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83. Harry E. Keeler Electric Co. vs. Rodriguez ***Lower Court: In favor of Rodriguez.

It held that:
November 11,1922, Johns, J.***This case involves an action for the payment of purchase price by O Keeler Electric had held out Montelibano to Rodriguez as an agent authorized to collect
plaintiff Keeler Electric against defendant Rodriguez O Payment to Montelibano would discharge the debt of Rodriguez
O The bill was given to Montelibano for collection purposes
Legal Doctrine: Keeler Electric appealed. It alleged that:
Persons dealing with an assumed agent, whether the assumed agency be a general or special one, are O Montelibano had no authority to receive the money.
bound at theirperil, if they would hold the principal, to ascertain not only the fact of the agency but the O His services were confined to the finding of purchasers for the "Matthews" plant
nature and extent of the authority, and in caseeither is controverted, the burden of proof is upon them to O Montelibano was not an electrician, could not install the plant and did not know anything about its
establish it. mechanism.
Facts Issues:
: 1. WON Keeler Electric authorized Montelibano to receive or receipt for money in its behalf2. WON
Plaintiff is Harry E. Keeler Electric Co., a domestic corporation based in Manila engaged in the Rodriguez had a right to assume by any act or deed of Keeler Electric that Montelibano was authorized
electrical business, and amongother things in the sale of what is known as the "Matthews" electric plant. to receive themoney
Defendant is Domingo Rodriguez a resident of Talisay, Occidental Negros Held/Ratio:
Montelibano, a resident of Iloilo, went to Keeler Electric and made arrangement with the latter
wherein: 1. NO, Montelibano was not authorized.
O He claimed that he could find purchaser for the "Matthews" plant The plant was sold by Keeler Electric to Rodriguez and was consigned to Iloilo whereit was installed by
O Keeler Electric told Montelibano that for any plant that he could sell or any customer that he could Cenar, acting for, and representing, Keeler Electric, whose expense for the trip is included in, and made
find he would be paid a commission of 10% for his services, if the sale was consummated. apart of, the bill which was receipted by Montelibano.
Through Montelibano’s efforts, Keeler was able to sell to Rodriguez one of the "Matthews" plants
Rodriguez paid Montelibano (the purchase price of P2,513.55), after the installation of the plant and a. Montelibano was not an agent of Keeler Electric
without the knowledge ofKeeler Electric, o There is nothing on the face of this receipt to show that Montelibano was the agent of, or that he was
Keeler Electric filed an action against Rodriguez for the payment of the purchase price. acting for Keeler Electric. It is his own personal receipt and his own personal signature.
Rodriguez: Claimed that he already paid the price of the plant. In addition, he alleged that: O Outside of the fact that Montelibano received the money and signed this receipt, there is no evidence
O Montelibano sold and delivered the plant to him, and "was the one who ordered the installation of that that he had anyauthority, real or apparent, to receive or receipt for the money.
electrical plant" O Neither is there any evidence that Keeler Electric ever delivered the statement to Montelibano. (It is
O There were evidences: a statement and receipt which Montelibano signed to whom he paid the money. very apparentthat the statement is the one which was delivered by Keeler Electric to Cenar, and is the
O He paid Montelibano because the latter was the one who sold, delivered, and installed the electrical one which Cenar deliveredto Rodriguez)b. It was Juan Cenar, and not Montelibano who sold the plant
plant, and hepresented to him the account, and assured him that he was duly authorized to collect the to Rodiguez
value of the electrical plant O The evidence is in direct conflict with
O The receipt had the following contents:STATEMENT Folio No. 2494Mr. DOMINGO RODRIGUEZ, Rodriguez’s own pleadings and the receipt statement which he offered inevidence. This statement also
Iloilo, Iloilo, P.I. shows upon its face that P81.60 of the bill is round trip fare and machine’s transportation costs.
In account withHARRY E. KEELER ELECTRIC COMPANY, INC.221 Calle Echaque, Quiapo, O This claim must be for the expenses of Cenar in going to Iloilo from Manila and return, to install the
Manila, P.I.MANILA, P.I., plant, and isstrong evidence that it was Cenar and not Montelibano who installed the plant.
August 18, 1920 O If Montelibano installed the plant, there would not have been any necessity for Cenar to make this trip
.The answer alleges and the receipt shows upon its face that the plaintiff sold the plant to thedefendant, at the expenseof Rodriguez.
and that he bought it from the plaintiff. The receipt is signed as follows: O After Cenar's return to Manila, Keeler Electric wrote a letter to Rodriguez requesting the payment of
Received payment its account, towhich Rodriguez answered that he already paid to Montelibano.
HARRY E. KEELER ELECTRIC CO. Inc.,Recibi(Sgd.) A. C. MONTELIBANO. This is in direct conflict with the receipted statement, which Rodriguez offered in evidence, signed
Witness (Juan Cenar): byMontelibano.
O Cenar was sent by Keeler Electric to install the plant in Rodriguez’s premises in Iloilo O It will be noted that the receipt which Montelibano signed is not dated, and it does not show when the
money waspaid.2. NO.a. Relevant laws:
O He brought with him a statement of account for Rodriguez but the latter said that he would pay in −
Manila.

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Article 1162 CC: Payment must be made to the persons in whose favor the obligation is constituted, or The principal, having advertised the fact of appointment of an agent and having given the plaintiffs a
to anotherauthorized to receive it in his name. special invitationto deal with such agent, has the duty on the termination of the relationship of principal
− and agent to give due and timely notice thereof to the plaintiffs.
Article 1727 CC: The principal shall be liable as to matters with respect to which the agent has exceeded Failing to do so, he is responsible to them for whatever goods may have been in good faith and
hisauthority only when he ratifies the same expressly or by implication. withoutnegligence sent to the agent without knowledge, actual or constructive, of the termination of such
− relationship.
Facts
Ormachea Tin-Conco vs. Trillana :
: The repayment of a debt must be made to the person in whose favor theobligation is constituted, or to Nov.1907, defendant Teodoro Yangco sent to plaintiff Florentino Rallos, among others, a letter
another expressly authorized to receive the payment in his name.b. On whether an assumed authority proposing a consignment arrangement with the latter.
exist Rallos is engaged in the business of selling leaf tobacco and native products.
– In his letter, Yangco wants to be the consignee of Rallos on a commission basis. Yangco
Certain principles must be considered: (Mechem on Agency, volume I, section743) communicated to Rallos that in allwith his business dealings with the latter, Yangco will act through an
− agent Mr. Florentino Collantes.
(1) that the law indulges in no bare presumptions that an agency exists: it must be proved or presumed Yangco granted a public power of attorney to Collantes to carry out, in Yangco’s name, acts necessary
from facts; for carrying out the business.
− Rallos accepted the invitation and proceeded to do business with Yangco
(2) that the agent cannot establish his own authority, either by his representations or by assuming to Collantes dealt with Rallos as agent of Yangco with regard to the produce to be sold on commission.
exercise it; Feb 1909, Rallos sent to Collantes, as agent for Yangco, 218 bundles of tobacco in the leaf to be sold
− on commission
(3) that an authority cannot be established by mere rumor or general reputation; Collantes received said tobacco and sold for P1,744. The charges for such sale were P206.96, thus
− netting P1,537.08belonging to Yangco.
(4)that even a general authority is not an unlimited one; and This sum was, apparently, converted to his own use by said agent.

(5) that every authority must find its ultimate source in some act or omission of the principal.Applying Prior to the sending of said tobacco, Yangco had severed his relations with Collantes and that the latter
the above rules: was no longer actingas his factor.
O Persons dealing with an assumed agent, whether the assumed agency be a general or special one, are This fact was not known to the Rallos.
bound attheir peril, if they would hold the principal, to ascertain not only the fact of the agency but the
nature and extent of theauthority, and in case either is controverted, the burden of proof is upon them to No notice of any kind was given by Yangco to Rallos of the termination of the relations between
establish it. Yangco and his agent.
O Yangco refused to pay the said sum upon demand of Rallos, on the ground that at the time the said
The person dealing with the agent must act with ordinary prudence and reasonable diligence. tobacco was received andsold by Collantes he was acting personally and not as agent of the defendant.
Obviously, if heknows or has good reason to believe that the agent is exceeding his authority, he cannot Issue
claim protection. So if thesuggestions of probable limitations be of such a clear and reasonable quality, : WON Rallos can recover from Yangco
or if the character assumed by theagent is of such a suspicious or unreasonable nature, or if the authority Held/Ratio:
which he seeks to exercise is of such anunusual or improbable character, the party dealing with him may YES, Yangco is liable.
not shut his eyes to the real state of the case, butshould either refuse to deal with the agent at all, or
should ascertain from the principal the true condition of affairs.Judgment of the lower court is Having advertised the fact that Collantes was his agent and having given them a special invitation to
REVERSED. Rodriguez should pay Keeler Electric the purchase price of the plant. deal with such agent, itwas the duty of Yangco on the termination of the relationship of principal and
agent to give due and timely notice thereof to theplaintiffs.
84. Rallos vs. Yangco Failing to do so, he is responsible to them for whatever goods may have been in good faith and without
September 27, 1911, Moreland, J.***This is an action to recover a sum of money by the consignor negligence sent to theagent without knowledge, actual or constructive, of the termination of such
against the consignee relationship.Judgment appealed from is CONFIRMED.
Legal Doctrine:

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85. Macke vs. Camps, 7 Phil. 553 YES, Flores was the agent of his principal and he acted within the scope of his authority, thus it is binding
February 27, 1907, Carson, J.*** This is an action to recover payment from purchaser (acting through to the principal
an agent) filed by the seller The contract introduced in evidence establishes the fact that the defendant was the owner of business
Legal Doctrine: and of the bar, and thetitle of "managing agent" attached to the signature of Flores, Flores was apparently
"Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led in charge of the business, performing theduties usually entrusted to managing agent
another to believe aparticular thing true, and to act upon such belief, he cannot, in any litigation arising One who clothes another apparent authority as his agent, and holds him out to the public as such,
out such declaration, act, or omission, be permittedto falsify it"; and unless the contrary appears, the cannot be permitted to denythe authority of such person to act as his agent, to the prejudice of innocent
authority of an agent must be presumed to include all the necessary and usual meansof carrying his third parties dealing with such person in good faithand in the following preassumptions or deductions,
agency into effect. which the law expressly directs to be made from particular facts, aredeemed conclusive:"Whenever a
Facts party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe
: aparticular thing true, and to act upon such belief, he cannot, in any litigation arising out such declaration,
Plaintiffs B. H. Macke and W. H. Chandler are partners doing business under the firm name of Macke, act, oromission, be permitted to falsify it"; and unless the contrary appears, the authority of an agent
Chandler & Company must be presumed toinclude all the necessary and usual means of carrying his agency into effect.
Plaintiffs allege that: Flores, as managing agent of the Washington Cafe,
O During Feb and March, 1905, they sold to defendant Jose Camps various bills of goods amounting to had authority to buy such reasonable quantities of supplies as mightfrom time to time be necessary
P351.50; in carrying on the business of hotel bar may fairly be presumed from the nature of thebusiness,
O Defendant has only paid on account of said accounts the sum of P174; especially in view of the fact that his principal appears to have left him in charge during more or less
O They made demand for the payment thereof but defendant had failed and refused to pay the said prolongedperiods of absence; from an examination of the items of the account attached to the complaint,
balance we are of opinion that he wasacting within the scope of his authority in ordering these goods are binding
B. H. Macke (one of the plaintiffs) testified that: on his principal, and in the absence of evidence tothe contrary, furnish satisfactory proof of their delivery
O On the order of one Ricardo Flores (who represented himself to be agent of defendant), he shipped the as alleged in the complaint.
said goods tothe defendants at the Washington Cafe;
O Flores later acknowledged the receipt of said goods and made various payments thereon amounting in 86. Jimenez vs. Rabot
all to P174; July 27, 1918, Street, J.*** This action was instituted by the plaintiff, Gregorio Jimenez, to recover from
O The goods were shipped by the plaintiffs after inquiry to satisfy them as to the credit of the defendant the defendant, Pedro Rabot, a parcel of land in Alaminos, Pangasinan
and as to theauthority of Flores to act as his agent; Legal Doctrine:
O Macke always believed and still believes that Flores was the agent of the defendant; The purpose in giving a power of attorney is to substitute the mind and hand of the agent for the mind
O When he went to the Washington Café to collect, he found Flores, apparently in charge of the business and hand of the principal; and if the character and extent of the power is so far defined as to leave no
and claimingto be the business manager of the defendant (hotel with a bar and restaurant) doubt as to the limits within which the agent is authorized to act, and he acts within those limits, the
A written contract was introduced in evidence, from which it appears that: principal cannot question the validity of his act.
O One Galmes, the former owner of the business now known as the "Washington Cafe," subrented the
building to thedefendant for a period of 1 year Facts
O This contract was signed by the defendant and the name of :
Ricardo Flores appears thereon as a witness, Subject land has an area of 3 ha. in Alaminos, Pangasinan, which was acquired by Gregorio Jimenez
andattached is an inventory of the furniture and fittings which also is signed by the defendant with the and his siblings in the division of the estate of their father.
word "sublessee"below the name, and at the foot of this inventory the word "received" followed by the The land in question, together with 2 other parcels originally belonged to the heirs in the division of
name the estate of Gregorio’s father.
"Ricardo Flores," withthe words "managing agent" immediately following his name. While Gregorio was staying at Vigan, his property in Alaminos was confided by him to the care of
***Trial Court: Against the defendant Camps. his elder sister Nicolasa.
Issue When Gregorio was pressed for money, he wrote a letter to his sister and requested her to sell one
: WON Flores was the agent of the defendant in the management of the bar of the Washington Cafe with of his parcels of land inorder that he might pay his debts.
authority The letter contains no description of the land to be sold other than the word "one of my parcels of
Held/Ratio: land"

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Nicolasa sold the subject land to Rabot for P500. P250 was paid at once and the balance to be paid O Linton vs. Moorhead
after the execution of deed of conveyance. : The power authorized the agent to sell or convey "any or all tracts, lots, or parcels" of landbelonging
Nicolasa admits having received this payment of P250 at the time stated; but there is no evidence that to the plaintiff. It was held that this was adequate.
she sent any of it to her brother. O Lyon vs. Pollock
One year later Gregorio came down to Alaminos and demanded that his sister should surrender this : The owner in effect authorized an agent to sell everything he had in San Antonio Texas. Theauthority
piece of land to him, it being then in her possession. was held sufficient.
Nicolasa refused O Linan vs. Puno
Gregorio, in conjunction with others of his brothers and sisters, whose properties were also in the , the authority granted was to the effect that the agent might administer "the interests" possessed bythe
hands of Nicolasa, filed an action in CFI to recover land under principal in the municipality of Tarlac and to that end he was authorized to purchase, sell, collect, and
Nicolasa’s control pay, etc. It was held that this was a sufficient power.
Gregorio and other siblings won the said case and no appeal was taken In the present case the agent was given the power to sell either of the parcels of land belonging
Meanwhile, Nicolasa executed and delivered to Rabot a deed purporting to convey to him the parcel to the plaintiff.
of land which is the subject of this controversy. We can see no reason why the performance of an act within the scope of this authority should not bind
Rabot began to possess the property. (Rabot acquired possession under the deed from Nicolasa during the plaintiff to the same extent as if he had given the agent authority to sell "any or all" and she had
the pendency of the litigation, thus, it appeara that he was at the time cognizant of that circumstance) conveyed only one.
Issue Observation:
: WON the authority conferred on Nicolasa by the letter from Gregorio was sufficient to enable her to O As a matter of formality, a power of attorney to convey real property ought to appear in a public
bind her brother. document (Art. 1280,CC)
But inasmuch as it is an established doctrine that a private document is competent to create, transmit
Held/Ratio: modify, or extinguish a right in real property, it follows that a power of attorney to convey such property,
YES, the authority expressed in the letter is a sufficient compliance with the requirements of the law even though in the form of a private document, will operate with effect.
(Art 1713 CC and Subsection 5 of Section 335 of the Code of Civil Procedure) Again, supposing that the letter contained adequate authority for Nicolasa to sell the property in
question her action in conveying the property in her own name, without showing the capacity in which
Applicable laws: she acted, was doubtless irregular. Nevertheless, such deed would in any event operate to bind her
O Art 1713 CC brother, the plaintiff in its character as a contract, and supposing that the authority was sufficient, he
– could be compelled by a proper judicial proceeding to execute a document to carry such contract into
requires that the authority to alienate land shall be contained in an express mandate; effect. (Art. 1279, Civil Code.)Judgment is REVERSED.
o Subsection 5 of Section 335 of the Code of Civil Procedure

says that the authority of the agent must be in writing and subscribed by the party to be charged. G.R. No. 123560 March 27, 2000
There is no requirement that in order for the authority to be sufficient, it must contain a particular
description of the property which the agent is to be permitted to sell. SPOUSES YU ENG CHO and FRANCISCO TAO YU, petitioners,
The purpose in giving a power of attorney is to substitute the mind and hand of the agent for the mind
vs.
and hand of the principal; and if the character and extent of the power is so far defined as to leave no
PAN AMERICAN WORLD AIRWAYS, INC., TOURIST WORLD SERVICES, INC., JULIETA
doubt as to the limits within which the agent is authorized to act, and he acts within those limits, the
CANILAO and CLAUDIA TAGUNICAR, respondents.
principal cannot question the validity of his act.
Nicolasa act within the scope of the authority which had been conferred upon her
O The general rule here applicable is that the description must be sufficiently definite to identify the PUNO, J.:
land either from the recitals of the contract or deed or from external facts referred to in the document.
Jurisprudence This petition for review seeks a reversal of the 31 August 1995 Decision 1 and 11 January 1998
O There is ample authority to the effect that a person may by a general power of attorney an agent to sell Resolution 2 of the Court of Appeals holding private respondent Claudia Tagunicar solely liable for moral
"all" the land possessed by the principal, or all that he possesses in a particular city, county, or state. and exemplary damages and attorney's fees, and deleting the trial court's award for actual damages.
O It is also held that where a person authorizes an agent to sell a farm ("my farm") in a certain county,
this is sufficient if it be shown that such party has only one farm in that country. The facts as found by the trial court are as follows:
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Plaintiff Yu Eng Cho is the owner of Young Hardware Co. and Achilles Marketing. arrangement[s] with the said company not later than August 7, 1978. From this
In connection with [this] business, he travels from time to time to Malaysia, Taipei business transaction, plaintiff Yu Eng Cho expected to realize a profit of P300,000.00
and Hongkong. On July 10, 1976, plaintiffs bought plane tickets (Exhs. A & B) from to P400,000.00.
defendant Claudia Tagunicar who represented herself to be an agent of defendant
Tourist World Services, Inc. (TWSI). The destination[s] are Hongkong, Tokyo, San [A] scrutiny of defendants' respective evidence reveals the following:
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
Plaintiffs, who were intending to go to the United States, were referred to defendant
Jersey, U.S.A. to buy to two (2) lines of infrared heating system processing textured Claudia Tagunicar, an independent travel solicitor, for the purchase of their plane
plastic article (Exh. K). 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
On said date, only the passage from Manila to Hongkong, then to Tokyo, were is known to defendants Pan-Am, TWSI/Julieta Canilao, because she has been dealing
confirmed. [PAA] Flight 002 from Tokyo to San Francisco was on "RQ" status, with them in the past years. Defendant Tagunicar advised plaintiffs to take Pan-Am
meaning "on request". Per instruction of defendant Claudia Tagunicar, plaintiffs because Northwest Airlines was then on strike and plaintiffs are passing Hongkong,
returned after a few days for the confirmation of the Tokyo-San Francisco segment of Tokyo, then San Francisco and Pan-Am has a flight from Tokyo to San Francisco.
the trip. After calling up Canilao of TWSI, defendant Tagunicar told plaintiffs that After verifying from defendant TWSI, thru Julieta Canilao, she informed plaintiffs that
their flight is now confirmed all the way. Thereafter, she attached the confirmation the fare would be P25,093.93 giving them a discount of P738.95 (Exhs. C, C-1).
stickers on the plane tickets (Exhs. A & B). Plaintiffs, however, gave her a check in the amount of P25,000.00 only for the two
round trip tickets. Out of this transaction, Tagunicar received a 7% commission and
A few days before the scheduled flight of plaintiffs, their son, Adrian Yu, called the 1% commission for defendant TWSI.
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 Defendant Claudia Tagunicar purchased the two round-trip Pan-Am tickets from
confirmed. defendant Julieta Canilao with the following schedules:

