Philpotts v. Philippine Manufacturing Co.

, 40 Phil 471
Orient Air Services v. CA, 197 SCRA 645
Macke v. Camps, 7 Phil. 553
Litonjua, Jr. v. Eternit Corp. 490 SCRA 204
Spouses Viloria v. Continental Airlines, 663 SCRA 57
Sevilla v. CA, 160 SCRA 171
De la Cruz v. Northern Theatrical Enterprises, 95 Phil. 739
Nielson & Co. v. Lepanto Consolidated, 26 SCRA 540
Gonzalo Puyat & Sons v. Arco Amusement Co., 72 Phil. 402
Ker v. Lingad, 38 SCRA 524
Medrano v. Court of Appeals, 452 SCRA 77

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

vs.
FIREMEN'S INSURANCE COMPANY OF NEWARK NEW JERSEY COMMERCIAL CASUALTY INSURANCE
CO., SALVADOR SISON, PORFIRIO DE LA FUENTE and THE COURT OF APPEALS

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

The Court of Appeals found the following:

Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee, the Shell

Company of the Philippine Islands, Ltd. accept the statement of facts made by the trial
court in its decision and appearing on pages 23 to 37 of the Record on Appeal, we quote
hereunder such statement:

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

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

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

                                               

'Q. Will you please describe how they proceeded to do the work?
A. Yes, sir. The first thing that was done, as I saw, was to drive the car over the
lifter. Then by the aid of the two grease-men they raised up my car up to six
 feet high, and then washing was done. After, washing the next step was
greasing. Before greasing was finished, there is a part near the shelf of the
right fender, right frontfertder, of my car to be greased, but the grease-men
cannot reach that part, so the next thing to be done was to loosen the lifter
just a few feet lower. Then upon releasing the valve to make the car lower, a
little bit lower ...
Q. Who released the valve?
The greaseman, for the escape of the air. As the escape of the air is too strong
for my ear I faced backward. I faced toward Isaac Peral Street, and covered
A. my ear. After the escape of the air has been finished, the air coming out from
the valve, I turned to face the car and I saw the car swaying at that time, and
just for a few second the car fell., (t.s.n., pp. 22-23.)
The case was immediately reported to the Manila Adjustor Company, the adjustor for
the Firemen's Insurance Company and the Commercial Casualty Insurance Company,
as the car was insured with these insurance companies.  After having been inspected by
one Mr. Baylon, representative of the Manila Adjustors Company, the damaged car was
taken to the shops of the Philippine Motors, Incorporated, for repair upon order of the
Firemen's Insurance Company and the Commercial Casualty Company, with the
consent of Salvador R. Sison. The car was restored to running condition after repairs
amounting to P1,651.38, and was delivered to Salvador R. Sison, who, in turn made
assignment of his rights to recover damages in favor of the Firemen's Insurance
Company and the Commercial Casualty Insurance Company.

"On the other hand, the fall of the car from the hydraulic lifter has been explained by
Alfonse M. Adriano, a greaseman in the Shell Gasoline and Service Station, as follows:
                                                                                                                                                                         
Were you able to lift the car on the hydraulic lifter on the occasion,
'Q.
September 3, 1947?
A. Yes, sir.
Q. To what height did you raise more or less?
A. More or less five feet, sir.
Q. After lifting that car that height, what did you do with the car?
A. I also washed it, sir.
Q. And after washing?
A. I greased it.
On that occasion, have you been able to finish greasing and washing the
Q.
car?
A. There is one point which I could not reach.
Q. And what did you do then?
A. I lowered the lifter in order to reach that point.
Q. After lowering it a little, what did you do then?
A. I pushed and pressed the valve in its gradual pressure.
Were you able to reach the portion which you were not able to reach while it
Q.
was lower?
A. No more, sir.
Q. Why?
Because when I was lowering the lifter I saw that, the car was swinging and
A.
it fell. THE COURT. Why did the car swing and fall?
WITNESS: 'That is what I do not know, sir.' (t.s.n., p. 67.)"
The position of Defendant Porfirio de la Fuente is stated in his counter-statement of
facts which is hereunder also reproduced:

"In the afternoon of September 3, 1947, an automobile belonging to the plaintiff

Salvador Sison was brought by his son, Perlito Sison, to the gasoline and service station
at the corner of Marques de Comillas and Isaac Peral Streets, City of Manila,
Philippines, owned by the defendant The Shell Company of the Philippine Islands,
Limited, but operated by the defendant Porfirio de la Fuente, for the purpose of having
said car washed and greased for a consideration of P8.00. (t.s.n., pp. 19-20.) Said car
was insured against loss or damage by Firemen's Insurance Company of Newark, New
Jersey, and Commercial Casualty Insurance Company jointly for the sum of P10,000
(Exhibits "A", "B", and "D").

"The job of washing and greasing was undertaken by defendant Porfirio de la Fuente
through his two employees, Alfonso M. Adriano, as greaseman and one surnamed de
los Reyes, a helper and washer (t.s.n., pp. 65-67). To perform the job the car was
carefully and centrally placed on the platform of the lifter in the gasoline and service
station aforementioned before raising up said platform to a height of about 5 feet and
then the servicing job was started. After more than one hour of washing and greasing,
the job was about to be completed except for an ungreased portion underneath the
vehicle which could not be reached by the greasemen. So, the lifter was lowered a little
by Alfonso M. Adriano and while doing so, the car for unknown reason accidentally fell
and suffered damage to the value of P1,651.38 (t.s.n., pp. 65-67).

"The insurance companies after paying the sum of P1,651.38 for the damage and
charging the balance of P100.00 to Salvador Sison in accordance with the terms of the
insurance contracts, have filed this action together with said Salvador Sison for the
recovery of the total amount of the damage from the defendants on the ground of
negligence (Record on Appeal, pp. 1-6).

"The defendant Porfirio de la Fuente denied negligence in the operation of the lifter in
his separate answer and contended further that the accidental fall of the car was caused
by unforseen event (Record on Appeal, pp. 17-19)."
The owner of the car forthwith notified the insurers who ordered their adjustor, the
Manila Adjustors Company, to investigate the incident and after such investigation the
damaged car, upon order of the insurers and with the consent of the owner, was
brought to the shop of the Philippine Motors, Inc. The car was restored to running
condition after repairs thereon which amounted to P1,651.38 and returned to the
owner who assigned his right to collect the aforesaid amount to the Firemen's
Insurance Company and the Commercial Casualty Insurance Company. 
On 6 December 1947 the insurers and the owner of the car brought an action in the
Court of First Instance of Manila against the Shell Company of the Philippines, Ltd.
and Porfirio de la Fuente to recover from them, jointly and severally, the sum of
P1,651.38, interest thereon at the legal rate from the filing of the complaint until fully
paid, and costs. After trial the Court dismissed the complaint. The plaintiffs appealed.
The Court of Appeals reversed the judgment and sentenced the defendant to pay the
amount sought to be recovered, legal interest and costs, as stated at the beginning of
this opinion.           In arriving at the conclusion that on 3 September 1947 when the car
was brought to the station for servicing Porfirio de la Fuente, the operator of the
gasoline and service station, was an agent of the Shell Company of the Philippines, Ltd.,
the Court of Appeals found that

*  * * De la Fuente owed his position to the Shell Company which could remove him or
terminate his services at any time from the said Company, and he undertook to sell the
Shell Company's products exclusively at the said  Station.  For this purpose, De la
Fuente was placed in possession of the gasoline and service station under
consideration, and was provided with all the equipments needed to operate it, by the
said Company, such as the tools and articles listed on Exhibit 2 which included the
hydraulic lifter (hoist) and accessories, from which Sison's automobile fell on the date
in question (Exhibits 1 and 2).  These equipments were delivered to De la Fuente on a
so-called loan basis.  The Shell Company took charge of its care and maintenance and
rendered to the public or its customers at that station for the proper functioning of the
equipment.  Witness Antonio Tiongson, who was sales superintendent of the Shell
Company, and witness Augusto Sawyer, foreman of the same Company, supervised the
operators and conducted periodic inspections  of the  Company's  gasoline  and  service 
stations, the service station in question inclusive.  Explaining his duties and
responsibilities and the reason for the loan, Tiongson said: "mainly on the supervision
of sales or (of) our dealers and routinary inspection of the equipment loaned by the
company" (t.s.n., 107); "we merely inquire about how the equipments are, whether they
have complaint, and whether if said equipments are in proper order * * *",  (t.s.n., 110);
station equipments are "loaned for the exclusive use of the dealer on condition that all
supplies to be sold by said dealer should be exclusively Shell, so as a concession we loan
equipments for their use * * *," "for the proper functioning of the equipments, we
answer and see to it that the equipments are in good running order and usable
condition * * *," "with respect to the public." (t.s.n., 111-112). De la Fuente, as operator,
was given special prices by the Company for the gasoline products sold therein. Exhibit
1 Shell, which was a receipt by Antonio Tiongson and signed by De la Fuente,
acknowledging the delivery of equipments of the gasoline and service station in
question was subsequently replaced by Exhibit 2 Shell, an official form of the inventory
of the equipment which De la Fuente signed above the words: "Agent's signature". And
the service station in question had been marked "SHELL, and all advertisements
therein bore the same sign.  

* * *. * * * De la Fuente was the operator of the station "by grace" of the Defendant
Company which could and did remove him as it pleased; that all the equipments
needed to operate the station was. owned by the Defendant Company which took
charge of their proper care and maintenance, despite the fact that they were loaned to
him; that the Defendant company did not leave the fixing of price for gasoline to De la
Fuente; on the other hand, the Defendant company had complete control thereof; and
that Tiongsqn, the sales representative of the Defendant Company, had supervision
over De la Fuente in the operation of the station, and in the sale of Defendant
Company's products therein. * * *.
Taking into consideration the fact that the operator owed his position to the company
and the latter could remove him or terminate his services at will; that the service
station belonged to the company and bore its tradename and the operator sold only the
products of the company; that the equipment used by the operator belonged to the
company and were just loaned to the operator and the company took charge of their
repair and maintenance; that an employee of the Company supervised the operator and
conducted periodic inspection of the company's gasoline and service station; that the
price of the products sold by the operator was fixed by the company and not by the
operator; and that the receipts signed by the operator indicated that He was a mere
agent, the finding of the Court of Appeals that the operator was an agent of the 764 
PHILIPPINE REPORTS Shell Co, of the Phils., Ltd. vs. Firemen's Ins. Co. of Newark,
N. J., et al, company and not an independent contractor should not be disturbed.
To determine the nature of a contract courts do not have or are not bound to rely upon
the name or title given it by the contracting parties, should there be a controversy as to
what they really had intended to enter into, but the way the contracting parties do or
perform their respective obligations stipulated or agreed upon may be shown and
inquired into, and should such performance conflict with the name or title given the
contract by the parties, the former must" prevail over the latter.

It was admitted by the operator of the gasoline and service station that "the car was
carefully and centrally placed on the platform of the lifter * * *" and the Court of
Appeals found that-

* * * the fall of Appellant Sison's car from the hydraulic lift and the damage caused
therefor, were the result of the jerking and swaying- of the lift when the valve was
released, and that the jerking was due to some accident and unforeseen shortcoming of
the mechanism itself, which caused its faulty or defective operation or functioning, and
that -

* * *the  servicing 'job  on  Appellant   Sison's   automobile  was accepted by De la

Fuente in the normal and ordinary conduct of his business as operator of his co-
appellee's service station, and that the jerking and swaying of the hydraulic lift which
caused the fall of the subject car were due to its defective condition, resulting in its
faulty operation.   * * *.
As the act of the agent or his employees acting within the scope of his authority is the
act of the principal, the breach of the undertaking by the agent is one for which the
principal is answerable. Moreover, the company undertook to "answer and see to it that
the equipments are in good running order and usable condition;" and the Court of
Appeals found that the Company's mechanic failed to make a thorough check up of the
hydraulic lifter and the check up made by its mechanic was "merely routine" by raising
"the lifter once or twice and after observing that the operation was satisfactory, he (the
mechanic) left the place." The latter was negligent and the company must answer for
the negligent act of its mechanic which was the cause of the fall of the car from the
hydraulic lifter.

The judgment under review is affirmed, with costs against the petitioner.

Philpotts v. Philippine Manufacturing Co., 40 Phil 471

The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one of the respondents
herein, seeks by this proceeding to obtain a writ of mandamus to compel the respondents to permit the plaintiff, in
person or by some authorized agent or attorney, to inspect and examine the records of the business transacted by
said company since January 1, 1918. The petition is filed originally in this court under the authority of section 515 of
the Code of Civil Procedure, which gives to this tribunal concurrent jurisdiction with the Court of First Instance in
cases, among others, where any corporation or person unlawfully excludes the plaintiff from the use and enjoyment
of some right to which he is entitled. The respondents interposed a demurrer, and the controversy is now before us
for the determination of the questions thus presented.

The first point made has reference to a supposed defect of parties, and it is said that the action can not be
maintained jointly against the corporation and its secretary without the addition of the allegation that the latter is the
custodian of the business records of the respondent company.

By the plain language of sections 515 and 222 of our Code of Civil Procedure, the right of action in such a
proceeding as this is given against the corporation; and the respondent corporation in this case was the only
absolutely necessary party. In the Ohio case of Cincinnati Volksblatt Co. vs. Hoffmister (61 Ohio St., 432; 48 L. R.
A., 735), only the corporation was named as defendant, while the complaint, in language almost identical with that in
the case at bar, alleged a demand upon and refusal by the corporation.

Nevertheless the propriety of naming the secretary of the corporation as a codefendant cannot be questioned, since
such official is customarily charged with the custody of all documents, correspondence, and records of a
corporation, and he is presumably the person against whom the personal orders of the court would be made
effective in case the relief sought should be granted. Certainly there is nothing in the complaint to indicate that the
secretary is an improper person to be joined. The petitioner might have named the president of the corporation as a
respondent also; and this official might be brought in later, even after judgment rendered, if necessary to the
effectuation of the order of the court.

Section 222 of our Code of Civil Procedure is taken from the California Code, and a decision of the California
Supreme Court — Barber vs. Mulford (117 Cal., 356) — is quite clear upon the point that both the corporation and
its officers may be joined as defendants.

The real controversy which has brought these litigants into court is upon the question argued in connection with the
second ground of demurrer, namely, whether the right which the law concedes to a stockholder to inspect the
records can be exercised by a proper agent or attorney of the stockholder as well as by the stockholder in person.
There is no pretense that the respondent corporation or any of its officials has refused to allow the petitioner himself
to examine anything relating to the affairs of the company, and the petition prays for a peremptory order
commanding the respondents to place the records of all business transactions of the company, during a specified
period, at the disposal of the plaintiff or his duly authorized agent or attorney, it being evident that the petitioner
desires to exercise said right through an agent or attorney. In the argument in support of the demurrer it is conceded
by counsel for the respondents that there is a right of examination in the stockholder granted under section 51 of the
Corporation Law, but it is insisted that this right must be exercised in person.
The pertinent provision of our law is found in the second paragraph of section 51 of Act No. 1459, which reads as
follows: "The record of all business transactions of the corporation and the minutes of any meeting shall be open to
the inspection of any director, member or stockholder of the corporation at reasonable hours."

This provision is to be read of course in connecting with the related provisions of sections 51 and 52, defining the
duty of the corporation in respect to the keeping of its records.

Now it is our opinion, and we accordingly hold, that the right of inspection given to a stockholder in the provision
above quoted can be exercised either by himself or by any proper representative or attorney in fact, and either with
or without the attendance of the stockholder. This is in conformity with the general rule that what a man may do in
person he may do through another; and we find nothing in the statute that would justify us in qualifying the right in
the manner suggested by the respondents.

This conclusion is supported by the undoubted weight of authority in the United States, where it is generally held
that the provisions of law conceding the right of inspection to stockholders of corporations are to be liberally
construed and that said right may be exercised through any other properly authorized person. As was said in
Foster vs. White (86 Ala., 467), "The right may be regarded as personal, in the sense that only a stockholder may
enjoy it; but the inspection and examination may be made by another. Otherwise it would be unavailing in many
instances." An observation to the same effect is contained in Martin vs. Bienville Oil Works Co. (28 La., 204), where
it is said: "The possession of the right in question would be futile if the possessor of it, through lack of knowledge
necessary to exercise it, were debarred the right of procuring in his behalf the services of one who could exercise it."
In Deadreck vs. Wilson (8 Baxt. [Tenn.], 108), the court said: "That stockholders have the right to inspect the books
of the corporation, taking minutes from the same, at all reasonable times, and may be aided in this by experts and
counsel, so as to make the inspection valuable to them, is a principle too well settled to need discussion."
Authorities on this point could be accumulated in great abundance, but as they may be found cited in any legal
encyclopedia or treaties devoted to the subject of corporations, it is unnecessary here to refer to other cases
announcing the same rule.

In order that the rule above stated may not be taken in too sweeping a sense, we deem it advisable to say that there
are some things which a corporation may undoubtedly keep secret, notwithstanding the right of inspection given by
law to the stockholder; as for instance, where a corporation, engaged in the business of manufacture, has acquired
a formula or process, not generally known, which has proved of utility to it in the manufacture of its products. It is not
our intention to declare that the authorities of the corporation, and more particularly the Board of Directors, might not
adopt measures for the protection of such process form publicity. There is, however, nothing in the petition which
would indicate that the petitioner in this case is seeking to discover anything which the corporation is entitled to keep
secret; and if anything of the sort is involved in the case it may be brought out at a more advanced stage of the
proceedings. lawphil.net

The demurrer is overruled; and it is ordered that the writ of mandamus shall issue as prayed, unless within 5 days
from notification hereof the respondents answer to the merits. So ordered.

Arellano, C.J., Torres, Johnson, Araullo, Malcolm and Avanceña, JJ., concur.

Orient Air Services v. CA, 197 SCRA 645

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner, 

vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.

G.R. No. 76933             May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner, 

vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:

This case is a consolidation of two (2) petitions for review on certiorari of a decision  of the Court of Appeals in CA-
1

G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which
affirmed, with modification, the decision  of the Regional Trial Court of Manila, Branch IV, which dismissed the
2

complaint and granted therein defendant's counterclaim for agent's overriding commission and damages.

The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier offering
passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel Representatives
(hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement (hereinafter referred to as
the Agreement), whereby the former authorized the latter to act as its exclusive general sales agent within the
Philippines for the sale of air passenger transportation. Pertinent provisions of the agreement are reproduced, to wit:

WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto agree as follows:

1. Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the Philippines,
including any United States military installation therein which are not serviced by an Air Carrier
Representation Office (ACRO), for the sale of air passenger transportation. The services to be performed by
Orient Air Services shall include:

(a) soliciting and promoting passenger traffic for the services of American and, if necessary,
employing staff competent and sufficient to do so;

(b) providing and maintaining a suitable area in its place of business to be used exclusively for the
transaction of the business of American;

(c) arranging for distribution of American's timetables, tariffs and promotional material to sales
agents and the general public in the assigned territory;

(d) servicing and supervising of sales agents (including such sub-agents as may be appointed by
Orient Air Services with the prior written consent of American) in the assigned territory including if
required by American the control of remittances and commissions retained; and

(e) holding out a passenger reservation facility to sales agents and the general public in the
assigned territory.

In connection with scheduled or non-scheduled air passenger transportation within the United States, neither
Orient Air Services nor its sub-agents will perform services for any other air carrier similar to those to be
performed hereunder for American without the prior written consent of American. Subject to periodic
instructions and continued consent from American, Orient Air Services may sell air passenger transportation
to be performed within the United States by other scheduled air carriers provided American does not provide
substantially equivalent schedules between the points involved.

x x x           x x x          x x x
4. Remittances

Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders, less
commissions to which Orient Air Services is entitled hereunder, not less frequently than semi-monthly, on
the 15th and last days of each month for sales made during the preceding half month.

All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock or on
exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder, are the
property of American and shall be held in trust by Orient Air Services until satisfactorily accounted for to
American.

5. Commissions

American will pay Orient Air Services commission on transportation sold hereunder by Orient Air Services or
its sub-agents as follows:

(a) Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient Air
Services or its sub-agents over American's services and any connecting through air transportation, when
made on American's ticket stock, equal to the following percentages of the tariff fares and charges:

(i) For transportation solely between points within the United States and between such points and
Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America.

(ii) For transportation included in a through ticket covering transportation between points other than
those described above: 8% or such other rate(s) as may be prescribed by the International Air
Transport Association.

