G.R. No.

L-24332 January 31, 1978

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.

(2) Ordering the Register of Deeds of Cebu City to cancel

Transfer Certificate of Title No. 12989 covering Lot 5983 and to
issue in lieu thereof another in the names of FELIX GO CHAN
& SONS REALTY CORPORATION and the Estate of
Concepcion Rallos in the proportion of one-half (1/2) share
each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to
deliver the possession of an undivided one-half (1/2) share of
Lot 5983 to the herein plaintiff;

Ramon Duterte for private respondent.

(4) Sentencing the defendant Juan T. Borromeo, administrator

of the Estate of Simeon Rallos, to pay to plaintiff in concept of
reasonable attorney's fees the sum of P1,000.00; and

MUOZ PALMA, J.:

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

(5) Ordering both defendants to pay the costs jointly and

severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay to
defendant Felix Co Chan & Sons Realty Corporation the sum of
P5,343.45, representing the price of one-half (1/2) share of lot
5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator of
the Estate of Simeon Rallos, to pay in concept of reasonable
attorney's fees to Felix Go Chan & Sons Realty Corporation the
sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of
Simeon Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia
Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a complaint
against the regular administrator of the Estate of Gerundia Rallos or a claim in the
Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the third-party
complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the foregoing
judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The appellate
tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of the appellant corporation
sustaining the sale in question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the
decision but the same was denied in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his principal? Applied more
particularly to the instant case, We have the query. is the sale of the undivided share of Concepcion Rallos in
lot 5983 valid although it was executed by the agent after the death of his principal? What is the law in this
jurisdiction as to the effect of the death of the principal on the authority of the agent to act for and in behalf of
the latter? Is the fact of knowledge of the death of the principal a material factor in determining the legal effect
of an act performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder
consideration.

1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of another
without being authorized by the latter, or unless he has by law a right to represent him. 3 A contract entered
into in the name of another by one who has no authority or the legal representation or who has acted beyond
his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf
it has been executed, before it is revoked by the other contracting party. 4 Article 1403 (1) of the same Code
also provides:
ART. 1403. The following contracts are unenforceable, unless they are justified:
(1) Those entered into in the name of another person by one who hi - been given no
authority or legal representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby
one party, caged the principal (mandante), authorizes another, called the agent (mandatario), to act for and in
his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent,
express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agents acts as a representative and not for himself, and (4) the agent acts
within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done within the
scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause death
of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil
Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or of the
agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is extinguished by the
death of the principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in
thejuridical basis of agency which is representation Them being an in. integration of the personality of the
principal integration that of the agent it is not possible for the representation to continue to exist once the death
of either is establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a
necessary cause for its extinction. Laurent says that the juridical tie between the principal and the agent is
severed ipso jure upon the death of either without necessity for the heirs of the fact to notify the agent of the
fact of death of the former. 9
The same rule prevails at common law the death of the principal effects instantaneous and absolute
revocation of the authority of the agent unless the Power be coupled with an interest. 10 This is the prevalent
rule in American Jurisprudence where it is well-settled that a power without an interest confer. red upon an
agent is dissolved by the principal's death, and any attempted execution of the power afterward is not binding
on the heirs or representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the
agency, subject to any exception, and if so, is the instant case within that exception? That is the determinative
point in issue in this litigation. It is the contention of respondent corporation which was sustained by
respondent court that notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-

fact, Simeon Rallos in selling the former's sham in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death of the
principal, if it has been constituted in the common interest of the latter and of the agent,
or in the interest of a third person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the principal
or of any other cause which extinguishes the agency, is valid and shall be fully effective
with respect to third persons who may have contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon
Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal
is valid and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of
the principal and (2) that the third person who contracted with the agent himself acted in good faith. Good faith
here means that the third person was not aware of the death of the principal at the time he contracted with
said agent. These two requisites must concur the absence of one will render the act of the agent invalid and
unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at
the time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is
clearly to be inferred from the pleadings filed by Simon Rallos before the trial court. 12 That Simeon Rallos
knew of the death of his sister Concepcion is also a finding of fact of the court a quo 13 and of respondent
appellate court when the latter stated that Simon Rallos 'must have known of the death of his sister, and yet he
proceeded with the sale of the lot in the name of both his sisters Concepcion and Gerundia Rallos without
informing appellant (the realty corporation) of the death of the former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion
Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack of
knowledge on the part of the agent of the death of his principal; it is not enough that the third person acted in
good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art.
1931 of the new Civil Code sustained the validity , of a sale made after the death of the principal because it
was not shown that the agent knew of his principal's demise. 15 To the same effect is the case of Herrera, et
al., v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no
proof and there is no indication in the record, that the agent Luy Kim Guan was aware
of the death of his principal at the time he sold the property. The death 6f the principal
does not render the act of an agent unenforceable, where the latter had no knowledge
of such extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that
there is no provision in the Code which provides that whatever is done by an agent having knowledge of the
death of his principal is void even with respect to third persons who may have contracted with him in good faith
and without knowledge of the death of the principal. 16

We cannot see the merits of the foregoing argument as it ignores the existence of the general rule enunciated
in Article 1919 that the death of the principal extinguishes the agency. That being the general rule it follows
a fortiorithat any act of an agent after the death of his principal is void ab initio unless the same fags under the
exception provided for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the
general rule, is to be strictly construed, it is not to be given an interpretation or application beyond the clear
import of its terms for otherwise the courts will be involved in a process of legislation outside of their judicial
function.

the power of attorney. But Vallejo denied having executed the power The lower court
sustained Vallejo and the plaintiff Blondeau appealed. Reversing the decision of the
court a quo, the Supreme Court, quoting the ruling in the case of Eliason v.
Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the
defendant- appellee must be overruled. Agustin Nano had
possession of Jose Vallejo's title papers. Without those title
papers handed over to Nano with the acquiescence of Vallejo, a
fraud could not have been perpetuated. When Fernando de la
Canters, a member of the Philippine Bar and the husband of
Angela Blondeau, the principal plaintiff, searched the
registration record, he found them in due form including the
power of attorney of Vallajo in favor of Nano. If this had not
been so and if thereafter the proper notation of the
encumbrance could not have been made, Angela Blondeau
would not have sent P12,000.00 to the defendant Vallejo.' An
executed transfer of registered lands placed by the registered
owner thereof in the hands of another operates as a
representation to a third party that the holder of the transfer is
authorized to deal with the land.

5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power
of attorney which was duly registered on the original certificate of title recorded in the Register of Deeds of the
province of Cebu, that no notice of the death was aver annotated on said certificate of title by the heirs of the
principal and accordingly they must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting with certain persons, the
revocation must be made known to them. But if the agency is general iii nature, without
reference to particular person with whom the agent is to contract, it is sufficient that the
principal exercise due diligence to make the revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom represents' on
should be made, it is the general opinion that all acts, executed with third persons who
contracted in good faith, Without knowledge of the revocation, are valid. In such case,
the principal may exercise his right against the agent, who, knowing of the revocation,
continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561
and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of terminating an
agency which is to be distinguished from revocation by operation of law such as death of the principal which
obtains in this case. On page six of this Opinion We stressed that by reason of the very nature of the
relationship between principal and agent, agency is extinguished ipso jure upon the death of either principal or
agent. Although a revocation of a power of attorney to be effective must be communicated to the parties
concerned, 18 yet a revocation by operation of law, such as by death of the principal is, as a rule,
instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an
execution of the principal's continuing will. 19 With death, the principal's will ceases or is the of authority is
extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the
Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in the
meantime adopt such measures as the circumstances may demand in the interest of the latter. Hence, the fact
that no notice of the death of the principal was registered on the certificate of title of the property in the Office
of the Register of Deeds, is not fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the former sufficient protection,
respondent court drew a "parallel" between the instant case and that of an innocent purchaser for value of a
land, stating that if a person purchases a registered land from one who acquired it in bad faith even to the
extent of foregoing or falsifying the deed of sale in his favor the registered owner has no recourse against
such innocent purchaser for value but only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v.
Nano and Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo
was a co-owner of lands with Agustin Nano. The latter had a power of attorney
supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land
titles. The power was registered in the Office of the Register of Deeds. When the
lawyer-husband of Angela Blondeau went to that Office, he found all in order including

As between two innocent persons, one of whom must suffer the

consequence of a breach of trust, the one who made it possible
by his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We are confronted
with one who admittedly was an agent of his sister and who sold the property of the latter after her death with
full knowledge of such death. The situation is expressly covered by a provision of law on agency the terms of
which are clear and unmistakable leaving no room for an interpretation contrary to its tenor, in the same
manner that the ruling in Blondeau and the cases cited therein found a basis in Section 55 of the Land
Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any voluntary instrument
is presented for registration shall be conclusive authority from the registered owner to
the register of deeds to enter a new certificate or to make a memorandum of
registration in accordance with such instruments, and the new certificate or
memorandum Shall be binding upon the registered owner and upon all persons
claiming under him in favor of every purchaser for value and in good faith: Provided
however, That in all cases of registration provided by fraud, the owner may pursue all
his legal and equitable remedies against the parties to such fraud without prejudice,
however, to the right, of any innocent holder for value of a certificate of title. ... (Act No.
496 as amended)
7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of the
Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the death
of the principal were held to be "good", "the parties being ignorant of the death". Let us take note that the
Opinion of Justice Rogers was premised on the statement that the parties were ignorant of the death of the
principal. We quote from that decision the following:
... Here the precise point is, whether a payment to an agent when the Parties are
ignorant of the death is a good payment. in addition to the case in Campbell before
cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general
question that a payment after the death of principal is not good. Thus, a payment of
sailor's wages to a person having a power of attorney to receive them, has been held
void when the principal was dead at the time of the payment. If, by this case, it is

meant merely to decide the general proposition that by operation of law the death of
the principal is a revocation of the powers of the attorney, no objection can be taken to
it. But if it intended to say that his principle applies where there was 110 notice of
death, or opportunity of twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident
circumstance of the death of the principal, which he did not know, and which by no
possibility could he know? It would be unjust to the agent and unjust to the debtor. In
the civil law, the acts of the agent, done bona fide in ignorance of the death of his
principal are held valid and binding upon the heirs of the latter. The same rule holds in
the Scottish law, and I cannot believe the common law is so unreasonable... (39 Am.
Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made
that the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court
said.
There are several cases which seem to hold that although, as a general principle,
death revokes an agency and renders null every act of the agent thereafter performed,
yet that where a payment has been made in ignorance of the death, such payment will
be good. The leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S.
(Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii broadly announced. It
is referred to, and seems to have been followed, in the case of Dick v. Page,17 Mo.
234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased
principal had received the benefit of the money paid, and therefore the representative
of the estate might well have been held to be estopped from suing for it again. . . .
These cases, in so far, at least, as they announce the doctrine under discussion, are
exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S. 282,
39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle
in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except so far
as it related to the particular facts, was a mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial
indication of his views on the general subject, than as the adjudication of the Court
upon the point in question. But accordingly all power weight to this opinion, as the
judgment of a of great respectability, it stands alone among common law authorities
and is opposed by an array too formidable to permit us to following it. (15 Cal. 12,17,
cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no such
conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides for two
exceptions to the general rule that death of the principal revokes ipso jure the agency, to wit: (1) that the
agency is coupled with an interest (Art 1930), and (2) that the act of the agent was executed without
knowledge of the death of the principal and the third person who contracted with the agent acted also in good
faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress the indispensable
requirement that the agent acted without knowledge or notice of the death of the principal In the case before
Us the agent Ramon Rallos executed the sale notwithstanding notice of the death of his principal Accordingly,
the agent's act is unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We affirm en
toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, quoted in
pages 2 and 3 of this Opinion, with costs against respondent realty corporation at all instances.
So Ordered.

G.R. No. L-67889 October 10, 1985

PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and TERESITA NACIANCENO, respondents.
Payawal, Jimenez & Associates for petitioners.
Nelson A. Loyola for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review of the decision of the Intermediate Appellate Court affirming in toto the judgment of
the Court of First Instance of Manila, Branch XXI, which ordered the petitioner to pay respondent the thirty
percent (30%) commission on 15,666 pieces of Philippine flags worth P936,960.00, moral damages, attorney's
fees and the costs of the suit.
Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing officials of the then Department
of Education and Culture, hereinafter called Department, to purchase without public bidding, one million pesos
worth of national flags for the use of public schools throughout the country. The respondent was able to
expedite the approval of the purchase by hand-carrying the different indorsements from one office to another,
so that by the first week of September, 1974, all the legal requirements had been complied with, except the
release of the purchase orders. When Nacianceno was informed by the Chief of the Budget Division of the
Department that the purchase orders could not be released unless a formal offer to deliver the flags in
accordance with the required specifications was first submitted for approval, she contacted the owners of the
United Flag Industry on September 17, 1974. The next day, after the transaction was discussed, the following
document (Exhibit A) was drawn up:
Mrs. Tessie Nacianceno,
This is to formalize our agreement for you to represent United Flag Industry to deal
with any entity or organization, private or government in connection with the marketing
of our products-flags and all its accessories.
For your service, you will be entitled to a commission of thirty
(30%) percent.
Signed
Mr. Primitive Siasat
Owner and Gen. Manager
On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry. The next day, on
October 17, 1974, the respondent's authority to represent the United Flag Industry was revoked by petitioner
Primitivo Siasat.
According to the findings of the courts below, Siasat, after receiving the payment of P469,980.00 on October
23, 1974 for the first delivery, tendered the amount of P23,900.00 or five percent (5%) of the amount received,
to the respondent as payment of her commission. The latter allegedly protested. She refused to accept the
said amount insisting on the 30% commission agreed upon. The respondent was prevailed upon to accept the
same, however, because of the assurance of the petitioners that they would pay the commission in full after
they delivered the other half of the order. The respondent states that she later on learned that petitioner Siasat

had already received payment for the second delivery of 7,833 flags. When she confronted the petitioners,
they vehemently denied receipt of the payment, at the same time claiming that the respondent had no
participation whatsoever with regard to the second delivery of flags and that the agency had already been
revoked.
The respondent originally filed a complaint with the Complaints and Investigation Office in Malacaang but
when nothing came of the complaint, she filed an action in the Court of First Instance of Manila to recover the
following commissions: 25%, as balance on the first delivery and 30%, on the second delivery.
The trial court decided in favor of the respondent. The dispositive portion of the decision reads as follows:
WHEREFORE, judgment is hereby rendered sentencing Primitivo Siasat to pay to the
plaintiff the sum of P281,988.00, minus the sum P23,900.00, with legal interest from
the date of this decision, and ordering the defendants to pay jointly and solidarily the
sum of P25,000.00 as moral damages, and P25,000.00 as attorney's fees, also with
legal interest from the date of this decision, and the costs.
The decision was affirmed in toto by the Intermediate Appellate Court. After their motion for reconsideration
was denied, the petitioners went to this Court on a petition for review on August 6, 1984.
In assailing the appellate court's decision, the petition tenders the following arguments: first, the authorization
making the respondent the petitioner's representative merely states that she could deal with any entity in
connection with the marketing of their products for a commission of 30%. There was no specific authorization
for the sale of 15,666 Philippine flags to the Department; second, there were two transactions involved
evidenced by the separate purchase orders and separate delivery receipts, Exhibit 6-C for the purchase and
deliver on October 16, 1974, and Exhibits 7 to 7-C, for the purchase and delivery on November 6, 1974. The
revocation of agency effected by the parties with mutual consent on October 17, 1974, therefore, forecloses
the respondent's claim of 30% commission on the second transaction; and last, there was no basis for the
granting of attorney's fees and moral damages because there was no showing of bad faith on the part of the
petitioner. It was respondent who showed bad faith in denying having received her commission on the first
delivery. The petitioner's counterclaim, therefore, should have been granted.
This petition was initially dismissed for lack of merit in a minute resolution.On a motion for reconsideration,
however,this Court give due course to the petition on November 14, 1984.
After a careful review of the records, we are constrained to sustain with some modifications the decision of the
appellate court.
We find respondent's argument regarding respondent's incapacity to represent them in the transaction with the
Department untenable. There are several kinds of agents. To quote a commentator on the matter:
An agent may be (1) universal: (2) general, or (3) special. A universal; agent is one
authorized to do all acts for his principal which can lawfully be delegated to an agent.
So far as such a condition is possible, such an agent may be said to have universal
authority. (Mec. Sec. 58).
A general agent is one authorized to do all acts pertaining to a business of a certain
kind or at a particular place, or all acts pertaining to a business of a particular class or
series. He has usually authority either expressly conferred in general terms or in effect
made general by the usages, customs or nature of the business which he is authorized
to transact.
An agent, therefore, who is empowered to transact all the business of his principal of a
particular kind or in a particular place, would, for this reason, be ordinarily deemed a
general agent. (Mec Sec. ,30).

A special agent is one authorized to do some particular act or to act upon some
particular occasion. lie acts usually in accordance with specific instructions or under
limitations necessarily implied from the nature of the act to be done. (Mec. Sec. 61)
(Padilla, Civil Law The Civil Code Annotated, Vol. VI, 1969 Edition, p. 204).
One does not have to undertake a close scrutiny of the document embodying the agreement between the
petitioners and the respondent to deduce that the 'latter was instituted as a general agent. Indeed, it can easily
be seen by the way general words were employed in the agreement that no restrictions were intended as to
the manner the agency was to be carried out or in the place where it was to be executed. The power granted
to the respondent was so broad that it practically covers the negotiations leading to, and the execution of, a
contract of sale of petitioners' merchandise with any entity or organization.
There is no merit in petitioners' allegations that the contract of agency between the parties was entered into
under fraudulent representation because respondent "would not disclose the agency with which she was
supposed to transact and made the petitioner believe that she would be dealing with The Visayas", and that
"the petitioner had known of the transactions and/or project for the said purchase of the Philippine flags by the
Department of Education and Culture and precisely it was the one being followed up also by the petitioner."
If the circumstances were as claimed by the petitioners, they would have exerted efforts to protect their
interests by limiting the respondent's authority. There was nothing to prevent the petitioners from stating in the
contract of agency that the respondent could represent them only in the Visayas. Or to state that the
Department of Education and Culture and the Department of National Defense, which alone would need a
million pesos worth of flags, are outside the scope of the agency. As the trial court opined, it is incredible that
they could be so careless after being in the business for fifteen years.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of Court states that "when
the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms,
and, therefore, there can be between the parties and their successors-in-interest, no evidence of the terms of
the agreement other than the contents of the writing", except in cases specifically mentioned in the same rule.
Petitioners have failed to show that their agreement falls under any of these exceptions. The respondent was
given ample authority to transact with the Department in behalf of the petitioners. Equally without merit is the
petitioners' proposition that the transaction involved two separate contracts because there were two purchase
orders and two deliveries. The petitioners' evidence is overcome by other pieces of evidence proving that
there was only one transaction.
The indorsement of then Assistant Executive Secretary Roberto Reyes to the Budget Commission on
September 3, 1974 (Exhibit "C") attests to the fact that out of the total budget of the Department for the fiscal
year 1975, "P1,000,000.00 is for the purchase of national flags." This is also reflected in the Financial and
Work Plan Request for Allotment (Exhibit "F") submitted by Secretary Juan Manuel for fiscal year 1975 which
however, divided the allocation and release of the funds into three, corresponding to the second, third, and
fourth quarters of the said year. Later correspondence between the Department and the Budget Commission
(Exhibits "D" and "E") show that the first allotment of P500.000.00 was released during the second quarter.
However, due to the necessity of furnishing all of the public schools in the country with the Philippine flag,
Secretary Manuel requested for the immediate release of the programmed allotments intended for the third
and fourth quarters. These circumstances explain why two purchase orders and two deliveries had to be made
on one transaction.
The petitioners' evidence does not necessarily prove that there were two separate transactions. Exhibit "6" is a
general indorsement made by Secretary Manuel for the purchase of the national flags for public schools. It
contains no reference to the number of flags to be ordered or the amount of funds to be released. Exhibit "7" is
a letter request for a "similar authority" to purchase flags from the United Flag Industry. This was, however,
written by Dr. Narciso Albarracin who was appointed Acting Secretary of the Department after Secretary
Manuel's tenure, and who may not have known the real nature of the transaction.
If the contracts were separate and distinct from one another, the whole or at least a substantial part of the
government's supply procurement process would have been repeated. In this case, what were issued were
mere indorsements for the release of funds and authorization for the next purchase.

Since only one transaction was involved, we deny the petitioners' contention that respondent Nacianceno is
not entitled to the stipulated commission on the second delivery because of the revocation of the agency
effected after the first delivery. The revocation of agency could not prevent the respondent from earning her
commission because as the trial court opined, it came too late, the contract of sale having been already
perfected and partly executed.

This leaves the expert testimony as the sole basis for the verdict of forgery.
In support of their allegation of full payment as evidenced by the signed authorization letter (Exhibit "5-A"), the
petitioners presented as witness Mr. Francisco Cruz. Jr., a senior document examiner of the Philippine
Constabulary Crime laboratory. In rebuttal, the respondent presented Mr. Arcadio Ramos, a junior document
examiner of the National Bureau of Investigation.

In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in principle, this Court held:
We do not mean to question the general doctrine as to the power of a principal to
revoke the authority of his agent at will, in the absence of a contract fixing the duration
of the agency (subject, however, to some well defined exceptions). Our ruling is that at
the time fixed by the manager of the plaintiff company for the termination of the
negotiations, the defendant real estate agent had already earned the commissions
agreed upon, and could not be deprived thereof by the arbitrary action of the plaintiff
company in declining to execute the contract of sale for some reason personal to itself.
The principal cannot deprive his agent of the commission agreed upon by cancelling the agency and,
thereafter, dealing directly with the buyer. (Infante v. Cunanan, 93 Phil. 691).
The appellate courts citation of its previous ruling in Heimbrod et al. v. Ledesma (C.A. 49 O.G. 1507) is
correct:
The appellee is entitled to recovery. No citation is necessary to show that the general
law of contracts the equitable principle of estoppel. and the expense of another, uphold
payment of compensation for services rendered.
There is merit, however, in the petitioners' contention that the agent's commission on the first delivery was fully
paid. The evidence does not sustain the respondent's claim that the petitioners paid her only 5% and that their
right to collect another 25% commission on the first delivery must be upheld.
When respondent Nacianceno asked the Malacanang Complaints and Investigation Office to help her collect
her commission, her statement under oath referred exclusively to the 30% commission on the second delivery.
The statement was emphatic that "now" her demand was for the 30% commission on the (second) release of
P469,980.00. The demand letter of the respondent's lawyer dated November 13, 1984 asked petitioner Siasat
only for the 30% commission due from the second delivery. The fact that the respondent demanded only the
commission on the second delivery without reference to the alleged unpaid balance which was only slightly
less than the amount claimed can only mean that the commission on the first delivery was already fully paid,
Considering the sizeable sum involved, such an omission is too glaringly remiss to be regarded as an
oversight.

While the experts testified in a civil case, the principles in criminal cases involving forgery are applicable.
Forgery cannot be presumed. It must be proved.
In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:
xxx xxx xxx
... Where the evidence, as here, gives rise to two probabilities, one consistent with the
defendant's innocence and another indicative of his guilt, that which is favorable to the
accused should be considered. The constitutional presumption of innocence continues
until overthrown by proof of guilt beyond reasonable doubt, which requires moral
certainty which convinces and satisfies the reason and conscience of those who are to
act upon it. (People v. Clores, et al., 125 SCRA 67; People v. Bautista, 81 Phil. 78).
We ruled in another case that where the supposed expert's testimony would constitute the sole ground for
conviction and there is equally convincing expert testimony to the contrary, the constitutional presumption of
innocence must prevail. (Lorenzo Ga. Cesar v. Hon. Sandiganbayan and People of the Philippines, 134 SCRA
105). In the present case, the circumstances earlier mentioned taken with the testimony of the PC senior
document examiner lead us to rule against forgery.
We also rule against the respondent's allegation that the petitioners acted in bad faith when they revoked the
agency given to the respondent.
Fraud and bad faith are matters not to be presumed but matters to be alleged with sufficient facts. To support
a judgment for damages, facts which justify the inference of a lack or absence of good faith must be alleged
and proven. (Bacolod-Murcia Milling Co., Inc. vs. First Farmers Milling Co., Inc., Etc., 103 SCRA 436).
There is no evidence on record from which to conclude that the revocation of the agency was deliberately
effected by the petitioners to avoid payment of the respondent's commission. What appears before us is only
the petitioner's use in court of such a factual allegation as a defense against the respondent's claim. This
alone does not per se make the petitioners guilty of bad faith for that defense should have been fully litigated.

Moreover, the respondent's authorization letter (Exhibit "5") bears her signature with the handwritten words
"Fully Paid", inscribed above it.

Moral damages cannot be awarded in the absence of a wrongful act or omission or of fraud or bad faith. (R &
B Surety & Insurance Co., Inc. vs. Intermediate Appellate Court, 129 SCRA 736).

The respondent contested her signature as a forgery, Handwriting experts from two government agencies
testified on the matter. The reason given by the trial court in ruling for the respondent is too flimsy to warrant a
finding of forgery.

We therefore, rule that the award of P25,000.00 as moral damages is without basis.

The court stated that in thirteen documents presented as exhibits, the private respondent signed her name as
"Tessie Nacianceno" while in this particular instance, she signed as "T. Nacianceno."

The additional award of P25,000.00 damages by way of attorney's fees, was given by the courts below on the
basis of Article 2208, Paragraph 2, of the Civil Code, which provides: "When the defendant's act or omission
has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interests;" attorney's
fees may be awarded as damages. (Pirovano et al. v. De la Rama Steamship Co., 96 Phil. 335).

The stated basis is inadequate to sustain the respondent's allegation of forgery. A variance in the manner the
respondent signed her name can not be considered as conclusive proof that the questioned signature is a
forgery. The mere fact that the respondent signed thirteen documents using her full name does not rule out the
possibility of her having signed the notation "Fully Paid", with her initial for the given came and the surname
written in full. What she was signing was a mere acknowledgment.

The underlying circumstances of this case lead us to rule out any award of attorney's fees. For one thing, the
respondent did not come to court with completely clean hands. For another, the petitioners apparently believed
they could legally revoke the agency in the manner they did and deal directly with education officials handling
the purchase of Philippine flags. They had reason to sincerely believe they did not have to pay a commission
for the second delivery of flags.

We cannot close this case without commenting adversely on the inexplicably strange procurement policies of
the Department of Education and Culture in its purchase of Philippine flags. There is no reason why a
shocking 30% of the taxpayers' money should go to an agent or facilitator who had no flags to sell and whose
only work was to secure and handcarry the indorsements of education and budget officials. There are only a
few manufacturers of flags in our country with the petitioners claiming to have supplied flags for our public
schools on earlier occasions. If public bidding was deemed unnecessary, the Department should have
negotiated directly with flag manufacturers. Considering the sad plight of underpaid and overworked
classroom teachers whose pitiful salaries and allowances cannot sometimes be paid on time, a P300,000.00
fee for a P1,000,000.00 purchase of flags is not only clearly unnecessary but a scandalous waste of public
funds as well.
WHEREFORE, the decision of the respondent court is hereby MODIFIED. The petitioners are ordered to pay
the respondent the amount of ONE HUNDRED FOURTY THOUSAND NINE HUNDRED AND NINETY FOUR
PESOS (P140,994.00) as her commission on the second delivery of flags with legal interest from the date of
the trial court's decision. No pronouncement as to costs.

enlargement of the heart and severe thyroid enlargement in the discharge of his duties as cook which
rendered him disabled.
Respondents total claim against petitioners was P864,343.30 plus P117,557.60 representing
interest and P195,928.66 representing attorneys fees. [3]

By Decision[4] of August 29, 2003, Labor Arbiter Fe Superiaso-Cellan dismissed respondents

complaint for lack of merit.
On appeal,[5] the NLRC, by Decision of September 27, 2004, reversed the Labor Arbiters decision

SO ORDERED.

and awarded US$50,000.00 disability benefit to respondent. It dismissed respondents other claims, however,
SECOND DIVISION
J-PHIL MARINE, INC. and/or JESUS CANDAVA and NORMAN
SHIPPING SERVICES,
Petitioners,

for lack of basis or jurisdiction. [6] Petitioners Motion for Reconsideration[7] having been denied by the NLRC,
G.R. No. 175366

NATIONAL LABOR
RELATIONS COMMISSION and WARLITO E.
DUMALAOG,
Respondents.

they filed a petition for certiorari[9] before the Court of Appeals.

Present:
QUISUMBING, J., Chairperson,
CORONA,*
CARPIO MORALES,
VELASCO, JR., and
BRION, JJ.

- versus -

[8]

Promulgated:
August 11, 2008

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

By Resolution[10] of September 22, 2005, the Court of Appeals dismissed petitioners petition
for, inter alia, failure to attach to the petition all material documents, and for defective verification and
certification. Petitioners Motion for Reconsideration of the appellate courts Resolution was denied; [11] hence,
they filed the present Petition for Review on Certiorari.
During the pendency of the case before this Court, respondent, against the advice of his counsel,
entered into a compromise agreement with petitioners. He thereupon signed a Quitclaim and Release
subscribed and sworn to before the Labor Arbiter.[12]

DECISION
On May 8, 2007, petitioners filed before this Court a Manifestation [13] dated May 7, 2007 informing
CARPIO MORALES, J.:
Warlito E. Dumalaog (respondent), who served as cook aboard vessels plying overseas, filed on
March 4, 2002 before the National Labor Relations Commission (NLRC) a pro-forma complaint [1] against
petitioners manning agency J-Phil Marine, Inc. (J-Phil), its then president Jesus Candava, and its foreign
principal Norman Shipping Services for unpaid money claims, moral and exemplary damages, and
attorneys fees.
Respondent thereafter filed two amended pro forma complaints [2] praying for the award of overtime
pay, vacation leave pay, sick leave pay, and disability/medical benefits, he having, by his claim, contracted

that, inter alia, they and respondent had forged an amicable settlement.
On July 2, 2007, respondents counsel filed before this Court a Comment and Opposition (to
Petitioners Manifestation of May 7, 2007)[14] interposing no objection to the dismissal of the petition but objecting
to the absolution of petitioners from paying respondent the total amount of Fifty Thousand US Dollars
(US$50,000.00) or approximatelyP2,300,000.00, the amount awarded by the NLRC, he adding that:
There being already a payment of P450,000.00, and invoking the
doctrine of parens patriae, we pray then [to] this Honorable Supreme Court that
the said amount be deducted from the [NLRC] judgment award of US$50,000.00,
or approximately P2,300,000.00, and petitioners be furthermore ordered to pay in
favor of herein respondent [the] remaining balance thereof.
x x x x[15] (Emphasis in the original; underscoring supplied)

Respondents counsel also filed before this Court, purportedly on behalf of respondent, a
Comment[16] on the present petition.

within the scope of his authority.[23] The circumstances of this case indicate that respondents counsel is acting
beyond the scope of his authority in questioning the compromise agreement.

The parties having forged a compromise agreement as respondent in fact has executed a Quitclaim
and Release, the Court dismisses the petition.

That a client has undoubtedly the right to compromise a suit without the intervention of his
lawyer

[24]

cannot be gainsaid, the only qualification being that if such compromise is entered into with the intent

of defrauding the lawyer of the fees justly due him, the compromise must be subject to the said fees. [25] In the
Article 227 of the Labor Code provides:
Any compromise settlement, including those involving labor standard
laws, voluntarily agreed upon by the parties with the assistance of the
Department of Labor, shall be final and binding upon the parties. The National
Labor Relations Commission or any court shall not assume jurisdiction over issues
involved therein except in case of non-compliance thereof or if there is prima
facie evidence
that
the
settlement
was
obtained
through fraud,
misrepresentation, or coercion. (Emphasis and underscoring supplied)

case at bar, there is no showing that respondent intended to defraud his counsel of his fees. In fact, the
Quitclaim and Release, the execution of which was witnessed by petitioner J-Phils president Eulalio C.
Candava and one Antonio C. Casim, notes that the 20% attorneys fees would be paid 12 April 2007 P90,000.
WHEREFORE, the petition is, in light of all the foregoing discussion, DISMISSED.
Let a copy of this Decision be furnished respondent, Warlito E. Dumalaog, at his given address

In Olaybar v. NLRC,[17] the Court, recognizing the conclusiveness of compromise settlements as a

means to end labor disputes, held that Article 2037 of the Civil Code, which provides that [a] compromise has

at No. 5-B Illinois Street, Cubao, Quezon City.

upon the parties the effect and authority of res judicata, applies suppletorily to labor cases even if the

SO ORDERED.

compromise is not judicially approved.[18]

February 27, 1907
That respondent was not assisted by his counsel when he entered into the compromise does not
render it null and void. Eurotech Hair Systems, Inc. v. Go[19] so enlightens:
A compromise agreement is valid as long as the consideration is
reasonable and the employee signed the waiver voluntarily, with a full
understanding of what he was entering into.All that is required for the compromise
to be deemed voluntarily entered into is personal and specific individual
consent. Thus, contrary to respondents contention, the employees counsel need
not be present at the time of the signing of the compromise agreement .
[20]
(Underscoring supplied)

It bears noting that, as reflected earlier, the Quitclaim and Waiver was subscribed and sworn to
before the Labor Arbiter.

G.R. No. 2962

B. H. MACKE, ET AL., plaintiffs-appellees,
vs.
JOSE CAMPS, defendant-appellant.

Manuel G. Gavieres for appellant.

Gibbs & Gale for appellees.

Respondents counsel nevertheless argues that [t]he amount of Four Hundred Fifty Thousand Pesos
(P450,000.00) given to respondent on April 4, 2007, as full and final settlement of judgment award, is

CARSON, J.:

unconscionably low, and un-[C]hristian, to say the least. [21] Only respondent, however, can impugn the
consideration of the compromise as being unconscionable.

The plaintiffs in this action, B. H. Macke and W. H. Chandler, partners doing business under the firm name of
Macke, Chandler & Company, allege that during the months of February and March, 1905, they sold to the

The relation of attorney and client is in many respects one of agency, and the general rules of
agency apply to such relation.[22] The acts of an agent are deemed the acts of the principal only if the agent acts

defendant and delivered at his place of business, known as the "Washington Cafe," various bills of goods
amounting to P351.50; that the defendant has only paid on account of said accounts the sum of P174; that

there is still due them on account of said goods the sum of P177.50; that before instituting this action they

himself or for some one else that it to say, whether Flores was managing the business as agent or

made demand for the payment thereof; and that defendant had failed and refused to pay the said balance or

sublessee.

any part of it up to the time of the filing of the complaint.

