No. L-21601. December 28, 1968.

NIELSON & COMPANY, INC., plaintiff-appellant, vs. LEPANTO CONSOLIDATED MINING COMPANY,
defendant-appellee.

Pleading and practice; Appeal; Change of theory on appeal not allowable.It is the rule, and the settled
doctrine, that a party cannot change his theory on appealthat is, that a party cannot raise in the
appellate court any question of law or of fact that was not raised in the court below or which was not
within the issue made by the parties in their pleadings (Sec. 19, Rule 49, old Rules of Court; Sec. 18 of
Revised Rules of Court; Hautea v. Magallon, L-20345, Nov. 28, 1964; Northern Motors, Inc. v. Prince
Line, L-13884, Feb. 29, 1960; American Express Co. v. Natividad, 46 Phil. 207; Agoncillo v. Javier, 38 Phil.
424; Molina v. Somes, 24 Phil. 49).

Civil Law; Contracts; "Agency" and "lease of service" compared and distinguished.In both agency and
lease of services one of the parties binds himself to render some service to the other party. Agency,
however, is distinguished from lease of work or services in that the basis of agency is representation,
while in the lease of work or services the basis is employment. The lessor of services does not represent
his employer, while the agent represents his principal. Agency is a preparatory contract, as agency "does
not stop with the agency because the purpose is to enter into other contracts." The most characteristic
feature of an agency relationship is the agent's power to bring about business relations between his
principal and third persons. "The agent is destined to execute juridical acts (creation, modification or
extinction of relations with .third parties). Lease of services contemplate only material (non-juridical)
acts." (Reyes & Puno, An Outline of Philippine Civil Law, Vol. V, p. 277).

Same; Obligations and contracts; Moratorium law; Republic Act No. 342 not applicable to debts
contracted during the war.Republic Act No. 342 does not apply to debts contracted during the war
and did not lift the moratorium in relation thereto (Uy v. Kalaw Katigbak, L-1830, Dec. 31, 1949; Sison v.
Mirasol, L-4711, Oct. 3, 1952; Compaia Maritima v. Court of Appeals, L-14949, May 30, 1960). Said Rep.
Act No. 342, however, modified Executive Order No. 32 as to pre-war debts, making the protection
available only to debtors who had war damage claims (Sison v. Mirasol, L-4711, Oct. 3, 1952, cited in
Abraham, et al. v. Intestate Estate of Ysmael, et al., L-16741, Jan. 31, 1962).

Corporation law; Shares of stock; Consideration for which shares of stock may be issued; A share of
stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a
corporation.From the provision of Section 16 of the Corporation Law, the consideration for which
shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock
are given the special name "stock dividends" only if they are issued in lieu of undistributed profits. If
shares of stocks are issued in exchange of cash or property then those shares do not fall under the
category of "stock dividends". A corporation may legally issue shares of stock in consideration of
services rendered to it by a person not a stockholder, or in payment of its indebtedness. It is the shares
of stock ,that are originally issued by the corporation and forming part of the capital that can be
exchanged for cash or services rendered, or property; that is, if the corporation has original shares of
stock unsold or unsubscribed, either coming from the original capitalization or f rom the increased
capitalization. Those shares of stock may be issued to a person who is not a stockholder, or to a person
already a stockholder in exchange for services rendered or for cash or property. But a share of stock
coming from stock dividends declared cannot be issued to one who is not a stockholder of a
corporation. Under Section 16 of the Corporation Law stock dividends can not be issued to a person who
is not a stockholder in payment of services rendered.
Same; "Stock dividend"; "Dividend"; Concept and nature.A "stock dividend" is any dividend payable in
shares of stock of the corporation declaring or authorizing such dividend. It is, as what the term itself
implies, a distribution of the shares of stock of the corporation among the stockholders as dividends. A
stock dividend of a corporation is a dividend paid in shares of stock instead of cash, and is properly
payable only out of surplus profits (Sec. 16, Corporation Law). So, a stock dividend is actually two things:
(1) a dividend, and (2) the enforced use of the dividend money to purchase additional shares of stock at
par. (Words and Phrases, p. 270). When a corporation issues stock dividends, it shows that the
corporation's accumulated profits have been capitalized instead of distributed to the stockholders or
retained as surplus available f or distribution, in money or kind, should opportunity offer. Far from being
a realization of profits for the stockholder, it tends rather ,to postpone said realization, in ,that the fund
represented by the new stock has been transferred from surplus to assets and no longer available for
actual distribution (Fisher v. Trinidad, 43 Phil. 973). Thus, it is apparent that stock dividends are issued
only to stockholders. This is so because only stockholders are entitled to dividends. They are the only
ones who have a right to a proportional share in that part of the surplus which is declared as dividends.

A stock dividend really adds nothing to the interest of the stockholder; the proportional interest of each
stockholder remains the same (Towne v. Eisner, 62 L. Ed. 372). If a stockholder is deprived of his stock
dividendsand this happens if the shares of stock f orming part of the stock dividends are issued to a
nonstockholderthen the proportion of the stockholder's interest changes radically. Stock dividends
are civil fruits of the original investment, and to the owners of the shares belong the civil fruits (Art. 441,
Civil Code). The term "dividend" both in the technical sense and its ordinary acceptation, is that part or
portion of the profits of the enterprise which the corporation, by its governing agents, sets apart for
ratable division among the holders of the capital stock. It means the fund actually set aside, and
declared by the directors of the corporation as a dividend, and duly ordered by the directory, or by the
stockholders, at a corporate meeting, to be divided or distributed among the stockholders according to
their respective interests (7 Thompson on Corporations 134135).

MOTION FOR RECONSIDERATION of a Supreme Court decision.

The facts are stated in the resolution of the Court.

RESOLUTION*

ZALDIVAR, J.:

Lepanto seeks the reconsideration of the decision rendered on December 17, 1966. The motion for
reconsideration is based on two sets of groundsthe first set consisting of four principal grounds, and
the second set consisting of five alternative grounds, as follows:

Principal Grounds:

1. The court erred in overlooking and failing to apply the proper law applicable to the agency or
management contract in question, namely, Article 1733 of the Old Civil Code (Article 1920 of the new),
by virtue of which said agency was effectively revoked and terminated in 1945 when, as stated in
paragraph 20 of the complaint, "defendant voluntarily x x x prevented plaintiff from resuming
management and operation of said mining properties."
2. The court erred in holding that paragraph II of the management contract (Exhibit C) suspended the
period of said contract.
3. The court erred in reversing the ruling of the trial judge, based on well-settled jurisprudence of this
Supreme Court, that the management agreement was only suspended but not extended on account of
the war.
4. The court erred in reversing the finding of the trial judge that Nielson's action had prescribed, but
considering only the first claim and ignoring the prescriptibility of the other claims.

Alternative Grounds:

5. The court erred in holding that the period of suspension of the contract on account of the war lasted
from February 1942 to June 26, 1948.
6. Assuming arguendo that Nielson is entitled to any relief, the court erred in awarding as damages (a)
10% of the cash dividends declared and paid in December, 1941; (b) .the management fee of P2,500.00
for the month of January, 1942; and (c) the full contract price for the extended period of sixty months,
since these damages were neither demanded nor proved and, in any case, not allowable under the
general law of damages.
7. Assuming arguendo that appellant is entitled to any relief, the court erred in ordering appellee to
issue and deliver to appellant shares of stock together with fruits thereof.
8. The court erred in awarding to appellant an undetermined amount of shares of stock and/or cash,
which award cannot be ascertained and executed without further litigation.
9. The court erred in rendering judgment for attorney's fees.

We are going to dwell on these grounds in the order they are presented.

1. In its first principal ground Lepanto claims that its own counsel and this Court had overlooked the real
nature of the management contract entered into by and between Lepanto and Nielson, and the law that
is applicable on said contract. Lepanto now asserts for the first timeand this is done in a motion for
reconsiderationthat the management contract in question is a contract of agency such that it has the
right to revoke and terminate the said contract, as it did terminate the same, under the law of agency,
and particularly pursuant to Article 1733 of the Old Civil Code (Article 1920 of the New Civil Code).
We have taken note that Lepanto is advancing a new theory. We have carefully examined the pleadings
filed by Lepanto in the lower court, its memorandum and its brief on appeal, and never did it assert the
theory that it has the right to terminate the management contract because that contract is one of
agency which it could terminate at will. While it is true that in its ninth and tenth special affirmative
defenses, in its answer in the court below, Lepanto pleaded that it had the right to terminate the
management contract in question, that plea of its right to terminate was not based upon the ground
that the relation between Lepanto and Nielson was that of principal and agent but upon the ground that
Nielson had allegedly not complied with certain terms of the management contract. If Lepanto had
thought of considering the management contract as one of agency it could have amended its answer by
stating exactly its position. It could have asserted its theory of agency in its memorandum for the lower
court and in its brief on appeal. This, Lepanto did not do. It is the rule, and the settled doctrine of this
Court, that a party cannot change his theory on appealthat is, that a party cannot raise in the
appellate court any question of law or of fact that was not raised in the court below or which was not
within the issue made by the parties in their pleadings (Section 19, Rule 49 of the old Rules of Court, and
also Section 18 of the new Rules of Court; Hautea vs. Magallon, L-20345, November 28, 1964; Northern
Motors, Inc. vs. Prince Line, L-13884, February 29, 1960; American Express Co. vs. Natividad, 46 Phil.
207; Agoncillo vs. Javier, 38 Phil. 424 and Molina vs. Somes, 24 Phil 49).
At any rate, even if we allow Lepanto to assert its new theory at this very late stage of the proceedings,
this Court cannot sustain the same.

Lepanto contends that the management contract in question (Exhibit C) is one of agency because: (1)
Nielson was to manage and operate the mining properties and mill on behalf, and for the account, of
Lepanto; and (2) Nielson was authorized to represent Lepanto in entering, on Lepanto's behalf, into
contracts for the hiring of laborers, purchase of supplies, and the sale and marketing of the ores mined.
All these, Lepanto claims, show that Nielson was, by the terms of the contract, destined to execute
juridical acts not on its own behalf but on behalf of Lepanto under the control of the Board of Directors
of Lepanto "at all times". Hence Lepanto claims that the contract is one of agency. Lepanto then
maintains that an agency is revocable at the will of the principal (Article 1733 of the Old Civil Code),
regardless of any term or period stipulated in the contract, and it was in pursuance of that right that
Lepanto terminated the contract in 1945 when it took over and assumed exclusive management of the
work previously entrusted to Nielson under the contract. Lepanto finally maintains that Nielson as an
agent is not entitled to damages since the law gives to the principal the right to terminate the agency at
will.

Because of Lepanto's new theory We consider it necessary to determine the nature of the management
contractwhether it is a contract of agency or a contract of lease of services. Incidentally, we have
noted that the lower court, in the decision appealed from, considered the management contract as a
contract of Iease of services.

Article 1709 of the Old Civil Code, defining contract of agency, provides:

"By the contract of agency, one person binds himself to render some service or do something for the
account or at the request of another."

Article 1544, defining contract of lease of service, provides:

"In a lease of work or services, one of the parties binds himself to make or construct something or to
render a service to the other for a price certain."

In both agency and lease of services one of the parties binds himself to render some service to the other
party. Agency, however, is distinguished from lease of work or services in that the basis of agency is
representation, while in the lease of work or services the basis is employment. The lessor of services
does not represent his employer, while the agent represents his principal. Manresa, in his
"Commentarios al Codigo Civil Espaol" (1931, Tomo IX, pp. 372-373), points out that the element of
representation distinguishes agency from lease of services, as follows:

" "Nuestro art. 1.709 como el art. 1.984 del Cdigo de Napolen y cuantos textos legales citamos en las
concordancias, expresan claramente esta idea de la representacin, 'hacer alguna cosa por cuenta o
encargo de otra' dice nuestro Cdigo; 'poder de hacer alguna cosa para el mandante o en su nombre'
dice el Cdigo de Napolen, y en tales palabras aparece vivo y luminoso el concepto y la teoria de la
representacin, tan fecunda en enseanzas, que a su sola luz es como se explican las diferencias que
separan el mandato del arrendamiento de servicios, de los contratos inominados, del consejo y de !a
gestin de negocios.
"En efecto, en el arrendamiento de servicios al obligarse para su ejecucin, se trabaja, en verdad, para el
dueo que remunera la labor, pero ni se le representa ni se obra en su nombre x x x."

On the basis of the interpretation of Article 1709 of the old Civil Code, Article 1868 of the new Civil Code
has defined the contract of agency in more explicit terms, as follows:

"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."

There is another obvious distinction between agency and lease of services. Agency is a preparatory
contract, as agency "does not stop with the agency because the purpose is to enter into other
contracts." The most characteristic feature of an agency relationship is the agent's power to bring about
business relations between his principal and third persons. "The agent is destined to execute juridical
acts (creation, modification or extinction of relations with third parties). Lease of services contemplate
only material (non-juridical) acts." (Reyes and Puno, "An Outline of Philippine Civil Law," Vol. V, p. 277).
In the light of the interpretations we have mentioned in the foregoing paragraphs, let us now determine
the nature of the management contract in question. Under the contract, Nielson had agreed, for a
period of five years, with the right to renew for a like period, to explore, develop and operate the mining
claims of Lepanto, and to mine, or mine and mill, such pay ore as may be found therein and to market
the metallic products recovered therefrom which may prove to be marketable, as well as to render for
Lepanto other services specified in the contract. We gather from the contract that the work undertaken
by Nielson was to take complete charge, subject at all times to the general control of the Board of
Directors of Lepanto, of the exploration and development of the mining claims, of the hiring of a
sufficient and competent staff and of sufficient and capable laborers, of the prospecting and
development of the mine, of the erection and operation of the mill, and of the beneficiation and
marketing of the minerals found on the mining properties; and in carrying out said obligation Nielson
should proceed diligently and in accordance with the best mining practice. In connection with its work
Nielson was to submit reports, maps, plans and recommendations with respect to the operation and
development of the mining properties, make recommendations and plans on the erection or
enlargement of any existing mill, dispatch mining engineers and technicians to the mining properties as
from time to time may reasonably be required to investigate and make recommendations without cost
or expense to Lepanto. Nielson was also to "act as purchasing agent of supplies. equipment and other
necessary purchases by Lepanto, provided, however, that no purchase shall be made without the prior
approval of Lepanto; and provided further, that no commission shall be claimed or retained by Nielson
on such purchase"; and "to submit all requisition for supplies, all contracts and arrangement with
engineers, and staff and all matters requiring the expenditures of money, present or future, for prior
approval by Lepanto; and also to make contracts subject to the prior approval of Lepanto for the sale
and marketing of the minerals mined from said properties, when said products are in a suitable
condition for marketing."

It thus appears that the principal and paramount undertaking of Nielson under the management
contract was the operation and development of the mine and the operation of the mill. All the other
undertakings mentioned in the contract are necessary or incidental to the principal under-takingthese
other undertakings being dependent upon the work on the development of the mine and the operation
of the mill. In the performance of this principal undertaking Nielson was not in any way executing
juridical acts for Lepanto, destined to create, modify or extinguish business relations between Lepanto
and third persons. In other words, in performing its principal undertaking Nielson was not acting as an
agent of Lepanto, in the sense that the term agent is interpreted under the law of agency, but as one
who was performing material acts for an employer, for a compensation.

It is true that the management contract provides that Nielson would also act as purchasing agent of
supplies and enter into contracts regarding the sale of mineral, but the contract also provides that
Nielson could not make any purchase, or sell the minerals, without the prior approval of Lepanto. It is
clear, therefore, that even in these cases Nielson could not execute juridical acts which would bind
Lepanto without first securing the approval of Lepanto. Nielson, then, was to act only as an
intermediary, not as an agent.

Lepanto contends that the management contract in question being one of agency it had the right to
terminate the contract at will pursuant to the provision of Article 1733 of the old Civil Code. We find,
however, a proviso in the management contract which militates against this stand of Lepanto. Paragraph
XI of the contract provides:

"Both parties to this agreement fully recognize that the terms of this Agreement are made possible only
because of the faith or confidence that the Officials of each company have in the other; therefore, in
order to assure that such confidence and faith shall abide and continue, NIELSON agrees that LEPANTO
may cancel this Agreement at any time upon ninety (90) days written notice, in the event that NIELSON
for any reason whatsoever, except acts of God, strike and other causes beyond its control, shall cease to
prosecute the operation and development of the properties herein described in good faith and in
accordance with approved mining practice."

It is thus seen, from the above-quoted provision of paragraph XI of the management contract, that
Lepanto could not terminate the agreement at will. Lepanto could terminate or cancel the agreement by
giving notice of termination ninety days in advance only in the event that Nielson should prosecute in
bad faith and not in accordance with approved mining practice the operation and development of the
mining properties of Lepanto. Lepanto could not terminate the agreement if Nielson should cease to
prosecute the operation and development of the mining properties by reason of acts of God, strike and
other causes beyond the control of Nielson.

The phrase "Both parties to this agreement fully recognize that the terms of this agreement are made
possible only because of the faith and confidence of the officials of each company have in the other" in
paragraph XI of the management contract does not qualify the relation between Lepanto and Nielson as
that of principal and agent based on trust and confidence, such that the contractual relation may be
terminated by the principal at any time that the principal loses trust and confidence in the agent.
Rather, that phrase simply implies the circumstance that brought about the execution of the
management contract. Thus, in the annual report for 19362, submitted by Mr. C. A. Dewit, President of
Lepanto, to its stockholders, under date of March 15, 1937, we read the following: "To the Stockholders:

xxx xxx xxx

"The incorporation of our Company was effected as a result of negotiations with Messrs. Nielson & Co.,
Inc., and an offer by these gentlemen to Messrs. C. I. Cookes and V. L. Lednicky, dated August 11, 1936,
reading as follows:

'Messrs. Cookes and Lednicky,

'Present

'Re: Mankayan Copper Mines.

'GENTLEMEN:

'After an examination of your property by our engineers, we have decided to offer. as we hereby offer to
underwrite the entire issue of stock of a corporation to be formed for the purpose of taking over said
properties, said corporation to have an authorized capital of P1,750,-000.00, of which P700,000.00 will
be issued in escrow to the claimowners in exchange for their claims, and the balance of P1,050,000.00
we will sell to the public at par or take ourselves.

'The arrangement will be under the following conditions:

'1. The subscriptions for cash shall be payable 50% at time of subscription and the balance subject to the
call of the Board of Directors of the proposed corporation.

'2. We shall have an underwriting and brokerage commission of 10% of the P1,050,000.00 to be sold for
cash to the public, said commission to be payable from the first payment of 50% on each subscription.

'3. We will bear the cost of preparing and mailing any prospectus that may be required, but no such
prospectus will be sent out until the text thereof has been first approved by the Board of Directors of
the proposed corporation.

'4. That after the organization of the corporation, all operating contract be entered into between
ourselves and said corporation, under the terms which the property will be developed and mined and a
mill erected, under our supervision, our compensation to be P2,000.00 per month until the property is
put on a profitable basis and P2,500.00 per month plus 10% of the net profits for a period of five years
thereafter.

'5. That we shall have the option to renew said operat-ing contract for an additional period of five years,
on the same basis as the original contract, upon the expiration thereof.

'lt is understood that the development and mining operations on said property, and the erection of the
mill thereon, and the expenditures therefor shall be subject to the general control of the Board of
Directors of the proposed corporation, and, in case you accept this proposition, that a detailed
operating contract will be entered into, covering the relationships between the parties.

Yours very truly,

(Sgd.) L. R. Nielson'"

"Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson & Co., took subscriptions for
One Million Fifty Thousand Pesos (P1,050,000.00) in shares of our Company and their underwriting and
brokerage commission has been paid. More than fifty per cent of these subscriptions have been paid to
the Company in cash. The claimowners have transferred their claims to the Corporation, but the
P700,000.00 in stock which they are to receive therefor, is as yet held in escrow.
"Immediately upon the formation of the Corporation Messrs. Nielson & Co., assumed the Management
of the property under the control of the Board of Directors. A modification in the Management Contract
was made with the consent of all the then stockholders, in virtue of which the compensation of Messrs.
Nielson & Co., was increased to P2,500.00 per month when mill construction began. The formal
Management Contract was not entered into until January 30, 1937."

X X X X

"Manila, March 15, 1937

(Sgd.) "C. A. DeWitt

"President"

We can gather from the foregoing statements in the annual report for 1936, and from the provision of
paragraph XI of the Management contract, that the employment by Lepanto of Nielson to operate and
manage its mines was principally in consideration of the know-how and technical services that Nielson
offered Lepanto. The contract thus entered into pursuant to the offer made by Nielson and accepted by
Lepanto was a "detailed operating contract". It was not a contract of agency. Nowhere in the record is it
shown that Lepanto considered Nielson as its agent and that Lepanto terminated the management
contract because it had lost its trust and confidence in Nielson.

The contention of Lepanto that it had terminated the management contract in 1945, following the
liberation of the mines from Japanese control, because the relation between it and Nielson was one of
agency and as such it could terminate the agency at will, is, therefore, untenable. On the other hand, it
can be said that, in asserting that it had terminated or cancelled the management contract in 1945,
Lepanto had thereby violated the express terms of the management contract. The management
contract was renewed to last until January 31, 1947, so that the contract had yet almost two years to
goupon the liberation of the mines in 1945. There is no showing that Nielson had ceased to prosecute
the operation and development of the mines in good faith and in accordance with approved mining
practice which would warrant the termination of the contract upon ninety days written notice. In fact
there was no such written notice of termination. It is an admitted fact that Nielson ceased to operate
and develop the mines because of the wara cause beyond the control of Nielson.

Indeed, if the management contract in question was intended to create a relationship of principal and
agent between Lepanto and Nielson, paragraph XI of the contract should not have been inserted
because, as provided in Article 1733 of the old Civil Code, agency is essentially revocable at the will of
the principalthat means, with or without cause. But precisely said paragraph XI was inserted in the
management contract to provide for the cause for its revocation. The provision of paragraph XI must be
given effect.

In the construction of an instrument where there are several provisions or particulars, such a
construction is, if possible, to be adopted as will give effect to all,3 and if some stipulation of any
contract should admit of several meanings, it shall be understood as bearing that import which is most
adequate to render it effectual.

It is Our considered view that by express stipulation of the parties, the management contract in question
is not revocable at the will of Lepanto. We rule that this management contract is not a contract of
agency as defined in Article 1709 of the old Civil Code, but a contract of lease of services as defined in
Article 1544 of the same Code. This contract can not be unilaterally revoked by Lepanto.

The first ground of the motion for reconsideration should, therefore, be brushed aside.

2. In the second, third and fifth grounds of its motion for reconsideration, Lepanto maintains that this
Court erred, in holding that paragraph II of the management contract suspended the period of said
contract, in holding that the agreement was not only suspended but was extended on account of the
war, and in holding that the period of suspension on account of the war lasted from February, 1942 to
June 26, 1948. We are going to discuss these three grounds together because they are inter-related.
In our decision we have dwelt lengthily on the points that the management contract was suspended
because of the war, and that the period of the contract was extended for a period -equivalent to the
time when Nielson was unable to perf orm the work of mining and milling because of the adverse
effects of the war on the work of mining and milling.

It is the contention of Lepanto that the happening of those events, and the effects of those events,
simply suspended the perf ormance of the obligations by either party in the contract, but did not
suspend the period of the contract, much less extended the period of the contract.

We have conscientiously considered the arguments of Lepanto in support of these three grounds, but
We are not persuaded to reconsider the rulings that We made in Our decision.

We want to say a little more on these points, however. Paragraph II of the management contract
provides as follows:

"In the event of inundation, flooding of the mine, typhoon, earthquake or any other force majeure, war,
insurrection, civil commotion, organized strike, riot, fire, 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."
(Italics supplied)

A reading of the above-quoted paragraph II cannot but convey the idea that upon the happening of any
of the events enumerated therein, which adversely affects the work of mining and milling, the
agreement is deemed suspended for as long as Nielson is unable to perform its work of mining and
milling because of the adverse effects of the happening of the event on the work of mining and milling.
During the period when the adverse effects on the work of mining and milling exist, neither party in the
contract would be held liable f or non-compliance of its obligation under the contract. In other words,
the operation of the contract is suspended for as long as the adverse effects of the happening of any of
those events had impeded or obstructed the work of mining and milling. An analysis of the phraseology
of the above-quoted paragraph II of the management contract readily supports the conclusion that it is
the agreement, or the contract, that is suspended. The phrase "the same" can refer to no other than the
term "Agreement" which immediately precedes it. The "Agreement" may be wholly or partially
suspended, and this situation will depend on whether the event wholly or partially affected adversely
the work of mining and milling. In the instant case, the war had adversely affectedand wholly at that
the work of mining and milling. We have clearly stated in Our decision the circumstances brought about
by the war which caused the whole or total suspension of the agreement or of the management
contract.
LEPANTO itself admits that the management contract was suspended. We quote from the brief of
LEPANTO:

"Probably, what Nielson meant was, it was prevented by Lepanto to assume again the management of
the mine in 1945, at the precise time when defendant was at the feverish phase of rehabilitation and
although the contract had already been suspended." (Lepanto's Brief, p. 9).

"x x x 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." (Lepanto's Brief, pp. 9-10).

"Clause II, by its terms, is clear that the contract is suspended in case fortuitous event or force majeure,
such as war, adversely affects the work of mining and milling." (Lepanto's Brief, p. 49).