(b) Overriding commission

In addition to the above commission American will pay Orient Air Services an overriding commission of 3%
of the tariff fares and charges for all sales of transportation over American's service by Orient Air Service or
its sub-agents.

x x x           x x x          x x x

10. Default

If Orient Air Services shall at any time default in observing or performing any of the provisions of this
Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any agreement
or promise with its creditors or go into liquidation, or suffer any of its goods to be taken in execution, or if it
ceases to be in business, this Agreement may, at the option of American, be terminated forthwith and
American may, without prejudice to any of its rights under this Agreement, take possession of any ticket
forms, exchange orders, traffic material or other property or funds belonging to American.

11. IATA and ATC Rules

The provisions of this Agreement are subject to any applicable rules or resolutions of the International Air
Transport Association and the Air Traffic Conference of America, and such rules or resolutions shall control
in the event of any conflict with the provisions hereof.

x x x           x x x          x x x

13. Termination
 American may terminate the Agreement on two days' notice in the event Orient Air Services is unable to
transfer to the United States the funds payable by Orient Air Services to American under this Agreement.
Either party may terminate the Agreement without cause by giving the other 30 days' notice by letter,
telegram or cable.

x x x           x x x          x x x
3

On 11 May 1981, alleging that Orient Air had defaulted on its obligations under the Agreement by failing to promptly
remit the net proceeds of sales for the months of January to March 1981 in the amount of US $254,400.40,
American Air by itself undertook the collection of the proceeds of tickets sold originally by Orient Air and terminated
forthwith the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May
1981, American Air instituted suit against Orient Air with the Court of First Instance of Manila, Branch 24, for
Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining Order  averring the
4

aforesaid basis for the termination of the Agreement as well as therein defendant's previous record of failures "to
promptly settle past outstanding refunds of which there were available funds in the possession of the defendant, . . .
to the damage and prejudice of plaintiff." 5

In its Answer  with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations of the
6

complaint with respect to plaintiff's entitlement to alleged unremitted amounts, contending that after application
thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid
overriding commissions. Further, the defendant contended that the actions taken by American Air in the course of
terminating the Agreement as well as the termination itself were untenable, Orient Air claiming that American Air's
precipitous conduct had occasioned prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of the defendant, the trial court ruled in its
favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of defendant
and against plaintiff dismissing the complaint and holding the termination made by the latter as affecting the
GSA agreement illegal and improper and order the plaintiff to reinstate defendant as its general sales agent
for passenger tranportation in the Philippines in accordance with said GSA agreement; plaintiff is ordered to
pay defendant the balance of the overriding commission on total flown revenue covering the period from
March 16, 1977 to December 31, 1980 in the amount of US$84,821.31 plus the additional amount of
US$8,000.00 by way of proper 3% overriding commission per month commencing from January 1, 1981
until such reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the time of
payment plus legal interest to commence from the filing of the counterclaim up to the time of payment.
Further, plaintiff is directed to pay defendant the amount of One Million Five Hundred Thousand
(Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three Hundred Thousand
(P300,000.00) pesos as and by way of attorney's fees.

Costs against plaintiff. 7

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27 January 1986,
affirmed the findings of the court a quo on their material points but with some modifications with respect to the
monetary awards granted. The dispositive portion of the appellate court's decision is as follows:

WHEREFORE, with the following modifications —

1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the latter's
overriding commission covering the period March 16, 1977 to December 31, 1980, or its Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;

2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission per
month starting January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the counterclaim
was filed
 3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the answer with
counterclaim was filed, until full payment;

4) American is ordered to pay Orient exemplary damages of P200,000.00;

5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.

the rest of the appealed decision is affirmed.

Costs against American. 8

American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof and
arguing for its reversal. The appellate court's decision was also the subject of a Motion for Partial Reconsideration
by Orient Air which prayed for the restoration of the trial court's ruling with respect to the monetary awards. The
Court of Appeals, by resolution promulgated on 17 December 1986, denied American Air's motion and with respect
to that of Orient Air, ruled thus:

Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial court's award
of exemplary damages and attorney's fees, but granted insofar as the rate of exchange is concerned. The
decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the payment
of the sums mentioned therein shall be at their Philippine peso equivalent in accordance with the official rate
of exchange legally prevailing on the date of actual payment. 9

Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as petitioner in G.R.
No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution  of this Court dated 25 March 1987 both
10

petitions were consolidated, hence, the case at bar.

The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding commission. It is
the stand of American Air that such commission is based only on sales of its services actually negotiated or
transacted by Orient Air, otherwise referred to as "ticketed sales." As basis thereof, primary reliance is placed upon
paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:

5. Commissions

a) . . . 

b) Overriding Commission

In addition to the above commission, American will pay Orient Air Services an overriding commission of 3%
of the tariff fees and charges for all sales of transportation over American's services by Orient Air Services or
itssub-agents. (Emphasis supplied)

Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having opted to
appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement to the disputed
overriding commission based only on ticketed sales. This is supposed to be the clear meaning of the underscored
portion of the above provision. Thus, to be entitled to the 3% overriding commission, the sale must be made by
Orient Air and the sale must be done with the use of American Air's ticket stocks.

On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission covers the
total revenue of American Air and not merely that derived from ticketed sales undertaken by Orient Air. The latter, in
justification of its submission, invokes its designation as the exclusive General Sales Agent of American Air, with the
corresponding obligations arising from such agency, such as, the promotion and solicitation for the services of its
principal. In effect, by virtue of such exclusivity, "all sales of transportation over American Air's services are
necessarily by Orient Air."11

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken into
consideration to ascertain the meaning of its provisions.  The various stipulations in the contract must be read
12
together to give effect to all.  After a careful examination of the records, the Court finds merit in the contention of
13

Orient Air that the Agreement, when interpreted in accordance with the foregoing principles, entitles it to the 3%
overriding commission based on total revenue, or as referred to by the parties, "total flown revenue."

As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the promotion and
marketing of American Air's services for air passenger transportation, and the solicitation of sales therefor. In return
for such efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a sales agency
commission, ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on American Air
ticket stock; and second, an overriding commission of 3% of tariff fares and charges for all sales of passenger
transportation over American Air services. It is immediately observed that the precondition attached to the first type
of commission does not obtain for the second type of commissions. The latter type of commissions would accrue for
sales of American Air services made not on its ticket stock but on the ticket stock of other air carriers sold by such
carriers or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such
overriding commissions to sales from American Air ticket stock would erase any distinction between the two (2)
types of commissions and would lead to the absurd conclusion that the parties had entered into a contract with
meaningless provisions. Such an interpretation must at all times be avoided with every effort exerted to harmonize
the entire Agreement.

An additional point before finally disposing of this issue. It is clear from the records that American Air was the party
responsible for the preparation of the Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be
taken "contra proferentem", i.e., construed against the party who caused the ambiguity and could have avoided it by
the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that the interpretation of obscure
words or stipulations in a contract shall not favor the party who caused the obscurity.  To put it differently, when
14

several interpretations of a provision are otherwise equally proper, that interpretation or construction is to be
adopted which is most favorable to the party in whose favor the provision was made and who did not cause the
ambiguity.  We therefore agree with the respondent appellate court's declaration that:
15

Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read against
the party who drafted it. 16

We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate court, on
this issue, ruled thus:

It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the
Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is entitled,
and from paragraph 5(d) which specifically allows Orient to retain the full amount of its commissions. Since,
as stated ante, Orient is entitled to the 3% override. American's premise, therefore, for the cancellation of
the Agreement did not exist. . . ."

We agree with the findings of the respondent appellate court. As earlier established, Orient Air was entitled to an
overriding commission based on total flown revenue. American Air's perception that Orient Air was remiss or in
default of its obligations under the Agreement was, in fact, a situation where the latter acted in accordance with the
Agreement—that of retaining from the sales proceeds its accrued commissions before remitting the balance to
American Air. Since the latter was still obligated to Orient Air by way of such commissions. Orient Air was clearly
justified in retaining and refusing to remit the sums claimed by American Air. The latter's termination of the
Agreement was, therefore, without cause and basis, for which it should be held liable to Orient Air.

On the matter of damages, the respondent appellate court modified by reduction the trial court's award of exemplary
damages and attorney's fees. This Court sees no error in such modification and, thus, affirms the same.

It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the trial
court. We refer particularly to the lower court's decision ordering American Air to "reinstate defendant as its general
1âwphi1

sales agent for passenger transportation in the Philippines in accordance with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to extend its
personality to Orient Air. Such would be violative of the principles and essence of agency, defined by law as a
contract whereby "a person binds himself to render some service or to do something in representation or on behalf
of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER .  (emphasis supplied) In an agent-principal
17
relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by
legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law
or by any court. The Agreement itself between the parties states that "either party may terminate the
Agreementwithout cause by giving the other 30 days' notice by letter, telegram or cable." (emphasis supplied) We,
therefore, set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as general sales
agent of American Air.

WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the respondent
Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs against petitioner American
Air.

SO ORDERED.

Macke v. Camps, 7 Phil. 553

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

Manuel G. Gavieres for appellant.

Gibbs & Gale for appellees.

CARSON, J.:

The plaintiffs in this action, B. H. Macke and W. H. Chandler, partners doing business under the firm name of
Macke, Chandler & Company, allege that during the months of February and March, 1905, they sold to the
defendant and delivered at his place of business, known as the "Washington Cafe," various bills of goods amounting
to P351.50; that the defendant has only paid on account of said accounts the sum of P174; that there is still due
them on account of said goods the sum of P177.50; that before instituting this action they made demand for the
payment thereof; and that defendant had failed and refused to pay the said balance or any part of it up to the time of
the filing of the complaint. 

B. H. Macke, one of the plaintiffs, testified that on the order of one Ricardo Flores, who represented himself to be
agent of the defendant, he shipped the said goods to the defendants at the Washington Cafe; that Flores later
acknowledged the receipt of said goods and made various payments thereon amounting in all to P174; that on
demand for payment of balance of the account Flores informed him that he did not have the necessary funds on
hand, and that he would have to wait the return of his principal, the defendant, who was at that time visiting in the
provinces; that Flores acknowledged the bill for the goods furnished and the credits being the amount set out in the
complaint; that when the goods were ordered they were ordered on the credit of the defendant and that they were
shipped by the plaintiffs after inquiry which satisfied the witness as to the credit of the defendant and as to the
authority of Flores to act as his agent; that the witness always believed and still believes that Flores was the agent
of the defendant; and that when he went to the Washington Cafe for the purpose of collecting his bill he found
Flores, in the absence of the defendant in the provinces, apparently in charge of the business and claiming to be the
business manager of the defendant, said business being that of a hotel with a bar and restaurant annexed. 

A written contract dated May 25, 1904, was introduced in evidence, from which it appears that one Galmes, the
former owner of the business now know as the "Washington Cafe," subrented the building wherein the business was
conducted, to the defendant for a period of one year, for the purpose of carrying on that business, the defendant
obligating himself not to sublet or subrent the building or the business without the consent of the said Galmes. This
contract was signed by the defendant and the name of Ricardo Flores appears thereon as a witness, and attached
thereto is an inventory of the furniture and fittings which also is signed by the defendant with the word "sublessee"
(subarrendatario) below the name, and at the foot of this inventory the word "received" (recibo) followed by the
name "Ricardo Flores," with the words "managing agent" (el manejante encargado) immediately following his
name. 
Galmes was called to the stand and identified the above- described document as the contract and inventory
delivered to him by the defendant, and further stated that he could not tell whether Flores was working for himself or
for some one else — that it to say, whether Flores was managing the business as agent or sublessee. 

The defendant did not go on the stand nor call any witnesses, and relies wholly on his contention that the foregoing
facts are not sufficient to establish the fact that he received the goods for which payment is demanded. 

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

The contract introduced in evidence sufficiently establishes the fact that the defendant was the owner of business
and of the bar, and the title of "managing agent" attached to the signature of Flores which appears on that contract,
together with the fact that, at the time the purchases in question were made, Flores was apparently in charge of the
business, performing the duties usually entrusted to managing agent, leave little room for doubt that he was there as
authorized agent of the defendant. One who clothes another apparent authority as his agent, and holds him out to
the public as such, can not be permitted to deny the authority of such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in good faith and in the following preassumptions or deductions,
which the law expressly directs to be made from particular facts, are deemed conclusive: 

(1) "Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such belief, he can not, in any litigation arising out such declaration,
act, or omission, be permitted to falsify it" (subsec. 1, sec. 333, Act no. 190); and unless the contrary appears, the
authority of an agent must be presumed to include all the necessary and usual means of carrying his agency into
effect. (15 Conn., 347; 90 N. C. 101; 15 La. Ann, 247; 43 Mich., 364; 93 N. Y., 495; 87 Ind., 187.) 

That Flores, as managing agent of the Washington Cafe, had authority to buy such reasonable quantities of
supplies as might from time to time be necessary in carrying on the business of hotel bar may fairly be presumed
from the nature of the business, especially in view of the fact that his principal appears to have left him in charge
during more or less prolonged periods of absence; from an examination of the items of the account attached to the
complaint, we are of opinion that he was acting within the scope of his authority in ordering these goods are binding
on his principal, and in the absence of evidence to the contrary, furnish satisfactory proof of their delivery as alleged
in the complaint. 

The judgment of the trial court is affirmed with the costs of his instance against the appellant. After expiration of
twenty days judgment will be rendered in accordance herewith, and ten days thereafter the case remanded to the
lower court for proper action. So ordered. 

Arellano, C.J., Torres and Willard, JJ., concur. 

Tracey, J., dissents.

Litonjua, Jr. v. Eternit Corp. 490 SCRA 204

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners, 

vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and
FAR EAST BANK & TRUST COMPANY, Respondents.

DECISION

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No.
51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No.
54887, as well as the Resolution2 of the CA denying the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it
had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were
conducted on eight parcels of land with a total area of 47,233 square meters. The properties, located in
Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119,
451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as trustee.
Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a
corporation organized and registered under the laws of Belgium. 3 Jack Glanville, an Australian citizen, was the
General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC.
Both had their offices in Belgium.

In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to
stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of EC’s
Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker Lauro G.
Marquez so that the properties could be offered for sale to prospective buyers. Glanville later showed the properties
to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of the
Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized to sell
the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation.4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his brother
Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised
Glanville of the Litonjua siblings’ offer and relayed the same to Delsaux in Belgium, but the latter did not respond.
On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of
the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on
the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing
obligations prior to final liquidation."5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987, confirmed
that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings
would confirm full payment within 90 days after execution and preparation of all documents of sale, together with the
necessary governmental clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company, Ermita
Branch, and drafted an Escrow Agreement to expedite the sale.7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. In
a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer, which had given him the
impression that "he is prepared to press for a satisfactory conclusion to the sale." 8 He also emphasized to Delsaux
that the buyers were concerned because they would incur expenses in bank commitment fees as a consequence of
prolonged period of inaction.9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the political
situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising that the sale
would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he had been
instructed by his principal to inform Marquez that "the decision has been taken at a Board Meeting not to sell the
properties on which Eternit Corporation is situated."10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided not to
proceed with the sale of the subject land, to wit: 

May 22, 1987

Mr. L.G. Marquez

L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was
proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as
the Philippines are (sic) concerned. Considering [the] new political situation since the departure of MR. MARCOS
and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila. In fact,
production has started again last week, and (sic) to recognize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later state, we
would consult you again.

xxx

Yours sincerely,

(Sgd.)
C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for damages
they had suffered on account of the aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi-
Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended
complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan,
Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account
of their purchase of ESAC shares of stocks and were the controlling stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the
Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC never
approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated
October 28, 1986 of Jack Glanville was his own personal making which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended
complaint.12The fallo of the decision reads:

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said
defendants.

The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also
dismissed for lack of merit.13

The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void and not
merely unenforceable, and as such, could not have been ratified by the principal. In any event, such ratification
cannot be given any retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the property
without a clear authorization from the corporation concerned, that is, through resolutions of the Board of Directors
and stockholders. The trial court also pointed out that the supposed sale involves substantially all the assets of
defendant EC which would result in the eventual total cessation of its operation.14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that the real
estate broker in the instant case needed a written authority from appellee corporation and/or that said broker had no
such written authority; and (2) the lower court committed grave error of law in holding that appellee corporation is
not legally bound for specific performance and/or damages in the absence of an enabling resolution of the board of
directors."15 They averred that Marquez acted merely as a broker or go-between and not as agent of the corporation;
hence, it was not necessary for him to be empowered as such by any written authority. They further claimed that an
agency by estoppel was created when the corporation clothed Marquez with apparent authority to negotiate for the
sale of the properties. However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected
contract of sale, which the corporation was obliged to consummate. 

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were
Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale involved
substantially all of the corporation’s assets, it would necessarily need the authority from the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas filed a motion for
reconsideration, which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article 1874 of
the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from EC’s board of
directors to bind such corporation to the sale of its properties. Delsaux, who was merely the representative of ESAC
(the majority stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was not even a
member of the board of directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel had
been created between the parties.

In the instant petition for review, petitioners aver that

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A
WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE
NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE
KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID
PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels of land
and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final
liquidation." Petitioners insist that they had accepted the counter-offer of respondent EC and that before the counter-
offer was withdrawn by respondents, the acceptance was made known to them through real estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez to
validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his authority
was of a special and limited character in most respects. His only job as a broker was to look for a buyer and to bring
together the parties to the transaction. He was not authorized to sell the properties or to make a binding contract to
respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate both the
offer and counter-offer and their acceptance of respondent EC’s counter-offer, resulting in a perfected contract of
sale.

Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who was the
President and General Manager of respondent EC, and Delsaux, who was the Managing Director for ESAC Asia,
had the necessary authority to sell the subject property or, at least, had been allowed by respondent EC to hold
themselves out in the public as having the power to sell the subject properties. Petitioners identified such evidence,
thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of
Eternit, to sell the properties of said corporation to any interested party, which authority, as hereinabove
discussed, need not be in writing. 

2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS,
from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners; 

4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as evidenced by the
Petitioners’ ACCEPTANCE of the counter-offer; 

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an
ESCROW agreement was drafted over the subject properties;

6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY

AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners’ offer
was allegedly REJECTED by both Glanville and Delsaux.18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners’ offer and
thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that Delsaux
confirmed his authority to sell the properties in his letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was
proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as
the Philippines are (sic) concerned. Considering the new political situation since the departure of MR. MARCOS and
a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact
production started again last week, and (sic) to reorganize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later stage we
would consult you again.

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX19
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted by
respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist that respondents
held themselves to the public as possessing power to sell the subject properties.

By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are proscribed by
Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and ESAC reiterate their
submissions in the CA. They maintain that Glanville, Delsaux and Marquez had no authority from the stockholders
of respondent EC and its Board of Directors to offer the properties for sale to the petitioners, or to any other person
or entity for that matter. They assert that the decision and resolution of the CA are in accord with law and the
evidence on record, and should be affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to the
written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent EC is
evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to
Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in respondent EC at the time
of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial formality. What is important, petitioners maintain, is
that Marquez was able to communicate the offer of respondent EC and the petitioners’ acceptance thereof. There
was no time that they acted without the knowledge of respondents. In fact, respondent EC never repudiated the acts
of Glanville, Marquez and Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in this case are
factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents
relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as agents, is a
question of fact. In the absence of express written terms creating the relationship of an agency, the existence of an
agency is a fact question.20 Whether an agency by estoppel was created or whether a person acted within the
bounds of his apparent authority, and whether the principal is estopped to deny the apparent authority of its agent
are, likewise, questions of fact to be resolved on the basis of the evidence on record. 21 The findings of the trial court
on such issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and appellate
courts ignored, misconstrued, or misapplied facts and circumstances of substance which, if considered, would
warrant a modification or reversal of the outcome of the case.22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court because
the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether testimonial and
documentary. There are, however, recognized exceptions where the Court may delve into and resolve factual
issues, namely:

(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when
the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the
trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are
based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which,
if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals
are premised on the absence of evidence and are contradicted by the evidence on record.23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls
under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported by the
evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had
empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to
accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted by
respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is sought of a
contract made with an agent, the agency must be established by clear, certain and specific proof.24
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be elected from among the holders of
stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1)
year and until their successors are elected and qualified. 

Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not affected
by the personal rights, 

obligations and transactions of the latter.25 It may act only through its board of directors or, when authorized either by
its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general
principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law.26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the
limitations prescribed by law and the Constitution, as follows:

SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the power and
capacity:

xxxx

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real
and personal property, including securities and bonds of other corporations, as the transaction of a lawful business
of the corporation may reasonably and necessarily require, subject to the limitations prescribed by the law and the
Constitution. 

The property of a corporation, however, is not the property of the stockholders or members, and as such, may not
be sold without express authority from the board of directors. 27 Physical acts, like the offering of the properties of the
corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution
of the deed of sale covering such property, can be performed by the corporation only by officers or agents duly
authorized for the purpose by corporate by-laws or by specific acts of the board of directors. 28 Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the
corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are
not binding on the corporation.29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be
with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws.30 An
unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or
impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent
thereof but without written authority from the corporation is null and void. The declarations of the agent alone are
generally insufficient to establish the fact or extent of his/her authority.31

By the contract of agency, a person binds himself to render some service or to do something in representation on
behalf of another, with the consent or authority of the latter.32 Consent of both principal and agent is necessary to
create an agency. The principal must intend that the agent shall act for him; the agent must intend to accept the
authority and act on it, and the intention of the parties must find expression either in words or conduct between
them.33

An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure
to repudiate the agency knowing that another person is acting on his behalf without authority. Acceptance by the
agent may be expressed, or implied from his acts which carry out the agency, or from his silence or inaction
according to the circumstances.34 Agency may be oral unless the law requires a specific form.35 However, to create
or convey real rights over immovable property, a special power of attorney is necessary.36 Thus, when a sale of a
piece of land or any portion thereof is through an agent, the authority of the latter shall be in writing, otherwise, the
sale shall be void.37
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of Directors
of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in
its behalf, the eight parcels of land owned by respondent EC including the improvements thereon. The bare fact that
Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1,
1997, cannot be used as basis for petitioners’ claim that he had likewise been authorized by respondent EC to sell
the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who, in
turn, acted on the authority of respondent ESAC, through its Committee for Asia, 38 the Board of Directors of
respondent ESAC,39 and the Belgian/Swiss component of the management of respondent ESAC.40 As such, Adams
and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus, on
September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale the property
for P27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners offered to purchase the
property for P20,000,000.00, through Marquez, the latter relayed petitioners’ offer to Glanville; Glanville had to send
a telex to Delsaux to inquire the position of respondent ESAC to petitioners’ offer. However, as admitted by
petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux
had to wait for confirmation from respondent ESAC. 41 When Delsaux finally responded to Glanville on February 12,
1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of respondent ESAC was
US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final liquidation. 42 The offer of Delsaux
emanated only from the "Belgian/Swiss decision," and not the entire management or Board of Directors of
respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC, respondent EC
was not a party to the transaction between them; hence, EC was not bound by such acceptance. 

While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were members
of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly authorized agents of
respondent EC; a board resolution evincing the grant of such authority is needed to bind EC to any agreement
regarding the sale of the subject properties. Such board resolution is not a mere formality but is a condition sine qua
non to bind respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent EC;
however, the mere fact that a corporation owns a majority of the shares of stocks of another, or even all of such
shares of stocks, taken alone, will not justify their being treated as one corporation.43

It bears stressing that in an agent-principal relationship, the personality of the principal is extended through the
facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts
which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which
must not, in any way, be compelled by law or by any court.44

The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC
empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to the
petitioners. A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the
agents; statements as to the extent of his powers; such person must not act negligently but must use reasonable
diligence and prudence to ascertain whether the agent acts within the scope of his authority. 45 The settled rule is
that, persons dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to prove it.46 In this case, the petitioners failed to discharge their burden; hence,
petitioners are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned
from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the petitioners, that
the latter had accepted such offer to sell the land and the improvements thereon. However, we agree with the ruling
of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties. A real
estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a
purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by
signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to
sell.47

Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny the existence of a principal-
agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the following must be
established: (1) the principal manifested a representation of the agent’s authority or knowlingly allowed the agent to
assume such authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such
representation, such third person has changed his position to his detriment. 48 An agency by estoppel, which is
similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn,
needs proof that the representations predated the action taken in reliance.49 Such proof is lacking in this case. In
their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were
acting for and in behalf of respondent ESAC. 

Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent
ESAC, through Glanville, Delsaux and Marquez. The transactions and the various communications inter se were
never submitted to the Board of Directors of respondent EC for ratification. 

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.

SO ORDERED.

Spouses Viloria v. Continental Airlines, 663 SCRA 57

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners, 

vs.
CONTINENTAL AIRLINES, INC.,

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009 Decision of the Special
1 

Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586 entitled "Spouses Fernando and Lourdes
Viloria v. Continental Airlines, Inc.," the dispositive portion of which states:

WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding US$800.00 or its
peso equivalent at the time of payment, plus legal rate of interest from 21 July 1997 until fully paid, [₱]100,000.00 as
moral damages, [₱]50,000.00 as exemplary damages, [₱]40,000.00 as attorney’s fees and costs of suit to plaintiffs-
appellees is hereby REVERSED and SET ASIDE.

Defendant-appellant’s counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED. 2 

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a Decision, giving due course
to the complaint for sum of money and damages filed by petitioners Fernando Viloria (Fernando) and Lourdes
Viloria (Lourdes), collectively called Spouses Viloria, against respondent Continental Airlines, Inc. (CAI). As culled
from the records, below are the facts giving rise to such complaint.

On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife, Lourdes,
two (2) round trip airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines.
Fernando purchased the tickets at US$400.00 each from a travel agency called "Holiday Travel" and was attended
to by a certain Margaret Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the said tickets after
Mager informed them that there were no available seats at Amtrak, an intercity passenger train service provider in
the United States. Per the tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and
return to San Diego on August 21, 1997.

Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August 6, 1997.
Mager informed him that flights to Newark via Continental Airlines were already fully booked and offered the
alternative of a round trip flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00
per passenger and would mean traveling by night, Fernando opted to request for a refund. Mager, however, denied
his request as the subject tickets are non-refundable and the only option that Continental Airlines can offer is the re-
issuance of new tickets within one (1) year from the date the subject tickets were issued. Fernando decided to
reserve two (2) seats with Frontier Air.

As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station where he
saw an Amtrak station nearby. Fernando made inquiries and was told that there are seats available and he can
travel on Amtrak anytime and any day he pleased. Fernando then purchased two (2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling her that she
had misled them into buying the Continental Airlines tickets by misrepresenting that Amtrak was already fully
booked. Fernando reiterated his demand for a refund but Mager was firm in her position that the subject tickets are
non-refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a refund and
alleging that Mager had deluded them into purchasing the subject tickets. 3 

In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had been referred
to the Customer Refund Services of Continental Airlines at Houston, Texas. 4 

In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a refund and advised him
that he may take the subject tickets to any Continental ticketing location for the re-issuance of new tickets within two
(2) years from the date they were issued. Continental Micronesia informed Fernando that the subject tickets may be
used as a form of payment for the purchase of another Continental ticket, albeit with a re-issuance fee. 5 

On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to have the subject
tickets replaced by a single round trip ticket to Los Angeles, California under his name. Therein, Fernando was
informed that Lourdes’ ticket was non-transferable, thus, cannot be used for the purchase of a ticket in his favor. He
was also informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay what will not be
covered by the value of his San Diego to Newark round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer wished to
have them replaced. In addition to the dubious circumstances under which the subject tickets were issued,
Fernando claimed that CAI’s act of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which
other airlines priced at US$856.00, and refusal to allow him to use Lourdes’ ticket, breached its undertaking under
its March 24, 1998 letter.6 

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to refund the
money they used in the purchase of the subject tickets with legal interest from July 21, 1997 and to pay
₱1,000,000.00 as moral damages, ₱500,000.00 as exemplary damages and ₱250,000.00 as attorney’s fees. 7 

CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the subject tickets
are non-refundable; (b) Fernando cannot insist on using the ticket in Lourdes’ name for the purchase of a round trip
ticket to Los Angeles since the same is non-transferable; (c) as Mager is not a CAI employee, CAI is not liable for
any of her acts; (d) CAI, its employees and agents did not act in bad faith as to entitle Spouses Viloria to moral and
exemplary damages and attorney’s fees. CAI also invoked the following clause printed on the subject tickets:

3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject
to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier’s conditions of carriage and related
regulations which are made part hereof (and are available on application at the offices of carrier), except in
transportation between a place in the United States or Canada and any place outside thereof to which tariffs in force
in those countries apply.8 

According to CAI, one of the conditions attached to their contract of carriage is the non-transferability and non-
refundability of the subject tickets.

The RTC’s Ruling

Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria are entitled to a
refund in view of Mager’s misrepresentation in obtaining their consent in the purchase of the subject tickets. The 9 

relevant portion of the April 3, 2006 Decision states:

Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in presenting to
plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to travel via AMTRAK, but defendant’s
agent misled him into purchasing Continental Airlines tickets instead on the fraudulent misrepresentation that
Amtrak was fully booked. In fact, defendant Airline did not specifically denied (sic) this allegation.

Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline tickets on Ms.
Mager’s misleading misrepresentations. Continental Airlines agent Ms. Mager further relied on and exploited plaintiff
Fernando’s need and told him that they must book a flight immediately or risk not being able to travel at all on the
couple’s preferred date. Unfortunately, plaintiffs spouses fell prey to the airline’s and its agent’s unethical tactics for
baiting trusting customers."10 

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s agent, hence, bound by her bad
faith and misrepresentation. As far as the RTC is concerned, there is no issue as to whether Mager was CAI’s agent
in view of CAI’s implied recognition of her status as such in its March 24, 1998 letter.

The act of a travel agent or agency being involved here, the following are the pertinent New Civil Code provisions on
agency:

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

Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

Agency may be oral, unless the law requires a specific form.

As its very name implies, a travel agency binds itself to render some service or to do something in representation or
on behalf of another, with the consent or authority of the latter. This court takes judicial notice of the common
services rendered by travel agencies that represent themselves as such, specifically the reservation and booking of
local and foreign tours as well as the issuance of airline tickets for a commission or fee.

The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21, 1997 were no
different from those offered in any other travel agency. Defendant airline impliedly if not expressly acknowledged its
principal-agent relationship with Ms. Mager by its offer in the letter dated March 24, 1998 – an obvious attempt to
assuage plaintiffs spouses’ hurt feelings.11 

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the subject tickets
within two (2) years from their date of issue when it charged Fernando with the amount of US$1,867.40 for a round
trip ticket to Los Angeles and when it refused to allow Fernando to use Lourdes’ ticket. Specifically:

Tickets may be reissued for up to two years from the original date of issue. When defendant airline still charged
plaintiffs spouses US$1,867.40 or more than double the then going rate of US$856.00 for the unused tickets when
the same were presented within two (2) years from date of issue, defendant airline exhibited callous treatment of
passengers. 12 

The Appellate Court’s Ruling

On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held liable for Mager’s act
in the absence of any proof that a principal-agent relationship existed between CAI and Holiday Travel. According to
the CA, Spouses Viloria, who have the burden of proof to establish the fact of agency, failed to present evidence
demonstrating that Holiday Travel is CAI’s agent. Furthermore, contrary to Spouses Viloria’s claim, the contractual
relationship between Holiday Travel and CAI is not an agency but that of a sale.
Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing agent of Holiday
Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from this premise, they contend that
Continental Airlines should be held liable for the acts of Mager. The trial court held the same view.

We do not agree. By the contract of agency, a person binds him/herself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter. The elements of agency are: (1)
consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical
act in relation to a third person; (3) the agent acts as a representative and not for him/herself; and (4) the agent acts
within the scope of his/her authority. As the basis of agency is representation, there must be, on the part of the
principal, an actual intention to appoint, an intention naturally inferable from the principal’s words or actions. In the
same manner, there must be an intention on the part of the agent to accept the appointment and act upon it. Absent
such mutual intent, there is generally no agency. It is likewise a settled rule that persons dealing with an assumed
agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also
the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.
Agency is never presumed, neither is it created by the mere use of the word in a trade or business name. We have
perused the evidence and documents so far presented. We find nothing except bare allegations of plaintiffs-
appellees that Mager/Holiday Travel was acting in behalf of Continental Airlines. From all sides of legal prism, the
transaction in issue was simply a contract of sale, wherein Holiday Travel buys airline tickets from Continental
Airlines and then, through its employees, Mager included, sells it at a premium to clients. 13 

The CA also ruled that refund is not available to Spouses Viloria as the word "non-refundable" was clearly printed on
the face of the subject tickets, which constitute their contract with CAI. Therefore, the grant of their prayer for a
refund would violate the proscription against impairment of contracts.

Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the higher amount of
US$1,867.40 for a round trip ticket to Los Angeles. According to the CA, there is no compulsion for CAI to charge
the lower amount of US$856.00, which Spouses Viloria claim to be the fee charged by other airlines. The matter of
fixing the prices for its services is CAI’s prerogative, which Spouses Viloria cannot intervene. In particular:

It is within the respective rights of persons owning and/or operating business entities to peg the premium of the
services and items which they provide at a price which they deem fit, no matter how expensive or exhorbitant said
price may seem vis-à-vis those of the competing companies. The Spouses Viloria may not intervene with the
business judgment of Continental Airlines. 14 

The Petitioners’ Case

In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the latter’s reversal of
the RTC’s April 3, 2006 Decision allegedly lacks factual and legal bases. Spouses Viloria claim that CAI acted in
bad faith when it required them to pay a higher amount for a round trip ticket to Los Angeles considering CAI’s
undertaking to re-issue new tickets to them within the period stated in their March 24, 1998 letter. CAI likewise acted
in bad faith when it disallowed Fernando to use Lourdes’ ticket to purchase a round trip to Los Angeles given that
there is nothing in Lourdes’ ticket indicating that it is non-transferable. As a common carrier, it is CAI’s duty to inform
its passengers of the terms and conditions of their contract and passengers cannot be bound by such terms and
conditions which they are not made aware of. Also, the subject contract of carriage is a contract of adhesion;
therefore, any ambiguities should be construed against CAI. Notably, the petitioners are no longer questioning the
validity of the subject contracts and limited its claim for a refund on CAI’s alleged breach of its undertaking in its
March 24, 1998 letter.

The Respondent’s Case

In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated by its willingness to issue new
tickets to them and to credit the value of the subject tickets against the value of the new ticket Fernando requested.
CAI argued that Spouses Viloria’s sole basis to claim that the price at which CAI was willing to issue the new tickets
is unconscionable is a piece of hearsay evidence – an advertisement appearing on a newspaper stating that airfares
from Manila to Los Angeles or San Francisco cost US$818.00. Also, the advertisement pertains to airfares in
15 

September 2000 and not to airfares prevailing in June 1999, the time when Fernando asked CAI to apply the value
of the subject tickets for the purchase of a new one. CAI likewise argued that it did not undertake to protect
16 
Spouses Viloria from any changes or fluctuations in the prices of airline tickets and its only obligation was to apply
the value of the subject tickets to the purchase of the newly issued tickets.

With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions on the subject tickets and that
the terms and conditions that are printed on them are ambiguous, CAI denies any ambiguity and alleged that its
representative informed Fernando that the subject tickets are non-transferable when he applied for the issuance of a
new ticket. On the other hand, the word "non-refundable" clearly appears on the face of the subject tickets.

CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-agency relationship
exists between them. As an independent contractor, Holiday Travel was without capacity to bind CAI.

Issues

To determine the propriety of disturbing the CA’s January 30, 2009 Decision and whether Spouses Viloria have the
right to the reliefs they prayed for, this Court deems it necessary to resolve the following issues:

a. Does a principal-agent relationship exist between CAI and Holiday Travel?

b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the acts of
Holiday Travel’s agents and employees such as Mager?

c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, can the representation
of Mager as to unavailability of seats at Amtrak be considered fraudulent as to vitiate the consent of Spouse
Viloria in the purchase of the subject tickets?

d. Is CAI justified in insisting that the subject tickets are non-transferable and non-refundable?

e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by Fernando?

f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of the
subject tickets in the purchase of new ones when it refused to allow Fernando to use Lourdes’ ticket and in
charging a higher price for a round trip ticket to Los Angeles?

This Court’s Ruling

I. A principal-agent relationship exists between CAI and Holiday Travel.

With respect to the first issue, which is a question of fact that would require this Court to review and re-examine the
evidence presented by the parties below, this Court takes exception to the general rule that the CA’s findings of fact
are conclusive upon Us and our jurisdiction is limited to the review of questions of law. It is well-settled to the point
of being axiomatic that this Court is authorized to resolve questions of fact if confronted with contrasting factual
findings of the trial court and appellate court and if the findings of the CA are contradicted by the evidence on
record. 17 

According to the CA, agency is never presumed and that he who alleges that it exists has the burden of proof.
Spouses Viloria, on whose shoulders such burden rests, presented evidence that fell short of indubitably
demonstrating the existence of such agency.

We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial that Holiday Travel is one of its
agents. Furthermore, in erroneously characterizing the contractual relationship between CAI and Holiday Travel as a
contract of sale, the CA failed to apply the fundamental civil law principles governing agency and differentiating it
from sale.

In Rallos v. Felix Go Chan & Sons Realty Corporation, this Court explained the nature of an agency and spelled out
18 

the essential elements thereof:

Out of the above given principles, sprung the creation and acceptance of the relationship of agencywhereby one
party, called the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf
in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of
the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. 1avvphi1

Agency is basically personal, representative, and derivative in nature. The authority of the agent to act emanates
from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts himself." 19 

Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second elements
are present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby Holiday Travel
would enter into contracts of carriage with third persons on CAI’s behalf. The third element is also present as it is
undisputed that Holiday Travel merely acted in a representative capacity and it is CAI and not Holiday Travel who is
bound by the contracts of carriage entered into by Holiday Travel on its behalf. The fourth element is also present
considering that CAI has not made any allegation that Holiday Travel exceeded the authority that was granted to it.
In fact, CAI consistently maintains the validity of the contracts of carriage that Holiday Travel executed with Spouses
Viloria and that Mager was not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday
Travel to enter into contracts of carriage on its behalf is easily discernible from its February 24, 1998 and March 24,
1998 letters, where it impliedly recognized the validity of the contracts entered into by Holiday Travel with Spouses
Viloria. When Fernando informed CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not
deny that Holiday Travel is its authorized agent.

Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it gave Holiday Travel the power and
authority to conclude contracts of carriage on its behalf. As clearly extant from the records, CAI recognized the
validity of the contracts of carriage that Holiday Travel entered into with Spouses Viloria and considered itself bound
with Spouses Viloria by the terms and conditions thereof; and this constitutes an unequivocal testament to Holiday
Travel’s authority to act as its agent. This Court cannot therefore allow CAI to take an altogether different position
and deny that Holiday Travel is its agent without condoning or giving imprimatur to whatever damage or prejudice
that may result from such denial or retraction to Spouses Viloria, who relied on good faith on CAI’s acts in
recognition of Holiday Travel’s authority. Estoppel is primarily based on the doctrine of good faith and the avoidance
of harm that will befall an innocent party due to its injurious reliance, the failure to apply it in this case would result in
gross travesty of justice. Estoppel bars CAI from making such denial.
20 

As categorically provided under Article 1869 of the Civil Code, "[a]gency may be express, or implied from the acts of
the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is
acting on his behalf without authority."

Considering that the fundamental hallmarks of an agency are present, this Court finds it rather peculiar that the CA
had branded the contractual relationship between CAI and Holiday Travel as one of sale. The distinctions between a
sale and an agency are not difficult to discern and this Court, as early as 1970, had already formulated the
guidelines that would aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue v.
Constantino, this Court extrapolated that the primordial differentiating consideration between the two (2) contracts is
21 

the transfer of ownership or title over the property subject of the contract. In an agency, the principal retains
ownership and control over the property and the agent merely acts on the principal’s behalf and under his
instructions in furtherance of the objectives for which the agency was established. On the other hand, the contract is
clearly a sale if the parties intended that the delivery of the property will effect a relinquishment of title, control and
ownership in such a way that the recipient may do with the property as he pleases.

Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to
customers, the price and terms of which were subject to the company's control, the relationship between the
company and the dealer is one of agency, tested under the following criterion:

"The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the
establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title
or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in
the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not
merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an
agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the
owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's
commission upon sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1;
Tiedeman on Sales, 1." (Salisbury v. Brooks, 94 SE 117, 118-119) 22 

As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is a sale is
certainly confounding, considering that CAI is the one bound by the contracts of carriage embodied by the tickets
being sold by Holiday Travel on its behalf. It is undisputed that CAI and not Holiday Travel who is the party to the
contracts of carriage executed by Holiday Travel with third persons who desire to travel via Continental Airlines, and
this conclusively indicates the existence of a principal-agent relationship. That the principal is bound by all the
obligations contracted by the agent within the scope of the authority granted to him is clearly provided under Article
1910 of the Civil Code and this constitutes the very notion of agency.

II. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agent’s
employees if it has been established by preponderance of evidence that the principal was also at fault or
negligent or that the principal exercise control and supervision over them.

Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is liable for the fault or negligence
of Holiday Travel’s employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al., CAI argues that it cannot be
23 

held liable for the actions of the employee of its ticketing agent in the absence of an employer-employee
relationship.

An examination of this Court’s pronouncements in China Air Lines will reveal that an airline company is not
completely exonerated from any liability for the tort committed by its agent’s employees. A prior determination of the
nature of the passenger’s cause of action is necessary. If the passenger’s cause of action against the airline
company is premised on culpa aquiliana or quasi-delict for a tort committed by the employee of the airline
company’s agent, there must be an independent showing that the airline company was at fault or negligent or has
contributed to the negligence or tortuous conduct committed by the employee of its agent. The mere fact that the
employee of the airline company’s agent has committed a tort is not sufficient to hold the airline company liable.
There is no vinculum juris between the airline company and its agent’s employees and the contractual relationship
between the airline company and its agent does not operate to create a juridical tie between the airline company
and its agent’s employees. Article 2180 of the Civil Code does not make the principal vicariously liable for the tort
committed by its agent’s employees and the principal-agency relationship per se does not make the principal a party
to such tort; hence, the need to prove the principal’s own fault or negligence.

On the other hand, if the passenger’s cause of action for damages against the airline company is based on
contractual breach or culpa contractual, it is not necessary that there be evidence of the airline company’s fault or
negligence. As this Court previously stated in China Air Lines and reiterated in Air France vs. Gillego, "in an action
24 

based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was
at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its non-performance
by the carrier."

Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent misrepresentation is clearly one of tort
or quasi-delict, there being no pre-existing contractual relationship between them. Therefore, it was incumbent upon
Spouses Viloria to prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAI’s alleged liability can be substantiated. Apart from
their claim that CAI must be held liable for Mager’s supposed fraud because Holiday Travel is CAI’s agent, Spouses
Viloria did not present evidence that CAI was a party or had contributed to Mager’s complained act either by
instructing or authorizing Holiday Travel and Mager to issue the said misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and conditions of the
subject contracts, which Mager entered into with them on CAI’s behalf, in order to deny Spouses Viloria’s request for
a refund or Fernando’s use of Lourdes’ ticket for the re-issuance of a new one, and simultaneously claim that they
are not bound by Mager’s supposed misrepresentation for purposes of avoiding Spouses Viloria’s claim for
damages and maintaining the validity of the subject contracts. It may likewise be argued that CAI cannot deny
liability as it benefited from Mager’s acts, which were performed in compliance with Holiday Travel’s obligations as
CAI’s agent.
However, a person’s vicarious liability is anchored on his possession of control, whether absolute or limited, on the
tortfeasor. Without such control, there is nothing which could justify extending the liability to a person other than the
one who committed the tort. As this Court explained in Cangco v. Manila Railroad Co.: 25 

With respect to extra-contractual obligation arising from negligence, whether of act or omission , it is
competent for the legislature to elect — and our Legislature has so elected — to limit such liability to cases in which
the person upon whom such an obligation is imposed is morally culpable or, on the contrary, for reasons of public
policy, to extend that liability, without regard to the lack of moral culpability, so as to include responsibility
for the negligence of those persons whose acts or omissions are imputable, by a legal fiction, to others who
are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil
Code has elected to limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral
culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having
failed to exercise due care in one's own acts, or in having failed to exercise due care in the selection and control of
one's agent or servants, or in the control of persons who, by reasons of their status, occupy a position of
dependency with respect to the person made liable for their conduct. (emphasis supplied)
26 

It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by preponderant
evidence. The existence of control or supervision cannot be presumed and CAI is under no obligation to prove its
denial or nugatory assertion. Citing Belen v. Belen, this Court ruled in Jayme v. Apostol, that:
27  28 

In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment relationship. The
defendant is under no obligation to prove the negative averment. This Court said:

"It is an old and well-settled rule of the courts that the burden of proving the action is upon the plaintiff, and that if he
fails satisfactorily to show the facts upon which he bases his claim, the defendant is under no obligation to prove his
exceptions. This [rule] is in harmony with the provisions of Section 297 of the Code of Civil Procedure holding that
each party must prove his own affirmative allegations, etc." (citations omitted)
29 

Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s employees or that CAI
was equally at fault, no liability can be imposed on CAI for Mager’s supposed misrepresentation.

III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are not
entitled to a refund. Mager’s statement cannot be considered a causal fraud that would justify the
annulment of the subject contracts that would oblige CAI to indemnify Spouses Viloria and return the
money they paid for the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may be annulled within four (4) years from the time
of the discovery of the fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same
Code to restore to each other the things subject matter of the contract, including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent to the subject
contracts was supposedly secured by Mager through fraudulent means, it is plainly apparent that their demand for a
refund is tantamount to seeking for an annulment of the subject contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine whether Mager’s alleged
misrepresentation constitutes causal fraud. Similar to the dispute on the existence of an agency, whether fraud
attended the execution of a contract is factual in nature and this Court, as discussed above, may scrutinize the
records if the findings of the CA are contrary to those of the RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In
order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract. In Samson v. Court of Appeals, causal fraud was defined as "a
30  31 

deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the
other."32 
Also, fraud must be serious and its existence must be established by clear and convincing evidence. As ruled by this
Court in Sierra v. Hon. Court of Appeals, et al., mere preponderance of evidence is not adequate:
33 

Fraud must also be discounted, for according to the Civil Code:

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other
is induced to enter into a contract which without them, he would not have agreed to.

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been
employed by both contracting parties.

To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full, clear, and
convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The fraud is serious
when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a
prudent person cannot be a ground for nullity. The circumstances of each case should be considered, taking into
account the personal conditions of the victim." 34 

After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria has not been
satisfactorily established as causal in nature to warrant the annulment of the subject contracts. In fact, Spouses
Viloria failed to prove by clear and convincing evidence that Mager’s statement was fraudulent. Specifically,
Spouses Viloria failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey on
August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew about this; and (c) that she
purposely informed them otherwise.

This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an Amtrak had assured
him of the perennial availability of seats at Amtrak, to be wanting. As CAI correctly pointed out and as Fernando
admitted, it was possible that during the intervening period of three (3) weeks from the time Fernando purchased the
subject tickets to the time he talked to said Amtrak employee, other passengers may have cancelled their bookings
and reservations with Amtrak, making it possible for Amtrak to accommodate them. Indeed, the existence of fraud
cannot be proved by mere speculations and conjectures. Fraud is never lightly inferred; it is good faith that is. Under
the Rules of Court, it is presumed that "a person is innocent of crime or wrong" and that "private transactions have
been fair and regular." Spouses Viloria failed to overcome this presumption.
35 

IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject contracts.

Even assuming that Mager’s representation is causal fraud, the subject contracts have been impliedly ratified when
Spouses Viloria decided to exercise their right to use the subject tickets for the purchase of new ones. Under Article
1392 of the Civil Code, "ratification extinguishes the action to annul a voidable contract."

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:

Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has
a right to invoke it should execute an act which necessarily implies an intention to waive his right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or
adoption of the contract; or by acceptance and retention of benefits flowing therefrom. 36 

Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Spouses Viloria likewise
asked for a refund based on CAI’s supposed bad faith in reneging on its undertaking to replace the subject tickets
with a round trip ticket from Manila to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on contractual
breach. Resolution, the action referred to in Article 1191, is based on the defendant’s breach of faith, a violation of
the reciprocity between the parties and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation, this Court
37  38 

ruled that a claim for a reimbursement in view of the other party’s failure to comply with his obligations under the
contract is one for rescission or resolution.
However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2) inconsistent
remedies. In resolution, all the elements to make the contract valid are present; in annulment, one of the essential
elements to a formation of a contract, which is consent, is absent. In resolution, the defect is in the consummation
stage of the contract when the parties are in the process of performing their respective obligations; in annulment,
the defect is already present at the time of the negotiation and perfection stages of the contract. Accordingly, by
pursuing the remedy of rescission under Article 1191, the Vilorias had impliedly admitted the validity of the subject
contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or
obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking
inconsistent positions.39 

V. Contracts cannot be rescinded for a slight or casual breach.

CAI cannot insist on the non-transferability of the subject tickets.

Considering that the subject contracts are not annullable on the ground of vitiated consent, the next question is: "Do
Spouses Viloria have the right to rescind the contract on the ground of CAI’s supposed breach of its undertaking to
issue new tickets upon surrender of the subject tickets?"

Article 1191, as presently worded, states:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.

According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it refused to apply the
value of Lourdes’ ticket for Fernando’s purchase of a round trip ticket to Los Angeles and in requiring him to pay an
amount higher than the price fixed by other airline companies.

In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be used as a form of payment toward the
purchase of another Continental ticket for $75.00, per ticket, reissue fee ($50.00, per ticket, for tickets purchased
prior to October 30, 1997)."

Clearly, there is nothing in the above-quoted section of CAI’s letter from which the restriction on the non-
transferability of the subject tickets can be inferred. In fact, the words used by CAI in its letter supports the position
of Spouses Viloria, that each of them can use the ticket under their name for the purchase of new tickets whether for
themselves or for some other person.

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject tickets for the
purchase of a round trip ticket between Manila and Los Angeles that he was informed that he cannot use the ticket
in Lourdes’ name as payment.

Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from a plain reading of the
provision printed on the subject tickets stating that "[t]o the extent not in conflict with the foregoing carriage and
other services performed by each carrier are subject to: (a) provisions contained in this ticket, x x x (iii) carrier’s
conditions of carriage and related regulations which are made part hereof (and are available on application at the
offices of carrier) x x x." As a common carrier whose business is imbued with public interest, the exercise of
extraordinary diligence requires CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the
terms and conditions governing their contract of carriage. CAI is proscribed from taking advantage of any ambiguity
in the contract of carriage to impute knowledge on its passengers of and demand compliance with a certain
condition or undertaking that is not clearly stipulated. Since the prohibition on transferability is not written on the face
of the subject tickets and CAI failed to inform Spouses Viloria thereof, CAI cannot refuse to apply the value of
Lourdes’ ticket as payment for Fernando’s purchase of a new ticket.

CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only a casual breach.

Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. The general rule
is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the parties in making the agreement. Whether a breach is
40 

substantial is largely determined by the attendant circumstances. 41 

While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the purchase of a new
ticket is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it cannot, however be
considered substantial. The endorsability of the subject tickets is not an essential part of the underlying contracts
and CAI’s failure to comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses
Viloria’s surrender of the subject tickets. This Court takes note of CAI’s willingness to perform its principal obligation
and this is to apply the price of the ticket in Fernando’s name to the price of the round trip ticket between Manila and
Los Angeles. CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial payment as the case
may be for the purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAI’s
willingness to comply with its undertaking under its March 24, 1998 cannot be doubted, albeit tainted with its
erroneous insistence that Lourdes’ ticket is non-transferable.

Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for the fact that
their agreement failed to consummate and no new ticket was issued to Fernando. Spouses Viloria have no right to
insist that a single round trip ticket between Manila and Los Angeles should be priced at around $856.00 and refuse
to pay the difference between the price of the subject tickets and the amount fixed by CAI. The petitioners failed to
allege, much less prove, that CAI had obliged itself to issue to them tickets for any flight anywhere in the world upon
their surrender of the subject tickets. In its March 24, 1998 letter, it was clearly stated that "[n]on-refundable tickets
may be used as a form of payment toward the purchase of another Continental ticket" and there is nothing in it
42 

suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of tickets or that
the surrender of the subject tickets will be considered as full payment for any ticket that the petitioners intend to buy
regardless of actual price and destination. The CA was correct in holding that it is CAI’s right and exclusive
prerogative to fix the prices for its services and it may not be compelled to observe and maintain the prices of other
airline companies. 43 

The conflict as to the endorsability of the subject tickets is an altogether different matter, which does not preclude
CAI from fixing the price of a round trip ticket between Manila and Los Angeles in an amount it deems proper and
which does not provide Spouses Viloria an excuse not to pay such price, albeit subject to a reduction coming from
the value of the subject tickets. It cannot be denied that Spouses Viloria had the concomitant obligation to pay
whatever is not covered by the value of the subject tickets whether or not the subject tickets are transferable or not. 1avvphi1

There is also no showing that Spouses Viloria were discriminated against in bad faith by being charged with a
higher rate. The only evidence the petitioners presented to prove that the price of a round trip ticket between Manila
and Los Angeles at that time was only $856.00 is a newspaper advertisement for another airline company, which is
inadmissible for being "hearsay evidence, twice removed." Newspaper clippings are hearsay if they were offered for
the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court of Appeals,: 44 

[N]ewspaper articles amount to "hearsay evidence, twice removed" and are therefore not only inadmissible but
without any probative value at all whether objected to or not, unless offered for a purpose other than proving the
truth of the matter asserted. In this case, the news article is admissible only as evidence that such publication does
exist with the tenor of the news therein stated. (citations omitted)
45 

The records of this case demonstrate that both parties were equally in default; hence, none of them can seek
judicial redress for the cancellation or resolution of the subject contracts and they are therefore bound to their
respective obligations thereunder. As the 1st sentence of Article 1192 provides:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor
shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear his own damages. (emphasis supplied)

Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of Fernando’s round
trip ticket is offset by Spouses Viloria’s liability for their refusal to pay the amount, which is not covered by the
subject tickets. Moreover, the contract between them remains, hence, CAI is duty bound to issue new tickets for a
destination chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria are obliged to
pay whatever amount is not covered by the value of the subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals. Thus: 46 

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his ₱17,000.00 debt within 3 years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of
Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not paying his overdue ₱17,000.00 debt. x x x. 47 

Another consideration that militates against the propriety of holding CAI liable for moral damages is the absence of
a showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil Code requires evidence of bad
faith and fraud and moral damages are generally not recoverable in culpa contractual except when bad faith had
been proven. The award of exemplary damages is likewise not warranted. Apart from the requirement that the
48 

defendant acted in a wanton, oppressive and malevolent manner, the claimant must prove his entitlement to moral
damages. 49 

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

Sevilla v. CA, 160 SCRA 171

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants, 

vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA
NOGUERA, respondents-appellees.

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond dispute: 

xxx xxx xxx

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on
Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the first part; the Tourist World
Service, Inc., represented by Mr. Eliseo Canilao as party of the second part, and hereinafter referred
to as appellants, the Tourist World Service, Inc. leased the premises belonging to the party of the
first part at Mabini St., Manila for the former-s use as a branch office. In the said contract the party of
the third part held herself solidarily liable with the party of the part for the prompt payment of the
monthly rental agreed on. When the branch office was opened, the same was run by the herein
appellant Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in
 on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the
Tourist World Service, Inc. 

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been
informed that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since
the branch office was anyhow losing, the Tourist World Service considered closing down its office.
This was firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated
Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office of the manager and vice-president of
the Tourist World Service, Inc., Ermita Branch, and the second,authorizing the corporate secretary to
receive the properties of the Tourist World Service then located at the said branch office. It further
appears that on Jan. 3, 1962, the contract with the appellees for the use of the Branch Office
premises was terminated and while the effectivity thereof was Jan. 31, 1962, the appellees no longer
used it. As a matter of fact appellants used it since Nov. 1961. Because of this, and to comply with
the mandate of the Tourist World Service, the corporate secretary Gabino Canilao went over to the
branch office, and, finding the premises locked, and, being unable to contact Lina Sevilla, he
padlocked the premises on June 4, 1962 to protect the interests of the Tourist World Service. When
neither the appellant Lina Sevilla nor any of her employees could enter the locked premises, a
complaint wall filed by the herein appellants against the appellees with a prayer for the issuance of
mandatory preliminary injunction. Both appellees answered with counterclaims. For apparent lack of
interest of the parties therein, the trial court ordered the dismissal of the case without prejudice. 

The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim
which the court a quo, in an order dated June 8, 1963, granted permitting her to present evidence in
support of her counterclaim. 

On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the
issues were joined, the reinstated counterclaim of Segundina Noguera and the new complaint of
appellant Lina Sevilla were jointly heard following which the court a quo ordered both cases dismiss
for lack of merit, on the basis of which was elevated the instant appeal on the following assignment
of errors: 

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-

APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT. 

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S
ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF
EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID
ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE. 

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O.
SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF
DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER. 

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO
EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE
LAW INTO THEIR OWN HANDS. 

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S

RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE
A. MABINI PREMISES. 

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O.
SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are: 

1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch
office on Ermita; 
 2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not;
and 

3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees
TWS or TWS and the appellant. 

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and
between her and appellee TWS with offices at the Ermita branch office and that she was not an
employee of the TWS to the end that her relationship with TWS was one of a joint business venture
appellant made declarations showing: 

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear
and nose specialist as well as a imediately columnist had been in the travel business
prior to the establishment of the joint business venture with appellee Tourist World
Service, Inc. and appellee Eliseo Canilao, her compadre, she being the godmother of
one of his children, with her own clientele, coming mostly from her own social circle
(pp. 3-6 tsn. February 16,1965). 

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960
(Exh. 'A') covering the premises at A. Mabini St., she expressly warranting and
holding [sic] herself 'solidarily' liable with appellee Tourist World Service, Inc. for the
prompt payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp.
14-15, tsn. Jan. 18,1964). 

3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World
Service, Inc., which had its own, separate office located at the Trade & Commerce
Building; nor was she an employee thereof, having no participation in nor connection
with said business at the Trade & Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own
bookings her own business (and not for any of the business of appellee Tourist
World Service, Inc.) obtained from the airline companies. She shared the 7%
commissions given by the airline companies giving appellee Tourist World Service,
Lic. 3% thereof aid retaining 4% for herself (pp. 18 tsn. Id.) 

5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A.

Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and other
sundry expenses, aside from desicion the office furniture and supplying some of fice
furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc.
shouldering the rental and other expenses in consideration for the 3% split in the co
procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965). 

6. It was the understanding between them that appellant Mrs. Sevilla would be given
the title of branch manager for appearance's sake only (p. 31 tsn. Id.), appellee
Eliseo Canilao admit that it was just a title for dignity (p. 36 tsn. June 18, 1965-
testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of
corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief) 

Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee
Tourist World Service, Inc. and as such was designated manager. 1

xxx xxx xxx

The trial court  held for the private respondent on the premise that the private respondent, Tourist World Service,
2

Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the premises.   It likewise
3

found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was
bound by the acts of her employer.   The respondent Court of Appeal   rendered an affirmance. 
4 5
The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state: 

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN
HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE
KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O.
SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT
(SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE
CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED
THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT
(SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF
DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES
TO THE RULE OF LAW. 

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP
PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN."
(ANNEX "A" P. 8) 

III

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED
ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS. 

IV 

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN
JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN
INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD
SERVICE INC. 6

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and
Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion
being "whether or not the padlocking of the premises by the Tourist World Service, Inc. without the knowledge and
consent of the appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or not the
evidence for the said appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and
without the consent of the appellant disconnected the telephone lines of the Ermita branch office of the appellee
Tourist World Service, Inc.  Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere
7

employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on the lease
executed with the private respondent, Segundina Noguera. The petitioners contend, however, that relation between
the between parties was one of joint venture, but concede that "whatever might have been the true relationship
between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao from taking
the law into their own hands,   in reference to the padlocking now questioned. 
8

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc.,
maintains, that the relation between the parties was in the character of employer and employee, the courts would
have been without jurisdiction to try the case, labor disputes being the exclusive domain of the Court of Industrial
Relations, later, the Bureau Of Labor Relations, pursuant to statutes then in force. 9

In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In
general, we have relied on the so-called right of control test, "where the person for whom the services are performed
reserves a right to control not only the end to be achieved but also the means to be used in reaching such
end."  Subsequently, however, we have considered, in addition to the standard of right-of control, the existing
10
economic conditions prevailing between the parties, like the inclusion of the employee in the payrolls, in determining
the existence of an employer-employee relationship. 11

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist
World Service, Inc., either as to the result of the enterprise or as to the means used in connection therewith. In the
first place, under the contract of lease covering the Tourist Worlds Ermita office, she had bound herself
in solidum as and for rental payments, an arrangement that would be like claims of a master-servant relationship.
True the respondent Court would later minimize her participation in the lease as one of mere guaranty,   that does
12

not make her an employee of Tourist World, since in any case, a true employee cannot be made to part with his own
money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event, the parties
must be bound by some other relation, but certainly not employment. 