The defendant did not go on the stand nor call any witnesses, and relies wholly on his contention that the
B. H. Macke, one of the plaintiffs, testified that on the order of one Ricardo Flores, who represented himself to

foregoing facts are not sufficient to establish the fact that he received the goods for which payment is

be agent of the defendant, he shipped the said goods to the defendants at the Washington Cafe; that Flores

demanded.

later acknowledged the receipt of said goods and made various payments thereon amounting in all to P174;
that on demand for payment of balance of the account Flores informed him that he did not have the necessary
funds on hand, and that he would have to wait the return of his principal, the defendant, who was at that time
visiting in the provinces; that Flores acknowledged the bill for the goods furnished and the credits being the

In the absence of proof of the contrary we think that this evidence is sufficient to sustain a finding that Flores
was the agent of the defendant in the management of the bar of the Washington Cafe with authority to bind
the defendant, his principal, for the payment of the goods mentioned in the complaint.

amount set out in the complaint; that when the goods were ordered they were ordered on the credit of the
The contract introduced in evidence sufficiently establishes the fact that the defendant was the owner of
defendant and that they were shipped by the plaintiffs after inquiry which satisfied the witness as to the credit
business and of the bar, and the title of "managing agent" attached to the signature of Flores which appears
of the defendant and as to the authority of Flores to act as his agent; that the witness always believed and still
on that contract, together with the fact that, at the time the purchases in question were made, Flores was
believes that Flores was the agent of the defendant; and that when he went to the Washington Cafe for the
apparently in charge of the business, performing the duties usually entrusted to managing agent, leave little
purpose of collecting his bill he found Flores, in the absence of the defendant in the provinces, apparently in
room for doubt that he was there as authorized agent of the defendant. One who clothes another apparent
charge of the business and claiming to be the business manager of the defendant, said business being that of
authority as his agent, and holds him out to the public as such, can not be permitted to deny the authority of
a hotel with a bar and restaurant annexed.
such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good
A written contract dated May 25, 1904, was introduced in evidence, from which it appears that one Galmes,
the former owner of the business now know as the "Washington Cafe," subrented the building wherein the

faith and in the following preassumptions or deductions, which the law expressly directs to be made from
particular facts, are deemed conclusive:

business was conducted, to the defendant for a period of one year, for the purpose of carrying on that
(1) "Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another
business, the defendant obligating himself not to sublet or subrent the building or the business without the
to believe a particular thing true, and to act upon such belief, he can not, in any litigation arising out such
consent of the said Galmes. This contract was signed by the defendant and the name of Ricardo Flores
declaration, act, or omission, be permitted to falsify it" (subsec. 1, sec. 333, Act no. 190); and unless the
appears thereon as a witness, and attached thereto is an inventory of the furniture and fittings which also is
contrary appears, the authority of an agent must be presumed to include all the necessary and usual means of
signed by the defendant with the word "sublessee" (subarrendatario) below the name, and at the foot of this
carrying his agency into effect. (15 Conn., 347; 90 N. C. 101; 15 La. Ann, 247; 43 Mich., 364; 93 N. Y., 495; 87
inventory the word "received" (recibo) followed by the name "Ricardo Flores," with the words "managing
Ind., 187.)
agent" (el manejante encargado) immediately following his name.
That Flores, as managing agent of the Washington Cafe, had authority to buy such reasonable quantities of
Galmes was called to the stand and identified the above- described document as the contract and inventory
supplies as might from time to time be necessary in carrying on the business of hotel bar may fairly be
delivered to him by the defendant, and further stated that he could not tell whether Flores was working for
presumed from the nature of the business, especially in view of the fact that his principal appears to have left

him in charge during more or less prolonged periods of absence; from an examination of the items of the
account attached to the complaint, we are of opinion that he was acting within the scope of his authority in
ordering these goods are binding on his principal, and in the absence of evidence to the contrary, furnish
satisfactory proof of their delivery as alleged in the complaint.

The judgment of the trial court is affirmed with the costs of his instance against the appellant. After expiration
of twenty days judgment will be rendered in accordance herewith, and ten days thereafter the case remanded
to the lower court for proper action. So ordered.
BIENVENIDO C. TEOCO and G.R. No. 162333
JUAN C. TEOCO, JR.,
Petitioners, Present:
YNARES-SANTIAGO, J.,
Chair
person,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
REYES, and
LEONARDO-DE CASTRO,* JJ.
METROPOLITAN BANK Promulgated:
AND TRUST COMPANY,
Respondent. December 23, 2008
x--------------------------------------------------x
DECISION
REYES, R.T., J.:

REAL creditors are rarely unwilling to receive their debts from any hand which will pay them. [1] Ang
tunay na may pautang ay bihirang tumanggi sa kabayaran mula kaninuman.

This is a petition for review on certiorari seeking the reversal of the Decision [2] of the Court of

Metrobank, in its reply, alleged that the amount deposited by the brothers Teoco as redemption price was not

Appeals (CA) in CA-G.R. CV No. 58891 dated February 20, 2004 which annulled and set aside the decision of

sufficient, not being in accordance with Section 78 of the General Banking Act. Metrobank also said the

the Regional Trial Court (RTC) of Catbalogan, Samar on July 22, 1997 in Cadastral Record No.

assignment of the right of redemption by the spouses Co in favor of the brothers Teoco was not properly

1378. The RTC originally dismissed the petition for writ of possession filed by respondent Metropolitan Bank

executed, as it lacks the necessary authentication from the Philippine Embassy.

and Trust Company (Metrobank) on the ground that intervenors and present petitioners, the brothers
Bienvenido Teoco and Juan Teoco, Jr. (the brothers Teoco), have redeemed the subject property. The CA

On February 24, 1995, the trial court was informed that the brothers Teoco had deposited the amount

reversed this dismissal and ordered the issuance of a writ of possession in favor of respondent Metrobank.

of P356,297.57 to the clerk of court of the RTC in Catbalogan, Samar. The trial court ordered Metrobank to
disclose whether it is allowing the brothers Teoco to redeem the subject properties. Metrobank refused to

Culled from the records, the facts are as follows:

accept the amount deposited by the brothers Teoco, alleging that they are obligated to pay the spouses Cos
subsequent obligations to Metrobank as well. The brothers Teoco claimed that they are not bound to pay all

Lydia T. Co, married to Ramon Co, was the registered owner of two parcels of land situated in

the obligations of the spouses Co, but only the value of the property sold during the public auction.

Poblacion, Municipality of Catbalogan, Province of Samar under Transfer Certificate of Title (TCT) Nos. T-6220
and T-6910.[3] Ramon Co mortgaged the said parcels of land to Metrobank for a sum of P200,000.00.

On February 26, 1997, the trial court reiterated its earlier order directing Metrobank to effect summons by
publication to the spouses Co. Metrobank complied with said order by submitting documents showing that it

On February 14, 1991, the properties were sold to Metrobank in an extrajudicial foreclosure sale under Act No.

caused the publication of summons against the spouses Co. The brothers Teoco challenged this summons by

3135. One year after the registration of the Certificates of Sale, the titles to the properties were consolidated in

publication, arguing that the newspaper where the summons by publication was published, the Samar

the name of Metrobank for failure of Ramon Co to redeem the same within the one year period provided for by

Reporter, was not a newspaper of general circulation in the Philippines. The brothers Teoco furthermore

law. TCT Nos. T-6220 and T-6910 were cancelled and TCT Nos. T-8482 and T-8493 were issued in the name

argued that Metrobank did not present witnesses to identify the documents to prove summons by publication.

of Metrobank.
RTC Disposition
On November 29, 1993, Metrobank filed a petition for the issuance of a writ of possession against Ramon Co
and Lydia Co (the spouses Co). However, since the spouses Co were no longer residing in the Philippines at

On July 22, 1997, the RTC rendered its decision in favor of the brothers Teoco, to wit:

the time the petition was filed, the trial court ordered Metrobank, on January 12, 1994 and again on January
26, 1994 to effectsummons by publication against the spouses Co.

On May 17, 1994, the brothers Teoco filed an answer-in-intervention alleging that they are the successors-ininterest of the spouses Co, and that they had duly and validlyredeemed the subject properties within the
reglementary period provided by law. The brothers Teoco thus prayed for the dismissal of Metrobanks petition
for a writ of possession, and for the nullification of the TCTs issued in the name of Metrobank. The brothers
Teoco further prayed for the issuance in their name of new certificates of title.

WHEREFORE, judgment is hereby rendered dismissing the petition for a writ of

possession under Section 7 of Act 3135 it appearing that intervenor Atty. Juan C.
Teoco, Jr. and his brother Atty. Bienvenido C. Teoco have legally and effectively
redeemed Lot 61 and 67 of Psd-66654, Catbalogan, Cadastre, from the petitioner
Metropolitan Bank and Trust Company.
Accordingly, Metrobank may now withdraw the aforesaid redemption money
of P356,297.57 deposited by Juan C. Teoco, Jr., on February 10, 1992 with the clerk of
court and it is ordered that the Transfer Certificate of Title Nos. T-8492 and T-8493 of
Metropolitan Bank and Trust Company be and are cancelled and in their place new
transfer certificates of title be issued in favor of Intervenors Attys. Bienvenido C. Teoco
and Juan C. Teoco, Jr., of legal age, married, and residents of Calbiga, Samar,
Philippines, upon payment of the prescribed fees therefore. No pronouncement as to
costs.[4]

According to the RTC, the case filed by Metrobank should be dismissed since intervenor Juan C. Teoco, Jr.,

The RTC added that there is another reason for dismissing Metrobanks petition: the RTC failed to

by his tender of P356,297.57 to Metrobank on February 10, 1992, within the reglementary period of

acquire jurisdiction over the spouses Co. The RTC noted that Metrobank published its petition for writ of

redemption of the foreclosed property, had legally and effectively redeemed the subject properties from

possession, but did not publish the writ of summons issued by said court on February 16, 1994. According to

Metrobank. This redemption amount isa fair and reasonable price and is in keeping with the letter and spirit of

the RTC:

Section 78 of the General Banking Act because Metrobank purchased the mortgaged properties from the
A petition for a writ of possession of foreclosed property is in reality a possession
suit. That Metrobank prayed for a writ of possession in an independent special
proceeding does not alter the nature of the case as a possessory suit (Cabrera v.
Sinoy, L.-12648, 23 November 1959).

sheriff of the same court for only P316,916.29. In debunking the argument that the amount tendered was
insufficient, the RTC held:

It is contended for Metrobank that the redemption money deposited by Juan C. Teoco,
Jr., is insufficient and ineffective because the spouses Ramon Co and Lydia T. Co owe
it the total amount of P6,856,125 excluding interest and other charges and the
mortgage contract executed by them in favor of Metrobank in 1985 and 1986 (Exh. A
and B) are not only security for payment of their obligation in the amount of P200,000
but also for those obligations that may have been previously and later extended to the
Co couple including interest and other charges as appears in the accounts, books and
records of the bank.
Metrobank cites the case of Mojica v. Court of Appeals, 201 SCRA 517 (1991) where
the Supreme Court held that mortgages given to secure future advancements are valid
and legal contracts; that the amounts named as consideration in said contract do not
limit the amount for which the mortgage may stand as security; that a mortgage given
to secure the advancements is a continuing security and is not discharged by
repayment of the amount named in the mortgage until the full amount of the
advancements are paid. In the opinion of this court, it is not fair and just to apply this
rule to the case at bar. There is no evidence offered by Metrobank that these other
obligations of Ramon Co and his wife were not secured by real estate mortgages of
other lands. If the other indebtedness of the Co couple to Metrobank are secured by a
mortgage on their other lands or properties the obligation can be enforced by
foreclosure which the court assumes Metrobank has already done. There is no proof
that Metrobank asked for a deficiency judgment for these unpaid loans.
The Supreme Court in the Mojica case was dealing with the rights of the mortgagee
under a mortgage from an owner of the land. It determined the security covered by the
mortgage the intention of the parties and the equities of the case. What was held in
that case was hedged about so as to limit the decision to the particular facts. It must be
apparent that the Mojica ruling cannot be construed to give countenance or approval to
the theory that in all cases without exception mortgages given to secure past and
future advancements are valid and legal contracts.
In construing a contract between the bank and a borrower such a construction as
would be more favorable to the borrower should be adopted since the alleged past and
future indebtedness of Ramon Co to the bank was not described and specified therein
and that the addendum was made because the mortgage given therefore were not
sufficient or that these past and future advancements were unsecured. That being the
case the mortgage contracts, Exh. A and B should be interpreted against Metrobank
which drew said contracts. A written contract should, in case of doubt, be interpreted
against the party who has drawn the contract (6 R.C.L. 854; H.E. Heackock Co. vs.
Macondray & Co., 42 Phil. 205). Here, the mortgage contracts are in printed form
prepared by Metrobank and therefore ambiguities therein should be construed against
the party causing it (Yatco vs. El Hogar Filipino, 67 Phil. 610; Hodges vs. Tazaro, CA,
57 O.G. 6970).[5]

The defendant or owner of the property foreclosed by the petitioner should be

summoned to answer the petition. Accordingly, the publication made by the
petitioner is fatally flawed anddefective and on that basis alone this court acquired no
jurisdiction over the person of respondents Ramon Co and his wife (Mapa vs. Court of
Appeals, G.R. No. 79394, October 2, 1992; Lopez vs. Philippine National Bank, L34223, December 10, 1982).[6]

Metrobank appealed to the CA. In its appeal, Metrobank claimed that the RTC erred in finding that the
publication made by it is fatally flawed, and that the brothers Teoco had effectively redeemed the properties in
question.

CA Disposition

On February 20, 2004, the CA decided the appeal in favor of Metrobank, with the following
disposition:
WHEREFORE, the appeal is hereby GRANTED. The assailed Decision
dated July 22, 1997 rendered by the Regional Trial Court of Catbalogan, Samar
Branch 29 in Cadastral Record No. 1378 is hereby ANNULLED and SET
ASIDE. Accordingly, let a writ of possession in favor of petitioner-appellant
METROPOLITAN BANK AND TRUST COMPANY be issued over the properties and
improvements covered by Transfer Certificates of Title Nos. T-8492 and T-8493 of the
Registry of Deeds of Western Samar.
SO ORDERED.[7]

As regards the question of jurisdiction, the CA ruled that since the parcels of land in question were
already registered in the name of Metrobank at the time the petition wasfiled, and since the certificates of title
of the spouses Co were already cancelled, there is no more need to issue summons to the spouses Co. The
CA noted that the best proof of ownership of the parcel of land is a certificate of title. [8]

The CA also held that the issue of the validity of summons to the spouses Co is unimportant

Our Ruling

considering that the properties in question were mortgaged to Metrobank and were subsequently sold to the
same bank after the spouses Co failed to satisfy the principal obligation. Hence, the applicable law is Act No.

Sufficiency of Amount Tendered

3135,[9] as amended by Act No. 4118. Section 7 of said Act No. 3135 states that a petition for the issuance of a
writ of possession filed by the purchaser of a property in an extrajudicial foreclosure sale may be done ex
parte. It is the ministerial duty of the trial court to grant such writ of possession. No discretion is left to the trial
court. Any question regarding the cancellation of the writ, or with respect to the validity and regularity of the
public sale should be determined in a subsequent proceeding as outlined in Section 9 of Act No. 3135. [10]

We

find

that

neither

petitioners,

the

brothers

Teoco,

nor

respondent,

Metrobank,

were able to present sufficient evidence to prove whether the additional loans granted to the spouses Co by
Metrobank were covered by the mortgage agreement between them. The brothers Teoco failed to present
any evidence of the supposed trust receipt agreement between Metrobank and the spouses Co, or an
evidence of the supposed payment by the spouses Co of the other loans extended by Metrobank. Metrobank,
on the other hand, merely relied on the stipulation on the mortgage deed that the mortgage was intended to
secure the payment of the same (P200,000.00 loan) and those that may hereafter be obtained.[12] However,

Further, the CA held that the brothers Teoco were not able to effectively redeem the subject properties,

there was no mention whatsoever of the mortgage agreement in the succeeding loans entered into by the
spouses Co.

because the amount tendered was insufficient, and the brothers Teoco have not sufficiently shown that the
spouses Cos right of redemption was properly transferred to them.

While we agree with Metrobank that mortgages intended to secure future advancements are valid
and legal contracts,[13] entering into such mortgage contracts does not necessarily put within its coverage all
loan

Issues

agreements

that

may

be

subsequently

entered

into

by

the

parties. If

Metrobank wishes to apply the mortgage contract in order to satisfy loan obligations not stated on the face of
such contract, Metrobank should prove by a preponderance of evidence that such subsequent obligations are
secured by said mortgage contract and not by any other form of security.

In this Rule 45 petition, the brothers Teoco impute to the CA the following errors:

In order to prevent any injustice to, or unjust enrichment of, any of the parties, this Court holds that
the fairest resolution is to allow the brothers Teoco to redeem the foreclosed properties based on the amount
for which it was foreclosed (P255,441.14 plus interest). This is subject, however, to the right of Metrobank to
foreclose the same property anew in order to satisfy the succeeding loans entered into by the spouses Co, if

I
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF
JUDGMENT IN HOLDING THAT PETITIONERS FAILED TO REDEEM THE SUBJECT
PROPERTIES WITHIN THE REGLEMENTARY PERIOD OF ONE YEAR AND THAT
THE REDEMPTION PRICE TENDERED IS INSUFFICIENT.
II
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF
JUDGMENT IN HOLDING PETITIONERS TO PAY NOT ONLY THE P200,000
PRINCIPAL OBLIGATION BUT ALSO THAT PREVIOUSLY EXTENDED, WHETHER
DIRECT OR INDIRECT, PRINCIPAL OR SECONDARY AS APPEARS IN THE
ACCOUNTS, BOOKSAND RECORDS.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
PETITIONERS HAVE NOT SUFFICIENTLY SHOW(N) THAT THE RIGHT OF
REDEMPTION WAS PROPERLY TRANSFERRED TO THEM.
IV
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION
OF THE REGIONAL TRIAL COURT, BRANCH 29, AND GRANTING THE WRIT OF
POSSESSION TO THE RESPONDENT.[11] (Underscoring supplied)

they were, indeed, covered by the mortgage contract. The right of Metrobank to foreclose the mortgage would
not be hampered by the transfer of the properties to the brothers Teoco as a result of this decision, since
Article 2127 of the Civil Code provides:
Art. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes
due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third
person. (Emphasis supplied)
Further, Article 2129 of the Civil Code provides:

Art. 2129. The creditor may claim from a third person in possession of the
mortgaged property, the payment of the part of the credit secured by the property
which said third person possesses, in the terms and with the formalities which the law
establishes.

The mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor

Anent the CA observation that the assignment of the right of redemption was not properly executed and/or
authenticated, Lopez v. Court of Appeals[16] is instructive. In Lopez, this Court ruled that a special power of
attorney executed in a foreign country is generally not admissible in evidence as a public document in our
courts. The Court there held:

may be to the fulfillment of the obligation for whose security it was constituted. Otherwise stated, a mortgage
creates a real right which is enforceable against the whole world. Hence, even if the mortgage property is sold
or its possession transferred to another, the property remains subject to the fulfillment of the obligation for
whose security it was constituted.[14]
Thus, the redemption by the brothers Teoco shall be without prejudice to the subsequent
foreclosure of same properties by Metrobank in order to satisfy other obligations covered by the Real Estate

Is the special power of attorney relied upon by Mrs. Ty a public document? We find that
it is. It has been notarized by a notary public or by a competent public official with all
the solemnities required by law of a public document. When executed and
acknowledged in the Philippines, such a public document or a certified true copy
thereof is admissible in evidence. Its due execution and authentication need not be
proven unlike a private writing.
Section 25, Rule 132 of the Rules of Court provides

Mortgage.

Sec. 25. Proof of public or official record. An official record or an

entry therein, when admissible for any purpose, may be
evidenced by an official publication thereof or by a copy
attested by the officer having the legal custody of the record, or
by his deputy, and accompanied, if the record is not kept in
the Philippines, with a certificate that such officer has the
custody. If the office in which the record is kept is in a foreign
country, the certificate may be made by a secretary of embassy
or legation consul general, consul, vice consul, or consular
agent or by any officer in the foreign service of the Philippines
stationed in the foreign country in which the record is kept, and
authenticated by the seal of his office.

Transfer of Right of Redemption

The CA held that the brothers Teoco have not sufficiently shown that the spouses Cos right of redemption was
properly transferred to them. The assignment of the right of redemption only stated that the spouses Co are
transferring the right of redemption to their parents, brothers, and sisters, but did not specifically include the
brothers Teoco, who are just brothers-in-law of Ramon Co. Furthermore, the spouses Co no longer reside in
the Philippines, and the assignment of the right of redemption was not properly executed and/or authenticated.
The alleged transfer of the right of redemption is couched in the following language:

KNOW ALL MEN BY THESE PRESENTS:

That we, RAMON CO and LYDIA CO, of legal ages, for and in
consideration of preserving the continuous ownership and possession of family owned
properties, by these presents, hereby cede, transfer and convey in favor of
my parents, brothers and sisters, the right to redeem the properties under TCT Nos.
T-6910 and T-6220, located in Patag district, Catbalogan, Samar, sold by public auction
sale on February 14, 1991 to the Metropolitan Bank and Trust Company.

From the foregoing provision, when the special power of attorney is executed and
acknowledged before a notary public or other competent official in a foreign country, it
cannot be admitted in evidence unless it is certified as such in accordance with the
foregoing provision of the rules by a secretary of embassy or legation, consul general,
consul, vice consul, or consular agent or by any officer in the foreign service of the
Philippines stationed in the foreign country in which the record is kept of said public
document and authenticated by the seal of his office. A city judge-notary who notarized
the document, as in this case, cannot issue such certification. [17]

Verily, the assignment of right of redemption is not admissible in evidence as a public document in our

Furthermore, we waived whatever rights we may have over the properties in favor of
the successor-in-interest including that of transferring the title to whoever may redeem
the aforesaid properties.

courts. However, this does not necessarily mean that such document has no probative value.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this 10 th day of

January, 1992 at Vancouver, Canada.[15]

There are generally three reasons for the necessity of the presentation of public documents. First, public
documents are prima facie evidence of the facts stated in them, as provided for in Section 23, Rule 132 of the

The brothers Teoco may be brothers-in-law only of Ramon Co, but they are also the brothers of Lydia Teoco
Co, who is actually the registered owner of the properties covered byTCT Nos. T-6910 and T-6220. Clearly,
the brothers Teoco are two of the persons referred to in the above transfer of the right of redemption executed
by the spouses Co.

Rules of Court:
SEC. 23. Public documents as evidence. Documents consisting of entries in public
records made in the performance of a duty by a public officer are prima facie evidence
of the facts therein stated. All other public documents are evidence, even against a
third person, of the fact which gave rise to their execution and of the date of the
latter. (Underscoring supplied)

the Registry of Property in case the assignment involves real property. (Underscoring
supplied)

Second, the presentation of a public document dispenses with the need to prove a documents due execution
and authenticity, which is required under Section 20, Rule 132 of the Rules of Court for the admissibility of
private documents offered as authentic:

Would the exercise by the brothers Teoco of the right to redeem the properties in question be precluded by the
fact that the assignment of right of redemption was not contained in a public document? We rule in the

SEC. 20. Proof of private document. Before any private document offered as authentic
is received in evidence, its due execution and authenticity must be proved either:

negative.

(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or
handwriting of the maker.
Any other private document need only be identified as that which it is claimed to
be. (Underscoring supplied)

Metrobank never challenged either the content, the due execution, or the genuineness of the assignment of
the right of redemption. Consequently, Metrobank is deemed to have admitted the same. Having impliedly
admitted the content of the assignment of the right of redemption, there is no necessity for a prima
facie evidence of the facts there stated.In the same manner, since Metrobank has impliedly admitted the due

In the presentation of public documents as evidence, on the other hand, due execution and authenticity are

execution and genuineness of the assignment of the right of redemption, a private document evidencing the

already presumed:

same is admissible in evidence.[18]

SEC. 23. Public documents are evidence. Documents consisting of entries in public
records made in the performance of a duty by a public officer are prima facie evidence
of the facts therein stated. All other public documents are evidence, even against a
third person, of the fact which gave rise to their execution and of the date of the
latter. (Underscoring supplied)
SEC. 30. Proof of notarial documents. Every instrument duly acknowledged or proved
and certified as provided by law, may be presented in evidence without further proof,
the certificate of acknowledgment being prima facie evidence of the execution of the
instrument or document involved. (Underscoring supplied)

True it is that the Civil Code requires certain transactions to appear in public documents. However, the
necessity of a public document for contracts which transmit or extinguish real rights over immovable property,
as mandated by Article 1358 of the Civil Code, is only for convenience; it is not essential for validity or
enforceability.[19] Thus, in Cenido v. Apacionado,[20] this Court ruled that the only effect of noncompliance with
the provisions of Article 1358 of the Civil Code is that a party to such a contract embodied in a private
document may be compelled to execute a public document:

Third, the law may require that certain transactions appear in public instruments, such as Articles 1358 and
1625 of the Civil Code, which respectively provide:
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the
conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document.
All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one. But sales of goods, chattels or things in action
are governed by Articles 1403, No. 2, and 1405.
Art. 1625. An assignment of a credit, right or action shall produce no effect as against
third person, unless it appears in a public instrument, or the instrument is recorded in

Article 1358 does not require the accomplishment of the acts or contracts in a public
instrument in order to validate the act or contract but only to insure its efficacy, so that
after the existence of said contract has been admitted, the party bound may be
compelled to execute the proper document. This is clear from Article 1357, viz.:
Art. 1357. If the law requires a document or other special form,
as in the acts and contracts enumerated in the following article
(Article 1358), the contracting parties may compel each other to
observe that form, once the contract has been perfected. This
right may be exercised simultaneously with the action upon the
contract.[21]

On the other hand, Article 1625 of the Civil Code provides that [a]n assignment of a credit, right or action shall
produce no effect as against third person, unless it appears in apublic instrument, or the instrument is
recorded in the Registry of Property in case the assignment involves real property.

In Co v. Philippine National Bank,[22] the Court interpreted the phrase effect as against a third person to
be damage or prejudice to such third person, thus:

x x x In Lichauco vs. Olegario, et al., 43 Phil. 540, this Court held that whether or not x
x x an execution debtor was legally authorized to sell his right of redemption, is a
question already decided by this Court in the affirmative in numerous decisions on the
precepts of Sections 463 and 464 and other sections related thereto, of the Code of
Civil Procedure. (The mentioned provisions are carried over in Rule 39 of the Revised
Rules of Court.) That the transfers or conveyances in question were not registered is of
miniscule significance, there being no showing thatPNB was damaged or could be
damaged by such omission. When CITADEL made its tender on May 5, 1976, PNB did
not question the personality of CITADEL at all. It is now too late and purely technical to
raise such innocuous failure to comply with Article 1625 of the Civil Code. [23]

In Ansaldo v. Court of Appeals,[24] the Court held:

In its Decision, the First Division of the Appellate Tribunal, speaking through the
Presiding Justice at the time, Hon. Magno S. Gatmaitan, held as regards Arnaldos
contentions, that
xxxx
2) there was no need that the assignment be in a
public document this being required only to produce x x x effect
as against third persons (Article 1625, Civil Code), i.e., to
adversely affect 3rd persons, i.e., a 3rd person with a right
against original creditor, for example, an original creditor of
creditor, against whom surely such an assignment by his debtor
(creditor in the credit assigned) would be prejudicial, because
he, creditor of assigning creditor, would thus be deprived of an
attachable asset of his debtor x x x;
xxxx
Except for the question of the claimed lack of authority on the part of TFCs
president to execute the assignment of credit in favor of PCIB improperly raised for the
first time on appeal, as observed by the Court of Appeals the issues raised by Ansaldo
were set up by him in, and after analysis and assessment rejected by, both the Trial
Court and the Appellate Tribunal. This court sees no error whatever in the appreciation
of the facts by either Court or their application of the relevant law and jurisprudence to
those facts, inclusive of the question posed anew by Ansaldo relative to the alleged
absence of authority on the part of TFCs president to assign the corporations credit to
PCIB.[25]

In the case at bar, Metrobank would not be prejudiced by the assignment by the spouses Co of their right of
redemption in favor of the brothers Teoco. As conceded by Metrobank, the assignees, the brothers Teoco,
would merely step into the shoes of the assignors, the spouses Co. The brothers Teoco would have to comply
with all the requirements imposed by law on the spouses Co. Metrobank would not lose any security for the
satisfaction of any loan obtained from it by the spouses Co. In fact, the assignment would even prove to be
beneficial to Metrobank, as it can foreclose on the subject properties anew, provided it proves that the
subsequent loans entered into by the spouses Co are covered by the mortgage contract.

directly by his master or employer or his fellow servants or by reason of his performance of his duty, but rather
by a third party or stranger not in the employ of his employer, may recover said damages against his employer.
WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The decision of the Regional Trial Court in
Catbalogan, Samar is REINSTATED with the followingMODIFICATION: the redemption by Bienvenido C.
Teoco and Juan C. Teoco, Jr. of the properties covered by TCT Nos. T-6910 and T-6220 shall be without
prejudice to the subsequent foreclosure of same properties by Metropolitan Bank and Trust Company to
satisfy other loans covered by the Real Estate Mortgage.
SO ORDERED.
G.R. No. L-7089
August 31, 1954
DOMINGO DE LA CRUZ, plaintiff-appellant,
vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.
Conrado Rubio for appellant.
Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year 1941 the Northern
Theatrical Enterprises Inc., a domestic corporation operated a movie house in Laoag, Ilocos Norte, and among
the persons employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard whose duties
were to guard the main entrance of the cine, to maintain peace and order and to report the commission of
disorders within the premises. As such guard he carried a revolver. In the afternoon of July 4, 1941, one
Benjamin Martin wanted to crash the gate or entrance of the movie house. Infuriated by the refusal of plaintiff
De la Cruz to let him in without first providing himself with a ticket, Martin attacked him with a bolo. De la Cruz
defendant himself as best he could until he was cornered, at which moment to save himself he shot the gate
crasher, resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of First Instance
of Ilocos Norte. After a re-investigation conducted by the Provincial Fiscal the latter filed a motion to dismiss
the complaint, which was granted by the court in January 1943. On July 8, 1947, De la Cruz was again
accused of the same crime of homicide, in Criminal Case No. 431 of the same Court. After trial, he was finally
acquitted of the charge on January 31, 1948. In both criminal cases De la Cruz employed a lawyer to defend
him. He demanded from his former employer reimbursement of his expenses but was refused, after which he
filed the present action against the movie corporation and the three members of its board of directors, to
recover not only the amounts he had paid his lawyers but also moral damages said to have been suffered, due
to his worry, his neglect of his interests and his family as well in the supervision of the cultivation of his land, a
total of P15,000. On the basis of the complaint and the answer filed by defendants wherein they asked for the
dismissal of the complaint, as well as the agreed statement of facts, the Court of First Instance of Ilocos Norte
after rejecting the theory of the plaintiff that he was an agent of the defendants and that as such agent he was
entitled to reimbursement of the expenses incurred by him in connection with the agency (Arts. 1709-1729 of
the old Civil Code), found that plaintiff had no cause of action and dismissed the complaint without costs. De la
Cruz appealed directly to this Tribunal for the reason that only questions of law are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation and the plaintiff was not that
of principal and agent because the principle of representation was in no way involved. Plaintiff was not
employed to represent the defendant corporation in its dealings with third parties. He was a mere employee
hired to perform a certain specific duty or task, that of acting as special guard and staying at the main entrance
of the movie house to stop gate crashers and to maintain peace and order within the premises. The question
posed by this appeal is whether an employee or servant who in line of duty and while in the performance of
the task assigned to him, performs an act which eventually results in his incurring in expenses, caused not

The learned trial court in the last paragraph of its decision dismissing the complaint said that "after studying
many laws or provisions of law to find out what law is applicable to the facts submitted and admitted by the
parties, has found none and it has no other alternative than to dismiss the complaint." The trial court is right.
We confess that we are not aware of any law or judicial authority that is directly applicable to the present case,
and realizing the importance and far-reaching effect of a ruling on the subject-matter we have searched,
though vainly, for judicial authorities and enlightenment. All the laws and principles of law we have found, as
regards master and servants, or employer and employee, refer to cases of physical injuries, light or serious,
resulting in loss of a member of the body or of any one of the senses, or permanent physical disability or even
death, suffered in line of duty and in the course of the performance of the duties assigned to the servant or
employee, and these cases are mainly governed by the Employer's Liability Act and the Workmen's
Compensation Act. But a case involving damages caused to an employee by a stranger or outsider while said
employee was in the performance of his duties, presents a novel question which under present legislation we
are neither able nor prepared to decide in favor of the employee.
In a case like the present or a similar case of say a driver employed by a transportation company, who while in
the course of employment runs over and inflicts physical injuries on or causes the death of a pedestrian; and
such driver is later charged criminally in court, one can imagine that it would be to the interest of the employer
to give legal help to and defend its employee in order to show that the latter was not guilty of any crime either
deliberately or through negligence, because should the employee be finally held criminally liable and he is
found to be insolvent, the employer would be subsidiarily liable. That is why, we repeat, it is to the interest of
the employer to render legal assistance to its employee. But we are not prepared to say and to hold that the
giving of said legal assistance to its employees is a legal obligation. While it might yet and possibly be
regarded as a normal obligation, it does not at present count with the sanction of man-made laws.
If the employer is not legally obliged to give, legal assistance to its employee and provide him with a lawyer,
naturally said employee may not recover the amount he may have paid a lawyer hired by him.
Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of the expenses
incurred by him in remunerating his lawyer, is not caused by his act of shooting to death the gate crasher but
rather by the filing of the charge of homicide which made it necessary for him to defend himself with the aid of
counsel. Had no criminal charge been filed against him, there would have been no expenses incurred or
damage suffered. So the damage suffered by plaintiff was caused rather by the improper filing of the criminal
charge, possibly at the instance of the heirs of the deceased gate crasher and by the State through the Fiscal.
We say improper filing, judging by the results of the court proceedings, namely, acquittal. In other words, the
plaintiff was innocent and blameless. If despite his innocence and despite the absence of any criminal
responsibility on his part he was accused of homicide, then the responsibility for the improper accusation may
be laid at the door of the heirs of the deceased and the State, and so theoretically, they are the parties that
may be held responsible civilly for damages and if this is so, we fail to see now this responsibility can be
transferred to the employer who in no way intervened, much less initiated the criminal proceedings and whose
only connection or relation to the whole affairs was that he employed plaintiff to perform a special duty or task,
which task or duty was performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the payment of the lawyer's fee did
not flow directly from the performance of his duties but only indirectly because there was an efficient,
intervening cause, namely, the filing of the criminal charges. In other words, the shooting to death of the
deceased by the plaintiff was not the proximate cause of the damages suffered but may be regarded as only a
remote cause, because from the shooting to the damages suffered there was not that natural and continuous
sequence required to fix civil responsibility.
In view of the foregoing, the judgment of the lower court is affirmed. No costs.
G.R. No. L-10918

March 4, 1916

WILLIAM FRESSEL, ET AL., plaintiffs-appellants,

vs.
MARIANO UY CHACO SONS & COMPANY, defendant-appellee.
Rohde and Wright for appellants.
Gilbert, Haussermann, Cohn and Fisher for appellee.

