question were
collected by the Respondent. The record shows that the respondent had acted
promptly after being informed that the indorsements on the checks were forged.
Moreover, having received the checks merely for collection and deposit, the
respondent cannot he expected to know or ascertain the genuineness of all prior
indorsements on the said checks. Indeed, having itself indorsed them to the
respondent in accordance with the rules and practices of commercial banks, of
which the Court takes due cognizance, the petitioner is deemed to have given the
warranty prescribed in Section 66 of the Negotiable Instruments Law that every
single one of those checks "is genuine and in all respects what it purports to be.."
The petitioner was, moreover, grossly recreant in accepting the checks in question
from Ramirez. It could not have escaped the attention of the petitioner that the
payee of all the checks was a corporation — the Inter-Island Gas Service, Inc.
Yet, the petitioner cashed these checks to a mere individual who was admittedly a
habitue at its jai-alai games without making any inquiry as to his authority to
exchange checks belonging to the payee-corporation. In Insular Drug Co. v.
National 6 the Court made the pronouncement that.
". . . The right of an agent to indorse commercial paper is a very responsible
power and will not be lightly inferred. A salesman with authority to collect money
belonging to his principal does not have the implied authority to indorse checks
received in payment. Any person taking checks made payable to a corporation,
which can act only by agents, does so at his peril, and must abide by the
consequences if the agent who indorses the same is without authority."
(underscoring supplied)
Course Outline
Agency, Partnership & Trust
It must be noted further that three of the checks in question are crossed checks,
namely, exhs. 21, 25 and 27, which may only be deposited, but not encashed; yet,
the petitioner negligently accepted them for cash. That two of the crossed checks,
namely, exhs. 21 and 25, are bearer instruments would not, in our view, exculpate
the petitioner from liability with respect to them. The fact that they are bearer
checks and at the same time crossed checks should have aroused the petitioner‘s
suspicion as to the title of Ramirez over them and his authority to cash them
(apparently to purchase jai-alai tickets from the petitioner), it appearing on their
face that a corporate entity — the Inter Island Gas Service, Inc. — was the payee
thereof and Ramirez delivered the said checks to the petitioner ostensibly on the
strength of the payee‘s cashiers‘ indorsements.
At all events, under Section 67 of the Negotiable Instruments Law, "Where a
person places his indorsement on an instrument negotiable by delivery he incurs
all the liability of an indorser," and under Section 66 of the same statute a general
indorser warrants that the instrument "is genuine and in all respects what it
purports to be." Considering that the petitioner indorsed the said checks when it
deposited them with the respondent, the petitioner as an indorser guaranteed the
genuineness of all prior indorsements thereon. The respondent which relied upon
the petitioner‘s warranty should not be held liable for the resulting loss. This
conclusion applied similarly to exh. 22 which is an uncrossed bearer instrument,
for under Section 65 of the Negotiable Instrument Law. "Every person negotiating
an instrument by delivery . . . warrants (a) That the instrument is genuine and in
all respects what it purports to be." Under that same section this warranty "extends
in favor of no holder other than the immediate transferee," which, in the case at
bar, would be the Respondent.
The provision in the deposit slip issued by the respondent which stipulates that it
"reserves to itself the right to charge back the item to the account of its depositor,"
at any time before "current funds or solvent credits shall have been actually
received by the Bank," would not materially affect the conclusion we have
reached. That stipulation prescribes that there must be an actual receipt by the
bank of current funds or solvent credits; but as we have earlier indicated the
transfer by the drawee-banks of funds to the respondent on account of the checks
in question was ineffectual because made under the mistaken and valid
assumption that the indorsements of the payee thereon were genuine. Under
105 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
article 2154 of the New Civil Code "If something is received when there is no
right to demand it and it was unduly delivered through mistake, the obligation to
return it arises." There was, therefore, in contemplation of law, no valid payment
of money made by the drawee-banks to the respondent on account of the
questioned checks.
ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at
petitioner‘s cost.
Makasiar, Esguerra, Muñoz Palma and Martin, JJ., concur.
Teehankee, J., is on leave.
FACTS:
Petitioner deposited 10 checks in its current account with BPI. The checks which
were acquired by petitioner from Ramirez, a sales agent of the Inter-Island Gas
were all payable to Inter-Island Gas Service, Inc. or order. After the checks had
been submitted to Inter-bank clearing, Inter-Island Gas discovered that all the
indorsements made on the checks purportedly by its cashiers were forgeries. BPI
thus debited the value of the checks against petitioner's current account and
forwarded to the latter the checks containing the forged indorsements which
petitioner refused to accept.
ISSUE:
Whether BPI had the right to debit from petitioner's current account the value of
the checks with the forged indorsements.
RULING:
BPI acted within legal bounds when it debited the petitioner's account. Having
indorsed the checks to respondent bank, petitioner is deemed to have given the
warranty prescribed in Section 66 of the NIL that every single one of those checks
"is genuine and in all respects what it purports to be." Respondent which relied
upon the petitioner's warranty should not be held liable for the resulting loss.
**The depositor of a check as indorser warrants that it is genuine and in all
respects what it purports to be. Having indorsed the checks to respondent bank,
petitioner is deemed to have given the warranty prescribed in Section 66 of the
NIL that every single one of those checks " is genuine and in all respects what it
purports to be."
Course Outline
Agency, Partnership & Trust
f) Sale (Art. 1458)
Quiroga v. Persons Hardware, 38 Phil. 501
G.R. No. L-11491 August 23, 1918
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEÑA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was
entered into by and between the plaintiff, as party of the first part, and J. Parsons
(to whose rights and obligations the present defendant later subrogated itself), as
party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES
QUIROGA AND J. PARSONS, BOTH MERCHANTS
ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE
OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his
beds in the Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for
the latter's establishment in Iloilo, and shall invoice them at the same
price he has fixed for sales, in Manila, and, in the invoices, shall make
and allowance of a discount of 25 per cent of the invoiced prices, as
commission on the sale; and Mr. Parsons shall order the beds by the
dozen, whether of the same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received,
within a period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M.
Quiroga, and the freight, insurance, and cost of unloading from the vessel
at the point where the beds are received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its
payment, said payment when made shall be considered as a prompt
106 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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.
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
Course Outline
Agency, Partnership & Trust
are implied in a contract of commercial agency. The whole question, therefore,
reduced itself to a determination as to whether the defendant, by reason of the
contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for
the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In
the contract in question, what was essential, as constituting its cause and subject
matter, is that the plaintiff was to furnish the defendant with the beds which the
latter might order, at the price stipulated, and that the defendant was to pay the
price in the manner stipulated. The price agreed upon was the one determined by
the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25
per cent, according to their class. Payment was to be made at the end of sixty
days, or before, at the plaintiff's request, or in cash, if the defendant so preferred,
and in these last two cases an additional discount was to be allowed for prompt
payment. These are precisely the essential features of a contract of purchase and
sale. There was the obligation on the part of the plaintiff to supply the beds, and,
on the part of the defendant, to pay their price. These features exclude the legal
conception of an agency or order to sell whereby the mandatory or agent received
the thing to sell it, and does not pay its price, but delivers to the principal the price
he obtains from the sale of the thing to a third person, and if he does not succeed
in selling it, he returns it. By virtue of the contract between the plaintiff and the
defendant, the latter, on receiving the beds, was necessarily obliged to pay their
price within the term fixed, without any other consideration and regardless as to
whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the
defendant and the plaintiff is one of purchase and sale, in order to show that it was
not one made on the basis of a commission on sales, as the plaintiff claims it was,
for these contracts are incompatible with each other. But, besides, examining the
clauses of this contract, none of them is found that substantially supports the
plaintiff's contention. Not a single one of these clauses necessarily conveys the
idea of an agency. The words commission on sales used in clause (A) of article 1
mean nothing else, as stated in the contract itself, than a mere discount on the
invoice price. The word agency, also used in articles 2 and 3, only expresses that
the defendant was the only one that could sell the plaintiff's beds in the Visayan
Islands. With regard to the remaining clauses, the least that can be said is that they
are not incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-
president of the defendant corporation and who established and managed the
107 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
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
Course Outline
Agency, Partnership & Trust
contract to incur the expenses of advertisement of the plaintiff's beds, such sales
were to be considered as a result of that advertisement.
In respect to the defendant's obligation to order by the dozen, the only one
expressly imposed by the contract, the effect of its breach would only entitle the
plaintiff to disregard the orders which the defendant might place under other
conditions; but if the plaintiff consents to fill them, he waives his right and cannot
complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the
plaintiff and the defendant was one of purchase and sale, and that the obligations
the breach of which is alleged as a cause of action are not imposed upon the
defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So
ordered.
Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.
FACTS:
On Jan 24, 1911, plaintiff and the respondent entered into a contract making the
latter an ―agent‖ of the former. The contract stipulates that Don Andres Quiroga,
here in petitioner, grants exclusive rights to sell his beds in the Visayan region to
J. Parsons. The contract only stipulates that J.Parsons should pay Quiroga within 6
months upon the delivery of beds.
Subsequently, Quiroga files a case against Parsons for allegedly violating the
following stipulations: 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. 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.
ISSUE:
Whether or not the contract entered into between the plaintiff and defendant is a
contract of agency.
RULING:
108 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
NO. In order to classify a contract, due attention 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. 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.
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.
Gonzalo Puyat and Sons v. Arco Amusement Co., 72 Phil. 402
G.R. No. L-47538 June 20, 1941
GONZALO PUYAT & SONS, INC., petitioner,
vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro
Arco), respondent.
Feria & Lao for petitioner.
J. W. Ferrier and Daniel Me. Gomez for respondent.
LAUREL, J.:
This is a petition for the issuance of a writ of certiorari to the Court of Appeals
for the purpose of reviewing its Amusement Company (formerly known as Teatro
Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee."
It appears that the respondent herein brought an action against the herein
petitioner in the Court of First Instance of Manila to secure a reimbursement of
certain amounts allegedly overpaid by it on account of the purchase price of sound
reproducing equipment and machinery ordered by the petitioner from the Starr
Piano Company of Richmond, Indiana, U.S.A. The facts of the case as found by
the trial court and confirmed by the appellate court, which are admitted by the
respondent, are as follows:
In the year 1929, the "Teatro Arco", a corporation duly organized under
the laws of the Philippine Islands, with its office in Manila, was engaged
in the business of operating cinematographs. In 1930, its name was
changed to Arco Amusement Company. C. S. Salmon was the president,
Course Outline
Agency, Partnership & Trust
while A. B. Coulette was the business manager. About the same time,
Gonzalo Puyat & Sons, Inc., another corporation doing business in the
Philippine Islands, with office in Manila, in addition to its other business,
was acting as exclusive agents in the Philippines for the Starr Piano
Company of Richmond, Indiana, U.S. A. It would seem that this last
company dealt in cinematographer equipment and machinery, and the
Arco Amusement Company desiring to equipt its cinematograph with
sound reproducing devices, approached Gonzalo Puyat & Sons, Inc., thru
its then president and acting manager, Gil Puyat, and an employee named
Santos. After some negotiations, it was agreed between the parties, that is
to say, Salmon and Coulette on one side, representing the plaintiff, and
Gil Puyat on the other, representing the defendant, that the latter would,
on behalf of the plaintiff, order sound reproducing equipment from the
Starr Piano Company and that the plaintiff would pay the defendant, in
addition to the price of the equipment, a 10 per cent commission, plus all
expenses, such as, freight, insurance, banking charges, cables, etc. At the
expense of the plaintiff, the defendant sent a cable, Exhibit "3", to the
Starr Piano Company, inquiring about the equipment desired and making
the said company to quote its price without discount. A reply was
received by Gonzalo Puyat & Sons, Inc., with the price, evidently the list
price of $1,700 f.o.b. factory Richmond, Indiana. The defendant did not
show the plaintiff the cable of inquiry nor the reply but merely informed
the plaintiff of the price of $1,700. Being agreeable to this price, the
plaintiff, by means of Exhibit "1", which is a letter signed by C. S.
Salmon dated November 19, 1929, formally authorized the order. The
equipment arrived about the end of the year 1929, and upon delivery of
the same to the plaintiff and the presentation of necessary papers, the
price of $1.700, plus the 10 per cent commission agreed upon and plus
all the expenses and charges, was duly paid by the plaintiff to the
defendant.
Sometime the following year, and after some negotiations between the
same parties, plaintiff and defendants, another order for sound
reproducing equipment was placed by the plaintiff with the defendant, on
the same terms as the first order. This agreement or order was confirmed
by the plaintiff by its letter Exhibit "2", without date, that is to say, that
the plaintiff would pay for the equipment the amount of $1,600, which
was supposed to be the price quoted by the Starr Piano Company, plus 10
109 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
per cent commission, plus all expenses incurred. The equipment under
the second order arrived in due time, and the defendant was duly paid the
price of $1,600 with its 10 per cent commission, and $160, for all
expenses and charges. This amount of $160 does not represent actual out-
of-pocket expenses paid by the defendant, but a mere flat charge and
rough estimate made by the defendant equivalent to 10 per cent of the
price of $1,600 of the equipment.
About three years later, in connection with a civil case in Vigan, filed by
one Fidel Reyes against the defendant herein Gonzalo Puyat & Sons,
Inc., the officials of the Arco Amusement Company discovered that the
price quoted to them by the defendant with regard to their two orders
mentioned was not the net price but rather the list price, and that the
defendants had obtained a discount from the Starr Piano Company.
Moreover, by reading reviews and literature on prices of machinery and
cinematograph equipment, said officials of the plaintiff were convinced
that the prices charged them by the defendant were much too high
including the charges for out-of-pocket expense. For these reasons, they
sought to obtain a reduction from the defendant or rather a
reimbursement, and failing in this they brought the present action.
The trial court held that the contract between the petitioner and the respondent
was one of outright purchase and sale, and absolved that petitioner from the
complaint. The appellate court, however, — by a division of four, with one justice
dissenting — held that the relation between petitioner and respondent was that of
agent and principal, the petitioner acting as agent of the respondent in the
purchase of the equipment in question, and sentenced the petitioner to pay the
respondent alleged overpayments in the total sum of $1,335.52 or P2,671.04,
together with legal interest thereon from the date of the filing of the complaint
until said amount is fully paid, as well as to pay the costs of the suit in both
instances. The appellate court further argued that even if the contract between the
petitioner and the respondent was one of purchase and sale, the petitioner was
guilty of fraud in concealing the true price and hence would still be liable to
reimburse the respondent for the overpayments made by the latter.
The petitioner now claims that the following errors have been incurred by the
appellate court:
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar
que, segun hechos, entre la recurrente y la recurrida existia una relacion
implicita de mandataria a mandante en la transaccion de que se trata, en
Course Outline
Agency, Partnership & Trust
vez de la de vendedora a compradora como ha declarado el Juzgado de
Primera Instncia de Manila, presidido entonces por el hoy Magistrado
Honorable Marcelino Montemayor.
II. El Tribunal de Apelaciones incurrio en error de derecho al declarar
que, suponiendo que dicha relacion fuerra de vendedora a compradora, la
recurrente obtuvo, mediante dolo, el consentimiento de la recurrida en
cuanto al precio de $1,700 y $1,600 de las maquinarias y equipos en
cuestion, y condenar a la recurrente ha obtenido de la Starr Piano
Company of Richmond, Indiana.
We sustain the theory of the trial court that the contract between the petitioner and
the respondent was one of purchase and sale, and not one of agency, for the
reasons now to be stated.
In the first place, the contract is the law between the parties and should include all
the things they are supposed to have been agreed upon. What does not appear on
the face of the contract should be regarded merely as "dealer's" or "trader's talk",
which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep.,
212; Bank v. Brosscell, 120 III., 161; Bank v. Palmer, 47 III., 92; Hosser v.
Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1
and 2, by which the respondent accepted the prices of $1,700 and $1,600,
respectively, for the sound reproducing equipment subject of its contract with the
petitioner, are clear in their terms and admit no other interpretation that the
respondent in question at the prices indicated which are fixed and determinate.
The respondent admitted in its complaint filed with the Court of First Instance of
Manila that the petitioner agreed to sellto it the first sound reproducing equipment
and machinery. The third paragraph of the respondent's cause of action states:
3. That on or about November 19, 1929, the herein plaintiff (respondent)
and defendant (petitioner) entered into an agreement, under and by virtue
of which the herein defendant was to secure from the United States,
and sell and deliver to the herein plaintiff, certain sound reproducing
equipment and machinery, for which the said defendant, under and by
virtue of said agreement, was to receive the actual cost price plus ten per
cent (10%), and was also to be reimbursed for all out of pocket expenses
in connection with the purchase and delivery of such equipment, such as
costs of telegrams, freight, and similar expenses. (Emphasis ours.)
We agree with the trial judge that "whatever unforseen events might have taken
place unfavorable to the defendant (petitioner), such as change in prices, mistake
in their quotation, loss of the goods not covered by insurance or failure of the
110 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Starr Piano Company to properly fill the orders as per specifications, the plaintiff
(respondent) might still legally hold the defendant (petitioner) to the prices fixed
of $1,700 and $1,600." This is incompatible with the pretended relation of agency
between the petitioner and the respondent, because in agency, the agent is
exempted from all liability in the discharge of his commission provided he acts in
accordance with the instructions received from his principal (section 254, Code of
Commerce), and the principal must indemnify the agent for all damages which the
latter may incur in carrying out the agency without fault or imprudence on his part
(article 1729, Civil Code).
While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per
cent (10%) commission, this does not necessarily make the petitioner an agent of
the respondent, as this provision is only an additional price which the respondent
bound itself to pay, and which stipulation is not incompatible with the contract of
purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.)
In the second place, to hold the petitioner an agent of the respondent in the
purchase of equipment and machinery from the Starr Piano Company of
Richmond, Indiana, is incompatible with the admitted fact that the petitioner is the
exclusive agent of the same company in the Philippines. It is out of the ordinary
for one to be the agent of both the vendor and the purchaser. The facts and
circumstances indicated do not point to anything but plain ordinary transaction
where the respondent enters into a contract of purchase and sale with the
petitioner, the latter as exclusive agent of the Starr Piano Company in the United
States.
It follows that the petitioner as vendor is not bound to reimburse the respondent as
vendee for any difference between the cost price and the sales price which
represents the profit realized by the vendor out of the transaction. This is the very
essence of commerce without which merchants or middleman would not exist.
The respondents contends that it merely agreed to pay the cost price as
distinguished from the list price, plus ten per cent (10%) commission and all out-
of-pocket expenses incurred by the petitioner. The distinction which the
respondents seeks to draw between the cost price and the list price we consider to
be spacious. It is to be observed that the twenty-five per cent (25%) discount
granted by the Starr piano Company to the petitioner is available only to the latter
as the former's exclusive agent in the Philippines. The respondent could not have
secured this discount from the Starr Piano Company and neither was the petitioner
willing to waive that discount in favor of the respondent. As a matter of fact, no
reason is advanced by the respondent why the petitioner should waive the 25 per
Course Outline
Agency, Partnership & Trust
cent discount granted it by the Starr Piano Company in exchange for the 10
percent commission offered by the respondent. Moreover, the petitioner was not
duty bound to reveal the private arrangement it had with the Starr Piano Company
relative to such discount to its prospective customers, and the respondent was not
even aware of such an arrangement. The respondent, therefore, could not have
offered to pay a 10 per cent commission to the petitioner provided it was given the
benefit of the 25 per cent discount enjoyed by the petitioner. It is well known that
local dealers acting as agents of foreign manufacturers, aside from obtaining a
discount from the home office, sometimes add to the list price when they resell to
local purchasers. It was apparently to guard against an exhorbitant additional price
that the respondent sought to limit it to 10 per cent, and the respondent is estopped
from questioning that additional price. If the respondent later on discovers itself at
the short end of a bad bargain, it alone must bear the blame, and it cannot rescind
the contract, much less compel a reimbursement of the excess price, on that
ground alone. The respondent could not secure equipment and machinery
manufactured by the Starr Piano Company except from the petitioner alone; it
willingly paid the price quoted; it received the equipment and machinery as
represented; and that was the end of the matter as far as the respondent was
concerned. The fact that the petitioner obtained more or less profit than the
respondent calculated before entering into the contract or reducing the price
agreed upon between the petitioner and the respondent. Not every concealment is
fraud; and short of fraud, it were better that, within certain limits, business
acumen permit of the loosening of the sleeves and of the sharpening of the
intellect of men and women in the business world.
The writ of certiorari should be, as it is hereby, granted. The decision of the
appellate court is accordingly reversed and the petitioner is absolved from the
respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company
(formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons,
Inc., defendants-appellee," without pronouncement regarding costs. So ordered.
Avanceña, C.J., Diaz, Moran and Horrilleno, JJ., concur.
FACTS:
Arco Amusement was engaged in the business of operating cinematographs while
Gonzalo Puyat & Sons (GPS) was the exclusive agent in the Philippines for the
Starr Piano Company (SPC). Desiring to equip its cinematograph with sound
reproducing devices, Arco approached GPS, through its president, Gil Puyat, and
an employee named Santos. After some negotiations, it was agreed between the
parties that GPS would order sound reproducing equipment from SPC and that
111 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Arco would pay GPS, in addition to the price of the equipment, a 10%
commission, plus all expenses such as freight, insurance, etc. When GPS inquired
SPC the price (without discount) of the equipment, the latter quoted such at
$1,700.00 FOB Indiana. Being agreeable to the price, Arco formally authorized
the order. The following year, both parties agreed for another order of sound
reproducing equipment on the same terms as the first at $1,600.00 plus 10% plus
all other expenses. 3 years later, Arco discovered that the prices quoted to them by
GPS with regard to their first 2 orders mentioned, were not the net prices but
rather the latter has obtained a discount from SPC thus, equipment is deemed
overpriced and GPS had to reimburse the excess amount.
ISSUE:
Is there a contract of agency?
HELD:
No. The contract between the petitioner and the respondent was one of purchase
and sale. The letters, Exhibits 1 and 2, by which the respondent accepted the
prices of $1,700.00 and $1,600.00, respectively, for the sound reproducing
equipment subject of its contract with petitioner, are clear in their terms and admit
no other interpretation that the respondent in question at the prices indicated
which are fixed and determinate. The respondent admitted in its complaint with
the CFI of Manila that the petitioner agreed to sell to it the first sound reproducing
equipment. To hold the petitioner an agent of the respondent in the purchase of
equipment and machinery from the SPC of Richmond, Indiana, is incompatible
with the admitted fact that the petitioner is the exclusive agent of the same
company in the Philippines. It is out of the ordinary for one to be the agent of both
the vendor and the purchaser.
Velasco v. Universal Trading Co. v. Lim Teck Suan, 97 Phil. 171
G.R. No. L-7144 May 31, 1955
FAR EASTERN EXPORT & IMPORT CO., petitioner,
vs.
LIM TECK SUAN, respondent.
Juan Nabong and Crisolito Pascual for petitioner.
Jose P. Laurel, Marciano Almario and Jose T. Lojom for respondent.
MONTEMAYOR, J.:
This is a petition for certiorari to review a decision of the Court of Appeals dated
September 25, 1953, reversing the decision of the Court of First Instance of
Manila, and sentencing the defendant-petitioner Far Eastern Export & Import Co.
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