Lepanto is correct when it said that the obligations under the contract were suspended upon the
happening of any of the events enumerated in paragraph II of the management contract. Indeed, those
obligations were suspended because the contract itself was suspended. When we talk of a contract that
has been suspended we certainly mean that the contract temporarily ceased to be operative, and the
contract becomes operative again upon the happening of a conditionor when a situation obtains
which warrants the termination of the suspension of the contract.

In Our decision We pointed out that the agreement in the management contract would be suspended
when two conditions concur, namely: (1) the happening of the event constituting a force majeure that
was reasonably beyond the control of Nielson, and (2) that the event constituting the force majeure
adversely affected the work of mining and milling. The suspension, therefore, would last not only while
the event constituting the force majeure continued to occur but also for as long as the adverse effects of
the force majeure on the work of mining and milling had not been eliminated. Under the management
contract the happening alone of the event constituting the force majeure which did not affect adversely
the work of mining and milling would not suspend the period of the contract. It is only when the two
conditions concur that the period of the agreement is suspended.

It is not denied that because of the war, in February 1942, the mine, the original mill, the original power
plant, the supplies and equipment, and all installations at the Mankayan mines of Lepanto, were
destroyed upon order of the United States Army, to prevent their utilization by the enemy. It is not
denied that for the duration of the war Nielson could not undertake the work of mining and milling.
When the mines were liberated from the enemy in August, 1945, the condition of the mines, the mill,
the power plant and other installations, was not the same as in February 1942 when they were ordered
destroyed by the US army. Certainly, upon the liberation of the mines from the enemy, the work of
mining and milling could not be undertaken by Nielson under the same favorable circumstances that
obtained before February 1942. The work of mining and milling, as undertaken by Nielson in January,
1942, could not be resumed by Nielson soon after liberation because of the adverse effects of the war,
and this situation continued until June of 1948. Hence, the suspension of the management contract did
not end upon the liberation of the mines in August, 1945. The mines and the mill and the installations,
laid waste by the ravages of war, had to be reconstructed and rehabilitated, and it can be said that it
was only on June 26, 1948 that the adverse effects of the war on the work of mining and milling had
ended, because it was on that date that the operation of the mines and the mill was resumed. The
period of suspension should, therefore, be reckoned from February 1942 until June 26, 1948, because it
was during this period that the war and the adverse effects of the war on the work of mining and milling
had lasted. The mines and the installations had to be rehabilitated because of the adverse effects of the
war. The work of rehabilitation started soon after the liberation of the mines in August, 1945 and lasted
until June 26, 1948 when, as stated in Lepanto's annual report to its stockholders for the year 1948,
"June 28, 1948 marked the official return to operation of this company at its properties at Mankayan,
Mountain province, Philippines" (Exh. F-1).

Lepanto would argue that if the management contract was suspended at all the suspension should
cease in August of 1945, contending that the effects of the war should cease upon the liberation of the
mines from the enemy. This contention cannot be sustained, because the period of rehabilitation was
still a period when the physical effects of the warthe destruction of the mines and of all the mining
installationsadversely affected, and made impossible, the work of mining and milling. Hence, the
period of the reconstruction and rehabilitation of the mines and the installations must be counted as
part of the period of suspension of the contract.

Lepanto claims that it would not be unfair to end the period of suspension upon the liberation of the
mines because soon after the liberation of the mines Nielson insisted to resume the management work,
and that Nielson was under obligation to reconstruct the mill in the same way that it was under
obligation to construct the mill in 1937. This contention is untenable. It is true that Nielson insisted to
resume its management work after liberation, but this was only for the purpose of restoring the mines,
the mill, and other installations to their operating and producing condition as of February 1942 when
they were ordered destroyed. It is not shown by any evidence in the record, that Nielson had agreed, or
would have agreed, that the period of suspension of the contract would end upon the liberation of the
mines. This is so because, as found by this Court, the intention of the parties in the management
contract, and as understood by them, the management contract was suspended for as long as the
adverse effects of the force majeure on the work of mining and milling had not been removed, and the
contract would be extended for as long as it was suspended. Under the management contract Nielson
had the obligation to erect and operate the mill, but not to re-erect or reconstruct the mill in case of its
destruction by force majeure.

It is the considered view of this court that it would not be fair to Nielson to consider the suspension of
the contract as terminated upon the liberation of the mines because then Nielson would be placed in a
situation whereby it would have to suffer the adverse effects of the war on the work of mining and
milling. The evidence shows that as of January 1942 the operation of the mines under the management
of Nielson was already under beneficial conditions, so much so that dividends were already declared by
Lepanto for the years 1939, 1940 and 1941. To make the management contract immediately operative
after the liberation of the mines from the Japanese, at the time when the mines and all its installations
were laid waste as a result of the war, would be to place Nielson in a situation whereby it would lose all
the benefits of what it had accomplished in placing the Lepanto mines in profitable operation before the
outbreak of the war in December, 1941. The record shows that Nielson started its management
operation way back in 1936, even before the management contract was entered into. As early as August
1936 Nielson negotiated with Messrs. C. I. Cookes and V. L. Lednicky for the operation of the Mankayan
mines and it was the result of those negotiations that Lepanto was incorporated; that it was Nielson that
helped to capitalize Lepanto, and that after the formation of the corporation (Lepanto) Nielson
immediately assumed the management of the mining properties of Lepanto. It was not until January 30,
1937 when the management contract in question was entered into between Lepanto and Nielson
(Exhibit A ).
A contract for the management and operation of mines calls for a speculative and risky venture on the
part of the manager-operator. The manager-operator invests its technical know-how, undertakes back-
breaking efforts and tremendous spade-work, so to say, in the first years of its management and
operation of the mines, in the expectation that the investment and the efforts employed might be
rewarded later with success. This expected success may never come. This had happened in the very case
of the Mankayan mines where, as recounted by Mr. Lednicky of Lepanto, various persons and entities of
different nationalities, including Lednicky himself, invested all their money and failed. The manager-
operator may not strike sufficient ore in the first, second, third, or fourth year of the management
contract, or he may not strike ore even until the end of the fifth year. Unless the manager-operator
strikes sufficient quantity of ore he cannot expect profits or reward for his investment and efforts. In the
case of Nielson, its corps of competent engineers, geologists, and technicians begun working on the
Mankayan mines of Lepanto since the latter part of 1936, and continued their work without success and
profit through 1937, 1938, and the earlier part of 1939. It was only in December of 1939 when the
efforts of Nielson started to be rewarded when Lepanto realized profits and the first dividends were
declared. From that time on Nielson could expect profit to come to itas in fact Lepanto declared
dividends for 1940 and 1941if the development and operation of the mines and the mill would
continue unhampered. The operation, and the expected profits, however, would still be subject to
hazards due to the occurrence of fortuitous events, fires, earthquakes, strikes, war, etc., constituting
force majeure, which would result in the destruction of the mines and the mill. One of these diverse
causes, or one after the other, may consume the whole period of the contract, and if it should happen
that way the manager-operator would reap no profit to compensate for the first years of spade-work
and investment of efforts and know-how. Hence, in fairness to the manager-operator, so that he may
not be deprived of the benefits of the work he had accomplished, the force majeure clause is
incorporated as a standard clause in contracts for the management and operation of mines.

The nature of the contract for the management and operation of mines justifies the interpretation of
the force majeure clause, that a period equal to the period of suspension due to force majeure should
be added to the original term of the contract by way of an extension. We, therefore, reiterate the ruling
in Our decision that the management contract in the instant case was suspended from February, 1942
to June 26, 1948, and that from the latter date the contract had yet five years to go.

3. In the fourth ground of its motion for reconsideration, Lepanto maintains that this Court erred in
reversing the finding of the trial court that Nielson's action has prescribed, by considering only the first
claim and ignoring the prescriptibility of the other claims.

This ground of the motion for reconsideration has no merit.

In Our decision We stated that the claims of Nielson are based on a written document, and, as such, the
cause of action prescribes in ten years.5 Inasmuch as there are different claims which accrued on
different dates the prescriptive periods for all the claims are not the same. The claims of Nielson that
have been awarded by this Court are itemized in the dispositive part of the decision.

The first item of the awards in Our decision refers to Nielson's compensation in the sum of P17,500.00,
which is equivalent to 10 % of the cash dividends declared by Lepanto in December, 1941. As We have
stated in Our decision, this claim accrued on December 31, 1941, and the right to commence an action
thereon started on January 1, 1942. We declared that the action on this claim did not prescribe although
the complaint was filed on February 6, 1958or after a lapse of 16 years, 1 month and 5 daysbecause
of the operation of the moratorium law. Section 43, par. 1, Act 190.
We declared that under the applicable decisions of this Court6 the moratorium period of 8 years, 2
months and 8 days should be deducted from the period that had elapsed since the accrual of the cause
of action to the date of the filing of the complaint, so that there is a period of less than 8 years to be
reckoned for the purpose of prescription.

This claim of Nielson is covered by Executive Order No. 32, issued on March 10, 1945, which provides as
follows:

''Enforcement of payments of all debts and other monetary obligations payable in the Philippines,
except debts and other monetary obligations entered into in any area after declaration by Presidential
Proclamation that such area has been freed from enemy occupation and control, is temporarily
suspended pending action by the Commonwealth Government." (41 O.G. 56-57; Italics supplied)

Executive Order No. 32 covered all debts and monetary obligation contracted before the war (or before
December 8, 1941) and those contracted subsequent to December 8, 1941 and during the Japanese
occupation. Republic Act No. 342, approved on July 26, 1948, lifted the moratorium provided for in
Executive Order No. 32 on pre-war (or preDecember 8, 1941) debts of debtors who had not filed war
damage claims with the United States War Damage Commission. In other words, after the effectivity of
Republic Act No. 342, the debt moratorium was limited: (1) to debts and other monetary obligations
which were contracted after December 8, 1941 and during the Japanese occupation, and (2) to those
pre-war (or pre-December 8, 1941) debts and other monetary obligations where the debtors filed war
damage claims. That was the situation up to May 18, 1953 when this Court declared Republic Act No.
342 unconstitutional.7 It has been held by this Court, however, that from March 10, 1945 when
Executive Order No. 32 was issued, to May 18, 1953 when Republic Act No. 342 was declared
unconstitutionalor a period of 8 years, 2 months and 8 daysthe debt moratorium was in force, and
had the effect of suspending the period of prescription.

Lepanto is wrong when in its motion for reconsideration it claims that the moratorium provided for in
Executive Order No. 32 was continued by Republic Act No. 342 "only with respect to debtors of pre-war
obligations or those incurred prior to December 8, 1941," and that "the moratorium was lifted and
terminated with respect to obligations incurred after December 8, 1941,"

This Court has held that Republic Act No. 342 does not apply to debts contracted during the war and did
not lift the moratorium in relations thereto.10 In the case of Abraham, et al. vs. Intestate Estate of Juan
C. Ysmael, el al., L-16741, Jan. 31, 1962, this Court said:

"Respondents, however, contend that Republic Act No. 342, which took 'effect on July 26, 1948, lifted
the moratorium on debts contracted during the Japanese occupation. The court has already held that
Republic Act No. 342 did not lift the moratorium on debts contracted during the war (Uy vs. Kalaw
Katigbak, G.R. No. L-1830, Dec. 31, 1949) but modified Executive Order No. 32 as to pre-war debts,
making the protection available only to debtors who had war damage claims (Sison v. Mirasol, G.R. No.
L-4711, Oct. 3, 1952)."

We therefore reiterate the ruling in Our decision that the claim involved in the first item awarded to
Nielson had not prescribed.
What we have stated herein regarding the non-prescription of the cause of action of the claim involved
in the first item in the award also holds true with respect to the second item in the award, which refers
to Nielson's claim for management fee of P2,500.00 for January, 1942. Lepanto admits that this second
item, like the first, is a monetary obligation. The right of action of Nielson regarding this claim accrued
on January 31, 1942.

As regards items 3, 4, 5, 6 and 7 in the awards in the decision, the moratorium law is not applicable. That
is the reason why in Our decision We did not discuss the question of prescription regarding these items.
The claims of Nielson involved in these items are based on the management contract, and Nielson's
cause of action regarding these claims prescribes in ten years. Corollary to Our ruling that the
management contract was suspended from February, 1942 until June 26, 1948, and that the contract
was extended for five years from June 26, 1948, the right of action of Nielson to claim for what is due to
it during that period of extension accrued during the period from June 26,1948 till the end of the five-
year extension periodor until June 26, 1953. And so, even if We reckon June 26, 1948 as the starting
date of the ten-year period in connection with the prescriptibility of the claims involved in items 3, 4, 5,
6 and 7 of the awards in the decision, it is obvious that when the complaint was filed on February 6,
1958 the ten-year prescriptive period had not yet lapsed.

In Our decision We have also ruled that the right of action of Nielson against Lepanto had not prescribed
because of the arbitration clause in the Management contract. We are satisf ied that there is evidence
that Nielson had asked for arbitration, and an arbitration committee had been constituted. The
arbitration committee, however, failed to bring about any settlement of the differences between
Nielson and Lepanto. On June 25, 1957 counsel for Lepanto definitely advised Nielson that they were
not entertaining any claim of Nielson. The complaint in this case was filed on February 6, 1958.

4. In the sixth ground of its motion for reconsideration, Lepanto maintains that this Court "erred in
awarding as damages (a) 10% of the cash dividends declared and paid in December, 1941; (b) the
management fee of P2,500.00 for the month of January 1942; and (c) the full contract price for the
extended period of 60 months, since the damages were never demanded nor proved and, in any case,
not allowable under the general law on damages."

We have stated in Our decision that the original agreement in the management contract regarding the
compensation of Nielson was modif ied, such that instead of receiving a monthly" compensation of
P2,500.00 plus 10% of the net profits from the operation of the properties for the preceding month,11
Nielson would receive a compensation of P2,500.00 a month, plus (1) 10 % of the dividends declared
and paid, when and as paid, during the period of the contract, and at the end of each year, (2) 10% of
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.

It is shown that in December, 1941, cash dividends amounting to P175,000.00 was declared by
Lepanto.12 Niel-son, therefore, should receive the equivalent of 10% of this amount, or the sum of
P17,500.00. We have found that this amount was not paid to Nielson.

In its motion for reconsideration, Lepanto inserted a photographic copy of page 127 of its cash
disbursement book, allegedly for 1941, in an effort to show that this amount of P17,500.00 had been
paid to Nielson. It appears, however, in this photographic copy of page 127 of the cash disbursement
book that the sum of P17,500.00 was entered on October 29 as "surplus a/c Nielson & Co. Inc." The
entry does not make any reference to dividends or participation of Nielson in the profits. On the other
hand, in the photographic copy of page 89 of the 1941 cash disbursement book, also attached to the
motion for reconsideration, there is an entry for P17,500.00 on April 23, 1941 which states "Accts. Pay.
Particip. Nielson & Co. Inc." This entry for April 23, 1941 may really be the participation of Nielson in the
profits based on dividends declared in April 1941 as shown in Exhibit L. But in the same Exhibit L it is not
stated that any dividend was declared in October 1941. On the contrary it is stated in Exhibit L that
dividends were declared in December 1941. We cannot entertain this piece of evidence for several
reasons: (1) because this evidence was not presented during the trial in the court below; (2) there is no
showing that this piece of evidence is newly discovered and that Lepanto was not in possession of said
evidence when this case was being tried in the court below; and (a) according to Exhibit L cash dividends
of P175,000.00 were declared in December, 1941, and so the sum of P17,500.00 which appears to have
been paid to Nielson in October 1941 could not be payment of the equivalent of 10% of the cash
dividends that were later declared in December, 1941.

As regards the management fee of Nielson corresponding to January, 1942, in the sum of P2,500.00, We
have also found that Nielson is entitled to be paid this amount, and that this amount was not paid by
Lepanto to Nielson. Whereas, Lepanto was able to prove that it had paid the management fees of
Nielson for November and December, 1941,13 it was not able to present any evidence to show that the
management fee of P2,500.00 for January, 1942 bad been paid.

It having been declared in Our decision, as well as in this resolution, that the management contract had
been extended for 5 years, or sixty months, from June 27, 1948 to June 26, 1953, and that the cause of
action of Nielson to claim for its compensation during that period of extension had not prescribed, it
follows that Nielson should be awarded the management fees during the whole period of extension,
plus the 10% of the value of the dividends declared during the said period of extension, the 10% of the
depletion reserve that was set up, and the 10% of any amount expended out of surplus earnings for
capital account.

5. In the seventh ground of its motion for reconsideration, Lepanto maintains that this Court erred in
ordering Lepanto to issue and deliver to Nielson shares of stock together with fruits thereof.

In Our decision, We declared that pursuant to the modified agreement regarding the compensation of
Nielson which provides, among others, that Nielson would receive 10% of any dividends declared and
paid, when and as paid, Nielson should be paid 10% of the stock dividends declared by Lepanto during
the period of extension of the contract.

It is not denied that on November 28, 1949, Lepanto declared stock dividends worth P1,000,000.00; and
on August 22, 1950, it declared stock dividends worth P2,-000,000.00. In other words, during the period
of extension Lepanto had declared stock dividends worth P3,000,-000.00. We held in Our decision that
Nielson is entitled to receive 10% of the stock dividends declared, or shares of stock worth P300,000.00
at the par value of P0.10 per share. We ordered Lepanto to issue and deliver to Nielson those shares of
stocks as well as all the fruits or dividends that accrued to said shares.

In its motion for reconsideration, Lepanto contends that the payment to Nielson of stock dividends as
compensation for its services under the management contract is a violation of the Corporation Law, and
that it was not, and it could not be, the intention of Lepanto and Nielsonas contracting partiesthat
the services of Nielson should be paid in shares of stock taken out of stock dividends declared by
Lepanto. We have assiduously considered the arguments adduced by Lepanto in support of its
contention, as well as the answer of Nielson in this connection, and We have arrived at the conclusion
that there is merit in the contention of Lepanto.

Section 16 of the Corporation Law, in part, provides as follows:

"No corporation organized under this Act shall create or issue bills, notes or other evidence of debt, for
circulation as money, and no corporation shall issue stock or bonds except in exchange for actual cash
paid to the corporation or for: (1) property actually received by it at a fair valuation equal to the par or
issued value of the stock or bonds so issued; and in case of disagreement as to their value, the same
shall be presumed to be the assessed value or the value appearing in invoices or other commercial
documents, as the case may be; and the burden or proof that the real present value of the property is
greater than the assessed value or value appearing in invoices or other commercial documents, as the
case may be, shall be upon the corporation, or for (2) profits earned by it but not distributed among its
stockholders or members; Provided, however, That no stock or bond dividend shall be issued without
the approval of stockholders representing not less than two-thirds of all stock then outstanding and
entitled to vote at a general meeting of the corporation or at a special meeting duly called for the
purpose.

x x x x

"No corporation shall make or declare any dividend except from the surplus profits arising from its
business, or divide or distribute its capital stock or property other than actual profits among its
members or stockholders until after the payment of its debts and the termination of its existence by
limitation or lawful dissolution: Provided, That banking, savings and loan, and trust corporations may
receive deposits and issue certificates of deposit, checks, drafts, and bills of exchange, and the like in the
transaction of the ordinary business of banking, savings and loan, and trust corporations." (As amended
by Act No. 2792, and Act No. 3518; Italics supplied.)

From the above-quoted provision of Section 16 of the Corporation Law, the consideration for which
shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock
are given the special name "stock dividends" only if they are issued in lieu of undistributed prof its. If
shares of stocks are issued in exchange of cash or property then those shares do not fall under the
category of "stock dividends". A corporation may legally issue shares of stock in consideration of
services rendered to it by a person not a stockholder, or in payment of its indebtedness. A share of stock
issued to pay for services rendered is equivalent to a stock issued in exchange of property, because
services is equivalent to property.14 Likewise a share of stock issued in payment of indebtedness is
equivalent to issuing a stock in exchange for cash. But a share of stock thus issued should be part of the
original capital stock of the corporation upon its organization, or part of the stocks issued when the
increase of the capitalization of a corporation is properly authorized. In other words, it is the shares of
stock that are originally issued by the corporation and forming part of the capital that can be exchanged
for cash or services rendered, or property; that is, if the corporation has original shares of stock unsold
or unsubscribed, -either coming from the original capitalization or from the increased capitalization.
Those shares of stock may be issued to a person who is not a stockholder, or to a person already a
stockholder in exchange for services rendered or for cash or property. But a share of stock coming from
stock dividends declared cannot be issued to one who is not a stockholder of a corporation.

A "stock dividend" is any dividend payable in shares of stock of the corporation declaring or authorizing
such dividend. It is, what the term itself implies, a distribution of the shares of stock of the corporation
among the stockholders as dividends. A stock dividend of a corporation is a dividend paid in shares of
stock instead of cash, and is properly payable only out of surplus profits.15 So, a stock dividend is
actually two things: (1) a dividend, and (2) the enforced use of the dividend money to purchase
additional shares of stock at par.16 When a corporation issues stock dividends, it shows that the
corporation's accumulated profits have been capitalized instead of distributed to the stockholders or
retained as surplus available for distribution, in money or kind, should opportunity offer. Far from being
a realization of profits for the stockholder, it tends rather to postpone said realization, in that the fund
represented by the new stock has been transferred from surplus to assets and no longer available for
actual distribution.17 Thus, it is apparent that stock dividends are issued only to stockholders. This is so
because only stockholders are entitled to dividends. They are the only ones who have a right to a
proportional share in that part of the surplus which is declared as dividends. A stock dividend really adds
nothing to the interest of the stockholder; the proportional interest of each stockholder remains the
same.18 If a stockholder is deprived of his stock dividendsand this happens if the shares of stock f
orming part of the stock dividends are issued to a non-stockholderthen the proportion of the
stockholder's interest changes radically. Stock dividends are civil fruits of the original investment, and to
the owners of the shares belong the civil fruits.19

The term "dividend" both in the technical sense and its ordinary acceptation, is that part or portion of
the profits of the enterprise which the corporation, by its governing agents, sets apart for ratable
division among the holders of the capital stock. It means the f und actually set aside, and declared by the
directors of the corporation as a dividends, and duly ordered by the director, or by the stockholders at a
corporate meeting, to be divided or distributed among the stockholders according to their respective
interests.20

It is Our considered view, therefore, that under Section 16 of the Corporation Law stock dividends can
not be issued to a person who is not a stockholder in payment of services rendered. And so, in the case
at bar Nielson can not be paid in shares of stock which form part of the stock dividends of Lepanto for
services it rendered under the management contract. We sustain the contention of Lepanto that the
understanding between Lepanto and Nielson was simply to make the cash value of the stock dividends
declared as the basis for determining the amount of compensation that should be paid to Nielson, in the
proportion of 10% of the cash value of the stock dividends declared. And this conclusion of Ours finds
support in the-record.

We had adverted to in Our decision that in 1940 there was some dispute between Lepanto and Nielson
regarding the application and interpretation of certain provisions of the original contract particularly
with regard to the 10% participation of Nielson in the net profits, so that some adjustments had to be
made. In the minutes of the meeting of the Board of Directors of Lepanto on August 21. 1940, We read
the following:

"The Chairman stated that he believed that it would be better to tie the computation of the 10%
participation of Nielson & Company, Inc. to the dividend, because Nielson will then be able to definitely
compute its net participation by the amount of the dividends declared. In addition to the dividend, we
have been setting up a depletion reserve and it does not seem fair to burden the 10% participation of
Nielson with the depletion reserve, as the depletion reserve should not be considered as an operating
expense. After a prolonged discussion, upon motion duly made and seconded, it was

"RESOLVED, That the President, be, and he hereby is, authorized to enter into an agreement with
Nielson & Company, Inc., modifying Paragraph V of management contract of January 30, 1937, effective
January 1, 1940, in such a way that Nielson & Company, Inc. shall receive 10% of any dividends declared
and paid, when and as paid during the period of the contract and at the end of each year, 10% of any
depletion reserve that may be set up and 10% of any amount expended during the year out of surplus
earnings for capital account." (Italics supplied.)

From the sentence, "The Chairman stated that he believed that it would be better to tie the
computation of the 10% participation of Nielson & Company, Inc. to the dividend, because Nielson will
then be able to definitely compute its net participation by the amount of the dividends declared" the
idea is conveyed that the intention of Lepanto, as expressed by its Chairman C. A. DeWitt, was to make
the value of the dividends declaredwhether the dividends were in cash or in stockas the basis for
determining the amount of compensation that should be paid to Nielson, in the proportion of 10% of
the cash value of the dividends so declared. It does not mean, however, that the compensation of
Nielson would be taken from the amount actually declared as cash dividend to be distributed to the
stockholder, nor f rom the shares of stocks to be issued to the stockholders as stock dividends, but from
the other assets or funds of the corporation which are not burdened by the dividends thus declared. In
other words, if, for example, cash dividends of P300,000.00 are declared. Nielson would be entitled to a
compensation of P30,000.00, but this P30,000.00 should not be taken from the P300,000.00 to be
distributed as cash dividends to the stockholders but from some other funds or assets of the corporation
which are not included in the amount to answer for the cash dividends thus declared. This is so because
if the P30,000.00 would be taken out f rom the P300,-000.00 declared as cash dividends, then the
stockholders would not be getting P300,000.00 as dividends but only P270,000.00. There would be a
dilution of the dividend that corresponds to each share of stock held by the stockholders. Similarly, if
there were stock dividends worth one million pesos that were declared, which means an issuance of ten
million shares at the par value of ten centavos per share, it does not mean that Nielson would be given
100,000 shares. It only means that Nielson should be given the equivalent of 10% of the aggregate cash
value of those shares issued as stock dividends. That this was the understanding of Nielson itself is
borne out by the fact that in its appeal brief Nielson urged that it should be paid "P300,000.00 being
10% of the P3,000,000.00 stock dividends declared on November 28, 1949 and August 20, 1950 x x x,"21
We, therefore, reconsider that part of Our decision which declares that Nielson is entitled to shares of
stock worth P300,000.00 based on the stock dividends declared on November 28, 1949 and on August
20, 1950, together with all the fruits accruing thereto. Instead, We declare that Nielson is entitled to
payment by Lepanto of P300,000.00 in cash, which is equivalent to 10% of the money value of the stock
dividends worth P3,000,000.00 which were declared on November 28, 1949 and on August 20, 1950,
with interest thereon at the rate of 6% from February 6, 1958.