On July 23, 1978, plaintiffs left for Hongkong and stayed there for five (5) days. They Origin Destination Airline Date Time/Travel
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,
Manila Hongkong CX900 7-23-78 1135/1325hrs
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 Hongkong Tokyo CS500 7-28-78 1615/2115hrs
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 Tokyo San Francisco PA002 7-29-78 1930/1640hrs
obtain airline seats to the United States within 72 hours. Plaintiffs paid for these
tickets. 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
Upon reaching Taipei, there were no flight[s] available for plaintiffs, thus, they were with a Pan-Am flight. When the two (2) tickets (Exhs. A & B) were issued to plaintiffs,
forced to return back to Manila on August 3, 1978, instead of proceeding to the United the letter "RQ" appears below the printed word "status" for the flights from Tokyo to
States. [Japan] Air Lines (JAL) refunded the plaintiffs the difference of the price for San Francisco which means "under request," (Exh. 3-A, 4-A Pan-Am). Before the date
Tokyo-Taipei [and] Tokyo-San Francisco (Exhs. I & J) in the total amount of of the scheduled departure, defendant Tagunicar received several calls from the
P2,602.00. 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
In view of their failure to reach Fairfield, New Jersey, Radiant Heat Enterprises, Inc. confirmed, she would relate that to the plaintiffs.
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
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Defendant Tagunicar claims that on July 13, 1978, a few days before the scheduled damages; P100,000.00 as exemplary damages; an amount equivalent to 20% of the
flight, plaintiff Yu Eng Cho personally went to her office, pressing her about their award for and as attorney's fees, plus the sum of P30,000.00 as litigation expenses.
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 Defendants' counterclaims are hereby dismissed for lack of merit.
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
SO ORDERED.
TWSI.
Only respondents Pan Am and Tagunicar appealed to the Court of Appeals. On 11 August 1995, the
Defendant Tagunicar alleges that it was only in the first week of August, 1978 that she
appellate court rendered judgment modifying the amount of damages awarded, holding private
learned from Adrian Yu, son of plaintiffs, that the latter were not able to take the flight
respondent Tagunicar solely liable therefor, and absolving respondents Pan Am and TWSI from any and
from Tokyo to San Francisco, U.S.A. After a few days, said Adrian Yu came over with
all liability, thus:
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 PREMISES CONSIDERED, the decision of the Regional Trial Court is hereby SET
agreed to sign the affidavit (Exh. M) prepared by the lawyer. ASIDE and a new one entered declaring appellant Tagunicar solely liable for:

Defendants TWSI/Canilao denied having confirmed the Tokyo-San Francisco 1) Moral damages in the amount of P50,000.00;
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 2) Exemplary damages in the amount of P25,000.00; and
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 3) Attorney's fees in the amount of P10,000.00 plus costs of suit.
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 The award of actual damages is hereby DELETED.
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.
SO ORDERED.
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- In so ruling, respondent court found that Tagunicar is an independent travel solicitor and is not a duly
82-0770 (Exhs. 1, 1-A TWSI), when in fact TWSI's IATA number is 2-83-0770 (Exhs. authorized agent or representative of either Pan Am or TWSI. It held that their business transactions are
5, 5-A TWSI). 3 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
A complaint for damages was filed by petitioners against private respondents Pan American World
her actions. Finally, it deleted the award for actual damages for lack of proof.
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- Hence this petition based on the following assignment of errors:
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 1. the Court of Appeals, in reversing the decision of the trial court, misapplied the
Canilao, thus: ruling in Nicos Industrial Corporation vs. Court of Appeals, et. al. [206 SCRA 127];
and
WHEREFORE, judgment is hereby rendered for the plaintiffs and ordering defendants
Pan American World Airways, Inc., Tourist World Services, Inc. and Claudia 2. the findings of the Court of Appeals that petitioners' ticket reservations in question
Tagunicar, jointly and severally, to pay plaintiffs the sum of P200,000.00 as actual were not confirmed and that there is no agency relationship among PAN-AM, TWSI
damages, minus P2,602.00 already refunded to the plaintiffs; P200,000.00 as moral

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and Tagunicar are contrary to the judicial admissions of PAN-AM, TWSI and II. Petitioners assert that Tagunicar is a sub-agent of TWSI while TWSI is a duly authorized ticketing
Tagunicar and likewise contrary to the findings of fact of the trial court. 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
We affirm. 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)
I. The first issue deserves scant consideration. Petitioners contend that contrary to the ruling of the Court
the admission made by Canilao that TWSI received commissions from ticket sales made by Tagunicar.
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 We do not agree. By the contract of agency, a person binds himself to render some service or to do
so, ends." It is averred that the trial court's decision contains a detailed statement of the relevant facts something in representation or on behalf of another, with the consent or authority of the latter. 7 The
and evidence adduced by the parties which thereafter became the bases for the court's conclusions. 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
A careful scrutiny of the decision rendered by the trial court will show that after narrating the evidence representative and not for himself; (4) the agent acts within the scope of his authority. 8 It is a settled rule
of the parties, it proceeded to dispose of the case with a one-paragraph generalization, to wit: 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
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 In the case at bar, petitioners rely on the affidavit of respondent Tagunicar where she stated that she is
Tagunicar should be held jointly and severally liable to plaintiffs for damages. 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
Defendant Julieta Canilao, who acted in her official capacity as Office Manager of
incomplete and often inaccurate, sometimes from partial suggestion, or for want of suggestion and
defendant TWSI should not be held personally liable. 5
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
The trial court's finding of facts is but a summary of the testimonies of the witnesses and the documentary of what the declarant has in mind because they are generally prepared by the administering officer and
evidence presented by the parties. It did not distinctly and clearly set forth, nor substantiate, the factual the affiant simply signs them after the same have been read to her. 11 Respondent Tagunicar testified that
and legal bases for holding respondents TWSI, Pan Am and Tagunicar jointly and severally liable. In her affidavit was prepared and typewritten by the secretary of petitioners' lawyer, Atty. Acebedo, who
Del Mundo vs. CA, et al. 6 where the trial court, after summarizing the conflicting asseverations of the both came with Adrian Yu, son of petitioners, when the latter went to see her at her office. This was
parties, disposed of the kernel issue in just two (2) paragraphs, we held: 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
It is understandable that courts, with their heavy dockets and time constraints, often petitioners' claim that it was executed voluntarily by respondent Tagunicar. It appears that the affidavit
find themselves with little to spare in the preparation of decisions to the extent most was prepared and was based on the answers which respondent Tagunicar gave to the questions
desirable. We have thus pointed out that judges might learn to synthesize and to propounded to her by Atty. Acebedo. 13 They never told her that the affidavit would be used in a case to
simplify their pronouncements. Nevertheless, concisely written such as they may be, be filed against her. 14 They even assured her that she would not be included as defendant if she agreed
decisions must still distinctly and clearly express, at least in minimum essence, its to execute the affidavit. 15 Respondent Tagunicar was prevailed upon by petitioners' son and their lawyer
factual and legal bases. 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
For failing to explain clearly and well the factual and legal bases of its award of moral damages, we set you." 17 This purported admission of respondent Tagunicar cannot be used by petitioners to prove their
it aside in said case. Once more, we stress that nothing less than Section 14 of Article VIII of the agency relationship. At any rate, even if such affidavit is to be given any probative value, the existence
Constitution requires that "no decision shall be rendered by any court without expressing therein clearly of the agency relationship cannot be established on its sole basis. The declarations of the agent alone are
and distinctly the facts and the law on which it is based." This is demanded by the due process clause of generally insufficient to establish the fact or extent of his authority. 18 In addition, as between the negative
the Constitution. In the case at bar, the decision of the trial court leaves much to be desired both in form allegation of respondents Canilao and Tagunicar that neither is an agent nor principal of the other, and
and substance. Even while said decision infringes the Constitution, we will not belabor this infirmity and the affirmative allegation of petitioners that an agency relationship exists, it is the latter who have the
rather examine the sufficiency of the evidence submitted by the petitioners. burden of evidence to prove their allegation, 19 failing in which, their claim must necessarily fail.

Page 7 of 44
We stress that respondent Tagunicar categorically denied in open court that she is a duly authorized in the manifest, so next morning, very early in the morning I went to the airport, Pan
agent of TWSI, and declared that she is an independent travel agent. 20 We have consistently ruled that Am office in the airport to verify and they told me the same and we were not allowed
in case of conflict between statements in the affidavit and testimonial declarations, the latter command to leave.
greater weight. 21
q You were scheduled to be in Tokyo for how long Mr. Yu?
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 a We have to leave the next day 29th.
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
q In other words, what was your status as a passenger?
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, a Transient passengers. We cannot stay for more than 72 hours.
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 xxx xxx xxx
from TWSI and then sells it at a premium to her clients.
q As a consequence of the fact that you claimed that the Pan Am office in Tokyo told
III. Petitioners included respondent Pan Am in the complainant on the supposition that since TWSI is its you that your names were not in the manifest, what did you do, if any?
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 a I ask[ed] them if I can go anywhere in the State? They told me I can go to LA via
factual and legal bases. Indeed, there is nothing in the records to show that respondent Tagunicar has Japan Airlines and I accepted it.
been employed by Pan Am as its agent, except the bare allegation of petitioners. The real motive of
petitioners in suing Pan Am appears in its Amended Complaint that "[d]efendants TWSI, Canilao and q Do you have the tickets with you that they issued for Los Angels?
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
a It was taken by the Japanese Airlines instead they issue[d] me a ticket to Taipei.
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 xxx xxx xxx
an abuse of judicial process by passengers in order to pry on international airlines for damage awards,
like "trophies in a safari." 27 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?
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 a No, sir.
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 q Why not?
their arrival in Manila. The testimony of petitioner Yu Eng Cho in this regard is of title value, viz:
a The Japanese Airlines said that there were no more available seats.
Atty. Jalandoni: . . .
q And as a consequence of that, what did you do, if any?
q Upon arrival at the Tokyo airport, what did you do if any in connection with your
schedule[d] trip? a I am so much scared and worried, so the Japanese Airlines advised us to go to Taipei
and I accepted it.
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
Page 8 of 44
xxx xxx xxx 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.
q Why did you accept the Japan Airlines offer for you to go to Taipei? 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.
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 On the other hand, the respondent airline in Sarreal, Sr. v. Japan Airlines Co., Ltd., 37 was held not liable
they advised me better left (sic) before the 72 hours otherwise you will have trouble for damages where the passenger was not allowed to board the plane because his ticket had not been
with the Japanese immigration. 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
q As a consequence of that you were force[d] to take the trip to Taipei?
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
a Yes, sir. 28 (emphasis supplied) more of a wait-listed passenger than a regularly booked passenger."

It grinds against the grain of human experience that petitioners did not insist that they be allowed to In the case at bar, petitioners' ticket were on "RQ" status. They were not confirmed passengers and their
board, considering that it was then doubly difficult to get seats because of the ongoing Northwest Airlines names were not listed in the passenger manifest. In other words, this is not a case where Pan Am bound
strike. It is also perplexing that petitioners readily accepted whatever the Tokyo office had to offer as an itself to transport petitioners and thereafter reneged on its obligation. Hence, respondent airline cannot
alternative. Inexplicably too, no demand letter was sent to respondents TWSI and Canilao. 29 Nor was a be held liable for damages.
demand letter sent to respondent Pan Am. To say the least, the motive of petitioners in suing Pan Am is
suspect.
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
We hasten to add that it is not sufficient to prove that Pan Am did not allow petitioners to board to justify petitioners at the Manila, Hongkong and Tokyo offices in Pan Am, are eloquent indications that
petitioners' claim for damages. Mere refusal to accede to the passenger's wishes does not necessarily petitioners knew that their tickets have not been confirmed. For, as correctly observed by Pan Am, why
translate into damages in the absence of bad faith. 30 The settled rule is that the law presumes good faith would one continually try to have one's ticket confirmed if it had already been confirmed? (2) The
such that any person who seeks to be awarded damages due to acts of another has the burden of proving validation stickers which respondent Tagunicar attached to petitioners' tickets were those intended for
that the latter acted in bad faith or with ill motive. 31 In the case at bar, we find the evidence presented the exclusive use of airline companies. She had no authority to use them. Hence, said validation stickers,
by petitioners insufficient to overcome the presumption of good faith. They have failed to show any wherein the word "OK" appears in the status box, are not valid and binding. (3) The names of petitioners
wanton, malevolent or reckless misconduct imputable to respondent Pan Am in its refusal to do not appear in the passengers manifest. (4) Respondent Tagunicar's "Exhibit 1" 38 shows that the status
accommodate petitioners in its Tokyo-San Francisco flight. Pan Am could not have acted in bad faith of the San Francisco-New York segment was "Ok", meaning it was confirmed, but that the status of the
because petitioners did not have confirmed tickets and more importantly, they were not in the passenger Tokyo-San Francisco segment was still "on request". (5) Respondent Canilao testified that on the day
manifest. 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
In not a few cases, this Court did not hesitable to hold an airline liable for damages for having acted in she should not have allowed petitioners to leave because their tickets have not been confirmed,
bad faith in refusing to accommodate a passenger who had a confirmed ticket and whose name appeared respondent Tagunicar merely said "Bahala na." 39 This was never controverted nor refuted by respondent
in the passenger manifest. In Ortigas Jr. v. Lufthansa German Airlines Inc., 32 we ruled that there was a Tagunicar. (6) To prove that it really did not confirm the bookings of petitioners, respondent Canilao
valid and binding contract between the airline and its passenger after finding that validating sticker on pointed out that the validation stickers which respondent Tagunicar attached to the tickets of petitioners
the passenger's ticket had the letters "O.K." appearing in the "Res. Status" box which means "space had IATA No. 2-82-0770 stamped on it, whereas the IATA number of TWSI is 28-30770. 40
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 Undoubtedly, respondent Tagunicar should be liable for having acted in bad faith in misrepresenting to
immigration all clearly showing that she was a confirmed passenger and included in the passenger petitioners that their tickets have been confirmed. Her culpability, however, was properly mitigated.
manifest and yet was denied accommodation in said flight, we awarded damages. In Armovit, et al. v. Petitioner Yu Eng Cho testified that he repeatedly tried to follow up on the confirmation of their tickets
CA, et al., 34 we upheld the award of damages made against an airline for gross negligence committed in with Pan Am because he doubted the confirmation made by respondent Tagunicar. 41 This is clear proof
the issuance of tickets with erroneous entries as to the time of flight. In Alitalia Airways v. CA, et al., 35 that petitioners knew that they might be bumped off at Tokyo when they decided to proceed with the
we held that when airline issues a ticket to a passenger confirmed on a particular flight, on a certain date,
Page 9 of 44
13
trip. Aware of this risk, petitioners exerted efforts to confirm their tickets in Manila, then in Hongkong, TSN, September 29, 1983, pp. 12-13.
and finally in Tokyo. Resultantly, we find the modification as to the amount of damages awarded just
and equitable under the circumstances. 14
TSN, December 16, 1982, p. 17.

WHEREFORE, the decision appealed from is hereby AFFIRMED. Cost against petitioners.1âwphi1.nêt 15
TSN, September 29, 1983, pp. 16-17.

SO ORDERED. 16
TSN, July 22, 1983, p. 43.

Davide, Jr., C.J., Kapunan and Pardo, JJ., concur. 17


Ibid., p, 38.

Ynares-Santiago, J., took no part. 18


Reuschlein & Gregory, The Law of Agency and Partnership, 1990, Second ed., p.
28; BA Finance v. CA, et al., 211 SCRA 112 (1992).

19
Martinez v. NLRC, et al., 272 SCRA 793 (1997).
Footnotes
20
TSN, July 22, 1983, p. 44; August 12, 1983, pp. 6-7.
1
Penned by Associate Justice Antonio M. Martinez, with Consuelo Ynares-Santiago
and Ruben T. Reyes, JJ., concurring; Rollo, 35-49. 21
People v. Aliposa, 263 SCRA 471 (1996).
2
Ibid., 51. 22
Original Records, p. 448.
3
Original Records, 647-650. 23
Ibid., 449.
4
206 SCRA 127 (1992). 24
Ibid., 450.
5
Original Record, 650. 25
TSN, July 22, 1983, p. 50.
6
240 SCRA 348 (1995). 26
Original Records, p. 46.
7
New Civil Code, Article 1868. 27
Alitalia Airways vs. CA, et al., 187 SCRA 763 (1990).
8
Tolentino, Civil Code of the Phils., Vol. V, 1992 ed., p. 396. 28
TSN, August 20, 1981, pp. 18-28.
9
BA Finance v. CA, et al., 211 SCRA 112 (1992). 29
TSN, November 23, 1983, p. 35.
10
People v. Diaz, 262 SCRA 723 (1996). 30
Air France v. CA, et al., 171 SCRA 399 (1989).
11
People v. Gondora, 265 SCRA 408 (1996). 31
Ford Phils., Inc. v. CA, et al., 267 SCRA 320 (1997).
12
TSN, December 16, 1982, pp. 17-19. 32
64 SCRA 610 (1975).
Page 10 of 44
65
153 SCRA 521 (1987). On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the
appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina
34
184 SCRA 476 (1990). Noguera, party of the first part; the Tourist World Service, Inc., represented
by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to
35 as appellants, the Tourist World Service, Inc. leased the premises belonging
187 SCRA 763 (1990).
to the party of the first part at Mabini St., Manila for the former-s use as a
36
branch office. In the said contract the party of the third part held herself
228 SCRA 23 (1993). solidarily liable with the party of the part for the prompt payment of the
monthly rental agreed on. When the branch office was opened, the same was
37
207 SCRA 359 (1992). run by the herein appellant Una 0. Sevilla payable to Tourist World Service
Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla,
38 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World
Original Records, p. 292.
Service, Inc.
39
TSN, November 23, 1983, pp. 29-31.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc.
40
Ibid., p. 14. appears to have been informed that Lina Sevilla was connected with a rival
firm, the Philippine Travel Bureau, and, since the branch office was anyhow
41 losing, the Tourist World Service considered closing down its office. This
TSN, August 27, 1981, p. 42.
was firmed up by two resolutions of the board of directors of Tourist World
Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the
office of the manager and vice-president of the Tourist World Service, Inc.,
Republic of the Philippines Ermita Branch, and the second,authorizing the corporate secretary to receive
SUPREME COURT the properties of the Tourist World Service then located at the said branch
Manila office. It further appears that on Jan. 3, 1962, the contract with the appellees
for the use of the Branch Office premises was terminated and while the
SECOND DIVISION effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a
matter of fact appellants used it since Nov. 1961. Because of this, and to
G.R. No. L-41182-3 April 16, 1988 comply with the mandate of the Tourist World Service, the corporate
secretary Gabino Canilao went over to the branch office, and, finding the
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants, premises locked, and, being unable to contact Lina Sevilla, he padlocked the
vs. premises on June 4, 1962 to protect the interests of the Tourist World Service.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and When neither the appellant Lina Sevilla nor any of her employees could enter
SEGUNDINA NOGUERA, respondents-appellees. the locked premises, a complaint wall filed by the herein appellants against
the appellees with a prayer for the issuance of mandatory preliminary
injunction. Both appellees answered with counterclaims. For apparent lack of
interest of the parties therein, the trial court ordered the dismissal of the case
without prejudice.
SARMIENTO , J.:
The appellee Segundina Noguera sought reconsideration of the order
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. dismissing her counterclaim which the court a quo, in an order dated June 8,
The facts are beyond dispute: 1963, granted permitting her to present evidence in support of her
counterclaim.
xxx xxx xxx