later referred to as export company, to pay the plaintiff-respondent Lim Teck Suan Period of Shipment is to be within December. Bank Documents should
later to be referred to as Suan, the sum of P11,4476.60, with legal interest from be for a line of 45 days to allow for presentation and payment against
the date of the filing of the complaint and to pay the costs. "ON BOARD" bills of lading. Partial shipments permitted.
As to the facts and the issue in the case we are reproducing the findings of the Payment
Court of Appeals, which findings are binding on this Tribunal in case of similar Payment will be by "Confirmed Irrevocable Letter of Credit" to be
appeals: opened in favor of Frenkel International Corporation, 52 Broadway, New
Sometime in November, 1948, Ignacio Delizalde, an agent of the Far York, 4, N. Y. for the full amount of the above cost of merchandise plus
Eastern Export & Import Company, went to the store of Lim Teck Suan (approximately) for export packing: insurance, freight, documentation,
situated at 267 San Vicente Street, Manila, and offered to sell textile, forwarding, etc. which are for the buyers accounts, IMMEDIATELY
showing samples thereof, and having arrived at an agreement with upon written Confirmation. Our Guarantee In case shipment is not
Bernardo Lim, the General Manager of Lim Teck Suan, Delizalde affected, seller agrees to reimburse buyer for all banking expenses.
returned on November 17 with the buyer's order, Exhibit A, already Confirmed Accepted
prepared which reads: Signed Nov. 17, 1948
FAR EASTERN EXPORT & IMPORT COMPANY Authorized official
75 Escolta 2nd Floor Brias Roxas Bldg., Manila Confirmed
Ship to LIM TECK SUAN Date Written 11/17/48 Accepted (Sgd.) Illegible Date Nov. 1948 to be signed by our
475 Nueva St., Manila Your No. representative upon confirmation.
Our No. 276 In accordance with said Exhibit A, plaintiff established a letter of credit
I hereby commission you to procure for me the following merchandise, No. 6390 (Exhibit B) in favor of Frenkel International Corporation
subject to the terms and conditions listed below: through the Hongkong and Shanghai Bangking Corporation, attached to
==================================================== the agreed statement of facts. On February 11, 1949, the textile arrived at
== Manila on board the vessel M. S. Arnold Maersk, covered by bill of
Quantity Unit Particulars Amount lading No. 125 (Exhibit C), Invoice No. 1684-M (Exhibit D) issued by
10,000 yds Ashtone Acetate & Rayon-No. 13472 Frenkel International Corporation direct to the plaintiff. The plaintiff
Width: 41/42 inches; Weight: complained to the defendant of the inferior quality of the textile received
Approximately 8 oz. per yd; Ten (10) by him and had them examined by Marine Surveyor Del Pan &
colors, buyers choice, as per attached Company. Said surveyor took swatches of the textile and had the same
samples, equally assorted; at $1.13 analyzed by the Institute of Science (Exhibit E-1) and submitted a report
per yard F.A.S. New York U. S. $11,500.00 or survey under date of April 9, 1949 (Exhibit E). Upon instructions of
Item herein sold are FOB-FAS X C. & F the defendants plaintiff deposited the goods with the United Warehouse
CIF Corporation (Exhibits H, H-1 to H-6. As per suggestion of the Far
==================================================== Eastern Export and Import Company contained in its letter dated June 16,
== 1949, plaintiff withdrew from the United Bonded Warehouse, Port Area,
TERMS AND CONDITIONS Manila, the fifteen cases of Ashtone Acetate and Rayon Suiting for the
Acceptance purpose of offering them for sale which netted P11,907.30. Deducting
This Buyer's Order is subject to confirmation by the exporter. Shipment this amount from the sum of P23,686.96 which included the amount paid