6. In the eighth ground of its motion for reconsideration Lepanto maintains that this Court erred in
awarding to Nielson an undetermined amount of shares of stock and/or cash, which award can not be
ascertained and executed without further litigation.

In view of Our ruling in this resolution that Nielson is not entitled to receive shares of stock as stock
dividends in payment of its compensation under the management contract, We do not consider it
necessary to discuss this ground of the motion for reconsideration. The awards in the present case are
all reduced to specific sums of money.

7. In the ninth ground of its motion for reconsideration Lepanto maintains that this Court erred in
rendering judgment or attorney's fees.
The matter of the award of attorney's fees is within the sound discretion of this Court. In Our decision
We have stated the reason why the award of P50,000.00 for attorney's fees is considered by this Court
as reasonable.

Accordingly, We resolve to modify the decision that We rendered on December 17, 1966, in the sense
that instead of awarding Nielson shares of stock worth P300,000.00 at the par value of ten centavos
(P0.10) per share based on the stock dividends declared by Lepanto on November 28, 1949 and August
20, 1950, together with their fruits, Nielson should be awarded the sum of P300,000.00 which is an
amount equivalent to 10% of the cash value of the stock dividends thus declared, as part of the
compensation due Nielson under the management contract. The dispositive portion of the decision
should, therefore, be amended, to read as follows:

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 the appellant Nielson the different
amounts as specified hereinbelow:

(1) Seventeen thousand five hundred pesos (P17,500.00), equivalent to 10% of the cash dividends of
December, 1941, with legal interest thereon f rom the date of the f iling of the complaint;
(2) Two thousand five hundred pesos (P2,500.00), as management fee for January, 1942, with legal
interest thereon from the date of the filing of the complaint;
(3) One hundred fifty thousand pesos (P150.000.00), representing management fees for the sixty-month
period of extension of the management contract, with legal interest thereon from the date of the filing
of the complaint;
(4) One million four hundred thousand pesos (?1,400,000.00), equivalent to 10% of the cash dividends
declared during the period of extension of the management contract, with legal interest thereon from
the date of the filing of the complaint;
(5) Three hundred thousand pesos (P300,000.00), equivalent to 10% of the cash value of the stock
dividends declared on November 28, 1949 and August 20, 1950, with legal interest thereon from the
date of the filing of the complaint;
(6) Fifty three thousand nine hundred twenty eight pesos and eighty eight centavos (P53,928.88),
equivalent to 10% of the depletion reserve set up during the period of extension, with legal interest
thereon from the date of the filing of the complaint;
(7) Six hundred ninety four thousand three hundred sixty four pesos and seventy six centavos
(P694,364.76), equivalent to 10% of the expenses for capital account during the period of extension,
with legal interest thereon from the date of the filing of the complaint;
(8) Fifty thousand pesos (P50,000.00) as attorney's fees; and
(9) The costs.

It is so ordered.
Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez and Castro, JJ., concur.
Fernando, Capistrano, Teehankee and Barredo. JJ., did not take part.

Decision reversed.
 No. L-7089. August 31, 1954

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

1.EMPLOYER AND EMPLOYEE; DAMAGES CAUSED TO EMPLOYEE BY A STRANGER CAN NOT BE

RECOVERED FROM EMPLOYER GIVING LEGAL ASSISTANCE TO EMPLOYEE is NOT A LEGAL BUT A MORAL
OBLIGATION.A claim of an employee against his employer for damages caused to the former by a
stranger or outsider while said employee was in the performance of his duties, presents a novel
question which under present legislation can not be decided in favor of the employee. While it is to the
interest of the employer to give legal help to, and defend, its employees charged criminally in court, in
order to show that he 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, such legal assistance might be regarded as a moral obligation but 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 from
his employer the amount he may have paid a lawyer hired by him.

2.ID.; ID.; PARTIES WHO MAY BE HELD RESPONSIBLE FOR DAMAGES. If despite the absence of any
criminal responsibility on the part of the employee he was accused of homicide, the responsibility for
the improper accusation may be laid at the door of the heirs of the deceased at whose instance the
action was filed by the State through the Fiscal. This responsibility can not be transferred to his
employer, who in no way intervened, much less initiated the criminal proceedings and whose only
connection or relation to the whole affair was that it employed plaintiff to perform a specific duty or
task, which was performed lawfully and without negligence.

APPEAL from a judgment of the Court of First Instance of Ilocos Norte. Belmonte, J.

The facts are stated in the opinion of the Court.

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 defended 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 P1 5,000. On the basis of the
complaint and the answer filed by defendants wherein they asked for the dismissal of the complaint, as
well as the agreed statement of facts, the Court of First Instance of Ilocos Norte after rejecting the
theory of the plaintiff that he was an agent of the defendants and that as such agent he was entitled to
reimbursement of the expenses incurred by him in connection with the agency (Arts. 1709-1729 of the
old Civil Code), found that plaintiff had no cause of action and dismissed the complaint without costs. De
la Cruz appealed directly to this Tribunal for the reason that only questions of law are involved in the
appeal.

We agree with the trial court that the relationship between the movie corporation and the plaintiff was
not that of principal and agent because the principle of representation was in no way involved. Plaintiff
was not employed to represent the defendant corporation in its dealings with third parties. He was a
mere employee hired to perform a certain specific duty or task, that of acting as special guard and
staying at the main entrance of the movie house to stop gate crashers and to maintain peace and order
within the premises. The question posed by this appeal is whether an employee or servant who in line of
duty and while in the performance of the task assigned to him, performs an act which eventually results
in his incurring in expenses, caused not directly by his master or employer or his fellow servants or by
reason of his performance of his duty, but rather by a third party or stranger not in the employ of his
employer, may recover said damages against his employer.

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 dealth, 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 moral 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 ex
or damages and if this is so, we fail to see how 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 specific duty or task, which task
or duty was performed lawfully and without negligence.

Still another point of view is that the damages incurred here consisting of the payment of the lawyer's
fee did not flow directly from the performance of his duties but only indirectly because there was an
efficient, intervening cause, namely, the filing of the criminal charges. In other words, the shooting to
death of the deceased by the plaintiff was not the proximate cause of the damages suffered but may be
regarded as only a remote cause, because from the shooting to the damages suffered there was not that
natural and continuous sequence required to fix civil responsibility.

In view of the foregoing, the judgment of the lower court is affirmed. No costs.

Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J. B. L., JJ., concur.

Judgment affirmed.
 No. 29917. December 29, 1928

JOSE M. KATIGBAK, plaintiff and appellee, vs. TAI HING CO., defendant. PO SUN SUY and PO CHING,
intervenors and appellants.

1.LESSOR AND LESSEE; ACTION FOR RECOVERY OF RENT; JURISDICTION.An action for the recovery of
rent is a personal action, and as such is transitory and may be instituted in the province where the
defendant or the plaintiff resides, at the election of the plaintiff (sec. 377, Act No. 190; Boga Tan Chiao
Boc vs. Sajo Vecina, 11 Phil., 409). With respect to the collection of rents in the case at bar, the Court of
First Instance of Manila had jurisdiction to try the action instituted to that end.

2.ID. ; ID. ; ID.The intervenors having submitted to the jurisdiction of the court by filing a third-party
claim, in which they raised the question of ownership of the premises, the rent of which it is sought to
recover, they cannot consistently object to the exercise of said jurisdiction.

3.PRINCIPAL AND AGENT; GENERAL POWER OF ATTORNEY.The power of attorney given by the
principal authorized the agent to sell any kind of realty that "might belong" ,to the principal. The use of
the subjunctive "pertenezcan" (might belong) and not the indicative "pertenecen" (belong) means that
the authority given by the principal referred not only to the property he had at the time the power was
conferred, but also to such as he might afterwards have during the time it was in force. (2 Corpus Juris,
614.)

4.ID.; ID.; POWER OF ATTORNEY NOT RECORDED IN REGISTRY OF DEEDS.While it is true that a power
of attorney not recorded in the registry of deeds is ineffective in order that an agent or attorney-in-fact
may validly perform acts in the name of his principal, and that any act performed by the agent by virtue
of said power with respect to the land is ineffective against a third person who, in good faith, may have
acquired a right thereto, it does, however, bind the principal to acknowledge the acts performed by his
attorney-in-fact regarding said property. (Sec. 50, Act No. 496.)

APPEAL from a judgment of the Court of First Instance of Manila. Summers, J.

The facts are stated in the opinion of the court.

Kapunan & Kapunan for intervenors-appellants.

Vicente Sotto for appellee.

VlLLA-REAL, J.:

Po Sun Suy and Po Ching appeal to this court from the judgment of the Court of First Instance of Manila,
the dispositive part of which is as follows:

"1. Ordering the defendants Po Sun Suy and Po Ching, as lessees of the realty, to pay the plaintiff the
sum of P28,500, with legal interest (f rom the filing of the complaint.

"2. Ordering the estate of the deceased Po Tecsi to pay the defendants Po Sun Suy and Po Ching, (that
they may, in turn, pay the plaintiff upon this judgment the sum which represents the rents of the
property unduly colLected from the occupants of said property by Po Tecsi while alive and by his
administrator Po Sun Suy after his death, and not paid to the plaintiff either by Po Tecsi, father of the
defendant Po Sun Suy, or by the latter, or by defendant Po Ching. Said sum thus collected, according to
the testimony of the defendant Po Sun Suy (p. 147, t. s. n.) is P745, per month, which, for nineteen
months, amounts to P14,155. The balance of the rents, that is, the difference between the sum of
P1,500 for which the property was leased by the plaintiff to the defendants, and P745 which is the sum
collected from the occupants of the property each month by Po Tecsi and by the administrator of his
estate must be for the account of the defendants; and

"3. Ordering the defendants and the intervenor each to pay one-third of the costs of the action."
In support of their appeal the appellants assign seventeen errors which we shall take up in the course of
this decision.

The following facts have been proven by a preponderance of the evidence:

Gabino Barreto Po Ejap was the owner, with a Torrens title, of the land in litigation, with the
improvements thereon. This realty was subject to a mortgage lien in favor of the Philippine National
Bank, executed on May 5, 1919, to secure the payment of the sum of ?60,000 with 7, per centum
interest per annum. (Exhibit 9.)

On November 29,1921, Po Tecsi executed a general power of attorney in favor of his brother Gabino
Barreto Po Ejap, empowering and authorizing him to perform on his behalf and as his lawful agent,
among other acts, the following: "To buy, sell, or barter, assign or admit in acquittance, or in any other
manner to acquire or convey all sorts of property, real and personal, businesses and industries, credits,
rights, and actions belonging to me, for whatever prices and under the conditions which he may
stipulate, paying and receiving payment in cash or in installments, and to execute the proper
instruments with the formalities provided by the law." (Exhibit A.)

On December 15, 1921, Po Tecsi executed an instrument acknowledging an indebtedness to his brother
Gabino Barreto Po Ejap in the sum of P68,000, the price of the properties which the latter had sold to
him. (Exhibit U-1.)

On March 31, 1923, Gabino Barreto Po Ejap executed a second mortgage on the aforesaid land with its
improvements, in favor of Antonio M. H. Limjenco for the sum of P140,000 and interest at 10 per
centum per annum. (Exhibit 9.)

On April 17, 1923, Gabino Barreto Po Ejap, sold the said land with its improvements to his brother Po
Tecsi for the sum of P10,000, subject to the same encumbrances. (Exhibit 9.)

On November 22, 1923, Gabino Barreto Po Ejap, making use of the power conferred on him by his
brother Po Tecsi, sold absolutely and forever to the herein plaintiff-appellee Jose M. Katigbak, the
aforesaid land with its improvements for the sum of P10,000, mentioning in the instrument executed to
that end only the mortgage lien of P60,000 in favor of the Philippine National Bank, and without
recording either his power of attorney or the sale in the proper certificate of title. Notwithstanding said
sale Po Tecsi remained in possession of said property.

On October 22, 1924, Po Tecsi leased a part of said land to Uy Chia for a period of five years from
October 1, 1923. The contract drawn up to that end was recorded in the proper certificate of title.
(Exhibits (2 and 9.)
On August 24, 1924, Po Tecsi wrote to his brother Gabino Barreto Po Ejap complaining that he had been
after him so much for the forwarding of the rents of the property and explaining his precarious financial
condition, telling him that he did not collect the rents for himself, and promising to remit the balance
after having paid all expenses of repairs and cleaning up, together with the vouchers, so he could not
blame him for anything. (Exhibits M. and M-1.)

In November, 1925, Po Tecsi, answering his brother Gabino Barreto Po Ejap, wrote to the latter telling
him that in the month of October, 1925, he had sent him a draft for the sum of P2,000, and was
therefore surprised that he claimed said rent. In said reply Po Tecsi also told his brother Gabino Barreto
Po Ejap that if he wanted to lease the property in question to Smith Bell ,& Co., he should not do so
without first consulting him, because if someone offered him a higher rent he wanted to exercise his
right to lease it. (Exhibits N. and N-1.)

On February 27, 1925, the mortgage on the land in question in favor of Antonio M. H. Limjenco for
P140,000 was cancelled, the cancellation being recorded on the proper certificate of title on June 11,
1927. (Exhibits we and 9.) Po Tecsi died on November 26, 1926.

In December, 1926, Po Sun Suy, Po Tecsi's son, submitted to Gabino Barreto Po Ejap a liquidation of
accounts showing the rents collected on the property up to that month. (Exhibit P.)

On February 11, 1927, Po Sun Suy was appointed administrator of the estate of his deceased father,
submitting an inventory in which he included the land in discussion as one of the properties left by his
deceased father, and obtaining the transfer of the certificate of title in his name as said administrator.
On February 14, 1927, Po Sun Yao alias Po Sun Suy, answering a letter from his uncle Gabino Barreto Po
Ejap, told the latter that times were bad, because the price of hemp had slumped, and the plantations
had suffered damages, and begged him to let him pay the rent later. (Exhibits C and C-1.)

On February 11, 1927, Gabino Barreto Po Ejap executed an instrument in favor of his son Po Sun Boo,
assigning to him all his rights and actions in the credit of P68,000 against Po Tecsi. (Exhibit U.)

On May 22, 1927, Jose M. Katigbak sold the property in question to Po Sun Boo for the sum of ?10,000.
(Exhibit J.)

On May 27, 1927, Po Sun Boo notified Po Sun Suy and Po Ching that he had purchased the land they
occupied and that from that date they were to deal with him concerning the payment of the rents
thereof. (Exhibit I.)

Ever since the property in discussion had been sold by Gabino Barreto Po Ejap to Jose M. Katigbak, the
former had administered it, entering into an oral contract of lease with Po Tecsi, who occupied it at a
monthly rental of P1,500, payable in advance on the first day of each month. Later on, when Po Tecsi
died, Po Sun Suy, as administrator of the estate of his father Po Tecsi, continued renting said land on
which stood Po Ching's store.

As Po Tecsi had not paid a part of the rent due up to the time of his death, and Po Sun Suy, his son, the
rent due from his father's death until Jose M. Katigbak transferred the ownership thereof to Po Sun Boo
on May 23, 1927, the present action was brought in the Court of First Instance of Manila for the
recovery of said rent which amounts to P45,280, first against the commercial firm Tai Hing Co., and later
against the members of said firm, Po Sun Suy and Po Ching, by an amendment to the original complaint.
Po Sun Suy, as the judicial administrator of the estate of his deceased father Po Tecsi, filed an
intervention praying that judgment be rendered against Jose M. Katigbak, the plaintiff, declaring him not
to be the owner of the property described in the second paragraph of the complaint and, therefore, not
entitled to the rents of the property in question.

The first question to be determined in the present appeal is one of procedure, and that is whether or
not the trial court had Jurisdiction to try the case on its merits.

The appellants contend that they as intervenors, having raised the question of ownership, the solution
of which is necessary for the determination of the question of rent, the Court of First Instance of Manila
had no jurisdiction to try the case, the properties in question being situated in the municipality of
Tacloban, Province of Leyte.

An action for the recovery of rent is a personal action, and as such is transitory and may be instituted in
the province where the defendant or the plaintiff resides, at the election of the plaintiff (sec. 377, Act
No. 190; Boga Tan Chiao Boc vs. Sajo Vecina, 11 Phil., 409). With respect to the collection of rents, then,
the Court of First Instance of Manila had jurisdiction to try the action instituted to that end.

The question of ownership was raised by the intervenors Who thereby submitted to the jurisdiction of
the Court of First Instance of Manila and, according to the doctrine laid down in the case of Manila
Railroad Company vs. Attorney-General (20 Phil., 523), a Court of First Instance having full and unlimited
jurisdiction over realty situated in the Philippine Islands, a Court of First Instance of a province may try a
case concerning realty situated in another province so long as no objection is entered to said court's
exercise of its jurisdiction. The intervenors having submitted to the jurisdiction of the court by filing a
third-party claim, in which they raised the question of ownership of the premises, the rent of which it is
sought to recover, they cannot consistently object to the exercise of said jurisdiction.

Having decided the question of the court's jurisdiction with respect to the venue, we shall pass on to the
question of the ownership of the land involved herein.

In the first place, it is contended by the appellants that Gabino Barreto Po Ejap was not authorized
under the power executed by Po Tecsi in his favor to sell said land, for the reason that said power had
been executed before' Gabino Barreto Po Ejap sold said land to his brother Po Tecsi.

We do not think that on this point the pertinent part of the power of attorney we have quoted above
could give rise to any doubt. The power is general and authorizes Gabino Po Ejap to sell any kind of
realty "belonging" (pertenezcan) to the principal. The use of the subjunctive "pertenezcan" (might
belong) and not the indicative "pertenecen" (belong), means that Po Tecsi meant not only the property
he had at the time of the execution of the power, but also such as he might afterwards have during the
time it was in force. (2 Corpus Juris, p. 614.)

The appellants also contend that said power of attorney not having been registered} in the registry of
deeds, the authority granted therein to sell realty registered in accordance with the Torrens system is
ineffective, and the sale of the property in question made by Gabino Barreto Po Ejap in favor of Jose M.
Katigbak by virtue of said power has no more effect than that of a contract to transfer or sell.
Inasmuch as in accordance with section 39 of said Act No. 496, "Every applicant receiving a certificate of
title in pursuance of a decree of registration, and every subsequent purchaser of registered land who
takes a certificate of title for value in good faith, shall hold the same free of all incumbrance except
those noted on said certificate," every document which in any manner affects the registered land is
ineffective unless it is recorded in the registry of deeds. But such inefficacy only refers to third persons
who, in good faith, may have acquired some right to the registered land.

While it is true that a power of attorney not recorded in the registry of deeds is ineffective in order that
an agent or attorney-in-fact may validly perform acts in the name of his principal, and that any act
performed by the agent by virtue of said power with respect to the land is ineffective against a third
person who, in good faith, may have acquired a right thereto, it does, however, bind the principal to
acknowledge the acts performed by his attorney-in-fact regarding said property (sec. 50, Act No. 496).
In the present case, while it is true that the non-registration of the power of attorney executed by Po
Tecsi in favor of his brother Gabino Barreto Po Ejap prevents the sale made by the latter of the litigated
land in favor of Jose M. Katigbak from being recorded in the registry of deeds, it is not ineffective to
compel Tecsi to acknowledge said sale.

From the fact that said power and sale were not recorded in the registry of deeds, and from the
omission of any mention in the deed of sale of the mortgage lien in favor of Antonio M. H. Limjenco, and
the lease of a part of said land in favor of Uy Chia, the appellants deduce that said sale is fraudulent.

The record contains many indications that Po Tecsi was not unaware of said sale. His several letters
complaining of the pressing demands of his brother Gabino Barreto Po Ejap to send him the rents of the
land, his promises to send them to him, and the remittance of the same were a tacit acknowledgment
that he occupied the land in question no longer as an owner but only as lessee.

The appellants have tried to explain the remittance of said rents to Gabino Barreto Po Ejap by Po Tecsi,
saying that they were in payment of a debt which the latter owed the former for certain property which
said Gabino Barreto Po Ejap had sold to Po Tecsi. But there is nothing in any of said letters to indicate
that said rents were sent on account of said debt.

The appellants deny that there has been any contract of lease between Po Tecsi and Gabino Barreto Po
Ejap of the lands in question, for the reason that there exists no document to evidence it. The evidence
is clear that the rents were payable in advance on the first day of each month. If this is so, then there is
no need of a contract to prove the existence of the lease.

Upon the death of Po Tecsi on November 26, 1926, his son Po Sun Suy succeeded him in the possession
of the land and was appointed administrator of his father's estate on February 11, 1927. On February
14, 1927, he wrote to his uncle, Gabino Barreto Po Ejap, in answer to the latter's letter to send him what
he collected of the rents of the house, saying that the price of hemp had suddenly dropped, his motor
boat had been grounded, and his abac plantations had suffered damages, promising to send the rents
later on.

Po Tecsi occupied the land as lessee from November 22, 1923, until his death on November 26, 1926,
having paid up the rents accrued until October 22, 1925, and leaving unpaid the rents due and accrued
from that date until his death, at the rate of P1,500 per month. From the latter date his son Po Sun Suy
was appointed administrator of the estate of his father Po Tecsi, and continued to collect the rents of
said land from the lessees, amounting to P745.
It does not clearly appear from what date the land was leased to the defendants Po Sun Suy and Po
Ching for the sum of P1,500 a month. If Po Tecsi had rented it until his death, then the defendants Po
Sun Suy and Po Ching could not have rented it until after the death of Po Tecsi.

The rights of the sub-lessee Uy Chia, whose lease for five years from October 1, 1923, was duly recorded
in the registry of deeds, are valid, for it does not appear that he had any knowledge of the sale of the
subleased property in favor of Jose M. Katigbak, which sale, as we have said, has not been recorded in
the registry of deeds and cannot, therefore, affect the rights of third persons acquired in good faith and
duly registered.

To summarize, then: the sale made on November 22, 1923, by Gabino Barreto Po Ejap, as attorney-in-
fact of Po Tecsi, in favor of Jose M. Katigbak of the land in question is valid; after said sale, Po Tecsi
leased the property sold, from Gabino Barreto Po Ejap, who administered it in the name of Jose M.
Katigbak, at a rental of P1,500 per month, payable in advance, leaving unpaid the rents accrued from
that date until his death which occurred on November 26, 1926, having paid the accrued rents up to
October 22, 1925; from November 26, 1926, the defendants Po Sun Suy and Po Ching leased said land
for the sum of P1,500 per month; on February 11, 1927, Po Sun Suy was appointed administrator of the
estate of his father Po Tecsi, and filed with the court an inventory of said estate including the land in
question; and on May 23, 1927, Jose M. Katigbak sold the same property to Po Sun Boo.

The claim for rents due and unpaid by Po Tecsi, deceased, and proceedings for the settlement of whose
estate have been instituted, should be presented to the committee on claims and appraisal appointed in
said intestate proceeding in accordance with the provisions of section 703 of the Code of Civil Procedure
and cannot be collected by an ordinary action.

As to the rents accrued and unpaid since the death of Po Tecsi, his son Po Sun Suy, as administrator of
his property, having included said property in the inventory of the latter, the same is in custodia legis,
and hence, the rents collected by said administrator of said property are also in custodia legis. The claim
then of Jose M. Katigbak for the rents accrued and unpaid up to the date when said property was sold to
Po Sun Boo, as well as the accrued and unpaid rents from the time the latter acquired it up to the
present date, must be presented in the court taking cognizance of the intestate proceeding for the
settlement of Po Tecsi's estate.

For the foregoing, we are of opinion and so hold: (1) That Jose M. Katigbak was the absolute owner of
the property in controversy, subject to the encumbrances on the same appearing in the registry of
deeds; (2) that his claim for the rents of the property in litigation accrued and unpaid by Po Tecsi before
his death must be presented to the committee on claims and appraisal appointed in the intestate
proceedings for the settlement of the estate of said Po Tecsi; (3) that the claim of Jose M. Katigbak for
the rents of the said property collected by Po Sun Suy, as administrator of the property of the intestate
estate of his father Po Tecsi, must be presented to the court having cognizance of said intestate
proceeding.

By virtue whereof, and with the modifications above indicated, the judgment appealed from is affirmed,
without special pronouncement as to costs. So ordered.

Avancea, C. J., Johnson, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.
MALCOLM, J., dissenting:

Until the rules formally announced in Briones vs. Garcia ([1919], 40 Phil., 68) relating to the approval of
bills of exceptions, an authority often followed, shall be reconsidered and set aside, the said rules should
be given indiscriminate application to all cases, and this being done in the instant case, the petition
presented on behalf of the appellee should be decided in favor of the petition, with the result that the
appeal should be ordered dismissed.

Judgment modified.
 No. 42465. November 19, 1936

INTERNATIONAL FILMS (CHINA), LTD., plaintiff and appellant, vs, THE LYRIC FILM EXCHANGE, INC.,
defendant and appellee.