A more accurate statement of the rule is that a demurrer admits the truth of all material and
relevant facts which are well pleaded. . . . .The admission of the truth of material and relevant facts
well pleaded does not extend to render a demurrer an admission of inferences or conclusions
drawn therefrom, even if alleged in the pleading; nor mere inferences or conclusions from facts not
stated; nor conclusions of law. (Alzua and Arnalot vs. Johnson, 21 Phil. Rep., 308, 350.)
Upon the question of construction of pleadings, section 106 of the Code of Civil Procedure provides that:

TRENT, J.:
This is an appeal from a judgment sustaining the demurrer on the ground that the complaint does not state a
cause of action, followed by an order dismissing the case after the plaintiffs declined to amend.
The complaint, omitting the caption, etc., reads:
2. That during the latter part of the year 1913, the defendant entered into a contract with one E.
Merritt, whereby the said Merritt undertook and agreed with the defendant to build for the
defendant a costly edifice in the city of Manila at the corner of Calle Rosario and Plaza del Padre
Moraga. In the contract it was agreed between the parties thereto, that the defendant at any time,
upon certain contingencies, before the completion of said edifice could take possession of said
edifice in the course of construction and of all the materials in and about said premises acquired by
Merritt for the construction of said edifice.
3. That during the month of August land past, the plaintiffs delivered to Merritt at the said edifice in
the course of construction certain materials of the value of P1,381.21, as per detailed list hereto
attached and marked Exhibit A, which price Merritt had agreed to pay on the 1st day of September,
1914.
4. That on the 28th day of August, 1914, the defendant under and by virtue of its contract with
Merritt took possession of the incomplete edifice in course of construction together with all the
materials on said premises including the materials delivered by plaintiffs and mentioned in Exhibit
A aforesaid.
5. That neither Merritt nor the defendant has paid for the materials mentioned in Exhibit A, although
payment has been demanded, and that on the 2d day of September, 1914, the plaintiffs demanded
of the defendant the return or permission to enter upon said premises and retake said materials at
the time still unused which was refused by defendant.
6. That in pursuance of the contract between Merritt and the defendant, Merritt acted as the agent
for defendant in the acquisition of the materials from plaintiffs.
The appellants insist that the above quoted allegations show that Merritt acted as the agent of the defendant in
purchasing the materials in question and that the defendant, by taking over and using such materials,
accepted and ratified the purchase, thereby obligating itself to pay for the same. Or, viewed in another light, if
the defendant took over the unfinished building and all the materials on the ground and then completed the
structure according to the plans, specifications, and building permit, it became in fact the successor or
assignee of the first builder, and as successor or assignee, it was as much bound legally to pay for the
materials used as was the original party. The vendor can enforce his contract against the assignee as readily
as against the assignor. While, on the other hand, the appellee contends that Merritt, being "by the very terms
of the contract" an independent contractor, is the only person liable for the amount claimed.
It is urged that, as the demurrer admits the truth of all the allegations of fact set out in the complaint, the
allegation in paragraph 6 to the effect that Merritt "acted as the agent for defendant in the acquisition of the
materials from plaintiffs," must be, at this stage of the proceedings, considered as true. The rule, as thus
broadly stated, has many limitations and restrictions.

In the construction of a pleading, for the purpose of determining its effects, its allegations shall be
liberally construed, with a view of substantial justice between the parties.
This section is essentially the same as section 452 of the California Code of Civil Procedure. "Substantial
justice," as used in the two sections, means substantial justice to be ascertained and determined by fixed rules
and positive statutes. (Stevens vs. Ross, 1 Cal. 94, 95.) "Where the language of a pleading is ambiguous,
after giving to it a reasonable intendment, it should be resolved against the pleader. This is especially true on
appeal from a judgment rendered after refusal to amend; where a general and special demurrer to a complaint
has been sustained, and the plaintiff had refused to amend, all ambiguities and uncertainties must be
construed against him." (Sutherland on Code Pleading, vol. 1, sec. 85, and cases cited.)
The allegations in paragraphs 1 to 5, inclusive, above set forth, do not even intimate that the relation existing
between Merritt and the defendant was that of principal and agent, but, on the contrary, they demonstrate that
Merritt was an independent contractor and that the materials were purchased by him as such contractor
without the intervention of the defendant. The fact that "the defendant entered into a contract with one E.
Merritt, where by the said Merritt undertook and agreed with the defendant to build for the defendant a costly
edifice" shows that Merritt was authorized to do the work according to his own method and without being
subject to the defendant's control, except as to the result of the work. He could purchase his materials and
supplies from whom he pleased and at such prices as he desired to pay. Again, the allegations that the
"plaintiffs delivered the Merritt . . . . certain materials (the materials in question) of the value of P1,381.21, . . . .
which price Merritt agreed to pay," show that there were no contractual relations whatever between the sellers
and the defendant. The mere fact that Merritt and the defendant had stipulated in their building contract that
the latter could, "upon certain contingencies," take possession of the incompleted building and all materials on
the ground, did not change Merritt from an independent contractor to an agent. Suppose that, at the time the
building was taken over Merritt had actually used in the construction thus far P100,000 worth of materials and
supplies which he had purchased on a credit, could those creditors maintain an action against the defendant
for the value of such supplies? Certainly not. The fact that the P100,000 worth of supplies had been actually
used in the building would place those creditors in no worse position to recover than that of the plaintiffs,
although the materials which the plaintiffs sold to Merritt had not actually gone into the construction. To hold
that either group of creditors can recover would have the effect of compelling the defendants to pay, as we
have indicated, just such prices for materials as Merritt and the sellers saw fit to fix. In the absence of a statute
creating what is known as mechanics' liens, the owner of a building is not liable for the value of materials
purchased by an independent contractor either as such owner or as the assignee of the contractor.
The allegation in paragraph 6 that Merritt was the agent of the defendant contradicts all the other allegations
and is a mere conclusion drawn from them. Such conclusion is not admitted, as we have said, by the
demurrer.
The allegations in the complaint not being sufficient to constitute a cause of action against the defendant, the
judgment appealed from is affirmed, with costs against the appellants. So ordered.
G.R. No. L-21601

December 17, 1966

NIELSON & COMPANY, INC., plaintiff-appellant,

vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.
W. H. Quasha and Associates for plaintiff-appellant.
Ponce Enrile, Siguion-Reyna, Montecillo and Belo for defendant-appellee.

ZALDIVAR, J.:

shall remain in suspense, wholly or partially during the terms of such inability." (Clause
II of Exhibit "C").

On February 6, 1958, plaintiff brought this action against defendant before the Court of First Instance of Manila
to recover certain sums of money representing damages allegedly suffered by the former in view of the refusal
of the latter to comply with the terms of a management contract entered into between them on January 30,
1937, including attorney's fees and costs.
Defendant in its answer denied the material allegations of the complaint and set up certain special defenses,
among them, prescription and laches, as bars against the institution of the present action.
After trial, during which the parties presented testimonial and numerous documentary evidence, the court a
quorendered a decision dismissing the complaint with costs. The court stated that it did not find sufficient
evidence to establish defendant's counterclaim and so it likewise dismissed the same.
The present appeal was taken to this Court directly by the plaintiff in view of the amount involved in the case.
The facts of this case, as stated in the decision appealed from, are hereunder quoted for purposes of this
decision:
It appears that the suit involves an operating agreement executed before World War II between the
plaintiff and the defendant whereby the former operated and managed the mining properties
owned by the latter for a management fee of P2,500.00 a month and a 10% participation in the net
profits resulting from the operation of the mining properties. For brevity and convenience, hereafter
the plaintiff shall be referred to as NIELSON and the defendant, LEPANTO.
The antecedents of the case are: The contract in question (Exhibit `C') was made by the parties on
January 30, 1937 for a period of five (5) years. In the latter part of 1941, the parties agreed to
renew the contract for another period of five (5) years, but in the meantime, the Pacific War broke
out in December, 1941.
In January, 1942 operation of the mining properties was disrupted on account of the war. In
February of 1942, the mill, power plant, supplies on hand, equipment, concentrates on hand and
mines, were destroyed upon orders of the United States Army, to prevent their utilization by the
invading Japanese Army. The Japanese forces thereafter occupied the mining properties, operated
the mines during the continuance of the war, and who were ousted from the mining properties only
in August of 1945.
After the mining properties were liberated from the Japanese forces, LEPANTO took possession
thereof and embarked in rebuilding and reconstructing the mines and mill; setting up new
organization; clearing the mill site; repairing the mines; erecting staff quarters and bodegas and
repairing existing structures; installing new machinery and equipment; repairing roads and
maintaining the same; salvaging equipment and storing the same within the bodegas; doing police
work necessary to take care of the materials and equipment recovered; repairing and renewing the
water system; and remembering (Exhibits "D" and "E"). The rehabilitation and reconstruction of the
mine and mill was not completed until 1948 (Exhibit "F"). On June 26, 1948 the mines resumed
operation under the exclusive management of LEPANTO (Exhibit "F-l").
Shortly after the mines were liberated from the Japanese invaders in 1945, a disagreement arose
between NIELSON and LEPANTO over the status of the operating contract in question which as
renewed expired in 1947. Under the terms thereof, the management contract shall remain in
suspense in case fortuitous event or force majeure, such as war or civil commotion, adversely
affects the work of mining and milling.
"In the event of inundations, floodings of mine, typhoon, earthquake or any other force
majeure, war, insurrection, civil commotion, organized strike, riot, injury to the
machinery or other event or cause reasonably beyond the control of NIELSON and
which adversely affects the work of mining and milling; NIELSON shall report such fact
to LEPANTO and without liability or breach of the terms of this Agreement, the same

NIELSON held the view that, on account of the war, the contract was suspended during the war;
hence the life of the contract should be considered extended for such time of the period of
suspension. On the other hand, LEPANTO contended that the contract should expire in 1947 as
originally agreed upon because the period of suspension accorded by virtue of the war did not
operate to extend further the life of the contract.
No understanding appeared from the record to have been bad by the parties to resolve the
disagreement. In the meantime, LEPANTO rebuilt and reconstructed the mines and was able to
bring the property into operation only in June of 1948, . . . .
Appellant in its brief makes an alternative assignment of errors depending on whether or not the management
contract basis of the action has been extended for a period equivalent to the period of suspension. If the
agreement is suspended our attention should be focused on the first set of errors claimed to have been
committed by the court a quo; but if the contrary is true, the discussion will then be switched to the alternative
set that is claimed to have been committed. We will first take up the question whether the management
agreement has been extended as a result of the supervening war, and after this question shall have been
determined in the sense sustained by appellant, then the discussion of the defense of laches and prescription
will follow as a consequence.
The pertinent portion of the management contract (Exh. C) which refers to suspension should any event
constituting force majeure happen appears in Clause II thereof which we quote hereunder:
In the event of inundations, floodings of the mine, typhoon, earthquake or any other force majeure,
war, insurrection, civil commotion, organized strike, riot, injury to the machinery or other event or
cause reasonably beyond the control of NIELSON and which adversely affects the work of mining
and milling; NIELSON shall report such fact to LEPANTO and without liability or breach of the
terms of this Agreement, the same shall remain in suspense, wholly or partially during the terms of
such inability.
A careful scrutiny of the clause above-quoted will at once reveal that in order that the management contract
may be deemed suspended two events must take place which must be brought in a satisfactory manner to the
attention of defendant within a reasonable time, to wit: (1) the event constituting the force majeure must be
reasonably beyond the control of Nielson, and (2) it must adversely affect the work of mining and milling the
company is called upon to undertake. As long as these two condition exist the agreement is deem suspended.
Does the evidence on record show that these two conditions had existed which may justify the conclusion that
the management agreement had been suspended in the sense entertained by appellant? Let us go to the
evidence.
It is a matter that this Court can take judicial notice of that war supervened in our country and that the mines in
the Philippines were either destroyed or taken over by the occupation forces with a view to their operation. The
Lepanto mines were no exception for not was the mine itself destroyed but the mill, power plant, supplies on
hand, equipment and the like that were being used there were destroyed as well. Thus, the following is what
appears in the Lepanto Company Mining Report dated March 13, 1946 submitted by its President C. A. DeWitt
to the defendant:1 "In February of 1942, our mill, power plant, supplies on hand, equipment, concentrates on
hand, and mine, were destroyed upon orders of the U.S. Army to prevent their utilization by the enemy." The
report also mentions the report submitted by Mr. Blessing, an official of Nielson, that "the original mill was
destroyed in 1942" and "the original power plant and all the installed equipment were destroyed in 1942." It is
then undeniable that beginning February, 1942 the operation of the Lepanto mines stopped or became
suspended as a result of the destruction of the mill, power plant and other important equipment necessary for
such operation in view of a cause which was clearly beyond the control of Nielson and that as a consequence
such destruction adversely affected the work of mining and milling which the latter was called upon to
undertake under the management contract. Consequently, by virtue of the very terms of said contract the
same may be deemed suspended from February, 1942 and as of that month the contract still had 60 months
to go.

On the other hand, the record shows that the defendant admitted that the occupation forces operated its
mining properties subject of the management contract, 2 and from the very report submitted by President
DeWitt it appears that the date of the liberation of the mine was August 1, 1945 although at the time there
were still many booby traps.3 Similarly, in a report submitted by the defendant to its stockholders dated August
25, 1948, the following appears: "Your Directors take pleasure in reporting that June 26, 1948 marked the
official return to operations of this Company of its properties in Mankayan, Mountain Province, Philippines." 4
It is, therefore, clear from the foregoing that the Lepanto mines were liberated on August 1, 1945, but because
of the period of rehabilitation and reconstruction that had to be made as a result of the destruction of the mill,
power plant and other necessary equipment for its operation it cannot be said that the suspension of the
contract ended on that date. Hence, the contract must still be deemed suspended during the succeeding years
of reconstruction and rehabilitation, and this period can only be said to have ended on June 26, 1948 when, as
reported by the defendant, the company officially resumed the mining operations of the Lepanto. It should here
be stated that this period of suspension from February, 1942 to June 26, 1948 is the one urged by plaintiff. 5
It having been shown that the operation of the Lepanto mines on the part of Nielson had been suspended
during the period set out above within the purview of the management contract, the next question that needs
to be determined is the effect of such suspension. Stated in another way, the question now to be determined is
whether such suspension had the effect of extending the period of the management contract for the period of
said suspension. To elucidate this matter, we again need to resort to the evidence.
For appellant Nielson two witnesses testified, declaring that the suspension had the effect of extending the
period of the contract, namely, George T. Scholey and Mark Nestle. Scholey was a mining engineer since
1929, an incorporator, general manager and director of Nielson and Company; and for some time he was also
the vice-president and director of the Lepanto Company during the pre-war days and, as such, he was an
officer of both appellant and appellee companies. As vice-president of Lepanto and general manager of
Nielson, Scholey participated in the negotiation of the management contract to the extent that he initialed the
same both as witness and as an officer of both corporations. This witness testified in this case to the effect that
the standard force majeure clause embodied in the management contract was taken from similar mining
contracts regarding mining operations and the understanding regarding the nature and effect of said clause
was that when there is suspension of the operation that suspension meant the extension of the contract. Thus,
to the question, "Before the war, what was the understanding of the people in the particular trend of business
with respect to the force majeure clause?", Scholey answered: "That was our understanding that the
suspension meant the extension of time lost." 6
Mark Nestle, the other witness, testified along similar line. He had been connected with Nielson since 1937
until the time he took the witness stand and had been a director, manager, and president of the same
company. When he was propounded the question: "Do you know what was the custom or usage at that time in
connection withforce majeure clause?", Nestle answered, "In the mining world the force majeure clause is
generally considered. When a calamity comes up and stops the work like in war, flood, inundation or fire, etc.,
the work is suspended for the duration of the calamity, and the period of the contract is extended after the
calamity is over to enable the person to do the big work or recover his money which he has invested, or
accomplish what his obligation is to a third person ." 7
And the above testimonial evidence finds support in the very minutes of the special meeting of the Board of
Directors of the Lepanto Company issued on March 10, 1945 which was then chairmaned by Atty. C. A.
DeWitt. We read the following from said report:
The Chairman also stated that the contract with Nielson and Company would soon expire if the
obligations were not suspended, in which case we should have to pay them the retaining fee of
P2,500.00 a month. He believes however, that there is a provision in the contract suspending the
effects thereof in cases like the present, and that even if it were not there, the law itself would
suspend the operations of the contract on account of the war. Anyhow, he stated, we shall have no
difficulty in solving satisfactorily any problem we may have with Nielson and Company.8
Thus, we can see from the above that even in the opinion of Mr. DeWitt himself, who at the time was the
chairman of the Board of Directors of the Lepanto Company, the management contract would then expire
unless the period therein rated is suspended but that, however, he expressed the belief that the period was
extended because of the provision contained therein suspending the effects thereof should any of the case of
force majeure happen like in the present case, and that even if such provision did not exist the law would have
the effect of suspending it on account of the war. In substance, Atty. DeWitt expressed the opinion that as a

result of the suspension of the mining operation because of the effects of the war the period of the contract
had been extended.
Contrary to what appellant's evidence reflects insofar as the interpretation of the force majeure clause is
concerned, however, appellee gives Us an opposite interpretation invoking in support thereof not only a letter
Atty. DeWitt sent to Nielson on October 20, 1945,9 wherein he expressed for the first time an opinion contrary
to what he reported to the Board of Directors of Lepanto Company as stated in the portion of the minutes of its
Board of Directors as quoted above, but also the ruling laid down by our Supreme Court in some cases
decided sometime ago, to the effect that the war does not have the effect of extending the term of a contract
that the parties may enter into regarding a particular transaction, citing in this connection the cases
of Victorias Planters Association v. Victorias Milling Company, 51 O.G. 4010; Rosario S. Vda. de Lacson, et al.
v. Abelardo G. Diaz, 87 Phil. 150; and Lo Ching y So Young Chong Co. v. Court of Appeals, et al., 81 Phil. 601.
To bolster up its theory, appellee also contends that the evidence regarding the alleged custom or usage in
mining contract that appellant's witnesses tried to introduce was incompetent because (a) said custom was not
specifically pleaded; (b) Lepanto made timely and repeated objections to the introduction of said evidence; (c)
Nielson failed to show the essential elements of usage which must be shown to exist before any proof thereof
can be given to affect the contract; and (d) the testimony of its witnesses cannot prevail over the very terms of
the management contract which, as a rule, is supposed to contain all the terms and conditions by which the
parties intended to be bound.
It is here necessary to analyze the contradictory evidence which the parties have presented regarding the
interpretation of the force majeure clause in the management contract.
At the outset, it should be stated that, as a rule, in the construction and interpretation of a document the
intention of the parties must be sought (Rule 130, Section 10, Rules of Court). This is the basic rule in the
interpretation of contracts because all other rules are but ancilliary to the ascertainment of the meaning
intended by the parties. And once this intention has been ascertained it becomes an integral part of the
contract as though it had been originally expressed therein in unequivocal terms (Shoreline Oil Corp. v. Guy,
App. 189, So., 348, cited in 17A C.J.S., p. 47). How is this intention determined?
One pattern is to ascertain the contemporaneous and subsequent acts of the contracting parties in relation to
the transaction under consideration (Article 1371, Civil Code). In this particular case, it is worthy of note what
Atty. C. A. DeWitt has stated in the special meeting of the Board of Directors of Lepanto in the portion of the
minutes already quoted above wherein, as already stated, he expressed the opinion that the life of the
contract, if not extended, would last only until January, 1947 and yet he said that there is a provision in the
contract that the war had the effect of suspending the agreement and that the effect of that suspension was
that the agreement would have to continue with the result that Lepanto would have to pay the monthly
retaining fee of P2,500.00. And this belief that the war suspended the agreement and that the suspension
meant its extension was so firm that he went to the extent that even if there was no provision for suspension in
the agreement the law itself would suspend it.
It is true that Mr. DeWitt later sent a letter to Nielson dated October 20, 1945 wherein apparently he changed
his mind because there he stated that the contract was merely suspended, but not extended, by reason of the
war, contrary to the opinion he expressed in the meeting of the Board of Directors already adverted to, but
between the two opinions of Atty. DeWitt We are inclined to give more weight and validity to the former not
only because such was given by him against his own interest but also because it was given before the Board
of Directors of Lepanto and in the presence, of some Nielson officials 10 who, on that occasion were naturally
led to believe that that was the true meaning of the suspension clause, while the second opinion was merely
self-serving and was given as a mere afterthought.
Appellee also claims that the issue of true intent of the parties was not brought out in the complaint, but anent
this matter suffice it to state that in paragraph No. 19 of the complaint appellant pleaded that the contract was
extended. 11 This is a sufficient allegation considering that the rules on pleadings must as a rule be liberally
construed.
It is likewise noteworthy that in this issue of the intention of the parties regarding the meaning and usage
concerning the force majeure clause, the testimony adduced by appellant is uncontradicted. If such were not
true, appellee should have at least attempted to offer contradictory evidence. This it did not do. Not even
Lepanto's President, Mr. V. E. Lednicky who took the witness stand, contradicted said evidence.

In holding that the suspension of the agreement meant the extension of the same for a period equivalent to the
suspension, We do not have the least intention of overruling the cases cited by appellee. We simply want to
say that the ruling laid down in said cases does not apply here because the material facts involved therein are
not the same as those obtaining in the present. The rule of stare decisis cannot be invoked where there is no
analogy between the material facts of the decision relied upon and those of the instant case.
Thus, in Victorias Planters Association vs. Victorias Milling Company, 51 O.G. 4010, there was no evidence at
all regarding the intention of the parties to extend the contract equivalent to the period of suspension caused
by the war. Neither was there evidence that the parties understood the suspension to mean extension; nor
was there evidence of usage and custom in the industry that the suspension meant the extension of the
agreement. All these matters, however, obtain in the instant case.
Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz, 87 Phil. 150, the issue referred to the
interpretation of a pre-war contract of lease of sugar cane lands and the liability of the lessee to pay rent
during and immediately following the Japanese occupation and where the defendant claimed the right of an
extension of the lease to make up for the time when no cane was planted. This Court, in holding that the years
which the lessee could not use the land because of the war could not be discounted from the period agreed
upon, held that "Nowhere is there any insinuation that the defendant-lessee was to have possession of lands
for seven years excluding years on which he could not harvest sugar." Clearly, this ratio decidendi is not
applicable to the case at bar wherein there is evidence that the parties understood the "suspension clause by
force majeure" to mean the extension of the period of agreement.
Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of Appeals, et al., 81 Phil. 601, appellant
leased a building from appellee beginning September 13, 1940 for three years, renewable for two years. The
lessee's possession was interrupted in February, 1942 when he was ousted by the Japanese who turned the
same over to German Otto Schulze, the latter occupying the same until January, 1945 upon the arrival of the
liberation forces. Appellant contended that the period during which he did not enjoy the leased premises
because of his dispossession by the Japanese had to be deducted from the period of the lease, but this was
overruled by this Court, reasoning that such dispossession was merely a simple "perturbacion de merohecho
y de la cual no responde el arrendador" under Article 1560 of the old Civil Code Art. 1664). This ruling is also
not applicable in the instant case because in that case there was no evidence of the intention of the parties
that any suspension of the lease by force majeure would be understood to extend the period of the agreement.
In resume, there is sufficient justification for Us to conclude that the cases cited by appellee are inapplicable
because the facts therein involved do not run parallel to those obtaining in the present case.
We shall now consider appellee's defense of laches. Appellee is correct in its contention that the defense of
laches applies independently of prescription. Laches is different from the statute of limitations. Prescription is
concerned with the fact of delay, whereas laches is concerned with the effect of delay. Prescription is a matter
of time; laches is principally a question of inequity of permitting a claim to be enforced, this inequity being
founded on some change in the condition of the property or the relation of the parties. Prescription is statutory;
laches is not. Laches applies in equity, whereas prescription applies at law. Prescription is based on fixed time,
laches is not. (30 C.J.S., p. 522; See also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177).
The question to determine is whether appellant Nielson is guilty of laches within the meaning contemplated by
the authorities on the matter. In the leading case of Go Chi Gun, et al. vs. Go Cho, et al., 96 Phil. 622, this
Court enumerated the essential elements of laches as follows:
(1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the
situation of which complaint is made and for which the complaint seeks a remedy; (2) delay in
asserting the complainant's rights, the complainant having had knowledge or notice of the
defendant's conduct and having been afforded an opportunity to institute a suit; (3) lack of
knowledge or notice on the part of the defendant that the complainant would assert the right on
which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded
to the complainant, or the suit is not held barred.

Anent the second element, while it is true that appellant Nielson knew since 1945 that appellee Lepanto has
refused to permit it to resume management and that since 1948 appellee has resumed operation of the mines
and it filed its complaint only on February 6, 1958, there being apparent delay in filing the present action, We
find the delay justified and as such cannot constitute laches. It appears that appellant had not abandoned its
right to operate the mines for even before the termination of the suspension of the agreement as early as
January 20, 194612 and even before March 10, 1945, it already claimed its right to the extension of the
contract,13 and it pressed its claim for the balance of its share in the profits from the 1941 operation 14 by
reason of which negotiations had taken place for the settlement of the claim 15 and it was only on June 25,
1957 that appellee finally denied the claim. There is, therefore, only a period of less than one year that had
elapsed from the date of the final denial of the claim to the date of the filing of the complaint, which certainly
cannot be considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said that appellee Lepanto did not know that
appellant would assert its rights on which it based suit. The evidence shows that Nielson had been claiming for
some time its rights under the contract, as already shown above.
Neither is the fourth element present, for if there has been some delay in bringing the case to court it was
mainly due to the attempts at arbitration and negotiation made by both parties. If Lepanto's documents were
lost, it was not caused by the delay of the filing of the suit but because of the war.
Another reason why appellant Nielson cannot be held guilty of laches is that the delay in the filing of the
complaint in the present case was the inevitable of the protracted negotiations between the parties concerning
the settlement of their differences. It appears that Nielson asked for arbitration 16 which was granted. A
committee consisting of Messrs. DeWitt, Farnell and Blessing was appointed to act on said differences but Mr.
DeWitt always tried to evade the issue17 until he was taken ill and died. Mr. Farnell offered to Nielson the sum
of P13,000.58 by way of compromise of all its claim arising from the management contract 18 but apparently the
offer was refused. Negotiations continued with the exchange of letters between the parties but with no
satisfactory result.19 It can be said that the delay due to protracted negotiations was caused by both parties.
Lepanto, therefore, cannot be permitted to take advantage of such delay or to question the propriety of the
action taken by Nielson. The defense of laches is an equitable one and equity should be applied with an even
hand. A person will not be permitted to take advantage of, or to question the validity, or propriety of, any act or
omission of another which was committed or omitted upon his own request or was caused by his conduct (R.
H. Stearns Co. vs. United States, 291 U.S. 54, 78 L. Ed. 647, 54 S. Ct., 325; United States vs. Henry Prentiss
& Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).
Had the action of Nielson prescribed? The court a quo held that the action of Nielson is already barred by the
statute of limitations, and that ruling is now assailed by the appellant in this appeal. In urging that the court a
quoerred in reaching that conclusion the appellant has discussed the issue with reference to particular claims.
The first claim is with regard to the 10% share in profits of 1941 operations. Inasmuch as appellee Lepanto
alleges that the correct basis of the computation of the sharing in the net profits shall be as provided for in
Clause V of the Management Contract, while appellant Nielson maintains that the basis should be what is
contained in the minutes of the special meeting of the Board of Directors of Lepanto on August 21, 1940, this
question must first be elucidated before the main issue is discussed.
The facts relative to the matter of profit sharing follow: In the management contract entered into between the
parties on January 30, 1937, which was renewed for another five years, it was stipulated that Nielson would
receive a compensation of P2,500.00 a month plus 10% of the net profits from the operation of the properties
for the preceding month. In 1940, a dispute arose regarding the computation of the 10% share of Nielson in
the profits. The Board of Directors of Lepanto, realizing that the mechanics of the contract was unfair to
Nielson, authorized its President to enter into an agreement with Nielson modifying the pertinent provision of
the contract effective January 1, 1940 in such a way that Nielson shall receive (1) 10% of the dividends
declared and paid, when and as paid, during the period of the contract and at the end of each year, (2) 10% of
any depletion reserve that may be set up, and (3) 10% of any amount expended during the year out of surplus
earnings for capital account. 20 Counsel for the appellee admitted during the trial that the extract of the minutes
as found in Exhibit B is a faithful copy from the original. 21 Mr. George Scholey testified that the foregoing
modification was agreed upon. 22

Are these requisites present in the case at bar?

The first element is conceded by appellant Nielson when it claimed that defendant refused to pay its
management fees, its percentage of profits and refused to allow it to resume the management operation.

Lepanto claims that this new basis of computation should be rejected (1) because the contract was clear on
the point of the 10% share and it was so alleged by Nielson in its complaint, and (2) the minutes of the special
meeting held on August 21, 1940 was not signed.