112 | P a g e
Course Outline
Agency, Partnership & Trust
by plaintiff for said textile and the warehouse expenses, a difference of
P11,476.66 is left, representing the net direct loss.
The defense set up is that the Far Eastern Export and Import Company
only acted as a broker in this transaction; that after placing the order the
defendants took no further action and the cargo was taken directly by the
buyer Lim Teck Suan, the shipment having been made to him and all the
documents were also handled by him directly without any intervention on
the part of the defendants; that upon receipt of Lim Teck Suan's
complaint the defendants passed it to its principal, Frenkel International
Corporation, for comment, and the latter maintained that the merchandise
was up to standard called for.
The lower court acquitted the defendants from the complaint asking for
damages in the sum of P19,500.00 representing the difference in price
between the textile ordered and those received, plus profits unrealized
and the cost of this suit, and dismissed the counterclaim filed by the
defendants without pronouncement as to costs.
As already stated, the Court of Appeals reversed the judgment entered by the
Court of First Instance of Manila, basing its decision of reversal on the case of
Jose Velasco, vs. Universal Trading Co., Inc., 45 Off. Gaz. 4504 where the
transaction therein involved was found by the court to be one of purchase and sale
and not of brokerage or agency. We have carefully examined the Velasco case and
we agree with the Court of Appeals that the facts in that case are very similar to
those in the present case. In the case of Velasco, we have the following statement
by the court itself which we reproduced below:
Prior to November 8, 1945 a salesman or agent of the Universal Trading
Co., Inc. informed Jose Velasco, Jr. that his company was in a position to
accept and fill in orders for Panamanian Agewood Bourbon Whisky
because there were several thousand cases of this article ready for
shipment to the company by its principal office in America. Acting upon
this offer and representative Velasco went to the Universal Trading Co.,
Inc., and after a conversation with the latter's official entered into an
agreement couched in the following terms:
"Agreement is hereby made between Messrs. Jose Velasco, Jr., 340
Echaque, Manila, and the Universal Trading Company, Manila, for order
as follows and under the following terms:
Quantity Merchandise and Unit Unit Amount
Price
113 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Description
100 Panamanian Agewood Bourbon
Whisky ..........................Case $17.00 $1,700
_______
Total amount of order ........... $1,700
Terms of Agreement:
"1. That the Universal Trading Company agrees to order the above
merchandise from their Los Angeles Office at the price quoted above,
C.I.F. Manila, for December shipment;
"2. That Messrs. Jose Velasco, Jr., 340 Echaque, Manila, obligates
myself/themselves to take the above merchandise when advised of its
arrival from the United States and to pay in cash the full amount of the
order in the Philippine Currency at the office of the Universal Trading
Company;
"3. This order may be subject to delay because of uncertain shipping
conditions. War risk insurance, transhipping charges, if any, port charges,
and any storage that may be incurred due to your not taking delivery of
the order upon being notified by us that the order is ready for delivery,
and government taxes, are all for your account;
"4. The terms of this agreement will be either of the following:
"a. To open up irrevocable letter of credit for the value of the order with
any of the local banks, or thru bills of lading payable to A. J. Wilson
Company, 1263 South North Avenue, Los Angeles, California;
"b. To put up a cash deposit equivalent to 50 % of the order;
"5. Reasonable substitute, whenever possible, will be shipped in lieu of
items called for, if order is not available."
Accordingly, Velasco deposited with the defendant the sum of $1,700
which is 50% of the price of the whisky pursuant to agreement made,
instead of 'to open up irrevocable letter of credit for the value of the order
with any of the local banks, or through bills of lading payable to A. J.
Wilson Company.' On November 6, 1945, the same date that the contract
or agreement, Exhibit A, was signed an invoice under the name of the
Universal Trading Co., Inc. was issued to Velasco for the 100 cases of
Panamanian Agewood Bourbon Whisky for the price of $1,700 which
invoice manifested that the article was sold to Jose Velasco, Jr. On
January 15, 1946 another invoice was issued containing besides the list
price of $1,700 or P3,400, a statement of bank charges, customs duties,
Course Outline
Agency, Partnership & Trust
internal revenue taxes, etc., giving a total amount of P5,690.10 which
after deducting the deposit of $1,700, gives a balance of P3,990.01.
On January 25, 1946 the Universal Trading Co., Inc. wrote Exhibit 4 to
Mr. Velasco advising him that the S. S. Manoeran had docked and that
they would appreciate it if he would pay the amount of P3,990.10 direct
to them. It turned out, however, that after the ship arrived, what the
Universal Trading Co., Inc. tried to deliver to Velasco was not
Panamanian Agewood Bourbon Whisky but Panamanian Agewood
Blended Whisky. Velasco refused to receive the shipment and in turn
filed action against the defendant for the return of his deposit of $ 1,700
with interest. For its defense, defendant contends that it merely acted as
agent for Velasco and could not be held responsible for the substitution
of Blended Whisky for Bourbon Whisky and that furthermore the
Blended Whisky was a reasonable substitute for Bourbon. After due
hearing the Court of First Instance of Manila held that the transaction
was purchase and sale and ordered the defendant to refund to the plaintiff
his deposit of P1,700 with legal interest from the date of the filing of the
suit with costs, which decision on appeal was affirmed by this Court.
We notice the following similarities. In the present case, the export company
acted as agent for Frenkel International Corporation, presumably the supplier of
the textile sold. In the Velasco case, the Universal Trading Co., was acting as
agent for A. J. Wilson Company, also the supplier of the whisky sold. In the
present case, Suan according to the first part of the agreement is said merely to be
commissioning the Export Company to procure for him the merchandise in
question, just as in the other case, Velasco was supposed to be ordering the
whisky thru the Universal Trading Co. In the present case, the price of the
merchandise bought was paid for by Suan by means of an irrevocable letter of
credit opened in favor of the supplier, Frenkel International Corporation. In the
Velasco case, Velasco was given the choice of either opening a similar irrevocable
letter of credit in favor of the supplier A. J. Wilson Company or making a cash
deposit. It is true that in the Velasco case, upon the arrival of the whisky and
because it did not conform to specifications, Velasco refused to received it; but in
the present case although Suan received the merchandise he immediately
protested its poor quality and it was deposited in the warehouse and later
withdrawn and sold for the best price possible, all at the suggestion of the Export
company. The present case is in our opinion a stronger one than that of Velasco
for holding the transaction as one of purchase and sale because as may be noticed
114 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
from the agreement (Exhibit "A"), the same speaks of the items (merchandise)
therein involved as sold, and the sale was even confirmed by the Export company.
In both cases, the agents Universal Trading Co. and the export company dealt
directly with the local merchants Velasco and Suan without expressly indicating
or revealing their principals. In both cases there was no privity of contract
between the buyers — Suan and Velasco and the suppliers Frenkel International
Corporation and A. J. Wilson Company, respectively. In both cases no
commission or monetary consideration was paid or agreed to be paid by the
buyers to the Export company and the Universal Trading Co., proof that there was
no agency or brokerage, and that the profit of the latter was undoubtedly the
difference between the price listed to the buyers and the net or special price
quoted to the sellers, by the suppliers. As already stated, it was held in the Velasco
case that the transaction therein entered into was one of purchase and sale, and for
the same reasons given there, we agreed with the Court of Appeals that the
transaction entered into here is one of purchase and sale.
As was held by this Tribunal in the case of Gonzalo Puyat & Sons
Incorporated vs. Arco Amusement, 72 Phil., 402, where a foreign company has an
agent here selling its goods and merchandise, that same agent could not very well
act as agent for local buyers, because the interests of his foreign principal and
those of the buyer would be in direct conflict. He could not serve two masters at
the same time. In the present case, the Export company being an agent of the
Frenkel International Corporation could not, as it claims, have acted as an agent or
broker for Suan.
Finding no reversible error in the decision appealed from, the same is hereby
affirmed, with costs.
Pablo, Bengzon, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.
B. L., JJ., concur.
Pearl Island Commercial Corp. v. Lim Tiang Tong, 101 Phil. 789
[G.R. No. L-10517. June 28, 1957.]
PEARL ISLAND COMMERCIAL CORPORATION, Plaintiff-Appellee, v.
LIM TAN TONG and MANILA SURETY & FIDELITY CO.,
INC., Defendants-Appellants.
Diaz & Baizas for Appellee.
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

De Santos & Herrera for Appellant. to the plaintiff the floor wax that are damaged or unmerchantable, at its expense;
and that in case of loss due to fortuitous event or force majeure, the plaintiff was
Manila Surety & Fidelity Co., Inc. to shoulder the loss, provided the goods were still in transit.

SYLLABUS On the same day said contract was executed on June 16, 1951, defendant Manila
Surety & Fidelity Co., Inc., with Tong as principal, filed the surety bond (Exhibit
1. SURETY BOND; TERMS OF CONTRACTS; PARTLY AGENCY AND B), binding itself unto the plaintiff in the sum of P5,000, by reason of the
PARTLY PURCHASE AND SALE; LIABILITY OF SURETY. — Surety appointment of Tong as exclusive agent for plaintiff for the Visayas-Mindanao
Company contends that it cannot be held liable on its bond for the reason that the provinces, the bond being conditioned on the faithful performance of Tong‘s
latter was filed on the theory that the contract between plaintiff and T was one of duties, in accordance with the agreement. It would appear that for its security, the
agency as a result of which said surety Company guaranteed the faithful Surety Company had Ko Su Kuan and Marciano Du execute in its favor an
performance of T as agent, but that it turned out that said contract was one of indemnity agreement that they would indemnify said surety company in whatever
purchase and sale, as shown by the very title of said contract namely "contract of amount it may pay to the plaintiff by reason of the bond filed by it.
purchase and sale." However, a careful examination of the terms of the contract,
shows that while it provides for the sale of Bee Wax from plaintiff to T, it also On June 18, 1951, plaintiff shipped 299 cases of Bee Wax, valued at P7,107, to
designates T as the sole distributor of the article within a certain territory; besides, Tong, duly received by the latter. Tong failed to remit the value within sixty days,
the contract provides that T is to furnish surety bond to cover all shipments made and despite the demand made by plaintiff on him to send that amount, he sent only
by plaintiff to him. Held, that the surety company cannot deny its liability for the P770, leaving a balance of P6,337, which he admits to be still with him, but which
value of the shipment of the articles. Any way, it seems to have been the sole he refuses to remit to the plaintiff, claiming that the latter owed him a larger
concern and interest of the plaintiff to be sure that it was paid the value of all amount. To enforce payment of the balance of P6,337, plaintiff filed this present
shipments of Bee Wax to T and the Surety Company by its bond, guaranteed in action not only against Tong, but also against the Surety Company, to recover
the final analysis said payment by T either as purchaser or as agent. from the latter the amount of its bond of P5,000.
DECISION
MONTEMAYOR, J.: The Surety Company in its answer filed a cross-claim against Tong, and with the
trial court‘s permission, filed a third-party complaint against Ko Su Kuan and
In June, 1951, plaintiff Pearl Island Commercial Corporation, engaged in the Marciano Du who, as already stated, had executed an indemnity agreement in its
manufacture of floor wax under the name of "Bee Wax", in the City of Manila, favor. After trial, the lower court, presided by Judge Hermogenes Concepcion,
entered into a contract, Exhibit A, with defendant Lim Tan Tong, wherein the rendered judgment, the dispositive part of which reads as
latter, designated as sole distributor of said article in the provinces of Samar, follows:jgc:chanrobles.com.ph
Leyte, Cebu, Bohol, and Negros Oriental and all the provinces in the island of
Mindanao, was going to buy the said floor wax for resale in the territory above- "IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of
mentioned. The plaintiff undertook not to appoint any other distributor within the the plaintiff and against the defendants as follows:jgc:chanrobles.com.ph
said territory; to sell to defendant Tong at factory price in Manila, F. O. B.
Manila; that Tong could sell the article in his territory at any price he saw fit; that "(a) The Court orders the defendants Lim Tan Ton and the Manila Surety &
payment for any floor wax purchased shall be delivered to plaintiff within sixty Fidelity Co., Inc., to pay jointly and severally the plaintiff Pearl Island
days from the date of shipment; that (this is important) Tong was to furnish surety Commercial Corporation the sum of P5,000.00, plus legal interest from the date of
bond to cover all shipments of the floor wax; and that Lim Tan Tong may return the filing of this complaint, until it is fully paid;