Page 11 of 44
On June 17,1963, appellant Lina Sevilla refiled her case against the herein 2. Whether or not the padlocking of the office by the Tourist World Service
appellees and after the issues were joined, the reinstated counterclaim of was actionable or not; and
Segundina Noguera and the new complaint of appellant Lina Sevilla were
jointly heard following which the court a quo ordered both cases dismiss for 3. Whether or not the lessee to the office premises belonging to the appellee
lack of merit, on the basis of which was elevated the instant appeal on the Noguera was appellees TWS or TWS and the appellant.
following assignment of errors:
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE was entered into by and between her and appellee TWS with offices at the
NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S Ermita branch office and that she was not an employee of the TWS to the end
COMPLAINT. that her relationship with TWS was one of a joint business venture appellant
made declarations showing:
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT
MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE 1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and
TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF wife of an eminent eye, ear and nose specialist as well as a
EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD imediately columnist had been in the travel business prior
THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS to the establishment of the joint business venture with
VENTURE. appellee Tourist World Service, Inc. and appellee Eliseo
Canilao, her compadre, she being the godmother of one of
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF- his children, with her own clientele, coming mostly from
APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING her own social circle (pp. 3-6 tsn. February 16,1965).
THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE
TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER. 2. Appellant Mrs. Sevilla was signatory to a lease
agreement dated 19 October 1960 (Exh. 'A') covering the
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT premises at A. Mabini St., she expressly warranting and
APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. holding [sic] herself 'solidarily' liable with appellee Tourist
SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW World Service, Inc. for the prompt payment of the monthly
INTO THEIR OWN HANDS. rentals thereof to other appellee Mrs. Noguera (pp. 14-15,
tsn. Jan. 18,1964).
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL
APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA 3. Appellant Mrs. Sevilla did not receive any salary from
O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI appellee Tourist World Service, Inc., which had its own,
PREMISES. separate office located at the Trade & Commerce Building;
nor was she an employee thereof, having no participation
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT in nor connection with said business at the Trade &
APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS Commerce Building (pp. 16-18 tsn Id.).
GUARANTOR FOR RENTALS.
4. Appellant Mrs. Sevilla earned commissions for her own
On the foregoing facts and in the light of the errors asigned the issues to be resolved are: passengers, her own bookings her own business (and not
for any of the business of appellee Tourist World Service,
Inc.) obtained from the airline companies. She shared the
1. Whether the appellee Tourist World Service unilaterally disco the
7% commissions given by the airline companies giving
telephone line at the branch office on Ermita;
appellee Tourist World Service, Lic. 3% thereof aid
retaining 4% for herself (pp. 18 tsn. Id.)
Page 12 of 44
5. Appellant Mrs. Sevilla likewise shared in the expenses THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD
of maintaining the A. Mabini St. office, paying for the SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A"
salary of an office secretary, Miss Obieta, and other sundry PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE
expenses, aside from desicion the office furniture and RULE OF LAW.
supplying some of fice furnishings (pp. 15,18 tsn. April
6,1965), appellee Tourist World Service, Inc. shouldering II
the rental and other expenses in consideration for the 3%
split in the co procured by appellant Mrs. Sevilla (p. 35 tsn THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
Feb. 16,1965). DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED
TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS
6. It was the understanding between them that appellant LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
Mrs. Sevilla would be given the title of branch manager for
appearance's sake only (p. 31 tsn. Id.), appellee Eliseo III
Canilao admit that it was just a title for dignity (p. 36 tsn.
June 18, 1965- testimony of appellee Eliseo Canilao pp.
38-39 tsn April 61965-testimony of corporate secretary THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
Gabino Canilao (pp- 2-5, Appellants' Reply Brief) DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT
SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE
ON RELATIONS.
Upon the other hand, appellee TWS contend that the appellant was an
employee of the appellee Tourist World Service, Inc. and as such was
designated manager.1 IV

xxx xxx xxx THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING
HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR
The trial court2 held for the private respondent on the premise that the private respondent, Tourist World
AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE
Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the
TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World
Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of Appeal
5
rendered an affirmance. As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla
and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue,
in its opinion being "whether or not the padlocking of the premises by the Tourist World Service, Inc.
The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically,
without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the relief of damages
they state: prayed for and whether or not the evidence for the said appellant supports the contention that the appellee
Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the
I telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc. 7 Tourist World
Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS manager" of its Ermita "branch" office and that inferentially, she had no say on the lease executed with
DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST the private respondent, Segundina Noguera. The petitioners contend, however, that relation between the
WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT between parties was one of joint venture, but concede that "whatever might have been the true
LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World
EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), Service and Canilao from taking the law into their own hands, 8 in reference to the padlocking now
WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH questioned.
THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE
PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE
Page 13 of 44
The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World manner in which the business was run. A joint venture, including a partnership, presupposes generally a
Service, Inc., maintains, that the relation between the parties was in the character of employer and of standing between the joint co-venturers or partners, in which each party has an equal proprietary
employee, the courts would have been without jurisdiction to try the case, labor disputes being the interest in the capital or property contributed 15 and where each party exercises equal rights in the conduct
exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to of the business.16 furthermore, the parties did not hold themselves out as partners, and the building itself
statutes then in force. 9 was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct partnership
name.
In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee
relation. In general, we have relied on the so-called right of control test, "where the person for whom the It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private
services are performed reserves a right to control not only the end to be achieved but also the means to respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of
be used in reaching such end." 10 Subsequently, however, we have considered, in addition to the standard agency. It is the essence of this contract that the agent renders services "in representation or on behalf of
of right-of control, the existing economic conditions prevailing between the parties, like the inclusion of another.18 In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal,
the employee in the payrolls, in determining the existence of an employer-employee relationship.11 Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of
commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed
The records will show that the petitioner, Lina Sevilla, was not subject to control by the private her principal's authority as owner of the business undertaking. We are convinced, considering the
respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used circumstances and from the respondent Court's recital of facts, that the ties had contemplated a principal
in connection therewith. In the first place, under the contract of lease covering the Tourist Worlds Ermita agent relationship, rather than a joint managament or a partnership..
office, she had bound herself in solidum as and for rental payments, an arrangement that would be like
claims of a master-servant relationship. True the respondent Court would later minimize her participation But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with
in the lease as one of mere guaranty, 12 that does not make her an employee of Tourist World, since in the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest,
any case, a true employee cannot be made to part with his own money in pursuance of his employer's the agency having been created for mutual interest, of the agent and the principal. 19 It appears that Lina
business, or otherwise, assume any liability thereof. In that event, the parties must be bound by some Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest in the business
other relation, but certainly not employment. entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding
herself solidarily liable for the payment of rentals. She continued the business, using her own name, after
In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same Tourist World had stopped further operations. Her interest, obviously, is not to the commissions she
was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for earned as a result of her business transactions, but one that extends to the very subject matter of the
any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these circumstances, it cannot be said power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure
that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to
pursuing the business, obviously relied on her own gifts and capabilities. damages.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in As we have stated, the respondent Court avoided this issue, confining itself to the telephone
commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then, disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court of
who earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the
booking successes. telephone lines at the branch office. 20 Yet, what cannot be denied is the fact that Tourist World Service,
Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in the
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it must
shoulder responsibility therefor.
employee. As we said, employment is determined by the right-of-control test and certain economic
parameters. But titles are weak indicators.
The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it any
Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership. authority to terminate that contract without notice to its actual occupant, and to padlock the premises in
such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the
And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of
business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a
November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the
stranger to that contract having been explicitly named therein as a third party in charge of rental payments
operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over the
Page 14 of 44
(solidarily with Tourist World, Inc.). She could not be ousted from possession as summarily as one would xxx xxx xxx
eject an interloper.
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and
The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put 35.
the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival firm. To
be sure, the respondent court speaks of alleged business losses to justify the closure '21 but there is no The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same
clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact damages in a solidary capacity.
that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that
following such an information (that Sevilla was working for another company), Tourist World's board
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been
of directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate
shown that she had connived with Tourist World Service, Inc. in the disconnection and padlocking
secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January
incidents. She cannot therefore be held liable as a cotortfeasor.
3, 1962, the private respondents ended the lease over the branch office premises, incidentally, without
notice to her.
The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary
damages, 25 and P5,000.00 as nominal 26 and/or temperate27 damages, to be just, fair, and reasonable
It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked,
under the circumstances.
personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of the
Tourist World Service. " 22 It is strange indeed that Tourist World Service, Inc. did not find such a need
when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend that WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July
it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private
she could not have been anywhere near the premises. Capping these series of "offensives," it cut the respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to
office's telephone lines, paralyzing completely its business operations, and in the process, depriving indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of
Sevilla articipation therein. P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or
temperate damages.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had
perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice and Costs against said private respondents.
fair play.
SO ORDERED.
We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent,
Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code, moral damages Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.
may be awarded for "breaches of contract where the defendant acted ... in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to
Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted to Footnotes
her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof —
1 Rollo, 30-45.
ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall 2 Court of First Instance of Manila, Branch XIX Montesa, Agustin, Presiding
compensate the latter for the damage.24 Judge.

ART. 2219. Moral damages25 may be recovered in the following and 3 Rollo, Id 55; Record on Appeal, 38.
analogous cases:
4 Record on Appeal, Id., 37-38.
Page 15 of 44
5 Gaviola, Jr., RAmon, J., Reyes, Luis, and De Castro, Pacific, JJ., 21 Id, 31.
Conccurring
22 Id.
6 Rollo, Id., 124; Brief for Petitioners, 1-2.
23 CIVIL CODE, art. 2220.
7 Rollo, Id., 36.
24 Supra.
8 Id., 21; emphasis in the original.
25 Supra, art. 2232.
9 See Rep. Act No. 875 See also Rep. Act No. 1052, as amended by Rep. Act
No. 1787. 26 Supra art. 2221.

10 LVN Pictures, Inc. v. Philippine Musicians Guild, No. L-12582, January 27 Supra, art. 2224.
28,1961, 1 SCRA 132,173 (1961); emphasis in the original.

11 Visayan Stevedore Trans. Co., et al. v. C.I.R., et al., No. L-21696,


February 25,1967,19 SCRA 426 (1967).

12 Rollo, Id., 40.

13 Id 31.

14 Id., 47.

15 BAUTISTA, TREATISE ON PHILIPPINE PARTNERSHIP LAW 34


(1978).

16 Op cit 37. In Tuazon v. Balanos [95 Phil. 106 (1954)], this Court
distinguished between a joint venture and a partnership but this view has
since raised questions from authorities. According to Campos, there seems to
be no fundamental distinction between the two forms of business
combinations. CAMPOS, THE CORPORATION CODE 12 (1981).] For p
of this case, we use the terms of interchangeable.

17 See rollo, id.

18 CIVIL CODE, art. 1868.

19 See VI PADILLA, CIVIL LAW 350 (1974).

20 Rollo, id., 36.


Page 16 of 44
EN BANC 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
[G.R. No. L-8169. January 29, 1957.]
The Court of Appeals found the following:chanrob1es virtual 1aw library
THE SHELL COMPANY OF THE PHILIPPINES, LTD., Petitioner, v. FIREMEN’S
INSURANCE COMPANY OF NEWARK, NEW JERSEY COMMERCIAL CASUALTY Inasmuch as both the Plaintiffs-Appellants and the Defendant- Appellee, the Shell Company of the
INSURANCE CO., SALVADOR SISON, PORFIRIO DE LA FUENTE and THE COURT OF Philippine Islands, Ltd. accept the statement of facts made by the trial court in its decision and appearing
APPEALS (First Division), Respondents. on pages 23 to 37 of that Record on Appeal, we quote thereunder such statement:jgc:chanrobles.com.ph

Ross, Selph, Carrascoso & Janda for Petitioner. " "This is an action for recovery of sum of money, based on alleged negligence of the defendants.

J. A. Wolfson and Manuel Y. Macias for Respondents. "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
SYLLABUS upon payment of P8.00, the car was placed on the hydraualic lifter under the direction of the personnel
of the station.

1. PRINCIPAL AND AGENT; WHEN AGENCY EXISTS AND NOT AN INDEPENDENT "What happened to the car is recounted by Perlito Sison, as follows:chanrob1es virtual 1aw library
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 ‘Q. Will you please describe how they proceeded to do the work?
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 A. Yes, sir. The first thing that was done, as I saw, was to drive the car over the lifter. Then by the aid
and the company took charge of their repair and maintenance; that an employee of the company of the two greasemen they raised up my car up to six feet high, and then washing was done. After washing
supervised the operator and conducted periodic inspection of the company’s gasoline and service station; the next step was greasing. Before greasing was finished, there is a part near the shelf of the right fender,
that the price of the products sold by the operator was fixed by the company and not by the operator; and right front fender, of my car to be greased, but the greasemen cannot reach that part, so the next thing to
that the receipts signed by the operator indicated that he was a mere agent. Held: that the operator is an be done was to loosen the lifter just a few feet lower. Then upon releasing the value to make the car
agent of the company and not an independent contractor. lower, a little bit lower . . .

2. CONTRACTS; NATURE OF CONTRACT; COURTS NOT BOUND UPON THE NAME GIVEN Q. Who released the valve?
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 A. The greaseman, for the escape of the air. As the escape of the air is too strong for my ear I faced
really had intended to enter into, but the way the contracting parties do or perform their respective backward. I faced toward Isaac Peral Street, and covered my ear. After the escape of the air has been
obligations stipulated or agreed upon may be shown and inquired into, and should such performance finished, the air coming out from the valve, I turned to face the car and I saw the ear swaying at that
conflict with the name or title given the contract by the parties, the former must prevail over the later. time, and just for a few second the car fell. (t.s.n., pp. 22-23.)

The case was immediately reported to the Manila Adjustor Company, the adjustor for the Firemen’s
DECISION Insurance Company and the Commercial Casualty Insurance, Company, as the car was insured with
these insurance companies. After having been inspected by one Mr. Baylon, representative of the Manila
Adjustors Company, the damaged car was taken to the shops of the Philippine Motors, Incorporated, for
PADILLA, J.: repair upon order of the Firemen’s Insurance Company and the Commercial Casualty Company, with
the consent of Salvador R. Sison. The car was restored to running condition after repairs amounting to
P1,651.38, and was delivered to Salvador R. Sison, who, in turn made assignment of his rights to recover
Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals which reversed that of damage in favor of the Firemen’s Insurance Company and the Commercial Casualty Insurance
the Court of First Instance of Manila and sentenced." . . the defendants-appellees to pay, jointly and Company.

Page 17 of 44
WITNESS:chanrob1es virtual 1aw library
"On the other hand, the fall of the car from the hydraulic lifter has been explained by Alfonse M. Adriano,
a greaseman in the Shell Gasoline and Service Station, as follows:chanrob1es virtual 1aw library ‘That is what I do not know, sir.’ (t.s.n., p. 67.)"

‘Q. Were you able to lift the car on the hydraulic lifter on the occasion, September 3, 1947? 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
A. Yes, sir.
"In the afternoon of September 3, 1947, an automobile belonging to the plaintiff Salvador Sison was
Q. To what height did you raise more or less? 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
A. More or less five feet, sir. 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
Q. After lifting that car that height, what did you do to the car? 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").
A. I also washed it, sir.
"The job of washing and greasing was undertaken by defendant Porfirio de la Fuente through his two
Q. And after washing? 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
A. I greased it. 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,
Q. On that occasion, have you been able to finish greasing and washing the car? 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
A. There is one point which I could not reach. 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).
Q. And what did you do then?
"The insurance companies after paying the sum of P1,651.38 for the damage and charging the balance
A. I lowered the lifter in order to reach that point. 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
Q. After lowering it a little, what did you do then? defendants on the ground of negligence (Record on Appeal, pp. 1-6).

A. I pushed and pressed the valve in its gradual pressure. "The defendant Porfirio de la Fuente denied negligence in the operation of the lifter in his separate
answer and contended further that the accidental fall of the car was caused by unforseen event (Record
Q. Were you able to reach the portion which you were not able to reach while it was lower? on Appeal, pp. 17-19)."cralaw virtua1aw library

A. No more, sir. 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
Q. Why? 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
A. Because when I was lowering the lifter I saw that the car was swinging and it fell. the owner who assigned his right to collect the aforesaid amount to the Firemen’s Insurance Company
and the Commercial Casualty Insurance Company.
THE COURT.
On 6 December 1947 the insurers and the owner of the car brought an action in the Court of First Instance
Why did the car swing and fall? 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

Page 18 of 44
complaint until fully paid, and costs. After trial the Court dismissed the complaint. The plaintiffs bore its tradename and the operator sold only the products of the company; that the equipment used by
appealed. The Court of Appeals reversed the judgment and sentenced the defendant to pay the amount the operator belonged to the company and were just loaned to the operator and the company took charge
sought to recovered, legal interest and costs, as stated at the beginning of this opinion. 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
In arriving at the conclusion that on 3 September 1947 when the car was bought to the station for the operator was fixed by the company and not by the operator; and that he was a mere agent, the finding
servicing Porfirio de la Fuente, the operator of the gasoline and service station, was an agent of the Shell of the Court of Appeals that the operator was an agent of the company and not an independent contractor
Company of the Philippines, Ltd., the Court of Appeals found that — should be disturbed.

. . . De la Fuente owed his position to the Shell Company which could remove him or terminate his To determine the nature of a contract courts do not have or are not bound to rely upon the name or title
services at any time from the said Company, and he undertook to sell the Shell Company’s products give it by the contracting parties, should there be a controversy as to what they really had intended to
exclusively at the said Station. For this purpose, De la Fuente was placed in possession of the gasoline enter into, but the way the contracting parties do or perform their respective obligations stipulated or
and service station under consideration, and was provided with all the equipments needed to operate it, agreed upon may be shown and inquired into, and should such performance conflict with the name or
by the said Company, such as to tools and articles listed on Exhibit 2 which included the hydraulic lifter title given the contract by the parties, the former must prevail over the latter.
(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 It was admitted by the operator of the gasoline and service station that "the car was carefully and centrally
charge of its care and maintenance and rendered to the public or its customers at that station for the placed on the platform of the lifter . . ." and the Court of Appeals found that —
proper functioning of the equipment. Witness Antonio Tiongson, who was sales superintendent of the
Shell Company, and witness Augusto Sawyer, foreman of the same Company, supervised the operators . . . the fall of Appellant Sison’s car from the hydraulic lift and the damage caused therefor, were the
and conducted periodic inspections of the Company’s gasoline and service stations, the service station result of the jerking and swaying of the lift when the valve was released, and that the jerking was due to
in question inclusive. Explaining his duties and responsibilities and the reason for the loan, Tiongson some accident and unforeseen shortcoming of the mechanism itself, which caused its faulty or defective
said: "mainly on the supervision of sales or (of) our dealers and routinary inspection of the equipment operation or functioning,
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 and that —
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 . . . the servicing job on Appellant Sison’s automobile was accepted by De la Fuente in the normal and
functioning of the equipments, we answer and see to it that the equipments are in good running order ordinary conduct of his business as operator of his co-appellees’s service station, and that the jerking
and usable condition . . .," "with respect to the public." (t.s.n., 111-112). De la Fuente, as operator, was and swaying of the hydraulic lift which caused the fall of the subject car were due to its defective
given special prices by the Company for the gasoline products sold therein. Exhibit 1 — Shell, which condition, resulting in its faulty operation.
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 — As the act of the agent or his employees acting within the scope of his authority is the act of the principal,
Shell, an official form of the inventory of the equipment which De la Fuente signed above the words: the breach of the undertaking by the agent is one for which the principal is answerable. Moreover, the
"Agent’s signature." And the service station in question had been marked "SHELL, and all company undertook to "answer and see to it that the equipments are in good running order and usable
advertisements therein bore the same sign. . . . condition;" and the Court of Appeals found that the Company’s mechanic failed to make a thorough
check up of the hydraulic lifter and the check up made by its mechanic was "merely routine" by raising
. . . De la Fuente was the operator of the station "by grace" of the Defendant Company which could and "the lifter once or twice and after observing that the operation was satisfactory, he (the mechanic) left
did remove him as it pleased; that all the equipments needed to operate the station was owned by the the place." The latter was negligent and the company must answer for the negligent act of its mechanic
Defendant Company which took charge of their proper care and maintenance, despite the fact that they which was the cause of the fall of the car from the hydraulic lifter.
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 The judgment under review is affirmed, with costs against the petitioner.
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. . . . Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L.,
Endencia and Felix, JJ., concur.
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

Page 19 of 44
EN BANC 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
G.R. No. L-7089 August 31, 1954 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
DOMINGO DE LA CRUZ, plaintiff-appellant,
of his performance of his duty, but rather by a third party or stranger not in the employ of his employer,
vs.
may recover said damages against his employer.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.