1.ALLEGATIONS; AMENDMENTS TO PLEADINGS; LACK OF PERSONALITY OF PLAINTIFF.The court a quo

acted within its discretionary power in allowing the defendant company to amend its answer by
pleading the special defense of the plaintiff company's lack of personality to bring the action, after both
parties had already rested their respective cases.

2.MANDATE; LIABILITY OF SUBAGENT.The defendant company, as subagent of the plaintiff in the

exhibition of the film "Monte Carlo Madness", was not obliged to insure it against fire, not having
received any express mandate to that effect, and it is not liable for the accidental destruction thereof by
fire.

APPEAL from a judgment of the Court of First Instance of Manila. Sison, J.

The facts are stated in the opinion of the court.

J. W. Ferrier for appellant.

Juan T. Santos and Arsenio Solidum for appellee.

VlLLA-REAL, J.:

This is an appeal taken by the plaintiff company International Films (China), Ltd. from the judgment of
the Court of First Instance of Manila dismissing the complaint filed by it against the defendant company
the Lyric Film Exchange, Inc., with costs to said plaintiff.

In support of its appeal, the appellant assigns six alleged errors as committed by the court a quo in its
said judgment, which will be discussed in the course of this decision.

The record shows that Bernard Gabelman was the Philippine agent of the plaintiff company
International Films (China), Ltd. by virtue of a power of attorney executed in his favor on April 5, 1933
(Exhibit 1). On June 2, 1933, the International Films (China), Ltd., through its said agent, leased the film
entitled "Monte Carlo Madness" to the defendant company, the Lyric Film Exchange, Inc., to be shown
in Cavite for two consecutive days, that is, on June 1 and 2, 1933, for 30 per cent of the receipts; in the
Cuartel de Espaa for one day, or on June 6, 1933, for P45; in the University Theater for two consecutive
days, or on June 8 and 9, 1933, for 30 per cent of the receipts; in Stotsenburg for two consecutive days,
or on June 18 and 19, 1933, for 30 per cent of the receipts; and in the Paz Theater for two consecutive
days, or on June 21 and 22, 1933, for 30 per cent of the receipts (Exhibit C). One of the conditions of the
contract was that the def endant company would answer for the loss of the film in question whatever
the cause. On June 23, 1933, following the last showing of the film in question in the Paz Theater,
Vicente Albo, then chief of the film department of the Lyric Film Exchange, Inc., telephoned said agent of
the plaintiff company informing him that the showing of said film had already been finished and asked,
at the same time, where he wished to have the film returned to him. In answer, Bernard Gabelman
informed Albo that he wished to see him personally in the latter's office. At about 11 o'clock the next
morning, Gabelman went to Vicente Albo's office and asked whether he could deposit the film in
question in the vault of the Lyric Film Exchange, Inc., as the International Films (China) Ltd. did not yet
have a safety vault, as required by the regulations of the fire department. After the case had been
referred to O'Malley, Vicente Albo's chief, the former answered that the deposit could not be made
inasmuch as the film in question would not be covered by the insurance carried by the Lyric Film
Exchange, Inc. Bernard Gabelman then requested Vicente Albo to permit him to deposit said film in the
vault of the Lyric Film Exchange, Inc., under Gabelman's own responsibility. As there was a verbal
contract between Gabelman and the Lyric Film Exchange, Inc., whereby the film "Monte Carlo Madness"
would be shown elsewhere, O'Malley agreed and the film was deposited in the vault of the defendant
company under Bernard Gabelman's responsibility.

About July 27, 1933, Bernard Gabelman severed his connection with the plaintiff company, being
succeeded by Lazarus Joseph. Bernard Gabelman, upon turning over the agency to the new agent,
informed the latter of the deposit of the film "Monte Carlo Madness" in the vault of the defendant
company as well as of the verbal contract entered into between him and the Lyric Film Exchange, Inc.,
whereby the latter would act as a subagent of the plaintiff company, International Films (China) Ltd.,
with authority to show the film "Monte Carlo Madness" in any theater where said defendant company,
the Lyric Film Exchange, Inc., might wish to show it after the expiration of the contract Exhibit C. As soon
as Lazarus Joseph had taken possession of the Philippine agency of the International Films (China) Ltd.,
he went to the office of the Lyric Film Exchange, Inc., to ask for the return not only of the film "Monte
Carlo Madness" but also of the films "White Devils" and "Congress Dances". On August 13 and 19, 1933,
the Lyric Film Exchange, Inc., returned the films entitled "Congress Dances" and "White Devils" to
Lazarus Joseph, but not the film "Monte Carlo Madness" because it was to be shown in Cebu on August
29 and 30, 1933. Inasmuch as the plaintiff would profit by the showing of the film "Monte Carlo
Madness", Lazarus Joseph agreed to said exhibition. It happened, however, that the bodega of the Lyric
Film Exchange, Inc., was burned on August 19, 1933, together with the film "Monte Carlo Madness"
which was not insured.

The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is
whether or not the court a quo erred in allowing the defendant company to amend its answer after both
parties had already rested their respective cases.

In Torres Viuda de Nery vs. Tomacruz (49 Phil., 913, 915), this court, through Justice Malcolm, said:

"Sections 109 and 110 of the Philippine Code of Civil Procedure, relating to the subjects of Variance and
Amendments in General, should be equitably applied to the end that cases may be favorably and fairly
presented upon their merits, and that equal and exact justice may be done between the parties. Under
code practice, amendments to pleadings are favored, and should be liberally allowed in furtherance of
justice. This liberality, it has been said, is greatest in the early stages of a lawsuit, decreases as it
progresses, and changes at times to a strictness amounting to a prohibition. The granting of leave to file
amended pleadings is a matter peculiarly within the sound discretion of the trial court. This discretion
will not be disturbed on appeal, except in case of an evident abuse thereof. But the rule allowing
amendments to pleadings is subject to the general but not inflexible limitation that the cause of action
or def ense shall not be substantially changed, or that the theory of the case shall not be altered. (21 R.
C. L., pp. 572 et seq.; 3 Kerr's Cyc. Codes of California, sections 469, 470, and 473; Ramirez vs. Murray
[1855], 5 Cal., 222; Hayden vs. Hayden [1873], 46 Cal., 332; Hackett vs. Bank of California [1881], 57 Cal.,
335; Hancock vs. Board of Education of City of Santa Barbara [1903], 140 Cal., 554; Dunphy vs. Dunphy
[1911], 161 Cal., 87; 38 L. R. A. [N. S.], 818.)"
In the case of Gould vs. Stafford (101 Cal., 32, 34), the Supreme Court of California, interpreting section
473 of the Code of Civil Procedure of said State, from which section 110 of our Code was taken, stated
as follows:

"The rule is that courts will be liberal in allowing an amendment to a pleading when it does not seriously
impair the rights of the opposite partyand particularly an amendment to an answer. A defendant can
generally set up as many defenses as he may have. Appellant contends that the affidavits upon which
the motion to amend was made show that it was based mainly on a mistake of law made by
respondent's attorney; but, assuming that to be so, still the power of a court to allow an amendment is
not limited by the character of the mistake which calls f orth its exercise. The general rule that a party
cannot be relieved from an ordinary contract which is in its nature final, on account of a mistake of law,
does not apply to proceedings in -an action at law while it is pending and undetermined. Pleadings are
not necessarily final until after judgment. Section 473 of the Code of Civil Procedure provides that the
court may allow an amendment to a pleading to correct certain enumerated mistakes or 'a mistake in
any other respect,' and 'in other particulars.' The true rule is well stated in Ward vs. Clay (82 Cal., 502).
In the case at bar evidence of the lease was given at the first trial; and we cannot see that the
amendment before the second trial put plaintiff in a position any different from that which he would
have occupied if the amendment had been made before the first trial."

In the case of Ward vs. Clay (82 Cal., 502, 510), the Supreme Court of said State stated:

"The principal purpose of vesting the court with this discretionary power is to enable it 'to mold and
direct its proceedings so as to dispose of cases upon their substantial merits,' when it can be done
without injustice to either party, whether the obstruction to such a disposition of cases be a mistake of
fact or a mistake as to the law; although it may be that the court should require a stronger showing to
justify relief from the effect of a mistake in law than in case of a mistake as to matter of fact. The
exercise of the power conferred by section 473 of the code, however, should appear to have been 'in
furtherance of justice/ and the relief, if any, should be granted upon just terms."

Lastly, in the case of Simpson vs. Miller (94 Pac., 253), the said Supreme Court of California said:

"In an action to recover property which had vested in plaintiff's trustee in bankruptcy prior to the suit,
an amendment to the answer, made after both parties had rested, but before the cause was submitted,
pleading plaintiff's bankruptcy in bar to the action, was properly allowed in the discretion of the court."

Under the above-cited doctrines, it is discretionary in the court which has cognizance of a case to allow
or not the amendment of an answer for the purpose of questioning the personality of the plaintiff to
bring the action, even after the parties had rested their cases, as it causes no injustice to any of the
parties, and this court will not interfere in the exercise of said discretion unless there is an evident abuse
thereof, which does not exist in this case. The second question to be decided is whether or not the
defendant company, the Lyric Film Exchange, Inc., is responsible to the plaintiff, International Films
(China) Ltd., for the destruction by fire of the film in question, entitled "Monte Carlo Madness".

The plaintiff company claims that the defendant's failure to return the film "Monte Carlo Madness" to
the former was due to the fact that the period for the delivery thereof, which expired on June 22, 1933,
had been extended in order that it might be shown in Cebu on August 29 and 30, 1933, in accordance
with an understanding had between Lazarus Joseph, the new agent of the plaintiff company, and the
defendant. The defendant company, on the other hand, claims that when it wanted to return the film
"Monte Carlo Madness" to Bernard Gabelman, the former agent of the plaintiff company, because of
the arrival of the date f or the return thereof, under the contract Exhibit C, said agent, not having a saf
ety vault, requested Vicente Albo, chief of the film department of the defendant company, to keep said
film in the latter's vault under Gabelman's own responsibility, verbally stipulating at the same time that
the defendant company, as subagent of the International Films (China) Ltd., might show the film in
question in its theaters.

It does not appear sufficiently proven that the understanding had between Lazarus Joseph, second
agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant
company, was that the defendant company would continue showing said film under the same contract
Exhibit C. The preponderance of evidence shows that the verbal agreement had between Bernard
Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief of the film department of
the def endant company, was that the said film "Monte Carlo Madness" would remain deposited in the
safety vault of the defendant company under the responsibility of said former agent and that the
defendant company, as his subagent, could show it in its theaters, the plaintiff company receiving 5 per
cent of the receipts up to a certain amount, and 15 per cent thereof in excess of said amount.

If, as it has been sufficiently proven in our opinion, the verbal contract had between Bernard Gabelman,
the f ormer agent of the plaintiff company, and Vicente Albo, chief of the film department of the
defendant company, was a subagency or a submandate, the defendant company is not civilly liable for
the destruction by fire of the film in question because, as a mere submandatary or subagent, it was not
obliged to f ulfill more than the contents of the mandate and to answer for the damages caused to the
principal by his failure to do so (art. 1718, Civil Code). The fact that the film was not insured against fire
does not constitute fraud or negligence on the part of the defendant company, the Lyric Film Exchange,
Inc., because as a subagent, it received no instruction to that effect from its principal and the insurance
of the film does not form a part of the obligation imposed upon it by law.

As. to the question whether or not the defendant company having collected the entire proceeds of the
fire insurance policy of its films deposited in its vault, should pay the part corresponding to the film in
question which was deposited therein, the evidence shows that the film "Monte Carlo Madness" under
consideration was not included in the insurance of the defendant company's films, as this was one of
the reasons why O'Malley at first refused to receive said film for deposit and he consented thereto only
when Bernard Gabelman, the former agent of the plaintiff company, insisted upon his request, assuming
all responsibility. Furthermore, the defendant company did not collect from the insurance company an
amount greater than that for which its films were insured, notwithstanding the fact that the film in
question was included in its vault, and it would have collected the same amount even if said film had not
been deposited in its safety vault. Inasmuch as the defendant company, The Lyric Film Exchange, Inc.,
had not been enriched by the destruction by fire of the plaintiff company's film, it is not liable to the
latter.

For the foregoing considerations, we are of the opinion and so hold: (1) That the court a quo acted
within its discretionary power in allowing the defendant company to amend its answer by pleading the
special defense of the plaintiff company's lack of personality to bring the action, after both parties had
already rested their respective cases; (2) that the defendant company, as subagent of the plaintiff in the
exhibition of the film "Monte Carlo Madness", was not obliged to insure it against fire, not having
received any express mandate to that effect, and it is not liable for the accidental destruction thereof by
fire.
Wherefore, and although on a different ground, the appealed judgment is affirmed, with the costs to
the appellant. So ordered.

Avancea, C, J., Abad Santos, Imperial, Diaz, Laurel, and Concepcion, JJ., concur.

Judgment affirmed.
No. 19689. April 4, 1923

PHILIPPINE NATIONAL BANK, plaintiff and appellant, vs. WELCH, FAIRCHILD & Co., INC., defendant and
appellee.

PRINCIPAL AND AGENT; LlABILITY OF AGENT; APPROPRIATION OF PROPERTY WHICH PRINCIPAL IS

OBLIGATED TO DELIVER TO THIRD PARTY.An agent who obligates his principal to deliver specific
property to a third party may not thereafter, to the prejudice of such third party, appropriate and apply
the same property, or its proceeds, to the payment of debts owing by the principal to the agent; and the
circumstance that the principal assents to such application of the property does not alter the case.

APPEAL from a judgment of the Court of First Instance of Manila. Imperial, J.

The facts are stated in the opinion of the court.

Quintin Paredes for appellant.

Ross & Lawrence for appellee.

STREET, J.:

By this action the plaintiff, the Philippine National Bank, seeks to recover of the defendant, Welch,
Fairchild & Co., Inc., the sum of $125,000, with interest from May 17, 1918, being part of the proceeds
of certain insurance effected in the year 1918 upon a ship called the Benito Juarez and collected by the
defendant after said ship had been lost at sea. Upon hearing the cause the trial judge absolved the
defendant from the complaint and the plaintiff appealed.

In the first half of the year 1918, a corporation, known as La Compaa Naviera, Inc., was organized in
Manila under the laws of the Philippine Islands, for the purpose of engaging in the business of marine
shipping. Among its shareholders was Welch, Fairchild & Co., another corporation organized under the
laws of these Islands and having its principal place of business in the City of Manila. Of the shares of La
Compaa Naviera, Welch, Fairchild & Co. subscribed for 325 shares of the par value of P100 each.

As La Compaa Naviera was an entirely new enterprise in the shipping world, it was necessary for it to
acquire a proper complement of vessels and adequate equipment, and as shipping values in those days
were high,.the company did not have sufficient ready capital to meet all its requirements. Its officials
therefore in May, 1918, applied to the Philippine National Bank f or a loan of $125,000, with which to
purchase a boat called Benito Juarez, which had been found on the market in the United States. The
necessary credit appears to have been extended by the bank in the form of a loan for $125,000, to run
for one year from May 17, 1918. Nevertheless, owing to delay in the delivery of the vessel, the money
was not then delivered and was not actually advanced by the bank until several months later, as will
presently appear.

It appears that Welch, Fairchild & Co. was not numbered among the original promoters of La Compaa
Naviera, but its interests are to a considerable extent involved in the general shipping conditions in the
Islands and it looked with a friendly eye upon the new enterprise. Moreover, the mercantile
ramifications of Welch, Fairchild & Co. appear to be extensive; and its friendly offices were freely
exerted in behalf of La Compaa Naviera, not only through Welch & Co., the correspondent of the
defendant in San Francisco, but also through Mr. Geo. H. Fairchild, the president of Welch, Fairchild &
Co., who left Manila for the United States in March of the year 1918 and remained in that country for
more than a year. Upon this visit to the United States Mr. Fairchild was kept advised as to certain needs
of La Compaa Naviera, and he acted for it in important matters requiring attention in the United
States. In particular it was through the efforts of himself and of Judge James Ross, as attorney, that the
consent of the proper authorities in Washington, D. C was obtained for the transfer of the Benito Juarez
to Philippine registry.

In August, 1918, the Benito Juarez was on the California coast, and after the approval of its transfer to
Philippine registry had been obtained, steps were taken for the delivery of the vessel to the agents of
the purchaser in San Francisco at the price of $125,000, as- agreed; and it was understood that the
delivery of the purchase money would be made by the Anglo-London and Paris National Bank, in San
Francisco, as agent of the Philippine National Bank, contemporaneously with the delivery to it of the bill
of sale and the policy of insurance on the vessel. It developed, however, that the vessel needed repairs
before it could be dispatched on its voyage to the Orient; and it became impracticable to deliver the bill
of sale and insurance policy to the bank In San Francisco at the time the money was needed to effect the
transfer. Being advised of this circumstance, and fearing that a hitch might thus occur in the negotia-
tions, Welch, Fairchild & Co., in Manila, addressed a letter on August 8,1918, to the Philippine National
Bank, requesting it to cable its correspondent in San Francisco to release the money and make payment
for the vessel upon application by Welch & Co., without requiring the delivery of the bill of sale or policy
of insurance, "in which event," the letter continued, "the Compaa Naviera, will deliver to you here the
bill of sale also- the insurance policy covering the voyage to Manila." In a letter bearing date of August
10, 1918, also addressed to the Philippine National Bank, La Compaa Naviera, Inc. confirmed this
request and authorized the bank to send the cablegram necessary to give it effect.

In response to these communications the Philippine National Bank, on August 14, sent a cablegram to its
correspondent in San Francisco authorizing payment of the purchase price of the Benito Juarez, without
the production of either bill of sale or insurance policy. Under these circumstances the vessel was
delivered and money paid over without the production or delivery of the documents mentioned.

After the repair of the Benito Juarez had been accomplished it was insured by Welch & Co. to the value
of $150,000 and was dispatched, in November, 1918, on its voyage to the Philippine Islands. On
December 3, 1918, the vessel encountered a storm off the Island of Molokai, in the Hawaiian group, and
became a total loss.

When the insurance was taken out to cover the voyage to Manila, no policy was issued by any insurer;
but the insurance was placed by Welch & Co. of San Francisco, upon the instructions of Welch, Fairchild
& Co., as agents of the Compaa Naviera, and it was taken out in the ordinary course of business to
protect the interests of all parties concerned.

As would naturally happen in an insurance of this amount, the risk was distributed among several
companies, some in remote centers; and it was many months before Welch & Co., of San Francisco, had
collected the full amount due from the insurers. However, as the money came to the hands of Welch &
Co., of San Francisco, it was remitted by draft or telegraphic transfer to Welch, Fairchild & Co. in Manila;
and in this manner practically the full amount for which the Benito Juarez had been insured was
transmitted to Manila by the last days of June, 1919.

As was perhaps but natural under the circumstances, the Philippine National Bank appears to have
exhibited no concern about its loan of $125,000 to La Compaa Naviera, or about the proceeds of the
insurance 011 the Benito Juarez, until after the period of credit allowed by the bank on the loan to La
Compaa Naviera had expired, that is to say, after May 17, 1919. A short while after this date, an
incident occurred upon which the attorneys for the defendant in this case have placed great emphasis,
and it is this: In the latter part of the month aforesaid Welch & Co., having collected $13,000 upon
account of the insurance on the Benito Juarez, attempted to remit it by telegraphic transfer to Welch,
Fairchild & Co. in Manila, but by some mistake or other, the money was remitted to the Philippine
National Bank in New York, and it was not until about a month later that authority was received by the
Philippine National Bank in Manila to pay to Welch, Fairchild & Co. the sum of $13,000 upon account of
said insurance.

When the authority for the transfer of this credit reached the Philippine National Bank, the attention of
the bank officials was drawn to the fact that the transfer related to money forming part of the proceeds
of the insurance on the Benito Juarez, and they at first determined to intercept the transfer and
withhold the credit from Welch, Fairchild & Co., on the ground that the money belonged to the bank.
This claim on the part of the bank was of course based on the letter of Welch, Fairchild & Co. dated
August 8, 1918, in which the promise had been held out that, if the bank would advance the purchase
money of the Benito Juarez without requiring the concurrent delivery of the policy of insurance, said
policy would be delivered later by La Compaa Naviera in Manila. When the determination of the
bank's officials to withhold the money was communicated to Welch, Fairchild & Co., a strong protest
was made, and its attorney came at once to the bank to interview its president. As a result of this
interview the president of the bank receded from his position about the matter, and an order was made
that the money should be passed to the credit of Welch, Fairchild & Co., as was done on July 23, 1919. A
day or two later the bank further credited the account of Welch, Fairchild & Co. with the sum of
P119.65, as interest on the money during the time it had been withheld.

In the course of the interview above alluded to, not only did the attorney of Welch, Fairchild & Co. call
the attention of the president of the bank to the doubtful propriety of its act in intercepting a
remittance of money which had been confided to its agent in San Francisco for transmission to Welch,
Fairchild & Co. in Manila, but he also pointed out that Welch, Fairchild & Co. had acted throughout
merely in the capacity of agent for La Compaa Naviera, and he therefore insisted that Welch, Fairchild
& Co. was not legally bound by the promise made by it in the letter of August 8, 1918, to the effect that
the policy of insurance would be delivered to the bank in Manila by La Compaa Naviera; and this
contention was urged with such force that the president of the bankwho was not a lawyer
acknowledged himself vanquished, and in the end said that he must have been mistaken in his
contention and that the attorney was right.

Shortly af ter this incident the bank which had permitted La Compaa Naviera to become indebted to it
upon inadequate security to the extent of nearly a million pesos began to take steps looking to the
betterment of its position in relation with said company. To this end, on August 28, 1919, it went
through the barren formality of making demand upon La Compaa Naviera for the delivery of the
insurance policies on the Benito Juarez, but was informed by La Compaa Naviera that it had never
received any policy of insurance upon the Benito Juarez as the vessel had been insured in San Francisco
by Welch. Fairchild & Co. in behalf of La Compaa Naviera. A little later the bank caused La Compaa
Naviera to execute pledges to the bank upon three steamers belonging to said company as security for
its indebtedness to the bank. Thereafter matters were permitted to drift until it became apparent that
La Compaa Naviera was insolvent; and on December 9, 1919, the bank made formal demand upon
Welch, Fairchild & Co. for the delivery of the insurance policy for $125,000 on the Benito Juarez, basing
its demand on the letter of Welch, Fairchild & Co. of August 8, 1918, already mentioned.
As the bank officials already knew that the insurance had been collected many months previously by
Welch, Fairchild & Co., it is evident that the making of demand for delivery of a policy for $125,000 was
a mere formula by which the bank intended to plant a contention that the proceeds of the insurance, to
the extent of $125,000, belonged to it. To this demand Welch, Fairchild & Co. responded with a
negative.

Meanwhile, what had become of the proceeds of the insurance upon the Benito Juarez? That money, as
we have already seen, came to the hands of Welch, Fairchild & Co. in Manila and has there rested,
having been applied by Welch, Fairchild & Co. in part satisfaction of indebtedness Incurred by La
Compaa Naviera to it. This disposition of the insurance money was made by Welch, Fairchild & Co.
with the tacit approval of La Compaa Naviera, the credits being notified to the latter by the former as
the remittances were received in Manila and entered in the accounts of both companies accordingly.

To explain the situation which had thus arisen between the two companies, further reference is here
necessary to matters that had taken place during the preceding year. As we have already stated, Welch,
Fairchild & Co. had assisted La Compaa Naviera in effecting the purchase and transfer of the Benito
Juarez to Philippine registry. In addition to this, Welch, Fairchild & Co. advanced in San Francisco several
thousands of pesos necessary for the repair and equipment of that vessel prior to its departure for the
Philippine Islands; and the incurring of these expenses explain why insurance was taken out to the
extent of $150,000 instead of $125,000, the latter sum being merely the item of cost price. But the
friendly offices of Welch, Fairchild & Co. were not limited to the foregoing matters, and said company
rendered practically the same service with respect to other vessels which were purchased for La
Compaa Naviera, with the result that the advances made by Welch, Fairchild & Co., beginning in the
autumn of 1918, steadily mounted in the course of succeeding months and in the end ran up into the
hundreds of thousands of pesos. One particular incident, most disastrous to the latter company,
consisted in the operation by it, during several months in 1919, of the San Pedro, one of the vessels
belonging to La Compaa Naviera, under contract with the latter company.

The result of these expenditures and advances of money by Welch, Fairchild & Co. was that the
indebtedness of La Compaa Naviera to Welch, Fairchild & Co. mounted steadily during the year 1919,
and said indebtedness was by no means liquidated by the application to it of the insurance money from
the Benito Juarez. In this connection we note the following debit balances charged on the books of
Welch, Fairchild & Co. against the La Compaa Naviera as the same appear by monthly statements from
November 30, 1918, to September 30, 1919; and it will be remembered that these are the balances
appearing after credit had been given for the collections of the insurance money. Said debit balances for
the months stated are as follows: Upon November 30, 1918, P3,675.71; upon December 31, 1918,
P30,627; upon January 25, 1919, P93,961.49; upon February 27, 1919, P145,130.78; upon March 30,
1919, P146,370.66; upon April 29, 1919, P148,542.25; upon May 30, 1919, P153,060.13; upon June 30,
1919, P139,531.27; upon July 31, 1919, P168,724; upon August 31, 1919, P169,932.41; upon September
30, 1919, P185,651.73.