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run
by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on
the effort of Mrs. Lina Sevilla.   Under these circumstances, it cannot be said that Sevilla was under the control of
13

Tourist World Service, Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her own
gifts and capabilities. 

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions
from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary
usually, she earned compensation in fluctuating amounts depending on her booking successes. 

The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As
we said, employment is determined by the right-of-control test and certain economic parameters. But titles are weak
indicators. 

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina
Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership. And apparently,
Sevilla herself did not recognize the existence of such a relation. In her letter of November 28, 1961, she expressly
'concedes your [Tourist World Service, Inc.'s] right to stop the operation of your branch office   in effect, accepting
14

Tourist World Service, Inc.'s control over the manner in which the business was run. A joint venture, including a
partnership, presupposes generally a of standing between the joint co-venturers or partners, in which each party
has an equal proprietary interest in the capital or property contributed   and where each party exercises equal rights
15

in the conduct of the business.  furthermore, the parties did not hold themselves out as partners, and the building
16

itself was embellished with the electric sign "Tourist World Service, Inc.  in lieu of a distinct partnership name. 
17

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent,
Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the
essence of this contract that the agent renders services "in representation or on behalf of another.  In the case at
18

bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As
compensation, she received 4% of the proceeds in the concept of commissions. And as we said, Sevilla herself
based on her letter of November 28, 1961, pre-assumed her principal's authority as owner of the business
undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that
the ties had contemplated a principal agent relationship, rather than a joint managament or a partnership.. 

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent
of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having
been created for mutual interest, of the agent and the principal.   It appears that Lina Sevilla is a bona fide travel
19

agent herself, and as such, she had acquired an interest in the business entrusted to her. Moreover, she had
assumed a personal obligation for the operation thereof, holding herself solidarily liable for the payment of rentals.
She continued the business, using her own name, after Tourist World had stopped further operations. Her interest,
obviously, is not to the commissions she earned as a result of her business transactions, but one that extends to the
very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be
revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina
Sevilla, to damages. 

As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and
padlocking incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that there is 'no
evidence showing that the Tourist World Service, Inc. disconnected the telephone lines at the branch office.   Yet, 20

what cannot be denied is the fact that Tourist World Service, Inc. did not take pains to have them reconnected.
Assuming, therefore, that it had no hand in the disconnection now complained of, it had clearly condoned it, and as
owner of the telephone lines, it must shoulder responsibility therefor. 

The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that
Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to terminate
that contract without notice to its actual occupant, and to padlock the premises in such fashion. As this Court has
ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in the
equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract having been explicitly named
therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.). She could not be ousted
from possession as summarily as one would eject an interloper. 

The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the
petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival firm. To be sure, the
respondent court speaks of alleged business losses to justify the closure '21 but there is no clear showing that Tourist World Ermita
Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is
that following such an information (that Sevilla was working for another company), Tourist World's board of directors adopted two resolutions abolishing the office
of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the
private respondents ended the lease over the branch office premises, incidentally, without notice to her. 

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked, personally by
the respondent Canilao, on the pretext that it was necessary to Protect the interests of the Tourist World Service.
"  It is strange indeed that Tourist World Service, Inc. did not find such a need when it cancelled the lease five
22

months earlier. While Tourist World Service, Inc. would not pretend that it sought to locate Sevilla to inform her of
the closure, but surely, it was aware that after office hours, she could not have been anywhere near the premises. Capping these series of "offensives," it
cut the office's telephone lines, paralyzing completely its business operations, and in the process, depriving Sevilla articipation therein. 

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to
be disloyalty on her part. It is offensive, in any event, to elementary norms of justice and fair play. 

We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist
World Service, Inc., should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded
for "breaches of contract where the defendant acted ... in bad faith.  23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla
from its brazen conduct subsequent to the cancellation of the power of attorney granted to her on the authority of
Article 21 of the Civil Code, in relation to Article 2219 (10) thereof — 

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage. 24

ART. 2219. Moral damages  may be recovered in the following and analogous cases:
25

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in
a solidary capacity. 

Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that
she had connived with Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot
therefore be held liable as a cotortfeasor. 

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary
damages,  and P5,000.00 as nominal   and/or temperate  damages, to be just, fair, and reasonable under the
25 26 27

circumstances. 
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975,
by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World
Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the
sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of
P5,000.00, as and for nominal and/or temperate damages. 

Costs against said private respondents. 

SO ORDERED.

De la Cruz v. Northern Theatrical Enterprises, 95 Phil. 739

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

Conrado Rubio for appellant.

Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.

MONTEMAYOR, J.:

The facts in this case based on an agreed statement of facts are simple. In the year 1941 the Northern Theatrical
Enterprises Inc., a domestic corporation operated a movie house in Laoag, Ilocos Norte, and among the persons
employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard whose duties were to guard the
main entrance of the cine, to maintain peace and order and to report the commission of disorders within the
premises. As such guard he carried a revolver. In the afternoon of July 4, 1941, one Benjamin Martin wanted to
crash the gate or entrance of the movie house. Infuriated by the refusal of plaintiff De la Cruz to let him in without
first providing himself with a ticket, Martin attacked him with a bolo. De la Cruz defendant himself as best he could
until he was cornered, at which moment to save himself he shot the gate crasher, resulting in the latter's death.

For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of First Instance of
Ilocos Norte. After a re-investigation conducted by the Provincial Fiscal the latter filed a motion to dismiss the
complaint, which was granted by the court in January 1943. On July 8, 1947, De la Cruz was again accused of the
same crime of homicide, in Criminal Case No. 431 of the same Court. After trial, he was finally acquitted of the
charge on January 31, 1948. In both criminal cases De la Cruz employed a lawyer to defend him. He demanded
from his former employer reimbursement of his expenses but was refused, after which he filed the present action
against the movie corporation and the three members of its board of directors, to recover not only the amounts he
had paid his lawyers but also moral damages said to have been suffered, due to his worry, his neglect of his
interests and his family as well in the supervision of the cultivation of his land, a total of P15,000. On the basis of the
complaint and the answer filed by defendants wherein they asked for the dismissal of the complaint, as well as the
agreed statement of facts, the Court of First Instance of Ilocos Norte after rejecting the theory of the plaintiff that he
was an agent of the defendants and that as such agent he was entitled to reimbursement of the expenses incurred
by him in connection with the agency (Arts. 1709-1729 of the old Civil Code), found that plaintiff had no cause of
action and dismissed the complaint without costs. De la Cruz appealed directly to this Tribunal for the reason that
only questions of law are involved in the appeal.

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

The learned trial court in the last paragraph of its decision dismissing the complaint said that "after studying many
laws or provisions of law to find out what law is applicable to the facts submitted and admitted by the parties, has
found none and it has no other alternative than to dismiss the complaint." The trial court is right. We confess that we
are not aware of any law or judicial authority that is directly applicable to the present case, and realizing the
importance and far-reaching effect of a ruling on the subject-matter we have searched, though vainly, for judicial
authorities and enlightenment. All the laws and principles of law we have found, as regards master and servants, or
employer and employee, refer to cases of physical injuries, light or serious, resulting in loss of a member of the body
or of any one of the senses, or permanent physical disability or even death, suffered in line of duty and in the course
of the performance of the duties assigned to the servant or employee, and these cases are mainly governed by the
Employer's Liability Act and the Workmen's Compensation Act. But a case involving damages caused to an
employee by a stranger or outsider while said employee was in the performance of his duties, presents a novel
question which under present legislation we are neither able nor prepared to decide in favor of the employee.

In a case like the present or a similar case of say a driver employed by a transportation company, who while in the
course of employment runs over and inflicts physical injuries on or causes the death of a pedestrian; and such driver
is later charged criminally in court, one can imagine that it would be to the interest of the employer to give legal help
to and defend its employee in order to show that the latter was not guilty of any crime either deliberately or through
negligence, because should the employee be finally held criminally liable and he is found to be insolvent, the
employer would be subsidiarily liable. That is why, we repeat, it is to the interest of the employer to render legal
assistance to its employee. But we are not prepared to say and to hold that the giving of said legal assistance to its
employees is a legal obligation. While it might yet and possibly be regarded as a normal obligation, it does not at
present count with the sanction of man-made laws.

If the employer is not legally obliged to give, legal assistance to its employee and provide him with a lawyer,
naturally said employee may not recover the amount he may have paid a lawyer hired by him.

Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of the expenses
incurred by him in remunerating his lawyer, is not caused by his act of shooting to death the gate crasher but rather
by the filing of the charge of homicide which made it necessary for him to defend himself with the aid of counsel.
Had no criminal charge been filed against him, there would have been no expenses incurred or damage suffered.
So the damage suffered by plaintiff was caused rather by the improper filing of the criminal charge, possibly at the
instance of the heirs of the deceased gate crasher and by the State through the Fiscal. We say improper filing,
judging by the results of the court proceedings, namely, acquittal. In other words, the plaintiff was innocent and
blameless. If despite his innocence and despite the absence of any criminal responsibility on his part he was
accused of homicide, then the responsibility for the improper accusation may be laid at the door of the heirs of the
deceased and the State, and so theoretically, they are the parties that may be held responsible civilly for damages
and if this is so, we fail to see now this responsibility can be transferred to the employer who in no way intervened,
much less initiated the criminal proceedings and whose only connection or relation to the whole affairs was that he
employed plaintiff to perform a special duty or task, which task or duty was performed lawfully and without
negligence.

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

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

Nielson & Co. v. Lepanto Consolidated, 26 SCRA 540

NIELSON & COMPANY, INC., plaintiff-appellant, 

vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee. 

W. H. Quasha and Associates for plaintiff-appellant.

Ponce Enrile, Siguion-Reyna, Montecillo and Belo for defendant-appellee. 

ZALDIVAR, J.:
On February 6, 1958, plaintiff brought this action against defendant before the Court of First Instance of Manila to
recover certain sums of money representing damages allegedly suffered by the former in view of the refusal of the
latter to comply with the terms of a management contract entered into between them on January 30, 1937, including
attorney's fees and costs. 

Defendant in its answer denied the material allegations of the complaint and set up certain special defenses, among
them, prescription and laches, as bars against the institution of the present action. 

After trial, during which the parties presented testimonial and numerous documentary evidence, the court a
quo rendered a decision dismissing the complaint with costs. The court stated that it did not find sufficient evidence
to establish defendant's counterclaim and so it likewise dismissed the same. 

The present appeal was taken to this Court directly by the plaintiff in view of the amount involved in the case.

The facts of this case, as stated in the decision appealed from, are hereunder quoted for purposes of this decision:

It appears that the suit involves an operating agreement executed before World War II between the plaintiff
and the defendant whereby the former operated and managed the mining properties owned by the latter for
a management fee of P2,500.00 a month and a 10% participation in the net profits resulting from the
operation of the mining properties. For brevity and convenience, hereafter the plaintiff shall be referred to as
NIELSON and the defendant, LEPANTO.

The antecedents of the case are: The contract in question (Exhibit `C') was made by the parties on January
30, 1937 for a period of five (5) years. In the latter part of 1941, the parties agreed to renew the contract for
another period of five (5) years, but in the meantime, the Pacific War broke out in December, 1941. 

In January, 1942 operation of the mining properties was disrupted on account of the war. In February of
1942, the mill, power plant, supplies on hand, equipment, concentrates on hand and mines, were destroyed
upon orders of the United States Army, to prevent their utilization by the invading Japanese Army. The
Japanese forces thereafter occupied the mining properties, operated the mines during the continuance of
the war, and who were ousted from the mining properties only in August of 1945. 

After the mining properties were liberated from the Japanese forces, LEPANTO took possession thereof and
embarked in rebuilding and reconstructing the mines and mill; setting up new organization; clearing the mill
site; repairing the mines; erecting staff quarters and bodegas and repairing existing structures; installing new
machinery and equipment; repairing roads and maintaining the same; salvaging equipment and storing the
same within the bodegas; doing police work necessary to take care of the materials and equipment
recovered; repairing and renewing the water system; and remembering (Exhibits "D" and "E"). The
rehabilitation and reconstruction of the mine and mill was not completed until 1948 (Exhibit "F"). On June 26,
1948 the mines resumed operation under the exclusive management of LEPANTO (Exhibit "F-l"). 

Shortly after the mines were liberated from the Japanese invaders in 1945, a disagreement arose between
NIELSON and LEPANTO over the status of the operating contract in question which as renewed expired in
1947. Under the terms thereof, the management contract shall remain in suspense in case fortuitous event
orforce majeure, such as war or civil commotion, adversely affects the work of mining and milling. 

"In the event of inundations, floodings of mine, typhoon, earthquake or any other force majeure, war,
insurrection, civil commotion, organized strike, riot, injury to the machinery or other event or cause
reasonably beyond the control of NIELSON and which adversely affects the work of mining and
milling; NIELSON shall report such fact to LEPANTO and without liability or breach of the terms of
this Agreement, the same shall remain in suspense, wholly or partially during the terms of such
inability." (Clause II of Exhibit "C").

NIELSON held the view that, on account of the war, the contract was suspended during the war; hence the
life of the contract should be considered extended for such time of the period of suspension. On the other
hand, LEPANTO contended that the contract should expire in 1947 as originally agreed upon because the
period of suspension accorded by virtue of the war did not operate to extend further the life of the contract.
 No understanding appeared from the record to have been bad by the parties to resolve the disagreement. In
the meantime, LEPANTO rebuilt and reconstructed the mines and was able to bring the property into
operation only in June of 1948, . . . .

Appellant in its brief makes an alternative assignment of errors depending on whether or not the management
contract basis of the action has been extended for a period equivalent to the period of suspension. If the agreement
is suspended our attention should be focused on the first set of errors claimed to have been committed by the
court a quo; but if the contrary is true, the discussion will then be switched to the alternative set that is claimed to
have been committed. We will first take up the question whether the management agreement has been extended as
a result of the supervening war, and after this question shall have been determined in the sense sustained by
appellant, then the discussion of the defense of laches and prescription will follow as a consequence.

The pertinent portion of the management contract (Exh. C) which refers to suspension should any event
constitutingforce majeure happen appears in Clause II thereof which we quote hereunder:

In the event of inundations, floodings of the mine, typhoon, earthquake or any other force majeure, war,
insurrection, civil commotion, organized strike, riot, injury to the machinery or other event or cause
reasonably beyond the control of NIELSON and which adversely affects the work of mining and milling;
NIELSON shall report such fact to LEPANTO and without liability or breach of the terms of this Agreement,
the same shall remain in suspense, wholly or partially during the terms of such inability.

A careful scrutiny of the clause above-quoted will at once reveal that in order that the management contract may be
deemed suspended two events must take place which must be brought in a satisfactory manner to the attention of
defendant within a reasonable time, to wit: (1) the event constituting the force majeure must be reasonably beyond
the control of Nielson, and (2) it must adversely affect the work of mining and milling the company is called upon to
undertake. As long as these two condition exist the agreement is deem suspended.

Does the evidence on record show that these two conditions had existed which may justify the conclusion that the
management agreement had been suspended in the sense entertained by appellant? Let us go to the evidence. 

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

On the other hand, the record shows that the defendant admitted that the occupation forces operated its mining
properties subject of the management contract,2 and from the very report submitted by President DeWitt it appears
that the date of the liberation of the mine was August 1, 1945 although at the time there were still many booby
traps.3 Similarly, in a report submitted by the defendant to its stockholders dated August 25, 1948, the following
appears: "Your Directors take pleasure in reporting that June 26, 1948 marked the official return to operations of this
Company of its properties in Mankayan, Mountain Province, Philippines."4

It is, therefore, clear from the foregoing that the Lepanto mines were liberated on August 1, 1945, but because of
the period of rehabilitation and reconstruction that had to be made as a result of the destruction of the mill, power
plant and other necessary equipment for its operation it cannot be said that the suspension of the contract ended on
that date. Hence, the contract must still be deemed suspended during the succeeding years of reconstruction and
rehabilitation, and this period can only be said to have ended on June 26, 1948 when, as reported by the defendant,
the company officially resumed the mining operations of the Lepanto. It should here be stated that this period of
suspension from February, 1942 to June 26, 1948 is the one urged by plaintiff.5

It having been shown that the operation of the Lepanto mines on the part of Nielson had been suspended during the
period set out above within the purview of the management contract, the next question that needs to be determined
is the effect of such suspension. Stated in another way, the question now to be determined is whether such
suspension had the effect of extending the period of the management contract for the period of said suspension. To
elucidate this matter, we again need to resort to the evidence. 

For appellant Nielson two witnesses testified, declaring that the suspension had the effect of extending the period of
the contract, namely, George T. Scholey and Mark Nestle. Scholey was a mining engineer since 1929, an
incorporator, general manager and director of Nielson and Company; and for some time he was also the vice-
president and director of the Lepanto Company during the pre-war days and, as such, he was an officer of both
appellant and appellee companies. As vice-president of Lepanto and general manager of Nielson, Scholey
participated in the negotiation of the management contract to the extent that he initialed the same both as witness
and as an officer of both corporations. This witness testified in this case to the effect that the standard force
majeure clause embodied in the management contract was taken from similar mining contracts regarding mining
operations and the understanding regarding the nature and effect of said clause was that when there is suspension
of the operation that suspension meant the extension of the contract. Thus, to the question, "Before the war, what
was the understanding of the people in the particular trend of business with respect to the force majeure clause?",
Scholey answered: "That was our understanding that the suspension meant the extension of time lost."6

Mark Nestle, the other witness, testified along similar line. He had been connected with Nielson since 1937 until the
time he took the witness stand and had been a director, manager, and president of the same company. When he
was propounded the question: "Do you know what was the custom or usage at that time in connection with force
majeure clause?", Nestle answered, "In the mining world the force majeure clause is generally considered. When a
calamity comes up and stops the work like in war, flood, inundation or fire, etc., the work is suspended for the
duration of the calamity, and the period of the contract is extended after the calamity is over to enable the person to
do the big work or recover his money which he has invested, or accomplish what his obligation is to a third
person ."7

And the above testimonial evidence finds support in the very minutes of the special meeting of the Board of
Directors of the Lepanto Company issued on March 10, 1945 which was then chairmaned by Atty. C. A. DeWitt. We
read the following from said report:

The Chairman also stated that the contract with Nielson and Company would soon expire if the obligations
were not suspended, in which case we should have to pay them the retaining fee of P2,500.00 a month. He
believes however, that there is a provision in the contract suspending the effects thereof in cases like the
present, and that even if it were not there, the law itself would suspend the operations of the contract on
account of the war. Anyhow, he stated, we shall have no difficulty in solving satisfactorily any problem we
may have with Nielson and Company.8

Thus, we can see from the above that even in the opinion of Mr. DeWitt himself, who at the time was the chairman
of the Board of Directors of the Lepanto Company, the management contract would then expire unless the period
therein rated is suspended but that, however, he expressed the belief that the period was extended because of the
provision contained therein suspending the effects thereof should any of the case of force majeure happen like in
the present case, and that even if such provision did not exist the law would have the effect of suspending it on
account of the war. In substance, Atty. DeWitt expressed the opinion that as a result of the suspension of the mining
operation because of the effects of the war the period of the contract had been extended. 

Contrary to what appellant's evidence reflects insofar as the interpretation of the force majeure clause is concerned,
however, appellee gives Us an opposite interpretation invoking in support thereof not only a letter Atty. DeWitt sent
to Nielson on October 20, 1945,9 wherein he expressed for the first time an opinion contrary to what he reported to
the Board of Directors of Lepanto Company as stated in the portion of the minutes of its Board of Directors as
quoted above, but also the ruling laid down by our Supreme Court in some cases decided sometime ago, to the
effect that the war does not have the effect of extending the term of a contract that the parties may enter into
regarding a particular transaction, citing in this connection the cases of Victorias Planters Association v. Victorias
Milling Company, 51 O.G. 4010; Rosario S. Vda. de Lacson, et al. v. Abelardo G. Diaz, 87 Phil. 150; and Lo Ching y
So Young Chong Co. v. Court of Appeals, et al., 81 Phil. 601.