115 | P a g e
Course Outline
Agency, Partnership & Trust
"(b) the Court orders the defendant Lim Tan Tong to pay to the plaintiff the sum
of P1,337.00 with legal rate of interest from the date of the filing of this complaint
until said amount is fully paid;
"(c) The two defendants shall pay jointly and severally another amount of P500 to
the plaintiff as attorney‘s fees, plus the costs of his suit;
"(d) The Court orders the cross-defendant Lim Tan Tong and the third-party
defendants Ko Su Kuan and Marciano Du to pay jointly and severally to the
Manila Surety & Fidelity Co., Inc., the sum of P5,000 with legal rate of interest
from the date of the filing of this complaint until fully paid, plus P500 as
attorney‘s fees, plus the costs of this suit."cralaw virtua1aw library
The Surety company is appealing said decision. The appeal originally taken to the
Court of Appeals, was later certified to us as involving only questions of law.
Appellant assigns the following errors:jgc:chanrobles.com.ph
"I. The trial court erred in holding that the contract between the Pearl Island
Commercial Corporation and Lim Tan Tong was one of agency so that breach
thereof would come within the terms of the surety bond posted by appellant
therein.
"II. The trial court erred in ordering the defendant-appellant herein to pay
attorney‘s fees and other charges stated in the judgment."cralaw virtua1aw library
It is appellant‘s contention that it cannot be held liable on its bond for the reason
that the latter was filed on the theory that the contract between the plaintiff and
Tong was one of agency as a result of which, said Surety Company guaranteed the
faithful performance of Tong as agent, but that it turned out that said contract was
one of purchase and sale, as shown by the very title of said contract (Exhibit A),
namely, "Contract of Purchase and Sale", and appellant never undertook to
guaranty the faithful performance of Tong as a purchaser. However, a careful
examination of the said contract shows that appellant is only partly right, for the
reason that the terms of the said contract, while providing for sale of Bee Wax
from the plaintiff to Tong and purchase of the same by Tong from the plaintiff,
116 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
also designates Tong as the sole distributor of the article within a certain territory.
Besides, paragraph 4 of the contract entitled "Security", provides that Tong was to
furnish surety bond to cover all shipments made by the plaintiff to him.
Furthermore, appellant must have understood the contract to be one, at least
partly, of agency because the bond itself (Exhibit B) says the
following:jgc:chanrobles.com.ph
"Whereas, the above bounden principal has been appointed as exclusive agent for
Pearl Islands Commercial Corporation of Manila, Philippines, for the Visayas-
Mindanao Provinces; . . ."cralaw virtua1aw library
Under the circumstances, we are afraid that the Surety Company is not now in a
position to deny its liability for the shipment of the 299 cases of Bee Wax duly
received by Tong and his failure to pay its value of P7,107, minus P770 or a
balance of P6,337, of course, up to the limit of P5,000, the amount of the bond.
True, the contract (Exhibit A) is not entirely clear. It is in some respects, even
confusing. While it speaks of sale of Bee Wax to Tong and his responsibility for
the payment of the value of every shipment so purchased, at the same time it
appoints him sole distributor within a certain area, the plaintiff undertaking not to
appoint any other agent or distributor within the same area. Anyway, it seems to
have been the sole concern and interest of the plaintiff to be sure that it was paid
the value of all shipments of Bee Wax to Tong and the Surety Company by its
bond, guaranteed in the final analysis said payment by Tong, either as purchaser
or as agent. Whether the article was purchased by Tong or whether it was
consigned to him as agent to be sold within his area, the fact is that Tong admits
said shipment, admits its value, admits keeping the same (P7,107 minus the P770
he had paid on account), but that he is retaining it for reasons of his own, namely,
that plaintiff allegedly owes him a larger amount. Moreover, the Surety Company
is adequately protected, especially by the judgment because by its express terms,
appellant can recover from Ko Su Kuan and Marciano Du whatever amounts,
including attorney‘s fees it may pay to plaintiff, and said two persons evidently
have not appealed from the decision.
In view of the foregoing, the decision appealed from is hereby affirmed, with
costs.
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the
Reyes, J.B.L., Endencia and Felix, JJ., concur. document, Exh. A, dated January 10, 1966, which reads:
To Whom It May Concern:
This is to certify that I have received from
Mrs. Maria de Guzman Vda. de Ayroso. of
Gapan, Nueva Ecija, six hundred fifteen kilos
of leaf tobacco to be sold at Pl.30 per kilo.
The proceed in the amount of Seven Hundred
Lim v. People, 133 SCRA 333 Ninety Nine Pesos and 50/100 (P 799.50) will
G.R. No. L-34338 November 21, 1984 be given to her as soon as it was sold.
LOURDES VALERIO LIM, petitioner, This was signed by the appellant and witnessed by the
vs. complainant's sister, Salud Bantug, and the latter's maid,
PEOPLE OF THE PHILIPPINES, respondent. Genoveva Ruiz. The appellant at that time was bringing a jeep,
RELOVA, J.: and the tobacco was loaded in the jeep and brought by the
Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was appellant. Of the total value of P799.50, the appellant had paid
sentenced "to suffer an imprisonment of four (4) months and one (1) day as to Ayroso only P240.00, and this was paid on three different
minimum to two (2) years and four (4) months as maximum, to indemnify the times. Demands for the payment of the balance of the value of
offended party in the amount of P559.50, with subsidize imprisonment in case of the tobacco were made upon the appellant by Ayroso, and
insolvency, and to pay the costs." (p. 14, Rollo) particularly by her sister, Salud Bantug. Salud Bantug further
From this judgment, appeal was taken to the then Court of Appeals which testified that she had gone to the house of the appellant several
affirmed the decision of the lower court but modified the penalty imposed by times, but the appellant often eluded her; and that the "camarin"
sentencing her "to suffer an indeterminate penalty of one (1) month and one (1) the appellant was empty. Although the appellant denied that
day of arresto mayor as minimum to one (1) year and one (1) day of prision demands for payment were made upon her, it is a fact that on
correccional as maximum, to indemnify the complainant in the amount of October 19, 1966, she wrote a letter to Salud Bantug which
P550.50 without subsidiary imprisonment, and to pay the costs of suit." (p. 24, reads as follows:
Rollo) Dear Salud,
The question involved in this case is whether the receipt, Exhibit "A", is a contract Hindi ako nakapunta dian noon a 17 nitong
of agency to sell or a contract of sale of the subject tobacco between petitioner and nakaraan, dahil kokonte pa ang nasisingil
the complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal kong pera, magintay ka hanggang dito sa
liability of petitioner for the crime charged. linggo ito at tiak na ako ay magdadala sa iyo.
The findings of facts of the appellate court are as follows: Gosto ko Salud ay makapagbigay man lang
... The appellant is a businesswoman. On January 10, 1966, the ako ng marami para hindi masiadong
appellant went to the house of Maria Ayroso and proposed to kahiyahiya sa iyo. Ngayon kung gosto mo ay
sell Ayroso's tobacco. Ayroso agreed to the proposition of the kahit konte muna ay bibigyan kita. Pupunta
appellant to sell her tobacco consisting of 615 kilos at P1.30 a lang kami ni Mina sa Maynila ngayon. Salud
kilo. The appellant was to receive the overprice for which she kung talagang kailangan mo ay bukas ay
could sell the tobacco. This agreement was made in the presence dadalhan kita ng pera.