It appearing that the issue concerning the sharing of the profits had been raised in appellant's complaint and
evidence on the matter was introduced 23 the same can be taken into account even if no amendment of the
pleading to make it conform to the evidence has been made, for the same is authorized by Section 4, Rule 17,
of the old Rules of Court (now Section 5, Rule 10, of the new Rules of Court).
Coming now to the question of prescription raised by defendant Lepanto, it is contended by the latter that the
period to be considered for the prescription of the claim regarding participation in the profits is only four years,
because the modification of the sharing embodied in the management contract is merely verbal, no written
document to that effect having been presented. This contention is untenable. The modification appears in the
minutes of the special meeting of the Board of Directors of Lepanto held on August 21, 1940, it having been
made upon the authority of its President, and in said minutes the terms of the modification had been specified.
This is sufficient to have the agreement considered, for the purpose of applying the statute of limitations, as a
written contract even if the minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that
a writing containing the terms of a contract if adopted by two persons may constitute a contract in writing even
if the same is not signed by either of the parties (3 A.L.R., 2d, pp. 812-813). Another authority says that an
unsigned agreement the terms of which are embodied in a document unconditionally accepted by both parties
is a written contract (Corbin on Contracts, Vol. 1, p. 85)
The modification, therefore, made in the management contract relative to the participation in the profits by
appellant, as contained in the minutes of the special meeting of the Board of Directors of Lepanto held on
August 21, 1940, should be considered as a written contract insofar as the application of the statutes of
limitations is concerned. Hence, the action thereon prescribes within ten (10) years pursuant to Section 43 of
Act 190.
Coming now to the facts, We find that the right of Nielson to its 10% participation in the 1941 operations
accrued on December 21, 1941 and the right to commence an action thereon began on January 1, 1942 so
that the action must be brought within ten (10) years from the latter date. It is true that the complaint was filed
only on February 6, 1958, that is sixteen (16) years, one (1) month and five (5) days after the right of action
accrued, but the action has not yet prescribed for various reasons which We will hereafter discuss.
The first reason is the operation of the Moratorium Law, for appellant's claim is undeniably a claim for money.
Said claim accrued on December 31, 1941, and Lepanto is a war sufferer. Hence the claim was covered by
Executive Order No. 32 of March 10, 1945. It is well settled that the operation of the Moratorium Law
suspends the running of the statue of limitations (Pacific Commercial Co. vs. Aquino, G.R. No. L-10274,
February 27, 1957).
This Court has held that the Moratorium Law had been enforced for eight (8) years, two (2) months and eight
(8) days (Tioseco vs. Day, et al., L-9944, April 30, 1957; Levy Hermanos, Inc. vs. Perez, L-14487, April 29,
1960), and deducting this period from the time that had elapsed since the accrual of the right of action to the
date of the filing of the complaint, the extent of which is sixteen (16) years, one (1) month and five (5) days, we
would have less than eight (8) years to be counted for purposes of prescription. Hence appellant's action on its
claim of 10% on the 1941 profits had not yet prescribed.
Another reason that may be taken into account in support of the no-bar theory of appellant is the arbitration
clause embodied in the management contract which requires that any disagreement as to any amount of
profits before an action may be taken to court shall be subject to arbitration. 24 This agreement to arbitrate is
valid and binding. 25 It cannot be ignored by Lepanto. Hence Nielson could not bring an action on its
participation in the 1941 operations-profits until the condition relative to arbitration had been first complied
with. 26 The evidence shows that an arbitration committee was constituted but it failed to accomplish its
purpose on June 25, 1957. 27From this date to the filing of the complaint the required period for prescription
has not yet elapsed.
Nielson claims the following: (1) 10% share in the dividends declared in 1941, exclusive of interest, amounting
to P17,500.00; (2) 10% in the depletion reserves for 1941; and (3) 10% in the profits for years prior to 1948
amounting to P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar year of 1954 28 shows that it declared a
10% cash dividend in December, 1941, the amount of which is P175,000.00. The evidence in this connection
(Exhibits L and O) was admitted without objection by counsel for Lepanto. 29 Nielson claims 10% share in said
amount with interest thereon at 6% per annum. The document (Exhibit L) was even recognized by Lepanto's
President V. L. Lednicky, 30 and this claim is predicated on the provision of paragraph V of the management

contract as modified pursuant to the proposal of Lepanto at the special meeting of the Board of Directors on
August 21, 1940 (Exh. B), whereby it was provided that Nielson would be entitled to 10% of any dividends to
be declared and paid during the period of the contract.
With regard to the second claim, Nielson admits that there is no evidence regarding the amount set aside by
Lepanto for depletion reserve for 1941 31 and so the 10% participation claimed thereon cannot be assessed.
Anent the third claim relative to the 10% participation of Nielson on the sum of P197,647.08, which appears in
Lepanto's annual report for 1948 32 and entered as profit for prior years in the statement of income and
surplus, which amount consisted "almost in its entirety of proceeds of copper concentrates shipped to the
United States during 1947," this claim should to denied because the amount is not "dividend declared and
paid" within the purview of the management contract.
The fifth assignment of error of appellant refers to the failure of the lower court to order Lepanto to pay its
management fees for January, 1942, and for the full period of extension amounting to P150,000.00, or
P2,500.00 a month for sixty (60) months, a total of P152,500.00 with interest thereon from the date of
judicial demand.
It is true that the claim of management fee for January, 1942 was not among the causes of action in the
complaint, but inasmuch as the contract was suspended in February, 1942 and the management fees asked
for included that of January, 1942, the fact that such claim was not included in a specific manner in the
complaint is of no moment because an appellate court may treat the pleading as amended to conform to the
evidence where the facts show that the plaintiff is entitled to relief other than what is asked for in the complaint
(Alonzo vs. Villamor, 16 Phil. 315). The evidence shows that the last payment made by Lepanto for
management fee was for November and December, 1941. 33 If, as We have declared, the management
contract was suspended beginning February 1942, it follows that Nielson is entitled to the management fee for
January, 1942.
Let us now come to the management fees claimed by Nielson for the period of extension. In this respect, it has
been shown that the management contract was extended from June 27, 1948 to June 26, 1953, or for a period
of sixty (60) months. During this period Nielson had a right to continue in the management of the mining
properties of Lepanto and Lepanto was under obligation to let Nielson do it and to pay the corresponding
management fees. Appellant Nielson insisted in performing its part of the contract but Lepanto prevented it
from doing so. Hence, by virtue of Article 1186 of the Civil Code, there was a constructive fulfillment an the
part of Nielson of its obligation to manage said mining properties in accordance with the contract and Lepanto
had the reciprocal obligation to pay the corresponding management fees and other benefits that would have
accrued to Nielson if Lepanto allowed it (Nielson) to continue in the management of the mines during the
extended period of five (5) years.
We find that the preponderance of evidence is to the effect that Nielson had insisted in managing the mining
properties soon after liberation. In the report 34 of Lepanto, submitted to its stockholders for the period from
1941 to March 13, 1946, are stated the activities of Nielson's officials in relation to Nielson's insistence in
continuing the management. This report was admitted in evidence without objection. We find the following in
the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San Fernando (La Union) to await the
liberation of the mines. (Mr. Blessing was the Treasurer and Metallurgist of Nielson). Blessing with Clark and
Stanford went to the property on July 16 and found that while the mill site had been cleared of the enemy the
latter was still holding the area around the staff houses and putting up a strong defense. As a result, they
returned to San Fernando and later went back to the mines on July 26. Mr. Blessing made the report, dated
August 6, recommending a program of operation. Mr. Nielson himself spent a day in the mine early in
December, 1945 and reiterated the program which Mr. Blessing had outlined. Two or three weeks before the
date of the report, Mr. Coldren of the Nielson organization also visited the mine and told President C. A. DeWitt
of Lepanto that he thought that the mine could be put in condition for the delivery of the ore within ten (10)
days. And according to Mark Nestle, a witness of appellant, Nielson had several men including engineers to do
the job in the mines and to resume the work. These engineers were in fact sent to the mine site and submitted
reports of what they had done. 35
On the other hand, appellee claims that Nielson was not ready and able to resume the work in the mines,
relying mainly on the testimony of Dr. Juan Nabong, former secretary of both Nielson and Lepanto, given in
the separate case of Nancy Irving Romero vs. Lepanto Consolidated Mining Company (Civil Case No. 652,

CFI, Baguio), to the effect that as far as he knew "Nielson and Company had not attempted to operate the
Lepanto Consolidated Mining Company because Mr. Nielson was not here in the Philippines after the last war.
He came back later," and that Nielson and Company had no money nor stocks with which to start the
operation. He was asked by counsel for the appellee if he had testified that way in Civil Case No. 652 of the
Court of First Instance of Baguio, and he answered that he did not confirm it fully. When this witness was
asked by the same counsel whether he confirmed that testimony, he said that when he testified in that case he
was not fully aware of what happened and that after he learned more about the officials of the corporation it
was only then that he became aware that Nielson had really sent his men to the mines along with Mr. Blessing
and that he was aware of this fact personally. He further said that Mr. Nielson was here in 1945 and "he was
going out and contacting his people." 36
Lepanto admits, in its own brief, that Nielson had really insisted in taking over the management and operation
of the mines but that it (Lepanto) unequivocally refuse to allow it. The following is what appears in the brief of
the appellee:
It was while defendant was in the midst of the rehabilitation work which was fully described earlier,
still reeling under the terrible devastation and destruction wrought by war on its mine that Nielson
insisted in taking over the management and operation of the mine. Nielson thus put Lepanto in a
position where defendant, under the circumstances, had to refuse, as in fact it did, Nielson's
insistence in taking over the management and operation because, as was obvious, it was
impossible, as a result of the destruction of the mine, for the plaintiff to manage and operate the
same and because, as provided in the agreement, the contract was suspended by reason of the
war. The stand of Lepanto in disallowing Nielson to assume again the management of the mine in
1945 was unequivocal and cannot be misinterpreted, infra.37

11

20%

December

1950

1,000,000.00

12

20%

March

1951

1,000,000.00

13

20%

June

1951

1,000,000.00

14

20%

September

1951

1,000,000.00

15

40%

December

1951

2,000,000.00

16

20%

March

1952

1,000,000.00

17

20%

May

1952

1,000,000.00

18

20%

July

1952

1,000,000.00

19

20%

September

1952

1,000,000.00

20

20%

December

1952

1,000,000.00

21

20%

March

1953

1,000,000.00

Based on the foregoing facts and circumstances, and Our conclusion that the management contract was
extended, We believe that Nielson is entitled to the management fees for the period of extension. Nielson
should be awarded on this claim sixty times its monthly pay of P2,500.00, or a total of P150,000.00.
In its sixth assignment of error Nielson contends that the lower court erred in not ordering Lepanto to pay it
(Nielson) the 10% share in the profits of operation realized during the period of five (5) years from the
resumption of its post-war operations of the Mankayan mines, in the total sum of P2,403,053.20 with interest
thereon at the rate of 6% per annum from February 6, 1958 until full payment. 38
The above claim of Nielson refers to four categories, namely: (1) cash dividends; (2) stock dividends; (3)
depletion reserves; and (4) amount expended on capital investment.
Anent the first category, Lepanto's report for the calendar year 1954 39 contains a record of the cash dividends
it paid up to the date of said report, and the post-war dividends paid by it corresponding to the years included
in the period of extension of the management contract are as follows:
POST-WAR

10

10%

10%

10%

November

July

October

1949

1950

1950

P 200,000.00

300,000.00

500,000.00

22

20%

June

TOTAL

1953

1,000,000.00

P14,000,000.00

According to the terms of the management contract as modified, appellant is entitled to 10% of the
P14,000,000.00 cash dividends that had been distributed, as stated in the above-mentioned report, or the sum
of P1,400,000.00.
With regard to the second category, the stock dividends declared by Lepanto during the period of extension of
the contract are: On November 28, 1949, the stock dividend declared was 50% of the outstanding authorized
capital of P2,000,000.00 of the company, or stock dividends worth P1,000,000.00; and on August 22, 1950,
the stock dividends declared was 66-2/3% of the standing authorized capital of P3,000,000.00 of the company,
or stock dividends worth P2,000,000.00. 40
Appellant's claim that it should be given 10% of the cash value of said stock dividends with interest thereon at
6% from February 6, 1958 cannot be granted for that would not be in accordance with the management
contract which entitles Nielson to 10% of any dividends declared paid, when and as paid. Nielson, therefore, is
entitled to 10% of the stock dividends and to the fruits that may have accrued to said stock dividends pursuant
to Article 1164 of the Civil Code. Hence to Nielson is due shares of stock worth P100,000.00, as per stock
dividends declared on November 28, 1949 and all the fruits accruing to said shares after said date; and also
shares of stock worth P200,000.00 as per stock dividends declared on August 20, 1950 and all fruits accruing
thereto after said date.
Anent the third category, the depletion reserve appearing in the statement of income and surplus submitted by
Lepanto corresponding to the years covered by the period of extension of the contract, may be itemized as
follows:
In 1948, as per Exh. F, p. 36 and Exh. Q, p. 5, the depletion reserve set up was P11,602.80.
In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion reserve set up was P33,556.07.
In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the depletion reserve set up was
P84,963.30.
In 1951, as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the depletion reserve set up was
P129,089.88.
In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K p. 41, the depletion reserve was
P147,141.54.

Nielson is only entitled to 10% of the half amounting to P138,746.62. Summing up the entire depletion
reserves, from the middle of 1948 to the middle of 1953, we would have a total of P539,298.81, of which
Nielson is entitled to 10%, or to the sum of P53,928.88.
Finally, with regard to the fourth category, there is no figure in the record representing the value of the fixed
assets as of the beginning of the period of extension on June 27, 1948. It is possible, however, to arrive at the
amount needed by adding to the value of the fixed assets as of December 31, 1947 one-half of the amount
spent for capital account in the year 1948. As of December 31, 1947, the value of the fixed assets was
P1,061,878.8841 and as of December 31, 1948, the value of the fixed assets was P3,270,408.07. 42 Hence, the
increase in the value of the fixed assets for the year 1948 was P2,208,529.19, one-half of which is
P1,104,264.59, which amount represents the expenses for capital account for the first half of the year 1948. If
to this amount we add the fixed assets as of December 31, 1947 amounting to P1,061,878.88, we would have
a total of P2,166,143.47 which represents the fixed assets at the beginning of the second half of the year
1948.
There is also no figure representing the value of the fixed assets when the contract, as extended, ended on
June 26, 1953; but this may be computed by getting one-half of the expenses for capital account made in
1953 and adding the same to the value of the fixed assets as of December 31, 1953 is P9,755,840.41 43 which
the value of the fixed assets as of December 31, 1952 is P8,463,741.82, the difference being P1,292,098.69.
One-half of this amount is P646,049.34 which would represent the expenses for capital account up to June,
1953. This amount added to the value of the fixed assets as of December 31, 1952 would give a total of
P9,109,791.16 which would be the value of fixed assets at the end of June, 1953.
The increase, therefore, of the value of the fixed assets of Lepanto from June, 1948 to June, 1953 is
P6,943,647.69, which amount represents the difference between the value of the fixed assets of Lepanto in
the year 1948 and in the year 1953, as stated above. On this amount Nielson is entitled to a share of 10% or
to the amount of P694,364.76.
Considering that most of the claims of appellant have been entertained, as pointed out in this decision, We
believe that appellant is entitled to be awarded attorney's fees, especially when, according to the undisputed
testimony of Mr. Mark Nestle, Nielson obliged himself to pay attorney's fees in connection with the institution of
the present case. In this respect, We believe, considering the intricate nature of the case, an award of fifty
thousand (P50,000.00) pesos for attorney's fees would be reasonable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the court a quo and
enter in lieu thereof another, ordering the appellee Lepanto to pay appellant Nielson the different amounts as
specified hereinbelow:
(1) 10% share of cash dividends of December, 1941 in the amount of P17,500.00, with legal interest thereon
from the date of the filing of the complaint;
(2) management fee for January, 1942 in the amount of P2,500.00, with legal interest thereon from the date of
the filing of the complaint;
(3) management fees for the sixty-month period of extension of the management contract, amounting to
P150,000.00, with legal interest from the date of the filing of the complaint;
(4) 10% share in the cash dividends during the period of extension of the management contract, amounting to
P1,400,000.00, with legal interest thereon from the date of the filing of the complaint;

In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve set up as P277,493.25.
Regarding the depletion reserve set up in 1948 it should be noted that the amount given was for the whole
year. Inasmuch as the contract was extended only for the last half of the year 1948, said amount of
P11,602.80 should be divided by two, and so Nielson is only entitled to 10% of the half amounting to
P5,801.40.
Likewise, the amount of depletion reserve for the year 1953 was for the whole year and since the contract was
extended only until the first half of the year, said amount of P277,493.25 should be divided by two, and so

(5) 10% of the depletion reserve set up during the period of extension, amounting to P53,928.88, with legal
interest thereon from the date of the filing of the complaint;
(6) 10% of the expenses for capital account during the period of extension, amounting to P694,364.76, with
legal interest thereon from the date of the filing of the complaint;
(7) to issue and deliver to Nielson and Co., Inc. shares of stock of Lepanto Consolidated Mining Co. at par
value equivalent to the total of Nielson's l0% share in the stock dividends declared on November 28, 1949 and

August 22, 1950, together with all cash and stock dividends, if any, as may have been declared and issued
subsequent to November 28, 1949 and August 22, 1950, as fruits that accrued to said shares;
If sufficient shares of stock of Lepanto's are not available to satisfy this judgment, defendant-appellee shall pay
plaintiff-appellant an amount in cash equivalent to the market value of said shares at the time of default (12
C.J.S., p. 130), that is, all shares of the stock that should have been delivered to Nielson before the filing of
the complaint must be paid at their market value as of the date of the filing of the complaint; and all shares, if
any, that should have been delivered after the filing of the complaint at the market value of the shares at the
time Lepanto disposed of all its available shares, for it is only then that Lepanto placed itself in condition of not
being able to perform its obligation (Article 1160, Civil Code);
(8) the sum of P50,000.00 as attorney's fees; and
(9) the costs. It is so ordered.
G.R. No. L-8169

January 29, 1957

THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner,

vs.
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY COMMERCIAL CASUALTY
INSURANCE CO., SALVADOR SISON, PORFIRIO DE LA FUENTE and THE COURT OF APPEALS (First
Division),respondents.
Ross, Selph, Carrascoso & Janda for petitioner.
J. A. Wolfson and Manuel Y. Macias for respondents.

was finished, there is a part near the shelf of the right fender, right front fender, of my
car to be greased, but the the grease men cannot reached that part, so the next thing
to be done was to loosen the lifter just a few feet lower. Then upon releasing the valve
to make the car lower, a little bit lower . . .
Q. Who released the valve?
A. The greasemen, for the escape of the air. As the escape of the air is too strong for
my ear I faced backward. I faced toward Isaac Peral Street, and covered my ear. After
the escaped of the air has been finished, the air coming out from the valve, I turned to
face the car and I saw the car swaying at that time, and just for a few second the car
fell., (t.s.n. pp. 22-23.)
The case was immediately reported to the Manila Adjustor Company, the adjustor of the firemen's Insurance
Company and the Commercial Casualty Insurance Company, as the car was insured with these insurance
companies. After having been inspected by one Mr. Baylon, representative of the Manila Adjustor Company,
the damaged car was taken to the shops of the Philippine Motors, Incorporated, for repair upon order of the
Firemen's Insurance Company and the Commercial Casualty Company, with the consent of Salvador R.
Sison. The car was restored to running condition after repairs amounting to P1,651.38, and was delivered to
Salvador R. Sison, who, in turn made assignments of his rights to recover damages in favor of the Firemen's
Insurance Company and the Commercial Casualty Insurance Company.
On the other hand, the fall of the car from the hydraulic lifter has been explained by Alfonso M.
Adriano, a greaseman in the Shell Gasoline and Service Station, as follows:
Q. Were you able to lift the car on the hydraulic lifter on the occasion, September 3,
1947?

PADILLA, J.:
Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals which reversed that of the
Court of First Instance of Manila and sentenced ". . . the defendants-appellees to pay, jointly and severally, the
plaintiffs-appellants the sum of P1,651.38, with legal interest from December 6, 1947 (Gutierrez vs. Gutierrez,
56 Phil., 177, 180), and the costs in both instances."

A. Yes, sir.
Q. To what height did you raise more or less?
A. More or less five feet, sir.

The Court of Appeals found the following:

Q. After lifting that car that height, what did you do with the car?
Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee, the Shell Company of the
Philippine Islands, Ltd. accept the statement of facts made by the trial court in its decision and
appearing on pages 23 to 37 of the Record on Appeal, we quote hereunder such statement:

A. I also washed it, sir.

This is an action for recovery of sum of money, based on alleged negligence of the defendants.

Q. And after washing?

It is a fact that a Plymounth car owned by Salvador R. Sison was brought, on September 3, 1947
to the Shell Gasoline and Service Station, located at the corner of Marques de Comillas and Isaac
Peral Streets, Manila, for washing, greasing and spraying. The operator of the station, having
agreed to do service upon payment of P8.00, the car was placed on a hydraulic lifter under the
direction of the personnel of the station.

A. I greased it.
Q. On that occasion, have you been able to finish greasing and washing the car?
A. There is one point which I could not reach.

What happened to the car is recounted by Perlito Sison, as follows:

Q. And what did you do then?
Q. Will you please describe how they proceeded to do the work?
A. I lowered the lifter in order to reach that point.
A. Yes, sir. The first thing that was done, as I saw, was to drive the car over the lifter.
Then by the aid of the two grease men they raised up my car up to six feet high, and
then washing was done. After washing, the next step was greasing. Before greasing

Q. After lowering it a little, what did you do then?

A. I pushed and pressed the valve in its gradual pressure.

Q. Were you able to reach the portion which you were not able to reach while it was
lower?

On 6 December 1947 the insures and the owner of the car brought an action in the Court of First Instance of
Manila against the Shell Company of the Philippines, Ltd. and Porfirio de la Fuente to recover from them,
jointly and severally, the sum of P1,651.38, interest thereon at the legal rate from the filing of the complaint
until fully paid, the costs. After trial the Court dismissed the complaint. The plaintiffs appealed. The Court of
Appeals reversed the judgment and sentenced the defendant to pay the amount sought to be recovered, legal
interest and costs, as stated at the beginning of this opinion.

A. No more, sir.
Q. Why?
A. Because when I was lowering the lifter I saw that the car was swinging and it fell.
THE COURT. Why did the car swing and fall?
WITNESS: 'That is what I do not know, sir'. (t.s.n., p.67.)
The position of Defendant Porfirio de la Fuente is stated in his counter-statement of facts which is hereunder
also reproduced:
In the afternoon of September 3, 1947, an automobile belonging to the plaintiff Salvador Sison was
brought by his son, Perlito Sison, to the gasoline and service station at the corner of Marques de
Comillas and Isaac Peral Streets, City of Manila, Philippines, owned by the defendant The Shell
Company of the Philippine Islands, Limited, but operated by the defendant Porfirio de la Fuente,
for the purpose of having said car washed and greased for a consideration of P8.00 (t.s.n., pp. 1920.) Said car was insured against loss or damage by Firemen's Insurance Company of Newark,
New Jersey, and Commercial Casualty Insurance Company jointly for the sum of P10,000
(Exhibits "A', "B", and "D").
The job of washing and greasing was undertaken by defendant Porfirio de la Fuente through his
two employees, Alfonso M. Adriano, as greaseman and one surnamed de los Reyes, a helper and
washer (t.s.n., pp. 65-67). To perform the job the car was carefully and centrally placed on the
platform of the lifter in the gasoline and service station aforementioned before raising up said
platform to a height of about 5 feet and then the servicing job was started. After more than one
hour of washing and greasing, the job was about to be completed except for an ungreased portion
underneath the vehicle which could not be reached by the greasemen. So, the lifter was lowered a
little by Alfonso M. Adriano and while doing so, the car for unknown reason accidentally fell and
suffered damage to the value of P1, 651.38 (t.s.n., pp. 65-67).
The insurance companies after paying the sum of P1,651.38 for the damage and charging the
balance of P100.00 to Salvador Sison in accordance with the terms of the insurance contract, have
filed this action together with said Salvador Sison for the recovery of the total amount of the
damage from the defendants on the ground of negligence (Record on Appeal, pp. 1-6).
The defendant Porfirio de la Fuente denied negligence in the operation of the lifter in his separate
answer and contended further that the accidental fall of the car was caused by unforseen event
(Record on Appeal, pp. 17-19).
The owner of the car forthwith notified the insurers who ordered their adjustor, the Manila Adjustor Company,
to investigate the incident and after such investigation the damaged car, upon order of the insures 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 thereon which amounted to P1,651.38 and returned to the owner who assigned his right to
collect the aforesaid amount to the Firemen's Insurance Company and the Commercial Casualty Insurance
Company.

In arriving at the conclusion that on 3 September 1947 when the car was brought to the station for servicing
Profirio de la Fuente, the operator of the gasoline and service station, was an agent of the Shell Company of
the Philippines, Ltd., the Court of Appeals found that
. . . De la Fuente owned his position to the Shell Company which could remove him terminate his
services at any time from the said Company, and he undertook to sell the Shell Company's
products exculusively at the said Station. For this purpose, De la Fuente was placed in possession
of the gasoline and service station under consideration, and was provided with all the equipments
needed to operate it, by the said Company, such as the tools and articles listed on Exhibit 2 which
the hydraulic lifter (hoist) and accessories, from which Sison's automobile fell on the date in
question (Exhibit 1 and 2). These equipments were delivered to De la Fuente on a so-called loan
basis. The Shell Company took charge of its care and maintenance and rendered to the public or
its customers at that station for the proper functioning of the equipment. Witness Antonio Tiongson,
who was sales superintendent of the Shell Company, and witness Augusto Sawyer, foreman of the
same Company, supervised the operators and conducted periodic inspection of the Company's
gasoline and service station, the service station in question inclusive. Explaining his duties and
responsibilities and the reason for the loan, Tiongson said: "mainly of the supervision of sales or
(of) our dealers and rountinary inspection of the equipment loaned by the Company" (t.s.n., 107);
"we merely inquire about how the equipments are, whether they have complaints, and whether if
said equipments are in proper order . . .", (t.s.n., 110); station equipments are "loaned for the
exclusive use of the dealer on condition that all supplies to be sold by said dealer should be
exclusively Shell, so as a concession we loan equipments for their use . . .," "for the proper
functioning of the equipments, we answer and see to it that the equipments are in good running
order usable condition . . .," "with respect to the public." (t.s.n., 111-112). De la Fuente, as operator,
was given special prices by the Company for the gasoline products sold therein. Exhibit 1 Shell,
which was a receipt by Antonio Tiongson and signed by the De la Fuente, acknowledging the
delivery of equipments of the gasoline and service station in question was subsequently replaced
by Exhibit 2 Shell, an official from of the inventory of the equipment which De la Fuente signed
above the words: "Agent's signature" And the service station in question had been marked
"SHELL", and all advertisements therein bore the same sign. . . .
. . . De la Fuente was the operator of the station "by grace" of the Defendant Company which could
and did remove him as it pleased; that all the equipments needed to operate the station was
owned by the Defendant Company which took charge of their proper care and maintenance,
despite the fact that they were loaned to him; that the Defendant company did not leave the fixing
of price for gasoline to De la Fuente; on the other hand, the Defendant company had complete
control thereof; and that Tiongson, the sales representative of the Defendant Company, had
supervision over De la Fuente in the operation of the station, and in the sale of Defendant
Company's products therein. . . .
Taking into consideration the fact that the operator owed his position to the company and the latter could
remove him or terminate his services at will; that the service station belonged to the company and bore its
tradename and the operator sold only the products of the company; that the equipment used by the operator
belonged to the company and were just loaned to the operator and the company took charge of their repair
and maintenance; that an employee of the company supervised the operator and conducted periodic
inspection of the company's gasoline and service station; that the price of the products sold by the operator
was fixed by the company and not by the operator; and that the receipt signed by the operator indicated that
he was a mere agent, the finding of the Court of Appeals that the operator was an agent of the company and
not an independent contractor should not be disturbed.
To determine the nature of a contract courts do not have or are not bound to rely upon the name or title given it
by the contracting parties, should there be a controversy as to what they really had intended to enter into, but

the way the contracting parties do or perform their respective obligation stipulated or agreed upon may be
shown and inquired into, and should such performance conflict with the name or title given the contract by the
parties, the former must prevail over the latter.
It was admitted by the operator of the gasoline and service station that "the car was carefully and centrally
placed on the platform of the lifter . . ." and the Court of Appeals found that
. . . the fall of Appellant Sison's car from the hydraulic lift and the damage caused therefor, were
the result of the jerking and swaying of the lift when the valve was released, and that the jerking
was due to some accident and unforeseen shortcoming of the mechanism itself, which caused its
faulty or defective operation or functioning,
. . . the servicing job on Appellant Sison's automobile was accepted by De la Fuente in the normal
and ordinary conduct of his business as operator of his co-appellee's service station, and that the
jerking and swaying of the hydraulic lift which caused the fall of the subject car were due to its
defective condition, resulting in its faulty operation. . . .
As the act of the agent or his employees acting within the scope of his authority is the act of the principal, the
breach of the undertaking by the agent is one for which the principal is answerable. Moreover, the company
undertook to "answer and see to it that the equipments are in good running order and usable condition;" and
the Court of Appeals found that the Company's mechanic failed to make a thorough check up of the hydraulic
lifter and the check up made by its mechanic was "merely routine" by raising "the lifter once or twice and after
observing that the operator was satisfactory, he (the mechanic) left the place." The latter was negligent and
the company must answer for the negligent act of its mechanic which was the cause of the fall of the car from
the hydraulic lifter.

commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same
or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty
days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight,
insurance, and cost of unloading from the vessel at the point where the beds are received, shall be
paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when
made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be
made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr. Parsons may deem
convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in
price which he may plan to make in respect to his beds, and agrees that if on the date when such
alteration takes effect he should have any order pending to be served to Mr. Parsons, such order
shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected
by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the
obligation to invoice the beds at the price at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.

The judgment under review is affirmed, with costs against the petitioner.
G.R. No. L-11491

August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.

ART. 2. In compensation for the expenses of advertisement which, for the benefit of both
contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the
obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the
exclusive agency for any island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in
all the towns of the Archipelago where there are no exclusive agents, and shall immediately report
such action to Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated by either of the
contracting parties on a previous notice of ninety days to the other party.

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

Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject
matter of this appeal and both substantially amount to the averment that the defendant violated the following
obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in
Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement
expenses for the same; and to order the beds by the dozen and in no other manner. As may be seen, with the
exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner,
none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the
contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that
said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced itself
to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a
purchaser or an agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the contract in question,
what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the
defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay
the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale
of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be

made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and
in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the
essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to
supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal
conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does
not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person,
and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the
defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed,
without any other consideration and regardless as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of
purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the
plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the
clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single
one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in
clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice
price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that
could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be
said is that they are not incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant
corporation and who established and managed the latter's business in Iloilo. It appears that this witness, prior
to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against it, and
had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who
drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with the
plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. However,
according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who
prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was
his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A
which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of
commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But it
must be understood that a contract is what the law defines it to be, and not what it is called by the contracting
parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without
previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its
commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows
that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of
its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they
performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of
the contract, must be considered for the purpose of interpreting the contract, when such interpretation is
necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show
that the contract belongs to a certain kind and not to another. Furthermore, the return made was of certain
brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another
kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds, which
shows that it was not considered that the defendant had a right, by virtue of the contract, to make this return.
As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds
were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with
respect to the so-called commissions, we have said that they merely constituted a discount on the invoice
price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was
because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the
plaintiff's beds, such sales were to be considered as a result of that advertisement.
In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract,
the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place
under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for
having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant
was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are
not imposed upon the defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
G.R. No. L-47538

June 20, 1941

GONZALO PUYAT & SONS, INC., petitioner,

vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.
Feria & Lao for petitioner.
J. W. Ferrier and Daniel Me. Gomez for respondent.
LAUREL, J.:
This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the purpose of reviewing its
Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc.,
defendant-appellee."
It appears that the respondent herein brought an action against the herein petitioner in the Court of First
Instance of Manila to secure a reimbursement of certain amounts allegedly overpaid by it on account of the
purchase price of sound reproducing equipment and machinery ordered by the petitioner from the Starr Piano
Company of Richmond, Indiana, U.S.A. The facts of the case as found by the trial court and confirmed by the
appellate court, which are admitted by the respondent, are as follows:
In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of the Philippine
Islands, with its office in Manila, was engaged in the business of operating cinematographs. In
1930, its name was changed to Arco Amusement Company. C. S. Salmon was the president, while
A. B. Coulette was the business manager. About the same time, Gonzalo Puyat & Sons, Inc.,
another corporation doing business in the Philippine Islands, with office in Manila, in addition to its
other business, was acting as exclusive agents in the Philippines for the Starr Piano Company of
Richmond, Indiana, U.S. A. It would seem that this last company dealt in cinematographer
equipment and machinery, and the Arco Amusement Company desiring to equipt its
cinematograph with sound reproducing devices, approached Gonzalo Puyat & Sons, Inc., thru its
then president and acting manager, Gil Puyat, and an employee named Santos. After some
negotiations, it was agreed between the parties, that is to say, Salmon and Coulette on one side,
representing the plaintiff, and Gil Puyat on the other, representing the defendant, that the latter
would, on behalf of the plaintiff, order sound reproducing equipment from the Starr Piano Company
and that the plaintiff would pay the defendant, in addition to the price of the equipment, a 10 per
cent commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc. At
the expense of the plaintiff, the defendant sent a cable, Exhibit "3", to the Starr Piano Company,
inquiring about the equipment desired and making the said company to quote its price without
discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the price, evidently the list
price of $1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff the cable
of inquiry nor the reply but merely informed the plaintiff of the price of $1,700. Being agreeable to
this price, the plaintiff, by means of Exhibit "1", which is a letter signed by C. S. Salmon dated
November 19, 1929, formally authorized the order. The equipment arrived about the end of the
year 1929, and upon delivery of the same to the plaintiff and the presentation of necessary papers,
the price of $1.700, plus the 10 per cent commission agreed upon and plus all the expenses and
charges, was duly paid by the plaintiff to the defendant.
Sometime the following year, and after some negotiations between the same parties, plaintiff and
defendants, another order for sound reproducing equipment was placed by the plaintiff with the
defendant, on the same terms as the first order. This agreement or order was confirmed by the
plaintiff by its letter Exhibit "2", without date, that is to say, that the plaintiff would pay for the

equipment the amount of $1,600, which was supposed to be the price quoted by the Starr Piano
Company, plus 10 per cent commission, plus all expenses incurred. The equipment under the
second order arrived in due time, and the defendant was duly paid the price of $1,600 with its 10
per cent commission, and $160, for all expenses and charges. This amount of $160 does not
represent actual out-of-pocket expenses paid by the defendant, but a mere flat charge and rough
estimate made by the defendant equivalent to 10 per cent of the price of $1,600 of the equipment.
About three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against
the defendant herein Gonzalo Puyat & Sons, Inc., the officials of the Arco Amusement Company
discovered that the price quoted to them by the defendant with regard to their two orders
mentioned was not the net price but rather the list price, and that the defendants had obtained a
discount from the Starr Piano Company. Moreover, by reading reviews and literature on prices of
machinery and cinematograph equipment, said officials of the plaintiff were convinced that the
prices charged them by the defendant were much too high including the charges for out-of-pocket
expense. For these reasons, they sought to obtain a reduction from the defendant or rather a
reimbursement, and failing in this they brought the present action.
The trial court held that the contract between the petitioner and the respondent was one of outright purchase
and sale, and absolved that petitioner from the complaint. The appellate court, however, by a division of
four, with one justice dissenting held that the relation between petitioner and respondent was that of agent
and principal, the petitioner acting as agent of the respondent in the purchase of the equipment in question,
and sentenced the petitioner to pay the respondent alleged overpayments in the total sum of $1,335.52 or
P2,671.04, together with legal interest thereon from the date of the filing of the complaint until said amount is
fully paid, as well as to pay the costs of the suit in both instances. The appellate court further argued that even
if the contract between the petitioner and the respondent was one of purchase and sale, the petitioner was
guilty of fraud in concealing the true price and hence would still be liable to reimburse the respondent for the
overpayments made by the latter.
The petitioner now claims that the following errors have been incurred by the appellate court:
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun hechos, entre la
recurrente y la recurrida existia una relacion implicita de mandataria a mandante en la transaccion
de que se trata, en vez de la de vendedora a compradora como ha declarado el Juzgado de
Primera Instncia de Manila, presidido entonces por el hoy Magistrado Honorable Marcelino
Montemayor.
II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo que dicha
relacion fuerra de vendedora a compradora, la recurrente obtuvo, mediante dolo, el
consentimiento de la recurrida en cuanto al precio de $1,700 y $1,600 de las maquinarias y
equipos en cuestion, y condenar a la recurrente ha obtenido de la Starr Piano Company of
Richmond, Indiana.
We sustain the theory of the trial court that the contract between the petitioner and the respondent was one of
purchase and sale, and not one of agency, for the reasons now to be stated.
In the first place, the contract is the law between the parties and should include all the things they are
supposed to have been agreed upon. What does not appear on the face of the contract should be regarded
merely as "dealer's" or "trader's talk", which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am.
Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v. Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334; Doles v.
Merrill, 173 Mass., 411.) The letters, Exhibits 1 and 2, by which the respondent accepted the prices of $1,700
and $1,600, respectively, for the sound reproducing equipment subject of its contract with the petitioner, are
clear in their terms and admit no other interpretation that the respondent in question at the prices indicated
which are fixed and determinate. The respondent admitted in its complaint filed with the Court of First Instance
of Manila that the petitioner agreed to sell to it the first sound reproducing equipment and machinery. The third
paragraph of the respondent's cause of action states:

3. That on or about November 19, 1929, the herein plaintiff (respondent) and defendant (petitioner)
entered into an agreement, under and by virtue of which the herein defendant was to secure from
the United States, and sell and deliver to the herein plaintiff, certain sound reproducing equipment
and machinery, for which the said defendant, under and by virtue of said agreement, was to
receive the actual cost price plus ten per cent (10%), and was also to be reimbursed for all out of
pocket expenses in connection with the purchase and delivery of such equipment, such as costs of
telegrams, freight, and similar expenses. (Emphasis ours.)
We agree with the trial judge that "whatever unforseen events might have taken place unfavorable to the
defendant (petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by
insurance or failure of the Starr Piano Company to properly fill the orders as per specifications, the plaintiff
(respondent) might still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600." This is
incompatible with the pretended relation of agency between the petitioner and the respondent, because in
agency, the agent is exempted from all liability in the discharge of his commission provided he acts in
accordance with the instructions received from his principal (section 254, Code of Commerce), and the
principal must indemnify the agent for all damages which the latter may incur in carrying out the agency
without fault or imprudence on his part (article 1729, Civil Code).
While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent (10%) commission, this
does not necessarily make the petitioner an agent of the respondent, as this provision is only an additional
price which the respondent bound itself to pay, and which stipulation is not incompatible with the contract of
purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.)
In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment and
machinery from the Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that the
petitioner is the exclusive agent of the same company in the Philippines. It is out of the ordinary for one to be
the agent of both the vendor and the purchaser. The facts and circumstances indicated do not point to
anything but plain ordinary transaction where the respondent enters into a contract of purchase and sale with
the petitioner, the latter as exclusive agent of the Starr Piano Company in the United States.
It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee for any difference
between the cost price and the sales price which represents the profit realized by the vendor out of the
transaction. This is the very essence of commerce without which merchants or middleman would not exist.
The respondents contends that it merely agreed to pay the cost price as distinguished from the list price, plus
ten per cent (10%) commission and all out-of-pocket expenses incurred by the petitioner. The distinction which
the respondents seeks to draw between the cost price and the list price we consider to be spacious. It is to be
observed that the twenty-five per cent (25%) discount granted by the Starr piano Company to the petitioner is
available only to the latter as the former's exclusive agent in the Philippines. The respondent could not have
secured this discount from the Starr Piano Company and neither was the petitioner willing to waive that
discount in favor of the respondent. As a matter of fact, no reason is advanced by the respondent why the
petitioner should waive the 25 per cent discount granted it by the Starr Piano Company in exchange for the 10
percent commission offered by the respondent. Moreover, the petitioner was not duty bound to reveal the
private arrangement it had with the Starr Piano Company relative to such discount to its prospective
customers, and the respondent was not even aware of such an arrangement. The respondent, therefore, could
not have offered to pay a 10 per cent commission to the petitioner provided it was given the benefit of the 25
per cent discount enjoyed by the petitioner. It is well known that local dealers acting as agents of foreign
manufacturers, aside from obtaining a discount from the home office, sometimes add to the list price when
they resell to local purchasers. It was apparently to guard against an exhorbitant additional price that the
respondent sought to limit it to 10 per cent, and the respondent is estopped from questioning that additional
price. If the respondent later on discovers itself at the short end of a bad bargain, it alone must bear the blame,
and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground
alone. The respondent could not secure equipment and machinery manufactured by the Starr Piano Company
except from the petitioner alone; it willingly paid the price quoted; it received the equipment and machinery as
represented; and that was the end of the matter as far as the respondent was concerned. The fact that the
petitioner obtained more or less profit than the respondent calculated before entering into the contract or
reducing the price agreed upon between the petitioner and the respondent. Not every concealment is fraud;
and short of fraud, it were better that, within certain limits, business acumen permit of the loosening of the
sleeves and of the sharpening of the intellect of men and women in the business world.