To bolster up its theory, appellee also contends that the evidence regarding the alleged custom or usage in mining
contract that appellant's witnesses tried to introduce was incompetent because (a) said custom was not specifically
pleaded; (b) Lepanto made timely and repeated objections to the introduction of said evidence; (c) Nielson failed to
show the essential elements of usage which must be shown to exist before any proof thereof can be given to affect
the contract; and (d) the testimony of its witnesses cannot prevail over the very terms of the management contract
which, as a rule, is supposed to contain all the terms and conditions by which the parties intended to be bound. 

It is here necessary to analyze the contradictory evidence which the parties have presented regarding the
interpretation of the force majeure clause in the management contract.

At the outset, it should be stated that, as a rule, in the construction and interpretation of a document the intention of
the parties must be sought (Rule 130, Section 10, Rules of Court). This is the basic rule in the interpretation of
contracts because all other rules are but ancilliary to the ascertainment of the meaning intended by the parties. And
once this intention has been ascertained it becomes an integral part of the contract as though it had been originally
expressed therein in unequivocal terms (Shoreline Oil Corp. v. Guy, App. 189, So., 348, cited in 17A C.J.S., p. 47).
How is this intention determined?

One pattern is to ascertain the contemporaneous and subsequent acts of the contracting parties in relation to the
transaction under consideration (Article 1371, Civil Code). In this particular case, it is worthy of note what Atty. C. A.
DeWitt has stated in the special meeting of the Board of Directors of Lepanto in the portion of the minutes already
quoted above wherein, as already stated, he expressed the opinion that the life of the contract, if not extended,
would last only until January, 1947 and yet he said that there is a provision in the contract that the war had the effect
of suspending the agreement and that the effect of that suspension was that the agreement would have to continue
with the result that Lepanto would have to pay the monthly retaining fee of P2,500.00. And this belief that the war
suspended the agreement and that the suspension meant its extension was so firm that he went to the extent that
even if there was no provision for suspension in the agreement the law itself would suspend it. 

It is true that Mr. DeWitt later sent a letter to Nielson dated October 20, 1945 wherein apparently he changed his
mind because there he stated that the contract was merely suspended, but not extended, by reason of the war,
contrary to the opinion he expressed in the meeting of the Board of Directors already adverted to, but between the
two opinions of Atty. DeWitt We are inclined to give more weight and validity to the former not only because such
was given by him against his own interest but also because it was given before the Board of Directors of Lepanto
and in the presence, of some Nielson officials 10 who, on that occasion were naturally led to believe that that was the
true meaning of the suspension clause, while the second opinion was merely self-serving and was given as a mere
afterthought. 

Appellee also claims that the issue of true intent of the parties was not brought out in the complaint, but anent this
matter suffice it to state that in paragraph No. 19 of the complaint appellant pleaded that the contract was
extended. 11 This is a sufficient allegation considering that the rules on pleadings must as a rule be liberally
construed. 

It is likewise noteworthy that in this issue of the intention of the parties regarding the meaning and usage concerning
the force majeure clause, the testimony adduced by appellant is uncontradicted. If such were not true, appellee
should have at least attempted to offer contradictory evidence. This it did not do. Not even Lepanto's President, Mr.
V. E. Lednicky who took the witness stand, contradicted said evidence. 

In holding that the suspension of the agreement meant the extension of the same for a period equivalent to the
suspension, We do not have the least intention of overruling the cases cited by appellee. We simply want to say that
the ruling laid down in said cases does not apply here because the material facts involved therein are not the same
as those obtaining in the present. The rule of stare decisis cannot be invoked where there is no analogy between
the material facts of the decision relied upon and those of the instant case. 

Thus, in Victorias Planters Association vs. Victorias Milling Company, 51 O.G. 4010, there was no evidence at all
regarding the intention of the parties to extend the contract equivalent to the period of suspension caused by the
war. Neither was there evidence that the parties understood the suspension to mean extension; nor was there
evidence of usage and custom in the industry that the suspension meant the extension of the agreement. All these
matters, however, obtain in the instant case.

Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz, 87 Phil. 150, the issue referred to the
interpretation of a pre-war contract of lease of sugar cane lands and the liability of the lessee to pay rent during and
immediately following the Japanese occupation and where the defendant claimed the right of an extension of the
lease to make up for the time when no cane was planted. This Court, in holding that the years which the lessee
could not use the land because of the war could not be discounted from the period agreed upon, held that "Nowhere
is there any insinuation that the defendant-lessee was to have possession of lands for seven years excluding years
on which he could not harvest sugar." Clearly, this ratio decidendi is not applicable to the case at bar wherein there
is evidence that the parties understood the "suspension clause by force majeure" to mean the extension of the
period of agreement.

Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of Appeals, et al., 81 Phil. 601, appellant leased a
building from appellee beginning September 13, 1940 for three years, renewable for two years. The lessee's
possession was interrupted in February, 1942 when he was ousted by the Japanese who turned the same over to
German Otto Schulze, the latter occupying the same until January, 1945 upon the arrival of the liberation forces.
Appellant contended that the period during which he did not enjoy the leased premises because of his
dispossession by the Japanese had to be deducted from the period of the lease, but this was overruled by this
Court, reasoning that such dispossession was merely a simple "perturbacion de merohecho y de la cual no
responde el arrendador" under Article 1560 of the old Civil Code Art. 1664). This ruling is also not applicable in the
instant case because in that case there was no evidence of the intention of the parties that any suspension of the
lease by force majeure would be understood to extend the period of the agreement.

In resume, there is sufficient justification for Us to conclude that the cases cited by appellee are inapplicable
because the facts therein involved do not run parallel to those obtaining in the present case. 

We shall now consider appellee's defense of laches. Appellee is correct in its contention that the defense of laches
applies independently of prescription. Laches is different from the statute of limitations. Prescription is concerned
with the fact of delay, whereas laches is concerned with the effect of delay. Prescription is a matter of time; laches is
principally a question of inequity of permitting a claim to be enforced, this inequity being founded on some change in
the condition of the property or the relation of the parties. Prescription is statutory; laches is not. Laches applies in
equity, whereas prescription applies at law. Prescription is based on fixed time, laches is not. (30 C.J.S., p.
522; See also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177). 

The question to determine is whether appellant Nielson is guilty of laches within the meaning contemplated by the
authorities on the matter. In the leading case of Go Chi Gun, et al. vs. Go Cho, et al., 96 Phil. 622, this Court
enumerated the essential elements of laches as follows:

(1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of
which complaint is made and for which the complaint seeks a remedy; (2) delay in asserting the
complainant's rights, the complainant having had knowledge or notice of the defendant's conduct and having
been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant
that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the
defendant in the event relief is accorded to the complainant, or the suit is not held barred.

Are these requisites present in the case at bar?

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

Anent the second element, while it is true that appellant Nielson knew since 1945 that appellee Lepanto has refused
to permit it to resume management and that since 1948 appellee has resumed operation of the mines and it filed its
complaint only on February 6, 1958, there being apparent delay in filing the present action, We find the delay
justified and as such cannot constitute laches. It appears that appellant had not abandoned its right to operate the
mines for even before the termination of the suspension of the agreement as early as January 20, 1946 12 and even
before March 10, 1945, it already claimed its right to the extension of the contract, 13 and it pressed its claim for the
balance of its share in the profits from the 1941 operation14 by reason of which negotiations had taken place for the
settlement of the claim15 and it was only on June 25, 1957 that appellee finally denied the claim. There is, therefore,
only a period of less than one year that had elapsed from the date of the final denial of the claim to the date of the
filing of the complaint, which certainly cannot be considered as unreasonable delay. 

The third element of laches is absent in this case. It cannot be said that appellee Lepanto did not know that
appellant would assert its rights on which it based suit. The evidence shows that Nielson had been claiming for
some time its rights under the contract, as already shown above.

Neither is the fourth element present, for if there has been some delay in bringing the case to court it was mainly
due to the attempts at arbitration and negotiation made by both parties. If Lepanto's documents were lost, it was not
caused by the delay of the filing of the suit but because of the war. 

Another reason why appellant Nielson cannot be held guilty of laches is that the delay in the filing of the complaint in
the present case was the inevitable of the protracted negotiations between the parties concerning the settlement of
their differences. It appears that Nielson asked for arbitration16 which was granted. A committee consisting of
Messrs. DeWitt, Farnell and Blessing was appointed to act on said differences but Mr. DeWitt always tried to evade
the issue17 until he was taken ill and died. Mr. Farnell offered to Nielson the sum of P13,000.58 by way of
compromise of all its claim arising from the management contract 18 but apparently the offer was refused.
Negotiations continued with the exchange of letters between the parties but with no satisfactory result.19 It can be
said that the delay due to protracted negotiations was caused by both parties. Lepanto, therefore, cannot be
permitted to take advantage of such delay or to question the propriety of the action taken by Nielson. The defense of
laches is an equitable one and equity should be applied with an even hand. A person will not be permitted to take
advantage of, or to question the validity, or propriety of, any act or omission of another which was committed or
omitted upon his own request or was caused by his conduct (R. H. Stearns Co. vs. United States, 291 U.S. 54, 78 L.
Ed. 647, 54 S. Ct., 325; United States vs. Henry Prentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).

Had the action of Nielson prescribed? The court a quo held that the action of Nielson is already barred by the
statute of limitations, and that ruling is now assailed by the appellant in this appeal. In urging that the court a
quo erred in reaching that conclusion the appellant has discussed the issue with reference to particular claims. 

The first claim is with regard to the 10% share in profits of 1941 operations. Inasmuch as appellee Lepanto alleges
that the correct basis of the computation of the sharing in the net profits shall be as provided for in Clause V of the
Management Contract, while appellant Nielson maintains that the basis should be what is contained in the minutes
of the special meeting of the Board of Directors of Lepanto on August 21, 1940, this question must first be
elucidated before the main issue is discussed.

The facts relative to the matter of profit sharing follow: In the management contract entered into between the parties
on January 30, 1937, which was renewed for another five years, it was stipulated that Nielson would receive a
compensation of P2,500.00 a month plus 10% of the net profits from the operation of the properties for the
preceding month. In 1940, a dispute arose regarding the computation of the 10% share of Nielson in the profits. The
Board of Directors of Lepanto, realizing that the mechanics of the contract was unfair to Nielson, authorized its
President to enter into an agreement with Nielson modifying the pertinent provision of the contract effective January
1, 1940 in such a way that Nielson shall receive (1) 10% of the dividends declared and paid, when and as paid,
during the period of the contract and at the end of each year, (2) 10% of any depletion reserve that may be set up,
and (3) 10% of any amount expended during the year out of surplus earnings for capital account. 20 Counsel for the
appellee admitted during the trial that the extract of the minutes as found in Exhibit B is a faithful copy from the
original. 21 Mr. George Scholey testified that the foregoing modification was agreed upon. 22

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

It appearing that the issue concerning the sharing of the profits had been raised in appellant's complaint and
evidence on the matter was introduced 23 the same can be taken into account even if no amendment of the pleading
to make it conform to the evidence has been made, for the same is authorized by Section 4, Rule 17, of the old
Rules of Court (now Section 5, Rule 10, of the new Rules of Court).
Coming now to the question of prescription raised by defendant Lepanto, it is contended by the latter that the period
to be considered for the prescription of the claim regarding participation in the profits is only four years, because the
modification of the sharing embodied in the management contract is merely verbal, no written document to that
effect having been presented. This contention is untenable. The modification appears in the minutes of the special
meeting of the Board of Directors of Lepanto held on August 21, 1940, it having been made upon the authority of its
President, and in said minutes the terms of the modification had been specified. This is sufficient to have the
agreement considered, for the purpose of applying the statute of limitations, as a written contract even if the minutes
were not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that a writing containing the terms of a
contract if adopted by two persons may constitute a contract in writing even if the same is not signed by either of the
parties (3 A.L.R., 2d, pp. 812-813). Another authority says that an unsigned agreement the terms of which are
embodied in a document unconditionally accepted by both parties is a written contract (Corbin on Contracts, Vol. 1,
p. 85)

The modification, therefore, made in the management contract relative to the participation in the profits by appellant,
as contained in the minutes of the special meeting of the Board of Directors of Lepanto held on August 21, 1940,
should be considered as a written contract insofar as the application of the statutes of limitations is concerned.
Hence, the action thereon prescribes within ten (10) years pursuant to Section 43 of Act 190. 

Coming now to the facts, We find that the right of Nielson to its 10% participation in the 1941 operations accrued on
December 21, 1941 and the right to commence an action thereon began on January 1, 1942 so that the action must
be brought within ten (10) years from the latter date. It is true that the complaint was filed only on February 6, 1958,
that is sixteen (16) years, one (1) month and five (5) days after the right of action accrued, but the action has not yet
prescribed for various reasons which We will hereafter discuss. 

The first reason is the operation of the Moratorium Law, for appellant's claim is undeniably a claim for money. Said
claim accrued on December 31, 1941, and Lepanto is a war sufferer. Hence the claim was covered by Executive
Order No. 32 of March 10, 1945. It is well settled that the operation of the Moratorium Law suspends the running of
the statue of limitations (Pacific Commercial Co. vs. Aquino, G.R. No. L-10274, February 27, 1957).

This Court has held that the Moratorium Law had been enforced for eight (8) years, two (2) months and eight (8)
days (Tioseco vs. Day, et al., L-9944, April 30, 1957; Levy Hermanos, Inc. vs. Perez, L-14487, April 29, 1960), and
deducting this period from the time that had elapsed since the accrual of the right of action to the date of the filing of
the complaint, the extent of which is sixteen (16) years, one (1) month and five (5) days, we would have less than
eight (8) years to be counted for purposes of prescription. Hence appellant's action on its claim of 10% on the 1941
profits had not yet prescribed. 

Another reason that may be taken into account in support of the no-bar theory of appellant is the arbitration clause
embodied in the management contract which requires that any disagreement as to any amount of profits before an
action may be taken to court shall be subject to arbitration. 24 This agreement to arbitrate is valid and binding. 25 It
cannot be ignored by Lepanto. Hence Nielson could not bring an action on its participation in the 1941 operations-
profits until the condition relative to arbitration had been first complied with. 26 The evidence shows that an arbitration
committee was constituted but it failed to accomplish its purpose on June 25, 1957. 27 From this date to the filing of
the complaint the required period for prescription has not yet elapsed.

Nielson claims the following: (1) 10% share in the dividends declared in 1941, exclusive of interest, amounting to
P17,500.00; (2) 10% in the depletion reserves for 1941; and (3) 10% in the profits for years prior to 1948 amounting
to P19,764.70. 

With regard to the first claim, the Lepanto's report for the calendar year of 1954 28 shows that it declared a 10% cash
dividend in December, 1941, the amount of which is P175,000.00. The evidence in this connection (Exhibits L and
O) was admitted without objection by counsel for Lepanto. 29 Nielson claims 10% share in said amount with interest
thereon at 6% per annum. The document (Exhibit L) was even recognized by Lepanto's President V. L.
Lednicky, 30 and this claim is predicated on the provision of paragraph V of the management contract as modified
pursuant to the proposal of Lepanto at the special meeting of the Board of Directors on August 21, 1940 (Exh. B),
whereby it was provided that Nielson would be entitled to 10% of any dividends to be declared and paid during the
period of the contract.
With regard to the second claim, Nielson admits that there is no evidence regarding the amount set aside by
Lepanto for depletion reserve for 1941 31 and so the 10% participation claimed thereon cannot be assessed.

Anent the third claim relative to the 10% participation of Nielson on the sum of P197,647.08, which appears in
Lepanto's annual report for 1948 32 and entered as profit for prior years in the statement of income and surplus,
which amount consisted "almost in its entirety of proceeds of copper concentrates shipped to the United States
during 1947," this claim should to denied because the amount is not "dividend declared and paid" within the purview
of the management contract.

The fifth assignment of error of appellant refers to the failure of the lower court to order Lepanto to pay its
management fees for January, 1942, and for the full period of extension amounting to P150,000.00, or P2,500.00 a
month for sixty (60) months, — a total of P152,500.00 — with interest thereon from the date of judicial demand. 

It is true that the claim of management fee for January, 1942 was not among the causes of action in the complaint,
but inasmuch as the contract was suspended in February, 1942 and the management fees asked for included that
of January, 1942, the fact that such claim was not included in a specific manner in the complaint is of no moment
because an appellate court may treat the pleading as amended to conform to the evidence where the facts show
that the plaintiff is entitled to relief other than what is asked for in the complaint (Alonzo vs. Villamor, 16 Phil. 315).
The evidence shows that the last payment made by Lepanto for management fee was for November and
December, 1941. 33 If, as We have declared, the management contract was suspended beginning February 1942, it
follows that Nielson is entitled to the management fee for January, 1942.

Let us now come to the management fees claimed by Nielson for the period of extension. In this respect, it has
been shown that the management contract was extended from June 27, 1948 to June 26, 1953, or for a period of
sixty (60) months. During this period Nielson had a right to continue in the management of the mining properties of
Lepanto and Lepanto was under obligation to let Nielson do it and to pay the corresponding management fees.
Appellant Nielson insisted in performing its part of the contract but Lepanto prevented it from doing so. Hence, by
virtue of Article 1186 of the Civil Code, there was a constructive fulfillment an the part of Nielson of its obligation to
manage said mining properties in accordance with the contract and Lepanto had the reciprocal obligation to pay the
corresponding management fees and other benefits that would have accrued to Nielson if Lepanto allowed it
(Nielson) to continue in the management of the mines during the extended period of five (5) years. 

We find that the preponderance of evidence is to the effect that Nielson had insisted in managing the mining
properties soon after liberation. In the report 34 of Lepanto, submitted to its stockholders for the period from 1941 to
March 13, 1946, are stated the activities of Nielson's officials in relation to Nielson's insistence in continuing the
management. This report was admitted in evidence without objection. We find the following in the report:

Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San Fernando (La Union) to await the liberation of
the mines. (Mr. Blessing was the Treasurer and Metallurgist of Nielson). Blessing with Clark and Stanford went to
the property on July 16 and found that while the mill site had been cleared of the enemy the latter was still holding
the area around the staff houses and putting up a strong defense. As a result, they returned to San Fernando and
later went back to the mines on July 26. Mr. Blessing made the report, dated August 6, recommending a program of
operation. Mr. Nielson himself spent a day in the mine early in December, 1945 and reiterated the program which
Mr. Blessing had outlined. Two or three weeks before the date of the report, Mr. Coldren of the Nielson organization
also visited the mine and told President C. A. DeWitt of Lepanto that he thought that the mine could be put in
condition for the delivery of the ore within ten (10) days. And according to Mark Nestle, a witness of appellant,
Nielson had several men including engineers to do the job in the mines and to resume the work. These engineers
were in fact sent to the mine site and submitted reports of what they had done. 35

On the other hand, appellee claims that Nielson was not ready and able to resume the work in the mines, relying
mainly on the testimony of Dr. Juan Nabong, former secretary of both Nielson and Lepanto, given in the separate
case of Nancy Irving Romero vs. Lepanto Consolidated Mining Company (Civil Case No. 652, CFI, Baguio), to the
effect that as far as he knew "Nielson and Company had not attempted to operate the Lepanto Consolidated Mining
Company because Mr. Nielson was not here in the Philippines after the last war. He came back later," and that
Nielson and Company had no money nor stocks with which to start the operation. He was asked by counsel for the
appellee if he had testified that way in Civil Case No. 652 of the Court of First Instance of Baguio, and he answered
that he did not confirm it fully. When this witness was asked by the same counsel whether he confirmed that
testimony, he said that when he testified in that case he was not fully aware of what happened and that after he
learned more about the officials of the corporation it was only then that he became aware that Nielson had really
sent his men to the mines along with Mr. Blessing and that he was aware of this fact personally. He further said that
Mr. Nielson was here in 1945 and "he was going out and contacting his people." 36

Lepanto admits, in its own brief, that Nielson had really insisted in taking over the management and operation of the
mines but that it (Lepanto) unequivocally refuse to allow it. The following is what appears in the brief of the appellee:

It was while defendant was in the midst of the rehabilitation work which was fully described earlier, still
reeling under the terrible devastation and destruction wrought by war on its mine that Nielson insisted in
taking over the management and operation of the mine. Nielson thus put Lepanto in a position where
defendant, under the circumstances, had to refuse, as in fact it did, Nielson's insistence in taking over the
management and operation because, as was obvious, it was impossible, as a result of the destruction of the
mine, for the plaintiff to manage and operate the same and because, as provided in the agreement, the
contract was suspended by reason of the war. The stand of Lepanto in disallowing Nielson to assume again
the management of the mine in 1945 was unequivocal and cannot be misinterpreted, infra.37

Based on the foregoing facts and circumstances, and Our conclusion that the management contract was extended,
We believe that Nielson is entitled to the management fees for the period of extension. Nielson should be awarded
on this claim sixty times its monthly pay of P2,500.00, or a total of P150,000.00. 