117 | P a g e
Course Outline
Agency, Partnership & Trust
Medio mahirap ang maningil sa palengke ng
Cabanatuan dahil nagsisilipat ang mga suki ko
ng puesto. Huwag kang mabahala at tiyak na
babayaran kita.
Patnubayan tayo ng mahal na panginoon Dios.
(Exh. B).
Pursuant to this letter, the appellant sent a money order for
P100.00 on October 24, 1967, Exh. 4, and another for P50.00 on
March 8, 1967; and she paid P90.00 on April 18, 1967 as
evidenced by the receipt Exh. 2, dated April 18, 1967, or a total
of P240.00. As no further amount was paid, the complainant
filed a complaint against the appellant for estafa. (pp. 14, 15, 16,
Rollo)
In this petition for review by certiorari, Lourdes Valerio Lim poses the following
questions of law, to wit:
1. Whether or not the Honorable Court of Appeals was legally
right in holding that the foregoing document (Exhibit "A")
"fixed a period" and "the obligation was therefore, immediately
demandable as soon as the tobacco was sold" (Decision, p. 6) as
against the theory of the petitioner that the obligation does not
fix a period, but from its nature and the circumstances it can be
inferred that a period was intended in which case the only action
that can be maintained is a petition to ask the court to fix the
duration thereof;
2. Whether or not the Honorable Court of Appeals was legally
right in holding that "Art. 1197 of the New Civil Code does not
apply" as against the alternative theory of the petitioner that the
fore. going receipt (Exhibit "A") gives rise to an obligation
wherein the duration of the period depends upon the will of the
debtor in which case the only action that can be maintained is a
petition to ask the court to fix the duration of the period; and
3. Whether or not the honorable Court of Appeals was legally
right in holding that the foregoing receipt is a contract of agency
118 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
to sell as against the theory of the petitioner that it is a contract
of sale. (pp. 3-4, Rollo)
It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the
tobacco should be turned over to the complainant as soon as the same was sold,
or, that the obligation was immediately demandable as soon as the tobacco was
disposed of. Hence, Article 1197 of the New Civil Code, which provides that the
courts may fix the duration of the obligation if it does
L not fix a period, does not
apply. u
Anent the argument that petitioner was not an agentdbecause Exhibit "A" does not
say that she would be paid the commission if the goods y were sold, the Court of
Appeals correctly resolved the matter as follows:
... Aside from the fact that Maria Ayroso testified that the
appellant asked her to be her agent in selling Ayroso's tobacco,
the appellant herself admitted that there was an agreement that
upon the sale of the tobacco she would be given something. The
appellant is a businesswoman, and it is unbelievable that she
would go to the extent of going to Ayroso's house and take the
tobacco with a jeep which she had brought if she did not intend
to make a profit out of the transaction. Certainly, if she was
doing a favor to Maria Ayroso and it was Ayroso who had
requested her to sell her tobacco, it would not have been the
appellant who would have gone to the house of Ayroso, but it
would have been Ayroso who would have gone to the house of
the appellant and deliver the tobacco to the appellant. (p. 19,
Rollo)
The fact that appellant received the tobacco to be sold at P1.30 per kilo and the
proceeds to be given to complainant as soon as it was sold, strongly negates
transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A')
constituted her as an agent with the obligation to return the tobacco if the same
was not sold.
ACCORDINGLY, the petition for review on certiorari is dismissed for lack of
merit. With costs.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and De la
Fuente, JJ., concur.
Facts:
Petitioner Lourdes V
Course Outline
Agency, Partnership & Trust First Semester, AY 2019 - 2020
Valerio Lim was found guilty of the crime of estafa... appeal was taken to the then
Court of Appeals which affirmed the decision of the lower court but modified the
penalty
The appellant is a businesswoman.
the appellant went to the house of Maria Ayroso and proposed to sell Ayroso's
tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco
consisting of 615 kilos at P1.30 a kilo. The appellant was... to receive the
overprice for which she could seU the tobacco. This agreement was made in the
presence of plaintiffs sister, Salud G. Bantug.
This is to certify that I have received from Mrs. Maria de Guzman Vda. de
Ayroso, of Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be
sold at P1.30 per kilo. The proceed in the amount of Seven Hundred Ninety Nine
Pesos and 50/100 (P 799.50) will be given to... her as soon as it was sold.'
Of the total value of P799.50,... the appellant had paid to Ayroso only P240.00,
and this was paid on three different times.
Demands for the payment of the balance of the value of the tobacco were made
upon the appellant by Ayroso, and particularly by her sister, Saiud Bantug.
Issues:
whether the receipt, Exhibit "A", is a contract of agency to sell or a contract of
sale of the subject tobacco between petitioner and the complainant, Maria de
Guzman Vda. de Ayroso, thereby precluding criminal liability of petitioner for...
the crime charged.
Whether or not the Honorable Court of Appeals was legally right in holding that
"Art. 1197 of the New Civil Code does not apply"
Ruling:
It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the
tobacco should be turned over to the complainant as soon as the same was sold,
or, that the obligation was immediately demandable as soon as the tobacco was
disposed 'of. Hence, Article 1197 of... the New Civil Code, which provides that
the courts may fix the duration of the obligation if it does not fix a period, does
not apply.
The fact that appellant received the tobacco to be sold at P1.30 per kilo and the
proceeds to be given to complainant as soon as it was sold, strongly negates
transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A")
constituted her as an agent with... the obligation to return the tobacco if the same
was not sold.
119 | P a g e
Atty. Joanne L. Ranada
Green Valley Poultry & Allied Products, Inc. v. IAC, 133 SCRA 697
G.R. No. L-49395 December 26, 1984
GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., petitioner
vs.
THE INTERMEDIATE APPELLATE COURT and E.R. SQUIBB & SONS
PHILIPPINE CORPORATION, respondents.
ABAD SANTOS, J.:
This is a petition to review a decision of the defunct Court of Appeals which
affirmed the judgment of the trial court whereby:
... judgment is hereby rendered in favor of the plaintiff [E.R.
Squibb & Sons Philippine Corporation], ordering the defendant
[Green Valley Poultry & Allied Products, Inc.] to pay the sum
of P48,374.74 plus P96.00 with interest at 6% per annum from
the filing of this action; plus attorney's fees in the amount of
P5,000.00 and to pay the costs.
On November 3, 1969, Squibb and Green Valley entered into a letter agreement
the text of which reads as follows:
E.R. Squibb & Sons Philippine Corporation is pleased to
appoint Green Valley Poultry & Allied Products, Inc. as a non-
exclusive distributor for Squibb Veterinary Products, as
recommended by Dr. Leoncio D. Rebong, Jr. and Dr. J.G. Cruz,
Animal Health Division Sales Supervisor.
As a distributor, Green Valley Poultry & Allied Products, Inc.
wig be entitled to a discount as follows:
Feed Store Price (Catalogue)
Less 10%
Wholesale Price
Less 10%
Distributor Price
There are exceptions to the above price structure. At present,
these are:
1. Afsillin Improved — 40 lbs. bag
The distributor commission for this product size is 8% off
P120.00
2. Narrow — Spectrum Injectible Antibiotics
Course Outline
Agency, Partnership & Trust
These products are subject to price fluctuations. Therefore, they
are invoiced at net price per vial.
3. Deals and Special Offers are not subject to the above
distributor price structure. A 5% distributor commission is
allowed when the distributor furnishes copies for each sale of a
complete deal or special offer to a feedstore, drugstore or other
type of account.
Deals and Special Offers purchased for resale at regular price
invoiced at net deal or special offer price.
Prices are subject to change without notice. Squibb will
endeavor to advise you promptly of any price changes.
However, prices in effect at the tune orders are received by
Squibb Order Department will apply in all instances.
Green Valley Poultry & Allied Products, Inc. win distribute
only for the Central Luzon and Northern Luzon including
Cagayan Valley areas. We will not allow any transfer or stocks
from Central Luzon and Northern Luzon including Cagayan
Valley to other parts of Luzon, Visayas or Mindanao which are
covered by our other appointed Distributors. In line with this,
you will follow strictly our stipulations that the maximum
discount you can give to your direct and turnover accounts will
not go beyond 10%.
It is understood that Green Valley Poultry and Allied Products,
Inc. will accept turn-over orders from Squibb representatives for
delivery to customers in your area. If for credit or other valid
reasons a turn-over order is not served, the Squibb
representative will be notified within 48 hours and hold why the
order will not be served.
It is understood that Green Valley Poultry & Allied Products,
Inc. will put up a bond of P20,000.00 from a mutually
acceptable bonding company.
Payment for Purchases of Squibb Products will be due 60 days
from date of invoice or the nearest business day thereto. No
payment win be accepted in the form of post-dated checks.
Payment by check must be on current dating.
120 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
It is mutually agreed that this non-exclusive distribution
agreement can be terminated by either Green Valley Poultry &
Allied Products, Inc. or Squibb Philippines on 30 days notice.
I trust that the above terms and conditions will be met with your
approval and that the distributor arrangement will be one of
mutual satisfaction.
If you are agreeable, please sign the enclosed three (3) extra
copies of this letter and return them to this Office at your
earliest convenience.
Thank you for your interest and support of the products of E.R.
Squibb & Sons Philippines Corporation. (Rollo, pp. 12- 13.)
For goods delivered to Green Valley but unpaid, Squibb filed suit to collect. The
trial court as aforesaid gave judgment in favor of Squibb which was affirmed by
the Court of Appeals.
In both the trial court and the Court of Appeals, the parties advanced their
respective theories.
Green Valley claimed that the contract with Squibb was a mere agency to sell;
that it never purchased goods from Squibb; that the goods received were on
consignment only with the obligation to turn over the proceeds, less its
commission, or to return the goods ff not sold, and since it had sold the goods but
had not been able to collect from the purchasers thereof, the action was premature.
Upon the other hand, Squibb claimed that the contract was one of sale so that
Green Valley was obligated to pay for the goods received upon the expiration of
the 60-day credit period.
Both courts below upheld the claim of Squibb that the agreement between the
parties was a sales contract.
We do not have to categorize the contract. Whether viewed as an agency to sell or
as a contract of sale, the liability of Green Valley is indubitable. Adopting Green
Valley's theory that the contract is an agency to sell, it is liable because it sold on
credit without authority from its principal. The Civil Code has a provision exactly
in point. It reads:
Art. 1905. The commission agent cannot, without the express or
implied consent of the principal, sell on credit. Should he do so,
the principal may demand from him payment in cash, but the
commission agent shall be entitled to any interest or benefit,
which may result from such sale.
Course Outline
Agency, Partnership & Trust
WHEREFORE, the petition is hereby dismissed; the judgment of the defunct
Court of Appeals is affirmed with costs against the petitioner.
SO ORDERED.
Aquino, Concepcion, Jr., Escolin and Cuevas, JJ., concur.
Makasiar (Chairman), reserves his vote.
Bert Osmeña & Associates v. CA, 120 SCRA 395
G.R. No. L-56545 January 28, 1983
BERT OSMEÑA & ASSOCIATES, petitioners,
vs.
THE COURT OF APPEALS and SPOUSES PEDRO QUIMBO and
LEONADIZA QUIMBO, respondents.
Siguion Reyna, Montecillo & Ongsiako for petitioners.
Hilario Davide, Jr., for private respondents.
RESOLUTION
MELENCIO-HERRERA, J.:
Sought to be reversed in this Petition for Review on certiorari is the Decision of
respondent Court of Appeals in CA-G.R. No. 62601-R, entitled "Pedro Quimbo
and Leonadiza Quimbo vs. Carmen Siguenza and Helena Siguenza, Bert Osmeña
& Associates, Inc." sentencing defendants, jointly and severally, to pay damages
to the plaintiffs, who are the private respondents herein.
Upon a review of the evidence, we find as established: (1) that on June 3, 1971, a
"Contract of Sale" over Lots 1 and 2, Block I, Phase II of the Clarita Subdivision,
Cebu City, for the total price of P15,200.00, was executed in favor of the Quimbo
spouses. The sellers were petitioner company, developer of the subdivision, and
Carmen and Helena Siguenza, owners of the property, represented by petitioner.
Antonio V. Osmeña signed the contract on behalf of the company. Signing as
witness was one C. Siguenza.
(2) The spouses had intended to construct a house thereon inasmuch as their
rented abode, for which they were paying P170.00 monthly, had become
inconvenient for their family. Plans for the house were drawn. The spouses were
ready to pay the purchase price in full even before the due date of the first
installment and advised Helena Siguenza accordingly so that title in their names
could be delivered to them. On the pretext that a road would traverse the lots
purchased, Helena proposed to exchange another lot (Lot 409) with the same area
121 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
for the lots purchased by the spouses to which the latter hesitating agreed. Until
1973, however, no title could be given the Quimbo spouses.
(3) It turned out that on December 15, 1969, or approximately a year and a half
prior to the sale in the spouses' favor, Lots Nos. 1 and 2 had already been sold to
Dr. Francisco Maningo (Exhs. "G " and "G-1 "), and that Transfer Certificates of
Title Nos. 48546 and 48547 were issued in favor of Irenea Maningo on September
21, 1970 (Exhs. "H" and "H-1 "), or about nine months before. the sale. Annotated
on said titles were mortgages in favor of petitioner.
(4) Discovering this fact only in 1973, respondent spouses instituted this suit for
Damages against petitioner company and the Siguenzas on March 25, 1974.
In its judgment, the lower Court ordered petitioner company and the Siguenzas to
pay damages to respondent spouses as follows:
WHEREFORE, based on all the foregoing considerations,
judgment is hereby rendered in favor of the plaintiffs and
against the defendants ordering the latter:
To pay, jointly and severally, the plaintiffs P3,040.00, with
interest at the legal rate from June 2, 1971 until the same shall
have been fully paid; P100,000.00 as compensation for the
pecuniary loss plaintiffs suffered for failure to construct their
residential house; P5,610.00 as reimbursement for the rentals
plaintiffs paid from January 1972 to September 6, 1974;
P50,000.00 as moral damages, P25,000.00 as exemplary
damages, P5,000.00 as attorney's fees; and the cost. 1
The Appellate Court affirmed the judgment of the Trial Court in toto. Hence, this
recourse by petitioner company, advancing tile following arguments:
1) The Honorable Court of Appeals seriously erred in not
having considered the contract as having been novated by virtue
of the change in the subject matter or object of the contract;
2) The courts below seriously erred for having found petitioner
to have acted fraudulently where there is no evidence to support
such a finding;
3) The Court of Appeals committed serious error in law when it
held petitioner jointly and severally liable to pay P100,000.00 as
compensation for the pecuniary loss suffered by Mrs. Quimbo;
4) The Court seriously erred in holding petitioner jointly and
severally liable with the Siguenzas to pay moral damages to
Course Outline
Agency, Partnership & Trust
Quimbo, there being no evidence showing fraud or bad faith
perpetrated by petitioner;
5) The lower court seriously erred in holding petitioner liable to
pay the sum of P5,610.00 as reimbursement for rentals because
Quimbo was no longer interested in the lots on which her house
was supposed to have been constructed but sought only for
reimbursement of the downpayment;
6) The Court below erred in holding petitioner liable jointly and
severally for exemplary damages, attorneys fees and costs;
7) The court seriously erred in fact and in law in holding
petitioner jointly and severally with the Siguenzas to return the
downpayment.
Except for some items of damages awarded, we affirm.
1) Petitioner's contention that in. as much as respondent spouses had agreed to
exchange Lot 409 for Lots 1 and 2, the contract of sale had been novated and its
liability extinguished, in untenable. No new contract was ever executed between.
petitioner and respondent spouses, notwithstanding Helena Siguenza's assurances
to that effect. As held by respondent Court:
This stand taken by appellant only reveals its misconception of
novation. Novation is a contract containing two stipulations: one
to extinguish an existing obligation, the other to substitute a new
one in its place. It requires the creation of a new contractual
relation as well as the extinguishment of the old. There must be
a consent of all the parties to the substitution, resulting in the
extinction of the old obligation and the creation of a new valid
one (Tiu Suico vs. Habana, 45 Phil. 707). 2
2) Fraud has been established. As the trial Court had concluded:
There is no question that the defendants have conveyed and
disposed of Lots 1 and 2, Block I, Phase II of the Clarita Village
Subdivision to the plaintiffs at a time when they were no longer
the owners thereof. At the time of the execution of the contract
of sale, their only interest thereon was a mortgage lien in the
amount of P13,440.00. As mortgagee they did not have the right
to sell the same. Helena and Carmen Siguenza did not reveal
this fact to the plaintiffs and the latter relied on their assurances
that the same belong to them. Bert Osmeña and Associates, Inc.
as developer and at the same time attorney-in-fact for Carmen
122 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
and Helena Siguenza similarly concealed this
fact.1äwphï1.ñët Their efforts to cover up this fraud make the
acts more detestable and obnoxious. Defendants demonstrated
palpable malice, bad faith, wantonness and incurable
dishonesty. 3
The finding of fraud in this case was a finding of fact and there are no factors
which can justify a reversal thereof.
3) The award in the amount of P100,000.00 representing pecuniary loss for not
having been able to build a P100,000.00 house should be eliminated. Respondent
spouses did not lose that amount. It was only the estimated cost of the house they
were unable to construct. It was an expense item, not expected income.
4) The amount of P5,610.00 awarded representing rentals the spouses could have
saved, from the time when the house was to be finished to the date when
respondent Leonadiza testified in Court (January 1972 to September 6, 1974),
should also be eliminated for being speculative. If they had built their
P100,000.00 house, thus avoiding the payment of rentals, they would, on the other
hand, be losing interest or income from that amount. Evidence that the plaintiff
could have bettered his position had it not been for the defendant's wrongful act
cannot serve as basis for an award of damages. 4
5) Fraud and bad faith by petitioner company and the Siguenzas having been
established, the award of moral damages is in order. Moral damages should be
reduced, however, from P50,000.00 to P10,000.00.
6) Moral damages having been awarded, exemplary damages were also properly
awarded. 5 They should be reduced, however, from P25,000.00 to P5,000.00.
7) The award of P5,000.00 as attorney's fees is affirmed inasmuch as respondent
spouses were compelled to litigate for the protection of their interests. 6
8) The portion of the Decision requiring petitioners and the Siguenzas to return
the downpayment of P3,040.00 is also justified. The Quimbo spouses are entitled
to the return of their downpayment, with interest at the legal rate from March 25,
1974 when the instant, suit was commenced. 7
9) Petitioner's plea for exception from liability for damages on the ground that it
was a mere agent of the Siguenzas is untenable. The contract of sale describes
petitioner as seller together with the Siguenzas. In fact, petitioner was the lone
signatory for the sellers in said contract. As held by respondent Court:
The contract ... is clear that appellant is one of the Seller-of the
lots in question. We will not allow a variation of the terms of the
written contract by parole evidence, for there is never an
Course Outline
Agency, Partnership & Trust
allegation in the appellant's answer that Exhibit 6-Osmeña does
not express the true intent of the parties or that it is suffering
from a vice or mistake or imperfection. Further, appellant never
asserted in its answer that it is a mere agent of its co-defendant
Helena. Indeed, the tenor of its Answer is one which shows its
admission that it is a co-seller of all lots in subdivision which it
is developing. We take particular attention to appellant's
admission in its answer to the allegations in par. 4, 8 and 9 of
appellees' complaint, which show that appellant was not an
agent but a co-seller of the lots. 8
ACCORDINGLY, the judgment appealed from is hereby modified in that
petitioner is hereby ordered to pay private respondents the following sums:
P3,040.00 with interest at the legal rate from March 25, 1974 until fully paid;
P10,000.00 as moral damages; P5,000.00 as exemplary damages; and P5,000.00
as attorney's fees. Costs against petitioner company.
SO ORDERED.
Vasquez, Relova and Gutierrez, Jr., JJ., concur.
Plana J., is on leave.
g) Trusteeship (Art. 1440)
ARTICLE 1440. A person who establishes a trust is called the trustor; one in
whom confidence is reposed as regards property for the benefit of another person
is known as the trustee; and the person for whose benefit the trust has been created
is referred to as the beneficiary.
2 C.J.S. 1034
h) Broker
Pacific Commercial Co. v. Yatco, 68 Phil. 398
G.R. No. L-45976 July 20, 1939
PACIFIC COMMERCIAL COMPANY, plaintiff-appellant,
vs.
ALFREDO L. YATCO, defendant-appellee.
E.P. Revilla for appellant.
Office of the Solicitor-General Tuason for appellee.
123 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
AVANCEÑA, C.J.:
The plaintiff, a corporation engaged in business as a merchant, with offices in
Manila, Cebu and Iloilo, during the period from April 1, 1934 to December 31,
1935, sold in the Philippines, for the account of Victorias Milling Co., another
Philippine corporation, refined sugar, manufactured by the said corporation, up to
the total amount of P1,126,135.96, having received by way of commission for this
sale the amount of P29,534.29. The corporation Victorias Milling Co., paid to the
Collector of Internal Revenue for this sale the amount of P16,944.90 as merchant
sales tax in its capacity as manufacturer and owner of the sugar sold.
Notwithstanding this payment made by Victorias Milling Co., the Collector of
Internal Revenue also collected from the plaintiff the same tax for the same
amount of P16,944.90.
The sales of this sugar were made by the plaintiff in two ways. The plaintiff
looked for purchasers of the sugar, and once the corresponding purchase order is
obtained from them, the same is sent to the office of Victorias Milling Co., in
Manila, which, in turn, endorsed the order to its office in Negros, with instructions
to ship the sugar thus ordered to Manila, Cebu or Iloilo, as the case may be. At
times, the purchase is made for the delivery of the sugar ex-warehouse of the
plaintiff and at other times for delivery ex-ship. In all cases, the billing of lading is
sent to the plaintiff. If the sugar was to be delivered ex-ship, all that the plaintiff
did was to hand over the bill of lading to the purchaser and collect the price. If it
was for delivery ex-warehouse, the sugar is first deposited in the warehouse of the
plaintiff before delivery to the purchaser.
The court found that of the price of sugar sold by the plaintiff, the amount of
P558,550.41 corresponds to sugar sold for delivery ex-warehouse and that of