The foregoing statement of facts makes comprehensible the contentions upon which the def ense to the
present action is based; and these contentions may be stated in the f ollowing propositions: First, that,
inasmuch as Welch, Fairchild & GO. acted exclusively in the character of agent for La Compaa Naviera
in the purchase of the Benito Juarez, no obligation enforcible against it was created by the letter of
August 8, 1918, and as a consequence the bank should look exclusively to La Compaa Naviera, as
principal, for indemnification for any loss resulting from the failure of said company to deliver the
insurance policy, or policies, on the Benito Juarez, or the proceeds thereof, to the bank' secondly, that,
even supposing that the letter of August 8, 1918, created any obligation that the defendant was bound
to respect, nevertheless the bank waived and abandoned any right that it may have had upon the f acts
stated; and, thirdly and finally, that, by reason of the delay of the bank and its abandonment of its claim
against the def endant, in relation with the prejudice thereby incurred by the defendant, the bank is
estopped to assert any right that it may have had in the premises.

We are of the opinion that all of these contentions are untenable and that the plaintiff bank has a clear
right of action against the defendant, in nowise affected adversely by any of the considerations
suggested. Upon the first point, while it is true that an agent who acts for a revealed principal in the
making of a contract does not become personally bound to the other party in the sense that an action
can ordinarily be maintained upon such contract directly against the agent (art. 1725, Civ. Code), yet
that rule clearly does not control this case; for even conceding that the obligation created by the letter
of August 8, 1918, was directly binding only on the principal, and that in law the agent may stand apart
therefrom, yet it is manifest upon the simplest principles of jurisprudence that one who has intervened
in the making of a contract in the character of agent cannot be permitted to intercept and appropriate
the thing which the principal is bound to deliver, and thereby make performance by the principal
impossible. The agent in any event must be precluded f rom doing any positive act that could prevent
performance on the part of his principal. This much, ordinary good faith towards the other contracting
party requires. The situation before us in effect is one where, notwithstanding the promise held out
jointly by principal and agent in the letters of August 8 and 10, 1918, the two have conspired to make an
application of the proceeds of the insurance entirely contrary to the tenor of said letters. This cannot be
permitted.

The idea on which we here proceed can perhaps be made more readily apprehensible from another
point of view, which is this: By virtue of the promise contained in the letter of August 8, 1918, the bank
became the equitable owner of the insurance effected on the Benito Juarez to the extent necessary to
indemnify the bank for the money advanced by it, in reliance upon that promise, for the purchase of
said vessel; and this right of the bank must be respected by all persons having due notice thereof, and
most of all by the defendant which took out the insurance itself in the interest of the parties then
concerned, including of course the bank. The defendant therefore cannot now be permitted to ignore
the right of the bank and appropriate the insurance to the prejudice of the bank, even though the act be
done with the consent of its principal.

As to the argument founded upon the delay of the bank in asserting its right to the insurance money, it
is enough to say that mere delay unaccompanied by acts sufficient to create an equitable estoppel does
not destroy legal rights, but such delay as occurred here is in part explained by the f act that the loan to
La Compaa Naviera did not mature till May 17, 1919, and a demand for the surrender of the proceeds
of the insurance before that date would have seemed premature. Besides, it is to be borne in mind that
most of the insurance was not in fact collected until in June of 1919. It is true that in the month of
March previous about P50,000 of this insurance had been remitted to Manila for Welch, Fairchild & Co.
through the plaintiff bank, and the bank, we assume, took notice of the source of the remittance.
However, its failure then to assert its claim to the money is not a matter of legitimate criticism, since the
loan was not then due. After May 17, 1919, the situation was somewhat different; and as we have
already seen, the bank was not slow in asserting its right to the remittance that came through the bank
in June to Welch, Fairchild & Co., consisting of $13,000 of the proceeds of this insurance.
This brings us to consider the legal effect of the incident which culminated on July 23, 1919, when the
bank abandoned its previous position with regard to this remittance and passed the money to the credit
of the defendant, with interest upon the same during the time payment had been withheld. The most,
we think, that can fairly be said about that incident is that the bank president admitted himself to be a
convert to the proposition advanced by the attorney for the defendant to the effect that as the
defendant had merely acted as agent for La Compaa Naviera in the matter, the bank must look
exclusively to La Compaa Naviera for the fulfilment of the promise about the insurance money. As a
statement of legal doctrine that proposition was, as we have already shown, a mistake; but of course it
would have been a matter of indifference if La Compaa Naviera had remained solvent. One
consideration that must have operated on the mind of the president of the bank in releasing this money
was that it had been remitted in ordinary course of exchange through the bank to the defendant, which
was an entirely responsible party; and even though the bank may have had the power to intercept the
remittance, the president may have considered that the commercial integrity of the institution in
matters of exchange was perhaps worth more than could be gained by an obstinate insistence on its
right to this money. There is no evidence whatever that the president of the bank assumed to release
the defendant from any obligation which might have been incurred by virtue of the letter of August 8,
1918.

From intimations contained in the testimony of some of the witnesses presented by the defendant it
might be inferred that at some time or another an understanding had been reached between the bank
and the defendant company by which it was agreed that the defendant should make advances of money
to La Compaa Naviera and that it might look to the proceeds of the insurance on the Benito Juarez to
reimburse itself for those outlays. No such agreement with the bank or any official of the bank is alleged
in the defendant's answer; and as one reads the testimony submitted by the defendant this hearsay
suggestion continually flits away, until it becomes apparent that no such agreement was made. That
there was some such understanding between the defendant and La Compaa Naviera is highly
probable, but to that understanding the bank clearly was not a party.

It is insisted, however, that the attitude of the bank has been such that the defendant has been misled
to its prejudice, in that not only did it give large credit to La Compaa Naviera f or sums to be recouped
f rom this insurance money but that in reliance upon its right to that money it ref rained from taking the
steps that it might have taken to save itself from loss; and in this connection it is suggested that but for
the incident in July, 1919, when the bank waived its claim to the $13,000 remitted through it to Welch,
Fairchild & Co., the defendant would have sought and would have been able to get additional security in
the form of mortgages or pledges of one or more vessels belonging to La Compaa Naviera.

The proof in our opinion shows little or no tangible basis for these contentions; and so far as we can see
not one dollar was ever advanced by the defendant to La Compaa Naviera upon the faith of any
request, promise, or representation of the bank in that behalf extended; and it should be noted that the
large losses incurred by the defendant for advances to that concern after July 23, 1919, were mostly
incurred in the desperate effort to retrieve its position by operating the San Pedro. The suggestion that,
but for the misleading attitude of the bank, the defendant would have been able to obtain additional
security loses much of its force when it is considered that upon December 31, 1921, the defendant's
books still showed unsecured indebtedness against La Compaa Naviera to the amount of nearly
P50,000. The idea that, but for the attitude assumed by the bank, the defendant would have materially
bettered its position, is a speculation too remote to affect the issue of this action.
In the light of what has been said, it becomes necessary to reverse, as we hereby do reverse, the
judgment appealed from; and judgment will be entered in favor of the plaintiff to recover of the
defendant the sum of P250,000, with lawful interest from May 31, 1921, the date of the filing of the
complaint. No special pronouncement will be made as to costs. So ordered.

Araullo, C. J., Avancea, Villamor, Ostrand, and Romualdez, JJ., concur.

Mr. Justice Johns voted for reversal but he was absent at the time of the promulgation of the decision,
and his signature therefore does not appear signed to the opinion of the court.

(Sgd.) MANUEL ARAULLO

Chief Justice

MALCOLM, J., dissenting:

In my opinion judgment should be affirmed, for the reason that no contractual relation ever existed
between Welch, Fairchild & Co., Inc., and the Philippine National Bank with respect to the funds in
question.

Judgment reversed.
 No. 20726. December 20, 1923

ALBALADEJO Y CA., S. en C., plaintiff and appellant, vs. The PHILIPPINE REFINING Co., as successor to
The Visayan Refining Co., defendant and appellant.

1.CONTRACT; NEGLIGENCE IMPUTED TO DEFENDANT IN PERFORMANCE OF CONTRACTUAL DUTY.By

contract between the plaintiff and the Visayan Refining Company it was agreed that the latter would
take, at current prices, all the copra which the former should buy in a designated territory; and it was
made the duty of the Visayan Refining Company to send boats at opportune times to convey the copra
collected by the plaintiff to the point where it was to be used in the manufacture of coconut oil. In its
first cause of action the plaintiff alleged that the company mentioned had at various times negligently
failed to send boats to transport the copra purchased by the plaintiff and that as a result of this delay
the copra awaiting shipment had unduly diminished in weight in the process of drying, thereby inflicting
heavy loss upon the plaintiff. The trial judge having found that transportation had been supplied with
reasonable promptitude, and that the company mentioned had not been guilty of the alleged
negligence, said finding is affirmed by this court.

2.ID.; CONTRACT ONE OF PURCHASE, NOT OF AGENCY.Under the contract of purchase above referred
to the plaintiff was not the agent of the Visayan Refining Company as regards the original purchase of
copra by the plaintiff from the producers. On the contrary those purchases were made by the plaintiff in
its own behalf. The defendant therefore was not liable to reimburse the plaintiff for expenses incurred
by the plaintiff in maintaining its purchasing organization intact over a period during which the actual
buying of copra was suspended.

3.ID.; DETRIMENT INCURRED AT REQUEST OF ANOTHER; ABSENCE OF INTENTION TO INCUR

CONTRACTUAL LIABILITY.The circumstance that the Visayan Refining Company encouraged the
plaintiff to keep its organization intact during such period of suspension and suggested that when the
company resumed .buying (which was expected to occur at some time in the future) the plaintiff would
be compensated for all loss which it had suffered, "meaning that the profits then to be made would
justify such expenses, does not render the company liable for such losses upon its subsequent failure to
resume the buying of copra. The inducements thus held out to the plaintiff were not intended to lay the
basis of any contractual liability, and the law will not infer the existence of a contract contrary to the
revealed intention of the parties.

APPEAL from a judgment of the Court of First Instance of Albay. Platon, J.

The facts are stated in the opinion of the court.

Eduardo Gutierrez Repide and Felix Socias for plaintiff-appellant.

Manly, Goddard & Lockwood for defendant-appellant
Fisher, DeWitt, Perkins & Brady of counsel.

STREET, J.:

This action was instituted in the Court of First Instance of the Province of Albay by Albaladejo y Ca., S.
en C., to recover a sum of money from the Philippine Refining Co., as successor to the Visayan Refining
Co., two causes of action being stated in the complaint. Upon hearing the cause the trial judge absolved
the defendant from the first cause of action but gave judgment for the plaintiff to recover the sum of
P49,626.68, with costs, upon the second cause of action. From this judgment the plaintiff appealed with
respect to the action taken upon the first cause of action, and the defendant appealed with respect to
the action taken upon the second cause of action. It results that, by the appeal of the two parties, the
decision of the lower court is here under review as regards the action taken upon both grounds of action
set forth in the complaint.

It appears that Albaladejo y Ca. is a limited partnership, organized in conformity with the laws of these
Islands, and having its principal place of business at Legaspi, in the Province of Albay; and during the
transactions which gave origin to this litigation said firm was engaged in the buying and selling of the
products of the country, especially copra, and in the conduct of a general mercantile business in Legaspi
and in other places where it maintained agencies, or sub-agencies, for the prosecution of its commercial
enterprises.

The Visayan Refining Co. is a corporation organized under the laws of the Philippine Islands; and prior to
July 9, 1920, it was engaged in operating its extensive plant at Opon, Cebu, for the manufacture of
coconut oil. On August 28, 1918, the plaintiff made a contract with the Visayan Refining Co., the
material parts of which are as follows:

"Memorandum of Agreement Re Purchase of Copra.This memorandum of agreement, made and

entered into by and between Albaladejo y Compaa S. en C., of Legaspi, Province of Albay, Philippine
Islands, party of the first part, and the Visayan Refining Company, Inc., of Opon, Province of Cebu,
Philippine Islands, party of the second part,

"Witnesseth That.Whereas, the party of the first part is engaged in the purchase of copra in the
Province of Albay; and, Whereas, the party of the second part is engaged in the business of the
manufacture of coconut oil, for which purpose it must continually purchase large quantities of copra;
Now, Therefore, in consideration of the premises and covenants hereinafter set forth, the said parties
have agreed and do hereby contract and agree as follows, to wit:

"1. The party of the first part agrees and binds itself to sell to the party of the second part, and the party
of the second part agrees and binds itself to buy from the party of the first part, for a period of one (1)
year from the date of these presents, all the copra purchased by the party of the first part in the
Province of Albay.

"2. The party of the second part agrees to pay the party of the first part for the said copra the market
price thereof in Cebu at date (of) purchase, deducting, however, from such price the cost of
transportation by sea to the factory of the party of second part at Opon, Cebu, the amount deducted to
be ascertained from the rates established, from time to time, by the public utility commission, or such
entity as shall succeed to its functions, and also a further deduction for the shrinkage of the copra from
the time of its delivery to the party of the second part to its arrival at Opon, Cebu, plus one-half of a real
per picul in the event the copra is delivered to boats which will unload it on the pier of the party of the
second part at Opon, Cebu, plus one real per picul in the event that the party of the first part shall
employ its own capital exclusively in its purchase.

"3. During the continuance of this contract the party of the second part will not appoint any other agent
for the purchase of copra in Legaspi, nor buy copra from any vendor in Legaspi.
"4. The party of the second part will, so far as practicable, keep the party of the first part advised of the
prevailing prices paid for copra in the Cebu market.

"5. The party of the second part will provide transportation by sea to Opon, Cebu, for the copra
delivered to it by the party of the first part, but the party of the first part must deliver such copra to the
party of the second part free on board the boats of the latter's ships or on the pier alongside the latter's
ships, as the case may be."

Pursuant to this agreement the plaintiff, during the year therein contemplated, bought copra
extensively for the Visayan Refining Co. At the end of said year both parties found themselves satisfied
with the existing arrangement, and they therefore continued by tacit consent to govern their future
relations by the same agreement. In this situation affairs remained until July 9, 1920, when the Visayan
Refining Co. closed down its factory at Opon and withdrew from the copra market.

When the contract above referred to was originally made, Albaladejo y Ca. apparently had only one
commercial establishment, i. e., that at Legaspi; but the large requirements of the Visayan Refining Co.
for copra appeared so far to justify the extension of the plaintiff's business that during the course of the
next two or three years it established some twenty agencies, or subagencies, in various ports and places
of the Province of Albay and neighboring provinces.

After the Visayan Refining Co. had ceased to buy copra, as above stated, of which fact the plaintiff was
duly notified, the supplies of copra already purchased by the plaintiff were gradually shipped out and
accepted by the Visayan Refining Co., and in the course of the next eight or ten months the accounts
between the two parties were liquidated. The last account rendered by the Visayan Refining Co. to the
plaintiff was for the month of April, 1921, and it showed a balance of P288 in favor of the defendant.
Under date of June 25, 1921, the plaintiff company addressed a letter from Legaspi to the Philippine
Refining Co. (which had now succeeded to the rights and liabilities of the Visayan Refining Co.),
expressing its approval of said account. In this letter no dissatisfaction was expressed by the plaintiff as
to the state of affairs between the parties; but about six weeks thereafter the present action was begun.
Upon reference to paragraph five of the contract reproduced above it will be seen that the Visayan
Refining Co. obligated itself to provide transportation by (sea to Opon, Cebu, for the copra which should
be delivered to it by the plaintiff; and the first cause of action set forth in the complaint is planted upon
the alleged negligent failure of the Visayan Refining Co. to provide opportune transportation for the
copra collected by the plaintiff and deposited for shipment at various places. In this connection we
reproduce the following allegations from the complaint:

"6. That, from the month of September, 1918, until, the month of June, 1920, the plaintiff opportunely
advised the Visayan of the stocks that the former had for shipment, and, from time to time, requested
the Visayan to send vessels to take up said stocks; but that the Visayan culpably and negligently allowed
a great number of days to elapse before sending the boats for the transportation of the copra to Opon,
Cebu, and that due to the fault and negligence of the Visayan, the stocks of copra prepared for shipment
by the plaintiff had to remain an unnecessary length of time in warehouses and could not be delivered
to the Visayan, nor could they be transmitted to this latter because of the lack of boats, and that for this
reason the copra gathered by the plaintiff and prepared for delivery to the Visayan suffered the
diminishment of weight herein below specified, through shrinkage or excessive drying, and, in
consequence thereof, an important diminishment in its value.

* * * * * * * *
"8. That the diminishment in weight suffered as shrinkage through excessive drying by all the lots of
copra sold by the plaintiff to the Visayan, due to the fault and negligence of the Visayan in the sending
of boats to take up said copra, represents a total of 9,695 piculs and 56 cates, the just and reasonable
value of which, at the rates fixed by the purchaser as the price in its liquidation, is a total of two hundred
and one thousand, five hundred and ninety-nine pesos and fifty-three centavos (P201,599.53),
Philippine currency, in which amount the plaintiff has been damaged and injured by the negligent and
culpable acts and omissions of the Visayan, as herein above stated and alleged."

In the course of the appealed decision the trial judge makes a careful examination of the proof relative
to the movements of the fleet of boats maintained by the Visayan Refining Co. for the purpose of
collecting copra from the various ports where it was gathered for said company, as well as of the
movements of other boats chartered or hired by said company for the same purpose; and upon
consideration of all the facts revealed in evidence, his Honor found that the Visayan Refining Co. had
used reasonable promptitude in its efforts to get out the copra from the places where it had been
deposited for shipment, notwithstanding occasional irregularities due at times to the condition of the
weather as related to transportation by .sea and at other times to the inability of the Visayan Refining
Co. to dispatch boats to the more remote ports. This finding of the trial judge, that no negligence of the
kind alleged can properly be imputed to the Visayan Refining Co., is in our opinion supported by the
proof.

Upon the point of the loss of weight of the copra by shrinkage, the trial judge found that this is a
product which necessarily undergoes considerable shrinkage in the process of drying, and intelligent
witnesses who are conversant with the matter testified at the trial that shrinkage of copra varies from
twenty to thirty per centum of the original gross weight. It is agreed that the shrinkage shown in all of
the copra which the plaintiff delivered to the Visayan Refining Co. amounted to only 8.187 per centum
of the whole, an amount which is notably below the normal. This showing was undoubtedly due in part,
as the trial judge suggests, to the fact that in purchasing the copra directly from the producers the
plaintiff's buyers sometimes estimated the picul at sixty-eight kilos, or somewhat less, but in no case at
the true weight of 63.25 kilos. The plaintiff was therefore protected in a great measure from loss by
shrinkage by purchasing upon a different basis of weight from that upon which he sold, otherwise the
shrinkage shown in the result must have been much greater than that which actually appeared. But
even considering this fact, it is quite evident that the demonstrated shrinkage of 8.187 per centum was
an extremely moderate average; and this fact goes to show that there was no undue delay on the part
of the Visayan Refining Co. in supplying transportation for the copra collected by the plaintiff.

In the course of his well-reasoned opinion upon this branch of the case, the trial judge calls attention to
the fact that it is expressly provided in paragraph two of the contract that the shrinkage of copra from
the time of its delivery to the party of the second part till its arrival at Opon should fall upon the
plaintiff, from whence it is to be inferred that the parties intended that the copra should be paid for
according to its weight upon arrival at Opon regardless of its weight when first purchased; and such
appears to have been the uniform practice of the parties in settling their accounts for the copra
delivered over a period of nearly two years.

From what has been said it follows that the first cause of action set forth in the complaint is not well
founded, and the trial judge committed no error in absolving the plaintiff therefrom.
It appears that in the first six months of the year 1919, the plaintiff found that its transactions with the
Visayan Refining Co. had not been productive of reasonable profit, a circumstance which the plaintiff
attributed to loss of weight or shrinkage in the copra from the time of purchase to its arrival at Opon;
and the matter was taken up with the officials of said company, with the result that a bounty amounting
to P15,610.41 was paid to the plaintiff by the Visayan Refining Co. In the ninth paragraph of the
complaint the plaintiff alleges that this payment was made upon account of shrinkage, for which the
Visayan Refining Co. admitted itself to be liable; and it is suggested that the making of this payment
operated as a recognition on the part of the Visayan Refining Co. of the justice of the plaintiff's claim
with respect to the shrinkage in all subsequent transactions. With this proposition we cannot agree. At
most the payment appears to have been made in recognition of an existing claim, without involving any
commitment as to liability on the part of the defendant in the future; and furthermore it appears to
have been in the nature of a mere gratuity given by the company in order to encourage the plaintiff and
to assure that the plaintiff's organization would be kept in an efficient state for future activities. It is
certain that no general liability for plaintiff's losses was assumed for the future; and the defendant on
more than one occasion thereafter expressly disclaimed liability for such losses.

As already stated purchases of copra by the defendant were suspended in the month of July, 1920. At
this time the plaintiff had an expensive organization which had been built up chiefly, we suppose, with a
view to the buying of copra; and this organization was maintained practically intact for nearly a year
after the suspension of purchases by the Visayan Refining Co. Indeed in October, 1920, the plaintiff
added an additional agency at Gubat to the twenty or more already in existence. As a second cause of
action the plaintiff seeks to recover the sum of P110,000, the alleged amount expended by the plaintiff
in maintaining and extending its organization as above stated. As a basis for the defendant's liability in
this respect it is alleged that said organization was maintained and extended at the express request, or
requirement, of the defendant, in conjunction with repeated assurances that the defendant would soon
resume activity as a purchaser of copra.

With reference to this cause of action the trial judge found that the plaintiff, as claimed, had incurred
expenses at the request of the defendant and upon its representation that the plaintiff would be fully
compensated therefor in the future. Instead, however, of allowing the plaintiff the entire amount
claimed, his Honor gave judgment for only thirty per centum of said amount, in view of the fact that the
plaintiff's transactions in copra had amounted in the past only to about thirty per centum of the total
business transacted by it. Estimated upon this basis, the amount recognized as constituting a just claim
was found to be P49,626.68, and for this amount judgment was rendered against the defendant.

The discussion of this branch of the appeal involves the sole question whether the plaintiff's expenses in
maintaining and extending its organization for the purchase of copra in the period between July, 1920,
to July, 1921, were incurred at the instance and request of the defendant, or upon any promise of the
defendant to make that expenditure good. A careful examination of the evidence, mostly of a
documentary character, is, in our opinion, convincing that the supposed liability does not exist.

By recurring to paragraph four of the contract between the plaintiff and the Visayan Refining Co. it will
be seen that the latter agreed to keep the plaintiff advised of the prevailing prices paid for copra in the
Cebu market. In compliance with this obligation the Visayan Refining Co. was accustomed to send out
"trade letters" from time to time to its various clients in the southern provinces of whom the plaintiff
was one. In these letters the manager of the company was accustomed to make comment upon the
state of the market and to give such information as might be of interest or value to the recipients of the
letters. From the series of letters thus sent to Albaladejo y Ca. during the latter half of 1920, we here
reproduce the following excerpts:

(Letter of July 2, 1920, from K. B. Day, General Manager, of the Visayan Refining Co., to Albaladejo y Ca.)
"The copra market is still very weak. I have spent the past two weeks in Manila studying conditions and
find that practically no business at all is being done. A few of the mills having provincial agents are
accepting small deliveries, but I do not suppose that 500 piculs of copra are changing hands a day.
Buyers are offering from P13 to P15, depending on quality, and sellers are offering to sell at anywhere
from P16 to P18, but no business can be done for the simple reason that the banks will not lend the mills
any money to buy copra with at this time. "Reports from the United States are to the effect that the oil
market is in a very serious and depressed condition and that large quantities of oil cannot be disposed of
at any price.

* * * * * * * * *

"Under these conditions it is imperative that this mill buy no more copra than it can possibly help at the
present time. We are not anxious to compete, nor do we wish to purchase same in competition with
others. We do, however, desire to keep our agents doing business and trust that they will continue to
hold their parroquianos (customers), buying only minimum quantities at present.

"The local market has not changed since last week, and our liquidating price is P14."

(Letter of July 9, 1920, from Visayan Refining Co. to Albaladejo y Ca.)

"Notify your subagents to drop out of the market temporarily. We do not desire to purchase at present."

(Letter of July 10, 1920, from K. B. Day, General Manager, to Albaladejo y Ca.)

"The market continues to grow weaker. Conditions are so uncertain that this company desires to drop
out of the copra market until conditions have a chance to readjust themselves. We request therefore
that our agents drop out of active competition for copra temporarily. Stocks that are at present on hand
will, of course, be liquidated, but no new stocks should be acquired, Agents should do their best to keep
their organizations together temporarily, for we expect to be in the market again soon stronger than
ever. We expect the cooperation of agents in making this effective; and if they give us this cooperation,
we will endeavor to see that they do not lose by the transaction in the long run. This company has been
receiving copra from its agents for a long time at prices which have netted it a loss. The company has
been supporting its agents during this period. It now expects the same support from its agents. Agents
having stocks actually on hand in their bodegas should telegraph us the quantity immediately and we
will protect same. But stocks not actually in bodegas cannot be considered."

(Letter of July 17, 1920, from K. B. Day to Albaladejo y Ca.)

"Conditions have changed very little in the copra market since last reports. * *' * We are in the same
position as last week and are out of the market.

"For the benefit of our agents, we wish to explain in a few words just why we are out of the market. Our
tanks are full of oil and we have been forced to close down our mill until the arrival of a boat to load
some of our stocks on hand. We have large stocks of copra. The market for oil is so uncertain that we do
not care to increase these stocks until such time as we know that the market has touched the bottom.
As soon as this period of uncertainty is over, we expect to be in the market again stronger than ever, but
it is only the part of business wisdom to play safe at such times as these.