The writ of certiorari should be, as it is hereby, granted. The decision of the appellate court is accordingly
reversed and the petitioner is absolved from the respondent's complaint in G. R. No. 1023, entitled "Arco
Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons, Inc.,
defendants-appellee," without pronouncement regarding costs. So ordered.
G.R. No. L-2870

September 19, 1950

CHUA NGO, plaintiff-appellee,

vs.
UNIVERSAL TRADING CO., INC., defendant-appellant.

Onions ..........................................................
.

Manuel O. Chan and H.B. Arandia for appellant.

Arsenio Sy Santos for appellee.

$1.83 per case.

Deposit of 40% of the contract price plus the above charges to be payable immediately upon
receipt of telegraphic confirmation. Balance payable upon arrival of goods in Manila. If balance is
not paid within 48 hours of notification merchandise may be resold by Universal Trading Co., Inc.
and the deposit forfeited.

BENGZON, J.:
Chua Ngo delivered, in Manila, to the Universal Trading Company, Inc., a local corporation, the price 300
boxes of Sunkist oranges to be gotten from the United States. The latter ordered the said boxes from
Gabuardi Company of San Francisco, and in due course, the goods were shipped from that port to Manila "F.
O. B. San Francisco." One hundred eighty boxes were lost in transit, and were never delivered to Chua Ngo.

NOTE:
Onions canceled by supplier.
(Initialed) R. E. H.

This suit by Chua Ngo is to recover the corresponding price he had paid in advance.
Total amount of order .................................................................................. $3,936
Universal Trading Company refused to pay, alleging it merely acted as agent of Chua Ngo in purchasing the
oranges. Chua Ngo maintains he bought the oranges from Universal Trading Company, and, therefore, is
entitled to the return of the price corresponding to the undelivered fruit.

(Sgd.) CHUA NGO

From a judgment for plaintiff, the defendant appealed.

It appears that on January 14, 1946, the herein litigants signed the document Exhibit 1, which reads as
follows:

Confirmed and approved:

(Sgd.) RALPH E. HOLMES
Sales manager

UNIVERSAL TRADING COMPANY, INC.

Far Eastern Division
R-236-238 Ayala Building
Juan Luna, Manila

Universal Trading Company, Inc.

(See terms of agreement on reverse side.)

CONTRACT NO. 632 14 January 1946

On the same date, the defendant forwarded and order to Gabuardi Company of San Francisco, U. S. A., which
in part says:

Agreement is hereby made between Messrs. Chua Ngo of 753 Folgueras, Manila, and the
Universal Trading Company, Inc., Manila, for order as follows and under the following terms:
Quantity Merchandise and description Unit Unit price Amount
300 Sunkist oranges, wrapped
Grade No. 1 .................... .......... ................ .................
Navel, 220 to case ............ Case $6.30 $1,890.00
300 Onions, Australian
Browns, 90 lbs. to case Case $6.82 $2,046.00

ORDER NO. 707

TO GABUARDI COMPANY OF CALIFORNIA
258 Market Street
San Francisco, California
Please send for our account, subject to conditions on the back of this order, the following
merchandise enumerated below:

We are advised by the supplier that the charges to bring these goods to Manila are:

Oranges.........................................................

Agreed and accepted:

$3.06 per case

Shipping instructions
Via San Francisco, California
Terms: F. O. B.
San Francisco

Quantity Articles Unit Unit price Total price

300 Sunkist oranges wrapped
Grade No 1 ............... ............ ..........
Navel, 220 to case ...... Case $6.00 $1,800.00.
xxx

xxx

xxx

Approved:

P2,822,43
=========

Universal Trading Company, Inc.

(Sgd.) RALPH R. HOLMES
Sales Manager
xxx

xxx

xxx

On January 16 and January 19, 1946, the Universal Trading Co., Inc., wrote Chua Ngo two letters informing
him that the contract for oranges (and onions) had been confirmed by the supplier i. e., could be fulfilled
and asking for deposit of 65% of the price and certain additional charges.
On January 21, 1946, Chua Ngo deposited with the defendant, on account of the Sunkist oranges, the amount
of P3,650, and later (March 9, 1946), delivered the additional sum of P2,822.43 to complete the price, as
follows:

300 cases of oranges at $9.36..................................

P6,616.00

Bank charges ................................................................

196.56

Custom charges, etc. ..................................................

270.00

Delivery charges ..........................................................

171.00

3 percent sales tax ...................................................

218.00

P6,253.56

Less deposit R. No. 1062 ................

3,650.00

The 300 cases of oranges ordered by the defendant from Gabuardi Company were loaded in good condition
on board the S/S Silversandal in the port of San Francisco, together with other oranges (totaling 6,380 cases)
for other customers. They were all marked "UTC Manila" and were consigned to defendant. The Silversandal
arrived at the port of Manila on March 7, 1946. And out of the 6,380 boxes of oranges, 607 cases were short
short landed for causes beyond defendant's control. Consequently, defendant failed to deliver to Chua Ngo
180 cases of the 300 cases contracted for. The total cost of such 180 cases (received by defendant) is
admittedly P3,882.60.
The above are the main facts according to the stipulation of the parties. Uncontradicted additional evidence
was introduced that the mark "UTC Manila" written on all the boxes means "Universal Trading Company,
Manila"; that the defendant paid in its own name to Gabuardi Company the shipment of oranges, and made
claims for the lost oranges to the steamship company that insured the shipment company and the insurance
company that insured the shipment; and finally, that in the transaction between plaintiff and defendant, the
latter received no commission.
The crucial question is: Did Universal Trading Company merely agree to buy for and on behalf of Chua Ngo
the 300 boxes of oranges, or did it agree to sell and sold the oranges to Chua Ngo? If the first, the
judgment m ust be reversed; if the latter, it should be affirmed.
In our opinion, the circumstances of record sufficiently indicate a sale. First, no commission was paid. Second,
Exhibit 1 says that "if balance is not paid within 48 hours of notification, merchandise may be resold by the
Universal Trading Company and the deposit forfeited." "Resold" implies the goods had been sold to Chua
Ngo. And forfeiture of the deposit is incompatible with a contract of agency. Third, immediately after executing
Exhibit 1 wherein oranges were quoted at $6.30 per box, Universal Trading placed an order for purchase of
the same with Gabuardi Company at $6 per box. If Universal Trading Gabuardi Company was agent of Chua
Ngo, it could not properly do that. Inasmuch as good faith is to be presumed, we must hold that Universal
Trading acted thus because it was not acting as agent of Chua Ngo, but as independent purchaser from
Gabuardi Company. Fourth, the defendant charged the plaintiff the sum of P218.87 for 3 percent sales tax,
thereby implying that their transaction was a sale. Fifth, if the purchase of the oranges had been made on
behalf of Chua Ngo, all claims for losses thereof against the insurance company and against the shipping
company should have been assigned to Chua Ngo. Instead, the defendant has been pressing such claims for
itself.
In our opinion, the arrangement between the parties was this: Chua Ngo purchased from Universal Trading
Company, 300 boxes of oranges at $6.30 plus. In turn, the latter purchased from Gabuardi Company at $6
plus, sufficient fruit to comply with its contract with Chua Ngo.
Unfortunately, however, part of the orange consignment from San Francisco was lost in transit. Who is to
suffer that loss? Naturally, whoever was the owner of the oranges at the time of such loss. It could not be
Chua Ngo because the fruit had not been delivered to him. As between Gabuardi and the Universal Trading,
inasmuch as the goods had been sold "F. O. B. San Francisco", the loss must be borne by the latter, because
under the law, said goods had been delivered to the purchaser at San Francisco on board the vessel
Silversandal.1 That is why the Universal has been trying to recover the loss from both the steamship company
and the insurer.
Now, as Chua Ngo has paid for 300 boxes and has received 120 boxes only, the price of 180 boxes
undelivered must be paid back to him.

It appears that whereas in the lower court defendant sustained the theory that it acted as agent of plaintiff, in
this Court the additional theory is advanced that it acted as agent of Gabuardi Company. This obviously has
no merit.

(a) The Court orders the defendants Lim Tan Tong and the Manila Surety & Fidelity Co., Inc., to
pay jointly and severally the plaintiff Pearl Island Commercial Corporation the sum of P5,000.00
plus legal interest from the date of the filing of this complaint, until it is fully paid;

As to the contention that defendant incurred no liability because it is admitted that the oranges were lost due to
causes beyond the control of the defendant, and the oranges were shipped "F. O. B. San Francisco, the
answer is that such contention is based on the assumption which we reject that defendant merely acted
as agent of plaintiff in the purchase of the oranges from Gabuardi.

(b) the Court orders the defendant Lim Tan Tong to pay to the plaintiff the sum of P1,337.00 with
legal rate of interest from the date of the filing of this complaint until said amount is fully paid;

In view of the foregoing, the appealed judgment for plaintiff in the sum of P3,882.60 is affirmed with costs.
G.R. No. L-10517

June 28, 1957

PEARL ISLAND COMMERCIAL CORPORATION, plaintiff-appellee,

vs.
LIM TAN TONG and MANILA SURETY & FIDELITY CO., INC., defendants-appellants.
Diaz and Baizas for appellee.
De Santos and Herrera for appellant Manila Surety & Fidelity Co., Inc.
MONTEMAYOR, J.:
In June, 1951, plaintiff Pearl Island Commercial Corporation, engaged in the manufacture of floor wax under
the name of "Bee Wax", in the City of Manila, entered into a contract, Exhibit A, with defendant Lim Tan Tong,
wherein the latter, designated as sole distributor of said article in the provinces of Samar, Leyte Cebu Bohol
and Negros Oriental and all the provinces in the island of Mindanao, was going to buy the said floor wax for
resale in the territory above-mentioned. The plaintiff undertook not to appoint any other distributor within the
said territory; to sell to defendant Tong at factory price in Manila, F. O. B. Manila; that Tong could sell the
article in his territory at any price he saw that fit; that payment for any floor wax purchased shall he delivered
to plaintiff within sixty days from the date of shipment; that (this is important) Tong was to furnish surety bond
to cover all shipments of the floor wax that are damaged or unmerchantable, at its expense; and that in case
of loss due to fortuitous event or force majeure, the plaintiff was to shoulder the loss, provided the goods were
still in transit.
On the same day said contract were executed on June 16, 1951, defendant Manila Surety & Fidelity Co., Inc.,
with Tong as principal, filed the surety bond (Exhibit B), binding itself unto the plaintiff in the sum of P5,000, by
reason of the appointment of Tong as exclusive agent for plaintiff for the Visayas-Mindanao provinces, the
bond being conditioned on the faithful performance of Tong's duties, in accordance with the agreement. It
would appear that for its security, the Surety Company had Ko Su Kuan and Marciano Du execute in its favor
an indemnity agreement that they would indemnify said surety company in whatever amount it may pay to the
plaintiff by reason of the bond filed by it.
On June 18, 1951, plaintiff shipped 299 cases of Bee Wax, valued at P7,107, to Tong, duly received by the
latter. Tong failed to remit the value within sixty days, and despite the demand made by plaintiff on him to send
that amount, he sent only P770, leaving a balance of P6,337, which he admits to be still with him, but which he
refuses to remit to the plaintiff, claiming that the latter owed him a larger amount. To enforce payment of the
balance of P6,337, plaintiff filed this present action not only against Tong, but also against the Surety
Company, to recover from the latter the amount of its bond of P5,000.
The Surety Company in its answer filed a cross-claim against Tong, and with the trial courts permission, filed a
third-party complaint against Ko Su Kuan and Marciano Du who, as already stated, had executed an indemnity
agreement in its favor. After trial, the lower court, presided by Judge Hermogenes Concepcion, rendered
judgment, the dispositive part of which reads as follows:
IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff and
against the defendants as follows:

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

express terms, appellant can recover from Ko Su Kuan and Marciano Du whatever amounts, including
attorney's fees it may pay to plaintiff, and said two persons evidently have not appealed from the decision.
In view of the foregoing, the decision appealed from is hereby affirmed, with costs.
G.R. No. L-20871 April 30, 1971
KER & CO., LTD., petitioner,
vs.
JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.
Ross, Selph and Carrascoso for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Atty. Balbino
Gatdula, Jr. for respondent.

FERNANDO, J.:
Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it liable as a
commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea, notwithstanding the
vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable stands in the
way. The decision under review conforms to and is in accordance with the controlling doctrine announced in
the recent case of Commissioner of Internal Revenue v. Constantino. 1 The decisive test, as therein set forth,
is the retention of the ownership of the goods delivered to the possession of the dealer, like herein petitioner,
for resale to customers, the price and terms remaining subject to the control of the firm consigning such
goods. The facts, as found by respondent Court, to which we defer, unmistakably indicate that such a situation
does exist. The juridical consequences must inevitably follow. We affirm.
It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. Domingo
the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and compromise penalty for the
period from July 1, 1949 to December 31, 1953. There was a request on the part of petitioner for the
cancellation of such assessment, which request was turned down. As a result, it filed a petition for review with
the Court of Tax Appeals. In its answer, the then Commissioner Domingo maintained his stand that petitioner
should be taxed in such amount as a commercial broker. In the decision now under review, promulgated on
October 19, 1962, the Court of Tax Appeals held petitioner taxable except as to the compromise penalty of
P500.00, the amount due from it being fixed at P19,772.33.
Such liability arose from a contract of petitioner with the United States Rubber International, the former being
referred to as the Distributor and the latter specifically designated as the Company. The contract was to apply
to transactions between the former and petitioner, as Distributor, from July 1, 1948 to continue in force until
terminated by either party giving to the other sixty days' notice. 2 The shipments would cover products "for
consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of
Davao", petitioner, as Distributor, being precluded from disposing such products elsewhere than in the above
places unless written consent would first be obtained from the Company. 3 Petitioner, as Distributor, is required
to exert every effort to have the shipment of the products in the maximum quantity and to promote in every
way the sale thereof. 4 The prices, discounts, terms of payment, terms of delivery and other conditions of sale
were subject to change in the discretion of the Company. 5
Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the
Distributor will receive, accept and/or hold upon consignment the products specified under the terms of this
agreement in such quantities as in the judgment of the Company may be necessary for the successful
solicitation and maintenance of business in the territory, and the Distributor agrees that responsibility for the
final sole of all goods delivered shall rest with him. All goods on consignment shall remain the property of the

Company until sold by the Distributor to the purchaser or purchasers, but all sales made by the Distributor
shall be in his name, in which the sale price of all goods sold less the discount given to the Distributor by the
Company in accordance with the provision of paragraph 13 of this agreement, whether or not such sale price
shall have been collected by the Distributor from the purchaser or purchasers, shall immediately be paid and
remitted by the Distributor to the Company. It is further agreed that this agreement does not constitute
Distributor the agent or legal representative 4 of the Company for any purpose whatsoever. Distributor is not
granted any right or authority to assume or to create any obligation or responsibility, express or implied, in
behalf of or in the name of the Company, or to bind the Company in any manner or thing whatsoever." 6
All specifications for the goods ordered were subject to acceptance by the Company with petitioner, as
Distributor, required to accept such goods shipped as well as to clear the same through customs and to
arrange for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from the
stocks carried by the Company's neighboring branches, subsidiaries or other sources of Company's
brands. 7 Shipments were to be invoiced at prices to be agreed upon, with the customs duties being paid by
petitioner, as Distributor, for account of the Company. 8 Moreover, all resale prices, lists, discounts and general
terms and conditions of local resale were to be subject to the approval of the Company and to change from
time to time in its discretion. 9 The dealer, as Distributor, is allowed a discount of ten percent on the net amount
of sales of merchandise made under such agreement. 10 On a date to be determined by the Company, the
petitioner, as Distributor, was required to report to it data showing in detail all sales during the month
immediately preceding, specifying therein the quantities, sizes and types together with such information as
may be required for accounting purposes, with the Company rendering an invoice on sales as described to be
dated as of the date of inventory and sales report. As Distributor, petitioner had to make payment on such
invoice or invoices on due date with the Company being privileged at its option to terminate and cancel the
agreement forthwith upon the failure to comply with this obligation. 11 The Company, at its own expense, was
to keep the consigned stock fully insured against loss or damage by fire or as a result of fire, the policy of such
insurance to be payable to it in the event of loss. Petitioner, as Distributor, assumed full responsibility with
reference to the stock and its safety at all times; and upon request of the Company at any time, it was to
render inventory of the existing stock which could be subject to change. 12 There was furthermore this equally
tell-tale covenant: "Upon the termination or any cancellation of this agreement all goods held on consignment
shall be held by the Distributor for the account of the Company, without expense to the Company, until such
time as provision can be made by the Company for disposition." 13
The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is one of
vendor and vendee or of broker and principal. Not that there would have been the slightest doubt were it not
for the categorical denial in the contract that petitioner was not constituted as "the agent or legal
representative of the Company for any purpose whatsoever." It would be, however, to impart to such an
express disclaimer a meaning it should not possess to ignore what is manifestly the role assigned to petitioner
considering the instrument as a whole. That would be to lose sight altogether of what has been agreed upon.
The Court of Tax Appeals was not misled in the language of the decision now on appeal: "That the petitioner
Ker & Co., Ltd. is, by contractual stipulation, an agent of U.S. Rubber International is borne out by the facts
that petitioner can dispose of the products of the Company only to certain persons or entities and within
stipulated limits, unless excepted by the contract or by the Rubber Company (Par. 2); that it merely receives,
accepts and/or holds upon consignment the products, which remain properties of the latter company (Par. 8);
that every effort shall be made by petitioner to promote in every way the sale of the products (Par. 3); that
sales made by petitioner are subject to approval by the company (Par. 12); that on dates determined by the
rubber company, petitioner shall render a detailed report showing sales during the month (Par. 14); that the
rubber company shall invoice the sales as of the dates of inventory and sales report (Par. 14); that the rubber
company agrees to keep the consigned goods fully insured under insurance policies payable to it in case of
loss (Par. 15); that upon request of the rubber company at any time, petitioner shall render an inventory of the
existing stock which may be checked by an authorized representative of the former (Par. 15); and that upon
termination or cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the
account of the rubber company until their disposition is provided for by the latter (Par. 19). All these
circumstances are irreconcilably antagonistic to the idea of an independent merchant." 14 Hence its conclusion:
"However, upon analysis of the contract, as a whole, together with the actual conduct of the parties in respect
thereto, we have arrived at the conclusion that the relationship between them is one of brokerage or
agency." 15 We find ourselves in agreement, notwithstanding the able brief filed on behalf of petitioner by its
counsel. As noted at the outset, we cannot heed petitioner's plea for reversal.
1. According to the National Internal Revenue Code, a commercial broker "includes all persons, other than
importers, manufacturers, producers, or bona fide employees, who, for compensation or profit, sell or bring

about sales or purchases of merchandise for other persons or bring proposed buyers and sellers together, or
negotiate freights or other business for owners of vessels or other means of transportation, or for the shippers,
or consignors or consignees of freight carried by vessels or other means of transportation. The term includes
commission merchants." 16 The controlling decision as to the test to be followed as to who falls within the
above definition of a commercial broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the
language of Justice J. B. L. Reyes, who penned the opinion: "Since the company retained ownership of the
goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which
were subject to the company's control, the relationship between the company and the dealer is one of
agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support of such a view follows: " 'The difficulty in
distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of
rules by the application of which this difficulty may be solved. The decisions say the transfer of title or
agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee
in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price,
and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the
essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the
principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and
receive the proceeds less the agent's commission upon sales made.' " 20 The opinion relied on the work of
Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote treatises on
Sales, were likewise referred to.
Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity
or presence of these mutual requirements and obligations on any theory other than that of a contract of
agency. Salisbury was to furnish the mill and put the timber owned by him into a marketable condition in the
form of lumber; Brooks was to furnish the funds necessary for that purpose, sell the manufactured product,
and account therefor to Salisbury upon the specific terms of the agreement, less the compensation fixed by
the parties in lieu of interest on the money advanced and for services as agent. These requirements and
stipulations are in tent with any other conception of the contract. If it constitutes an agreement to sell, they are
meaningless. But they cannot be ignored. They were placed there for some purpose, doubtless as the result of
definite antecedent negotiations therefore, consummated by the final written expression of the
agreement." 21 Hence the Constantino opinion could categorically affirm that the mere disclaimer in a contract
that an entity like petitioner is not "the agent or legal representative for any purpose whatsoever" does not
suffice to yield the conclusion that it is an independent merchant if the control over the goods for resale of the
goods consigned is pervasive in character. The Court of Tax Appeals decision now under review pays fealty to
such an applicable doctrine.

WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs against
petitioner.
G.R. No. 102784

February 28, 1996

ROSA LIM, petitioner,

vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
DECISION
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR No. 10290, entitled "People v.
Rosa Lim," promulgated on August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against petitioner Rosa Lim before Branch 92 of the
Regional Trial Court of Quezon City.1 The Information reads:
That on or about the 8th day of October 1987, in Quezon City, Philippines and within the
jurisdiction of this Honorable Court, the said accused with intent to gain, with unfaithfulness and/or
abuse of confidence, did, then and there, wilfully, unlawfully and feloniously defraud one
VICTORIA SUAREZ, in the following manner, to wit: on the date and place aforementioned said
accused got and received in trust from said complainant one (1) ring 3.35 solo worth P169,000.00,
Philippine Currency, with the obligation to sell the same on commission basis and to turn over the
proceeds of the sale to said complainant or to return said jewelry if unsold, but the said accused
once in possession thereof and far from complying with her obligation despite repeated demands
therefor, misapplied, misappropriated and converted the same to her own personal use and
benefit, to the damage and prejudice of the said offended party in the amount aforementioned and
in such other amount as may be awarded under the provisions of the Civil Code.
CONTRARY TO LAW.2

2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals. Neither did
such Court fail to appreciate in its true significance the act and conduct pursued in the implementation of the
contract by both the United States Rubber International and petitioner, as was contended in the second
assignment of error. Petitioner ought to have been aware that there was no need for such an inquiry. The
terms of the contract, as noted, speak quite clearly. There is lacking that degree of ambiguity sufficient to give
rise to serious doubt as to what was contemplated by the parties. A reading thereof discloses that the
relationship arising therefrom was not one of seller and purchaser. If it were thus intended, then it would not
have included covenants which in their totality would negate the concept of a firm acquiring as vendee goods
from another. Instead, the stipulations were so worded as to lead to no other conclusion than that the control
by the United States Rubber International over the goods in question is, in the language of the Constantino
opinion, "pervasive". The insistence on a relationship opposed to that apparent from the language employed
might even yield the impression that such a mode of construction was resorted to in order that the applicability
of a taxing statute might be rendered nugatory. Certainly, such a result is to be avoided.
Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has
developed an expertise in view of its function being limited solely to the interpretation of revenue laws, this
Court is not prepared to substitute its own judgment unless a grave abuse of discretion is manifest. It would be
to frustrate the objective for which administrative tribunals are created if the judiciary, absent such a showing,
is to ignore their appraisal on a matter that forms the staple of their specialized competence. While it is to be
admitted that counsel for petitioner did scrutinize with care the decision under review with a view to exposing
what was considered its flaws, it cannot be said that there was such a failure to apply what the law commands
as to call for its reversal. Instead, what cannot be denied is that the Court of Tax Appeals reached a result to
which the Court in the recent Constantino decision gave the imprimatur of its approval.

After arraignment and trial on the merits, the trial court rendered judgment, the dispositive portion of which
reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the offense of estafa as defined
and penalized under Article 315, paragraph 1(b) of the Revised Penal Code;
2. Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS and TWO (2) MONTHS
of prision correccional as minimum, to TEN (10) YEARS of prision mayor as maximum;
3. Ordering her to return to the offended party Mrs. Victoria Suarez the ring or its value in the
amount of P169,000 without subsidiary imprisonment in case insolvency; and
4. To pay costs.3
On appeal, the Court of Appeals affirmed the judgment of conviction with the modification that the penalty
imposed shall be six (6) years, eight (8) months and twenty-one (21) days to twenty (20) years in accordance
with Article 315, paragraph 1 of the Revised Penal Code. 4
Petitioner filed a motion for reconsideration before the appellate court on September 20, 1991, but the motion
was denied in a Resolution dated November 11, 1991.

In her final bid to exonerate herself, petitioner filed the instant petition for review alleging the following
grounds:
I
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE RULES OF COURT AND
THE DECISION OF THIS HONORABLE COURT IN NOT PASSING UPON THE FIRST AND
THIRD ASSIGNED ERRORS IN PETITIONER'S BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE PAROL EVIDENCE
RULE WAS WAIVED WHEN THE PRIVATE PROSECUTOR CROSS-EXAMINED THE
PETITIONER AND AURELIA NADERA AND WHEN COMPLAINANT WAS CROSS-EXAMINED
BY THE COUNSEL FOR THE PETITIONER AS TO THE TRUE NATURE OF THE AGREEMENT
BETWEEN THE PARTIES WHEREIN IT WAS DISCLOSED THAT THE TRUE AGREEMENT OF
THE PARTIES WAS A SALE OF JEWELRIES AND NOT WHAT WAS EMBODIED IN THE
RECEIPT MARKED AS EXHIBIT "A" WHICH WAS RELIED UPON BY THE RESPONDENT
COURT IN AFFIRMING THE JUDGMENT OF CONVICTION AGAINST HEREIN PETITIONER;
and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE PRINCIPLE ENUNCIATED
BY THIS HONORABLE COURT TO THE EFFECT THAT "ACCUSATION" IS NOT, ACCORDING
TO THE FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE PROSECUTION MUST
OVERTHROW THE PRESUMPTION OF INNOCENCE WITH PROOF OF GUILT BEYOND
REASONABLE DOUBT. TO MEET THIS STANDARD, THERE IS NEED FOR THE MOST
CAREFUL SCRUTINY OF THE TESTIMONY OF THE STATE, BOTH ORAL AND
DOCUMENTARY, INDEPENDENTLY OF WHATEVER DEFENSE IS OFFERED BY THE
ACCUSED. ONLY IF THE JUDGE BELOW AND THE APPELLATE TRIBUNAL COULD ARRIVE
AT A CONCLUSION THAT THE CRIME HAD BEEN COMMITTED PRECISELY BY THE PERSON
ON TRIAL UNDER SUCH AN EXACTING TEST SHOULD SENTENCE THUS REQUIRED THAT
EVERY INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE PROOF AGAINST HIM MUST
SURVIVE THE TEST OF REASON; THE STRONGEST SUSPICION MUST NOT BE PERMITTED
TO SWAY JUDGMENT. (People v. Austria, 195 SCRA 700) 5

Apartelle in Timog, Quezon City. Petitioner denied that the transaction was for her to sell the two pieces of
jewelry on commission basis. She told Mrs. Suarez that she would consider buying the pieces of jewelry far
her own use and that she would inform the private complainant of such decision before she goes back to
Cebu. Thereafter, the petitioner took the pieces of jewelry and told Mrs. Suarez to prepare the "necessary
paper for me to sign because I was not yet prepare (d) to buy it." 9 After the document was prepared, petitioner
signed it. To prove that she did not agree to the terms of the receipt regarding the sale on commission basis,
petitioner insists that she signed the aforesaid document on the upper portion thereof and not at the bottom
where a space is provided for the signature of the person(s) receiving the jewelry. 10
On October 12, 1987 before departing for Cebu, petitioner called up Mrs. Suarez by telephone in order to
inform her that she was no longer interested in the ring and bracelet. Mrs. Suarez replied that she was busy at
the time and so, she instructed the petitioner to give the pieces of jewelry to Aurelia Nadera who would in turn
give them back to the private complainant. The petitioner did as she was told and gave the two pieces of
jewelry to Nadera as evidenced by a handwritten receipt, dated October 12, 1987. 11
Two issues need to be resolved: First, what was the real transaction between Rosa Lim and Vicky Suarez a
contract of agency to sell on commission basis as set out in the receipt or a sale on credit; and, second, was
the subject diamond ring returned to Mrs. Suarez through Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she never received the jewelries in trust or on
commission basis from Vicky Suarez. The real agreement between her and the private respondent was a sale
on credit with Mrs. Suarez as the owner-seller and petitioner as the buyer, as indicated by the bet that
petitioner did not sign on the blank space provided for the signature of the person receiving the jewelry but at
the upper portion thereof immediately below the description of the items taken. 12
The contention is far from meritorious.
The receipt marked as Exhibit "A" which establishes a contract of agency to sell on commission basis between
Vicky Suarez and Rosa Lim is herein reproduced in order to come to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN KO na aking tinanggap
kay ___________ the following jewelries:
ang mga alahas na sumusunod:

Herein the pertinent facts as alleged by the prosecution.

On or about October 8, 1987, petitioner Rosa Lim who had come from Cebu received from private respondent
Victoria Suarez the following two pieces of jewelry; one (1) 3.35 carat diamond ring worth P169,000.00 and
one (1) bracelet worth P170,000.00, to be sold on commission basis. The agreement was reflected in a receipt
marked as Exhibit "A"6 for the prosecution. The transaction took place at the Sir Williams Apartelle in Timog
Avenue, Quezon City, where Rosa Lim was temporarily billeted.

Description
Mga Uri

Price
Halaga

l ring 3.35 dolo

P 169,000.00

On December 15, 1987, petitioner returned the bracelet to Vicky Suarez, but failed to return the diamond ring
or to turn over the proceeds thereof if sold. As a result, private complainant, aside from making verbal
demands, wrote a demand letter7 to petitioner asking for the return of said ring or the proceeds of the sale
thereof. In response, petitioner, thru counsel, wrote a letter 8 to private respondent's counsel alleging that Rosa
Lim had returned both ring and bracelet to Vicky Suarez sometime in September, 1987, for which reason,
petitioner had no longer any liability to Mrs. Suarez insofar as the pieces of jewelry were concerned. Irked,
Vicky Suarez filed a complaint for estafa under Article 315, par l(b) of the Revised Penal Code for which the
petitioner herein stands convicted.

1 bracelet

9;170,000.00

Petitioner has a different version.

total
Kabuuan

P 339,000.00

Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in October 1987, together with one
Aurelia Nadera, who introduced petitioner to private respondent, and that they were lodged at the Williams

in good condition, to be sold in CASH ONLY within . . . days from date of signing this receipt na
nasa mabuting kalagayan upang ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob ng . . .
araw mula ng ating pagkalagdaan:
if I could not sell, I shall return all the jewelry within the period mentioned above; if I
would be able to sell, I shall immediately deliver and account the whole proceeds of
sale thereof to the owner of the jewelries at his/her residence; my compensation or
commission shall be the over-price on the value of each jewelry quoted above. I am
prohibited to sell any jewelry on credit or by installment; deposit, give for safekeeping:
lend, pledge or give as security or guaranty under any circumstance or manner, any
jewelry to other person or persons.

The testator or the person requested by him to write his name and the instrumental witnesses of
the will, shall also sign, as aforesaid, each and every page thereof, except the last, on the left
margin. . . .
In the case before us, the parties did not execute a notarial will but a simple contract of agency to sell on
commission basis, thus making the position of petitioner's signature thereto immaterial.
Petitioner insists, however, that the diamond ring had been returned to Vicky Suarez through Aurelia Nadera,
thus relieving her of any liability. Rosa Lim testified to this effect on direct examination by her counsel:
Q:

kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng taning na

panahong nakatala sa itaas; kung maipagbili ko naman ay dagli kong isusulit at
ibibigay ang buong pinagbilhan sa may-ari ng mga alahas sa kanyang bahay tahanan;
ang aking gantimpala ay ang mapapahigit na halaga sa nakatakdang halaga sa itaas
ng bawat alahas HINDI ko ipinahihintulutang ipa-u-u-tang o ibibigay na hulugan ang
alin mang alahas, ilalagak, ipagkakatiwala; ipahihiram; isasangla o ipananagot kahit sa
anong paraan ang alin mang alahas sa ibang mga tao o tao.
I sign my name this . . . day of . . . 19 . . . at Manila, NILALAGDAAN ko ang kasunduang ito
ngayong ika _____ ng dito sa Maynila.

___________________
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)

Address: . . . . . . . . . . . .