The learned trial court in the last paragraph of its decision dismissing the complaint said that "after
Conrado Rubio for appellant.
studying many laws or provisions of law to find out what law is applicable to the facts submitted and
Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
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
MONTEMAYOR, J.: 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
The facts in this case based on an agreed statement of facts are simple. In the year 1941 the Northern and principles of law we have found, as regards master and servants, or employer and employee, refer
Theatrical Enterprises Inc., a domestic corporation operated a movie house in Laoag, Ilocos Norte, and to cases of physical injuries, light or serious, resulting in loss of a member of the body or of any one of
among the persons employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard the senses, or permanent physical disability or even death, suffered in line of duty and in the course of
whose duties were to guard the main entrance of the cine, to maintain peace and order and to report the the performance of the duties assigned to the servant or employee, and these cases are mainly governed
commission of disorders within the premises. As such guard he carried a revolver. In the afternoon of by the Employer's Liability Act and the Workmen's Compensation Act. But a case involving damages
July 4, 1941, one Benjamin Martin wanted to crash the gate or entrance of the movie house. Infuriated caused to an employee by a stranger or outsider while said employee was in the performance of his
by the refusal of plaintiff De la Cruz to let him in without first providing himself with a ticket, Martin duties, presents a novel question which under present legislation we are neither able nor prepared to
attacked him with a bolo. De la Cruz defendant himself as best he could until he was cornered, at which decide in favor of the employee.
moment to save himself he shot the gate crasher, resulting in the latter's death.
In a case like the present or a similar case of say a driver employed by a transportation company, who
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of First while in the course of employment runs over and inflicts physical injuries on or causes the death of a
Instance of Ilocos Norte. After a re-investigation conducted by the Provincial Fiscal the latter filed a pedestrian; and such driver is later charged criminally in court, one can imagine that it would be to the
motion to dismiss the complaint, which was granted by the court in January 1943. On July 8, 1947, De interest of the employer to give legal help to and defend its employee in order to show that the latter was
la Cruz was again accused of the same crime of homicide, in Criminal Case No. 431 of the same Court. not guilty of any crime either deliberately or through negligence, because should the employee be finally
After trial, he was finally acquitted of the charge on January 31, 1948. In both criminal cases De la Cruz held criminally liable and he is found to be insolvent, the employer would be subsidiarily liable. That is
employed a lawyer to defend him. He demanded from his former employer reimbursement of his why, we repeat, it is to the interest of the employer to render legal assistance to its employee. But we are
expenses but was refused, after which he filed the present action against the movie corporation and the not prepared to say and to hold that the giving of said legal assistance to its employees is a legal
three members of its board of directors, to recover not only the amounts he had paid his lawyers but also obligation. While it might yet and possibly be regarded as a normal obligation, it does not at present
moral damages said to have been suffered, due to his worry, his neglect of his interests and his family as count with the sanction of man-made laws.
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 If the employer is not legally obliged to give, legal assistance to its employee and provide him with a
agreed statement of facts, the Court of First Instance of Ilocos Norte after rejecting the theory of the lawyer, naturally said employee may not recover the amount he may have paid a lawyer hired by him.
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),
Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of the
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. expenses incurred by him in remunerating his lawyer, is not caused by his act of shooting to death the
gate crasher but rather by the filing of the charge of homicide which made it necessary for him to defend
himself with the aid of counsel. Had no criminal charge been filed against him, there would have been
We agree with the trial court that the relationship between the movie corporation and the plaintiff was no expenses incurred or damage suffered. So the damage suffered by plaintiff was caused rather by the
not that of principal and agent because the principle of representation was in no way involved. Plaintiff improper filing of the criminal charge, possibly at the instance of the heirs of the deceased gate crasher
was not employed to represent the defendant corporation in its dealings with third parties. He was a mere
Page 20 of 44
and by the State through the Fiscal. We say improper filing, judging by the results of the court Code (Article 1920 of the new), by virtue of which said agency was effectively
proceedings, namely, acquittal. In other words, the plaintiff was innocent and blameless. If despite his revoked and terminated in 1945 when, as stated in paragraph 20 of the complaint,
innocence and despite the absence of any criminal responsibility on his part he was accused of homicide, "defendant voluntarily ... prevented plaintiff from resuming management and
then the responsibility for the improper accusation may be laid at the door of the heirs of the deceased operation of said mining properties."
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 2. The court erred in holding that paragraph II of the management contract (Exhibit C)
intervened, much less initiated the criminal proceedings and whose only connection or relation to the suspended the period of said contract.
whole affairs was that he employed plaintiff to perform a special duty or task, which task or duty was
performed lawfully and without negligence. 3. The court erred in reversing the ruling of the trial judge, based on well-settled
jurisprudence of this Supreme Court, that the management agreement was only
Still another point of view is that the damages incurred here consisting of the payment of the lawyer's suspended but not extended on account of the war.
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 4. The court erred in reversing the finding of the trial judge that Nielson's action had
death of the deceased by the plaintiff was not the proximate cause of the damages suffered but may be prescribed, but considering only the first claim and ignoring the prescriptibility of the
regarded as only a remote cause, because from the shooting to the damages suffered there was not that
other claims.
natural and continuous sequence required to fix civil responsibility.
Alternative Grounds:
In view of the foregoing, the judgment of the lower court is affirmed. No costs.
5. The court erred in holding that the period of suspension of the contract on account
Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L., JJ., concur.
of the war lasted from February 1942 to June 26, 1948.

6. Assuming arguendo that Nielson is entitled to any relief, the court erred in awarding
EN BANC as damages (a) 10% of the cash dividends declared and paid in December, 1941; (b)
the management fee of P2,500.00 for the month of January, 1942; and (c) the full
G.R. No. L-21601 December 28, 1968 contract price for the extended period of sixty months, since these damages were
neither demanded nor proved and, in any case, not allowable under the general law of
NIELSON & COMPANY, INC., plaintiff-appellant, damages.
vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee. 7. Assuming arguendo that appellant is entitled to any relief, the court erred in ordering
appellee to issue and deliver to appellant shares of stock together with fruits thereof.
RESOLUTION
8. The court erred in awarding to appellant an undetermined amount of shares of stock
ZALDIVAR, J.: and/or cash, which award cannot be ascertained and executed without further
litigation.
Lepanto seeks the reconsideration of the decision rendered on December 17, 1966. The motion for
reconsideration is based on two sets of grounds — the first set consisting of four principal grounds, and 9. The court erred in rendering judgment for attorney's fees.
the second set consisting of five alternative grounds, as follows:
We are going to dwell on these grounds in the order they are presented.
Principal Grounds:
1. In its first principal ground Lepanto claims that its own counsel and this Court had overlooked the real
1. The court erred in overlooking and failing to apply the proper law applicable to the nature of the management contract entered into by and between Lepanto and Nielson, and the law that
agency or management contract in question, namely, Article 1733 of the Old Civil is applicable on said contract. Lepanto now asserts for the first time and this is done in a motion for
Page 21 of 44
reconsideration - that the management contract in question is a contract of agency such that it has the Article 1709 of the Old Civil Code, defining contract of agency, provides:
right to revoke and terminate the said contract, as it did terminate the same, under the law of agency, and
particularly pursuant to Article 1733 of the Old Civil Code (Article 1920 of the New Civil Code). 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.
We have taken note that Lepanto is advancing a new theory. We have carefully examined the pleadings
filed by Lepanto in the lower court, its memorandum and its brief on appeal, and never did it assert the Article 1544, defining contract of lease of service, provides:
theory that it has the right to terminate the management contract because that contract is one of agency
which it could terminate at will. While it is true that in its ninth and tenth special affirmative defenses, In a lease of work or services, one of the parties binds himself to make or construct
in its answer in the court below, Lepanto pleaded that it had the right to terminate the management
something or to render a service to the other for a price certain.
contract in question, that plea of its right to terminate was not based upon the ground that the relation
between Lepanto and Nielson was that of principal and agent but upon the ground that Nielson had
allegedly not complied with certain terms of the management contract. If Lepanto had thought of In both agency and lease of services one of the parties binds himself to render some service to the other
considering the management contract as one of agency it could have amended its answer by stating party. Agency, however, is distinguished from lease of work or services in that the basis of agency is
exactly its position. It could have asserted its theory of agency in its memorandum for the lower court representation, while in the lease of work or services the basis is employment. The lessor of services
and in its brief on appeal. This, Lepanto did not do. It is the rule, and the settled doctrine of this Court, does not represent his employer, while the agent represents his principal. Manresa, in his "Commentarios
that a party cannot change his theory on appeal — that is, that a party cannot raise in the appellate court al Codigo Civil Español" (1931, Tomo IX, pp. 372-373), points out that the element of representation
any question of law or of fact that was not raised in the court below or which was not within the issue distinguishes agency from lease of services, as follows:
made by the parties in their pleadings (Section 19, Rule 49 of the old Rules of Court, and also Section
18 of the new Rules of Court; Hautea vs. Magallon, L-20345, November 28, 1964; Northern Motors, Nuestro art. 1.709 como el art. 1.984 del Codigo de Napoleon y cuantos textos legales
Inc. vs. Prince Line, L-13884, February 29, 1960; American Express Co. vs. Natividad, 46 Phil. 207; citamos en las concordancias, expresan claramente esta idea de la representacion,
Agoncillo vs. Javier, 38 Phil. 424 and Molina vs. Somes, 24 Phil 49). "hacer alguna cosa por cuenta o encargo de otra" dice nuestro Codigo; "poder de hacer
alguna cosa para el mandante o en su nombre" dice el Codigo de Napoleon, y en tales
At any rate, even if we allow Lepanto to assert its new theory at this very late stage of the proceedings, palabras aparece vivo y luminoso el concepto y la teoria de la representacion, tan
this Court cannot sustain the same. fecunda en ensenanzas, que a su sola luz es como se explican las diferencias que
separan el mandato del arrendamiento de servicios, de los contratos inominados, del
consejo y de la gestion de negocios.
Lepanto contends that the management contract in question (Exhibit C) is one of agency because: (1)
Nielson was to manage and operate the mining properties and mill on behalf, and for the account, of
Lepanto; and (2) Nielson was authorized to represent Lepanto in entering, on Lepanto's behalf, into En efecto, en el arrendamiento de servicios al obligarse para su ejecucion, se trabaja,
contracts for the hiring of laborers, purchase of supplies, and the sale and marketing of the ores mined. en verdad, para el dueno que remunera la labor, pero ni se le representa ni se obra en
All these, Lepanto claims, show that Nielson was, by the terms of the contract, destined to execute su nombre....
juridical acts not on its own behalf but on behalf of Lepanto under the control of the Board of Directors
of Lepanto "at all times". Hence Lepanto claims that the contract is one of agency. Lepanto then On the basis of the interpretation of Article 1709 of the old Civil Code, Article 1868 of the new Civil
maintains that an agency is revocable at the will of the principal (Article 1733 of the Old Civil Code), Code has defined the contract of agency in more explicit terms, as follows:
regardless of any term or period stipulated in the contract, and it was in pursuance of that right that
Lepanto terminated the contract in 1945 when it took over and assumed exclusive management of the By the contract of agency a person binds himself to render some service or to do
work previously entrusted to Nielson under the contract. Lepanto finally maintains that Nielson as an something in representation or on behalf of another, with the consent or authority of
agent is not entitled to damages since the law gives to the principal the right to terminate the agency at the latter.
will.
There is another obvious distinction between agency and lease of services. Agency is a preparatory
Because of Lepanto's new theory We consider it necessary to determine the nature of the management contract, as agency "does not stop with the agency because the purpose is to enter into other contracts."
contract — whether it is a contract of agency or a contract of lease of services. Incidentally, we have The most characteristic feature of an agency relationship is the agent's power to bring about business
noted that the lower court, in the decision appealed from, considered the management contract as a relations between his principal and third persons. "The agent is destined to execute juridical acts
contract of lease of services.

Page 22 of 44
(creation, modification or extinction of relations with third parties). Lease of services contemplate only Lepanto contends that the management contract in question being one of agency it had the right to
material (non-juridical) acts." (Reyes and Puno, "An Outline of Philippine Civil Law," Vol. V, p. 277). terminate the contract at will pursuant to the provision of Article 1733 of the old Civil Code. We find,
however, a proviso in the management contract which militates against this stand of Lepanto. Paragraph
In the light of the interpretations we have mentioned in the foregoing paragraphs let us now determine XI of the contract provides:
the nature of the management contract in question. Under the contract, Nielson had agreed, for a period
of five years, with the right to renew for a like period, to explore, develop and operate the mining claims Both parties to this agreement fully recognize that the terms of this Agreement are
of Lepanto, and to mine, or mine and mill, such pay ore as may be found therein and to market the made possible only because of the faith or confidence that the Officials of each
metallic products recovered therefrom which may prove to be marketable, as well as to render for company have in the other; therefore, in order to assure that such confidence and faith
Lepanto other services specified in the contract. We gather from the contract that the work undertaken shall abide and continue, NIELSON agrees that LEPANTO may cancel this
by Nielson was to take complete charge subject at all times to the general control of the Board of Agreement at any time upon ninety (90) days written notice, in the event that
Directors of Lepanto, of the exploration and development of the mining claims, of the hiring of a NIELSON for any reason whatsoever, except acts of God, strike and other causes
sufficient and competent staff and of sufficient and capable laborers, of the prospecting and development beyond its control, shall cease to prosecute the operation and development of the
of the mine, of the erection and operation of the mill, and of the benefication and marketing of the properties herein described, in good faith and in accordance with approved mining
minerals found on the mining properties; and in carrying out said obligation Nielson should proceed practice.
diligently and in accordance with the best mining practice. In connection with its work Nielson was to
submit reports, maps, plans and recommendations with respect to the operation and development of the It is thus seen, from the above-quoted provision of paragraph XI of the management contract, that
mining properties, make recommendations and plans on the erection or enlargement of any existing mill, Lepanto could not terminate the agreement at will. Lepanto could terminate or cancel the agreement by
dispatch mining engineers and technicians to the mining properties as from time to time may reasonably giving notice of termination ninety days in advance only in the event that Nielson should prosecute in
be required to investigate and make recommendations without cost or expense to Lepanto. Nielson was bad faith and not in accordance with approved mining practice the operation and development of the
also to "act as purchasing agent of supplies, equipment and other necessary purchases by Lepanto, mining properties of Lepanto. Lepanto could not terminate the agreement if Nielson should cease to
provided, however, that no purchase shall be made without the prior approval of Lepanto; and provided prosecute the operation and development of the mining properties by reason of acts of God, strike and
further, that no commission shall be claimed or retained by Nielson on such purchase"; and "to submit other causes beyond the control of Nielson.
all requisition for supplies, all constricts and arrangement with engineers, and staff and all matters
requiring the expenditures of money, present or future, for prior approval by Lepanto; and also to make
The phrase "Both parties to this agreement fully recognize that the terms of this agreement are made
contracts subject to the prior approve of Lepanto for the sale and marketing of the minerals mined from possible only because of the faith and confidence of the officials of each company have in the other" in
said properties, when said products are in a suitable condition for marketing." 1
paragraph XI of the management contract does not qualify the relation between Lepanto and Nielson as
that of principal and agent based on trust and confidence, such that the contractual relation may be
It thus appears that the principal and paramount undertaking of Nielson under the management contract terminated by the principal at any time that the principal loses trust and confidence in the agent. Rather,
was the operation and development of the mine and the operation of the mill. All the other undertakings that phrase simply implies the circumstance that brought about the execution of the management
mentioned in the contract are necessary or incidental to the principal undertaking — these other contract. Thus, in the annual report for 1936 2, submitted by Mr. C. A. Dewit, President of Lepanto, to
undertakings being dependent upon the work on the development of the mine and the operation of the its stockholders, under date of March 15, 1937, we read the following:
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
To the stockholders
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, but as one who was
performing material acts for an employer, for a compensation. xxx xxx xxx

It is true that the management contract provides that Nielson would also act as purchasing agent of The incorporation of our Company was effected as a result of negotiations with
supplies and enter into contracts regarding the sale of mineral, but the contract also provides that Nielson Messrs. Nielson & Co., Inc., and an offer by these gentlemen to Messrs. C. I. Cookes
could not make any purchase, or sell the minerals, without the prior approval of Lepanto. It is clear, and V. L. Lednicky, dated August 11, 1936, reading as follows:
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 Messrs. Cookes and Lednicky,
an agent. Present

Page 23 of 44
Re: Mankayan Copper Mines Yours very truly,
(Sgd.) L. R. Nielson
GENTLEMEN:
Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson & Co., took
After an examination of your property by our engineers, we have decided to subscriptions for One Million Fifty Thousand Pesos (P1,050,000.00) in shares of our
offer as we hereby offer to underwrite the entire issue of stock of a Company and their underwriting and brokerage commission has been paid. More than
corporation to be formed for the purpose of taking over said properties, said fifty per cent of these subscriptions have been paid to the Company in cash. The claim
corporation to have an authorized capital of P1,750,000.00, of which owners have transferred their claims to the Corporation, but the P700,000.00 in stock
P700,000.00 will be issued in escrow to the claim-owners in exchange for which they are to receive therefor, is as yet held in escrow.
their claims, and the balance of P1,050,000.00 we will sell to the public at
par or take ourselves. Immediately upon the formation of the Corporation Messrs. Nielson & Co., assumed
the Management of the property under the control of the Board of Directors. A
The arrangement will be under the following conditions: modification in the Management Contract was made with the consent of all the then
stockholders, in virtue of which the compensation of Messrs. Nielson & Co., was
increased to P2,500.00 per month when mill construction began. The formal
1. The subscriptions for cash shall be payable 50% at time of subscription
Management Contract was not entered into until January 30, 1937.
and the balance subject to the call of the Board of Directors of the proposed
corporation.
xxx xxx xxx
2. We shall have an underwriting and brokerage commission of 10% of the
P1,050,000.00 to be sold for cash to the public, said commission to be payable Manila, March 15, 1937
from the first payment of 50% on each subscription.
(Sgd.) C. A. DeWitt President
3. We will bear the cost of preparing and mailing any prospectus that may be
required, but no such prospectus will be sent out until the text thereof has We can gather from the foregoing statements in the annual report for 1936, and from the provision of
been first approved by the Board of Directors of the proposed corporation. 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
4. That after the organization of the corporation, all operating contract be offered Lepanto. The contract thus entered into pursuant to the offer made by Nielson and accepted by
entered into between ourselves and said corporation, under the terms which Lepanto was a "detailed operating contract". It was not a contract of agency. Nowhere in the record is it
the property will be developed and mined and a mill erected, under our shown that Lepanto considered Nielson as its agent and that Lepanto terminated the management
supervision, our compensation to be P2,000.00 per month until the property contract because it had lost its trust and confidence in Nielson.
is put on a profitable basis and P2,500.00 per month plus 10% of the net
profits for a period of five years thereafter. The contention of Lepanto that it had terminated the management contract in 1945, following the
liberation of the mines from Japanese control, because the relation between it and Nielson was one of
5. That we shall have the option to renew said operating contract for an agency and as such it could terminate the agency at will, is, therefore, untenable. On the other hand, it
additional period of five years, on the same basis as the original contract, can be said that, in asserting that it had terminated or cancelled the management contract in 1945,
upon the expiration thereof. Lepanto had thereby violated the express terms of the management contract. The management contract
was renewed to last until January 31, 1947, so that the contract had yet almost two years to go — upon
the liberation of the mines in 1945. There is no showing that Nielson had ceased to prosecute the
It is understood that the development and mining operations on said property,
operation and development of the mines in good faith and in accordance with approved mining practice
and the erection of the mill thereon, and the expenditures therefor shall be
which would warrant the termination of the contract upon ninety days written notice. In fact there was
subject to the general control of the Board of Directors of the proposed
no such written notice of termination. It is an admitted fact that Nielson ceased to operate and develop
corporation, and, in case you accept this proposition, that a detailed operating
contract will be entered into, covering the relationships between the parties. the mines because of the war — a cause beyond the control of Nielson. Indeed, if the management
contract in question was intended to create a relationship of principal and agent between Lepanto and
Page 24 of 44
Nielson, paragraph XI of the contract should not have been inserted because, as provided in Article 1733 fact to LEPANTO and without liability or breach of the terms of this Agreement, the
of the old Civil Code, agency is essentially revocable at the will of the principal — that means, with or same shall remain in suspense, wholly or partially during the terms of such inability.
without cause. But precisely said paragraph XI was inserted in the management contract to provide for (Emphasis supplied)
the cause for its revocation. The provision of paragraph XI must be given effect.
A reading of the above-quoted paragraph II cannot but convey the idea that upon the happening of any
In the construction of an instrument where there are several provisions or particulars, such a construction of the events enumerated therein, which adversely affects the work of mining and milling, the agreement
is, if possible, to be adopted as will give effect to all, 3 and if some stipulation of any contract should is deemed suspended for as long as Nielson is unable to perform its work of mining and milling because
admit of several meanings, it shall be understood as bearing that import which is most adequate to render of the adverse effects of the happening of the event on the work of mining and milling. During the period
it effectual.4 when the adverse effects on the work of mining and milling exist, neither party in the contract would be
held liable for non-compliance of its obligation under the contract. In other words, the operation of the
It is Our considered view that by express stipulation of the parties, the management contract in question contract is suspended for as long as the adverse effects of the happening of any of those events had
is not revocable at the will of Lepanto. We rule that this management contract is not a contract of agency impeded or obstructed the work of mining and milling. An analysis of the phraseology of the above-
as defined in Article 1709 of the old Civil Code, but a contract of lease of services as defined in Article quoted paragraph II of the management contract readily supports the conclusion that it is the agreement,
1544 of the same Code. This contract can not be unilaterally revoked by Lepanto. or the contract, that is suspended. The phrase "the same" can refer to no other than the term "Agreement"
which immediately precedes it. The "Agreement" may be wholly or partially suspended, and this
situation will depend on whether the event wholly or partially affected adversely the work of mining and
The first ground of the motion for reconsideration should, therefore, be brushed aside.
milling. In the instant case, the war had adversely affected — and wholly at that — the work of mining
and milling. We have clearly stated in Our decision the circumstances brought about by the war which
2. In the second, third and fifth grounds of its motion for reconsideration, Lepanto maintains that this caused the whole or total suspension of the agreement or of the management contract.
Court erred, in holding that paragraph 11 of the management contract suspended the period of said
contract, in holding that the agreement was not only suspended but was extended on account of the war,
LEPANTO itself admits that the management contract was suspended. We quote from the brief of
and in holding that the period of suspension on account of the war lasted from February, 1942 to June
LEPANTO:
26, 1948. We are going to discuss these three grounds together because they are interrelated.