P567,585.55 corresponds to sugar sold for delivery ex-ship, and considering that
in the first case the plaintiff acted as a commission merchant, and in the second
case a broker, it ordered the defendant to return to the plaintiff the amount
collected from it, by way of tax on the sale of sugar to be delivered ex-ship, and
denied the prayer in the complaint for the return of the amount paid for the sales
of sugar to be delivered ex-warehouse.
Both parties appealed from this decision.
The appeal raises three questions: (a) whether there is double taxation in the
present case; (b) whether the plaintiff acted as a commission merchant as to the
sugar delivered ex-warehouse; (c) whether the plaintiff acted as a mere
commercial broker as to the sugar delivered ex-ship.
Course Outline
Agency, Partnership & Trust
As to the first question, it should be borne in mind that Victorias Milling Co.
already paid the merchant sales tax for the sales of sugar, in its capacity as
manufacturer and owner of the sugar sold. It is said that the payment of another
tax by the plaintiff, who effected the sale, constitutes double taxation, there having
been only one sale. In Gil Hermanos vs. Hord (10 Phil., 218), this question was
already decided in the sense that there is no double taxation. In that case, Aldecoa
& Co., remitted abaca to Gil Hermanos, which the latter sold on commission for
the account of the former. Aldecoa & Co. paid the tax for one-third of 1 per cent
upon the value of the abaca sold by Gil Hermanos, and the latter also paid another
one-third of 1 per cent of the same sale. It was held that, although there was only
one sale, this is not a case of double taxation, because the tax is not upon property
or products, but upon occupation or industry. The tax was paid by Aldecoa & Co.
and Gil Hermanos in consideration of the occupation or industry in which each is
engaged. The value of the thing sold is taken into account only as a basis for the
fixing of the amount of the tax and not as the reason and purpose thereof. The case
at bar is identical in all respects.
It is said that this decision was reversed in Atkins, Kroll & Co. vs. Posadas (48
Phil., 352), and other cases. This, however, is not correct. Neither in Atkins, Kroll
& Co. vs. Posadas, nor in the other cases mentioned by the plaintiff, has the
decision in Gil Hermanos vs. Hord been reversed. Although a distinct result was
reached in these cases, this was only because they have been found to be different
from the case of Gil Hermanos vs. Hord. On the contrary , in F.E. Zuellig,
Inc. vs. Collector of Internal Revenue (51 Phil., 629), the doctrine in gil Hermanos
was followed.
The question of whether the appellant, in connection with the sugar delivered ex-
warehouse and thereafter sold to the purchasers, acted as a commission merchant ,
presents no doubt. 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 the subject
matter of the transaction. In the present case, the sugar was shipped by Victorias
Milling Co., and upon arrival at the port of destination, the plaintiff received and
transferred it for deposit in its warehouses until the purchaser called for it. The
deposit of the sugar in the warehouses of the plaintiff was made upon its own
account and at its own risk until it was sold and taken by the purchaser. There is,
therefore, no doubt that the plaintiff, after taking the sugar on board until it was
sold, had it in its possession and at its own risk, circumstances determinative of its
124 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
status as a commission merchant in connection with the sale of sugar under these
conditions.
There is also no doubt on the question of whether the plaintiff merely acted as a
commercial broker as to the sale of the sugar delivered to the purchaser ex-ship.
The broker, unlike the commission merchant, has no relation with the thing he
sells or buys. He is merely an intermediary between the purchaser and the vendor.
He acquires neither the possession nor the custody of the things sold. His only
office is to bring together the parties to the transaction. These circumstances are
present in connection with the plaintiff's sale of the sugar which was delivered to
the purchaser's ex-ship. The sugar sold under these conditions was shipped by the
plaintiff at its expense and risk until it reached its destination, where it was later
taken ex-ship by the purchaser. The plaintiff never had possession of the sugar at
any time. The circumstance that the bill of lading was sent to the plaintiff does not
alter its character of being merely a broker, or constitute possession by it of the
sugar shipped , inasmuch as the same was sent to it for the sole purpose of turning
it over to the purchaser for the collection of the price. The sugar did not come to
its possession in any sense.
In view of the foregoing, the appealed decision is affirmed, without special
pronouncement as to the costs. So ordered.
Villa-Real, Imperial, Diaz, Laurel, and Concepcion, JJ., concur.
i) Guardianship
2 C.J.S. 1027
3 AmJur 2d 421
Fessenden v. Jones, 75 Am. Dec. 445
Fessendenv.Jones
DownloadPrint
Supreme Court of North CarolinaDec 1, 1859Full title
52 N.C. 14 (N.C. 1859)Copy Citation
Attorney info
The action was commenced by a warrant, returnable before a justice of the peace,
and brought to the Superior Court by appeal.
The plaintiff, who was a physician, declared for medicines and medical services
rendered to a slave, the property of a ward of the defendant. The proof was that
the plaintiff was called to attend the slave in question by persons having authority
Course Outline
Agency, Partnership & Trust
from the defendant, and that the plaintiff looked to the defendant for payment
when the medicines were furnished and the services rendered.
The defendant contended that, as it was known to the plaintiff to whom the slave
belonged, the charge should have been made against the ward, and the action
brought against him. But the court thought otherwise, and charged the jury upon
the facts proved that the plaintiff was entitled to recover. Defendant's counsel
excepted.
Verdict and judgment for plaintiff. Appeal by the defendant.
MANLY, J.
The single question presented in this case is, whether a guardian who calls in a
physician to the slave of his ward can rightfully be charged with and made
responsible for the medicines and services rendered.
The Court is clearly of opinion he may be. The credit in such case is not only in
point of fact given to the guardian, but ought to have been so given. The guardian
is charged with the duty of controlling and managing the person and property of
the ward, and judging of (15) the expenditures which may be needful for either,
and he alone is informed of the condition of the ward's resources. Hence, the
contract should be made with the guardian, and hence the guardian ought to be
looked to for payment. To allow a departure from the above rule would, in the
first place, have the effect to encourage in the youth of the country appeals from
the judgments of their guardians, and, in the next, make the right to compensation
on the part of the creditor depend upon a condition of things of which he had no
means to judge, and, therefore, uncertain and precarious.
The foregoing principles are sustained, it is believed, by Britt v. Cook, 34 N.C.
67; Hussey v. Roundtree, 44 N.C. 110, and Freeman v. Bridgers, 49 N.C. 1.
In the latter case it is said that this rule has been established by previous
adjudications of the Court: "Where there is a guardian, the replication
for necessaries does not avoid the plea of infancy, because the fact of there being
a guardian, whose duty it is to furnish all necessaries for the support of the ward,
shows that it was not necessary for the infant to contract."
Where there is a parent or guardian, the infant cannot contract, even for
necessaries. Persons must take care (save in certain excepted cases) to contract
with the guardian, and, contracting with him, it seems to be a principle of common
justice they should be permitted to resort to him, primarily, for the fulfillment of
the contract. To turn persons dealing with the guardian in relation to the ward's
estate over to the ward would render it necessary in every case for such persons,
125 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
in order to guard themselves against loss, to enter into an account with the
guardian as to the amount of the ward's estate — the income and expenditures,
and the necessity for the expenditure then contemplated. Such requirements,
applied to the ordinary transactions of life, and especially to such a one as is the
subject of this suit, are manifestly absurd.
It will be seen from the foregoing considerations a guardian (16) is not in the
condition of an ordinary agent or factor, and therefore the same legal relations, in
all respects, do not subsist between them and those whom they respectively
represent. The former represents one who has no legal capacity to contract for
himself; the latter, one fully able to contract and bind were he present. The former
is substituted by the law, and stands in loco parentis. The latter is the appointee
of his principal, and that principal can, at any moment, abrogate or modify his
powers.
This want of analogies between the two, in the sources and limits of their powers,
makes it obvious there can be no complete analogy between them as to liabilities
or exemptions.
PER CURIAM. No error.
Cited: Tyson v. Walston, 83 N.C. 96; Le Roy v. Jacobosky, 136 N.C. 450.
Dist.: Parker v. Davis, 53 N.C. 462.
McDonald v. Spring Valley, 120 N.E. 476, 2 ALR 1355
j) Bailment
2 C.J.S. 1027
k) Ship Agent
Switzerland General Insurance Co., Ltd. v. Ramirez, 96 SCRA 297
G.R. No. L-48264 February 21, 1980
SWITZERLAND GENERAL INSURANCE COMPANY, LTD., petitioner,
vs.
HON. PEDRO A. RAMIREZ, Presiding Judge of the Court of First Instance
Course Outline
Agency, Partnership & Trust
of Manila, Branch XXX, OYAMA LINES, CITADEL LINES and
MABUHAY BROKERAGE CO., INC., respondents.
Manuel N. Camacho, for petitioner.
Bito, Misa & Lozada for respondents Oyama Lines and Citadel Lines.
Gregorio Gonzales for respondent Company.
ANTONIO, J.:
Petition for review of the decision, dated February 24, 1978 of the Court of First
Instance of Manila in Civil Case No. 100704, entitled "Switzerland General
Insurance Co., Ltd. v. Oyama Lines and Citadel Lines, and/or Mabuhay
Brokerage Co., Inc."
On December 24, 1975, petitioner, a foreign insurance company authorized to do
business in the Philippines thru its agent, F. E. Zuellig Inc., filed an admiralty case
(Civil Case No. 100704) against private respondents Oyama Shipping Co., Ltd.
(referred to as Oyama Lines), a foreign firm doing business in the Philippines, and
Citadel Lines, Inc. which is the local agent of private, respondent Oyama Shipping
Co., Inc. and/or Mabuhay Brokerage Co., Inc.
The complaint alleged that on December 21, 1974, 60,000 bags of Urea Nitrogen
were shipped from Niihama Japan, on board the S/S St. Lourdes", claimed to be
owned and operated by defendant Citadel Lines, Inc. The goods were consigned
to Borden International Phils., Inc., and insured by petitioner for the sum of
P9,319,105.00 against all risks.
The shipment was discharged from the vessel S/S "St. Lourdes" shipside into
lighters owned by Mabuhay Brokerage Company, Inc., but when the same was
subsequently delivered to and received by the consignee, it was found to have
sustained losses and/or damage amounting to P38.698.94. This amount was paid
by petitioner insurance company to the consignee/assured, by virtue of which
payment it became subrogated to the rights of the latter.
Petitioner made repeated demands against herein private respondents for payment
of the aforesaid losses or damaged but no payment was made and, uncertain in
whose custody the goods were damaged, impleaded the private respondents as
alternative defendants to determine their respective liability.
Defendant Citadel Lines, Inc. filed an Answer with Compulsory Counterclaim and
Cross-claim, interposing special and affirmative defenses and alleging that
defendant Citadel Lines was merely the civil agent in the Philippines for the
Japanese firm Oyama Shipping Co., Ltd., which was the charterer of the vessel
S/S "St. Lourdes", said vessel being owned by Companies Maritime de Brios,
126 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
Sociedad Anonima a Panamanian corporation. It was further alleged that the
principal agency relationship between the said Oyama Shipping Co., Ltd. and
defendant Citadel Lines, Inc. was terminated on August 21, 1975 when the Tokyo
District Court declared and decreed the insolvency of the said Oyama Shipping
Co., Ltd.
It was argued that defendant Citadel Lines "has always acted as an agent of a
disclosed principal and, therefore, the herein defendant is without any liability at
all" in connection with the plaintiff's claim.
By way of cross-claim, defendant Citadel Lines alleged that the loss/damaged to
the cargo took place while the latter was being delivered to the consignee thereof
by the Mabuhay Brokerage, Inc. and said corporation should be held liable
therefor, as well as for all damages suffered and expenses incurred by defendant
Citadel Lines as a result of the filing of the suit. Defendant likewise interposed a
counterclaim for damages against plaintiff Switzerland General Insurance
Company, Ltd. (herein petitioner).
Defendant Oyama Shipping Co. Ltd. likewise filed its Answer, denying the
material averments of the complaint, alleging that it ceased to be represented in
the Philippines upon the declaration of its insolvency by the Tokyo Court; that it
was a mere charterer of the S/S "St. Lourdes" which is owned by Companies
Maritime de Brios, Sociedad Anonima a Panamanian corporation; that due to the
insolvency of Oyama Shipping Co. Ltd., the case as against it should be
dismissed, the remedy for the plaintiff being to file its claim before the insolvency
court in Tokyo, Japan. Further, it imputed the loss or damage to the shipment to
the shipper, Sumitomo Shoji Kaisha, Ltd. for failing to provide seaworthy
packages for the goods, and/or the Mabuhay Brokerage for failure to exercise
utmost diligence after it took possession of the cargo from the vessel S/S "St.
Lourdes". Finally, it was averred that plaintiff's reinsurer had already paid the
plaintiff's claim and, hence, said reinsurer is the real party to the action, and that
assumming defendant Oyama Shipping Co., Ltd. to be liable, its liability is limited
to the amount of the loss in relation to the total amount of the freight of the goods,
which if computed, would be a much lower amount. It was prayed that the
complaint be dismissed as against this defendant.
After trial on the merits, respondent court rendered a decision, dated February 23,
1978, in favor of petitioner as against therein defendant Oyama Shipping Co.,
Ltd., but absolving Citadel Lines, Inc. and Mabuhay Brokerage Co., Inc. from
liability. The decision reads, in part, as follows:
Course Outline
Agency, Partnership & Trust
Since in the case at bar there is no question that the shipment in
question has suffered loss or damage while in the custody of the
carrier, the herein defendant Oyama Line, but it has not adduced
evidence to prove that it was caused by any of those factors or
reasons exempting it from liability, particularly that the bags
became torn or burst and the contents spilled because of the
character of the shipment or defects in the packing or in the
containers, or the nature or defect of the article itself. the
defendant Oyama Line, as carrier, cannot avoid liability to the
consignee or its subrogee the plaintiff herein.
The defendant Oyama Line pleads prescription of the plaintiff's
cause of action under Article 366 of the Code of Commerce.
The defense is untenable. to begin with, the required claim that
the owner of merchandise is supposed to make within 24 hours
from receipt is but in the nature of a limitation upon his right to
recovery and the burden of proof is accordingly on the carrier to
show that the limitation is reasonable and in proper form or
without the time stated (Southern Lines, Inc. vs. Court of
Appeals, 4 SCRA 258, 261-262). And it is incumbent upon the
said defendant to prove its defense, particularly that no such
claim was filed within the required period. Without such proof
of a negative allegation, which it has failed to adduce, the
pleader must suffer defeat under the rules of evidence (section
1, Rule 131, Revised Rules of Court). Be that as it may, the
survey report submitted in evidence by the plaintiff states that
after completion of delivery the consignee signified its 'intention
to file a claim for the full value of the loss sustained by the
shipment' (Exhibits 1, 1-1 to 1-5), a fact that has not at all been
refuted by the defendant Oyama Line.
The fact that the defendant Oyama Line has been declared
insolvent by the Tokyo District Court of Japan since August 21,
1975, is no defense at all. For such declaration of insolvency,
even under Philippine Laws, does not bar recovery of damages
based on contract. Neither can it successfully ward off liability
on a claim that it is a mere charterer of the carrying vessel,
having represented on the face of the bill of lading as the carrier
itself (Exhibit A; Exhibit 1-Oyama) And even if it is but a
127 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
charterer of the vessel that it claims it is, it cannot avoid its
liability as a carrier for loss and damage suffered by the goods it
has transported.
As a mere agent in the Philippines of the defendant Oyama
Line, the defendant Citadel Line (see paragraph 1, complaint)
cannot be held liable for the damages recoverable from its
principal. But for failure to substantiate it, its counterclaim
against the plaintiff should be dismissed. So must its crossclaim
against its co-defendant brokerage company be dismissed since
it has not at all been held liable to the plaintiff.
Neither can the defendant Mabuhay Brokerage Company, Inc.
be held answerable for the loss and damage sustained by the
cargo in question while still in custody of the carrying vessel,
for obvious reasons. Nor can it be made liable, jointly and
severally, with the defendant Oyama Line for further loss and
damage to the contents of the torn or burst bags turned over to
its custody in that condition in view of the required
extraordinary diligence that it has observed to prevent further
loss or damage to them. According to the defendant brokerage's
witness, Virgilio de Jesus, as soon as the bags in bad order were
received from the lighters they were tied and the torn parts
sewed the falsity of which the plaintiff has failed to prove.
WHEREFORE, the Court hereby renders judgment in favor of
the plaintiff Switzerland General Insurance Company, Ltd. and
against the defendant Oyama Line, ordering the latter to pay the
former the amount of P38,698.94, with interest thereon at the
legal rate from the date of the filing of the complaint on
December 24, 1975, until fully paid, P5,000.00 as attorney's
fees and the costs of the suit. The plaintiff's complaint against
the defendants Citadel Line and Mabuhay Brokerage Company,
Inc. are dismissed. So is the defendant Citadel Lines'
counterclaim against the plaintiff and crossclaim against its co-
defendant brokerage company dismissed.
Petitioner filed a Motion for Reconsideration of the aforesaid decision insofar as it
absolves respondents Citadel Lines, Inc. and Mabuhay Brokerage Co., Inc. from
liability, but said Motion for Reconsideration was denied on April 21, 1979;
hence, the instant petition for review.
Course Outline
Agency, Partnership & Trust
The main issue raised in the instant petition is whether or not respondent Citadel
Lines, Inc., the local agent of a foreign ocean going vessel, the S/S "St. Lourdes",
may be held primarily liable for the loss/damage found to have been sustained by
subject shipment while on board and/or still in the custody of the said vessel.
Petitioner contends that respondent Citadel Lines, Inc., being the ship agent for
the vessel S/S "St. Lourdes", is liable under the pertinent provisions of the Code of
Commerce and applicable jurisprudence.
Respondent Citadel Lines, Inc., in its Comment to the petition, alleges that the
lower court had made a finding that it is a mere agent of Oyama Shipping Co.,
Ltd., and not a ship agent, and this, being a finding of fact, can no longer be
questioned in the instant proceedings. Further, it argues that the provisions of the
Code of Commerce relied upon by petitioner are applicable to a ship agent, but
not to a mere agent like private respondent, and that granting that it is a ship
agent, it contends that it should not be held liable because the principal, Oyama
Shipping Co., Ltd. has been declared insolvent. it is claimed that petitioner, upon
being informed of the insolvency of the Oyama Shipping Co., Ltd., should have
filed its claim before the Trustee of the Oyama Shipping Co., Ltd. in Japan.
In fine, private respondents do not dispute that a ship agent is liable to third
persons under certain circumstances as provided in the Code of Commerce, but
insists that it is not a ship agent but a mere agent and hence, not liable.
We find the instant petition meritorious the error of the lower court lies in its
application of the general rule on agency to the case a quo, when the applicable
law is contained in the pertinent provisions of the Code of Commerce as applied
in relevant decisions of this Court. Its finding. therefore, that respondent Citadel
Lines, Inc. was a mere agent of Oyama Shipping Co., Ltd. was a result of its
erroneous application of the law of agency to the instant case. Considering the
relationship of the parties, respondent Citadel Lines, Inc. cannot be considered as
a "mere agent" under the civil law on agency as distinguished from a ship agent,
within the context of the Code of Commerce. In Yu Biao Sontua & Co. v.
Ossorio, 1 for example, it was held that the doctrines having reference to the
relations Between principal and agent cannot be applied in the case of ship agents
and ship owners. For this reason, respondent cannot validly claim that the court a
quo made a finding of fact which is conclusive upon this Court. A ship agent,
according to Article 586 of the Code of Commerce, is the person entrusted with
the provisioning of a vessel or who represents her in the port in which she
happens to be." (Emphasis supplied.)
128 | P a g e
Atty. Joanne L. Ranada
First Semester, AY 2019 - 2020
It is not disputed by the private respondent that it is the local representative in the
Philippines of the Oyama Shipping Co., Ltd. and, as alleged by petitioner, upon
arrival of the vessel S/S "St. Lourdes" in Manila, it took charge of the unloading
of the cargo and issued cargo receipts (or tally sheets) in its own name, for the
purpose of evidencing discharge of cargoes and the conditions thereof from the
vessel to the arrastre operators and/or unto barges/lighters, and that claims against
the vessel S/S "St. Lourdes" for losses/damages sustained by shipments were in
fact filed and processed by respondent Citadel Lines, Inc. These facts point to the
inevitable conclusion that private respondent is the entity that represents the vessel
in the port of Manila and hence is a ship agent within the meaning and context of
Article 586 of the Code of Commerce.
The Code of Commerce provides, among others, that the ship agent shall also be
liable for the indemnities in favor of third persons which arise from the conduct of
the captain in the care of the goods which the vessel carried; but he may exempt
himself therefrom by abandoning the vessel with all her equipments and the
freightage he may have earned during the voyage. (Article 587).
In addition, Article 618 of the same Code states:
Art. 618. The captain shall be civilly liable to the ship agent and
the latter to the third persons who may have made contracts with
the former —
1. For all the damages sufferred by the vessel and its cargo by
reason of want of skill or negligence on his part. If a
misdemeanor or crime has been committed he shall be liable in
accordance with the Penal Code.
2. For all the thefts and robberies committed by the crew,
reserving his right of action against the guilty parties.
3. For the losses, fines, and confiscations imposed on account of
violation. of the laws and regulations of customs, police, health,
and navigation
4. For the losses and damages caused by mutinies on board the
vessel or by reason of faults committed by the crew in the
service and defense of the same, if he does not prove Chat, he
made full use of his authority to prevent or avoid them.
5. For those arising by reason of a misuse of powers and non-
fulfillment of the duties which pertain to him in accordance with
Articles 610 and 612.
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