In its sixth assignment of error Nielson contends that the lower court erred in not ordering Lepanto to pay it (Nielson)
the 10% share in the profits of operation realized during the period of five (5) years from the resumption of its post-
war operations of the Mankayan mines, in the total sum of P2,403,053.20 with interest thereon at the rate of 6% per
annum from February 6, 1958 until full payment. 38

The above claim of Nielson refers to four categories, namely: (1) cash dividends; (2) stock dividends; (3) depletion
reserves; and (4) amount expended on capital investment. 

Anent the first category, Lepanto's report for the calendar year 1954 39 contains a record of the cash dividends it paid
up to the date of said report, and the post-war dividends paid by it corresponding to the years included in the period
of extension of the management contract are as follows:

POST-WAR

8 10% November 1949 P 200,000.00

9 10% July 1950 300,000.00

10 10% October 1950 500,000.00

11 20% December 1950 1,000,000.00

12 20% March 1951 1,000,000.00

13 20% June 1951 1,000,000.00

14 20% September 1951 1,000,000.00

15 40% December 1951 2,000,000.00

16 20% March 1952 1,000,000.00

17 20% May 1952 1,000,000.00

18 20% July 1952 1,000,000.00

 19 20% September 1952 1,000,000.00

20 20% December 1952 1,000,000.00

21 20% March 1953 1,000,000.00

22 20% June 1953     1,000,000.00

TOTAL P14,000,000.00

According to the terms of the management contract as modified, appellant is entitled to 10% of the P14,000,000.00
cash dividends that had been distributed, as stated in the above-mentioned report, or the sum of P1,400,000.00. 

With regard to the second category, the stock dividends declared by Lepanto during the period of extension of the
contract are: On November 28, 1949, the stock dividend declared was 50% of the outstanding authorized capital of
P2,000,000.00 of the company, or stock dividends worth P1,000,000.00; and on August 22, 1950, the stock
dividends declared was 66-2/3% of the standing authorized capital of P3,000,000.00 of the company, or stock
dividends worth P2,000,000.00. 40

Appellant's claim that it should be given 10% of the cash value of said stock dividends with interest thereon at 6%
from February 6, 1958 cannot be granted for that would not be in accordance with the management contract which
entitles Nielson to 10% of any dividends declared paid, when and as paid. Nielson, therefore, is entitled to 10% of
the stock dividends and to the fruits that may have accrued to said stock dividends pursuant to Article 1164 of the
Civil Code. Hence to Nielson is due shares of stock worth P100,000.00, as per stock dividends declared on
November 28, 1949 and all the fruits accruing to said shares after said date; and also shares of stock worth
P200,000.00 as per stock dividends declared on August 20, 1950 and all fruits accruing thereto after said date. 

Anent the third category, the depletion reserve appearing in the statement of income and surplus submitted by
Lepanto corresponding to the years covered by the period of extension of the contract, may be itemized as follows:

In 1948, as per Exh. F, p. 36 and Exh. Q, p. 5, the depletion reserve set up was P11,602.80. 

In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion reserve set up was P33,556.07. 

In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the depletion reserve set up was P84,963.30. 

In 1951, as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the depletion reserve set up was P129,089.88. 

In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K p. 41, the depletion reserve was P147,141.54. 

In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve set up as P277,493.25. 

Regarding the depletion reserve set up in 1948 it should be noted that the amount given was for the whole year.
Inasmuch as the contract was extended only for the last half of the year 1948, said amount of P11,602.80 should be
divided by two, and so Nielson is only entitled to 10% of the half amounting to P5,801.40. 

Likewise, the amount of depletion reserve for the year 1953 was for the whole year and since the contract was
extended only until the first half of the year, said amount of P277,493.25 should be divided by two, and so Nielson is
only entitled to 10% of the half amounting to P138,746.62. Summing up the entire depletion reserves, from the
middle of 1948 to the middle of 1953, we would have a total of P539,298.81, of which Nielson is entitled to 10%, or
to the sum of P53,928.88. 

Finally, with regard to the fourth category, there is no figure in the record representing the value of the fixed assets
as of the beginning of the period of extension on June 27, 1948. It is possible, however, to arrive at the amount
needed by adding to the value of the fixed assets as of December 31, 1947 one-half of the amount spent for capital
account in the year 1948. As of December 31, 1947, the value of the fixed assets was P1,061,878.88 41 and as of
December 31, 1948, the value of the fixed assets was P3,270,408.07. 42 Hence, the increase in the value of the fixed
assets for the year 1948 was P2,208,529.19, one-half of which is P1,104,264.59, which amount represents the
expenses for capital account for the first half of the year 1948. If to this amount we add the fixed assets as of
December 31, 1947 amounting to P1,061,878.88, we would have a total of P2,166,143.47 which represents the
fixed assets at the beginning of the second half of the year 1948.

There is also no figure representing the value of the fixed assets when the contract, as extended, ended on June 26,
1953; but this may be computed by getting one-half of the expenses for capital account made in 1953 and adding
the same to the value of the fixed assets as of December 31, 1953 is P9,755,840.41 43 which the value of the fixed
assets as of December 31, 1952 is P8,463,741.82, the difference being P1,292,098.69. One-half of this amount is
P646,049.34 which would represent the expenses for capital account up to June, 1953. This amount added to the
value of the fixed assets as of December 31, 1952 would give a total of P9,109,791.16 which would be the value of
fixed assets at the end of June, 1953.

The increase, therefore, of the value of the fixed assets of Lepanto from June, 1948 to June, 1953 is P6,943,647.69,
which amount represents the difference between the value of the fixed assets of Lepanto in the year 1948 and in the
year 1953, as stated above. On this amount Nielson is entitled to a share of 10% or to the amount of P694,364.76. 

Considering that most of the claims of appellant have been entertained, as pointed out in this decision, We believe
that appellant is entitled to be awarded attorney's fees, especially when, according to the undisputed testimony of
Mr. Mark Nestle, Nielson obliged himself to pay attorney's fees in connection with the institution of the present case.
In this respect, We believe, considering the intricate nature of the case, an award of fifty thousand (P50,000.00)
pesos for attorney's fees would be reasonable. 

IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the court a quo and enter
in lieu thereof another, ordering the appellee Lepanto to pay appellant Nielson the different amounts as specified
hereinbelow:

(1) 10% share of cash dividends of December, 1941 in the amount of P17,500.00, with legal interest thereon from
the date of the filing of the complaint;

(2) management fee for January, 1942 in the amount of P2,500.00, with legal interest thereon from the date of the
filing of the complaint;

(3) management fees for the sixty-month period of extension of the management contract, amounting to
P150,000.00, with legal interest from the date of the filing of the complaint;

(4) 10% share in the cash dividends during the period of extension of the management contract, amounting to
P1,400,000.00, with legal interest thereon from the date of the filing of the complaint;

(5) 10% of the depletion reserve set up during the period of extension, amounting to P53,928.88, with legal interest
thereon from the date of the filing of the complaint;

(6) 10% of the expenses for capital account during the period of extension, amounting to P694,364.76, with legal
interest thereon from the date of the filing of the complaint;

(7) to issue and deliver to Nielson and Co., Inc. shares of stock of Lepanto Consolidated Mining Co. at par value
equivalent to the total of Nielson's l0% share in the stock dividends declared on November 28, 1949 and August 22,
1950, together with all cash and stock dividends, if any, as may have been declared and issued subsequent to
November 28, 1949 and August 22, 1950, as fruits that accrued to said shares;

If sufficient shares of stock of Lepanto's are not available to satisfy this judgment, defendant-appellee shall pay
plaintiff-appellant an amount in cash equivalent to the market value of said shares at the time of default (12 C.J.S.,
p. 130), that is, all shares of the stock that should have been delivered to Nielson before the filing of the complaint
must be paid at their market value as of the date of the filing of the complaint; and all shares, if any, that should
have been delivered after the filing of the complaint at the market value of the shares at the time Lepanto disposed
of all its available shares, for it is only then that Lepanto placed itself in condition of not being able to perform its
obligation (Article 1160, Civil Code);

(8) the sum of P50,000.00 as attorney's fees; and

(9) the costs. It is so ordered.

Gonzalo Puyat & Sons v. Arco Amusement Co., 72 Phil. 402

GONZALO PUYAT & SONS, INC., petitioner, 

vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.

Feria & Lao for petitioner.

J. W. Ferrier and Daniel Me. Gomez for respondent.

LAUREL, J.:

This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the purpose of reviewing its
Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc.,
defendant-appellee."

It appears that the respondent herein brought an action against the herein petitioner in the Court of First Instance of
Manila to secure a reimbursement of certain amounts allegedly overpaid by it on account of the purchase price of
sound reproducing equipment and machinery ordered by the petitioner from the Starr Piano Company of Richmond,
Indiana, U.S.A. The facts of the case as found by the trial court and confirmed by the appellate court, which are
admitted by the respondent, are as follows:

In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of the Philippine Islands,
with its office in Manila, was engaged in the business of operating cinematographs. In 1930, its name was
changed to Arco Amusement Company. C. S. Salmon was the president, while A. B. Coulette was the
business manager. About the same time, Gonzalo Puyat & Sons, Inc., another corporation doing business in
the Philippine Islands, with office in Manila, in addition to its other business, was acting as exclusive agents
in the Philippines for the Starr Piano Company of Richmond, Indiana, U.S. A. It would seem that this last
company dealt in cinematographer equipment and machinery, and the Arco Amusement Company desiring
to equipt its cinematograph with sound reproducing devices, approached Gonzalo Puyat & Sons, Inc., thru
its then president and acting manager, Gil Puyat, and an employee named Santos. After some negotiations,
it was agreed between the parties, that is to say, Salmon and Coulette on one side, representing the plaintiff,
and Gil Puyat on the other, representing the defendant, that the latter would, on behalf of the plaintiff, order
sound reproducing equipment from the Starr Piano Company and that the plaintiff would pay the defendant,
in addition to the price of the equipment, a 10 per cent commission, plus all expenses, such as, freight,
insurance, banking charges, cables, etc. At the expense of the plaintiff, the defendant sent a cable, Exhibit
"3", to the Starr Piano Company, inquiring about the equipment desired and making the said company to
quote its price without discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the price,
evidently the list price of $1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff
the cable of inquiry nor the reply but merely informed the plaintiff of the price of $1,700. Being agreeable to
this price, the plaintiff, by means of Exhibit "1", which is a letter signed by C. S. Salmon dated November 19,
1929, formally authorized the order. The equipment arrived about the end of the year 1929, and upon
delivery of the same to the plaintiff and the presentation of necessary papers, the price of $1.700, plus the
10 per cent commission agreed upon and plus all the expenses and charges, was duly paid by the plaintiff to
the defendant.

Sometime the following year, and after some negotiations between the same parties, plaintiff and
defendants, another order for sound reproducing equipment was placed by the plaintiff with the defendant,
on the same terms as the first order. This agreement or order was confirmed by the plaintiff by its letter
Exhibit "2", without date, that is to say, that the plaintiff would pay for the equipment the amount of $1,600,
which was supposed to be the price quoted by the Starr Piano Company, plus 10 per cent commission, plus
all expenses incurred. The equipment under the second order arrived in due time, and the defendant was
 duly paid the price of $1,600 with its 10 per cent commission, and $160, for all expenses and charges. This
amount of $160 does not represent actual out-of-pocket expenses paid by the defendant, but a mere flat
charge and rough estimate made by the defendant equivalent to 10 per cent of the price of $1,600 of the
equipment.

About three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against the
defendant herein Gonzalo Puyat & Sons, Inc., the officials of the Arco Amusement Company discovered that
the price quoted to them by the defendant with regard to their two orders mentioned was not the net price
but rather the list price, and that the defendants had obtained a discount from the Starr Piano Company.
Moreover, by reading reviews and literature on prices of machinery and cinematograph equipment, said
officials of the plaintiff were convinced that the prices charged them by the defendant were much too high
including the charges for out-of-pocket expense. For these reasons, they sought to obtain a reduction from
the defendant or rather a reimbursement, and failing in this they brought the present action.

The trial court held that the contract between the petitioner and the respondent was one of outright purchase and
sale, and absolved that petitioner from the complaint. The appellate court, however, — by a division of four, with one
justice dissenting — held that the relation between petitioner and respondent was that of agent and principal, the
petitioner acting as agent of the respondent in the purchase of the equipment in question, and sentenced the
petitioner to pay the respondent alleged overpayments in the total sum of $1,335.52 or P2,671.04, together with
legal interest thereon from the date of the filing of the complaint until said amount is fully paid, as well as to pay the
costs of the suit in both instances. The appellate court further argued that even if the contract between the petitioner
and the respondent was one of purchase and sale, the petitioner was guilty of fraud in concealing the true price and
hence would still be liable to reimburse the respondent for the overpayments made by the latter.

The petitioner now claims that the following errors have been incurred by the appellate court:

I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun hechos, entre la recurrente
y la recurrida existia una relacion implicita de mandataria a mandante en la transaccion de que se trata, en
vez de la de vendedora a compradora como ha declarado el Juzgado de Primera Instncia de Manila,
presidido entonces por el hoy Magistrado Honorable Marcelino Montemayor.

II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo que dicha relacion
fuerra de vendedora a compradora, la recurrente obtuvo, mediante dolo, el consentimiento de la recurrida
en cuanto al precio de $1,700 y $1,600 de las maquinarias y equipos en cuestion, y condenar a la
recurrente ha obtenido de la Starr Piano Company of Richmond, Indiana.

We sustain the theory of the trial court that the contract between the petitioner and the respondent was one of
purchase and sale, and not one of agency, for the reasons now to be stated.

In the first place, the contract is the law between the parties and should include all the things they are supposed to
have been agreed upon. What does not appear on the face of the contract should be regarded merely as "dealer's"
or "trader's talk", which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v.
Brosscell, 120 III., 161; Bank v. Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.)
The letters, Exhibits 1 and 2, by which the respondent accepted the prices of $1,700 and $1,600, respectively, for
the sound reproducing equipment subject of its contract with the petitioner, are clear in their terms and admit no
other interpretation that the respondent in question at the prices indicated which are fixed and determinate. The
respondent admitted in its complaint filed with the Court of First Instance of Manila that the petitioner agreed to sellto
it the first sound reproducing equipment and machinery. The third paragraph of the respondent's cause of action
states:

3. That on or about November 19, 1929, the herein plaintiff (respondent) and defendant (petitioner) entered
into an agreement, under and by virtue of which the herein defendant was to secure from the United States,
and sell and deliver to the herein plaintiff, certain sound reproducing equipment and machinery, for which
the said defendant, under and by virtue of said agreement, was to receive the actual cost price plus ten per
cent (10%), and was also to be reimbursed for all out of pocket expenses in connection with the purchase
and delivery of such equipment, such as costs of telegrams, freight, and similar expenses. (Emphasis ours.)
We agree with the trial judge that "whatever unforseen events might have taken place unfavorable to the defendant
(petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or
failure of the Starr Piano Company to properly fill the orders as per specifications, the plaintiff (respondent) might
still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600." This is incompatible with the
pretended relation of agency between the petitioner and the respondent, because in agency, the agent is exempted
from all liability in the discharge of his commission provided he acts in accordance with the instructions received
from his principal (section 254, Code of Commerce), and the principal must indemnify the agent for all damages
which the latter may incur in carrying out the agency without fault or imprudence on his part (article 1729, Civil
Code).

While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent (10%) commission, this does
not necessarily make the petitioner an agent of the respondent, as this provision is only an additional price which
the respondent bound itself to pay, and which stipulation is not incompatible with the contract of purchase and sale.
(See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.)

In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment and machinery
from the Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that the petitioner is the
exclusive agent of the same company in the Philippines. It is out of the ordinary for one to be the agent of both the
vendor and the purchaser. The facts and circumstances indicated do not point to anything but plain ordinary
transaction where the respondent enters into a contract of purchase and sale with the petitioner, the latter as
exclusive agent of the Starr Piano Company in the United States.

It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee for any difference
between the cost price and the sales price which represents the profit realized by the vendor out of the transaction.
This is the very essence of commerce without which merchants or middleman would not exist.

The respondents contends that it merely agreed to pay the cost price as distinguished from the list price, plus ten
per cent (10%) commission and all out-of-pocket expenses incurred by the petitioner. The distinction which the
respondents seeks to draw between the cost price and the list price we consider to be spacious. It is to be observed
that the twenty-five per cent (25%) discount granted by the Starr piano Company to the petitioner is available only to
the latter as the former's exclusive agent in the Philippines. The respondent could not have secured this discount
from the Starr Piano Company and neither was the petitioner willing to waive that discount in favor of the
respondent. As a matter of fact, no reason is advanced by the respondent why the petitioner should waive the 25
per cent discount granted it by the Starr Piano Company in exchange for the 10 percent commission offered by the
respondent. Moreover, the petitioner was not duty bound to reveal the private arrangement it had with the Starr
Piano Company relative to such discount to its prospective customers, and the respondent was not even aware of
such an arrangement. The respondent, therefore, could not have offered to pay a 10 per cent commission to the
petitioner provided it was given the benefit of the 25 per cent discount enjoyed by the petitioner. It is well known that
local dealers acting as agents of foreign manufacturers, aside from obtaining a discount from the home office,
sometimes add to the list price when they resell to local purchasers. It was apparently to guard against an
exhorbitant additional price that the respondent sought to limit it to 10 per cent, and the respondent is estopped from
questioning that additional price. If the respondent later on discovers itself at the short end of a bad bargain, it alone
must bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on
that ground alone. The respondent could not secure equipment and machinery manufactured by the Starr Piano
Company except from the petitioner alone; it willingly paid the price quoted; it received the equipment and
machinery as represented; and that was the end of the matter as far as the respondent was concerned. The fact
that the petitioner obtained more or less profit than the respondent calculated before entering into the contract or
reducing the price agreed upon between the petitioner and the respondent. Not every concealment is fraud; and
short of fraud, it were better that, within certain limits, business acumen permit of the loosening of the sleeves and of
the sharpening of the intellect of men and women in the business world.

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

Ker v. Lingad, 38 SCRA 524

KER & CO., LTD., petitioner, 
vs.
JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.

Ross, Selph and Carrascoso for petitioner.

Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Atty. Balbino Gatdula, Jr.
for respondent.

FERNANDO, J.:

Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it liable as a
commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea, notwithstanding the
vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable stands in the way.
The decision under review conforms to and is in accordance with the controlling doctrine announced in the recent
case of Commissioner of Internal Revenue v. Constantino.  The decisive test, as therein set forth, is the retention of
1

the ownership of the goods delivered to the possession of the dealer, like herein petitioner, for resale to customers,
the price and terms remaining subject to the control of the firm consigning such goods. The facts, as found by
respondent Court, to which we defer, unmistakably indicate that such a situation does exist. The juridical
consequences must inevitably follow. We affirm.

It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. Domingo the
sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and compromise penalty for the period
from July 1, 1949 to December 31, 1953. There was a request on the part of petitioner for the cancellation of such
assessment, which request was turned down. As a result, it filed a petition for review with the Court of Tax Appeals.
In its answer, the then Commissioner Domingo maintained his stand that petitioner should be taxed in such amount
as a commercial broker. In the decision now under review, promulgated on October 19, 1962, the Court of Tax
Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount due from it being fixed
at P19,772.33.