Rosa Lim's signature indeed appears on the upper portion of the receipt immediately below the description of
the items taken: We find that this fact does not have the effect of altering the terms of the transaction from a
contract of agency to sell on commission basis to a contract of sale. Neither does it indicate absence or
vitiation of consent thereto on the part of Rosa Lim which would make the contract void or voidable. The
moment she affixed her signature thereon, petitioner became bound by all the terms stipulated in the receipt.
She, thus, opened herself to all the legal obligations that may arise from their breach. This is clear from Article
1356 of the New Civil Code which provides:
Contracts shall be obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present. . . .
However, there are some provisions of the law which require certain formalities for particular contracts. The
first is when the form is required for the validity of the contract; the second is when it is required to make the
contract effective as against third parties such as those mentioned in Articles 1357 and 1358; and the third is
when the form is required for the purpose of proving the existence of the contract, such as those provided in
the Statute of Frauds in article 1403. 13 A contract of agency to sell on commission basis does not belong to
any of these three categories, hence it is valid and enforceable in whatever form it may be entered into.
Furthermore, there is only one type of legal instrument where the law strictly prescribes the location of the
signature of the parties thereto. This is in the case of notarial wills found in Article 805 of the Civil Code, to wit:
Every will, other than a holographic will, must be subscribed at the end thereof by the testator
himself . . . .

And when she left the jewelries with you, what did you do thereafter?

A:
On October 12, I was bound for Cebu. So I called up Vicky through telephone and informed
her that I am no longer interested in the bracelet and ring and that I will just return it.
Q:

And what was the reply of Vicky Suarez?

A:
She told me that she could not come to the apartelle since she was very busy. So, she
asked me if Aurelia was there and when I informed her that Aurelia was there, she instructed me to
give the pieces of jewelry to Aurelia who in turn will give it back to Vicky.
Q:

And you gave the two (2) pieces of jewelry to Aurelia Nadera?

A:

Yes, Your Honor. 14

This was supported by Aurelia Nadera in her direct examination by petitioner's counsel:
Q:

Do you know if Rosa Lim in fact returned the jewelries?

A:

She gave the jewelries to me.

Q:

Why did Rosa Lim give the jewelries to you?

A:
Rosa Lim called up Vicky Suarez the following morning and told Vicky Suarez that she was
going home to Cebu and asked if she could give the jewelries to me.
Q:

And when did Rosa Lim give to you the jewelries?

A:

Before she left for Cebu. 15

On rebuttal, these testimonies were belied by Vicky Suarez herself:

Q:
It has been testified to here also by both Aurelia Nadera and Rosa Lim that you gave
authorization to Rosa Lim to turn over the two (2) pieces of jewelries mentioned in Exhibit "A" to
Aurelia Nadera, what can you say about that?
A:
That is not true sir, because at that time Aurelia Nadera is highly indebted to me in the
amount of P140,000.00, so if I gave it to Nadera, I will be exposing myself to a high risk. 16<
The issue as to the return of the ring boils down to one of credibility. Weight of evidence is not determined
mathematically by the numerical superiority of the witnesses testifying to a given fact. It depends upon its
practical effect in inducing belief on the part of the judge trying the case. 17 In the case at bench, both the trial

court and the Court of Appeals gave weight to the testimony of Vicky Suarez that she did not authorize Rosa
Lim to return the pieces of jewelry to Nadera. The respondent court, in affirming the trial court, said:
. . . This claim (that the ring had been returned to Suarez thru Nadera) is disconcerting. It
contravenes the very terms of Exhibit A. The instruction by the complaining witness to appellant to
deliver the ring to Aurelia Nadera is vehemently denied by the complaining witness, who declared
that she did not authorize and/or instruct appellant to do so. And thus, by delivering the ring to
Aurelia without the express authority and consent of the complaining witness, appellant assumed
the right to dispose of the jewelry as if it were hers, thereby committing conversion, a clear breach
of trust, punishable under Article 315, par. 1(b), Revised Penal Code.
We shall not disturb this finding of the respondent court. It is well settled that we should not interfere with the
judgment of the trial court in determining the credibility of witnesses, unless there appears in the record some
fact or circumstance of weight and influence which has been overlooked or the significance of which has been
misinterpreted. The reason is that the trial court is in a better position to determine questions involving
credibility having heard the witnesses and having observed their deportment and manner of testifying during
the trial. 18
Article 315, par. 1(b) of the Revised Penal Code provides:
Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:
xxx

xxx

xxx

(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other
personal property received by the offender in trust or on commission, or for administration, or
under any other obligation involving the duty to make delivery of or to return the same, even
though such obligation be totally or partially guaranteed by a bond; or by denying having received
such money, goods, or other property.
xxx

xxx

xxx

The elements of estafa with abuse of confidence under this subdivision are as follows. (1) That money, goods,
or other personal property be received by the offender in trust, or on commission, or for administration, or
under any other obligation involving the duty to make delivery of, or to return, the same; (2) That there be
misappropriation or conversion of such money or property by the offender or denial on his part of such receipt;
(3) That such misappropriation or conversion or denial is to the prejudice of another; and (4) That there is a
demand made by the offended party to the offender (Note: The 4th element is not necessary when there is
evidence of misappropriation of the goods by the defendant) 19
All the elements of estafa under Article 315, Paragraph 1(b) of the Revised Penal Code, are present in the
case at bench. First, the receipt marked as Exhibit "A" proves that petitioner Rosa Lim received the pieces of
jewelry in trust from Vicky Suarez to be sold on commission basis. Second, petitioner misappropriated or
converted the jewelry to her own use; and, third, such misappropriation obviously caused damage and
prejudice to the private respondent.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.

VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED
SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as
the respondent court's resolution of September 30, 1994 modifying said decision. Both decision
and resolution amended the judgment dated February 13, 1991, of the Regional Trial Court of
Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling
Co., Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery
Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave
rise to the instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar.
Each bag contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC
Marketing No. 042 dated October 16, 1989." [1] The transaction it covered was a "direct sale." [2] The
SLDR also contains an additional note which reads: "subject for (sic) availability of a (sic) stock at
NAWACO (warehouse)."[3]
On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its
rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989
and three checks postdated November 13, 1989 in payment. That same day, CSC wrote petitioner
that it had been authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed
in the letter were a copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC
"to withdraw for and in our behalf the refined sugar covered by Shipping List/Delivery ReceiptRefined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags." [4]
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner
as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989
acknowledging receipt of the said checks in payment of 50,000 bags. Aside from SLDR No.
1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse
and was allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner
refused to allow further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a
letter dated January 23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to
it but that it had been refused further withdrawals of sugar from petitioner's warehouse despite the
fact that only 2,000 bags had been withdrawn.[5] CSC thus inquired when it would be allowed to
withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar
against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the
cleared checks.[6]
On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000
bags.

SO ORDERED.
[G.R. No. 117356. June 19, 2000]

Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's
cleared checks had been fully withdrawn and hence, there would be no more deliveries of the

commodity to STM's account. Petitioner also noted that CSC had represented itself to be STM's
agent as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 901118. Defendants were Teresita Ng Sy (doing business under the name of St. Therese
Merchandising) and herein petitioner. Since the former could not be served with summons, the
case proceeded only against the latter. During the trial, it was discovered that Teresita Ng Go who
testified for CSC was the same Teresita Ng Sy who could not be reached through summons.
[7]
CSC, however, did not bother to pursue its case against her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No.
1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that
petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the
award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages,
P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags. [8] Since
STM had already drawn in full all the sugar corresponding to the amount of its cleared checks, it
could no longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no
privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere
delivery receipts issued pursuant to a series of transactions entered into between it and STM. The
SLDRs prescribed delivery of the sugar to the party specified therein and did not authorize the
transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator
to defraud it through a misrepresentation that CSC was an innocent purchaser for value and in
good faith. Petitioner then prayed that CSC be ordered to pay it the following sums:
P10,000,000.00 as moral damages; P10,000,000.00 as exemplary damages; and P1,500,000.00
as attorney's fees. Petitioner also prayed that cross-defendant STM be ordered to pay it
P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the merits.
As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of
the plaintiff and against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags
of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as
unrealized profits, the amount of P800,000.00 as exemplary damages and the amount
of P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of
refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."[9]
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the
purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered

by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the 25,000
bags of sugar bought by her covered by SLDR No. 1213 on the same date, October
16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15 inclusive
which are post-dated checks dated October 27, 1989 issued by St. Therese
Merchandising in favor of Victorias Milling Company at the time it purchased the
50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said checks appear to
have been honored and duly credited to the account of Victorias Milling Company
because on October 27, 1989 Victorias Milling Company issued official receipt no.
34734 in favor of St. Therese Merchandising for the amount of P31,900,000.00
(Exhibits B and B-1). The testimony of Teresita Ng Go is further supported by Exhibit F,
which is a computer printout of defendant Victorias Milling Company showing the
quantity and value of the purchases made by St. Therese Merchandising, the SLDR
no. issued to cover the purchase, the official reciept no. and the status of payment. It is
clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same
has been fully paid as indicated by the word 'cleared' appearing under the column of
'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the purchase
price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by
SLDR No. 1214 has not been fully paid is supported only by the testimony of Arnulfo
Caintic, witness for defendant Victorias Milling Company. The Court notes that the
testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase
price has not been fully paid and is not corroborated by any positive evidence. There is
an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by
the buyer in payment of the purchased price were dishonored. However, said witness
failed to present in Court any dishonored check or any replacement check. Said
witness likewise failed to present any bank record showing that the checks issued by
the buyer, Teresita Ng Go, in payment of the purchase price of the sugar covered by
SLDR No. 1214 were dishonored." [10]
Petitioner appealed the trial courts decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a series of
transactions involving only one account or one general contract of sale. Pursuant to this contract,
STM or any of its authorized agents could withdraw bags of sugar only against cleared checks of
STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM andsince the latter had
already withdrawn its full quota of sugar under the said SLDR, CSC was already precluded from
seeking delivery of the 23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were
separate and independent transactions and that the details of the series of purchases were
contained in a single statement with a consolidated summary of cleared check payments and
sugar stock withdrawals because this a more convenient system than issuing separate statements
for each purchase.
The appellate court considered the following issues: (a) Whether or not the transaction between
petitioner and STM involving SLDR No. 1214M was a separate, independent, and single
transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR No. 1214M; and
(c) Whether or not CSC as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR
No. 1214M could compel petitioner to deliver 23,000 bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's
judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders
defendant-appellant to:

"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered
bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."[11]
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its decision to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders
defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."[12]

Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private respondent's
specially informing petitioner that respondent was authorized by buyer STM to
withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf," (emphasis in
the original) private respondent's withdrawing 2,000 bags of sugar for STM, and STM's
empowering other persons as its agents to withdraw sugar against the same SLDR No.
1214M, rendered respondent like the other persons, an agent of STM as held in Rallos
v. Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently
claiming and proving being an assignee of SLDR No. 1214M and from suing by itself
for its enforcement because it was conclusively presumed to be an agent (Sec. 2, Rule
131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).
" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding
certain relevant and undisputed facts which, had they been considered, would have
shown that petitioner was not liable, except for 69 bags of sugar, and which would
justify review of its conclusion of facts by this Honorable Court.
" 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285
and 1626 of the Civil Code when it ruled that compensation applied only to credits from
one SLDR or contract and not to those from two or more distinct contracts between the
same parties; and erred in denying petitioner's right to setoff all its credits arising prior
to notice of assignment from other sales or SLDRs against private respondent's claim
as assignee under SLDR No. 1214M, so as to extinguish or reduce its liability to 69
bags, because the law on compensation applies precisely to two or more distinct
contracts between the same parties (emphasis in the original).

The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.

"4. The Court of Appeals erred in concluding that the settlement or liquidation of
accounts in Exh. F between petitioner and STM, respondent's admission of its balance,
and STM's acquiescence thereto by silence for almost one year did not render Exh. `F'
an account stated and its balance binding.

"Exhibit F' We relied upon in fixing the number of bags of sugar which remained
undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit
that courts should consider the evidence only for the purpose for which it was
offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the
party against whom the evidence is presented to object thereto if he deems it
necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which
was offered to prove that checks in the total amount of P15,950,000.00 had been
cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be used to prove
the proposition that 12,586 bags of sugar remained undelivered.

"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR
No. 1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being
subject to its availability at the Nawaco warehouse, made the sale conditional and
prevented STM or private respondent from acquiring title to the sugar; and the nonavailability of sugar freed petitioner from further obligation.

"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and

Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiffappellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR
after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I,
Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to
defendant-appellant asking the latter to allow it to withdraw the remaining 23,000 bags
of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that
sugar delivery to the STM corresponded only to the value of cleared checks; and that
all sugar corresponded to cleared checks had been withdrawn. Defendant-appellant
did not rebut plaintiff-appellee's assertions. It did not present evidence to show how
many bags of sugar had been withdrawn against SLDR No. 1214M, precisely because
of its theory that all sales in question were a series of one single transaction and
withdrawal of sugar depended on the clearing of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the findings of the
trial court on this point."[13]

"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded
respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being
against its assignor."[14]
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of
STM and hence, estopped to sue upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on compensation to
the transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its
credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar
under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed
petitioner from further obligations.

(4)....Whether or not the Court of Appeals committed an error of law in not applying the
"clean hands doctrine" to preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the first time on
appeal. It is settled that an issue which was not raised during the trial in the court below could not
be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play,
justice, and due process.[15] Nonetheless, the Court of Appeals opted to address this issue, hence,
now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against
SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter
reads:
"This is to authorize Consolidated Sugar Corporation or its representative to
withdraw for and in our behalf (stress supplied) the refined sugar covered by Shipping
List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the
total quantity of 25, 000 bags."[16]

question of whether a contract is one of sale or agency depends on the intention of the parties as
gathered from the whole scope and effect of the language employed. [25]That the authorization
given to CSC contained the phrase "for and in our (STM's) behalf" did not establish an agency.
Ultimately, what is decisive is the intention of the parties. [26]That no agency was meant to be
established by the CSC and STM is clearly shown by CSC's communication to petitioner that
SLDR No. 1214M had been "sold and endorsed" to it. [27] The use of the words "sold and endorsed"
means that STM and CSC intended a contract of sale, and not an agency. Hence, on this score, no
error was committed by the respondent appellate court when it held that CSC was not STM's agent
and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into between
petitioner and STM are but serial parts of one account, petitioner insists that its debt has been
offset by its claim for STM's unpaid purchases, pursuant to Article 1279 of the Civil Code.
[28]
However, the trial court found, and the Court of Appeals concurred, that the purchase of sugar
covered by SLDR No. 1214M was a separate and independent transaction; it was not a serial part
of a single transaction or of one account contrary to petitioner's insistence. Evidence on record
shows, without being rebutted, that petitioner had been paid for the sugar purchased under SLDR
No. 1214M. Petitioner clearly had the obligation to deliver said commodity to STM or its assignee.
Since said sugar had been fully paid for, petitioner and CSC, as assignee of STM, were not
mutually creditors and debtors of each other. No reversible error could thereby be imputed to
respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the present
case.

The Civil Code defines a contract of agency as follows:

"Art. 1868. By the contract of agency a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent or authority
of the latter."
[17]

It is clear from Article 1868 that the basis of agency is representation. On the part of the
principal, there must be an actual intention to appoint [18] or an intention naturally inferable from his
words or actions;[19] and on the part of the agent, there must be an intention to accept the
appointment and act on it,[20] and in the absence of such intent, there is generally no agency.
[21]
One factor which most clearly distinguishes agency from other legal concepts is control; one
person - the agent - agrees to act under the control or direction of another - the principal. Indeed,
the very word "agency" has come to connote control by the principal. [22] The control factor, more
than any other, has caused the courts to put contracts between principal and agent in a separate
category.[23] The Court of Appeals, in finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the acts of
the parties, the law makes no presumption of agency, and it is always a fact to be
proved, with the burden of proof resting upon the persons alleging the agency, to show
not only the fact of its existence, but also its nature and extent (Antonio vs.
Enriquez[CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish
the existence of an agency relation between plaintiff-appellee and STM. The fact alone
that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our
(STM's) behalf" should not be eyed as pointing to the existence of an agency
relation ...It should be viewed in the context of all the circumstances obtaining.
Although it would seem STM represented plaintiff-appellee as being its agent by the
use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23
January 1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M
had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiffappellee has shown that the 25, 000 bags of sugar covered by the SLDR No. 1214M
were sold and transferred by STM to it ...A conclusion that there was a valid sale and
transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiff-appellee
to sue in its own name, without need of joining its imputed principal STM as coplaintiff."[24]
In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR
form, and not an agent of STM. Private respondent CSC was not subject to STM's control. The

Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a
conditional sale or a contract to sell, with title to the sugar still remaining with the vendor.
Noteworthy, SLDR No. 1214M contains the following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar and/or
receipt of this document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to buyer/trader and delivery to him/it
is deemed effected and completed (stress supplied) and buyer/trader assumes full
responsibility therefore"[29]
The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to
the buyer or his assignee upon payment of the purchase price. Said terms clearly establish a
contract of sale, not a contract to sell. Petitioner is now estopped from alleging the contrary. The
contract is the law between the contracting parties. [30] And where the terms and conditions so
stipulated are not contrary to law, morals, good customs, public policy or public order, the contract
is valid and must be upheld.[31] Having transferred title to the sugar in question, petitioner is now
obliged to deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into
a conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that
STM's selling price to CSC was below its purchasing price; (b) CSC's refusal to pursue its case
against Teresita Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar
against SLDR No. 1214M after she had sold her rights under said SLDR to CSC. Petitioner prays
that the doctrine of "clean hands" should be applied to preclude CSC from seeking judicial relief.
However, despite careful scrutiny, we find here the records bare of convincing evidence
whatsoever to support the petitioner's allegations of fraud. We are now constrained to deem this
matter purely speculative, bereft of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.
National Rice V CA 91 scra 437

June 30, 1979

This is a petition for review by certiorari of the resolution of the Court of Appeals promulgated on January 23,
1970 in CA-G.R. No. 33127-R entitled "National Rice & Corn Corporation, Plaintiff- Appellee, versus, Davao
Merchandising Corporation, et al., Defendants-Appellants; Fieldmen's Insurance Co., Inc., Third-Party PlaintiffAppellant, versus, Cesar Ceballos, et al., Third-Party Defendants-Appellees" which reconsidered said court's
decision promulgated on August 27, 1969 1 by reversing the judgment of the trial court and "dismissing the
complaint as premature and for lack of cause of action, without pronouncement as to costs." 2
The National Rice and Corn Corporation (NARIC) instituted in the Court of First Instance of Manila on
February 9, 1962 against the Davao Merchandising Corporation (DAMERCO) and Fieldmen's Insurance Co.
Inc. an action for recovery of a sum of money representing the balance of the value of corn and rice exported
by the defendant Davao Merchandising Corporation, for and in behalf of the NARIC on a no-dollar remittance
or barter basis, pursuant to a contract whereby the defendant Davao Merchandising Corporation agreed to act
as an agent of the plaintiff in so exporting such corn and rice and in importing collateral goods in exchange
therefor, and to buy from the plaintiff the said collateral goods.
The defendant Fieldmen's Insurance Co. Inc., filed an answer with a cross-claim against the Davao
Merchandising Corporation.
With leave of court, the Fieldmen's Insurance Co. Inc. filed a third-party complaint against Cesar Ceballos,
Jesus C. Marquez and Bartolome Cabangbang based on the Indemnity Agreements.
The defendant, Davao Merchandising Corporation filed an answer with counterclaims for damages caused to
its business standing and commercial credit allegedly by plaintiff's false allegations and unjustified request for
a writ of preliminary attachment. In the same answer, this said defendant alleged as special defenses that its
juridical relationship with the plaintiff is governed by a contract, Exhibit "A", wherein it was agreed that this
defendant would "act as agent" of the plaintiff "in exporting the quantity and kind of corn and rice" mentioned
herein, "as well as in importing the collateral goods that will be imported thru barter on a back to back letter of
credit or no-dollar remittance basis"; that answering defendant had agreed "to buy the aforementioned
collateral goods", not the corn grains that were exported; that, therefore, this defendant had no obligation to
plaintiff until after such collateral goods had been imported; that these defendants should not be made to pay
plaintiff, since the collateral goods worth more than US$480,000.00 had not been imported as a consequence
of the suspension of barter transactions and non-renewal of barter permits by the new administration; and that
the promissory notes sued upon by the plaintiff do not reflect the true intent and relationship of the parties and
is wanting of consideration.
The writ of attachment which was issued on motion of the plaintiff was subsequently set aside.
The trial court rendered judgment in favor of the plaintiff, National Rice and Corn Corporation (NARIC)
ordering the defendants, Davao Merchandising Corporation and Fieldmen's Insurance Co. Inc., to pay, jointly
and severally, to the plaintiff, the sum of P209,995.16 with interest at 8% per annum from September 1, 1961,
until said amount has been fully paid, plus the further sum of P10,000.00 as attorney's fees and the costs of
the suit. On the cross-claim filed by defendant, Fieldmen's Insurance Co. Inc., against its co-defendant, Davao
Merchandising Corporation, and on the third-party complaint filed by Fieldmen's Insurance Co. Inc. against
Cesar B. Ceballos, Jesus C. Marquez and Bartolome Cabangbang, said Davao Merchandising Corporation
and said third-party-defendants were ordered to pay, jointly and severally, to Fieldmen's Insurance Co. Inc.
whatever amount the latter may be obliged to pay the plaintiff under the judgment, plus 10% thereof as
attorney's fees and the costs of the suit. 3
The defendants, Davao Merchandising Corporation and Fieldmen's Insurance Co. Inc., appealed from the
decision of the Court of First Instance of Manila to the Court of Appeals.
The appeal was docketed as CA-G.R. No. 33127-R, On August 27, 1969, the Court of Appeals rendered its
decision modifying the decision appealed from in that the liability of the appellant, Davao Merchandising
Corporation, was fixed at P199,690.97, with interest at 8% per annum from July 17, 1962, and the award of
attorney's fees in favor of the appellee, National Rice and Corn Corporation, was reduced to P2,000.00. 4
On motion for reconsideration filed by the defendant-appellant DAMERCO, the Court of Appeals promulgated
a resolution on January 23, 1970, reversing the judgment appealed from and rendering a new judgment
dismissing the complaint as premature and for lack of cause of action, without pronouncement as to costs. 5

The National Rice and Corn Corporation (now Rice and Corn Administration filed this petition for certiorari to
review the resolution of the Court of Appeals promulgated on January 23, 1970.
However, said petitioner did not file a brief but submitted the following manifestation: t??.??hqw??
COMES NOW the petitioner, through counsels and to this Honorable Court, most respectfully manifests:
1. That on August 24th instant, counsels for petitioner received a notice requiring that within thirty (30) days
from receipt, to file printed brief, furnishing copies thereof to the respondents;
2. That petitioner had already forwarded and attached to the petition twelve (12) copies each of the Record on
Appeal, briefs of the parties, as well as all pleadings touching on the issue(s) involved, as filed with the Court
of Appeals;
3. That considering further that the principal issues are the interpretation of the contract, and/or in relation with
the promissory notes issued, the bonds posted, and the other evidence on record; and the correctness of the
conclusion drawn therefrom, which issues have already been extensively and exhaustively discussed in
petitioner's brief and Motion for Reconsideration as filed with the Court of Appeals (Annex 'K' and 'F', petition),
further invoking the reasons relied upon by the learned Trial Court in its decision (pp. 219-277, RA) and the
first decision of the respondent Court of Appeals (Annex 'A' petition) in support of petitioner's stand;
4. That considering finally that to make and prepare another brief, the contents of which is practically the same
as those already discussed as above-stated would be repetitions.
WHEREFORE, PREMISES CONSIDERED, it is respectfully manifested before this Honorable Court that
herein petitioner is submitting the case on the basis of the arguments contained in its Brief and Motion for
Reconsideration as filed with the Court of Appeals as well as the reasons relied upon by the Trial Court in its
decision and the first decision of the respondent Court of Appeals, in support of its stand before this Honorable
Court.
Quezon City, Philippines, September 7, 1970. t??.??hqw??
Respectfully Submitted:
F. R. BAUTISTA & F.G. CORDOBA, JR. t??.??hqw??
Counsels for the Petitioner
c/o Legal Department, RCA
424 Quezon Blvd. Ext. Quezon City
By: t??.??hqw??
FRANCISCO G. CORDOBA, JR. 6
The petition for certiorari alleges that the Court of Appeals erred: t??.??hqw??
(a): In reversing its first decision, Annex 'A' hereof, and in denying petitioner's motion for reconsideration,
Annex 'F' hereof, upholding in effect respondents theory in the interpretation of the contract, and/or in relation
to the other evidences, mostly documentary in nature, in arriving at the conclusion that respondent Damerco
acted merely as an agent in the exportation of the corn and importation of the collateral goods and to buy the
goods only upon their arrival in the Philippines, and not that of a sale as contended by herein petitioner.
(b). That the conclusion drawn are premised on wrong assumptions, contrary to the evidence and the evident
intention of the parties to the contract. 7
The petitioner has not made a clear showing that the Court of Appeals erred in setting aside its original
decision and rendering a new judgment dismissing the complaint as premature and for lack of cause of action.
It is not disputed that the Davao Merchandising Corporation merely acted as an agent of the National Rice and
Corn Corporation (NARIC) in exporting the rice and corn in question. This fact is admitted in the counterstatement of facts of the National Rice and Corn Corporation in its appellee's brief filed with the Court of
Appeals. 8 It is also a fact that because of the change of administration in the government, barter transactions

were suspended. Hence, DAMERCO was not able to import the remaining collateral goods worth about
US$480,000.00.
The Court of Appeals found in its resolution promulgated on January 23, 1970 that the contract in question,
Exhibit "A" or "1", sustains the contention of the Davao Merchandising Corporation 1 that the intention of the
parties was for the Davao Merchandising Corporation to act (1) as agent of the NARIC (National Rice and
Corn Corporation) in the exportation of the corn and rice, and (2) as the purchaser of the collateral goods to be
imported from the proceeds of the sale of the corn and rice because: t??.??hqw??
Clearly from the preamble of said contract, bids were previously called for the purchase of corn and rice to be
exported as well as of the imported commodities that will be brought in, but said biddings did not succeed in
attracting good offers. That was in July and August of 1959. Subsequently, herein defendant Damerco made
an offer not a bid, which the President of the Philippines, the Cabinet and the Naric Board of Directors
accepted as the most advantageous to the Naric Now, to be sure, the contract designates the Naric as the
seller and the Damerco as the buyer. These designations, however, are merely nominal, since the contract
thereafter sets forth the role of the "buyer" (Damerco)' "as agent of the seller" in exporting the quantity and
kind of corn and rice as well as in importing the collateral goods thru barter on a back to back letter of credit or
no-dollar arrangements with other government agencies as authorized by the Cabinet Directive dated October
13, 1959, and "to pay the aforementioned collateral goods ... " (Exhibits 1-A and 1-B.)
The foregoing provisions of the contract plainly support the contention of the Damerco that what it committed
to do was to buy the collateral goods, which will be paid from the proceeds of the corn and rice exported on a
no-dollar or back to back letter of credit arrangement per the Naric Charter which authorizes it to engage in
barter agreements and so import such goods tax free (RA 633). It appears that the Naric had on stock eight
thousand metric tons of corn which it could not dispose of due to its poor quality. This was the prime
consideration why NARIC called for bids for its exportation. Now, as the preamble of the contract Exhibit A
states, the Naric called for bids for the purchase of the corn and rice. It wanted a good price therefor in order
to avoid losses. But precisely because of the poor quality of the corn, a direct purchase of said corn even with
the privilege of importing commodities did not attract good offers. That was where Damerco came in with its
offer to act as agent in the exportation of the corn, with the agent answering for the price thereof and
shouldering all expenses incidental thereto, provided it can import commodities, paying the NARIC therefor
from the price it offered for the corn. In other words, the primary consideration of Damerco was not the
purchase of the corn but the purchase of the commodities to be imported from the proceeds of the corn. Note
that since the corn would be exported on a no-dollar or back to back letter of credit, the Damerco would
actually receive NO money either in dollars or in pesos for the corn exported. This arrangement, i.e., barter or
no-dollar transaction had a dual purpose. First, it will facilitate exportation because otherwise no foreigner
would buy the corn at the price asked by the NARIC especially if the same were to be paid here in dollars.
Secondly, the DAMERCO can easily recover its expenses of exportation and at the same time make a modest
profit from the collateral goods - essential semi- essential and none essential exported in the proportion fixed
by the Central Bank. On the other hand, the NARIC gets better than the market price for its corn and at the
same time avoids the risks and expenses of exportation which it would otherwise take and pay if it were to
export the corn itself, not to mention the fact that it did not attract good offers under its previous invitation to
bid whereby the bidder would directly purchase the corn and rice.
This, then, is the background of the transaction between the parties. The importation and purchase of the
Damerco of the collateral goods was the main consideration in its entering into the contract. For how else
explain its purchase of the NARIC corn which nobody else wanted? Indeed, the mode of payment supports the
theory of herein defendant DAMERCO. Damerco was (1) to open a domestic letter of credit in the amount of
Seven Hundred Twenty Thousand Pesos (P720,000.00) representing half of 8,000 metric tons of corn, which
domestic letter of credit shall be available to the NARIC drawing therefrom through sight draft without recourse
? 50% of the value of the letter of credit 30 days after the issuance of the export permit or the effectivity of the
contract, whichever is later shall be cashed; and the remaining 50% shall be cashed in the same manner 90
days after the issuance of the export permit or the effectivity of the contract, whichever is later; and (2) to
cause the establishment of a foreign letter or letters of credit covering at least the sum of $360,000.00
representing half of the cost of 8,000 metric tons of corn in favor of the NARIC which shall be made available
to the latter on sight draft or drafts without recourse, accompanied by shipping documents, in the following
proportions: 50% of the value of the letter or letters of credit shall be cashed; and 60 days after the issuance of
the export permit or the effectivity of the contract, whichever is later, the remaining 50% of the said letter or
letters of credit shall be cashed (Par. 4 [a] Exhibit 1).
Note that the availability of said letter or letters of credit to the NARIC was dependent upon the issuance of the
export permit. The payment therefor depended on the importation of the collateral goods, that is after its arrival
as estimated to take from 30 to 90 days. Indeed, the contract sought to be enforced under the barter

negotiations has reciprocal stipulations, which must be given force and effect (Rule 130, Sec. 9, Rules of
Court; Luna vs. Linstoc 74 Phil. 15; Colmenar vs. Cosca, 76 Phil. 857). And the contract being onerous, any
doubt shall be settled in favor of the greatest reciprocity of interests (Art. 1378, Civil Code; Liong vs. Aguilar, et
al., 48 O.G. 1041; Perez vs. Cortez,15 Phil. 211; De la Cruz et al. vs. Tanguilat, 47 O.G. 4300).
There is no question that almost half of the collateral goods were imported and the Damerco paid for the
collateral goods as they were received. However, and it is not disputed by plaintiff, due to the inferior quality of
the corn, it had to be replaced with more acceptable stock (pp. 28-30, tsn., June 17, 1963). This caused such
delay that the letters of credit expired without the NARIC being able to draw the full amount therefrom. This is
an important point to bear in mind particularly in determining the reason behind the issuance of the checks. ...
9
The contract between the NARIC and the DAMERCO, Exhibit "A", is bilateral and gives rise to a reciprocal
obligation. The said contract, Exhibit "A", consists of two parts: (1) the exportation by the DAMERCO as agent
for the NARIC of the rice and corn; and (2) the importation of collateral goods by barter on a back to back
letter of credit or no-dollar remittance basis. It is evident that the DAMERCO would not have entered into the
agreement were it not for the stipulation as to the importation of the collateral goods which it could purchase.
The DAMERCO expected to make a modest profit out of its purchase of the collateral goods thereby covering
up whatever expenses and losses it may incur in the exportation of the rice and corn. Under paragraph 9 of
the contract, Exhibit "A", all expenses incident to the exportation of the corn and rice such as taxes, levies,
fees, charges, labor for haulage and losses shall be for the account of DAMERCO, as well as expenses
incident to importation. The contract also provided that DAMERCO should mill the palay at its own expense
[Par. 3 (b)] It is iniquitous to compel the DAMERCO to make a full accounting of the purchase price of the rice
and corn exported without first requiring the NARIC now succeeded by Rice and Corn Administration, to
secure from the proper government agency the license to enable the DAMERCO to import the remaining
collateral goods. It would be unfair, to say the least, because then the DAMERCO would suffer a loss
consisting of the substantial expenses incurred in the exportation of the rice and corn without the
corresponding expected profits from the remaining collateral goods worth about US$480,000.00. This was
thoroughly explained by the Court of Appeals thus: t??.??hqw??
It appears that we were also misled to believe that the Damerco was buying the corn because the contract
provides that the price of the corn subject matter thereof shall be one hundred and eighty (P180.00) pesos,
Philippine Currency, per ton or P1,440,000.00 for the 8,000 metric tons "As Is" F.O.B. Cebu. A closer look at
the pertinent provisions of the contract, however, reveals that said price was given tentatively for the purpose
of fixing the price in barter. Indeed, paragraph 3(c) of the contract provides that the C & F Manila price of the
imported commodities shall be equal to the total peso price offered for the corn in consideration of the high
price offered by Damerco for said corn. Then it sets the value of the imported commodities not to exceed the
sum of P2,880,000.00 equivalent to the peso value of the corn and rice product. It should likewise be stressed
that the aforesaid exportation and importation was on a "no-dollar remittance basis". In other words, the agent,
herein defendant Damerco, was not to be paid by its foreign buyer in dollars but in commodities. Damerco
could not get paid unless the commodities were imported, and Damerco was not exporting and importing on
its own but as agent of the plaintiff, because it is the latter alone which could export and import on barter basis
according to its charter (Sec. 3, Republic Act 663). Thus, unless Damerco was made an agent of the plaintiff,
the former could not export the corn and rice nor import at the same time the collateral goods. This was
precisely the intention of the parties, that is, the high price offered by the Damerco was in consideration of its
privilege of buying the collateral goods. The contract itself clearly provides the Damerco was to export the rice
and corn, AND TO BUY THE collateral goods. There is nothing in the contract providing unconditionally that
Damerco was buying the rice and corn. Indeed, if the main consideration was simply the purchase of the corn,
there would be no necessity to execute such a complicated contract. To be more specific, if the agreement
was just a sale of corn to Damerco, the contract need not specify that Damerco was to buy the collateral
goods.
xxx xxx xxx
But the fact is the Damerco was able to export all the rice and corn and had indeed paid for the collateral
commodities as they were received. Having exported all the corn on a no-dollar or barter agreement at its
expense, Damerco has complied with what was incumbent upon it under the contract. It had imported almost
half of the commodities stipulated with about $480,000.00 worth of commodities yet to ba brought into the
country when barter transactions were stopped by a new succeeding administration. Of the P1,428,451.13,
value of the corn exported, only P199,690.97 remains unliquidated (Exhibit M), as of July 16, 1962, as found in
our decision sought to be considered. This means that defendant as of July 16, 1962 must have paid in
advance some P760,309.03 on the collateral goods yet to be imported. To our mind therefore, this act of the
Government left the Damerco, and the NARIC for that matter, holding so to speak the proverbial bag. Equity

then is on Damerco's side. Indeed, by suspending barter transactions, the Government actually prevented the
Damerco from realizing profits by the eventual sale of the collateral goods worth $480,000.00 equivalent then
to more than P960,000.00.