"Owing to the very small amounts of copra now in the provinces, we do not think that our agents will
lose anything by our being out of the market. On the contrary, the producers of copra will have a chance
to allow their nuts to mature on the trees so that the quality of copra which you will receive when we
again are in the market should be much better than what you have been receiving in the past. Due to
the high prices and scarcity of copra a large proportion of the copra we have received has been made
from unripe coconuts and in order to keep revenue coming in the producers have kept harvesting these
coconuts without giving them a chance to reach maturity. This period now should give them the chance
to let their nuts ripen and should give you a better copra in the future which will shrink less and be more
satisfactory both from your standpoint and ours. Please do all you can to assist us at this time. We shall
greatly appreciate your cooperation."

(Letter of August 7, 1920, from H. U, Umstead, Assistant General Manager, to Albaladejo y Ca.)

"The copra situation in Manila remains unchanged and the outlook is still uncertain. Arrivals continue
small.

"We are still out of the market and are not yet in a position to give you buying orders. We trust,
however, that within the next few weeks we may be able to reenter the market and resume our former
activity.

* * * * * * * * *

"While we are out of the market we have no objection whatever to our agents selling copra to other
purchasers, if by doing so they are able to keep themselves in the market and retain their parroquianos
(customers). We do not, however, wish you to use our money for this purpose, nor do we want you to
buy copra on speculation with the idea in mind that we will take it off of your hands at high prices when
we reenter the market. We wish to warn you against this now so that you will not be working under any
misapprehension.

"In this same mail, we are sending you a notice of change of organization. In your dealings with us
hereafter, will you kindly address all communications to the Philippine Refining Corporation, Cebu,
which you will understand will be delivered to us."

(Letter of August 21, 1920, from Philippine Refining Corporation, by K. B. Day, to Albaladejo y Ca.)

"We are not yet in the market, but, as we have indicated before, are hopeful of renewing our activities
soon. We shall advise all our agents seasonably of our return to the market. * * *

"We are preparing new forms of agreement between ourselves and our agents and hope to have them
completed in time to refer them to our agents in the course of the next week or ten days.

"All agents should endeavor to liquidate outstanding advances at this time because this is a particularly
good time to clean out old accounts and be on a business basis when we return to the market. We
request that our agents concentrate their attention on this point during the coming week."
(Letter of October 16, 1920, from K. B. Day, Manager, to Albaladejo y Ca.)

"Copra in Manila and coconut oil in the United States have taken a severe drop during the past week.
The Cebu price seems to have remained unchanged, but we look for an early drop in the local market.
"We have received orders from our president in New York to buy no more copra until the situation
becomes more favorable. We had hoped and expected to be in the market actively before this time, but
this most unexpected reaction in the market makes the date of our entry in it more doubtful.

"With this in view, we hereby notify our agents that we can accept no more copra and advance no more
money until we have permission from our president to do so. We request, therefore, that you go
entirely out of the market, so far as we are concerned, with the exception of receiving copra against
outstanding accounts.

"In case any agent be compelled to take in copra and desire to send same to us, we will be glad to sell
same for him to the highest bidder in Cebu. We will make no charge for our services in this connection,
but the copra must be forwarded to us on consignment only so that we will not appear as buyers and be
required to pay the internal-revenue tax.

"We are extremely sorry to be compelled to make the present announcement to you, but the market is
such that our president does not deem it wise for us to purchase copra at present, and, with this in view,
we have no alternative other than to comply with his orders. We hope that our agents will realize the
spirit in which these orders are given, and will do all they can to remain faithful to us until such time as
we can reenter the market, which we hope and believe will be within a comparatively short time."

(Special Letter of October 16, 1920, from Philippine Refining Corporation, by K. B. Day, to Albaladejo y
Ca.)

"We have received very strict instructions from New York temporarily to suspend the purchase of copra,
and of course we must comply therewith. However, should you find yourselves obliged to buy copra in
connection with your business activities, and cannot dispose of it advantageously in Cebu, we shall be
glad to receive your copra under the condition that we shall sell it in the market on your account to the
highest bidder, or, in other words, we offer you our services free, to sell your copra to the best possible
advantages that the local market may offer, provided that, in doing so, we be not obliged to accept your
copra as a purchase when there be no market for this product.

"Whenever you find yourselves obliged to buy copra in order to liquidate pending advances, we can
accept it provided that, so long as present conditions prevail, we be not required to make further cash
advances."

We shall quote no further from letters written by the management of the Philippine Refining
Corporation to the plaintiff, as we find nothing in the correspondence which reflects an attitude
different from that reflected in the matter above quoted. It is only necessary to add that the hope so
frequently expressed in the letters, to the effect that the Philippine Refining Corporation would soon
enter the market as a buyer of copra on a more extensive scale than its predecessor, was not destined
to be realized, and the factory at Opon remained closed.
But it is quite obvious that there is nothing in these letters on which to hold the defendant liable for the
expenses incurred by the plaintiff in keeping its organization intact during the period now under
consideration. Nor does the oral testimony submitted by the plaintiff materially change the situation in
any respect. Furthermore, the allegation in the complaint that one agency in particular (Gubat) had
been opened on October 1, 1920, at the special instance and request of the defendant, is not at all
sustained by the evidence.

We note that in his letter of July 10, 1920, Mr. Bay suggested that if the various purchasing agents of the
Visayan Refining Co. would keep their organization intact, the company would endeavor to see that they
should not lose by the transaction in the long run. These words afford no sufficient basis for the
conclusion, which the trial judge deduced therefrom, that the defendant is bound to compensate the
plaintiff f or the expenses incurred in maintaining its organization. The correspondence sufficiently
shows on its face that there was no intention on the part of the company to lay a basis for contractual
liability of any sort; and the plaintiff must have understood the letters in that light. The parties could
undoubtedly have contracted about it, but there was clearly no intention to enter into contractual
relation; and the law will not raise a contract by implication against the intention of the parties. The
inducement held forth was that, when purchasing should be resumed, the plaintiff would be
compensated by the profits then to be earned for any expense that would be incurred in keeping its
organization intact. It is needless to say that there is no proof showing that the officials of the defendant
acted in bad faith in holding out this hope.

In the appellant's brief the contention is advanced that the contract between the plaintiff and the
Visayan Refining Co. created the relation of principal and agent between the parties, and reliance is
placed upon article 1729 of the Civil Code which requires the principal to indemnify the agent for
damages incurred in carrying out the agency. Attentive perusal of the contract is, however, convincing
to the effect that the relation between the parties was not that of principal and agent in so far as relates
to the purchase of copra by the plaintiff. It is true that the Visayan Refining Co. made the plaintiff one of
its instruments for the collection of copra; but it is clear that in making its purchases from the producers
the plaintiff was buying upon its own account and that when it turned over the copra to the Visayan
Refining Co., pursuant to that agreement, a second sale was effected. In paragraph three of the contract
it is declared that during the continuance of this contract the Visayan Refining Co. would not appoint
any other agent for the purchase of copra in Legaspi; and this gives rise indirectly to the inference that
the plaintiff was considered its buying agent. But the use of this term in one clause of the contract
cannot dominate the real nature of the agreement as revealed in other clauses, no less than in the
caption of the agreement itself. In some of the trade letters also the various instrumentalities used by
the Visayan Refining Co. for the collection of copra are spoken of as agents. But this designation was
evidently used for convenience; and it is very clear that in its activities as a buyer the plaintiff was acting
upon its own account and not as agent, in the legal sense, of the Visayan Refining Co. The title to all of
the copra purchased by the plaintiff undoubtedly remained in it until it was delivered by way of
subsequent sale to said company.

For the reasons stated we are of the opinion that no liability on the part of the defendant is shown upon
the plaintiff's second cause of action, and the judgment of the trial court on this part of the case is
erroneous. The appealed judgment will therefore be affirmed in so far as it absolves the defendant from
the first cause of action and will be reversed in so far as it gives judgment against the defendant upon
the second cause of action; and the defendant will be completely absolved from the complaint. So
ordered, without express finding as to costs of either instance.
Johnson, Malcolm, Avancea, Villamor, Johns, and Romualdez, JJ., concur.

Judgment affirmed in part, and reversed in part.

 No. 8169. December 29, 1913.

ANTONIO M.A BARRETTO, plaintiff and appellant, vs. JOSE SANTA MARINA, defendant and appellee.
1.PRINCIPAL AND AGENT; REVOCATION OF AGENT'S AUTHORITY.The time during which the agent may
hold his position is indefinite or undetermined, when no period has been fixed in his commission and so
long as the confidence reposed in him by the principal exists; but as soon as this confidence disappears
the principal has a right to revoke the power he conferred upon the agent, especially when the latter
has resigned his position for good reasons. (Art. 1733, Civil Code; art. 279, Code of Commerce.)

2.ID.; ID.; RIGHT OF PRINCIPAL TO DISMISS AGENT.Even though a period is stipulated during which the
agent or employee is to hold his position in the service of the owner or head of a mercantile
establishment, yet the latter may, for any of the special reasons specified in article 300 of the Code of
Commerce, dismiss such agent or employee even before the termination of the period.

3.ID.; ID.; ID.; DAMAGES.No period having been stipulated and the principal owner of the business
having acted within his powers in relieving his agent and appointing another person in his stead, for
good reasons and because of the express written resignation by the employee or agent of the position
he was holding, it would be improper to award him damages, which were not proven, except his right to
collect the salary due for one month prior to quitting the position, as accorded by article 302 of the Code
of Commerce.

APPEAL from a judgment and an order of the Court of First Instance of Manila. Del Rosario, J.

The facts are stated in the opinion of the court.

Hausserman, Cohn & Fisher, for appellant.

W. A. Kincaid and Thos. L. Hartigan, for appellee.

TORRES, J.:

These cases were appealed by counsel for the plaintiff, through a bill of exceptions, from the judgment
of January 17, 1912, and the-order of February 5 of the same year, whereby the Honorable S. del
Rosario, judge, sentenced the defendant to pay to the plaintiff the salary to which he was entitled for
the first eight days of January, 1910, also that for the following month, at the rate of P3,083.33 per
month, without special finding as to costs, and dismissed the second cause of action contained in the
complaint presented in that case.

On January 5, 1911, counsel for the plaintiff Antonio M.a Barretto filed suit against Jose Santa Marina,
alleging that the defendant, a resident of Spain, was then the owner and proprietor of the business
known as the La Insular Cigar and Cigarette Factory, established in these Islands, which business
consisted in the purchase of leaf tobacco and other raw material, in the preparation of the same, and in
the sale of cigars and cigarettes in large quantities; that on January 8, 1910, and for a long time prior
thereto, the plaintiff held and had held the position of agent of the defendant in the Philippine Islands
for the management of the said business in the name and for the account of the said defendant; that
the plaintiff's services were rendered in pursuance of a contract whereby the defendant obligated
himself in writing to hire the said services for so long a time as the plaintiff should not show
discouragement and to compensate such services at the rate of P37,000 Philippine currency per annum;
that, on the aforesaid 8th day of January, 1910, the defendant, without reason, justification, or pretext
and in violation of the contract before mentioned, summarily and arbitrarily dispensed with the
plaintiff's services and removed him from the management of the business, since which date the
defendant had refused to pay him the compensation, or any part thereof, due him and payable in full for
services rendered subsequent to December 31, 1909; and that, as a second cause of action based upon
the facts aforestated, the plaintiff had suffered losses and damages in the sum of P100,000 Philippine
currency, Said counsel therefore prayed that judgment be rendered against the defendant by sentencing
him to pay to the plaintiff P137,000 Philippine currency, and the interest thereon at the legal rate, in
addition to the payment of the costs, together with such other equitable remedies as the law allows.
By an order of March 14, 1911, the Honorable A. S. Crossfield, judge, overruled the demurrer to the first
cause of action, but sustained that to the second. Counsel for the plaintiff entered an exception to this
order in so far as it sustained the demurrer interposed by the defendant to the second cause of action.
By his written answer to the complaint, on July 19, 1911, counsel for the defendant, reserving his
exception to the order of the court overruling his demurrer filed against the first cause of action, denied
each and all of the allegations contained in the complaint, relative to such first cause of action.

As a special defense of the latter, he set forth that the plaintiff had no contract whatever with the
defendant in which any period of time was stipulated during which the former was to render his services
as manager of the La Insular factory; that the defendant revoked for just cause the power conferred
upon the plaintiff; that subsequent to the revocation of such power, and on the occasion of the
plaintiff's having sold all his rights and interests in the business of the La Insular factory to the
defendant, in consideration of the sum received by him, the plaintiff renounced all action, intervention
and claim that he might have against the defendant relative to the business aforementioned, whereby
all the questions that might have arisen between them were settled.

On December 19, 1911, counsel for each of the parties presented to the court a stipulation of the
following purport: "In clause 11 of the will executed by Don Joaquin Santa Marina y Perez in Madrid
before a notary public on August 4, 1901, and duly legalized in these Islands, there appears the
following:

" 'The testator provides that the testamentary executor who is holding office as such shall enjoy a salary,
allotment, or emolument of 4,000 pesos per annum which shall be paid out of the testator's estate; but
that in case of consultation, the testamentary executors consulted shall not be entitled to this allotment,
nor to any other, on account of such consultation.' "

According to the statement of the sums collected by Antonio M.a Barretto as the judicial administrator
of the estate of Joaquin Santa Marina from November, 1908, to March, 1910, and during twenty-three
days of April of the latter year, the total amount so collected was P5,923.28.

Antonio M.a Barretto ceased to manage the La Insular factory, as the judicial administrator of the estate
of the deceased Joaquin Santa Marina, in October, 1909, and not on November 7, 1908, as erroneously
set out in the stenographic notes.

The remuneration paid to Barretto as judicial administrator of the estate of Santa Marina was
independent of that which pertained to him for his services as manager of the La Insular factory both
before and after the date on which he ceased to administer the said factory as such judicial
administrator.
In the stipulation before mentioned there also appears the following: "The facts above stated are true,
but there is a controversy between the attorney? for the plaintiff and the defendant, as to whether such
facts are relevant as evidence in the said case. They therefore submit this question to the court and if it
determines that they are relevant as evidence they should be admitted as such, with exception by the
defendant, but if it determines that they are not relevant as evidence they should be excluded, with
exception by the plaintiff."

After the hearing of the case, with the introduction of evidence by both parties, the court, on January
17, 1912, rendered the judgment aforementioned, to which an exception was taken by counsel for the
plaintiff, who by written motion asked that the said judgment be set aside and a new trial granted,
because such judgment was not sufficiently warranted by the evidence and was contrary to law and
because the findings of fact therein contained were openly and manifestly contrary to the weight of the
evidence. This motion was denied, with exception by the plaintiff. By an order of the 5th of the following
month of February, issued in view of a petition presented by counsel for the plaintiff, the court
dismissed the second cause of action set out in the complaint, to which order said counsel likewise
excepted.

Upon presentation of the proper bill of exceptions, the same was approved, certified, and forwarded to
the clerk of this court.

Demand is made in this suit for the payment of the considerable sum of P137,000, together with the
legal interest thereon. Two amounts make up this sum: One of P37,000, as salary for the year 1910,
claimed to be due for services rendered by the plaintiff as agent and manager of the tobacco factory
known as La Insular; and the other of P100,000, as an indemnity for losses and damages, on account of
the plaintiff's removal without just cause from his position as agent and manager of said factory,
effected arbitrarily and in violation of the contract of hire of services between the parties, the plaintiff
claiming to be still entitled to hold the position from which he was dismissed.

The most important fact in this case, which stands out prominently from the evidence regarded as a
whole, is that of the plaintiff Barretto's renunciation or resignation of the position he held as agent and
manager of the said factory, which was freely and voluntarily made by him on the occasion of the
insolvency and disappearance of the Chinaman Uy Yan, who had bought from the factory products
aggregating in value the considerable sum of P97,000 and, without paying this large debt, disappeared
and has not been seen since.

Antonio M.a Barretto, the agent and manager of the said factory, said among other things the following,
in the letter, Exhibit 3, addressed by him to Jose Santa Marina, on January 2, 1909:

"I have to report to you an exceedingly disagreeable matter. This Chinaman Uy Yan, with whose name I
begin this paragraph, has failed and owes the factory the considerable sum of P97,000. We will see what
I can get from him, although when these Chinamen fail it is because they have spent everything. I have
turned the matter over to my attorney in order that he may sue the party. I am not attempting to make
light of this matter. I acknowledge that I have been rather more generous with this fellow than I should
have been; but this is the way of doing business here. * * *

"I have always thought that when the manager of a business trips up in a matter like this he should
tender his resignation, and I still think so. The position is at your disposal to do as you like."
This letter is authentic and was neither denied nor rejected by the plaintiff, Barretto.

Although Santa Marina did not immediately reply and tell him what opinion he may have formed and
the decision he had reached in the matter, it is no less true that the silence and lack of reply on the part
of the chief owner of the factory were sufficient indications that the resignation had been virtually
accepted and that if be did not reply immediately it was because he intended to act cautiously. As the
addressee, the chief owner of the factory, knew of no one at that time whom he could appoint to relieve
the writer, who had resigned. it was to be presumed that he was thereafter looking for some
trustworthy person who might substitute the plaintiff in his position of agent and manager of the
factory, for in fact eleven months afterwards the defendant communicated to the plaintiff that he had
revoked the power conferred upon him and had appointed Mr: J. McGavin to substitute him in his
position of manager of the La Insular factory, whereby the plaintiff's resignation, tendered in his
aforesaid letter of January 2, 1909, Exhibit 3, was expressly accepted.

After the plaintiff had resigned the position he held, and notwithstanding the lapse of several months
before its express acceptance, it cannot be understood that he has any right to demand an indemnity
for losses and damages particularly since he ostensibly and frankly acknowledged that he had been
negligent in the discharge of his duties and that he had overstepped his authority in the management of
the factory, with respect to the Chinaman mentioned. The record does not show that Santa Marina, his
principal, required him to resign his position as manager, but that Barretto himself voluntarily stated by
letter to his principal that, for the reasons therein mentioned, he resigned and placed at the latter's
disposal the position of agent and manager of the La Insular factory; and if the principal, Santa Marina,
deemed it suitable to relieve the agent, for having been negligent and overstepping his authority in the
discharge of his office, and furthermore because of his having expressly resigned his position, and placed
it at the disposal of the chief owner of the business, it cannot be explained how such person can be
entitled to demand an indemnity for losses and damages, from his principal, who merely exercised his
lawful right of relieving the plaintiff from the position which he had voluntarily given up.

So, the agent and manager Barretto was not really dismissed or removed by the defendant Santa
Marina. What did occur was that, in view of the resignation tendered by the plaintiff for the reasons
which he himself conscientiously deemed to warrant his surrender of the position he was holding in the
La Insular factory, the principal owner of this establishment, the defendant Santa Marina, had to look for
and appoint another agent and manager to relieve and substitute him in the said employmenta lawful
act performed by the principal owner of the factory and one which cannot serve as a ground upon which
to demand from the latter an indemnity for losses and damages, inasmuch as, in view of the facts that
occurred and were acknowledged and confessed by Barretto in his letters, Exhibits 3 and 6, the plaintiff
could not expect, nor ought to have expected, that the defendant should have insisted on the
unsuccessful agent's continuance in his position, or that he should not have accepted the resignation
tendered by the plaintiff in his first letter. By the mere fact that the defendant remained silent and
designated another person, Mr. J. McGavin, to discharge in the plaintiff's stead the powers and duties of
agent and manager of the said factory, Barretto should have understood that his resignation had been
accepted and that if its acceptance was not communicated to him immediately it was owing to the
circumstance that the principal owner of the factory did not then have nor until several months
afterwards, any other person whom he could appoint and place in his stead, for, as soon as the
defendant Santa Marina could appoint the said McGavin, he revoked the power he had conferred upon
the plaintiff and communicated this fact to the latter, by means of the letter, Exhibit D, which was
presented to him by the bearer thereof, McGavin himself, the new manager and agent appointed.
Omitting consideration for the moment of the first error attributed to the trial judge by his sustaining
the demurrer filed against the second cause of action, relative to the collection of P100,000 as the
amount of the losses and damages occasioned to the plaintiff, and turning our attention to the second
error imputed to him by his refusal to sentence the defendant, for the first cause of action, to the
payment of P 37,000 or of any sum over P3,083.33, we shall proceed to examine the question whether
any period or term for the duration of the position of agent and manager was fixed in the verbal
contract made between the deceased Joaquin Santa Marina, the defendant's predecessor in interest,
and the plaintiff Antonio' M.a Barrettoa contract which, after Joaquin Santa Marina's death, was
ratified by his brother and heir, the defendant Jose Santa Marina.

The defendant acknowledged the said verbal contract and also its ratification by him after his brother's
death; but he denied any stipulation therein that Barretto should hold his office for any specific period
of time fixed by and between the contracting parties, for the deceased Joaquin Santa Marina, in
conferring power upon the plaintiff, did not do so for any specific time, nor did he set any period within
which he should hold his office of agent and manager of the La Insular factory; neither did he fix the
date for the termination of such services, in the instrument of power of attorney executed by the
defendant Santa Marina before a notary on the 25th of September, 1908. (Record, p. 20.)

From the context of the instrument just mentioned it can not be concluded that any time whatever was
fixed during which the plaintiff should hold his position of agent. The defendant, in executing that
instrument, whereby the agreement made between his brother Joaquin and Barretto was ratified, did
no more than accord to the plaintiff the same confidence that the defendant's predecessor in interest
had had in him; and so long as this merely subjective condition of trust lodged in the agent existed, the
time during which the latter might hold his office could be considered indefinite or undetermined, but
as soon as that indispensable condition of a power of attorney disappeared and the conduct of the
agent ceased to inspire confidence, the principal had a right to revoke the power he had conferred upon
his agent, especially when the latter, for good reasons, gave up the office he was holding.

Article 1733 of the Civil Code, applicable to the case at bar, according to the provisions of article 2 of the
Code of Commerce, prescribes: "The principal may, at his will, revoke the power and compel the agent
to return the instrument containing the same in which the authority was given."

Article 279 of the Code of Commerce provides: "The principal may revoke the commission intrusted to
an agent at any stage of the transaction, advising him thereof, but always being liable for the result of
the transactions which took place before the latter was informed of the revocation."

From the above legal provisions it is clearly to be inferred that the contract of agency can subsist only so
long as the principal has confidence in his agent, because, from the moment such confidence disappears
and although there be a fixed period for the exercise of the office of agent, a circumstance that does not
appear in the present case, the principal has a perfect right to revoke the power that he had conferred
upon the agent owing to the confidence he had in him and which for sound reasons had ceased to exist.
The record does not show it to have been duly proved, notwithstanding the plaintiff's allegation, that a
period was fixed for holding his agency or office of agent and manager of the La Insular factory. It would
be improper, for the purpose of supplying such defect, to apply to the present case the provisions of
article 1128 of the Civil Code. This article relates to obligations for which no period has been fixed for
their fulfillment, but which, from their nature and circumstances, allow the inference that there was an
intention to grant such period to the debtor, wherefore the courts are authorized to fix the duration of
the same, and the reason why it is inapplicable is that the rights and obligations existing between
Barretto and Santa Marina are absolutely different from those to which it refers, for. according to article
1732 of the Civil Code, agency is terminated:

"1. By revocation.

"2. By withdrawal of the agent.

"3. By death, interdiction, bankruptcy, or insolvency of the principal or of the agent."

It is not incumbent upon the court? to fix the period during which contracts for services shall last, Their
duration is understood to be implicitly fixed. in default of express stipulation. by the period for the
payment of the salary of the employee. Therefore the doctrine of the tacit renewal of leases of
property, established in article 1566 of the Civil Code, is not applicable to the case at bar. And even
though the annual .salary fixed for the services to be rendered by the plaintiff as agent and manager of
the La Insular factory, was P37,000, yet, in accordance with the custom universally observed throughout
the world, salaries fixed for the year are collected and paid in monthly installments as they fall due. and
so the plaintiff collected and was paid his remuneration; therefore. on the latter's discontinuance in his
office as agent, he would at most be entitled to the salary for one month and some add days, allowed in
the judgment of the lower court.

Article 302 of the Code of Commerce reads thus:

"In cases in which no special time is fixed in the contracts of service, any one of the parties thereto may
dissolve it, advising the other party thereof one month in advance.

"The factor or shop clerk shall be entitled, in such case, to the salary due for one month."

From the mere fact that the principal no longer had confidence in the agent, he is entitled to withdraw it
and to revoke the power he conferred upon the latter, even before the expiration of the period of the
engagement or of the agreement made between them; but, in the present case, once it has been shown
that, between the deceased Joaquin Santa Marina and the latter's heir, now the defendant, on the one
hand, and the plaintiff Barretto, on the other, no period whatever was stipulated during which the last-
named should hold the office of agent and manager of the said factory, it is unquestionable that the
defendant, even without good reasons, could lawfully revoke the power conferred upon the plaintiff
and appoint in his place Mr. McGavin, and thereby contracted no liability whatever other than the
obligation to pay the plaintiff the salary pertaining to one month and some odd days, as held in the
judgment below.

Barretto himself acknowledged in his aforesaid letter, Exhibit 3, that he had exceeded his authority and
acted negligently in selling on credit to the said Chinaman a large quantity of the products of the factory
under the plaintiffs management, reaching the considerable value of P97,000; whereby he confessed
one of the causes which led to his removal, the revocation of the power conferred upon him and the
appointment of a new agent in his place.