In our decision we have dwelt lengthily on the points that the management contract was suspended Probably, what Nielson meant was, it was prevented by Lepanto to assume again the
management of the mine in 1945, at the precise time when defendant was at the
because of the war, and that the period of the contract was extended for a period equivalent to the time
feverish phase of rehabilitation and although the contract had already been suspended.
when Nielson was unable to perform the work of mining and milling because of the adverse effects of
(Lepanto's Brief, p. 9).
the war on the work of mining and milling.

... it was impossible, as a result of the destruction of the mine, for the plaintiff to
It is the contention of Lepanto that the happening of those events, and the effects of those events, simply
manage and operate the same and because, as provided in the agreement, the contract
suspended the performance of the obligations by either party in the contract, but did not suspend the
was suspended by reason of the war (Lepanto's Brief, pp. 9-10).
period of the contract, much less extended the period of the contract.

We have conscientiously considered the arguments of Lepanto in support of these three grounds, but We Clause II, by its terms, is clear that the contract is suspended in case fortuitous event
or force majeure, such as war, adversely affects the work of mining and milling.
are not persuaded to reconsider the rulings that We made in Our decision.
(Lepanto's Brief, p. 49).
We want to say a little more on these points, however. Paragraph II of the management contract provides
as follows: Lepanto is correct when it said that the obligations under the contract were suspended upon the
happening of any of the events enumerated in paragraph II of the management contract. Indeed, those
obligations were suspended because the contract itself was suspended. When we talk of a contract that
In the event of inundation, flooding of the mine, typhoon, earthquake or any other has been suspended we certainly mean that the contract temporarily ceased to be operative, and the
force majeure, war, insurrection, civil commotion, organized strike, riot, fire, injury to contract becomes operative again upon the happening of a condition — or when a situation obtains —
the machinery or other event or cause reasonably beyond the control of NIELSON and which warrants the termination of the suspension of the contract.
which adversely affects the work of mining and milling; NIELSON shall report such

Page 25 of 44
In Our decision We pointed out that the agreement in the management contract would be suspended and that Nielson was under obligation to reconstruct the mill in the same way that it was under obligation
when two conditions concur, namely: (1) the happening of the event constituting a force majeure that to construct the mill in 1937. This contention is untenable. It is true that Nielson insisted to resume its
was reasonably beyond the control of Nielson, and (2) that the event constituting the force majeure management work after liberation, but this was only for the purpose of restoring the mines, the mill, and
adversely affected the work of mining and milling. The suspension, therefore, would last not only while other installations to their operating and producing condition as of February 1942 when they were
the event constituting the force majeure continued to occur but also for as long as the adverse effects of ordered destroyed. It is not shown by any evidence in the record, that Nielson had agreed, or would have
the force majeure on the work of mining and milling had not been eliminated. Under the management agreed, that the period of suspension of the contract would end upon the liberation of the mines. This is
contract the happening alone of the event constituting the force majeure which did not affect adversely so because, as found by this Court, the intention of the parties in the management contract, and as
the work of mining and milling would not suspend the period of the contract. It is only when the two understood by them, the management contract was suspended for as long as the adverse effects of the
conditions concur that the period of the agreement is suspended. force majeure on the work of mining and milling had not been removed, and the contract would be
extended for as long as it was suspended. Under the management contract Nielson had the obligation to
It is not denied that because of the war, in February 1942, the mine, the original mill, the original power erect and operate the mill, but not to erect or reconstruct the mill in case of its destruction by force
plant, the supplies and equipment, and all installations at the Mankayan mines of Lepanto, were majeure.
destroyed upon order of the United States Army, to prevent their utilization by the enemy. It is not denied
that for the duration of the war Nielson could not undertake the work of mining and milling. When the It is the considered view of this court that it would not be fair to Nielson to consider the suspension of
mines were liberated from the enemy in August, 1945, the condition of the mines, the mill, the power the contract as terminated upon the liberation of the mines because then Nielson would be placed in a
plant and other installations, was not the same as in February 1942 when they were ordered destroyed situation whereby it would have to suffer the adverse effects of the war on the work of mining and
by the US army. Certainly, upon the liberation of the mines from the enemy, the work of mining and milling. The evidence shows that as of January 1942 the operation of the mines under the management
milling could not be undertaken by Nielson under the same favorable circumstances that obtained before of Nielson was already under beneficial conditions, so much so that dividends were already declared by
February 1942. The work of mining and milling, as undertaken by Nielson in January, 1942, could not Lepanto for the years 1939, 1940 and 1941. To make the management contract immediately operative
be resumed by Nielson soon after liberation because of the adverse effects of the war, and this situation after the liberation of the mines from the Japanese, at the time when the mines and all its installations
continued until June of 1948. Hence, the suspension of the management contract did not end upon the were laid waste as a result of the war, would be to place Nielson in a situation whereby it would lose all
liberation of the mines in August, 1945. The mines and the mill and the installations, laid waste by the the benefits of what it had accomplished in placing the Lepanto mines in profitable operation before the
ravages of war, had to be reconstructed and rehabilitated, and it can be said that it was only on June 26, outbreak of the war in December, 1941. The record shows that Nielson started its management operation
1948 that the adverse effects of the war on the work of mining and milling had ended, because it was on way back in 1936, even before the management contract was entered into. As early as August 1936
that date that the operation of the mines and the mill was resumed. The period of suspension should, Nielson negotiated with Messrs. C. I. Cookes and V. L. Lednicky for the operation of the Mankayan
therefore, be reckoned from February 1942 until June 26, 1948, because it was during this period that mines and it was the result of those negotiations that Lepanto was incorporated; that it was Nielson that
the war and the adverse effects of the war on the work of mining and milling had lasted. The mines and helped to capitalize Lepanto, and that after the formation of the corporation (Lepanto) Nielson
the installations had to be rehabilitated because of the adverse effects of the war. The work of immediately assumed the management of the mining properties of Lepanto. It was not until January 30,
rehabilitation started soon after the liberation of the mines in August, 1945 and lasted until June 26, 1948 1937 when the management contract in question was entered into between Lepanto and Nielson (Exhibit
when, as stated in Lepanto's annual report to its stockholders for the year 1948, "June 28, 1948 marked A).
the official return to operation of this company at its properties at Mankayan, Mountain Province,
Philippines" (Exh. F-1). A contract for the management and operation of mines calls for a speculative and risky venture on the
part of the manager-operator. The manager-operator invests its technical know-how, undertakes back-
Lepanto would argue that if the management contract was suspended at all the suspension should cease breaking efforts and tremendous spade-work, so to say, in the first years of its management and operation
in August of 1945, contending that the effects of the war should cease upon the liberation of the mines of the mines, in the expectation that the investment and the efforts employed might be rewarded later
from the enemy. This contention cannot be sustained, because the period of rehabilitation was still a with success. This expected success may never come. This had happened in the very case of the
period when the physical effects of the war — the destruction of the mines and of all the mining Mankayan mines where, as recounted by Mr. Lednicky of Lepanto, various persons and entities of
installations — adversely affected, and made impossible, the work of mining and milling. Hence, the different nationalities, including Lednicky himself, invested all their money and failed. The manager-
period of the reconstruction and rehabilitation of the mines and the installations must be counted as part operator may not strike sufficient ore in the first, second, third, or fourth year of the management
of the period of suspension of the contract. contract, or he may not strike ore even until the end of the fifth year. Unless the manager-operator strikes
sufficient quantity of ore he cannot expect profits or reward for his investment and efforts. In the case of
Lepanto claims that it would not be unfair to end the period of suspension upon the liberation of the Nielson, its corps of competent engineers, geologists, and technicians begun working on the Mankayan
mines because soon after the liberation of the mines Nielson insisted to resume the management work, mines of Lepanto since the latter part of 1936, and continued their work without success and profit
through 1937, 1938, and the earlier part of 1939. It was only in December of 1939 when the efforts of
Page 26 of 44
Nielson started to be rewarded when Lepanto realized profits and the first dividends were declared. From Enforcement of payments of all debts and other monetary obligations payable in the
that time on Nielson could expect profit to come to it — as in fact Lepanto declared dividends for 1940 Philippines, except debts and other monetary obligations entered into in any area after
and 1941 — if the development and operation of the mines and the mill would continue unhampered. declaration by Presidential Proclamation that such area has been freed from enemy
The operation, and the expected profits, however, would still be subject to hazards due to the occurrence occupation and control, is temporarily suspended pending action by the
of fortuitous events, fires, earthquakes, strikes, war, etc., constituting force majeure, which would result Commonwealth Government. (41 O.G. 56-57; Emphasis supplied)
in the destruction of the mines and the mill. One of these diverse causes, or one after the other, may
consume the whole period of the contract, and if it should happen that way the manager-operator would Executive Order No. 32 covered all debts and monetary obligation contracted before the war (or before
reap no profit to compensate for the first years of spade-work and investment of efforts and know-how. December 8, 1941) and those contracted subsequent to December 8, 1941 and during the Japanese
Hence, in fairness to the manager-operator, so that he may not be deprived of the benefits of the work occupation. Republic Act No. 342, approved on July 26, 1948, lifted the moratorium provided for in
he had accomplished, the force majeure clause is incorporated as a standard clause in contracts for the Executive Order No. 32 on pre-war (or pre-December 8, 1941) debts of debtors who had not filed war
management and operation of mines. damage claims with the United States War Damage Commission. In other words, after the effectivity of
Republic Act No. 342, the debt moratorium was limited: (1) to debts and other monetary obligations
The nature of the contract for the management and operation of mines justifies the interpretation of the which were contracted after December 8, 1941 and during the Japanese occupation, and (2) to those pre-
force majeure clause, that a period equal to the period of suspension due to force majeure should be war (or pre-December 8, 1941) debts and other monetary obligations where the debtors filed war damage
added to the original term of the contract by way of an extension. We, therefore, reiterate the ruling in claims. That was the situation up to May 18, 1953 when this Court declared Republic Act No. 342
Our decision that the management contract in the instant case was suspended from February, 1942 to unconstitutional.7 It has been held by this Court, however, that from March 10, 1945 when Executive
June 26, 1948, and that from the latter date the contract had yet five years to go. Order No. 32 was issued, to May 18, 1953 when Republic Act No. 342 was declared unconstitutional —
or a period of 8 years, 2 months and 8 days — the debt moratorium was in force, and had the effect of
3. In the fourth ground of its motion for reconsideration, Lepanto maintains that this Court erred in suspending the period of prescription.8
reversing the finding of the trial court that Nielson's action has prescribed, by considering only the first
claim and ignoring the prescriptibility of the other claims. Lepanto is wrong when in its motion for reconsideration it claims that the moratorium provided for in
Executive Order No. 32 was continued by Republic Act No. 342 "only with respect to debtors of pre-
This ground of the motion for reconsideration has no merit. war obligations or those incurred prior to December 8, 1941," and that "the moratorium was lifted and
terminated with respect to obligations incurred after December 8, 1941." 9
In Our decision We stated that the claims of Nielson are based on a written document, and, as such, the
cause of action prescribes in ten years.5 Inasmuch as there are different claims which accrued on different This Court has held that Republic Act No. 342 does not apply to debts contracted during the war and did
dates the prescriptive periods for all the claims are not the same. The claims of Nielson that have been not lift the moratorium in relations thereto.10 In the case of Abraham, et al. vs. Intestate Estate of Juan
awarded by this Court are itemized in the dispositive part of the decision. C. Ysmael, et al., L-16741, Jan. 31, 1962, this Court said:

The first item of the awards in Our decision refers to Nielson's compensation in the sum of P17,500.00, Respondents, however, contend that Republic Act No. 342, which took effect on July
which is equivalent to 10% of the cash dividends declared by Lepanto in December, 1941. As we have 26, 1948, lifted the moratorium on debts contracted during the Japanese occupation.
stated in Our decision, this claim accrued on December 31, 1941, and the right to commence an action The court has already held that Republic Act No. 342 did not lift the moratorium on
thereon started on January 1, 1942. We declared that the action on this claim did not prescribe although debts contracted during the war (Uy vs. Kalaw Katigbak, G.R. No. L-1830, Dec. 31,
the complaint was filed on February 6, 1958 — or after a lapse of 16 years, 1 month and 5 days — 1949) but modified Executive Order No. 32 as to pre-war debts, making the protection
because of the operation of the moratorium law. available only to debtors who had war damage claims (Sison v. Mirasol, G.R. No. L-
4711, Oct. 3, 1952).
We declared that under the applicable decisions of this Court6 the moratorium period of 8 years, 2 months
and 8 days should be deducted from the period that had elapsed since the accrual of the cause of action We therefore reiterate the ruling in Our decision that the claim involved in the first item awarded to
to the date of the filing of the complaint, so that there is a period of less than 8 years to be reckoned for Nielson had not prescribed.
the purpose of prescription.
What we have stated herein regarding the non-prescription of the cause of action of the claim involved
This claim of Nielson is covered by Executive Order No. 32, issued on March 10, 1945, which provides in the first item in the award also holds true with respect to the second item in the award, which refers
as follows: to Nielson's claim for management fee of P2,500.00 for January, 1942. Lepanto admits that this second
Page 27 of 44
item, like the first, is a monetary obligation. The right of action of Nielson regarding this claim accrued book that the sum of P17,500.00 was entered on October 29 as "surplus a/c Nielson & Co. Inc." The
on January 31, 1942. entry does not make any reference to dividends or participation of Nielson in the profits. On the other
hand, in the photographic copy of page 89 of the 1941 cash disbursement book, also attached to the
As regards items 3, 4, 5, 6 and 7 in the awards in the decision, the moratorium law is not applicable. That motion for reconsideration, there is an entry for P17,500.00 on April 23, 1941 which states "Accts. Pay.
is the reason why in Our decision We did not discuss the question of prescription regarding these items. Particip. Nielson & Co. Inc." This entry for April 23, 1941 may really be the participation of Nielson in
The claims of Nielson involved in these items are based on the management contract, and Nielson's cause the profits based on dividends declared in April 1941 as shown in Exhibit L. But in the same Exhibit L
of action regarding these claims prescribes in ten years. Corollary to Our ruling that the management it is not stated that any dividend was declared in October 1941. On the contrary it is stated in Exhibit L
contract was suspended from February, 1942 until June 26, 1948, and that the contract was extended for that dividends were declared in December 1941. We cannot entertain this piece of evidence for several
five years from June 26, 1948, the right of action of Nielson to claim for what is due to it during that reasons: (1) because this evidence was not presented during the trial in the court below; (2) there is no
period of extension accrued during the period from June 26, 1948 till the end of the five-year extension showing that this piece of evidence is newly discovered and that Lepanto was not in possession of said
period or until June 26, 1953. And so, even if We reckon June 26, 1948 as the starting date of the ten- evidence when this case was being tried in the court below; and (3) according to Exhibit L cash dividends
year period in connection with the prescriptibility of the claims involved in items 3, 4, 5, 6 and 7 of the of P175,000.00 were declared in December, 1941, and so the sum of P17,500.00 which appears to have
awards in the decision, it is obvious that when the complaint was filed on February 6, 1958 the ten-year been paid to Nielson in October 1941 could not be payment of the equivalent of 10% of the cash
prescriptive period had not yet lapsed. dividends that were later declared in December, 1941.