W. T. NOLTING, Collector of Internal Revenue, and ANGEL GARCIA, treasurer of the city of
Zamboanga,defendants-appellants.

We have heretofore shown that the checks issued as well as the promissory notes ? now made the basis of
the complaint ? were issued for the purpose of securing the unpaid part of the price of the corn and as
guaranty that Damerco will purchase the corresponding collateral goods. When the letters of credit lapsed due
to delay imputable to NARIC and not to Damerco, the latter replaced them with postdated checks merely as a
token of good faith. This had to be done because the NARIC was left without security on the 'cost of the corn
Indeed, the very contract itself speaks clearly of the intention of the parties in such wise that Damerco's role
was to be an agent of the NARIC in exporting the corn and importing the collateral goods, and the payment
dovetailed with the arrival of the collateral goods. Even the subsequent set of extending the period of the
promissory notes to nine months, strongly argues in favor of this intention. When said promissory notes were
executed, the Government had not yet suspended barter transactions, hence the nine-month extension
believed sufficient to effect the importation of the remaining collateral goods. Had not the Government
suspended barter transactions, there is no doubt the Damerco would have been able to bring in those
collateral goods, fully paid for except some P200,000.00.

Attorney-General Avancea for appellants.

P. J. Moore for appellee.

Therefore, as we see it, Damerco executed the promissory notes only as a token of good faith that it win abide
by its agreement to import the collateral goods in exchange for the corn exported, and to buy the same upon
its arrival in the Philippines. Its only purpose was to give the NARIC some sort of security while the unimported
collateral goods have not yet been actually brought into the country. The promissory notes were clearly
intended to hold the Damerco to its obligation to import and buy the collateral goods. However, this obligation
became unenforceable when the importation of the collateral goods became legally impossible due to the
suspension of barter transactions and the refusal to renew the barter permit by the government of which
NARIC (succeeded by the Rice and Corn Administration [NCA] Sec. 13, RA 3452), was an agency. It was not
the fault of the Damerco that if failed to import the collateral goods, on which it must have paid P760,309.03,
leaving a balance of almost P200,000.00 (Exhibit M). It was the duty of the NARIC now RCA, to bring in those
collateral goods and make the necessary representations therefor with the Republic of the Philippines. Until
such importation, the obligation of Damerco to pay the promissory notes is unenforceable (Article 1266, Civil
Code); hence the present action is premature. 10
It is clear that if after DAMERCO had spent big sums incident to carrying out the purpose of the contract, the
importation of the remaining collateral goods worth about US$480,000.00 could not be effected due to
suspension by the government under a new administration of barter transactions, the NARIC (now Rice and
Corn Administration) ought to make the necessary representations with the government to enable DAMERCO
to import the said remaining collateral goods. The contract, Exhibit "A", has reciprocal stipulations which must
be given force and effect. 11
In Customs Commissioner vs. Auyong Hian 12 where the President of the Philippines acting through his
Cabinet cancelled arbitrarily a license to import goods under "no-dollar remittance basis", the Supreme Court
said: t??.??hqw??
... In fact, if the cancellation were to prevail, the importer would stand to lose the license fee he paid amounting
to P12,000.00, plus the value of the shipment amounting to P21,820.00. This is grossly inequitable. Moreover,
'it has been held in a great number of cases that a permit be revoked ... where, on the faith of it, the owner has
incurred material expense.
The Court of Appeals did not err in holding that the NARIC (now RCA) has no cause of action until it has
secured the necessary import permit and it brings in the remaining collateral goods worth about
US$480,000.00.
WHEREFORE, the petition for review is denied and the resolution of the Court of Appeals promulgated on
January 23, 1970, appealed from is hereby affirmed, without pronouncement as to costs.
SO ORDERED.
G.R. No. 10620

November 8, 1916

BEHN, MEYER & CO. (LTD.), plaintiff-appellee,

vs.

JOHNSON, J.:
The only question presented to the court in this case is whether the transactions or business which the plaintiff
was engaged in, as disclosed by the following agreement, constituted said plaintiff a real-estate broker as
defined by section 144 paragraph 2 of Act No. 1189.
This action was brought by the plaintiff against the defendants for the purpose of recovering the sum of P580
which had been paid by the plaintiff to said treasurer of the city of Zamboanga under protest.
The cause was submitted to the lower court upon the following agreement:
1. That the plaintiff is, and was during the times hereinafter mentioned, a corporation organized
under the laws of Singapore, duly registered under the laws of the Philippine Islands, with branch
office in Zamboanga, P. I.; that the defendant. W. T. Nolting is, and was at all times hereinafter
mentioned, Insular Collector of Internal Revenue, residing in Manila, P. I.
2. That from the 1st day of January, 1906, until the 26th day of November, 1912, the plaintiff was
and has been engaged in business as a wholesale liquor dealer, manufactured tobacco dealer,
merchant, and exporter and importer.
3. That the defendant, W. T. Nolting, as Collector of Internal Revenue, demanded that the plaintiff
obtain a license as a real-estate broker and pay the sum of five hundred eighty pesos (P580)
therefor, covering the years 1906 to 1912, inclusive, and the penalty for delinquency.
4. That as a result of said demand made by aforesaid defendant, the plaintiff, on the 26th day of
November, 1912, paid to the treasurer of the city of Zamboanga the sum of five hundred eighty
pesos (P580) and at the time said payment was made the plaintiff presented to the said treasurer
a written protest against the payment of the same, said protest being as follows:
"ZAMBOANGA, P. I., November 26, 1912.
"THE COLLECTOR OF INTERNAL REVENUE,"
Manila, P. I.
"(Through Municipal Treasurer, Zamboanga.)
"SIR: We have the honor to hand you herewith our check for the sum of P580, in payment of the
demand for internal revenue tax as a real-estate broker made on us as per your letter dated
November 19, 1912. At the same time we desire to protest the payment of this act for the following
reasons:
"First. That Behn, Meyer & Co. (Ltd.) are not now, and never have been, engaged in the business
of a real estate broker, either for themselves or for others.
"Second. That Behn, Meyer & Co. (Ltd.) are not engaged in the business of stock brokerage either
for themselves or for others.

"Third. That this tax demanded by you herewith paid is double tax upon Behn, Meyer & Co. (Ltd.)
"Fourth. That Behn, Meyer & Co. (Ltd.) for more than six years last past has been, and are now
paying a wholesale liquor dealer's license in the sum of P60 per year.
"Fifth. That Behn, Meyer & Co. (Ltd.) are not now, and for more than six years last past has been
paying a wholesale fermented liquor license in the sum of P60 per year.
"Sixth. That Behn, Meyer & Co. (Ltd.) are now, and for more than six years last past has been
paying an internal revenue tax as manufactured tobacco dealers.

upon which said copra or hemp was produced, and charging a discount on the future deliveries of
said copra or hemp, which was compensation for the money so advanced.
7. That the negotiations above mentioned were made in the form and by means of written
mortgages, a blank form whereof signed by the attorneys for both parties herein, marked Exhibit A,
is hereto attached and made a part hereof.
The parties in this case pray this honorable court to render its decision on the facts herein agreed
upon after having heard the oral briefs of their attorneys if they desire to submit same.
Zamboanga, Department of Mindanao and Sulu, P. I., this 18th day of December, 1914.

"Seventh. That Behn. Meyer & Co. (Ltd.) are now, and for more than six years last past has been
paying a general merchandise tax, and that for the present year the general merchandise tax,
under schedule C, paragraph 1, license No. 46927, has been : 1st quarter, P290.03; 2nd quarter,
P351.67; 3d quarter, P311.13.lawphil.net
"Eighth. That under said general merchant's license, Behn ,Meyer & Co. (Ltd.) during six years last
past has been, and are now engaged in the business, among other things, of buying and selling
copra, hemp, and other native products of the Islands. The copra bought by Behn, Meyer & Co.
(Ltd.) is sold in the foreign markets, and export duty is paid on the same.
"Wherefore, it is the opinion of Behn, Meyer & Co .(Ltd.) that the tax for which the above
remittance is made is unlawful, illegal and unjust, and for the reasons enumerated do hereby
protest against the collection of the same.

P. J. MOORE,
Attorney for plaintiff
ISIDRO VAMENTA,
Attorney for defendant.
Upon said agreement, the cause was submitted to the lower court.
Subparagraph 2 of section 144 of Act No. 1189, known as the Internal Revenue Law, provides:
Every real-estate broker shall pay eighty pesos. Every person, firm or company whose business it
is for themselves or others to negotiate purchases or sales of lands, buildings, or interests therein,
or to negotiate loans secured by lands, buildings, or interest therein, or to rent real estate for
others or to collect rents thereon, shall be regarded as a real-estate broker.

"Very respectfully."
5. That the defendant, W. T. Nolting, as Collector of Internal Revenue, on the 10th day of
December, 1912, decide adversely to the protest of this plaintiff, said decision being as follows:
"MANILA, P. I., December 10, 1912.
"Subject: Schedule D. Taxes due from Messrs. Behn,
Meyer & Company, Zamboanga, Moro.
"Messrs. BEHN, MEYER & CO.,
"Zamboanga, Moro.
"GENTLEMEN:
"Referring to your protest dated November 26th against the collection from you of the
sum of P580 as internal revenue tax and penalty on your occupation of real-estate
broker, I have the honor to state that the undersigned holds adversely to said protest
and same is hereby denied.
"In this connection your attention is respectfully invited to section 52 of Act No. 1189.
"Very respectfully.
"WM. T. NOLTING."
6. That from the year 1906 to the year 1912 the plaintiff was engaged in the business, among other
things, of buying and selling copra, hemp, and other native products of the Islands, and in such
business the aforesaid plaintiff advanced money for the future delivery of copra, hemp, and took as
security for the future delivery of such copra or hemp so contracted for a mortgage on the land

By reference to paragraph 4 of the agreed statement of facts above we find that Behn, Meyer & Co. (Ltd.) are
not now and never have been engaged in the business of a real-estate broker, either for themselves or for
others; that said company is not engaged in the business of stock brokerage, either for themselves or for
others; that from the year 1906 to 1912 said company was engaged in the business, among other things, of
buying and selling copra, hemp, and other native products of the Islands, and in such business the aforesaid
plaintiff advanced money for the future delivery of copra, hemp, and took as security for the future delivery of
such copra and hemp so contracted for, a mortgage upon the land upon which said copra or hemp was
produced, and charging a discount on the future deliveries of said copra or hemp, which was in compensation
for the money so advanced.
From said agreed statement of facts it is evident that the contract which the plaintiff made with their customers
was for the purchase of agricultural products; that the payments were made in advance; that to secure the
delivery of said products or a return of the money so paid in advance the plaintiff took a mortgage upon the
land upon which the products were to be produced; that the taking of said mortgage was a mere incident to
the business of the plaintiff in buying and selling agricultural products, and was not a business in itself. The
business of the plaintiff was not a business "for themselves or for others, to negotiate the purchase or sale of
lands, buildings, or interest therein, or to negotiate loans secured by lands, buildings, or interest therein, or to
tent real estate for others, or to collect rents thereon," but the business was to purchase and sell agricultural
products, and that the tasking of said mortgages was a mere incident of their principal business. It could hardly
be held that a man who is engaged in the hardware and plumbing business, for example, who took a
mortgage upon a residence in which he had placed extensive plumbing and sanitary apparatus, in order to
secure the price of his labor and material, was engaged "as a real-estate broker."
A "real-estate broker has been variously defined. A broker is generally defined as one who is engaged, for
others, on a commission, negotiating contracts relative to property with the custody of which he has no
concern; the negotiator between other parties, never acting in his own name, but in the name of those who
employed him; he is strictly a middleman and for some purposes the agent of both parties. (19 Cyc., 186;
Henderson vs. The State, 50 Ind., 234; Black's Law Dictionary.) A broker is one whose occupation it is to bring
parties together to bargain, or to bargain for them, in matters of trade, commerce or navigation. (Mechem on
Agency, sec. 13; Wharton on Agency, sec. 695.) Judge Storey, in his work on Agency, defines a broker as an

agent employed to make bargains and contracts between other persons, in matters of trade, commerce or
navigation, for a compensation commonly called brokerage. (Storey on Agency, sec. 28.) A real-estate broker
negotiates the purchase or sale of real property. He may also procure loans on mortgage security, collect
rents, and attend to the letting and leasing of houses and lands. (Bouvier's Law Dictionary.) A broker acts for
another. In the present case the plaintiff was acting for itself. Whatever was done with reference to the taking
of the mortgages in question was done as an incident of its own business. By the contract of brokerage a
person binds himself to render some service or to do something in behalf of or at the request of another
person. (Art. 1209, Civil Code.)
It may be said that a man's business, or the business of a corporation, is that which busies or occupies his
time, attention, or labor, as his principal concern or occupation. (Territory vs. Harris, 19 Pac. Rep, 286.) Many
persons make an occasional loan of money, secured by a mortgage, in the due course of their business. That
fact, however, will not constitute such a person a real-estate broker.
The said P580 was collected from the plaintiff upon the theory that it was a real-estate broker. In our judgment
the record clearly shows that the plaintiff was not a real-estate broker. Therefore the said tax collected illegally
and should be repaid.
For the foregoing reasons, we are of the opinion that the judgment of the lower court should be affirmed.
Therefore let a judgment be entered in favor of the plaintiff and against the defendant, as Collector of Internal
Revenue, for the sum of P580, together with interest hereon at the legal rate from the 23d of January, 1913,
until paid, together with costs. So ordered.
G.R. No. L-45976

Both parties appealed from this decision.

The appeal raises three questions: (a) whether there is double taxation in the present case; (b) whether the
plaintiff acted as a commission merchant as to the sugar delivered ex-warehouse; (c) whether the plaintiff
acted as a mere commercial broker as to the sugar delivered ex-ship.
As to the first question, it should be borne in mind that Victorias Milling Co. already paid the merchant sales
tax for the sales of sugar, in its capacity as manufacturer and owner of the sugar sold. It is said that the
payment of another tax by the plaintiff, who effected the sale, constitutes double taxation, there having been
only one sale. In Gil Hermanos vs. Hord (10 Phil., 218), this question was already decided in the sense that
there is no double taxation. In that case, Aldecoa & Co., remitted abaca to Gil Hermanos, which the latter sold
on commission for the account of the former. Aldecoa & Co. paid the tax for one-third of 1 per cent upon the
value of the abaca sold by Gil Hermanos, and the latter also paid another one-third of 1 per cent of the same
sale. It was held that, although there was only one sale, this is not a case of double taxation, because the tax
is not upon property or products, but upon occupation or industry. The tax was paid by Aldecoa & Co. and Gil
Hermanos in consideration of the occupation or industry in which each is engaged. The value of the thing sold
is taken into account only as a basis for the fixing of the amount of the tax and not as the reason and purpose
thereof. The case at bar is identical in all respects.
It is said that this decision was reversed in Atkins, Kroll & Co. vs. Posadas (48 Phil., 352), and other cases.
This, however, is not correct. Neither in Atkins, Kroll & Co. vs. Posadas, nor in the other cases mentioned by
the plaintiff, has the decision in Gil Hermanos vs. Hord been reversed. Although a distinct result was reached
in these cases, this was only because they have been found to be different from the case of Gil
Hermanos vs. Hord. On the contrary , in F.E. Zuellig, Inc. vs. Collector of Internal Revenue (51 Phil., 629), the
doctrine in gil Hermanos was followed.

July 20, 1939

PACIFIC COMMERCIAL COMPANY, plaintiff-appellant,

vs.
ALFREDO L. YATCO, defendant-appellee.
E.P. Revilla for appellant.
Office of the Solicitor-General Tuason for appellee.
AVANCEA, C.J.:
The plaintiff, a corporation engaged in business as a merchant, with offices in Manila, Cebu and Iloilo, during
the period from April 1, 1934 to December 31, 1935, sold in the Philippines, for the account of Victorias Milling
Co., another Philippine corporation, refined sugar, manufactured by the said corporation, up to the total
amount of P1,126,135.96, having received by way of commission for this sale the amount of P29,534.29. The
corporation Victorias Milling Co., paid to the Collector of Internal Revenue for this sale the amount of
P16,944.90 as merchant sales tax in its capacity as manufacturer and owner of the sugar sold.
Notwithstanding this payment made by Victorias Milling Co., the Collector of Internal Revenue also collected
from the plaintiff the same tax for the same amount of P16,944.90.
The sales of this sugar were made by the plaintiff in two ways. The plaintiff looked for purchasers of the sugar,
and once the corresponding purchase order is obtained from them, the same is sent to the office of Victorias
Milling Co., in Manila, which, in turn, endorsed the order to its office in Negros, with instructions to ship the
sugar thus ordered to Manila, Cebu or Iloilo, as the case may be. At times, the purchase is made for the
delivery of the sugar ex-warehouse of the plaintiff and at other times for delivery ex-ship. In all cases, the
billing of lading is sent to the plaintiff. If the sugar was to be delivered ex-ship, all that the plaintiff did was to
hand over the bill of lading to the purchaser and collect the price. If it was for delivery ex-warehouse, the sugar
is first deposited in the warehouse of the plaintiff before delivery to the purchaser.
The court found that of the price of sugar sold by the plaintiff, the amount of P558,550.41 corresponds to
sugar sold for delivery ex-warehouse and that of P567,585.55 corresponds to sugar sold for delivery ex-ship,
and considering that in the first case the plaintiff acted as a commission merchant, and in the second case a
broker, it ordered the defendant to return to the plaintiff the amount collected from it, by way of tax on the sale
of sugar to be delivered ex-ship, and denied the prayer in the complaint for the return of the amount paid for
the sales of sugar to be delivered ex-warehouse.

The question of whether the appellant, in connection with the sugar delivered ex-warehouse and thereafter
sold to the purchasers, acted as a commission merchant , presents no doubt. A commission merchant is one
engaged in the purchase or sale for another of personal property which, for this purpose, is placed in his
possession and at his disposal. He maintains a relation not only with his principal and the purchasers or
vendors, but also with the property which is the subject matter of the transaction. In the present case, the
sugar was shipped by Victorias Milling Co., and upon arrival at the port of destination, the plaintiff received and
transferred it for deposit in its warehouses until the purchaser called for it. The deposit of the sugar in the
warehouses of the plaintiff was made upon its own account and at its own risk until it was sold and taken by
the purchaser. There is, therefore, no doubt that the plaintiff, after taking the sugar on board until it was sold,
had it in its possession and at its own risk, circumstances determinative of its status as a commission
merchant in connection with the sale of sugar under these conditions.
There is also no doubt on the question of whether the plaintiff merely acted as a commercial broker as to the
sale of the sugar delivered to the purchaser ex-ship. The broker, unlike the commission merchant, has no
relation with the thing he sells or buys. He is merely an intermediary between the purchaser and the vendor.
He acquires neither the possession nor the custody of the things sold. His only office is to bring together the
parties to the transaction. These circumstances are present in connection with the plaintiff's sale of the sugar
which was delivered to the purchaser's ex-ship. The sugar sold under these conditions was shipped by the
plaintiff at its expense and risk until it reached its destination, where it was later taken ex-ship by the
purchaser. The plaintiff never had possession of the sugar at any time. The circumstance that the bill of lading
was sent to the plaintiff does not alter its character of being merely a broker, or constitute possession by it of
the sugar shipped , inasmuch as the same was sent to it for the sole purpose of turning it over to the
purchaser for the collection of the price. The sugar did not come to its possession in any sense.
In view of the foregoing, the appealed decision is affirmed, without special pronouncement as to the costs. So
ordered.
Villa-Real, Imperial, Diaz, Laurel, and Concepcion, JJ., concur.

Separate Opinions

MORAN, J., dissenting:

G.R. No. L-45394 July 23, 1990

I regret to dissent form the majority opinion penned by our illustrious and beloved Chief Justice.
The tax on the sale made by the plaintiff Pacific Commercial Company, for the account of Victorias 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 same sale.
But the majority maintains that this is not a case of double taxation, because the tax in question is not a tax
"upon property or products, but upon occupation or industry." Although, in my opinion, the tax, according to the
language of the law, is imposed upon the transaction rather than upon the occupation, or, at most, upon both, I
would say that the distinction made by the majority is not of much importance. The important thing is, as the
majority holds, that the value of the transaction "is taken into account only 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 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 like holding that the plaintiff has effected one
sale and the Victorias Milling Company another, which is 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 case, the proportion between the amount of the total tax collected
and the true value of the only transaction made would exceed the rate fixed by law. The Government is not
entitled to receive more than one tax for a single transaction.
Note that the law imposes the tax upon the vendor of merchandise. In the present case, who sold the
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 Pacific
Commercial Company, or, otherwise stated, the latter sold the merchandise in the former's name. The
Victorias Milling Company is the vendor in law, and the Pacific Commercial Company is the vendor 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 may be collected, which
may be paid by Victorias Milling Company or by the Pacific Commercial Company, alternatively.
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 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 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 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 Administrative Code.
Upon the question at issue, our jurisprudence is wavering, if not confusing and contradictory, and I had 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 one tax for a single
transaction. A contrary doctrine would be detrimental to local merchants. If a foreign merchant sells his
merchandise through a resident commission merchant, the Government will not collect more than one tax, and
will do so from the commission merchant. But if a resident merchant makes a similar transaction, the
Government will collect tax twice, from the merchant and from the commission merchant. I do not believe that
the legislator intended a measure so unjust to the merchants of the country.
G.R. No. L-45262 July 23, 1990
RUPERTO REYES and REYNALDO C. SAN JUAN, in his capacity as Special Administrator, petitioners,
vs.
HON. LORENZO R. MOSQUEDA, Judge of CFI, Pampanga (Branch VII), and URSULA D.
PASCUAL,respondents.

PEDRO DALUSONG, petitioner,

vs
HON. LORENZO R. MOSQUEDA, JUDGE, BRANCH VII, COURT OF FIRST INSTANCE OF PAMPANGA,
and URSULA D. PASCUAL, respondents.
G.R. Nos. 73241-42 July 23, 1990
OFELIA D. PARUNGAO and ROSARIO DUNCIL, petitioners,
vs.
THE HON. INTERMEDIATE APPELLATE COURT, (Third Civil Cases Division), BENJAMIN P. REYES and
OSCAR REYES, respondents.

GUTIERREZ, JR., J.:

The instant petitions have been consolidated as they arose from the same facts and involve similar issues. Dr.
Emilio Pascual died intestate and without issue on November 18,1972. He was survived by his sister, Ursula
Pascual and the children of his late sisters as follows: (1) Maria Pascual Reyes- Ruperto Reyes and Jose
Reyes; (2) Ines Pascual Reyes-Jose P. Reyes, Benito Reyes, and Manna Reyes Manalastas; (3) Josefa
Pascual Reyes-Augusto Reyes and Benjamin Reyes; and (4) Escolastica Pascual Dalusong (half- blood
Pedro Dalusong.
On December 3, 1973, the heirs of Dr. Pascual filed Special Proceedings No. 73-30-M in the then Court of
First Instance of Pampanga for the administration of his estate. Atty. Marcela Macapagal, Clerk of Court of
Branch VII was appointed special administratrix. Macapagal was, however, replaced by Reynaldo San Juan.
On February 12, 1976, Ursula Pascual filed a motion to exclude some properties from the inventory of
Pascual's estate and to deliver the titles thereto to her. Ursula alleged that Dr. Pascual during his lifetime or on
November 2, 1966 executed a "Donation Mortis Causa" in her favor covering properties which are included in
the estate of Dr. Pascual (subject of Special Proceedings No. 73-30-M) and therefore should be excluded from
the inventory.
On August 1, 1976; the trial court issued an order excluding from the inventory of the estate the properties
donated to Ursula, to wit:
WHEREFORE, in view of all the foregoing discussion, let the properties listed in
paragraph 2 of the motion of February 12, 1976 filed by Ursula D. Pascual thru counsel
be, as it is hereby ordered, excluded from the inventory of the estate of the deceased
Dr. Emilio D. Pascual, without prejudice to its final determination in a separate action.
Special Administrator Reynaldo San Juan is hereby ordered to return to Court the
custody of the corresponding certificates of titles of these properties, until the issue of
ownership is finally determined in a separate action. (G.R. No. 45262, pp. 23-24)
The Order is now the subject of G.R. Nos. 45262 and 45394. On January 5, 1977, we issued a temporary
restraining order enjoining the trial court from enforcing the August 1, 1976 Order.
Among the properties included in the "donation mortis causa" in favor of Ursula was Lot 24, Block No. 15 of
the subdivision plan Psd-3231, located at 1109-1111 R. Papa St., Tondo, Manila as evidenced by Transfer
Certificate of Title No. 17854. The records show that on May 15, 1969, Emilio Pascual executed a deed of

donation of real property inter vivos over the abovementioned lot in Manila in favor of Ofelia D. Parungao,
petitioner in G.R. Nos. 73241-42 a minor with her mother, Rosario Duncil, accepting the gift and donation for
and in her behalf. When Parungao reached the age of majority or on December 20, 1976, she tried to have the
donation registered. However, she found out that the certificate of title was missing from where it was
supposed to be kept, prompting her to file a petition for reconstitution of title with the Court of First Instance of
Manila. The petition was granted in October 1977. Parungao registered the deed of donation with the Register
of Deeds of Manila who cancelled Transfer Certificate of Title No. 17854 and issued in lieu thereof Transfer
Certificate of Title No. 129092 in the name of Ofelia Parungao. She then filed a motion for exclusion in Special
Proceedings No. 73-30-M.
In the meantime, on September 23, 1976, Ursula Pascual executed a deed of absolute sale over the Tondo
property in favor of Benjamin, Oscar, Jose and Emmanuel, all surnamed Reyes.
On May 2, 1978, Benjamin Reyes, private respondent in G.R. Nos. 73241-42 filed a complaint for declaration
of nullity of Transfer Certificate of Title No. 129092, Register of Deeds of Manila and/or reconveyance of deed
of title against Ofelia Parungao and Rosario Duncil, with the then Court of First Instance of Manila. The case
was docketed as Civil Case No. 115164.
In their answer with compulsory counterclaim Parungao and Duncil, denied Reyes' assertion of ownership
over the Tondo property. On November 6, 1978, Ofelia Parungao filed a complaint for recovery of possession
over the Tondo property against Benjamin Reyes and his nephew Oscar Reyes with the Court of First Instance
of Manila. The case was docketed as Civil Case No. 119359. In her complaint, Parungao also alleged that as
early as 1973, the defendants occupied two (2) doors of the apartment situated at the Tondo property by mere
tolerance of the previous owner, Dr. Emilio Pascual, and later by her until April 8, 1978 when she formally
demanded that the defendants vacate the premises. Parungao prayed that the defendants be evicted from the
premises.
The two cases were consolidated. On June 3, 1982, the then Court of First Instance, Branch 8 rendered a joint
decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered: In Civil Case No. 115164
1) Declaring TCT No. 129092 in the name of Ofelia Parungao null and void; and
ordering the Register of Deeds of Manila to cancel said title and to restore, in lieu
thereof, TCT No. 17854 in the name of Emilio D. Pascual;
2) Ordering Ofelia D. Parungao to pay plaintiff Benjamin P. Reyes the sum of Two
Thousand (P2,000.00) Pesos, as and for attorney's fees; and to pay the costs of suit
including all fees which the Register of Deeds may prescribe for the full implementation
of this decision. For lack of merit, the counterclaim is dismissed.
In Civil Case No. 119359
1) Dismissing the complaint for want of merit; and
2) On the counterclaim, ordering Ofelia Parungao to pay defendant defendants the
sum of Two Thousand (P2,000.00) Pesos as and for attorney's fees.'
Parungao appealed the decision to the then Intermediate Appellate Court. The decision was, however,
affirmed, with costs against the appellant.
The Intermediate Appellate Court decision is now the subject matter in G.R. Nos. 73241-42.

On January 29, 1986, we issued a minute resolution denying the above petition for lack of merit. The
resolution became final and executory on March 10, 1986 and on this same day the entry of judgment was
effected. The entry of judgment was however set aside in the resolution dated January 19, 1987 on the ground
that the January 29, 1986 resolution was not received by the petitioners' counsel of record. The petitioner was
granted leave to file a motion for reconsideration of the January 29, 1986 resolution.
The motion for reconsideration is now before us for resolution petition.
The issues raised in these petitions are two-fold: (1) In G.R. No. L-45394, petitioner Pedro Dalusong questions
the jurisdiction of the probate court to exclude the properties donated to Ursula Pascual in its Order dated
August 1, 1976, and (2) In G.R. No. L-45262 and G.R. Nos. 73241-42 Ruperto Reyes, Reynaldo C. San Juan,
in his capacity as special administrator of the estate of Emilio Pascual (petitioner in G.R. No.
L- 45262), Ofelia Parungao and Rosario Duncil (petitioners in G.R. Nos. 7324142) question the appellate
court's finding that the "Donation Mortis Causa" executed by Emilio Pascual in favor of his sister Ursula
Pascual was actually a Donation Inter Vivos.
We first discuss the issue on jurisdiction. The questioned August 1, 1976 order of the then Court of First
Instance of Pampanga in S.P. Proc. No. 73-30-M categorically stated that the exclusion from the inventory of
the estate of the deceased Dr. Emilio D. Pascual was "without prejudice to its final determination in a separate
action." The provisional character of the exclusion of the contested properties in the inventory as stressed in
the order is within the jurisdiction of the probate court. This was stressed in the case of Cuizon v.
Ramolete (129 SCRA 495 [1984]) which we cited in the case of Morales v. Court of First Instance of Cavite,
Branch V (146 SCRA 373 [1986]):
It is well-settled rule that a probate court or one in charge of proceedings whether
testate or intestate cannot adjudicate or determine title to properties claimed to be a
part of the estate and which are equally claimed to belong to outside parties. All that
the said court could do as regards said properties is to determine whether they should
or should not be included in the inventory or list of properties to be administered by the
administrator. If there is no dispute, well and good; but if there is, then the parties, the
administrator, and the opposing parties have to resort to an ordinary action for a final
determination of the conflicting claims of title because the probate court cannot do so
(Mallari v. Mallari, 92 Phil. 694; Baquial v. Amihan, 92 Phil. 501).itc-asl
Similarly, in Valero Vda. de Rodriguez v. Court of Appeals, (91 SCRA 540) we held that
for the purpose of determining whether a certain property should or should not be
included in the inventory, the probate court may pass upon the title thereto but such
determination is not conclusive and is subject to the final decision in a separate action
regarding ownership which may be instituted by the parties (3 Moran's Comments on
the Rules of Court, 1970 Edition, pages 448449 and 473; Lachenal v. Salas,
L-42257, June 14, 1976, 71 SCRA 262, 266).
On the second issue, it may be noted that the Court of Appeals did not pass upon the authenticity of the 1969
donation to Parungao because of its finding that the 1966 donation to Pascual was inter vivos. The petitioners
do not press the authenticity of the 1969 donation as their challenge centers on whether or not the 1966
donation was inter vivos. However, the trial court has a lengthy discussion reflecting adversely on the
authenticity of the 1969 donation to Parungao.
The petitioners assert that the 1966 donation was null and void since it was not executed with the formalities
of a will. Therefore, the petitioners in G.R. No. L-45262 insist that the donated properties should revert to the
estate of Emilio Pascual while the petitioners in G.R. Nos. 73241-42 insist that the donation of real property
inter vivos in favor of Ofelia Parungao be given effect.
The subject deed of donation titled "DONATION MORTIS CAUSA" duly notarized by a certain Cornelio M.
Sigua states:

That Dr. Emilio D. Pascual, Filipino, single, of age and resident of Apalit, Pampanga,
hereinafter called the DONOR and Ursula D. Pascual, Filipino, single, also of age,
resident of and with postal address at Apalit, Pampanga, hereinafter called the
DONEE, have agreed, as they do hereby agree, to the following, to wit:
That the said DONOR, Dr. Emilio D. Pascual, for and in consideration of the love and
affection which he has and bears unto the said DONEE, as also for the personal
services rendered by the said DONEE to the said DONOR, does hereby by these
presents voluntarily GIVE, GRANT, and DONATE MORTIS CAUSA unto the said
DONEE URSULA D. PASCUAL, her heirs and assigns, all of my rights, title and
interest, in and to the following parcels of land with all the improvements thereon,
situated in the Municipality of Apalit, Pampanga, and more particularly described and
Identified as follows:
xxx xxx xxx
(Enumerated herein are 41 parcels of land)
Also included in this DONATION MORTIS CAUSA are all personal properties of the
DONOR in the form of cash money or bank deposits and insurance in his favor, and his
real properties situated in other towns of Pampanga, such as San Simon, and in the
province of Rizal, San Francisco del Monte and in the City of Manila.
That the said donor has reserved for himself sufficient property to maintain him for life;
and that the said DONEE does hereby ACCEPT and RECEIVE this DONATION
MORTIS CAUSA and further does express his appreciation and gratefulness for the
generosity of said DONOR; (Rollo of G.R. No. L-45262, pp. 12-16)
xxx xxx xxx
Considering the provisions of the DONATION MORTIS CAUSA the appellate court ruled that the deed of
donation was actually a donation inter vivos although denominated as DONATION MORTIS CAUSA.
It is, now a settled rule that the title given to a deed of donation is not the determinative factor which makes the
donation "inter vivos" or "mortis causa" As early as the case of Laureta v. Manta, et al., (44 Phil. 668 [1928])
this Court ruled that the dispositions in a deed of donation-whether "inter vivos" or "mortis causa" do not
depend on the title or term used in the deed of donation but on the provisions stated in such deed. This Court
explained inConcepcion v. Concepcion (91 Phil. 823 [1952])
...But, it is a rule consistently followed by the courts that it is the body of the document
of donation and the statements contained therein, and not the title that should be
considered in ascertaining the intention of the donor. Here, the donation is entitled and
called donacion onerosa mortis causa. From the body, however, we find that the
donation was of a nature remunerative rather than onerous. It was for past services
rendered, services which may not be considered as a debt to be paid by the donee but
services rendered to her freely and in goodwill. The donation instead of being onerous
or for a valuable consideration, as in payment of a legal obligation, was more of
remuneratory or compensatory nature, besides being partly motivated by affection.
We should not give too much importance or significance to or be guided by the use of
the phrase 'mortis causa in a donation and thereby to conclude that the donation is not
one of inter vivos. In the case of De Guzman et al. v. Ibea et al. (67 Phil. 633), this
Court through Mr. Chief Justice Avancena said that if a donation by its terms is inter
vivos, this character is not altered by the fact that the donor styles it mortis causa.