The defendant, Jose Santa Marina, in his letter of December 2, 1909, whereby he communicated to the
plaintiff the revocation of the power he had conferred upon him and the appointment of another new
agent, Mr. McGavin, stated among other things that the loan contracted by the agent Barretto, without
the approval of the principal, caused a great panic among the stockholders of the factory and that the
defendant hoped to allay it by the new measure that he expected to adopt. This, then, was still another
reason that induced the principal to withdraw the confidence placed in the plaintiff and to revoke the
power he had conferred upon him. Therefore, even omitting consideration of the resignation before
mentioned, we find duly warranted the reasons which impelled the defendant to revoke the said power
and relieve the plaintiff from the position of agent and manager of the La Insular factory.

In accordance with the provisions of article 283 of the Code of Commerce, the manager of an enterprise
or manufacturing or commercial establishment, authorized to administer it and direct it, with more or
less powers, as the owner may have considered advisable, shall have the legal qualifications of an agent.
Article 300 of the same code prescribes: "The following shall be special reasons for which principals may
discharge their employees, even though the time of service of the contract has not elapsed: Fraud or
breach of trust in the business intrusted to them * * * ''

By reason of these legal provisions the defendant, in revoking the authority conferred upon the plaintiff,
acted within his unquestionable powers and did not thereby violate any statute whatever that may have
limited them; consequently, he could not have caused the plaintiff any harm or detriment to his rights
and interests. for not only had Santa Marina a justifiable reason to proceed as he did, but also no period
whatever had been stipulated -during which the plaintiff should be entitled to hold his position; and
furthermore, because, in relieving the latter and appointing another person in his place, the defendant
acted In accordance with the renunciation and resignation which the plaintiff had tendered. If the
plaintiff is entitled to any indemnity in accordance with law, such was awarded to him in the judgment
of the lower court by granting him the right to collect salary for one month and some odd days.

As for the other features of the case, the record does not show that the plaintiff has any good reason or
legal ground upon which to claim an indemnity for losses and damages in the sum of P100,000, for it
was not proved that he suffered to that extent, and the judgment appealed from has awarded him the
month's salary to which he is entitled. Therefore that judgment and the order of March 14 sustaining
the demurrer to the second cause of action are both in accordance with the law.

For the foregoing reasons, whereby the errors assigned to the said judgment and order are deemed to
have been refuted, both judgment and order are hereby affirmed, with costs against the appellant.

Arellano, C. J., Johnson and Carson, JJ., concur.

Moreland, J., concurs in the result.

Judgment and order affirmed.

 No. L-5180. August 31, 1953

Consejo Infante, petitioner, vs. Jose Cunanan, Juan Mijares and The Court of Appeals, Second Division,
respondents.

1. Evidence; Parole Evidence Rule; Contracts and Obligations; Principal and Agent; Agent's
Commission.Oral evidence is presented to the effect that while the agents agreed to cancel the
written authority given them by their principal, they did so merely upon the principal's verbal assurance
that, should the property subject of .their contract of agency be sold to their own buyer, they would b
giveil the commission agreed upon. Held: The cancellation of the written authority being in writing,
parole evidence is not admissible under section 22 of Rule 123.

2. Id ; Id.; Id.; Id. If there is other evidence which would justify the agents' claim for commission, even
if such parol evidence is disregarded, they are entitled to such commission.

3.Principal and Agent Agent's Commission Cancellation of Agents' Authority; Effect of Concellation on
Commission.The principal took advantage of the agents' services consisting in locating a buyer for the
principal's land. The principal, perhaps by stratagem advised the agents that she was no longer
interested in the deal and was able to prevail upon them to sign a document agreeing to the
cancellation of the written authority she had originally given the agents, believing that she could evade
payment of their commission. Then she sold the property to the buyer found by the agents. Held: The
principal's act is unfair as would amount to bad faith, and cannot be sanctioned without according to the
agents the reward which is due them.

PETITION for review by certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Yuseco, Abdon & Yuseco for petitioner.

Jose E. Erfe and Maria Luiga Gomez for respondents,

Bautista Angelo, J.:

This is a petition for review of a decision of the Court of Appeals affirming the judgment of the court of
origin which orders the defendant to pay the plaintiffs the sum of P2,500 with legal interest thereon
from February 2, 1949 and the costs of action.

Consejo Infante, defendant herein, was the owner of two parcels of land, together with a house built
thereon, situated in the City of Manila and covered by Transfer Certificate of Title No. 61786. On or
before November 30, 1948, she contracted the services of Jose Cunanan and Juan Mijares, plaintiffs
herein, to sell the above-mentioned property for a price of P30,000 subject to the condition that the
purchaser would assume the mortgage existing thereon in favor of the Rehabilitation Finance
Corporation. She agreed to pay them a commission of 5 per cent on the purchase price plus whatever
overprice they may obtain for the property. Plaintiffs found one Pio S. Noche who was willing to buy the
property under the terms agreed upon with defendant, but when they introduced him to defendant, the
latter informed them that she was no longer interested in selling the property and succeeded in making
them sign a document stating therein that the written authority she had given them was already
cancelled. However, on December 20, 1948, defendant dealt directly with Pio S. Noche selling to him the
property for P31,000. Upon learning this transaction, plaintiffs de-manded from defendant the payment
of their commission, but she refused and so they brought the present action.

Defendant admitted having contracted the services of the plaintiffs to sell her property as set forth in
the complaint, but stated that she agreed to pay them a commission of P1,200 only on condition that
they buy her a property somewhere in Taft Avenue to where she might transfer after selling her
property. Defendant avers that while plaintiffs took steps to sell her property as agreed upon, they sold
the property at Taft Avenue to another party and because of this failure it was agreed that the authority
she had given them be cancelled.

The lower court found that the preponderance of evidence was in favor of the plaintiffs and rendered
judgment sentencing the defendant to pay the plaintiffs the sum of P2,500 with legal interest thereon
from February 2, 1949 plus the costs of action. This decision was affirmed in toto by the Court of
Appeals.

There is no dispute that respondents were authorized by petitioner to sell her property for the sum of
P30,000 with the understanding that they will be given a com-mission of 5 percent plus whatever
overprice they may obtain for the property. Petitioner, however, contends that that authority has
already been withdrawn on November 30, 1948 when, by the voluntary act of respond-ents, they
executed a document stating that said authority shall be considered cancelled and without any effect, so
that when petitioner sold the property to Pio S. Noche on December 20, 1948, she was already free
from her commitment with respondents and, therefore, was not in duty bound to pay them any
commission for the transaction.

If the facts were as claimed by petitioner, there is indeed no doubt that she would have no obligation to
pay respondents the commission which was promised them under the original authority because, under
the old Civil Code, her right to withdraw such authority is recognized, A principal may withdraw the
authority given to an agent at will. (Article 1733.) But this fact is disputed. Thus, respondents claim that
while they agreed to cancel the written authority given to them, they did so merely upon the verbal
assurance given by petitioner that, should the property be sold to their own buyer, Pio S. Noche, they
would be given the commission agreed upon. True, this verbal assurance does not appear in the written
cancella, tion, Exhibit 1, and, on the other hand, it is disputed by petitioner, but respondents were
allowed to present oral evidence to prove it, and this is now assigned as error in this petition for review.
The plea that oral evidence should not have been allowed to prove the alleged verbal assurance is well
taken it ap-pearing that the written authority given to respondents has been cancelled in a written
statement. The rule on this matter is that "When the terms of an agreement have been reduced to
writing, it is to be considered as containing all those 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." (Section 22, Rule 123, Rules of Court.) The only exceptions to this rule are . " (a)
Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement
of the parties, or the validity of the agreement is put in issue by the pleadings" ; and "(b) Where there is
an intrinsic ambiguity in the writing." (Ibid.) There is no doubt that the point raised does not come under
any of the cases excepted, for there is nothing therein that has been put in issue by respondents in their
complaint. The terms of the document, Exhibit 1, seem to be clear and they do not contain any
reservation which may in any way run counter to the clear intention of the parties.

But even disregarding the oral evidence adduced by respondents in contravention of the parole
evidence rule, we are, however, of the opinion that there is enough justification for the conclusion
reached by the lower court as well as by the Court of Appeals to the effect that respondents are entitled
to the commission originally agreed upon. It is a fact found by the Court of Appeals that after petitioner
had given the written authority to respondent to sell her land for the sum of P30,000, respondents
found buyer in the person of one Pio S. Noche who was willing to buy the property under the terms
agreed upon, and this matter was immediately brought to the knowledge of petitioner. But the latter,
perhaps by way of stratagem, advised respondents that she was no longer interested it the deal and was
able to prevail upon them to sign a document agreeing to the cancellation of the written authority.

That petitioner had changed her mind even if respondents had found a buyer who was willing to close
the deal, is a matter that would not give rise to a legal consequence if respondents agree to call of the
transaction in deference to the request of petitioner. But the situation varies if one of the parties takes
advantage of the benevolence of the other and acts in a manner that would promote his own selfish
interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned without
according to the party prejudiced the reward which is due him. This is the situation in which
respondents were placed by petitioner. Petitioner took advantage of the services rendered by
respondents, but believing that she, could evade payment of their commission, she made use of a ruse
by inducing them to sign the deed of cancellation Exhibit 1. This act of subversion cannot be sanctioned
and cannot serve as basis for petitioner to escape payment of the commission agreed upon.

Wherefore, the decision appealed from is hereby affirmed, with costs against petitioner.

Pars, C. J., Pablo, Bengzon, Padilla, Tuason, Montemayor, Reyes, and Jugo, JJ., concur.

Labrador, J., concurring and dissenting:

I concur in the result. I can not agree, however, to the ruling made in the majority decision that the
petitioners can not introduce evidence of the circumstances under which the document was signed, i. e.
upon promise by respondent that should the property be sold to petitioner's buyer they would
nevertheless be entitled to the commission agreed upon. Such evidence is not excluded by the parole
evidence rule, because it does not tend to alter or vary the terms of the document. This document was
merely a withdrawal of the authority granted the petitioner to sell the property, not an agreement that
they shall not be paid their commission.

Judgment affirmed.
 No. L-20449. January 29, 1968.

ESPERANZA FABIAN, BENITA FABIAN and DAMASO PAPA y FABIAN, plaintiffs-appellants, vs. SILBINA
FABIAN, FELICIANO LANDRITO, TEODORA FABIAN and FRANCISCO DEL MONTE, defendants-appellees.

Friar Lands Act; Sale of Friar Land Estate; Meaning of the legal reservation under section 15 of Act
1120.Under section 15 of Act 1120, otherwise known as the Friar Land Act, title to the land sold is
reserved to the Government until the purchaser makes full payment of all the required installments and
the interests thereon. This legal reservation refers "to the bare, naked title." The equitable and
beneficial title really went to the purchaser the moment he paid the first installment and was given a
certificate of sale. The reservation of the title in favor of the Government is made merely to protect the
"interest of the Government so as to preclude or prevent the purchaser from encumbering or disposing
of the lot purchased before the payment in full of the purchase price. Outside of this protection the
Government retains no right as owner.

Civil Law; Trust; Express Trust and Constructi Distinguished.Express trusts are created by the intention
of the parties, while or implied t ru sts are exclu- sively created by law, the latter not being trusts in their
technical sense. The express trusts disable the trustee from acquiring for his own benefit the property
committed to his management or custody, at least while he does not openly repudiate the trust, and
makes such repudiation known to the beneficiary or cestui que trust. But in constructive trusts the rule
is that laches constitutes a bar to actions to enforce the trust, and no repudiation is required, unless
there is a concealment of the facts giving rise to the trust.

Same; A person who acquired property through fraud is considered a trustee of an implied trust.The
principle is that: If property is acquired through fraud, the person obtaining it is considered a trustee of
an implied trust for the benefit of the person from whom the property comes (Gayondato vs. Insular
Treasurer, 49 Phil. 244).

Same; Action for reconveyance of property based upon a constructive trust may be barred by the
statute of limitations.Overruling previous decisions to the contrary, the Court in Gerona vs. De
Guzman, et al., L-19060, May 29, 1964, held that an action for reconveyance of real property based
upon a constructive or implied trust, resulting from fraud, may be barred by the statute of limitations,
and that the action therefor may be filed within four years from the discovery of the fraud, the discovery
in that case being deemed to have taken place when new certificates of title were issued exclusively in
the names of the respondent therein.

Same; Acquisitive prescription under section 41 of Act 190.Ten years actual adverse possession by any
person claiming to be the owner for that time of any land or interest in land, uninterruptedly continued
for ten years by occupancy, descent, grants, or otherwise, in whatever way such occupancy may have
been commenced or continued, shall vest in every actual occupant or possessor of such land a full and
complete title (see Sec. 41, Act 190).

APPEAL from a decision of the Court of First Instance of Rizal.

The facts are stated in the opinion of the Court.

Felix Law Office for plaintiffs-appellants.

J.G. Mendoza for defendants-appellees.
CASTRO, J.:

Before us is the appeal taken by Esperanza Fabian, Benita I Fabian and Damaso Papa y Fabian from the
decision of the Court of First Instance of Rizal which dismissed their complaint for reconveyance, in civil
case 295R, filed against the defendants spouses Silbina Fabian and Feliciano Landrito, and Teodora
Fabian and Francisco del Monte, upon the ground that the latter had acquired a valid and complete title
to the land in question by acquisitive prescription.

This case traces its origin way back to January 1, 1909 when Pablo Fabian bought from the Philippine
Government lot 164 of the Friar Lands Estate in Muntinlupa, Rizal, of an area 1 hectare, 42 ares and 80
centares, for the sum of P112 payable in installments. By virtue of this purchase, he was issued sale
certificate 547. He died on August 2, 1928, survived by four children, namely, Esperanza, Benita I, Benita
II,1 and Silbina.

On October 5, 1928 Silbina Fabian and Teodora Fabian, niece of the deceased, executed an affidavit,
reciting, among other things,

"Que el finado Pablo Fabian, no dejo ningun otro heredero sino los declarantes, con derecho a heredar
el lote No, 164 de la hacienda Muntinlupa, relicto por dicho finado Pablo Fabian y para la aprobacion de
traspaso a nosotros el referido lote No. 164, prestamos esta declaracion para todos los efectos que
pueden covenir a la Oficina de Terenos a defender por nuestro mayor derecho de heredar dicho lote
contra las reclamaciones juntas de quien las presentare."

On the strength of this affidavit, sale certificate 547 was assigned to them. On November 14, 1928 the
acting Director of Lands, on behalf of the Government, sold lot 164, under deed 17272, to Silbina Fabian,
married to Feliciano Landrito, and to Teodora Fabian, married to Francisco del Monte, for the sum of
P120. The vendees spouses forthwith in 1929 took physical possession thereof, cultivated it, and
appropriated the produce therefrom (and concededly have up to the present been appropriating the
fruits from the land exclusively for themselves). In that same year, they declared the lot in their names
for taxation purposes under tax declaration 3374. This tax declaration was later cancelled, and in lieu
thereof two tax declarations (2418 and 2419) were issued in favor of Teodora Fabian and Silbina Fabian,
respectively. Since 1929 up to the present, they have been paying the real estate taxes thereon. In 1937
the Register of Deeds of Rizal issued TCT 33203 over lot 164 in their names. And on May 4, 1945, they
subdivided the lot into two equal parts; TCT 33203 was then cancelled and TCT 38095 was issued over
lot 164-A in the name of Silbina Fabian, married to Feliciano Landrito, and 38096 was issued over lot
164-B in the name of Teodora Fabian, married to Francisco del Monte.

On July 18, 1960 the plaintiffs filed the present action for reconveyance against the defendants spouses,
averring that Silbina and Teodora, through fraud perpetrated in their affidavit aforesaid, made it appear
that "el finado Pablo Fabian no dejo ningun otro heredero sino los declarantes con derecho a heredar el
lote No. 164 de la hacienda de Muntinlupa", which is a false narration of facts because Silbina knew that
she is not the only daughter and heir of the deceased Pablo Fabian, and Teodora likewise knew all along
that, as a mere niece of the deceased, she was precluded from inheriting from him in the presence of his
f our surviving daughters; that by virtue of this affidavit, the said defendants succeeded in having sale
certificate 547 assigned to them and thereafter in having lot 164 covered by said certificate transferred
in their names; and that by virtue also of these assignment and transfer, the defendants succeeded
fraudulently in having lot 164 registered in their names under TCT 33203. They further allege that the
land has not been transferred to an innocent purchaser for value. A reconveyance thereof is prayed for,
aside from P3,000 attorney's fees and costs.

In their answer of August 31, 1960,2 the defendants spouses claim that Pablo Fabian was not the owner
of lot 164 at the time of his death on August 2, 1928 because he had not paid in full the amortizations
on the lot; that they are the absolute owners thereof, having purchased it from the Government for the
sum of P120, and from that year having exercised all the attributes of ownership thereof up to the
present; and that the present action for reconveyance has already prescribed. The dismissal of the
complaint is prayed for.

On the basis of a partial stipulation of facts together with annexes, the lower court rendered judgment
on June 28, 1962, declaring that the defendants spouses had acquired a valid and complete title to the
property by acquisitive prescription, and accordingly dismissed the complaint, with costs against the
plaintiffs. The latter's motion for reconsideration was thereafter denied.

Hence, the present recourse.

The three resulting issues of law tendered for resolution in this appeal, by the formulation of the parties,
are: (1) Was Pablo Fabian the owner of lot 164 at the time of his death, in the face of the fact, admitted
by the defendants-appellees, that he had not then paid the entire purchase price thereof ? (2) May
laches constitute a bar to an action to enforce a constructive trust? (3) Has title to the land vested in the
appellees through the mode of acquisitive prescription?

1. Lot 164 was a part of the Friar Lands Estate of Muntinlupa, Rizal; its sale to Pablo Fabian was
therefore governed by Act 1120, otherwise known as the Friar Lands Act. While under section 15 of the
said Act, title to the land sold is reserved to the Government until the chaser makes full payment of all
the required installments and the interest thereon, this legal reservation refers "to the bare, naked title.
The equitable and beneficial title really went to the purchaser the moment he paid the first installment
and was given a certificate of sale. The reservation of the title in favor of the Government is made
merely to protect the interest of the Government so as to preclude or prevent the purchaser from
encumbering or disposing of the lot purchased before the payment in full of the purchase price. Outside
of this protection the Government retains no right as an owner. For instance, after issuance of the sales
certificate and pending payment in full of the purchase price, the Government may not sell the lot to
another. It may not even encumber it. It may not occupy the land to use or cultivate; neither may it
lease it or even participate or share in its fruits. In other words, the Government does not and cannot
exercise the rights and prerogatives of owner. And when said purchaser finally pays the final installment
on the purchase price and is given a deed of conveyance and a certificate of title, the title at least in
equity, retroacts to the time he first occupied the land, paid the first installment and was issued the
corresponding certificate of sale. In other words, pending the completion of the payment of the
purchase price, the purchaser is entitled to all the benefits and advantages which may accrue to the land
as well as suffer the losses that may befall it."3

That Pablo Fabian had paid five annual installments to the Government, and in fact been issued sale
certificate 547 in his name, are conceded. He was therefore the owner of lot 164 at the time of his
death. He left four daughters, namely, Esperanza, Benita I, Benita II and Silbina to whom all his rights
and interest over lot 164 passed upon his demise.
"In case a holder of a certificate dies before the giving of the deed and does not leave a widow, then the
interest of the holder of the certificate shall descend and deed shall issue to the person who under the
laws of the Philippine Islands would have taken had the title been perfected before the death of the
holder of the certificate, upon proof of the holders thus entitled of compliance with all the requirements
of the certificate."4

The assignment and sale of the lot to the defendants Silbina and Teodora were therefore null and void
as to that portion sold to Teodora, and as well as to that portion which lawfully devolved in favor of the
appellants. To the extent- of the participation of the appellants, application must be made of the
principle that if property is acquired through fraud, the person obtaining it is considered a trustee of an
implied trust for the benefit of the person from whom the property comes (Gayondato vs. Insular
Treasurer, 49 Phil. 244).

2. In Diaz, et al. vs. Gorricho, et al., 103 Phil. 264-265 (1958), this Court, speaking through Mr. Justice
J.B.L. Reyes, declared in no uncertain terms that laches may bar an action brought to enforce a
constructive trust such as the one in the case at bar. Illuminating are the following excerpts from the
decision penned by Mr. Justice Reyes:

"Article 1456 of the new Civil Code, while not retroactive in character, merely expresses a rule already
recognized by our courts prior to the Code's promulgation (see Gayondato vs. Insular Treasurer, 49 Phil.
244). Appellants are, however, in error in believing that like express trust, such constructive trusts may
not be barred by lapse of time. The American law on trusts has always maintained a distinction between
express trusts created by the intention of the parties, and the implied or constructive trusts that are
exclusively created by law, the latter not being trusts in their technical sense (Gayondato vs. Insular
Treasurer, supra). The express trusts disable the trustee from acquiring for his own benefit the property
committed to his management or custody, at least while he does not openly repudiate the trust, and
makes such repudiation known to the beneficiary or cestui que trust. For this reason, the old Code of
Civil Procedure (Act 190) declared that the rules on adverse possession does not apply to 'continuing
and subsist-ing' (i.e., unrepudiated) trusts.

But in constructive trusts, x x x the rule is that laches constitutes a bar to actions to enforce the trust,
and repudiation is not required, unless there is a concealment of the facts giving rise to the trust (54 Am.
Jur., secs. 580, 581; 65 C.J., secs. 956, 957; Amer. Law Institute, Restatement of Trusts, section 219; on
Restitution, section 179; Stianson vs. Stianson, 6 ALR 287; Claridad vs. Benares, 97 Phil. 973."

The assignment of sale certificate 547 was effected on October 5, 1928, and the actual transfer of lot
164 was made on the following November 14. It was only on July 8, 1960, 32 big years later, that the
appellants for the first time came forward with their claim to the land. The record does not reveal, and it
is not seriously asserted, that the appellees concealed the facts giving rise to the trust. Upon the
contrary, paragraph 13 of the stipulation of facts of the parties states with striking clarity "that
defendants herein have been in possession -of the land in question since 1928 up to the present publicl
y a nd c tinuously under claim of ownership; they have cultivated it, harvested and appropriated the
fruits for themselves." (italics supplied.)

3. Six years later, in Gerona, et al. vs. De Guzman, et al., L-19060, May 29, 1964, the factual setting
attending which is substantially similar to that obtaining in the case at bar, this Court, in an excellently-
phrased decision penned by Chief Justice, then Associate Justice, Roberto Concepcion, unequivocally
reaffirmed the rule, overruling previous decisions to the contrary, that "an action for reconveyance of
real property based upon a constructive or implied trust, resulting from fraud, may be barred by the
statute of limitations," and further that "the action there for may be filed within four years from the
discovery of the fraud," the discovery in that case being deemed tohave taken place when new
certificates of title were issued exclusively in the names of the respondents therein. The following is
what Justice Concepcion, speaking for the Court, said:

"[A]lthough, as a general rule, an action for partition among co-heirs does not prescribe, this is true only
as long as the defendants do not hold the property in question under an adverse title (Cordova vs.
Cordova, L-9936, January 14, 1948). The statute of limitations operates, as in other cases, from the
moment such adverse title is asserted by the possessor of the property (Ramos v. Ramos, 45 Phil., 362;
Bargayo v. Camumot, 40 Phil., 857; Castro v. Echarri, 20 Phil. , 23

"When respondents executed the aforementioned deed of extra-judicial settlement stating therein that
they are the sole heirs of the late Marcelo de Guzman, and secured new transfer certificates of title in
their own name, they thereby excluded the petitioners from the estate of the deceased, and
consequently, set up a title adverse to them. And this is why petitioners have brought this action for the
annulment of said deed upon the ground that the same is tainted with fraud.

"Although, there are some decisions to the contrary (Jacinto v. Mendoza, L-12540, February 28, 1959;
Cuison v. Fernandez, L-11764, January 31, 1959; Marabiles v. Quito, L10408, October 18, 1956 and
Sevilla v. De los Angeles, L-7745, November 18, 1955), it is already settled in this jurisdiction that an
action for reconveyance of real property based upon a constructive or implied trusts, resulting from
fraud, may be barred by the statute of limitations (Candelaria vs. Romero, L-12149, September 30, 1960;
Alzona v. Capunita, L-10220, February 28, 1962).

"Inasmuch as petitioners seek to annul the aforementioned deed of 'extra-judicial settlement' upon the
ground of fraud in the execution thereof, the action therefor may be filed within four (4) years from the
discovery of the fraud (Mauricio v. Villanueva, L-11072, September 24, 1959), Such discovery is deemed
to have taken place, in the case at bar, on June 25, 1948, when said instrument was filed with the
Register of Deeds and new certificates of title were issued in the name of the respondents exclusively,
for the registration of the deed of extra-judicial settlement constitutes constructive notice to the whole
world (Diaz v. Gorricho, L-11229, March 29, 1958; Avecilla v. Yatco, L-11578, May 14, 1958: J. M. Tuason
& Co., Inc. v. Magdangal, L-15539, January 30, 1962; Lopez v. Gonzaga, L-18788, January 31, 1964)."
(Emphasis supplied.)