In Our decision We have also ruled that the right of action of Nielson against Lepanto had not prescribed As regards the management fee of Nielson corresponding to January, 1942, in the sum of P2,500.00, We
because of the arbitration clause in the Management contract. We are satisfied that there is evidence that have also found that Nielson is entitled to be paid this amount, and that this amount was not paid by
Nielson had asked for arbitration, and an arbitration committee had been constituted. The arbitration Lepanto to Nielson. Whereas, Lepanto was able to prove that it had paid the management fees of Nielson
committee, however, failed to bring about any settlement of the differences between Nielson and for November and December, 1941,13 it was not able to present any evidence to show that the
Lepanto. On June 25, 1957 counsel for Lepanto definitely advised Nielson that they were not entertaining management fee of P2,500.00 for January, 1942 had been paid.
any claim of Nielson. The complaint in this case was filed on February 6, 1958.
It having been declared in Our decision, as well as in this resolution, that the management contract had
4. In the sixth ground of its motion for reconsideration, Lepanto maintains that this Court "erred in been extended for 5 years, or sixty months, from June 27, 1948 to June 26, 1953, and that the cause of
awarding as damages (a) 10% of the cash dividends declared and paid in December, 1941; (b) the action of Nielson to claim for its compensation during that period of extension had not prescribed, it
management fee of P2,500.00 for the month of January 1942; and (c) the full contract price for the follows that Nielson should be awarded the management fees during the whole period of extension, plus
extended period of 60 months, since the damages were never demanded nor proved and, in any case, not the 10% of the value of the dividends declared during the said period of extension, the 10% of the
allowable under the general law on damages." depletion reserve that was set up, and the 10% of any amount expended out of surplus earnings for capital
account.
We have stated in Our decision that the original agreement in the management contract regarding the
compensation of Nielson was modified, such that instead of receiving a monthly compensation of 5. In the seventh ground of its motion for reconsideration, Lepanto maintains that this Court erred in
P2,500.00 plus 10% of the net profits from the operation of the properties for the preceding month,11 ordering Lepanto to issue and deliver to Nielson shares of stock together with fruits thereof.
Nielson would receive a compensation of P2,500.00 a month, plus (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 In Our decision, We declared that pursuant to the modified agreement regarding the compensation of
any depletion reserve that may be set up, and (3) 10% of any amount expended during the year out of Nielson which provides, among others, that Nielson would receive 10% of any dividends declared and
surplus earnings for capital account. paid, when and as paid, Nielson should be paid 10% of the stock dividends declared by Lepanto during
the period of extension of the contract.
It is shown that in December, 1941, cash dividends amounting to P175,000.00 was declared by
Lepanto.12 Nielson, therefore, should receive the equivalent of 10% of this amount, or the sum of It is not denied that on November 28, 1949, Lepanto declared stock dividends worth P1,000,000.00; and
P17,500.00. We have found that this amount was not paid to Nielson. on August 22, 1950, it declared stock dividends worth P2,000,000.00). In other words, during the period
of extension Lepanto had declared stock dividends worth P3,000,000.00. We held in Our decision that
In its motion for reconsideration, Lepanto inserted a photographic copy of page 127 of its cash Nielson is entitled to receive l0% of the stock dividends declared, or shares of stock worth P300,000.00
disbursement book, allegedly for 1941, in an effort to show that this amount of P17,500.00 had been at the par value of P0.10 per share. We ordered Lepanto to issue and deliver to Nielson those shares of
paid to Nielson. It appears, however, in this photographic copy of page 127 of the cash disbursement stocks as well as all the fruits or dividends that accrued to said shares.
Page 28 of 44
In its motion for reconsideration, Lepanto contends that the payment to Nielson of stock dividends as equivalent to property.14 Likewise a share of stock issued in payment of indebtedness is equivalent to
compensation for its services under the management contract is a violation of the Corporation Law, and issuing a stock in exchange for cash. But a share of stock thus issued should be part of the original capital
that it was not, and it could not be, the intention of Lepanto and Nielson — as contracting parties — that stock of the corporation upon its organization, or part of the stocks issued when the increase of the
the services of Nielson should be paid in shares of stock taken out of stock dividends declared by capitalization of a corporation is properly authorized. In other words, it is the shares of stock that are
Lepanto. We have assiduously considered the arguments adduced by Lepanto in support of its originally issued by the corporation and forming part of the capital that can be exchanged for cash or
contention, as well as the answer of Nielson in this connection, and We have arrived at the conclusion services rendered, or property; that is, if the corporation has original shares of stock unsold or
that there is merit in the contention of Lepanto. unsubscribed, either coming from the original capitalization or from the increased capitalization. Those
shares of stock may be issued to a person who is not a stockholder, or to a person already a stockholder
Section 16 of the Corporation Law, in part, provides as follows: in exchange for services rendered or for cash or property. But a share of stock coming from stock
dividends declared cannot be issued to one who is not a stockholder of a corporation.
No corporation organized under this Act shall create or issue bills, notes or other
evidence of debt, for circulation as money, and no corporation shall issue stock or A "stock dividend" is any dividend payable in shares of stock of the corporation declaring or authorizing
bonds except in exchange for actual cash paid to the corporation or for: (1) property such dividend. It is, what the term itself implies, a distribution of the shares of stock of the corporation
actually received by it at a fair valuation equal to the par or issued value of the stock among the stockholders as dividends. A stock dividend of a corporation is a dividend paid in shares of
or bonds so issued; and in case of disagreement as to their value, the same shall be stock instead of cash, and is properly payable only out of surplus profits. 15 So, a stock dividend is actually
presumed to be the assessed value or the value appearing in invoices or other two things: (1) a dividend, and (2) the enforced use of the dividend money to purchase additional shares
commercial documents, as the case may be; and the burden or proof that the real of stock at par.16 When a corporation issues stock dividends, it shows that the corporation's accumulated
present value of the property is greater than the assessed value or value appearing in profits have been capitalized instead of distributed to the stockholders or retained as surplus available
invoices or other commercial documents, as the case may be, shall be upon the for distribution, in money or kind, should opportunity offer. Far from being a realization of profits for
corporation, or for (2) profits earned by it but not distributed among its stockholders the stockholder, it tends rather to postpone said realization, in that the fund represented by the new stock
or members; Provided, however, That no stock or bond dividend shall be issued has been transferred from surplus to assets and no longer available for actual distribution. 17 Thus, it is
without the approval of stockholders representing not less than two-thirds of all stock apparent that stock dividends are issued only to stockholders. This is so because only stockholders are
then outstanding and entitled to vote at a general meeting of the corporation or at a entitled to dividends. They are the only ones who have a right to a proportional share in that part of the
special meeting duly called for the purpose. surplus which is declared as dividends. A stock dividend really adds nothing to the interest of the
stockholder; the proportional interest of each stockholder remains the same.18If a stockholder is deprived
of his stock dividends - and this happens if the shares of stock forming part of the stock dividends are
xxx xxx xxx
issued to a non-stockholder — then the proportion of the stockholder's interest changes radically. Stock
dividends are civil fruits of the original investment, and to the owners of the shares belong the civil
No corporation shall make or declare any dividend except from the surplus profits fruits.19
arising from its business, or divide or distribute its capital stock or property other than
actual profits among its members or stockholders until after the payment of its debts
The term "dividend" both in the technical sense and its ordinary acceptation, is that part or portion of the
and the termination of its existence by limitation or lawful dissolution: Provided, That
profits of the enterprise which the corporation, by its governing agents, sets apart for ratable division
banking, savings and loan, and trust corporations may receive deposits and issue
among the holders of the capital stock. It means the fund actually set aside, and declared by the directors
certificates of deposit, checks, drafts, and bills of exchange, and the like in the
of the corporation as dividends and duly ordered by the director, or by the stockholders at a corporate
transaction of the ordinary business of banking, savings and loan, and trust
corporations. (As amended by Act No. 2792, and Act No. 3518; Emphasis supplied.) meeting, to be divided or distributed among the stockholders according to their respective interests. 20

It is Our considered view, therefore, that under Section 16 of the Corporation Law stock dividends can
From the above-quoted provision of Section 16 of the Corporation Law, the consideration for which
not be issued to a person who is not a stockholder in payment of services rendered. And so, in the case
shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock
at bar Nielson can not be paid in shares of stock which form part of the stock dividends of Lepanto for
are given the special name "stock dividends" only if they are issued in lieu of undistributed profits. If
shares of stocks are issued in exchange of cash or property then those shares do not fall under the category services it rendered under the management contract. We sustain the contention of Lepanto that the
of "stock dividends". A corporation may legally issue shares of stock in consideration of services understanding between Lepanto and Nielson was simply to make the cash value of the stock dividends
declared as the basis for determining the amount of compensation that should be paid to Nielson, in the
rendered to it by a person not a stockholder, or in payment of its indebtedness. A share of stock issued
to pay for services rendered is equivalent to a stock issued in exchange of property, because services is
Page 29 of 44
proportion of 10% of the cash value of the stock dividends declared. And this conclusion of Ours finds worth one million pesos that were declared, which means an issuance of ten million shares at the par
support in the record. value of ten centavos per share, it does not mean that Nielson would be given 100,000 shares. It only
means that Nielson should be given the equivalent of 10% of the aggregate cash value of those shares
We had adverted to in Our decision that in 1940 there was some dispute between Lepanto and Nielson issued as stock dividends. That this was the understanding of Nielson itself is borne out by the fact that
regarding the application and interpretation of certain provisions of the original contract particularly with in its appeal brief Nielson urged that it should be paid "P300,000.00 being 10% of the P3,000,000.00
regard to the 10% participation of Nielson in the net profits, so that some adjustments had to be made. stock dividends declared on November 28, 1949 and August 20, 1950...." 21
In the minutes of the meeting of the Board of Directors of Lepanto on August 21, 1940, We read the
following: We, therefore, reconsider that part of Our decision which declares that Nielson is entitled to shares of
stock worth P300,000.00 based on the stock dividends declared on November 28, 1949 and on August
The Chairman stated that he believed that it would be better to tie the computation of 20, 1950, together with all the fruits accruing thereto. Instead, We declare that Nielson is entitled to
the 10% participation of Nielson & Company, Inc. to the dividend, because Nielson payment by Lepanto of P300,000.00 in cash, which is equivalent to 10% of the money value of the stock
will then be able to definitely compute its net participation by the amount of the dividends worth P3,000,000.00 which were declared on November 28, 1949 and on August 20, 1950,
dividends declared. In addition to the dividend, we have been setting up a depletion with interest thereon at the rate of 6% from February 6, 1958.
reserve and it does not seem fair to burden the 10% participation of Nielson with the
depletion reserve, as the depletion reserve should not be considered as an operating 6. In the eighth ground of its motion for reconsideration Lepanto maintains that this Court erred in
expense. After a prolonged discussion, upon motion duly made and seconded, it was awarding to Nielson an undetermined amount of shares of stock and/or cash, which award can not be
— ascertained and executed without further litigation.

RESOLVED, That the President, be, and he hereby is, authorized to enter into an In view of Our ruling in this resolution that Nielson is not entitled to receive shares of stock as stock
agreement with Nielson & Company, Inc., modifying Paragraph V of management dividends in payment of its compensation under the management contract, We do not consider it
contract of January 30, 1937, effective January 1, 1940, in such a way that Nielson & necessary to discuss this ground of the motion for reconsideration. The awards in the present case are all
Company, Inc. shall receive 10% of any dividends declared and paid, when and as reduced to specific sums of money.
paid during the period of the contract and at the end of each year, 10% of any depletion
reserve that may be set up and 10% of any amount expended during the year out of 7. In the ninth ground of its motion for reconsideration Lepanto maintains that this Court erred in
surplus earnings for capital account. (Emphasis supplied.) rendering judgment or attorney's fees.

From the sentence, "The Chairman stated that he believed that it would be better to tie the computation The matter of the award of attorney's fees is within the sound discretion of this Court. In Our decision
of the 10% participation of Nielson & Company, Inc., to the dividend, because Nielson will then be able We have stated the reason why the award of P50,000.00 for attorney's fees is considered by this Court
to definitely compute its net participation by the amount of the dividends declared" the idea is conveyed as reasonable.
that the intention of Lepanto, as expressed by its Chairman C. A. DeWitt, was to make the value of the
dividends declared — whether the dividends were in cash or in stock — as the basis for determining the
Accordingly, We resolve to modify the decision that We rendered on December 17, 1966, in the sense
amount of compensation that should be paid to Nielson, in the proportion of 10% of the cash value of
that instead of awarding Nielson shares of stock worth P300,000.00 at the par value of ten centavos
the dividends so declared. It does not mean, however, that the compensation of Nielson would be taken (P0.10) per share based on the stock dividends declared by Lepanto on November 28, 1949 and August
from the amount actually declared as cash dividend to be distributed to the stockholder, nor from the 20, 1950, together with their fruits, Nielson should be awarded the sum of P300,000.00 which is an
shares of stocks to be issued to the stockholders as stock dividends, but from the other assets or funds of
amount equivalent to 10% of the cash value of the stock dividends thus declared, as part of the
the corporation which are not burdened by the dividends thus declared. In other words, if, for example,
compensation due Nielson under the management contract. The dispositive portion of the decision
cash dividends of P300,000.00 are declared, Nielson would be entitled to a compensation of P30,000.00,
should, therefore, be amended, to read as follows:
but this P30,000.00 should not be taken from the P300,000.00 to be distributed as cash dividends to the
stockholders but from some other funds or assets of the corporation which are not included in the amount
to answer for the cash dividends thus declared. This is so because if the P30,000.00 would be taken out IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the court a
from the P300,000.00 declared as cash dividends, then the stockholders would not be getting quo and enter in lieu thereof another, ordering the appellee Lepanto to pay the appellant Nielson the
P300,000.00 as dividends but only P270,000.00. There would be a dilution of the dividend that different amounts as specified hereinbelow:
corresponds to each share of stock held by the stockholders. Similarly, if there were stock dividends

Page 30 of 44
2
(1) Seventeen thousand five hundred pesos (P17,500.00), equivalent to 10% of the cash dividends of Exhibit A.
December, 1941, with legal interest thereon from the date of the filing of the complaint;
3
Sec. 9, Rule 130 of the Rules of Court.
(2) Two thousand five hundred pesos (P2,500.00) as management fee for January 1942, with legal
interest thereon from the date of the filing of the complaint; 4
Article 1373 of the (new) Civil Code.

(3) One hundred fifty thousand pesos (P150,000.00), representing management fees for the sixty-month 5
Section 43, par. 1, Act 190.
period of extension of the management contract, with legal interest thereon from the date of the filing of
the complaint; 6
Tiosejo vs. Day, et al., L-9944, April 30, 1937; Levi Hermanos, Inc. vs. Perez, L-
14487, April 29, 1960.
(4) One million four hundred thousand pesos (P1,400,000.00), equivalent to 10% of the cash dividends
declared during the period of extension of the management contract, with legal interest thereon from the 7
Rutter vs. Esteban, 93 Phil. 68.
date of the filing of the complaint;
8
Tiosejo vs. Day, supra; Levi Hermanos, Inc. vs. Perez, supra.
(5) Three hundred thousand pesos (P300,000.00), equivalent to 10% of the cash value of the stock
dividends declared on November 28, 1949 and August 20, 1950, with legal interest thereon from the 9
date of the filing of the complaint; Motion for reconsideration, p. 60.

10
(6) Fifty three thousand nine hundred twenty eight pesos and eighty eight centavos (P53,928.88), Uy v. Kalaw Katigbak, G.R. No. L-1830, Dec. 31, 1949; Sison v. Mirasol, L-4711,
equivalent to 10% of the depletion reserve set up during the period of extension, with legal interest Oct. 31, 1962; Compania Maritima v. Court of Appeals, L-14949, May 30, 1960.
thereon from the date of the filing of the complaint;
11
Par. V of Management Contract, Exhibit C.
(7) Six hundred ninety four thousand three hundred sixty four pesos and seventy six centavos
12
(P694,364.76), equivalent to 10% of the expenses for capital account during the period of extension, Page 3, Exhibit L, Report for 1954.
with legal interest thereon from the date of the filing of the complaint;
13
Exhibit 1.
(8) Fifty thousand pesos (P50,000.00) as attorney's fees; and
14
Sec. 5187, 11 Fletcher, Cyclopedia of the Law on Private Corporations, p. 422.
(9) The costs.
15
Sec. 16, Corporation Law .
It is so ordered.
16
Words and Phrases, p. 270.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez and Castro, JJ., concur.
17
Fisher vs. Trinidad, 43 Phil. 973..
Fernando, Capistrano, Teehankee and Barredo, JJ., took no part.
18
Towns vs. Eisner, 62 L. Ed. 372.

19
Art. 441, Civil Code of the Philippines.
Footnotes
20
7 Thompson on Corporations 134-135.
1
Annex A to complaint, pp. 43-46, R.A.; Also Exhibit C.
Page 31 of 44
21
. 115, Nielson's Appeal Brief. (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
QUIROGA vs. PARSONS HARDWARE Co., 38 Phil. 501, No. 11491, August 23, 1918 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
ANDRES QUIROGA, plaintiff-appellant, the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the
vs. beds at the price at which the order was given.
PARSONS HARDWARE CO., defendant-appellee.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee. 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
AVANCEÑA, J.: give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island
not comprised with the Visayan group.
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 ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all
defendant later subrogated itself), as party of the second part: the towns of the Archipelago where there are no exclusive agents, and shall immediately report such
action to Mr. Quiroga for his approval.
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH
MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting
IN THE VISAYAN ISLANDS. parties on a previous notice of ninety days to the other party.

ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the
Parsons under the following conditions: 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
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for
Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. As
shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; may be seen, with the exception of the obligation on the part of the defendant to order the beds by the
and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles. 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
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency.
from the date of their shipment. 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
(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, beds.
insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid
by Mr. Parsons. 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
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made defendant with the beds which the latter might order, at the price stipulated, and that the defendant was
shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff
amount of the invoice. 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
The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt
to pay in cash. 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

Page 32 of 44
or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds
obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. without previous notice, it is insinuated in the record that these brass beds were precisely the ones so
By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-
necessarily obliged to pay their price within the term fixed, without any other consideration and called commissions, we have said that they merely constituted a discount on the invoice price, and the
regardless as to whether he had or had not sold the beds. reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because,
as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's
It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is beds, such sales were to be considered as a result of that advertisement.
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, In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the
examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the
contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his
commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, right and cannot complain for having acted thus at his own free will.
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 For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the
to the remaining clauses, the least that can be said is that they are not incompatible with the contract of defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause
purchase and sale. of action are not imposed upon the defendant, either by agreement or by law.

The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant The judgment appealed from is affirmed, with costs against the appellant. So ordered.
corporation and who established and managed the latter's business in Iloilo. It appears that this witness,
prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.
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 G.R. No. L-47538 June 20, 1941
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 GONZALO PUYAT & SONS, INC., petitioner,
statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the vs.
agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.
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 Feria & Lao for petitioner.
parties. J. W. Ferrier and Daniel Me. Gomez for respondent.

The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, LAUREL, J.:
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 This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the purpose of
most only shows that, on the part of both of them, there was mutual tolerance in the performance of the reviewing its Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo
contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties Puyat and Sons. Inc., defendant-appellee."
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 It appears that the respondent herein brought an action against the herein petitioner in the Court of First
contract, when such interpretation is necessary, but not when, as in the instant case, its essential Instance of Manila to secure a reimbursement of certain amounts allegedly overpaid by it on account of
agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to the purchase price of sound reproducing equipment and machinery ordered by the petitioner from the
another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for Starr Piano Company of Richmond, Indiana, U.S.A. The facts of the case as found by the trial court and
the price paid for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested confirmed by the appellate court, which are admitted by the respondent, are as follows:
the plaintiff's prior consent with respect to said beds, which shows that it was not considered that the