6. For those arising by reason of his going out of his course or Lines (Oyama Shipping Co., LTD.), the amount of P38,698.94, with interest
taking a course which, in the opinion of the officers of the thereon at the legal rate from the date of the filing of the complaint on December
vessel, at a meeting attended by the shippers or super cargoes 24, 1975 until fully paid, P5,000.00 as attorney's fees and the costs of suit. The
who may be on board, he should not have taken without rest of the decision is affirmed. No pronouncement as to costs.
sufficient cause. SO ORDERED.
No exception whatsoever shall exempt him from his obligation.
7. For those arising by reason of his voluntarily entering a port
other than his destination, with the exception of the cases or
without the formalities referred to in Article 612.
8. For those arising by reason of the non-observance of the
provisions contained in the regulations for lights and maneuvers
for the purpose of preventing collisions.
The foregoing provisions have been repeatedly applied by this Court in various
cases, among them: Pons y Compañia v. La Compania Maritima;2 Behn, Meyer &
Co. v. McMicking, et al.: 3 Yu Biao Sontua & Co. v. Ossorio, 4Wing Kee
Compradoring Co. v. Bark "Monongahela" 5 and The American Insurance Co.,
Inc. v. Macondray & Co., Inc. 6
In Pons v. La Compania Maritima, supra, it was held that for damages resulting to
merchandize in transit due to negligence of the officers of the ship, a cause of
action arises against the owners or agents of the vessels which may be prosecuted
by the shipper or consignor the damaged goods.
At any rate, the liabilities of the ship agent are not disputed by private respondent.
It appearing that the Citadel Lines is the ship agent for the vessel S/S "St.
Lourdes" at the port of Manila, it is, therefore, liable to the petitioner, solidarily
with its principal, Oyama Shipping Co., Ltd., in an amount representing the value
of the goods lost and or damaged, amounting to P38,698.94, which was likewise
the amount paid by petitioner, as insurer, to the insured consignee As found by the
court a quo, there has been no proof presented to show that the officers of the
vessel, in whose custody the goods were lost or damaged, are exempt from
liability therefrom and that the damage was caused by factors and circumstances
exempting them from liability.
The insolvency of Oyama Lines has no bearing on the instant case insofar as the
liability of Citadel Lines, Inc. is concerned. The law does does not make the
liability of the ship agent dependent upon the solvency or insolvency of the ship
owner.
WHEREFORE, the decision appealed from is modified, and private respondent
Citadel Lines, Inc. is hereby ordered to pay, solidarily with its principal, Oyama