In the case of Laureta v. Mata, et al. (44 Phil. 668), the court held that the donation
involved was inter vivos. There, the donor Severa Magno y Laureta gave the properties
involved as
... a reward for the services which he is rendering me, and as a token of my affection
toward him and of the fact that he stands high in my estimation, I hereby donate 'mortis
causa to said youth all the properties described as follows:
xxx xxx xxx
I also declare that it is the condition of this donation that the donee cannot take
possession of the properties donated before the death of the donor, and in the event of
her death the said donee shall be under obligation to cause a mass to be held annually
as a suffrage in behalf of my sold, and also to defray the expenses of my burial and
funerals.'
It will be observed that the present case and that of Laureta above cited are similar in
that in both cases the donation was being made as a reward for services rendered and
being rendered, and as a token of affection for the donee; the phrase 'mortis causa
was used; the donee to take possession of the property donated only after the death of
the donor; the donee was under obligation to defray the expenses incident to the
celebration of the anniversary of the donor's death, including church fees. The donation
in both cases were duly accepted. In said case of Laureta this Court held that the
donation was in praesenti and not a gift in futuro.
In the later case of Bonsato et al. v. Court of appeals, et al. (95 Phil. 481 [1954]) this Court, distinguished the
characteristics of a donation inter vivos and "mortis causa" in this wise:
Did the late Domingo Bonsato, make donations inter vivos or dispositions post mortem
in favor of the petitioners herein? If the latter, then the documents should reveal any or
all of the following characteristics:
(1) Convey no title or ownership to the transferee before the death of the transferor; or,
what amounts to the same thing, that the transferor should retain the ownership (fun or
naked) and control of the property while alive (Vidal v. Posadas, 58 Phil., 108; Guzman
v. Ibea 67 Phil., 633);
(2) That before his death, the transfer should be revocable by the transferor at will, ad
nutum; but revocability may be provided for indirectly by means of a reserved power in
the donor to dispose of the properties conveyed (Bautista v. Sabiniano, G.R. No. L4326, November 18, 1952);
(3) That the transfer should be void if the transferor should survive the transferee.
These principles were repeated in the case of Castro v. Court of Appeals (27 SCRA 1076 [1969]), to wit:
Whether a donation is inter vivos or mortis causa depends upon the nature of the
disposition made. 'Did the donor intend to transfer the ownership of the property
donated upon the execution of the donation? If this is so, as reflected from the
provisions contained in the donation, then it is inter vivos; otherwise, it is merely mortis
causa, or made to take effect after death.' (Howard v. Padilla and Court of Appeals,
G.R. No. L-7064 and L-7098, April 22, 1955.
Applying the above principles to the instant petitions, there is no doubt that the so-called DONATION MORTIS
CAUSA is really a donation inter vivos. The donation was executed by Dr. Pascual in favor of his sister Ursula

Pascual out of love and affection as well as a recognition of the personal services rendered by the donee to
the donor. The transfer of ownership over the properties donated to the donee was immediate and
independent of the death of the donor. The provision as regards the reservation of properties for the donor's
subsistence in relation to the other provisions of the deed of donation confirms the intention of the donor to
give naked ownership of the properties to the donee immediately after the execution of the deed of donation.
With these findings we find no need to discuss the other arguments raised by the petitioners.

that the plaintiff asked for damages. (Record on Appeal, pp. 27-28) [CA Decision, pp.
34; Rollo, pp. 47-48.]
On the basis thereof, the Court of Appeals affirmed the decision of the trial court ordering petitioner to refund
to private respondent the purchase price for the twelve (12) generators and to accept delivery of the same and
to pay s and attorney's fees, with a slight modification as to the amount to be refunded. In its resolution of the
motion for reconsideration, the Court of Appeals further modified the trial courts decision as to the award of
consequential damages.

WHEREFORE, this Court hereby renders judgment as follows:

1) In G.R. Nos. 45262 and 45394 the petitions are DENIED. The Temporary Restraining Order issued on
January 5, 1977 is hereby LIFTED; and
2) In G.R. Nos. 73241-42, the motion for reconsideration is DENIED. This DENIAL is FINAL.
SO ORDERED.
G.R. No. 75198 October 18, 1988

Ordinarily, the Court will not disturb the findings of fact of the Court of Appeals in petitions to review the latter's
decisions under Rule 45 of the Revised Rules of Court, the scope of the Court's inquiry being limited to a
review of the imputed errors of law [Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 77;
Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No.
62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court of Appeals, G.R. No.
L-47531, January 30, 1984, 127 SCRA 596.] However, when, as in this case, it is the petitioner's position that
the appealed judgment is premised on a misapprehension of
facts, * the Court is compelled to review the Court of Appeal's factual findings [De la Cruz v. Sosing, 94 Phil.
26 (1953); Castillo v. Court of Appeals, G.R. No. I,48290, September 29, 1983, 124 SCRA 808.]
Considering the sketchiness of the respondent court's narration of facts, whether or not the Court of Appeals
indeed misapprehended the facts could not be determined without a thorough review of the records.

SCHMID & OBERLY, INC., petitioner,

vs.
RJL MARTINEZ FISHING CORPORATION, respondent.

Thus, after a careful scrutiny of the records, the Court has found the appellate court's narration of facts
incomplete. It failed to include certain material facts.

Sycip Salazar Hernandez & Gatmaitan Law Office for petitioner.

The facts are actually as follows:

Siguion Reyna, Montecillo & Ongsiako Law Office for respondent.

RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed electric
generators for some of its boats and SCHMIID sold electric generators of different brands, negotiations
between them for the acquisition thereof took place. The parties had two separate transactions over "Nagata"brand generators.

CORTES, J.:
Petitioner seeks reversal of the decision and the resolution of the Court of Appeals, ordering Schmid & Oberly
Inc. (hereafter to be referred to simply as "SCHMID") to refund the purchase price paid by RJL Martinez
Fishing Corporation (hereafter to be referred to simply as "RJL MARTINEZ") to D. Nagata Co., Ltd. of Japan
(hereafter to be referred to simply as NAGATA CO.") for twelve (12) defective "Nagata"-brand generators, plus
consequential damages, and attorneys fees.
The facts as found by the Court of Appeals, are as follows:
The findings of facts by the trial court (Decision, pp. 21-28, Record on Appeal) shows:
that the plaintiff RJL Martinez Fishing Corporation is engaged in deep-sea fishing, and
in the course of its business, needed electrical generators for the operation of its
business; that the defendant sells electrical generators with the brand of "Nagata", a
Japanese product; that the supplier is the manufacturer, the D. Nagata Co. Ltd., of
Japan, that the defendant Schmid & Oberly Inc. advertised the 12 Nagata generators
for sale; that the plaintiff purchased 12 brand new Nagata generators, as advertised by
herein defendant; that through an irrevocable line of credit, the D. Nagata Co., Ltd.,
shipped to the plaintiff 12 electric generators, and the latter paid the amount of the
purchase price; that the 12 generators were found to be factory defective; that the
plaintiff informed the defendant herein that it shall return the 12 generators as in fact
three of the 12 were actually returned to the defendant; that the plaintiff sued the
defendant on the warranty; asking for rescission of the contract; that the defendant be
ordered to accept the generators and be ordered to pay back the purchase money; and

The first transaction was the sale of three (3) generators. In this transaction, it is not disputed that SCHMID
was the vendor of the generators. The company supplied the generators from its stockroom; it was also
SCHMID which invoiced the sale.
The second transaction, which gave rise to the present controversy, involves twelve (12) "Nagata"-brand
generators. 'These are the facts surrounding this particular transaction:
As RJL MARTINEZ was canvassing for generators, SC gave RJL MARTINEZ its Quotation dated August 19,
1975 [Exhibit 'A"] for twelve (12) "Nagata'-brand generators with the following specifications:
"NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800 rpm, unity power
factor, rectifier type and radio suppressor,, 5KVA (5KW) $546.75 @
It was stipulated that payment would be made by confirming an irrevocable letter of credit in favor of NAGATA
CO. Furthermore, among the General Conditions of Sale appearing on the dorsal side of the Quotation is the
following:
Buyer will, upon request, promptly open irrevocable Letter of Credit in favor of seller, in
the amount stated on the face of this memorandum, specifying shipment from any
Foreign port to Manila or any safe Philippine port, permitting partial shipments and
providing that in the event the shippers are unable to ship within the specified period
due to strikes, lack of shipping space or other circumstances beyond their reasonable
control, Buyer agrees to extend the said Letter of Credit for later shipment. The Letter

of Credit shall otherwise be subject to the conditions stated in this memorandum of

contract. [Emphasis supplied.]
Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of credit in favor of NAGATA CO.
Accordingly, on November 20,1975, SCHMID transmitted to NAGATA CO. an order [Exhibit "4"] for the twelve
(12) generators to be shipped directly to RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill
of lading and its own invoice (Exhibit "B") and, in accordance with the order, shipped the generators directly to
RJL MARTINEZ. The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting of twelve sets
wasbought by order and for account risk of Messrs. RJL Martinez Fishing Corporation.
For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale of the twelve
generators to RJL MARTINEZ. [Exhibits "9", "9-A", "9-B" and "9-C".]

(iv) Schmid, accordingly, is not liable for the reimbursement claimed by RJL Martinez
nor for the latter's unsubstantiated claim of PI 10.33 operational losses a day nor for
exemplary damages, attorney's fees and costs. [Petition, p. 6.]
1. As may be expected, the basic issue confronting this Court is whether the second transaction between the
parties was a sale or an indent transaction. SCHMID maintains that it was the latter; RJL MARTINEZ claims
that it was a sale.
At the outset, it must be understood that a contract is what the law defines it to be, considering its essential
elements, and not what it is caged by the contracting parties [Quiroga v. Parsons Hardware Co., 38 Phil. 501
(1918).]
The Civil Code defines a contract of sale, thus:

All fifteen (15) generators subject of the two transactions burned out after continuous use. RJL MARTINEZ
informed SCHMID about this development. In turn, SCHMID brought the matter to the attention of NAGATA
CO. In July 1976, NAGATA CO. sent two technical representatives who made an ocular inspection and
conducted tests on some of the burned out generators, which by then had been delivered to the premises of
SCHMID.
The tests revealed that the generators were overrated. As indicated both in the quotation and in the invoice,
the capacity of a generator was supposed to be 5 KVA (kilovolt amperes). However, it turned out that the
actual capacity was only 4 KVA.

ART. 458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
It has been said that the essence of the contract of sale is transfer of title or agreement to transfer it for a price
paid or promised [Commissioner of Internal Revenue v. Constantino, G.R. No. L-25926, February 27, 1970, 31
SCRA 779, 785, citing Salisbury v. Brooks, 94 SE 117,118-19.] "If such transfer puts the transferee in the
attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not
merely as an agent who must account for the proceeds of a resale, the transaction is, a sale." [Ibid.]

SCHMID replaced the three (3) generators subject of the first sale with generators of a different brand.
As for the twelve (12) generators subject of the second transaction, the Japanese technicians advised RJL
MARTINEZ to ship three (3) generators to Japan, which the company did. These three (3) generators were
repaired by NAGATA CO. itself and thereafter returned to RJL MARTINEZ; the remaining nine (9) were neither
repaired nor replaced. NAGATA CO., however, wrote SCHMID suggesting that the latter check the generators,
request for spare parts for replacement free of charge, and send to NAGATA CO. SCHMID's warranty claim
including the labor cost for repairs [Exhibit "I".] In its reply letter, SCHMID indicated that it was not agreeable to
these terms [Exhibit "10".]
As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded that it be refunded
the cost of the generators and paid damages. SCHMID in its reply maintained that it was not the seller of the
twelve (12) generators and thus refused to refund the purchase price therefor. Hence, on February 14, 1977,
RJL MARTINEZ brought suit against SCHMID on the theory that the latter was the vendor of the twelve (12)
generators and, as such vendor, was liable under its warranty against hidden defects.
Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that SCHMID was the
vendor in the second transaction and was liable under its warranty. Accordingly, the courts a quo rendered
judgment in favor of RJL MARTINEZ. Hence, the instant recourse to this Court.
In this petition for review, SCHMID seeks reversal on the following grounds:
(i) Schmid was merely the indentor in the sale [of the twelve (12) generators] between
Nagata Co., the exporter and RJL Martinez, the importer;
(ii) as mere indentor, Schmid is not liable for the seller's implied warranty against
hidden defects, Schmid not having personally assumed any such warranty.
(iii) in any event, conformably with Article 1563 of the Civil Code, there was no implied
warranty against hidden defects in the sale of these twelve (12) generators because
these were sold under their trade name "Nagata"; and

On the other hand, there is no statutory definition of "indent" in this jurisdiction. However, the Rules and
Regulations to Implement Presidential Decree No. 1789 (the Omnibus Investments Code) lumps "indentors"
together with "commercial brokers" and "commission merchants" in this manner:
... A foreign firm which does business through the middlemen acting in their own
names, such asindentors, commercial brokers or commission merchants, shall not be
deemed doing business in the Philippines. But such indentors, commercial brokers or
commission merchants shall be the ones deemed to be doing business in the
Philippines [Part I, Rule I, Section 1, par. g (1).]
Therefore, an indentor is a middlemen in the same class as commercial brokers and commission merchants.
To get an Idea of what an indentor is, a look at the definition of those in his class may prove helpful.
A broker is generally defined as one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of which he has no concern;
the negotiator between other parties, never acting in his own name but in the name of
those who employed him; he is strictly a middleman and for some purpose the agent of
both parties. (1 9 Cyc 186; Henderson vs. The State, 50 Ind., 234; Black's Law
Dictionary.) A broker is one whose occupation it is to bring parties together to bargain,
or to bargain for them, in matters of trade, commerce or navigation. Mechem on
Agency, sec. 13; Wharton on Agency, sec. 695.) Judge Storey, in his work on Agency,
defines a broker as an agent employed to make bargains and contracts between other
persons, in matters of trade, commerce or navigation, for compensation commonly
called brokerage. (Storey on Agency, sec. 28.) [Behn Meyer and Co., Ltd. v. Nolting
and Garcia, 35 Phil. 274, 279-80 (1916).]
A commission merchant is one engaged in the purchase or sale for another of personal
property which, for this purpose, is placed in his possession and at his disposal. He
maintains a relation not only with his principal and the purchasers or vendors, but also
with the property which is subject matter of the transaction. [Pacific Commercial Co. v.
Yatco, 68 Phil. 398, 401 (1939).]

Thus, the chief feature of a commercial broker and a commercial merchant is that in effecting a sale, they are
merely intermediaries or middle-men, and act in a certain sense as the agent of both parties to the transaction.
Webster defines an indent as "a purchase order for goods especially when sent from a foreign country."
[Webster's Ninth New Collegiate Dictionary 612 (1986).] It would appear that there are three parties to an
indent transaction, namely, the buyer, the indentor, and the supplier who is usually a non-resident
manufacturer residing in the country where the goods are to be bought [Commissioner of Internal Revenue v.
Cadwallader Pacific Company, G.R. No. L-20343, September 29, 1976, 73 SCRA 59.] An indentor may
therefore be best described as one who, for compensation, acts as a middleman in bringing about a purchase
and sale of goods between a foreign supplier and a local purchaser.

Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA CO., a foreign corporation not
licensed to do business in the Philippines, then the officers and employees of the former may be penalized for
violation of the old Corporation Law which provided:
Sec. 69 ... Any officer or agent of the corporation or any person transacting business
for any foreign corporation not having the license prescribed shall be punished by
imprisonment for not less than six months nor more than two years or by a fine 'of not
less than two hundred pesos nor more than one thousand pesos or both such
imprisonment and fine, in the discretion of the Court.
The facts do not bear out these contentions.

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

The first contention disregards the circumstances surrounding the second transaction as distinguished from
those surrounding the first transaction, as noted above.
Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's complaint prove that
the former was the seller of the generators. As aptly stated by counsel, no indentor will just fold its hands when
a client complains about the goods it has bought upon the indentor's mediation. In its desire to promote the
product of the seller and to retain the goodwill of the buyer, a prudent indentor desirous of maintaining his
business would have to act considerably. towards his clients.
Note that in contrast to its act of replacing the three (3) generators subject of the first transaction, SCHMID did
not replace any of the twelve (12) generators, but merely rendered assistance to both RJL TINES and
NAGATA CO. so that the latter could repair the defective generators.
The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the repair of the nine (9) other
defective generators, with the former supplying the replacement parts free of charge and subsequently
reimbursing the latter for labor costs [Exhibit "I"], cannot support the conclusion that SCHMID is vendor of the
generators of the second transaction or was acting "within the purview of a seller."
Finally, the afore-quoted penal provision in the Corporation Law finds no application to SCHMID and its
officers and employees relative to the transactions in the instant case. What the law seeks to prevent, through
said provision, is the circumvention by foreign corporations of licensing requirements through the device of
employing local representatives. An indentor, acting in his own name, is not, however, covered by the abovequoted provision. In fact, the provision of the Rules and Regulations implementing the Omnibus Investments
Code quoted above, which was copied from the Rules implementing Republic Act No. 5455, recognizes the
distinct role of an indentor, such that when a foreign corporation does business through such indentor, the
foreign corporation is not deemed doing business in the Philippines.
In view of the above considerations, this Court rules that SCHMID was merely acting as an indentor in the
purchase and sale of the twelve (12) generators subject of the second transaction. Not being the vendor,
SCHMID cannot be held liable for the implied warranty for hidden defects under the Civil Code [Art. 1561, et
seq.]
2. However, even as SCHMID was merely an indentor, there was nothing to prevent it from voluntarily
warranting that twelve (12) generators subject of the second transaction are free from any hidden defects. In
other words, SCHMID may be held answerable for some other contractual obligation, if indeed it had so bound
itself. As stated above, an indentor is to some extent an agent of both the vendor and the vendee. As such
agent, therefore, he may expressly obligate himself to undertake the obligations of his principal (See Art. 1897,
Civil Code.)
The Court's inquiry, therefore, shifts to a determination of whether or not SCHMID expressly bound itself to
warrant that the twelve (12) generators are free of any hidden defects.
Again, we consider the facts.

The Quotation (Exhibit A is in writing. It is the repository of the contract between RJL MARTINEZ and
SCHMID. Notably, nowhere is it stated therein that SCHMID did bind itself to answer for the defects of the
things sold. There being no allegation nor any proof that the Quotation does not express the true intent and
agreement of the contracting parties, extrinsic parol evidence of warranty will be to no avail [See Rule 123,
Sec. 22.]

confronted with a copy of the invoice issued by NAGATA CO., he changed his assertion and claimed that what
he meant was that the date of the commencement of the period of SCHMID's warranty would be based on the
date of the invoice. On further examination, he again changed his mind and asserted that the warranty was
given verbally [TSN, October 14, 1977, pp. 19-22.] But then again, as stated earlier, the witness failed to
disclose the nature or terms and conditions of the warranty allegedly given by SCHMID.

The trial court, however, relied on the testimony of Patrocinio Balagtas, the head of the Electrical Department
of RJL MARTINEZ, to support the finding that SCHMID did warrant the twelve (12) generators against defects.

On the other hand, Hernan Adad SCHMID's General Manager, was categorical that the company does not
warrant goods bought on indent and that the company warrants only the goods bought directly from it, like the
three generators earlier bought by RJL MARTINEZ itself [TSN, December 19, 1977, pp. 63-64.] It must be
recalled that SCHMID readily replaced the three generators from its own stock. In the face of these conflicting
testimonies, this Court is of the view that RJL has failed to prove that SCHMID had given a warranty on the
twelve (12) generators subject of the second transaction. Even assuming that a warranty was given, there is
no way to determine whether there has been a breach thereof, considering that its nature or terms and
conditions have not been shown.

Upon careful examination of Balagtas' testimony, what is at once apparent is that Balagtas failed to disclose
the nature or terms and conditions of the warranty allegedly given by SC Was it a warranty that the generators
would be fit for the fishing business of the buyer? Was it a warranty that the generators to be delivered would
meet the specifications indicated in the Quotation? Considering the different kinds of warranties that may be
contracted, unless the nature or terms and conditions of the warranty are known, it would not be possible to
determine whether there has been a breach thereof.

3. In view of the foregoing, it becomes unnecessary to pass upon the other issues.
Moreover, a closer examination of the statements allegedly made by the representative of SCHMID reveals
that they merely constituted an expression of opinion which cannot by any means be construed as a warranty
[See Art. 1546, Civil Code.]

WHEREFORE, finding the Court of Appeals to have committed a reversible error, the petition is GRANTED
and the appealed Decision and Resolution of the Court of Appeals are REVERSED. The complaint of RJL
Martinez Fishing Corporation is hereby DISMISSED. No costs.

We quote from Balagtas' testimony:

SO ORDERED.
Atty. CATRAL:
Q Did you not say at the start of your cross examination, Mr.
Balagtas, that the only participation you had in the acquisition of
those twelve (12) units [of] generators was your having issued a
purchase order to your own company for the purchase of the
units?
ATTY. AQUINO:
Misleading, your Honor.
Atty. CATRAL:
I am asking the witness.

June 30, 1960

COURT:

G.R. No. L-11530

J. M. TUASON & CO., INC., petitioner,
vs.
COLLECTOR OF INTERNAL REVENUE, respondent.

He has the right to ask that question because he is on cross.

Moreover, if I remember, he mentioned something like that.
Witness may answer.

Tuason, Caluag and Sison for petitioner.

Solicitor General Ambrosio Padilla and Solicitor Camilo D. Quiason for respondent.

A Yes, sir. Before I submitted that, we negotiated with Schmid

and Oberly the beat generators they can recommend because
we are looking for generators. The representative of Schmid
and Oberly said that Nagata is very good. That is why I
recommended that to the management. [t.s.n., October 14,
1977, pp. 23-25.]
At any rate, when asked where SCHMID's warranty was contained, Balagtas testified initially that it was in the
receipts covering the sale. (At this point, it may be stated that the invoice [Exhibit "B-l"] was issued by
NAGATA CO. and nowhere is it stated therein that SCHMID warranted the generators against defects.) When

LABRADOR, J.:
On November 6, 1951 the Varsity Hills, Inc., owner of five parcels of residential land in Quezon City, entered
into a contract with petitioner J. M. Tuason & Co., Inc., a corporation engaged in the business of developing
subdivisions and promoting sales therein whereby it ceded to the latter its five parcels of residential land
above described generally for the purpose of having it surveyed platted, monumented and otherwise
developed into a subdivision. The contract is Exhibit "A" and the principal terms and conditions thereof are as
follows:
That the ADMINISTRATOR, at the OWNER'S expense, shall undertake to laying out of parks, playgrounds,
the construction of streets, culverts, pavements, sewage systems, drainage, the installation of utilities which in

the judgment of the ADMINISTRATOR may be necessary or convenient and in general the physical
preparation of the property for sale or lease in lots, in accordance with the requirements of government
regulations.
3. That the ADMINISTRATOR shall recommend to the OWNER the sales prices of the lots of the subdivision
based upon the desired ability of the location and other similar factors that enter into sales value, according to
their location in the subdivision plan, as well as the terms of payment of the purchase price of said lots, and
upon the approval thereof by the OWNER, the same shall immediately be put in force, provided, however, that
the same shall be subject to change by the OWNER at any time.

thereafter files a claim for its refund. As respondent refused to grant the refused to grant the refund, petitioner
instituted an action in the Court of Tax Appeals for the review of the assessment. After trial the Court of Tax
Appeals sustained the assessment and denied the refund prayed for. It is against this refusal to grant the
refund that the appeal to this Court has been presented.
The ruling of the Court of Tax Appeals which is disputed is as follows:
This test of indivisibility of consideration giving rise to an indivisible contract applied equally to commercial
contracts such as sale, as well as to contracts involving services as the case at bar.

4. That the ADMINISTRATOR is hereby granted the authority to sign for and in the name of the OWNER,
contracts of lease, contracts of sale, as well as contracts to sell involving the lots into which the property which
is the object of this contract is subdivided, and releases of mortgage and such other documents as may be
deemed necessary for the purpose of carrying out and facilitating the administration of the OWNER'S
property; and for that purpose the OWNER shall execute a power of attorney in favor of the
ADMINISTRATOR; provided, however, that deeds of donation to the government, province, city or municipality
of lots, destined for parks, playgrounds, roads, community counters, etc.

"The question of indivisibility is difficult, and this difficulty has resulted in a direct conflict of decisions. The
contract may be entire or severable, according to the circumstances of its particular case it has been said in
speaking of contracts of sale, and the criterion is to be found in the question whether the whole quantityall of
the things as a wholeis of the essence of the contract. If it appears that the purpose was to take the whole or
none, then the contract would be entire; otherwise, it would be severable . . . Though this was said in
reference to a contract of sale, the reason applies to other contracts as well." (3rd. Ed. Clark on Contracts, p/
596, citing:

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Wooten vs. Walters, 110 M. C. 251, 14 SE. 734; Erouner vs. Raynar, 88 Md. 47, 11 Atl. 833) (Emphasis
supplied.)

7. That the ADMINISTRATOR shall take charge of the collection of all accounts due to the OWNER either for
the sale of lots or otherwise, and the expenses in connection therewith shall be for the account of the
ADMINISTRATOR, except attorney's fees and judicial expenses which shall be decided and borne by the
OWNER; subject to the ADMINISTRATOR'S right to choose its counsel, after consultations with the OWNER.
8. That all administrative expenses incurred in the administration of the OWNER'S subdivision such as
salaries for permanent personnel, office, rent, telephone and light bills, commissions for sales agents or subagents, and other similar expenses shall be borne by the ADMINISTRATOR, provided, however, that should
the OWNER deem it necessary that the ADMINISTRATOR employ checkers, inspectors, supervisors or
technical men, their aggregate salaries in excess of P600.00 monthly shall be borne by the OWNER.
xxxxxxxxx
10. All extraordinary expenses of the ADMINISTRATOR shall first be approved by the OWNER before they are
incurred.
11. That advertising the sales of lots of this property shall be undertaken by the ADMINISTRATOR upon arrival
by the OWNER, but the expenses for the same shall be for the account of the OWNER.
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13. That the OWNER shall pay the ADMINISTRATOR a selling commission of 10% on all sales of lots of the
subdivision whether or not affected by the ADMINISTRATOR, which shall be payable in full immediately and in
preference to all other obligations of the OWNER, from the collections on said dates, but if the down payment
made be not sufficient to cover the commission, subsequent payments shall be first utilized to complete said
commission; and, if for any reason whatsoever the sale of any lot be discontinued or cancelled the
commission due to ADMINISTRATOR shall in no case exceed the total amount collected at the time of such
discontinuance or cancellation; provided, however, that the posterior cancellation or rescission of such sales
shall in no wise entitle the OWNER to ask for a proportionate refund of said commission and, provided finally,
that should any repossessed lots be subsequently sold, the ADMINISTRATOR shall be entitled to its
commission of 10% on the subsequent sales thereof as though they had been original sales. The same
provisions shall apply to contracts of lease.
14. That the OWNER shall pay the ADMINISTRATOR an administration fee of 8% on the gross sum collected
and received by the latter in connection with the discharged by the ADMINISTRATOR of its duties, it being
understood that this administration fee shall be in addition to the 10% commission above referred to . . .
During the period from the fourth quarter of 1951 to the second quarter of 1953, inclusive, Tuason & Co., Inc.
received as compensation for its services the following amounts: P282, 862.70 as 10 per cent commission for
sales and P116,331.21 as "administration fee." On August 22, 1953, the respondent Collector of Internal
Revenue assessed against the petitioner the broker's tax on the 8 per cent received by the latter as"
administration fee" in the amount of P8,724.84, representing the broker's percentage tax and surcharge
thereon. Petitioner contested this assessment, although it paid the respondent under protest P9,024.84 and

'In the present case, as we see it the consideration is single, entire and indivisible. As far as Varsity Hills, Inc.
is concerned, the property in question must be sold or leased as subdivided lots. Until and unless the sale or
lease of the property in question as subdivided lots is effected, the Varsity Hills, Inc., is not liable to pay any
compensation to petitioner in any form as the same is based on the proceed derived from the sale or lease
thereof. Hence, the mere completion of the subdivision of the property in question does not entitle the
petitioner to the compensation agreed and the same does not attach unless and until a sale or lease of a
subdivided lot is first effected. Neither will compensation be due the petitioner for the sale or lease of the
whole or part of the property in question, unless the same be first subdivided into lots by petitioner. Stated
otherwise, in order that petitioner would be entitled to compensation under the terms of the contract Exhibit "A"
there must first be a subdivision of the property into lots, followed by a sale or lease of the same. Because of
this "oneness' or indivisibility of the consideration of the contract Exhibit "A", we are of the opinion that the
activities of the petitioner of subdividing the property or collecting accounts, which petitioner denominated
"acts of administration" are not in fact detached, distinct, or transcendental to the brokerage relationship
created by aforesaid contract, but rather acts which are merely incidental to the primary purpose for which the
agreement was entered into."
In this Court petitioner claims that its duties as administrator under the contract are not acts of brokerage
subject to the brokerage tax. We cannot accept this contention. We will start showing the weakness of this
contention by stating that the only duty imposed on the petitioner which may be conceded to be distinct and
separate from those of a broker is that of subdividing the lands into lots and laying out the streets, parks,
playgrounds, and constructing the streets, culverts, pavements, sewage systems, drainage installation of
utilities, all of which is set forth in Section 12 of the contract Exhibit "A". All the others, such as recommending
sales prices of lots (Sec. 3), signing contracts of sales or lease, or contracts to sell, release of mortgage (Sec.
4), collecting sales prices or other accounts due the Owner (Sec. 7), organizing offices and personnel to
attend to the work relating to all the above (Sec. 8), although apparently paid for under the term
"administration fee"these are also necessary parts of the work of a broker as defined by law, thus:
(s) "Real estate broker" includes any person, other than a real estate salesman as hereinafter defined, who for
another, and for a compensation or in the expectation or promise of receiving compensation, (1) sells or offers
for sale, buys or offers to buy, lists, or solicits for prospective purchasers, or negotiates the purchase, sale or
exchange of real estate or interests therein; (2) or negotiates loans on real estate; (3) or leases or offers to
lease or negotiates the sale, purchase or exchange of a lease, or rents or places for rent or collects rent from
real estate or improvements thereon; (4) or shall be employed by or on behalf of the owner or owners of lots or
other parcels of real estate at a stated salary, on commission, or otherwise, to sell such real estate or any
parts thereof in lots or parcels. ... But the foregoing definitions do not include a person who shall directly
perform any of the acts aforesaid with reference to his own property, where such acts are performed in the
regular course of or as an incident to the management of such property; nor shall they apply to persons acting
pursuant to a duly executed power of attorney from the owner authorizing final consummation by performance
of a contract conveying real estate sale, mortgage or lease; . . .
A broker engaged in the sale of real estate is not limited to bringing vendor and vendee together and arranging
the terms and conditions of a sale of a real estate. As sales of real estate must be in writing the preparation of

the documents is part of the functions of the broker. So the only function entrusted to petitioner under the
contract Exhibit "A" which may not be embraced in those of a broker, is that of constructing the subdivision, as
above explained and detailed out. It follows, therefore, that the parties have agreed on giving compensation
denominated administration fees for services which may well be included in the duties of a broker.

los actos o cosas, de la voluntad y de la ley, sera muy frecuente el caso de una obligacion que abarque
multiples objetos de posible division real, y aun entre si distintos, pero que, afectados por la obligacion,
forman para los fines y efectos de esta, un todo indivisible. (8 Manresa, p. 214).
Transalation:

But the duty of developing the subdivision, with its lots, streets, playgrounds, sewage, etc. is also necessary
incident to the duty of selling the lands subject of the contract. The lands must be subdivided into residential
lots, with streets laid out, before said lots can be sold. And while this work may be entrusted to another, the
parties have seen fit to have the same entrusted to the petitioner. It would be reasonable that this work or duty
be considered distinct and separate from the duties or incidents of the brokerage, and not subject to the tax on
brokers. But the parties have by their contract rendered it impossible to separate the amount due petitioner for
such duty and obligation (of developing a subdivision) from those due petitioner as "administration fees."
Petitioner may well be a contractor, in so far as the developing of the subdivision is concerned. But neither
petitioner nor the owner has shown which portion of the fee mentioned in the contract as "administration fee"
is given petitioner as its compensation for developing the subdivision. The reason for all this must be the fact
that the parties have considered their contract as one whole, indivisible contract, especially as the
corresponding fees for the different prestations therein undertaken by petitioner are grouped into two,
"brokerage" and "administration", without it being possible to separate and identify what portion is due
petitioner for developing the subdivision and what portion for the supposed acts of administration, which may
also be considered acts of brokerage. It is in the above sense that the Court of Tax Appeals has held that the
consideration for all the different prestations is simple, entire and indivisible, for which reason the contract
must be considered as one indivisible contract of brokerage, the developing of the subdivision being
considered as a necessary incident to, and preparatory for, the sales of the lots of the subdivision, and the
documentation and collection also an integral part of the sales or negotiations therefor.
Entrando ya en la otra cuestion, no puede perderse de vista que, procediendo, sobre todo en estas
obligaciones, de un solo acreedor y de un solo deudor, la indivisibilidad, mas que de la naturaleza misma de

Turning now to the other question , you can not lose sight of that proceeding , especially in these obligations ,
single creditor and a single debtor , indivisibility , rather than the nature of the acts or things of the will and the
law , will be very frequent case of a bond that covers multiple objects of possible actual division , and even
each other , but were affected by the obligation , formed for the purposes and effects of this , an indivisible
whole.

Considering, therefore, that the parties to the contract evidently made a single, indivisible contract because of
indivisibilty of consideration, for the reason that the parties fixed a so-called administration fee for developing
the subdivision and for executing all necessary documentation and collection for the consummation of the
sales of the lots in the subdivision, without possibility of determining the fees for each of the distinct prestation,
we are constrained to find that the court below committed no error in confirming the assessment subject of the
petition for review.
Wherefore the decision of the Court of Tax Appeals should be, as it hereby is, affirmed, with costs against
petitioner.