Page 33 of 44
In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of About three years later, in connection with a civil case in Vigan, filed by one Fidel
the Philippine Islands, with its office in Manila, was engaged in the business of Reyes against the defendant herein Gonzalo Puyat & Sons, Inc., the officials of the
operating cinematographs. In 1930, its name was changed to Arco Amusement Arco Amusement Company discovered that the price quoted to them by the defendant
Company. C. S. Salmon was the president, while A. B. Coulette was the business with regard to their two orders mentioned was not the net price but rather the list price,
manager. About the same time, Gonzalo Puyat & Sons, Inc., another corporation doing and that the defendants had obtained a discount from the Starr Piano Company.
business in the Philippine Islands, with office in Manila, in addition to its other Moreover, by reading reviews and literature on prices of machinery and
business, was acting as exclusive agents in the Philippines for the Starr Piano cinematograph equipment, said officials of the plaintiff were convinced that the prices
Company of Richmond, Indiana, U.S. A. It would seem that this last company dealt in charged them by the defendant were much too high including the charges for out-of-
cinematographer equipment and machinery, and the Arco Amusement Company pocket expense. For these reasons, they sought to obtain a reduction from the
desiring to equipt its cinematograph with sound reproducing devices, approached defendant or rather a reimbursement, and failing in this they brought the present action.
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 The trial court held that the contract between the petitioner and the respondent was one of outright
parties, that is to say, Salmon and Coulette on one side, representing the plaintiff, and purchase and sale, and absolved that petitioner from the complaint. The appellate court, however, — by
Gil Puyat on the other, representing the defendant, that the latter would, on behalf of a division of four, with one justice dissenting — held that the relation between petitioner and respondent
the plaintiff, order sound reproducing equipment from the Starr Piano Company and was that of agent and principal, the petitioner acting as agent of the respondent in the purchase of the
that the plaintiff would pay the defendant, in addition to the price of the equipment, a equipment in question, and sentenced the petitioner to pay the respondent alleged overpayments in the
10 per cent commission, plus all expenses, such as, freight, insurance, banking total sum of $1,335.52 or P2,671.04, together with legal interest thereon from the date of the filing of
charges, cables, etc. At the expense of the plaintiff, the defendant sent a cable, Exhibit the complaint until said amount is fully paid, as well as to pay the costs of the suit in both instances. The
"3", to the Starr Piano Company, inquiring about the equipment desired and making appellate court further argued that even if the contract between the petitioner and the respondent was one
the said company to quote its price without discount. A reply was received by Gonzalo of purchase and sale, the petitioner was guilty of fraud in concealing the true price and hence would still
Puyat & Sons, Inc., with the price, evidently the list price of $1,700 f.o.b. factory be liable to reimburse the respondent for the overpayments made by the latter.
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
The petitioner now claims that the following errors have been incurred by the appellate court:
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 I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun
and the presentation of necessary papers, the price of $1.700, plus the 10 per cent hechos, entre la recurrente y la recurrida existia una relacion implicita de mandataria
commission agreed upon and plus all the expenses and charges, was duly paid by the a mandante en la transaccion de que se trata, en vez de la de vendedora a compradora
plaintiff to the defendant. como ha declarado el Juzgado de Primera Instncia de Manila, presidido entonces por
el hoy Magistrado Honorable Marcelino Montemayor.
Sometime the following year, and after some negotiations between the same parties,
plaintiff and defendants, another order for sound reproducing equipment was placed II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo
by the plaintiff with the defendant, on the same terms as the first order. This agreement que dicha relacion fuerra de vendedora a compradora, la recurrente obtuvo, mediante
or order was confirmed by the plaintiff by its letter Exhibit "2", without date, that is to dolo, el consentimiento de la recurrida en cuanto al precio de $1,700 y $1,600 de las
say, that the plaintiff would pay for the equipment the amount of $1,600, which was maquinarias y equipos en cuestion, y condenar a la recurrente ha obtenido de la Starr
supposed to be the price quoted by the Starr Piano Company, plus 10 per cent Piano Company of Richmond, Indiana.
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 We sustain the theory of the trial court that the contract between the petitioner and the respondent was
commission, and $160, for all expenses and charges. This amount of $160 does not one of purchase and sale, and not one of agency, for the reasons now to be stated.
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 In the first place, the contract is the law between the parties and should include all the things they are
$1,600 of the equipment. 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
Page 34 of 44
Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1 and 2, by which the respondent out of the transaction. This is the very essence of commerce without which merchants or middleman
accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject of would not exist.
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 The respondents contends that it merely agreed to pay the cost price as distinguished from the list price,
in its complaint filed with the Court of First Instance of Manila that the petitioner agreed to sell to it the plus ten per cent (10%) commission and all out-of-pocket expenses incurred by the petitioner. The
first sound reproducing equipment and machinery. The third paragraph of the respondent's cause of distinction which the respondents seeks to draw between the cost price and the list price we consider to
action states: 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.
3. That on or about November 19, 1929, the herein plaintiff (respondent) and defendant The respondent could not have secured this discount from the Starr Piano Company and neither was the
(petitioner) entered into an agreement, under and by virtue of which the herein petitioner willing to waive that discount in favor of the respondent. As a matter of fact, no reason is
defendant was to secure from the United States, and sell and deliver to the herein advanced by the respondent why the petitioner should waive the 25 per cent discount granted it by the
plaintiff, certain sound reproducing equipment and machinery, for which the said Starr Piano Company in exchange for the 10 percent commission offered by the respondent. Moreover,
defendant, under and by virtue of said agreement, was to receive the actual cost price the petitioner was not duty bound to reveal the private arrangement it had with the Starr Piano Company
plus ten per cent (10%), and was also to be reimbursed for all out of pocket expenses relative to such discount to its prospective customers, and the respondent was not even aware of such an
in connection with the purchase and delivery of such equipment, such as costs of arrangement. The respondent, therefore, could not have offered to pay a 10 per cent commission to the
telegrams, freight, and similar expenses. (Emphasis ours.) 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
We agree with the trial judge that "whatever unforseen events might have taken place unfavorable to the from the home office, sometimes add to the list price when they resell to local purchasers. It was
defendant (petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered apparently to guard against an exhorbitant additional price that the respondent sought to limit it to 10 per
by insurance or failure of the Starr Piano Company to properly fill the orders as per specifications, the cent, and the respondent is estopped from questioning that additional price. If the respondent later on
plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed of $1,700 and discovers itself at the short end of a bad bargain, it alone must bear the blame, and it cannot rescind the
$1,600." This is incompatible with the pretended relation of agency between the petitioner and the contract, much less compel a reimbursement of the excess price, on that ground alone. The respondent
respondent, because in agency, the agent is exempted from all liability in the discharge of his commission could not secure equipment and machinery manufactured by the Starr Piano Company except from the
provided he acts in accordance with the instructions received from his principal (section 254, Code of petitioner alone; it willingly paid the price quoted; it received the equipment and machinery as
Commerce), and the principal must indemnify the agent for all damages which the latter may incur in represented; and that was the end of the matter as far as the respondent was concerned. The fact that the
carrying out the agency without fault or imprudence on his part (article 1729, Civil Code). 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
While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent (10%) commission,
loosening of the sleeves and of the sharpening of the intellect of men and women in the business world.
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.) 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,
In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment and
Inc., defendants-appellee," without pronouncement regarding costs. So ordered.
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 Avanceña, C.J., Diaz, Moran and Horrilleno, JJ., concur.
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 Lim vs. People, 133 SCRA 333 , No. L-34338, November 21, 1984
United States. G.R. No. L-34338 November 21, 1984
LOURDES VALERIO LIM, petitioner,
It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee for any vs.
PEOPLE OF THE PHILIPPINES, respondent.
difference between the cost price and the sales price which represents the profit realized by the vendor
RELOVA, J.:

Page 35 of 44
Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, Exh. 4, and
imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4) months as another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 as evidenced by the receipt
maximum, to indemnify the offended party in the amount of P559.50, with subsidize imprisonment in Exh. 2, dated April 18, 1967, or a total of P240.00. As no further amount was paid, the complainant filed
case of insolvency, and to pay the costs." (p. 14, Rollo) a complaint against the appellant for estafa. (pp. 14, 15, 16, Rollo)
From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of the
In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to
lower court but modified the penalty imposed by sentencing her "to suffer an indeterminate penalty of
wit:
one (1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1) day of prision
1. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing
correccional as maximum, to indemnify the complainant in the amount of P550.50 without subsidiary document (Exhibit "A") "fixed a period" and "the obligation was therefore, immediately demandable as
imprisonment, and to pay the costs of suit." (p. 24, Rollo) soon as the tobacco was sold" (Decision, p. 6) as against the theory of the petitioner that the obligation
The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell or a
does not fix a period, but from its nature and the circumstances it can be inferred that a period was
contract of sale of the subject tobacco between petitioner and the complainant, Maria de Guzman Vda.
intended in which case the only action that can be maintained is a petition to ask the court to fix the
de Ayroso, thereby precluding criminal liability of petitioner for the crime charged.
duration thereof;
The findings of facts of the appellate court are as follows:
... The appellant is a businesswoman. On January 10, 1966, the appellant went to the house of Maria 2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. 1197 of the
Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell New Civil Code does not apply" as against the alternative theory of the petitioner that the fore. going
her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which receipt (Exhibit "A") gives rise to an obligation wherein the duration of the period depends upon the will
she could sell the tobacco. This agreement was made in the presence of plaintiff's sister, Salud G. Bantug. of the debtor in which case the only action that can be maintained is a petition to ask the court to fix the
Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads: duration of the period; and
To Whom It May Concern: 3. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing receipt
is a contract of agency to sell as against the theory of the petitioner that it is a contract of sale. (pp. 3-4,
This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of Gapan, Nueva
Rollo)
Ecija, six hundred fifteen kilos of leaf tobacco to be sold at Pl.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. 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
This was signed by the appellant and witnessed by the complainant's sister, Salud Bantug, and the latter's
demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which
maid, Genoveva Ruiz. The appellant at that time was bringing a jeep, and the tobacco was loaded in the
provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply.
jeep and brought by the appellant. Of the total value of P799.50, the appellant had paid to Ayroso only Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be
P240.00, and this was paid on three different times. Demands for the payment of the balance of the value paid the commission if the goods were sold, the Court of Appeals correctly resolved the matter as
of the tobacco were made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug.
follows:
Salud Bantug further testified that she had gone to the house of the appellant several times, but the
... Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling
appellant often eluded her; and that the "camarin" the appellant was empty. Although the appellant
Ayroso's tobacco, the appellant herself admitted that there was an agreement that upon the sale of the
denied that demands for payment were made upon her, it is a fact that on October 19, 1966, she wrote a
tobacco she would be given something. The appellant is a businesswoman, and it is unbelievable that
letter to Salud Bantug which reads as follows: she would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had
Dear Salud, 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
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil kong pera,
the appellant who would have gone to the house of Ayroso, but it would have been Ayroso who would
magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay
makapagbigay man lang ako ng marami para hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto have gone to the house of the appellant and deliver the tobacco to the appellant. (p. 19, Rollo)
mo ay kahit konte muna ay bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon. Salud kung The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to
talagang kailangan mo ay bukas ay dadalhan kita ng pera. 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
Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng puesto.
Huwag kang mabahala at tiyak na babayaran kita. same was not sold.
ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs.
Patnubayan tayo ng mahal na panginoon Dios. (Exh. B). SO ORDERED.
Ludy Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and De la Fuente, JJ., concur. .
Page 36 of 44
G.R. No. L-45976 July 20, 1939 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
PACIFIC COMMERCIAL COMPANY, plaintiff-appellant, the payment of another tax by the plaintiff, who effected the sale, constitutes double taxation, there
vs. having been only one sale. In Gil Hermanos vs. Hord (10 Phil., 218), this question was already decided
ALFREDO L. YATCO, defendant-appellee. 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
E.P. Revilla for appellant.
Office of the Solicitor-General Tuason for appellee. 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
AVANCEÑA, C.J.: 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
The plaintiff, a corporation engaged in business as a merchant, with offices in Manila, Cebu and Iloilo, in all respects.
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 It is said that this decision was reversed in Atkins, Kroll & Co. vs. Posadas (48 Phil., 352), and other
corporation, up to the total amount of P1,126,135.96, having received by way of commission for this cases. This, however, is not correct. Neither in Atkins, Kroll & Co. vs. Posadas, nor in the other cases
sale the amount of P29,534.29. The corporation Victorias Milling Co., paid to the Collector of Internal mentioned by the plaintiff, has the decision in Gil Hermanos vs. Hord been reversed. Although a distinct
Revenue for this sale the amount of P16,944.90 as merchant sales tax in its capacity as manufacturer and result was reached in these cases, this was only because they have been found to be different from the
owner of the sugar sold. Notwithstanding this payment made by Victorias Milling Co., the Collector of case of Gil Hermanos vs. Hord. On the contrary , in F.E. Zuellig, Inc. vs. Collector of Internal Revenue
Internal Revenue also collected from the plaintiff the same tax for the same amount of P16,944.90. (51 Phil., 629), the doctrine in gil Hermanos was followed.

The sales of this sugar were made by the plaintiff in two ways. The plaintiff looked for purchasers of the The question of whether the appellant, in connection with the sugar delivered ex-warehouse and
sugar, and once the corresponding purchase order is obtained from them, the same is sent to the office thereafter sold to the purchasers, acted as a commission merchant , presents no doubt. A commission
of Victorias Milling Co., in Manila, which, in turn, endorsed the order to its office in Negros, with merchant is one engaged in the purchase or sale for another of personal property which, for this purpose,
instructions to ship the sugar thus ordered to Manila, Cebu or Iloilo, as the case may be. At times, the is placed in his possession and at his disposal. He maintains a relation not only with his principal and the
purchase is made for the delivery of the sugar ex-warehouse of the plaintiff and at other times for delivery purchasers or vendors, but also with the property which is the subject matter of the transaction. In the
ex-ship. In all cases, the billing of lading is sent to the plaintiff. If the sugar was to be delivered ex-ship, present case, the sugar was shipped by Victorias Milling Co., and upon arrival at the port of destination,
all that the plaintiff did was to hand over the bill of lading to the purchaser and collect the price. If it was the plaintiff received and transferred it for deposit in its warehouses until the purchaser called for it. The
for delivery ex-warehouse, the sugar is first deposited in the warehouse of the plaintiff before delivery deposit of the sugar in the warehouses of the plaintiff was made upon its own account and at its own risk
to the purchaser. 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
The court found that of the price of sugar sold by the plaintiff, the amount of P558,550.41 corresponds determinative of its status as a commission merchant in connection with the sale of sugar under these
to sugar sold for delivery ex-warehouse and that of P567,585.55 corresponds to sugar sold for delivery conditions.
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 There is also no doubt on the question of whether the plaintiff merely acted as a commercial broker as
way of tax on the sale of sugar to be delivered ex-ship, and denied the prayer in the complaint for the to the sale of the sugar delivered to the purchaser ex-ship. The broker, unlike the commission merchant,
return of the amount paid for the sales of sugar to be delivered ex-warehouse. 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
Both parties appealed from this decision. 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
The appeal raises three questions: (a) whether there is double taxation in the present case; (b) whether conditions was shipped by the plaintiff at its expense and risk until it reached its destination, where it
the plaintiff acted as a commission merchant as to the sugar delivered ex-warehouse; (c) whether the was later taken ex-ship by the purchaser. The plaintiff never had possession of the sugar at any time. The
plaintiff acted as a mere commercial broker as to the sugar delivered ex-ship. circumstance that the bill of lading was sent to the plaintiff does not alter its character of being merely a

Page 37 of 44
broker, or constitute possession by it of the sugar shipped , inasmuch as the same was sent to it for the Pacific Commercial Company, or, otherwise stated, the latter sold the merchandise in the former's name.
sole purpose of turning it over to the purchaser for the collection of the price. The sugar did not come to The Victorias Milling Company is the vendor in law, and the Pacific Commercial Company is the vendor
its possession in any sense. in fact; one completes the personality of the other and both constitute one efficient subject of the sale. In
reality, therefore, there is but one vendor and but one sale and only one thing sold, hence, only one tax
In view of the foregoing, the appealed decision is affirmed, without special pronouncement as to the may be collected, which may be paid by Victorias Milling Company or by the Pacific Commercial
costs. So ordered. Company, alternatively.

Villa-Real, Imperial, Diaz, Laurel, and Concepcion, JJ., concur. It is true that the doctrine laid down in Gil Hermanos vs. Hord (10 Phil., 218), and F.E. Zuellig, Inc. vs.
Collector of Internal Revenue (51 Phil., 629), supports the theory held by the majority; but this doctrine
runs counter to that established in Atkins, Kroll & Co. vs. Posadas (48 Phil., 352). In this case, Atkins,
Kroll & Co., through Macleod & Co., Inc., a commission merchant, shipped a certain amount of copra
to the United States. The Government sought to collect the total tax on the consignment both from the
Separate Opinions owner of the copra as well as from the commission merchant, and this court held that the Government
"held no legal right to levy and collect the same tax from two different persons on one consignment
MORAN, J., dissenting: abroad on one shipment of the same copra" (page 359). In other words, this court held that for a single
consignment, the Government is not entitled to collect two taxes, one from the owner of the merchandise
I regret to dissent form the majority opinion penned by our illustrious and beloved Chief Justice. and the other from the commission merchant. It is true that it had to do with a consignment and not a
sale; but both transactions are governed by the same legal provision, namely section 1459 of the
The tax on the sale made by the plaintiff Pacific Commercial Company, for the account of Victorias Administrative Code.
Milling Company, has already been paid by the latter, as the majority admits. Hence, to require the
Pacific Commercial Company to pay the same tax is clearly to impose double taxation upon one and the Upon the question at issue, our jurisprudence is wavering, if not confusing and contradictory, and I had
same sale. wished that this court make a revision thereof to lay down clearly and definitely a more just and equitable
doctrine for the good of commerce. In my opinion, the Government has no right to receive more than
But the majority maintains that this is not a case of double taxation, because the tax in question is not a one tax for a single transaction. A contrary doctrine would be detrimental to local merchants. If a foreign
tax "upon property or products, but upon occupation or industry." Although, in my opinion, the tax, merchant sells his merchandise through a resident commission merchant, the Government will not collect
according to the language of the law, is imposed upon the transaction rather than upon the occupation, more than one tax, and will do so from the commission merchant. But if a resident merchant makes a
or, at most, upon both, I would say that the distinction made by the majority is not of much importance. similar transaction, the Government will collect tax twice, from the merchant and from the commission
The important thing is, as the majority holds, that the value of the transaction "is taken into account only merchant. I do not believe that the legislator intended a measure so unjust to the merchants of the country.
as a basis for the fixing of the amount of the tax"; which means, in the last analysis, that the transaction
is the basis of the tax and that , as a consequence, where there is only one transaction, there is no more
basis but for a single tax. In the present case, there is only one sale, that made by the plaintiff in the name G.R. No. 46722 June 27, 1940
of Victorias Milling Company, and two taxes cannot be demanded of these two companies because they
have brought about only one basis for the payment of one tax. To impose two taxes upon them would be PACIFIC COMMERCIAL COMPANY, Plaintiff-Appellant, vs. ALFREDO L. YATCO, as
like holding that the plaintiff has effected one sale and the Victorias Milling Company another, which is Collector of Internal Revenue of the Philippines, Defendant-Appellee.
not true, as both have realized but one sale. To make this sale twice as a basis for the collection of two
taxes is unjust and unlawful, because a single transaction is thereby pluralized and, moreover, in such E. P. Revilla for appellant.
case, the proportion between the amount of the total tax collected and the true value of the only Office of the Solicitor-General Ozaeta and Assistant Solicitor-General Concepcion for appellee.
transaction made would exceed the rate fixed by law. The Government is not entitled to receive more
than one tax for a single transaction.
MORAN, J.: chanrobles virtual law library
Note that the law imposes the tax upon the vendor of merchandise. In the present case, who sold the
The stipulation of facts discloses that in August, 1932, plaintiff Pacific Commercial Company, a
merchandise? Was it the Victorias Milling Company of the Pacific Commercial Company? As to this,
there is no controversy on the facts. The Victorias Milling Company sold the merchandise through the Philippine corporation, purchased for its New York office, 6,000 tons of centrifugal sugar from the
Calamba Sugar Estate Planters at the prices specified in the letters-contract. It was agreed, inter alia,
Page 38 of 44
that the freight charges shall be paid at destination by New York office and that payment would be made ALFRED HAHN, petitioner,
upon delivery of the shipping documents. On January 28, 1933, the seller loaded 3.000 tons of ,sugar or vs.
board the s. s. Chastine Maersk, and on March 30, 1933, another 3,000 tons on board the s. s. Ferndale. COURT OF APPEALS and BAYERSCHE MOTOREN WERKE AKTIENGSELLSCHAFT
The first vessel sailed from Manila at 6 p. m. of January 28, 1933, and the second, at 12.05 p. m. of (BMW), respondents.
March 31, 1933. After the cargo has been loaded on, and before the vessels left port, one Amado M.
Honorio as agent of the Calamba Sugar Estate Planters indorsed in blank and delivered to plaintiff the
shipping documents. Payments were correspondingly made by the plaintiff which were later debited to
the account of its New York office. The defendant Collector of Internal Revenue assessed a consignment
MENDOZA, J.:
tax of P13,479.04, including surcharge, which plaintiff paid under protest and for the recovery of which
an action was brought in the Court of First Instance of Manila. The complaint having been dismissed,
the present appeal was taken.chanroblesvirtualawlibrary chanrobles virtual law library This is a petition for review of the decision1 of the Court of Appeals dismissing a complaint for specific
performance which petitioner had filed against private respondent on the ground that the Regional Trial
Court of Quezon City did not acquire jurisdiction over private respondent, a nonresident foreign
Plaintiff contends that it is not subject to the consignment tax provided in section 1459 of the Revised corporation, and of the appellate court's order denying petitioner's motion for reconsideration.
Administrative Code, because, upon the facts of the case, it is a consignee, not a consignor, of the sugar
in question. Reliance is placed upon the stipulation in the contracts to the effect that shipment is to be
made by the seller.chanroblesvirtualawlibrary chanrobles virtual law library The following are the facts:

A condition in a contract is at best prima facie evidence, and is by no means conclusive, of what actually Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila." On
transpired after its execution. In the instant case, it appears that the bills of lading coveting the sugar in the other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is a
question were indorsed in blank and delivered to the plaintiff by the agent of the seller before the vessels nonresident foreign corporation existing under the laws of the former Federal Republic of Germany,
left port. This indorsement operates to pass title to, and constitutes a constructive but nonetheless with principal office at Munich, Germany.
complete delivery of, the merchandise to the plaintiff at the point of shipment. (4 R. C. L. p., 31.)Under
such circumstance, plaintiff alone could logically ship the cargo to its New York On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with Special
office.chanroblesvirtualawlibrary chanrobles virtual law library Power of Attorney," which reads in full as follows:

Appellant seems to labor under an erroneous impression that it could not be a consignor because the WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark
vendor was the party "who made out and signed the bills of lading and placed the sugar on board the and device in the Philippines which ASSIGNOR uses and has been using on the
ship." Be this as it may, a matter which is disputed by the appellee, the making out of bills of lading and products manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized
the placing of the merchandise aboard the ship supply no decisive criterion for determining who the exclusive Dealer of the ASSIGNEE in the Philippines, the same being evidenced by
actual consignor is, for the application of the tax in question. The tax imposed by law is on merchandise certificate of registration issued by the Director of Patents on 12 December 1963 and
"consigned aboard" and not from one party to another within the Philippines. The party, therefore, who is referred to as Trademark No. 10625;
ships the merchandise aboard is the consignor upon whom the consignment tax applies, irrespective of
who made out the bills of lading on placed said merchandise on board the WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said
vessel.chanroblesvirtualawlibrary chanrobles virtual law library transfer of the said BMW trademark and device in favor of the ASSIGNEE herein with
the Philippines Patent Office;
Judgment is affirmed, with costs against appellant.
NOW THEREFORE, in view of the foregoing and in consideration of the stipulations
Avance�a, C.J., Imperial, Diaz, Laurel and Concepcion, JJ., concur. hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in
favor of the ASSIGNEE under the following terms and conditions:

G.R. No. 113074 January 22, 1997 1. The ASSIGNEE shall take appropriate steps against any user other than
ASSIGNOR or infringer of the BMW trademark in the Philippines; for such purpose,
the ASSIGNOR shall inform the ASSIGNEE immediately of any such use or
Page 39 of 44
infringement of the said trademark which comes to his knowledge and upon such complaint to include an application for temporary restraining order and for writs of preliminary,
information the ASSIGNOR shall automatically act as Attorney-In-Fact of the mandatory and prohibitory injunction to enjoin BMW from terminating his exclusive dealership. Hahn's
ASSIGNEE for such case, with full power, authority and responsibility to prosecute amended complaint alleged in pertinent parts:
unilaterally or in concert with ASSIGNEE, any such infringer of the subject mark and
for purposes hereof the ASSIGNOR is hereby named and constituted as ASSIGNEE's 2. Defendant [BMW] is a foreign corporation doing business in the Philippines with
Attorney-In-Fact, but any such suit without ASSIGNEE's consent will exclusively be principal offices at Munich, Germany. It may be served with summons and other court
the responsibility and for the account of the ASSIGNOR, processes through the Secretary of the Department of Trade and Industry of the
Philippines. . . .
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has
been usual in the past without a formal contract, and for that purpose, the dealership xxx xxx xxx
of ASSIGNOR shall cover the ASSIGNEE's complete production program with the
only limitation that, for the present, in view of ASSIGNEE's limited production, the
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of
latter shall not be able to supply automobiles to ASSIGNOR. Assignment with Special Power of Attorney covering the trademark and in
consideration thereof, under its first whereas clause, Plaintiff was duly acknowledged
Per the agreement, the parties "continue[d] business relations as has been usual in the past without a as the "exclusive Dealer of the Assignee in the Philippines. . . .
formal contract." But on February 16, 1993, in a meeting with a BMW representative and the president
of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was
xxx xxx xxx
arranging to grant the exclusive dealership of BMW cars and products to CMC, which had expressed
interest in acquiring the same. On February 24, 1993, petitioner received confirmation of the information
from BMW which, in a letter, expressed dissatisfaction with various aspects of petitioner's business, 8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in
mentioning among other things, decline in sales, deteriorating services, and inadequate showroom and the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA"
warehouse facilities, and petitioner's alleged failure to comply with the standards for an exclusive BMW and without any monetary contribution from defendant BMW, established BMW's
dealer.2 Nonetheless, BMW expressed willingness to continue business relations with the petitioner on goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff has
the basis of a "standard BMW importer" contract, otherwise, it said, if this was not acceptable to invested a lot of money and resources in order to single-handedly compete against
petitioner, BMW would have no alternative but to terminate petitioner's exclusive dealership effective other motorcycle and car companies. . . . Moreover, Plaintiff has built buildings and
June 30, 1993. other infrastructures such as service centers and showrooms to maintain and promote
the car and products of defendant BMW.
Petitioner protested, claiming that the termination of his exclusive dealership would be a breach of the
Deed of Assignment.3 Hahn insisted that as long as the assignment of its trademark and device subsisted, xxx xxx xxx
he remained BMW's exclusive dealer in the Philippines because the assignment was made in
consideration of the exclusive dealership. In the same letter petitioner explained that the decline in sales 10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was
was due to lower prices offered for BMW cars in the United States and the fact that few customers willing to maintain with Plaintiff a relationship but only "on the basis of a standard
returned for repairs and servicing because of the durability of BMW parts and the efficiency of BMW importer contract as adjusted to reflect the particular situation in the
petitioner's service. Philippines" subject to certain conditions, otherwise, defendant BMW would terminate
Plaintiffs exclusive dealership and any relationship for cause effective June 30, 1993.
Because of Hahn's insistence on the former business relation, BMW withdrew on March 26, 1993 its ...
offer of a "standard importer contract" and terminated the exclusive dealer relationship effective June
30, 1993. 4 At a conference of BMW Regional Importers held on April 26, 1993 in Singapore, Hahn was xxx xxx xxx
surprised to find Alvarez among those invited from the Asian region. On April 29, 1993, BMW proposed
that Hahn and CMC jointly import and distribute BMW cars and parts. 15. The actuations of defendant BMW are in breach of the assignment agreement
between itself and plaintiff since the consideration for the assignment of the BMW
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific performance trademark is the continuance of the exclusive dealership agreement. It thus, follows
and damages against BMW to compel it to continue the exclusive dealership. Later he filed an amended
Page 40 of 44
that the exclusive dealership should continue for so long as defendant BMW enjoys II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING
the use and ownership of the trademark assigned to it by Plaintiff. RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF LACK OF
JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY DISMISS THE
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of the Quezon City CASE A QUO.
Regional Trial Court, which on June 14, 1993 issued a temporary restraining order. Summons and copies
of the complaint and amended complaint were thereafter served on the private respondent through the BMW asked for the immediate issuance of a temporary restraining order and, after hearing, for a writ of
Department of Trade and Industry, pursuant to Rule 14, §14 of the Rules of Court. The order, summons preliminary injunction, to enjoin the trial court from proceeding further in Civil Case No. Q-93-15933.
and copies of the complaint and amended complaint were later sent by the DTI to BMW via registered Private respondent pointed out that, unless the trial court's order was set aside, it would be forced to
mail on June 15, 19935 and received by the latter on June 24, 1993. submit to the jurisdiction of the court by filing its answer or to accept judgment in default, when the very
question was whether the court had jurisdiction over it.
On June 17, 1993, without proof of service on BMW, the hearing on the application for the writ of
preliminary injunction proceeded ex parte, with petitioner Hahn testifying. On June 30, 1993, the trial The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On December 20,
court issued an order granting the writ of preliminary injunction upon the filing of a bond of P100,000.00. 1993, it rendered judgment finding the trial court guilty of grave abuse of discretion in deferring
On July 13, 1993, following the posting of the required bond, a writ of preliminary injunction was issued. resolution of the motion to dismiss. It stated:

On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not acquire Going by the pleadings already filed with the respondent court before it came out with
jurisdiction over it through the service of summons on the Department of Trade and Industry, because it its questioned order of July 26, 1993, we rule and so hold that petitioner's (BMW)
(BMW) was a foreign corporation and it was not doing business in the Philippines. It contended that the motion to dismiss could be resolved then and there, and that the respondent judge's
execution of the Deed of Assignment was an isolated transaction; that Hahn was not its agent because deferment of his action thereon until after trial on the merit constitutes, to our mind,
the latter undertook to assemble and sell BMW cars and products without the participation of BMW and grave abuse of discretion.
sold other products; and that Hahn was an indentor or middleman transacting business in his own name
and for his own account. xxx xxx xxx

Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the Philippines . . . [T]here is not much appreciable disagreement as regards the factual matters relating
through him as its agent, as shown by the fact that BMW invoices and order forms were used to document to the motion to dismiss. What truly divide (sic) the parties and to which they greatly
his transactions; that he gave warranties as exclusive BMW dealer; that BMW officials periodically differ is the legal conclusions they respectively draw from such facts, (sic) with Hahn
inspected standards of service rendered by him; and that he was described in service booklets and maintaining that on the basis thereof, BMW is doing business in the Philippines while
international publications of BMW as a "BMW Importer" or "BMW Trading Company" in the the latter asserts that it is not.
Philippines.
Then, after stating that any ruling which the trial court might make on the motion to dismiss would
The trial court6 deferred resolution of the motion to dismiss until after trial on the merits for the reason anyway be elevated to it on appeal, the Court of Appeals itself resolved the motion. It ruled that BMW
that the grounds advanced by BMW in its motion did not seem to be indubitable. was not doing business in the country and, therefore, jurisdiction over it could not be acquired through
service of summons on the DTI pursuant to Rule 14, §14. 'The court upheld private respondent's
Without seeking reconsideration of the aforementioned order, BMW filed a petition for certiorari with contention that Hahn acted in his own name and for his own account and independently of BMW, based
the Court of Appeals alleging that: on Alfred Hahn's allegations that he had invested his own money and resources in establishing BMW's
goodwill in the Philippines and on BMW's claim that Hahn sold products other than those of BMW. It
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE held that petitioner was a mere indentor or broker and not an agent through whom private respondent
INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF BMW transacted business in the Philippines. Consequently, the Court of Appeals dismissed petitioner's
THE WRIT OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE complaint against BMW.
TERMS FOR THE ISSUANCE THEREOF.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding that the trial court
gravely abused its discretion in deferring action on the motion to dismiss and (2) in finding that private

Page 41 of 44
respondent BMW is not doing business in the Philippines and, for this reason, dismissing petitioner's commission merchants shall be the ones deemed to be doing business in the
case. Philippines.

Petitioner's appeal is well taken. Rule 14, §14 provides: The question is whether petitioner Alfred Hahn is the agent or distributor in the Philippines of private
respondent BMW. If he is, BMW may be considered doing business in the Philippines and the trial court
§14. Service upon private foreign corporations. — If the defendant is a foreign acquired jurisdiction over it (BMW) by virtue of the service of summons on the Department of Trade
corporation, or a nonresident joint stock company or association, doing business in the and Industry. Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of BMW
Philippines, service may be made on its resident agent designated in accordance with cars and products, BMW, a foreign corporation, is not considered doing business in the Philippines
law for that purpose, or, if there be no such agent, on the government official within the meaning of the Foreign Investments Act of 1991 and the IRR, and the trial court did not
designated by law to that effect, or on any of its officers or agents within the acquire jurisdiction over it (BMW).
Philippines. (Emphasis added).
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his own account
What acts are considered "doing business in the Philippines" are enumerated in §3(d) of the Foreign and not as agent or distributor in the Philippines of BMW on the ground that "he alone had contacts with
Investments Act of 1991 (R.A. No. 7042) as follows:7 individuals or entities interested in acquiring BMW vehicles. Independence characterizes Hahn's
undertakings, for which reason he is to be considered, under governing statutes, as doing business." (p.
13) In support of this conclusion, the appellate court cited the following allegations in Hahn's amended
d) the phrase "doing business" shall include soliciting orders, service contracts,
complaint:
opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totalling one hundred eighty (180) days 8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in
or more; participating in the management, supervision or control of any domestic the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA"
business, firm, entity or corporation in the Philippines; and any other act or acts that and without any monetary contributions from defendant BMW, established BMW's
imply a continuity of commercial dealings or arrangements, and contemplate to that goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff invested a
extent the performance of acts or works, or the exercise of some of the functions lot of money and resources in order to single-handedly compete against other
normally incident to, and in progressive prosecution of, commercial gain or of the motorcycle and car companies. . . . Moreover, Plaintiff has built buildings and other
purpose and object of the business organization: Provided, however, That the phrase infrastructures such as service centers and showrooms to maintain and promote the car
"doing business" shall not be deemed to include mere investment as a shareholder by and products of defendant BMW.
a foreign entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or officer to represent As the above quoted allegations of the amended complaint show, however, there is nothing to support
its interests in such corporation; nor appointing a representative or distributor the appellate court's finding that Hahn solicited orders alone and for his own account and without
domiciled in the Philippines which transacts business in its own name and for its own "interference from, let alone direction of, BMW." (p. 13) To the contrary, Hahn claimed he took orders
account. (Emphasis supplied) for BMW cars and transmitted them to BMW. Upon receipt of the orders, BMW fixed the downpayment
and pricing charges, notified Hahn of the scheduled production month for the orders, and reconfirmed
Thus, the phrase includes "appointing representatives or distributors in the Philippines" but not when the the orders by signing and returning to Hahn the acceptance sheets. Payment was made by the buyer
representative or distributor "transacts business in its name and for its own account." In addition, §1(f)(1) directly to BMW. Title to cars purchased passed directly to the buyer and Hahn never paid for the
of the Rules and Regulations implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No. 226) purchase price of BMW cars sold in the Philippines. Hahn was credited with a commission equal to 14%
provided: of the purchase price upon the invoicing of a vehicle order by BMW. Upon confirmation in writing that
the vehicles had been registered in the Philippines and serviced by him, Hahn received an additional 3%
of the full purchase price. Hahn performed after-sale services, including warranty services, for which he
(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44
of the Code. In particular, "doing business" includes: received reimbursement from BMW. All orders were on invoices and forms of BMW.8

These allegations were substantially admitted by BMW which, in its petition for certiorari before the
(1) . . . A foreign firm which does business through middlemen acting in their own
Court of Appeals, stated:9
names, such as indentors, commercial brokers or commission merchants, shall not be
deemed doing business in the Philippines. But such indentors, commercial brokers or
Page 42 of 44
9.4. As soon as the vehicles are fully manufactured and full payment of the purchase products exported by the foreign corporation and put up a service center for the products sold locally.
prices are made, the vehicles are shipped to the Philippines. (The payments may be This Court held that these acts constituted doing business in the Philippines. The arrangement showed
made by the purchasers or third-persons or even by Hahn.) The bills of lading are made that the foreign corporation's purpose was to penetrate the Philippine market and establish its presence
up in the name of the purchasers, but Hahn-Manila is therein indicated as the person in the Philippines.
to be notified.
In addition, BMW held out private respondent Hahn as its exclusive distributor in the Philippines, even
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of as it announced in the Asian region that Hahn was the "official BMW agent" in the Philippines. 13
conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the
purchasers. The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and not exclusively
in BMW products, and, on this basis, ruled that Hahn was not an agent of BMW. (p. 14) This finding is
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a based entirely on allegations of BMW in its motion to dismiss filed in the trial court and in its petition
commission of fourteen percent (14%) of the full purchase price thereof, and as soon for certiorari before the Court of Appeals.14 But this allegation was denied by Hahn15 and therefore the
as he confirms in writing that the vehicles have been registered in the Philippines and Court of Appeals should not have cited it as if it were the fact.
have been serviced by him, he will receive an additional three percent (3%) of the full
purchase prices as commission. Indeed this is not the only factual issue raised, which should have indicated to the Court of Appeals the
necessity of affirming the trial court's order deferring resolution of BMW's motion to dismiss. Petitioner
Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives a alleged that whether or not he is considered an agent of BMW, the fact is that BMW did business in the
commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely Philippines because it sold cars directly to Philippine buyers. 16 This was denied by BMW, which claimed
by bringing the buyer and the seller together, even if no sale is eventually made. that Hahn was not its agent and that, while it was true that it had sold cars to Philippine buyers, this was
done without solicitation on its part.17
As to the service centers and showrooms which he said he had put up at his own expense, Hahn said that
he had to follow BMW specifications as exclusive dealer of BMW in the Philippines. According to Hahn, It is not true then that the question whether BMW is doing business could have been resolved simply by
BMW periodically inspected the service centers to see to it that BMW standards were maintained. considering the parties' pleadings. There are genuine issues of facts which can only be determined on
Indeed, it would seem from BMW's letter to Hahn that it was for Hahn's alleged failure to maintain the basis of evidence duly presented. BMW cannot short circuit the process on the plea that to compel it
BMW standards that BMW was terminating Hahn's dealership. to go to trial would be to deny its right not to submit to the jurisdiction of the trial court which precisely
it denies. Rule 16, §3 authorizes courts to defer the resolution of a motion to dismiss until after the trial
The fact that Hahn invested his own money to put up these service centers and showrooms does not if the ground on which the motion is based does not appear to be indubitable. Here the record of the case
necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the record bristles with factual issues and it is not at all clear whether some allegations correspond to the proof.
which suggest that BMW exercised control over Hahn's activities as a dealer and made regular
inspections of Hahn's premises to enforce compliance with BMW standards and specifications. 10 For Anyway, private respondent need not apprehend that by responding to the summons it would be waiving
example, in its letter to Hahn dated February 23, 1996, BMW stated: its objection to the trial court's jurisdiction. It is now settled that, for purposes of having summons served
on a foreign corporation in accordance with Rule 14, §14, it is sufficient that it be alleged in the complaint
In the last years we have pointed out to you in several discussions and letters that we that the foreign corporation is doing business in the Philippines. The court need not go beyond the
have to tackle the Philippine market more professionally and that we are through your allegations of the complaint in order to determine whether it has Jurisdiction. 18 A determination that the
present activities not adequately prepared to cope with the forthcoming challenges.11 foreign corporation is doing business is only tentative and is made only for the purpose of enabling the
local court to acquire jurisdiction over the foreign corporation through service of summons pursuant to
Rule 14, §14. Such determination does not foreclose a contrary finding should evidence later show that
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
it is not transacting business in the country. As this Court has explained:
This case fits into the mould of Communications Materials, Inc. v. Court of Appeals,12 in which the
This is not to say, however, that the petitioner's right to question the jurisdiction of the
foreign corporation entered into a "Representative Agreement" and a "Licensing Agreement" with a
court over its person is now to be deemed a foreclosed matter. If it is true, as Signetics
domestic corporation, by virtue of which the latter was appointed "exclusive representative" in the
claims, that its only involvement in the Philippines was through a passive investment
Philippines for a stipulated commission. Pursuant to these contracts, the domestic corporation sold
in Sigfil, which it even later disposed of, and that TEAM Pacific is not its agent, then
Page 43 of 44
it cannot really be said to be doing business in the Philippines. It is a defense, however, 6 Per Judge Maximiano Asuncion.
that requires the contravention of the allegations of the complaint, as well as a full
ventilation, in effect, of the main merits of the case, which should not thus be within 7 The Foreign Investments Act of 1991 superseded Arts. 44-56 of the
the province of a mere motion to dismiss. So, also, the issue posed by the petitioner as Omnibus Investments Code.
to whether a foreign corporation which has done business in the country, but which
has ceased to do business at the time of the filing of a complaint, can still be made to
8 Rollo, pp. 96, 140-141.
answer for a cause of action which accrued while it was doing business, is another
matter that would yet have to await the reception and admission of evidence. Since
these points have seasonably been raised by the petitioner, there should be no real 9 Id., p. 141.
cause for what may understandably be its apprehension, i.e., that by its participation
during the trial on the merits, it may, absent an invocation of separate or independent 10 Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44 (1987).
reliefs of its own, be considered to have voluntarily submitted itself to the court's
jurisdiction.19 11 Rollo, p. 75.

Far from committing an abuse of discretion, the trial court properly deferred resolution of the motion to 12 G.R. No. 102223, Aug. 22, 1996.
dismiss and thus avoided prematurely deciding a question which requires a factual basis, with the same
result if it had denied the motion and conditionally assumed jurisdiction. It is the Court of Appeals which, 13 Rollo, p. 213.
by ruling that BMW is not doing business on the basis merely of uncertain allegations in the pleadings,
disposed of the whole case with finality and thereby deprived petitioner of his right to be heard on his
14 Rollo, pp. 91, 163.
cause of action. Nor was there justification for nullifying the writ of preliminary injunction issued by the
trial court. Although the injunction was issued ex parte, the fact is that BMW was subsequently heard
on its defense by filing a motion to dismiss. 15 Rollo, p. 124.

WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is REMANDED to the 16 Rollo, pp. 245; 292.
trial court for further proceedings.
17 Rollo, pp. 177, 284, 600.
SO ORDERED.
18 Litton Mills, Inc. v. Court of Appeals, G.R. No. 94980, May 15, 1996;
Regalado, Romero, Puno and Torres, Jr., JJ., concur. Signetics Corp. v. Court of Appeals, 225 SCRA 737 (1993).

Footnotes 19 Signetics Corp. v. Court of Appeals, 225 SCRA at 746.

1 Per Justice Cancio C. Garcia and concurred in by Justice Ramon U.


Mabutas and Antonio M. Martinez, chairman.

2 Rollo, pp. 75-78.

3 Rollo, pp. 79-82.

4 Rollo, pp. 83-84.

5 Rollo, p. 593.
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