129 | P a g e
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

Week No. 3 Conde v. CA, 199 SCRA 245

C. Kinds, Creation and Existence ii. Manifestation of Acceptance

1. General Classification -Express (Art. 1869, 1870)

a) Actual Agency (Art. 1868) -Implied (Art. 1870-1872)

b) Apparent or Ostensible Agency (Art. 1873) Jimenez v. Rabot, 38 Phil. 357

Liñan v. Puno, 31 Phil. 259
J.B.L. Reyes 16 Lawyers Journal 138 Katigbak v. Tai Hing Co., 52 Phil. 622
Rallos v. Yangco, 20 Phil. 269 Amigo v. Teves, 96 Phil. 252
Compañia General de Tabacos v. Diaba, 20 Phil. 321 Villa v. Garcia Bosque, 49 Phil. 126
Dir. Of Public Works v. Sing Juco, 53 Phil.
c) Agency by Estoppel 205
BPI v. De Coster, 47 Phil. 594
2 C.J. 444-445 Germann & Co. v. Donaldson, 1 Phil. 63
2 C.J. 464-466 Macke v. Camps, 7 Phil. 533
Macke v. Camps, 7 Phil. 553 Municipal Council of Iloilo v. Evangelista,
55 Phil.290
2. Kinds of Actual Agency Yu Chuck v. Kong Li Po, 46 Phil. 608
Insular Drug v. PNB, 58 Phil. 683
a) As to manner of creation (Art. 1869)
b) As to character (Art. 1875) Week No. 4
c) As to extent (Art. 1876)
d) As to scope of authority (Art. 1877, 1878) D. Obligations of the Agent

3. Creation and Elements of Actual Agency Int’l Films (China) v. Lyric Films Exchange, 63 Phil. 778
Nepomuceno, et al. v. Heredia, 7 Phil. 563
a) Consent/ Mandate Domingo v. Domingo, 42 SCRA 131
U.S. vs. Kiene, 7 Phil. 736
i. Manifestation of Mandate U.S. v. Reyes, 36 Phil. 791
Ojinaga v. Estate of Perez, 9 Phil. 185
- Express (Art. 1869, 1874) De Borja v. De Borja, 58 Phil. 811
PNB v. Welch,Ffairchild, & Co., 44 Phil. 780
- Implied Harry Keeler Electric Co. v. Rodriguez, 44 Phil. 19
Austria v. CA, 39 SCRA 527

130 | P a g e
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

A. General Provisions (Art. 1767-1783)

Week 5
1. What is a contract of partnership? (Art. 1767)
E. Obligations of the Principal
Santos vs. Sps. Reyes, 368 SCRA 261
Gonzales & Gomez v. Haberer, 47 Phil. 380
Albaladejo y Cia. Phil. Refining Co., 45 Phil. 556 2. Determining factors in the existence of partnership (Art. 1769)

Week 6 Heirs of Tan Eng Kee vs. CA, 341 SCRA 740
(citing Evangelista vs. Collector of Internal Revenue,
F. Modes of Extinguishment of Agency 54 O.G. 996)
Negado vs. Makabenta, 54 O.G. 4082
Barretto v. Santa Maria, 26 Phil. 440 Yulo vs. Yang Chiaco Seng, L-12541, Aug. 28, 1959
Coleongco v. Claparols, 10 SCRA 577
De Buncio & Co. v. Ong Guan Gan, 60 Phil. 696 3. Distinction between partnership and a private corporation
New Manila Lumber Co., Inc. v. Republic, 107 Phil. 824
Infante v. Cunanan, 93 Phil. 693 1 Fletcher, Cyc. Corp., Sec. 20
Valera v. Velasco, 51 Phil. 695
Buason and Reyes v. Panuyas, 105 Phil. 795 4. Formalities required by law for the organization/constitution of
Herrera, et al. v. Luy Kim Guam, 110 Phil. 1020 partnership
Del Rosario v. Abad, 104 Phil. 648 (Art. 1771, 1772, 1773, 1843)
Pasno v. Ravina, 54 Phil. 378
Perez v. PNB, 17 SCRA 834 SEC Memorandum Circular No. 14, Series of 2017
Consolidated Guidelines and Procedures on the Use of
Corporate and Partnership Names

SEC Memorandum Circular No. 9, Series of 2018

Amendment of the Guidelines and Procedures on the
Use of Corporate and Partnership Names

SEC Memorandum Circular No. 6, Series of 2016

Omnibus Guidelines on Principal Office Address;
Address of each Incorporator, Director, Trustee or
I. PARTNERSHIP Partner

Week No. 7 Executive Order No. 65

Eleventh Foreign Investment Negative List

131 | P a g e
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

Week No. 8 i. With agreement

ii. Without agreement
5. Different kinds of partnership
b) Principle of Delectus Personae (Art. 1804)
a) As to object (Art. 1777, 1778, 1780, 1783)
Ortega, et al. v. CA, et al., 245 SCRA 529
i. Universal Partnership Tocao, et al. v. CA, 342 SCRA 20
ii. Particular Partnership JG Summit Holdings v. CA, Sept. 24, 2003,
G.R. No. 124293
b) As to liability of the partners
i. General Partnership c) Management of Partnership (Art. 1800-1803)
ii. Limited Partnership
d) When partner can demand for a formal
accounting of partnership affairs (Art. 1807,
1809)

6. Different kinds of partners Week No. 10

a) Industrial Partner 1. Property rights of a partner (Art. 1810-1814)

b) Capitalist Partner
c) General Partner a) Incidents of co-ownership (Art. 1811)
d) Limited Partner b) Partner‘s interest in the partnership (Art. 1812)
e) Managing Partner c) Effect of conveyance of interest in the
f) Silent Partner partnership to third persons (Art. 1813)
g) Ostensible Partner d) Charging order upon partner‘s interest (Art.
h) Secret Partner 1814)
i) Partner by Estoppel
2. Obligations of the partner with regard to third persons (Art.
Week No. 9 1815-1827)

B. Obligations of the Partners (Art. 1784-1827) a) Requisites prescribed by law in order that a
partnership may be held liable to third persons for
1. Obligations of the partners among themselves (Art. 1784-1809) the act of one partner (Art. 1816, 1822, 1823,
1824)
a) Distribution of profits and losses of
partnership

132 | P a g e
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

Pacific Commercial vs. Aboitiz GR No. 25007,

March 2, 1926 5. Duty to wind up/ liquidate partnership affairs (Art. 1836)
Island Sales vs. United Pioneers GR No. L-22493,
July 31, 1975 Aldecoa & Co. vs. Warner, Barnes & Co., 16 Phil. 423
Muñasque vs Court of Appeals GR No. L-39780, Po Yeng Cheo vs. Lim Ka Yan, 44 Phil. 172
November 11, 1985 Guidote vs. Borja, 53 Phil. 900

b) Concept of Mutual Agency (Art. 1818) 6. Order of payment in the winding up of partnership liabilities
c) Partner‘s liability for partnership obligation (Art. 1839)
(nature)
(Art. 1816 in rel. to 1824)
Week No. 12
Liwanag vs. Workmen’s Compensation
Commission, 105 Phil. 741 D. Limited Partnership (Art. 1843-1867)

d) Prohibited acts of partners (unless authorized) 1. Definition/ Concept/ Nature

(Art. 1818, par. 3)
2. Power/ Duties/ Rights of a Limited Partner
Week No. 11
3. Entitlements of a limited partner after dissolution

C. Dissolution and Winding Up (Art. 1828-1842)

III. TRUST
1. Definition and Effects (Art. 1828, 1829)
Week No. 13
-difference between Dissolution and Winding Up
A. Definition
Sy vs. Court of Appeals, G.R. No. 94285, August 31, 1999.
Rojas vs. Maglana, F.R. No. 30616, December 10, 1990. B. Trust distinguished from / compared with other relations

2. Causes of dissolution (Art. 1830,1831) C. Different Kinds of Trusts

3. Effect of dissolution caused by act, death or insolvency of a 1. Express Trust (Art. 1443-1446)
partner (Art. 1833)
Ramos v. Ramos, 61 SCRA 284
4. Residual powers of managing partner and exceptions thereto
(Art. 1832, 1834) 2. Implied Trust (Art. 1447-1457)

133 | P a g e
Course Outline Atty. Joanne L. Ranada
Agency, Partnership & Trust First Semester, AY 2019 - 2020

Cuaycong v. Cuaycong, 21 SCRA 1192 G. Modes of Termination

3. Resulting Trust H. Mechanisms for Trustee Protection

4. Constructive Trust I. Remedies of Aggrieved Beneficiaries

D. Parties to the Trust

The Prudent Man Rule - END -

Week No. 14

E. Enforcement of Trust

1. In relation to laches

Fabian v. Fabian, 21 SCRA 213

Sotto v. Teves, 86 SCRA 154

2. In relation to Statute of Limitations

Gerona v. De Guzman, 11 SCRA 163

F. Period of Prescription for Reconveyance of Real Property Based on

Implied Trust

Carantes v. CA, 76 SCRA 514

Alarcon v. Bidin, 120 SCRA 390
Bueno v. Reyes, 27 SCRA 1179
Varsity Hills, Inc. v. Navarro, 43 SCRA 503
Ecsay v. CA, 61 SCRA 369
Jaramil v. CA, 78 SCRA 420
Vda. De Nacalaban vs. CA, 80 SCRA 428
Duque v. Domingo, 80 SCRA 654
Tongoy v. CA, 123 SCRA 99
Caragay-Lagno v. CA, 133 SCRA 718

134 | P a g e