Upon the undisputed facts in the case at bar, not only had laches set in when the appellants instituted
their action for reconveyance in 1960, but as well their right to enforce the constructive trust had
already prescribed.5

It logically follows from the above disquisition that acquisitive prescription has likewise operated to vest
absolute title in the appellees, pursuant to the provisions of section 41 ,of Act 190 that

"Ten years actual adverse possession by any person claiming to be the owner for that time of any land
or interest in land, uninterruptedly continued for ten years by occupancy, descent, grants, or otherwise,
in whatever way such occupancy may have commenced or continued,6 shall vest in every actual
occupant or possessor of such land a full and complete title x x x". (Italcis ours.)
The stringent mandate of said section 41 that "the possession by the claimant or by the person under or
through whom he claims must have been actual, open, public, continuous, under a claim of title
exclusive of any other right and adverse to all other claimants," was adjudged by the lower court as
having been fulfilled in the case at hand. And we agree. Although paragraph 13 of the stipulation of facts
hereinbefore adverted to does not explicitly employ the word "adverse" to characterize the possession
of the defendants from 1928 up to the filing of the complaint in 1960, the words, "defendants have
been in possession of the land since 1928 up to the present [1960] publicly and continuously under
claim of ownership; they have cultivated it, harvested and appropriated the fruits for themselves,"
clearly delineate, and can have no other logical meaning than, the adverse character of the possession
exercised by the appellees over the land. If the import of the abovequoted portion of the stipulation of
facts is at all doubted, such doubt is dispelled completely by additional cumulative facts in the record
which are uncontroverted. Thus, the appellees declared the lot for taxation purposes in their names,
and the resulting tax declaration was later concelled and two tax declarations were issued in favor of
Silbina Fabian and Teodora Fabian, respectively. They have been paying the real estate taxes thereon
from 1929 to the present. And in 1945 they subdivided the lot into two equal parts, and two transfer
certificates of title were issued separately in their names.

Upon the foregoing disquisition, we hold not only that the appellants' action to enforce the constructive
trust created in their favor has prescribed, but as well that a valid, full and complete title has vested in
the appellees by acquisitive prescription.

ACCORDINGLY, the judgment a quo, dismissing the complaint, is affirmed. No pronouncement as to

costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Bengzon, J.P., Zaldivar, Sanchez, Angeles and Fernando, JJ.,
concur.

Makalintal, J., concurs in the result.

Judgment affirmed.

Note.As to trust and prescription, see Julio vs. Dalandan, L-19012, Oct. 30, 1967, 21 SCRA 543;
Cuaycong vs. Cuaycong, L-21616, Dec. 11, 1967, 21 SCRA 1192; Pascual vs. Meneses, L-18838, May 25,
1967, 20 SCRA 219; Araneta vs. Perez, L-18872, July 15, 1966, 17 SCRA 643; De Buencamino vs, De
Matias, L-19397, April 30, 1966, 16 SCRA 849.
 FIRST DIVISION

No. L-33762. December 29, 1977.*

POTENCIANA DUQUE, AMADEO DUQUE and ARSENIO DUQUE, petitioners, vs. PAZ DOMINGO,
represented by her guardian ad litem, MARCOSA DUQUE-VALENZUELA, Intestate Estate of JULIA
DUQUE, in substitution of Julia Duque, and the COURT OF APPEALS, respondents.

Remedial Law; Evidence; Respondents theory that the purchase of the land by a person thru her agent
and the verbal donation of said land to another is supported only by testimonial evidence which cannot
prevail over petitioners documentary evidence consisting of a sale certificate issued by the Bureau of
Lands and transfer certificates of title in the name of the real purchaser.The theory of the private
respondents that the land in question was purchased by Juana Duque through her agent Faustino Duque
and that in 1927 she verbally donated said land to Julia Duque is supported only by testimonial evidence
which cannot prevail over the petitioners documentary evidence consisting of Sale Certificate No. 1138
issued in 1909 whereby the Director of Lands sold Lot 1083 to Faustino Duque on a 20-year installment
of P25.00 per year for a total price of P503.00 and the transfer certificates of title in the name of
Mariano Duque and his heirs. If Juana Duque was the real purchaser, it is odd that Faustino Duque
appeared as the purchaser of Lot 1083 in Sale Certificate No. 1138. From 1909 until her death in 1928
Juana Duque had never taken any step to have the land in question transferred in her name despite the
fact that in 1915 Faustino Duque transferred his right to the land x x x to Mariano Duque. There is no
sufficient evidence to show that Juana Duque consented to the transfer by Faustino Duque of his right
to the land in question in favor of Mariano Duque. Moreover, if Juana Duque was the real owner of Lot
1083 she would not have Consented to the aforementioned transfer by Faustino Duque to Mariano
Duque.

Civil Law; Reconveyance; Alleged possession by respondents of disputed land did not divest petitioners
as registered owners of their right to the land; Adverse possession under claim of ownership for a period
fixed by law is ineffective against a Torrens title.The alleged possession by the private respondents of
the land in question did not divest the petitioners, as registered owners, of their rights of Lot 1083.
Adverse possession under claim of ownership for the period fixed by law is ineffective against a Torrens
title.

Same; Same; Donations; Oral donation by a person in favor of another did not transfer right over
property to the donee; To be valid, donation of an immovable must be made in a public instrument as
provided for in the Civil Code.The alleged oral donation by Juana in favor of Julia Duque did not
transfer any right over Lot 1083 to the donee. Both under the Spanish Civil Code and the Civil Code of
the Philippines, a donation of an immovable, to be valid must be made in a public document, specifying
therein the property donated and the value of the charges which the donee must satisfy.

Same; Same; Partition; Oral or verbal partition becomes improbable when lot is registered land; Any
transaction affecting registered land should be evidenced by a registerable deed.The Court of Appeals
must have realized the fatal infirmity of the alleged verbal donation because it considered the case
from the point of view of a verbal partition among heirs made by the decedent and consented to by
them. There is no adequate showing that Mariano Duque consented in 1927 to a verbal parition in
question, Lot 1083, to Julia Duque. On the contrary, in 1931, after full payment of the purchase price,
Mariano Duque obtained in his name Transfer Certificate of Title No. 7501 for Lot 1083 from the
government. The improbability of the alleged oral partition becomes more evident when it is considered
that Lot 1083 is registered land and any transaction affecting registered land should be evidenced by a
registerable deed.

Same; Same; Prescription; Trusts; Assuming implied or constructive trust existed between Juana Duque
and either Faustino or Mariano Duque, the right of action upon the same had prescribed as 35 years had
passed since the issuance of the transfer certificate of title on the land in question to Mariano Duque;
Registration of instrument with Register of Deeds is constructive notice to the whole world and that
fiduciary or trust relationship has been repudiated; Implied or constructive trusts prescribe in 10
years.No implied trust between Juana Duque and either Faustino Duque or Mariano Duque has been
established by sufficient evidence. At any rate, granting, arguendo, that such an implied or constructive
trust existed, the right of action upon the same has prescribed. From 1931 when Transfer Certificate of
Title No. 7501 covering the land in question was issued to Mariano Duque until 1966 when the present
case was commenced a period of 35 years had passed. The registration of an instrument in the Office of
the Register of Deeds constitutes constructive notice to the whole world, and, therefore, discovery of
the fraud is deemed to have taken place at the time of registration. Such registration is deemed to be a
constructive notice that the alleged fiduciary or trust relationship has been repudiated. It is now settled
that an action on an implied or constructive trust prescribes in ten (10) years from the date the right of
action accrued. The issuance of Transfer Certificate of Title No. 7501 in 1931 to Mariano Duque
commenced the effective assertion of adverse title for the purpose of the statute of limitations.

PETITION for certiorari to review the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Antonio K. Aranda & Virgilio B. Jara for petitioners.

Arturo Agustines for respondents.

FERNANDEZ, J.:

This is a petition for certiorari to review the decision of the Court of Appeals in CA G.R. No. 43557-R
entitled JULIA DUQUE, for herself and as natural guardian of her daughter of unsound mind PAZ
DOMINGO, versus POTENCIANA DUQUE, AMADEO DUQUE and ARSENIO DUQUE, the dispositive part of
which reads:

WHEREFORE, the decision appealed from is hereby reversed and another one entered instead, declaring
Julia Duque the absolute owner of lot 1083 currently covered by TCT No. T-25195 in the name of
defendants; declaring said TCT No. T-25195 null and void; and ordering that a new certificate of title be
issued in the name of Julia Duque. Without pronouncement as to costs.

SO ORDERED.1

On September 5. 1966, Julia Duque, for herself and as natural guardian of her daughter of unsound
mind, Paz Domingo, instituted against Potenciana Duque, Amadeo Duque and Arsenio Duque Civil Case
No. 266-V in the Court of First Instance of Bulacan for reconveyance of Lot 1083 of Malinta Estate
located in Polo, Bulacan and in the alternative, to declare Transfer Certificate of Title No. 25195 in the
name of the defendants void and to declare the plaintiffs as the absolute owners of said Lot 1083.
The complaint alleged that plaintiff, Julia Duque, is a niece of Juana Duque who died in 1928; that the
defendants are the children of Mariano Duque, a deceased nephew of Juana Duque and natural brother
of the plaintiff, Julia Duque; that sometime in 1908, Juana Duque, through her other nephew, Faustino
Duque, whom she had employed as her agent, purchased from the government Lot 1083 of the Malinta
Estate at Polo, Bulacan assessed under Tax Declaration No. 8724 at P1,600.00, more particularly
described in Original Certificate of Title No. 374; that Lot 1083 was then a part of the Friar Estate of the
government disposable by the Director of Lands on installment pursuant to the Friar Land Act; that
Faustino Duque, the agent, caused the document of purchase, Sale Certificate No. 1138, to be issued by
the government in his name with the consent of his principal, Juana Duque; that under the terms of Sale
Certificate No. 1138, the price of Lot 1083 was P503.00 payable in 20 annual installments of P25.00
each; that the original of the sale certificate was lost in the files of the Bureau of Lands during the war
and plaintiffs could not secure a copy for attachment to the complaint; that on June 22, 1915, Faustino
Duque transferred his Sale Certificate No. 1138 with the permission of Juana Duque to his brother,
Mariano Duque, who later received in 1931 Transfer Certificate No. 7501 for Lot 1083 from the
government; that since the issuance of the sale certificate in 1909, Juana Duque had been in the
exclusive possession of Lot 1083 as owner paying the installments stipulated in the contract to the
government through Faustino Duque and Mariano Duque or reimbursing their advances therefor; that
in 1927, Juana Duque verbally donated and delivered Lot 1083 to plaintiff Julia Duque, her niece; that
from then on up to the present, the plaintiff Julia Duque has been in the exclusive possession of Lot
1083 as beneficial owner thereof; that Mariano Duque, the title holder, died and in 1957, his children,
Emilio Duque, Potenciana Duque, Amadeo Duque and Arsenio Duque registered Lot 1083 in their names
under Transfer Certificate of Title No. T-19924 of the Registry of Deeds of Bulacan; that subsequently
Emilio Duque died without issue and the defendants had Lot 1083 recorded in their names under
Transfer Certificate of Title No. T-25195 in 1959; that plaintiff, Julia Duque, requested the defendants to
reconvey to her the title of Lot 1083 but they refused and still refuse to comply with her request; that
Juana Duque, the original owner of Lot 1083 died single, without issue and instestate in 1928 survived
by her nephews, as legal heirs, Mariano Duque, Domingo Duque, Faustino Duque and Apolonio Duque;
that the foregoing legal heirs recognized the donation of Lot 1083 made by Juana Duque to plaintiff,
Julia Duque, in or about 1927 and repudiated and abandoned all rights to contest it, as in fact they
caused Lot 1083 to be declared for tax purposes in the name of Paz Domingo, the only child of Julia
Duque, in or about 1933; and that the defendants had recognized plaintiffs beneficial ownership of Lot
1083 after the death of their father, Mariano Duque.2

In their answer filed on October 5, 1966, the defendants averred as affirmative and special defenses that
Lot 1083 of the Malinta Estate is owned in fee simple by defendants, Potenciana, Amadeo and Arsenio,
all surnamed Duque, as evidenced by T.C.T. No. T-25195 of the Registry of Deeds of Bulacan; that said
property was originally purchased in 1915 by defendants father and predecessor-in-interest, Mariano
Duque, from the government of the Philippine Islands; that the purchase price of the land being payable
in installment, it was only in 1931, after full payment of said price, when Mariano Duque acquired
ownership in fee simple over Lot 1083 by the issuance in his favor of T.C.T. No. 7501 of the Registry of
Deeds of Bulacan by the government of the Philippine Islands; that from 1915 up to the present, over a
period of 51 years, Mariano Duque, his heirs and successors in interest which include defendants herein
have continuously treated, held and possessed Lot 1083 as their sole and exclusive property and that no
one among them has recognized that the beneficial ownership thereof was vested in Julia Duque, Juana
Duque, Paz Domingo or any third person; that the validity of the grant in 1931 by the Government of the
Philippine Islands of T.C.T. No. T-7501 in favor of Mariano Duque was never questioned by the plaintiffs
in spite of their knowledge about it; that in fact the plaintiffs were aware that from the issuance of said
title in 1931 and in exercise of the rights of ownership over the land, at least three conveyances
involving Lot 1083 had been recorded in the Office of the Registry of Deeds of Bulacan which resulted in
the grant of new certificates of title in the name of the proper parties; that notwithstanding their
knowledge about these conveyances, the plaintiffs kept silent and never raised any objections thereto;
that although the plaintiffs and defendants belong to the same family, no allegation that earnest efforts
towards a compromise have been made by the former is contained in the complaint; that under the
circumstances, plaintiffs have no cause of action against the defendants; that even assuming that they
have a cause of action, the same has been barred by the statute of limitations and/or by laches or it is
enforceable under the Statute of Frauds; and that in any event, the plaintiffs are in estoppel from
claiming any rights of interest over Lot 1083.3

The parties filed on June 22, 1968 the following:

PARTIAL STIPULATION OF FACTS

The parties hereto hereby submit the following partial stipulation of facts, in compliance with the verbal
permission of the Court at the hearing on June 25, 1968:

1. Plaintiff Julia Duque is the natural sister of the late Mariano Duque, who died on June 20, 1947;

2. Defendants Potenciana, Arsenio and Amadeo, all surnamed, Duque, are the legitimate children of said
Mariano Duque;

3. The property in question, which was formerly a part of the Friar Land Estate of the Government (Lot
1083 of the Malinta Estate), was disposed of by the Government of the Philippine Islands on January 1,
1909 by virtue of Sales Certificate No. 1138 for a consideration of P503.00 payable in 20 annual
installments of P25.00 per year, effective January 1, 1909;

4. As per Sales Certificate No. 1138, the grantee thereof was one Faustino Duque;

5. On September 15, 1931. Transfer Certificate of Title No. 7501, covering said parcel of land, was issued
in favor of the late Mariano Duque;

6. As of this date, the property in question is covered by Transfer Certificate of Title No. 25195 of the
Registry of Deeds for the Province of Bulacan issued in the names of defendants Potenciana Arsenio and
Amadeo, all surnamed, Duque;

7. The present value of said property is more than P300,000.00.

WHEREFORE, it is respectfully prayed that the foregoing partial Stipulation of Facts be approved and
made a part of the records of this case.

AVIADO & ARANDA

By:
(Sgd.) ILLEGIBLE
Counsel for the defendants

214 Bank of P.I. Bldg.

Plaza Moraga, Manila

(Sgd.) ARTURO AGUSTINES

Counsel for the Plaintiffs

Polo, Bulacan

The trial court rendered the decision dated February 1969 dismissing the complaint without cost.

Meanwhile, the plaintiff Julia Duque died on January 31, 1969. She was ordered substituted by her
daughter and co-plaintiff, Paz Domingo for whom Marcosa Duque-Valenzuela was appointed as
guardian ad litem in an order of the trial court dated March 31, 1969.5

The plaintiffs appealed to the Court of Appeals where the appeal was docketed as CA-G.R. No. 43557-R.
The Court of Appeals declared Julia Duque the absolute owner of Lot 1083 because Although the
plaintiffs theory is that the property in question was acquired by Julia Duque through an oral donation
made by her aunt Juana Duque in her favor, the case should be considered from the point of view of a
verbal partition among heirs made by the decedent and consented to by them. The Court of Appeals
said that In 1927 one year before her death Juana Duque gathered her nephews and nieces in her
house and made a verbal partition of her properties: to each of them she gave something and to Julia
she gave the property in question, all of the heirs including Mariano Duque, consented to each others
largesse.6

The petitioners assign the following errors:

THE COURT A QUO ERRED IN NOT HOLDING THAT THE CLAIM OF PRIVATE RESPONDENTS TO ENFORCE
AN IMPLIED TRUST OVER REAL PROPERTY HAD PRESCRIBED OR HAD BEEN BARRED BY LACHES.

II

THE COURT A QUO ERRED IN NOT HOLDING THAT THE ORAL DONATION MADE IN 1927 OF LOT 1083,
ASSUMING THE TRUTH THEREOF, WAS NULL AND VOID.

III

THE COURT A QUO ERRED IN PRESUMING, EVEN WITHOUT ANY SHRED OF EVIDENCE PRESENTED IN
SUPPORT THEREOF, AND IN UTTER DISREGARD OF THE SALES CERTIFICATE ISSUED BY THE
GOVERNMENT AND ITS CORRESPONDING ASSIGNMENT, THAT FAUSTINO DUQUE AND MARIANO
DUQUE ACTED AS AGENTS OF JUANA DUQUE.

IV

THE COURT A QUO ERRED IN NOT HOLDING THAT AN IMPLIED TRUST OVER A REAL PROPERTY COVERED
BY TORRENS TITLE CANNOT BE ESTABLISHED BY A MERE TAX DECLARATION.

V.
THE COURT A QUO ERRED IN PROMULGATING THE DECISION, WHICH IS PREMISED ON FACTS AND
INVOLVING ISSUES NOT COVERED BY THE EVIDENCE AND RAISED IN THE PLEADINGS.7

The partial stipulation of facts and the evidence established that the land in question, Lot 1083 of the
Malinta Estate was formerly a part of the Friar Land Estate of the Government; that on January 1, 1909
the Government of the Philippine Islands sold to Faustino Duque Lot 1083 by virtue of Sale Certificate
No. 1138 for a consideration of P503.00 payable in 20 annual installments of P25.00 per year, effective
on January 1, 1909; that in 1915 Faustino Duque assigned his right on Lot 1083 in favor of Mariano
Duque, the legitimate father of the petitioners Potenciana Duque, Amadeo Duque and Arsenio Duque;
that on September 15, 1931, Transfer Certificate of Title No. 7501 was issued in the name of Mariano
Duque; that upon the death of Mariano Duque, his widow, Dorotea Vda. de Duque and children,
Potenciana, Amadeo, Arsenio and Emilio, all surnamed Duque, as heirs, instituted in the Court of First
Instance of Manila a proceeding for the settlement of the estate of said Mariano Duque; that in the
estate proceeding Lot 1083 was adjudicated pro-indiviso to the widow and children of Mariano Duque;
that Transfer Certificate of Title No. 19924 was issued to the said heirs; that when Dorotea Vda. de
Duque and Emilio Duque died in 1954 and 1956, respectively, their shares in Lot 1083 were inherited by
the petitioners to whom Transfer Certificate of Title No. 25195 was issued; that in 1933 the land in
question was declared for taxation in the name of the respondent, Paz Domingo; that beginning with
the year 1949 the tax declaration embracing the land in question was in the name of Mariano Duque;
and that Tax Declaration No. 15214 is in the names of the petitioners.8

The private respondents adduced oral evidence that sometime in 1908 Juana Duque, through her
nephew whom she had employed as her agent, purchased from the Government Lot 1083 of the
Malinta Estate in Polo, now Valenzuela, Bulacan; that Faustino Duque, the agent, caused the document
of purchase, Sale Certificate No. 1138, to be issued by the government in his name with the consent of
his principal, Juana Duque; and that in or about 1927 Juana Duque verbally donated and delivered Lot
1083 to her niece, Julia Duque.9

The theory of the private respondents that the land in question was purchased by Juana Duque through
her agent Faustino Duque and that in 1927 she verbally donated said land to Julia Duque is supported
only by testimonial evidence which cannot prevail over the petitioners documentary evidence
consisting of Sale Certificate No. 1138 issued in 1909 whereby the Director of Lands sold Lot 1083 to
Faustino Duque on a 20-year installment of P25.00 per year for a total price of P503.00 and the transfer
certificates of title in the name of Mariano Duque and his heirs. If Juana Duque was the real purchaser, it
is odd that Faustino Duque appeared as the purchaser of Lot 1083 in Sale Certificate No. 1138. From
1909 until her death in 1928 Juana Duque had never taken any step to have the land in question
transferred in her name despite the fact that in 1915 Faustino Duque transferred his right to the land
under Sale Certificate No. 1138 to Mariano Duque. There is no sufficient evidence to show that Juana
Duque consented to the transfer by Faustino Duque of his right to the land in question in favor of
Mariano Duque. Moreover, if Juana Duque was the real owner of Lot 1083 she would not have
consented to the aforementioned transfer by Faustino Duque to Mariano Duque.

The complaint10 admitted that in 1931 Mariano Duque received Transfer Certificate of Title No. 7501
for Lot 1083 from the government; that Mariano Duque, the holder, died and in 1957 his children
registered Lot 1083 in their names under Transfer Certificate of Title No. T-19924; and that upon the
death of Emilio Duque without issue, the defendants, petitioners herein, had said Lot 1083 recorded in
their names under Transfer Certificate of Title No. T-25195 in 1959.
From 1931 the title to the land in question, Lot 1083, had always been in the name of Mariano Duque
and after his death, in those of his children, the herein petitioners. The complaint was filed by Julia
Duque only in September 1966 after the lapse of thirty-five (35) years from the issuance of Transfer
Certificate of Title No. 7501 to Mariano Duque.

The alleged possession by the private respondents of the land in question did not divest the petitioners,
as registered owners, of their rights to Lot 1083. Adverse possession under claim of ownership for the
period fixed by law is ineffective against a Torrens title.11

The alleged oral donation by Juana Duque in favor of Julia Duque did not transfer any right over Lot
1083 to the donee. Both under the Spanish Civil Code and the Civil Code of the Philippines, a donation of
an immovable, to be valid must be made in a public document, specifying therein the property donated
and the value of the charges which the donee must satisfy.12

The Court of Appeals must have realized the fatal infirmity of the alleged verbal donation because it
considered the case from the point of view of a verbal partition among heirs made by the decedent and
consented to by them.13

There is no adequate showing that Mariano Duque consented in 1927 to a verbal partition made by
Juana Duque wherein she gave the property in question, Lot 1083, to Julia Duque. On the contrary, in
1931, after full payment of the purchase price, Mariano Duque obtained in his name Transfer Certificate
of Title No. 7501 for Lot 1083 from the government.14

The improbability of the alleged oral partition becomes more evident when it is considered that Lot
1083 is registered land and any transaction affecting registered land should be evidenced by a
registerable deed.15

No implied trust between Juana Duque and either Faustino Duque or Mariano Duque has been
established by sufficient evidence.

At any rate, granting, arguendo, that such an implied or constructive trust existed, the right of action
upon the same has prescribed. From 1931 when Transfer Certificate of Title No. 7501 covering the land
in question was issued to Mariano Duque until 1966 when the present case was commenced a period of
35 years had passed. The registration of an instrument in the Office of the Register of Deeds constitutes
constructive notice to the whole world, and, therefore, discovery of the fraud is deemed to have taken
place at the time of registration.16 Such registration is deemed to be a constructive notice that the
alleged fiduciary or trust relationship has been repudiated. It is now settled that an action on an implied
or constructive trust prescribes in ten (10) years from the date the right of action accrued.17 The
issuance of Transfer Certificate of Title No. 7501 in 1931 to Mariano Duque commenced the effective
assertion of adverse title for the purpose of the statute of limitations.

WHEREFORE, the decision of the Court of Appeals appealed from is hereby set aside and Civil Case No.
266-V of the Court of First Instance of Bulacan is dismissed, without pronouncement as to costs.

SO ORDERED.

Makasiar, Muoz Palma and Guerrero, JJ., concur.

 Teehankee (Chairman), J., in the result.
Martin, J., took no part.

Decision of the Court of Appeals set aside and Civil Case No. 266-V is dismissed.

Notes.Implied trusts are those which, without being expressed, and deducible from the nature of the
transaction as matters of intent, or which are superinduced on the transaction by operation of law as
matters of equity, independently of the particular intention of the parties. (Ramos vs. Ramos, 61 SCRA
284).

A constructive trust is a trust raised by construction of law, or arising by operation of law. (Ibid.).

A resulting trust is broadly defined as a trust which is raised or created by the act or construction of law,
but in its more restricted sense it is a trust by implication of law and presumed always to have been
contemplated by the parties, the intention as to which is to be found in the nature of their transactions,
but not expressed in the deed or instrument of conveyance. (Ibid.).

The prescriptibility of an action for reconveyance based on an implied or constructive trust is now
settled to be ten years. (Escay vs. Court of Appeals, 61 SCRA 369).

The 30-year limitation on usufruct under the old Spanish Civil Code does not apply to trusts. Thus, the
devise of the income of the land for public benefit for an indefinite period was held as not violative of
the rule against trusts provided for in Article 785 of the Spanish Civil Code. (Palad vs. Governor of
Quezon Province, 46 SCRA 354).

A written instrument is necessary to set up an express trust over immovables. (Erenete vs. Bezore, 54
SCRA 13).

A co-heir who, through fraud, succeeds in obtaining a certificate of title in his name, to the prejudice of
his co-heir is deemed to hold the land in trust for the latter, and the action by the latter to recover the
property does not prescribe. (Vda. de Jacinto vs. Vda. de Jacinto, 5 SCRA 371).