Such liability arose from a contract of petitioner with the United States Rubber International, the former being
referred to as the Distributor and the latter specifically designated as the Company. The contract was to apply to
transactions between the former and petitioner, as Distributor, from July 1, 1948 to continue in force until terminated
by either party giving to the other sixty days' notice.  The shipments would cover products "for consumption in Cebu,
2

Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao", petitioner, as
Distributor, being precluded from disposing such products elsewhere than in the above places unless written
consent would first be obtained from the Company.  Petitioner, as Distributor, is required to exert every effort to have
3

the shipment of the products in the maximum quantity and to promote in every way the sale thereof.  The prices,
4

discounts, terms of payment, terms of delivery and other conditions of sale were subject to change in the discretion
of the Company. 5

Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the
Distributor will receive, accept and/or hold upon consignment the products specified under the terms of this
agreement in such quantities as in the judgment of the Company may be necessary for the successful solicitation
and maintenance of business in the territory, and the Distributor agrees that responsibility for the final sole of all
goods delivered shall rest with him. All goods on consignment shall remain the property of the Company until sold
by the Distributor to the purchaser or purchasers, but all sales made by the Distributor shall be in his name, in which
the sale price of all goods sold less the discount given to the Distributor by the Company in accordance with the
provision of paragraph 13 of this agreement, whether or not such sale price shall have been collected by the
Distributor from the purchaser or purchasers, shall immediately be paid and remitted by the Distributor to the
Company. It is further agreed that this agreement does not constitute Distributor the agent or legal representative 4
of the Company for any purpose whatsoever. Distributor is not granted any right or authority to assume or to create
any obligation or responsibility, express or implied, in behalf of or in the name of the Company, or to bind the
Company in any manner or thing whatsoever." 6
All specifications for the goods ordered were subject to acceptance by the Company with petitioner, as Distributor,
required to accept such goods shipped as well as to clear the same through customs and to arrange for delivery in
its warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from the stocks carried by the
Company's neighboring branches, subsidiaries or other sources of Company's brands.  Shipments were to be
7

invoiced at prices to be agreed upon, with the customs duties being paid by petitioner, as Distributor, for account of
the Company.  Moreover, all resale prices, lists, discounts and general terms and conditions of local resale were to
8

be subject to the approval of the Company and to change from time to time in its discretion.  The dealer, as 9

Distributor, is allowed a discount of ten percent on the net amount of sales of merchandise made under such
agreement.   On a date to be determined by the Company, the petitioner, as Distributor, was required to report to it
10

data showing in detail all sales during the month immediately preceding, specifying therein the quantities, sizes and
types together with such information as may be required for accounting purposes, with the Company rendering an
invoice on sales as described to be dated as of the date of inventory and sales report. As Distributor, petitioner had
to make payment on such invoice or invoices on due date with the Company being privileged at its option to
terminate and cancel the agreement forthwith upon the failure to comply with this obligation.   The Company, at its
11

own expense, was to keep the consigned stock fully insured against loss or damage by fire or as a result of fire, the
policy of such insurance to be payable to it in the event of loss. Petitioner, as Distributor, assumed full responsibility
with reference to the stock and its safety at all times; and upon request of the Company at any time, it was to render
inventory of the existing stock which could be subject to change.   There was furthermore this equally tell-tale
12

covenant: "Upon the termination or any cancellation of this agreement all goods held on consignment shall be held
by the Distributor for the account of the Company, without expense to the Company, until such time as provision can
be made by the Company for disposition."  13

The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is one of vendor
and vendee or of broker and principal. Not that there would have been the slightest doubt were it not for the
categorical denial in the contract that petitioner was not constituted as "the agent or legal representative of the
Company for any purpose whatsoever." It would be, however, to impart to such an express disclaimer a meaning it
should not possess to ignore what is manifestly the role assigned to petitioner considering the instrument as a
whole. That would be to lose sight altogether of what has been agreed upon. The Court of Tax Appeals was not
misled in the language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual
stipulation, an agent of U.S. Rubber International is borne out by the facts that petitioner can dispose of the products
of the Company only to certain persons or entities and within stipulated limits, unless excepted by the contract or by
the Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon consignment the products, which
remain properties of the latter company (Par. 8); that every effort shall be made by petitioner to promote in every
way the sale of the products (Par. 3); that sales made by petitioner are subject to approval by the company (Par.
12); that on dates determined by the rubber company, petitioner shall render a detailed report showing sales during
the month (Par. 14); that the rubber company shall invoice the sales as of the dates of inventory and sales report
(Par. 14); that the rubber company agrees to keep the consigned goods fully insured under insurance policies
payable to it in case of loss (Par. 15); that upon request of the rubber company at any time, petitioner shall render
an inventory of the existing stock which may be checked by an authorized representative of the former (Par. 15);
and that upon termination or cancellation of the Agreement, all goods held on consignment shall be held by
petitioner for the account of the rubber company until their disposition is provided for by the latter (Par. 19). All these
circumstances are irreconcilably antagonistic to the idea of an independent merchant."   Hence its conclusion:
14

"However, upon analysis of the contract, as a whole, together with the actual conduct of the parties in respect
thereto, we have arrived at the conclusion that the relationship between them is one of brokerage or agency."   We 15

find ourselves in agreement, notwithstanding the able brief filed on behalf of petitioner by its counsel. As noted at
the outset, we cannot heed petitioner's plea for reversal.

1. According to the National Internal Revenue Code, a commercial broker "includes all persons, other than
importers, manufacturers, producers, or bona fide employees, who, for compensation or profit, sell or bring about
sales or purchases of merchandise for other persons or bring proposed buyers and sellers together, or negotiate
freights or other business for owners of vessels or other means of transportation, or for the shippers, or consignors
or consignees of freight carried by vessels or other means of transportation. The term includes commission
merchants."   The controlling decision as to the test to be followed as to who falls within the above definition of a
16

commercial broker is that of Commissioner of Internal Revenue v. Constantino.   In the language of Justice J. B. L.
17

Reyes, who penned the opinion: "Since the company retained ownership of the goods, even as it delivered
possession unto the dealer for resale to customers, the price and terms of which were subject to the company's
control, the relationship between the company and the dealer is one of agency, ... ."   An excerpt from Salisbury v.
18

Brooks   cited in support of such a view follows: " 'The difficulty in distinguishing between contracts of sale and the
19

creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be
solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence
of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the
transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a
resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his
property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price,
and terms, demand and receive the proceeds less the agent's commission upon sales made.' "   The opinion relied
20

on the work of Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote
treatises on Sales, were likewise referred to.

Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity or
presence of these mutual requirements and obligations on any theory other than that of a contract of agency.
Salisbury was to furnish the mill and put the timber owned by him into a marketable condition in the form of lumber;
Brooks was to furnish the funds necessary for that purpose, sell the manufactured product, and account therefor to
Salisbury upon the specific terms of the agreement, less the compensation fixed by the parties in lieu of interest on
the money advanced and for services as agent. These requirements and stipulations are in tent with any other
conception of the contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be ignored.
They were placed there for some purpose, doubtless as the result of definite antecedent negotiations therefore,
consummated by the final written expression of the agreement."   Hence the Constantino opinion could categorically
21

affirm that the mere disclaimer in a contract that an entity like petitioner is not "the agent or legal representative for
any purpose whatsoever" does not suffice to yield the conclusion that it is an independent merchant if the control
over the goods for resale of the goods consigned is pervasive in character. The Court of Tax Appeals decision now
under review pays fealty to such an applicable doctrine.

2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals. Neither did such
Court fail to appreciate in its true significance the act and conduct pursued in the implementation of the contract by
both the United States Rubber International and petitioner, as was contended in the second assignment of error.
Petitioner ought to have been aware that there was no need for such an inquiry. The terms of the contract, as noted,
speak quite clearly. There is lacking that degree of ambiguity sufficient to give rise to serious doubt as to what was
contemplated by the parties. A reading thereof discloses that the relationship arising therefrom was not one of seller
and purchaser. If it were thus intended, then it would not have included covenants which in their totality would
negate the concept of a firm acquiring as vendee goods from another. Instead, the stipulations were so worded as
to lead to no other conclusion than that the control by the United States Rubber International over the goods in
question is, in the language of the Constantino opinion, "pervasive". The insistence on a relationship opposed to that
apparent from the language employed might even yield the impression that such a mode of construction was
resorted to in order that the applicability of a taxing statute might be rendered nugatory. Certainly, such a result is to
be avoided.

Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has developed an
expertise in view of its function being limited solely to the interpretation of revenue laws, this Court is not prepared to
substitute its own judgment unless a grave abuse of discretion is manifest. It would be to frustrate the objective for
which administrative tribunals are created if the judiciary, absent such a showing, is to ignore their appraisal on a
matter that forms the staple of their specialized competence. While it is to be admitted that counsel for petitioner did
scrutinize with care the decision under review with a view to exposing what was considered its flaws, it cannot be
said that there was such a failure to apply what the law commands as to call for its reversal. Instead, what cannot be
denied is that the Court of Tax Appeals reached a result to which the Court in the recent Constantino decision gave
the imprimatur of its approval. 

WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs against petitioner.

Medrano v. Court of Appeals, 452 SCRA 77

BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners, 
vs.
COURT OF APPEALS, PACITA G. BORBON, JOSEFINA E. ANTONIO and ESTELA A. FLOR, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review of the Decision of the Court of Appeals (CA) affirming in toto the Decision of the
1  2 

Regional Trial Court (RTC) of Makati City, Branch 135, in Civil Case No. 15664 which awarded to the respondents
their 5% broker’s commission.

The facts are as follows:

Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank, a bank owned by the Medrano family. In 1986,
Mr. Medrano asked Mrs. Estela Flor, a cousin-in-law, to look for a buyer of a foreclosed asset of the bank, a 17- 3 

hectare mango plantation priced at ₱2,200,000.00, located in Ibaan, Batangas. 4 

Mr. Dominador Lee, a businessman from Makati City, was a client of respondent Mrs. Pacita G. Borbon, a licensed
real estate broker. The two met through a previous transaction where Lee responded to an ad in a newspaper put
up by Borbon for an 8-hectare property in Lubo, Batangas, planted with atis trees. Lee expressed that he preferred
a land with mango trees instead. Borbon promised to get back to him as soon as she would be able to find a
property according to his specifications.

Borbon relayed to her business associates and friends that she had a ready buyer for a mango orchard. Flor then
advised her that her cousin-in-law owned a mango plantation which was up for sale. She told Flor to confer with
Medrano and to give them a written authority to negotiate the sale of the property. Thus, on September 3, 1986,
5 

Medrano issued the Letter of Authority, as follows:

Mrs. Pacita G. Borbon & Miss Josefina E. Antonio

Campos Rueda Building
Tindalo, Makati, M.M.

Mrs. Estela A. Flor & Miss Maria Yumi S. Karasig

23 Mabini Street
Quezon City, M.M.

Dear Mesdames:

This letter will serve as your authority* to negotiate with any prospective buyer for the sale of a certain real estate
property more specifically a mango plantation which is described more particularly therein below:

Location : Barrio Tulay-na-Patpat, Ibaan, Batangas

Lot Area : 17 hectares (more or less) per

attached Appendix "A"

Improvements : 720 all fruit-bearing mango trees

(carabao variety) and other trees

Price : P 2,200,000.00

For your labor and effort in finding a purchaser thereof, I hereby bind myself to pay you a commission of 5% of the
total purchase price to be agreed upon by the buyer and seller.

Very truly yours,

(Sgd.)
B.R. Medrano
Owner

* Subject to price sale. 6 

The respondents arranged for an ocular inspection of the property together with Lee which never materialized – the
first time was due to inclement weather; the next time, no car was available for the tripping to Batangas. Lee then 7 

called up Borbon and told her that he was on his way to Lipa City to inspect another property, and might as well also
take a look at the property Borbon was offering. Since Lee was in a hurry, the respondents could no longer
accompany him at the time. Thus, he asked for the exact address of the property and the directions on how to reach
the lot in Ibaan from Lipa City. Thereupon, Lee was instructed to get in touch with Medrano’s daughter and also an
officer of the bank, Mrs. Teresa Ganzon, regarding the property. 8 
1ªvvphi1.nét

Two days after the visit, respondent Josefina Antonio called Lee to inquire about the result of his ocular inspection.
Lee told her that the mango trees "looked sick" so he was bringing an agriculturist to the property. Three weeks
thereafter, Antonio called Lee again to make a follow-up of the latter’s visit to Ibaan. Lee informed her that he
already purchased the property and had made a down payment of ₱1,000,000.00. The remaining balance of
₱1,200,000.00 was to be paid upon the approval of the incorporation papers of the corporation he was organizing
by the Securities and Exchange Commission. According to Antonio, Lee asked her if they had already received their
commission. She answered "no," and Lee expressed surprise over this. 9 

A Deed of Sale was eventually executed on November 6, 1986 between the bank, represented by its
President/General Manager Teresa M. Ganzon (as Vendor) and KGB Farms, Inc., represented by Dominador Lee
(as Vendee), for the purchase price of ₱1,200,000.00. Since the sale of the property was consummated, the
10 

respondents asked from the petitioners their commission, or 5% of the purchase price. The petitioners refused to
pay and offered a measly sum of ₱5,000.00 each. Hence, the respondents were constrained to file an action
11 

against herein petitioners.

The petitioners alleged that Medrano issued the letter of authority in favor of all the respondents, upon the
representation of Flor that she had a prospective buyer. Flor was the only person known to Medrano, and he had
never met Borbon and Antonio. Medrano had asked that the name of their prospective buyer be immediately
registered so as to avoid confusion later on, but Flor failed to do so. Furthermore, the other officers of the bank had
never met nor dealt with the respondents in connection with the sale of the property. Ganzon also asked Lee if he
had an agent and the latter replied that he had none. The petitioners also denied that the purchase price of the
property was ₱2,200,000.00 and alleged that the property only cost ₱1,200,000.00. The petitioners further
contended that the letter of authority signed by Medrano was not binding or enforceable against the bank because
the latter had a personality separate and distinct from that of Medrano. Medrano, on the other hand, denied liability,
considering that he was not the registered owner of the property, but the bank. The petitioners, likewise, filed a
counterclaim as they were constrained to hire the services of counsel and suffered damages. 12 

After the case was submitted for decision, Medrano died, but no substitution of party was made at this time. 13 

The trial court resolved the case based on the following common issues:

1. Whether or not the letter of authority is binding and enforceable against the defendant Bank only or both
defendants; and

2. Whether or not the plaintiffs are entitled to any commission for the sale of the subject property. 14 

On September 21, 1994, the trial court rendered a Decision in favor of the respondents. The petitioners were
ordered to pay, jointly and severally, the 5% broker’s commission to herein respondents. The trial court found that
the letter of authority was valid and binding as against Medrano and the Ibaan Rural bank. Medrano signed the said
letter for and in behalf of the bank, and as owner of the property, promising to pay the respondents a 5%
commission for their efforts in looking for a purchaser of the property. He is, therefore, estopped from denying
liability on the basis of the letter of authority he issued in favor of the respondents. The trial court further stated that
the sale of the property could not have been possible without the representation and intervention of the
respondents. As such, they are entitled to the broker’s commission of 5% of the selling price of ₱1,200,000.00 as
evidenced by the deed of sale. The fallo of the decision reads as follows:
15 

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, for the latter, jointly and severally:

1. To pay plaintiffs the sum of ₱60,000.00 representing their five percent (5%) commission of the purchase
price of the property sold based on Exh. "D" or "9" plus legal interest from date of filing of the herein
complaint until fully paid;

2. To pay plaintiffs the sum of ₱20,000.00 as and for attorney’s fees;

3. To pay the plaintiffs the sum of ₱10,000.00 as litigation expenses;

4. To pay the costs of the proceedings. 16 

Unable to agree with the RTC decision, petitioner Ibaan Rural Bank filed its notice of appeal. 17 

On October 10, 1994, the heirs of Bienvenido Medrano filed a Motion for Reconsideration praying that the late
18 

Bienvenido Medrano be substituted by his heirs. They further prayed that the trial court’s decision as far as Medrano
was concerned be set aside and dismissed considering his demise. The trial court denied the motion for
reconsideration. Hence, the heirs of Medrano also filed their notice of appeal.
19  20 

On appeal, the petitioners reiterated their stance that the letter of authority was not binding and enforceable, as the
same was signed by Medrano, who was not actually the owner of the property. They refused to give the
respondents any commission, since the latter did not perform any act to consummate the sale. The petitioners
pointed out that the respondents (1) did not verify the real owner of the property; (2) never saw the property in
question; (3) never got in touch with the registered owner of the property; and (4) neither did they perform any act of
assisting their buyer in having the property inspected and verified. The petitioners further raised the trial court’s
21 

error in not dismissing the case against Bienvenido Medrano considering his death.

On May 3, 2001, the CA promulgated the assailed decision affirming the finding of the trial court that the letter of
authority was valid and binding. Applying the principle of agency, the appellate court ruled that Bienvenido Medrano
constituted the respondents as his agents, granting them authority to represent and act on behalf of the former in
the sale of the 17-hectare mango plantation. The CA also ruled that the trial court did not err in finding that the
respondents were the procuring cause of the sale. Suffice it to state that were it not for the respondents, Lee would
not have known that there was a mango orchard offered for sale. 1awphi1.nét

The CA further ruled that an action for a sum of money continues even after the death of the defendant, and shall
remain as a money claim against the estate of the deceased.

Undaunted by the CA’s unfavorable decision, the petitioners filed the instant petition, raising eight (8) assignments
of errors, to wit:

I. THE COURT OF APPEALS ERRED WHEN IT FOUND THE PRIVATE RESPONDENTS TO BE THE
PROCURING CAUSE OF THE SALE;

II. THE COURT OF APPEALS ERRED IN GIVING CREDENCE TO THE LETTER-AUTHORITY OF

PETITIONER MR. MEDRANO;

III. THE COURT OF APPEALS MADE A MISTAKE WHEN IT CORRECTLY RECOGNIZED THE EXTENT
OF THE PRIVATE RESPONDENTS’ OBLIGATION AND AUTHORITY CONTAINED IN MEDRANO’S
LETTER-AUTHORITY AND YET ERRONEOUSLY GRANTED THE PRIVATE-RESPONDENTS’ DEMAND,
NOTWITHSTANDING THE NON-PERFORMANCE OF THEIR OBLIGATION THEREUNDER;

IV. THE COURT OF APPEALS ERRED IN PRESUMING BAD FAITH UPON THE PETITIONERS;
 V. THE COURT OF APPEALS ERRED IN PLACING THE BURDEN OF PROOF UPON THE
DEFENDANTS-PETITIONERS;

VI. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION WITH EVIDENCE AND
INSTEAD RELIED ON INFERENCE;

VII. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION WITH EVIDENCE AND
MERELY RELIED ON SPECULATION AND SURMISE;

VIII. THE COURT OF APPEALS MISAPPRECIATED THE FACTS PRESENTED BEFORE IT, AND
CONSEQUENTLY FAILED TO CONSIDER REASONABLY THE TWO (2) BASIC ARGUMENTS OF THE
PETITIONERS. 22 

The petition is denied.

The records disclose that respondent Pacita Borbon is a licensed real estate broker and respondents Josefina
23 

Antonio and Estela A. Flor are her associates. A broker is generally defined as one who is engaged, for others, on a
24 

commission, negotiating contracts relative to property with the custody of which he has no concern; the negotiator
between other parties, never acting in his own name but in the name of those who employed him; he is strictly a
middleman and for some purposes the agent of both parties. A broker is one whose occupation is to bring parties
together, in matters of trade, commerce or navigation. For the respondents’ participation in finding a buyer for the
25 

petitioners’ property, the petitioners refuse to pay them commission, asserting that they are not the efficient
procuring cause of the sale, and that the letter of authority signed by petitioner Medrano is not binding against the
petitioners.

"Procuring cause" is meant to be the proximate cause. The term "procuring cause," in describing a broker’s activity,
26 

refers to a cause originating a series of events which, without break in their continuity, result in accomplishment of
prime objective of the employment of the broker – producing a purchaser ready, willing and able to buy real estate
on the owner’s terms. A broker will be regarded as the "procuring cause" of a sale, so as to be entitled to
27 

commission, if his efforts are the foundation on which the negotiations resulting in a sale are begun. The broker
28 

must be the efficient agent or the procuring cause of the sale. The means employed by him and his efforts must
result in the sale. He must find the purchaser, and the sale must proceed from his efforts acting as broker. 29 

Indeed, the evidence on record shows that the respondents were instrumental in the sale of the property to Lee.
Without their intervention, no sale could have been consummated. They were the ones who set the sale of the
subject land in motion. Upon being informed by Flor that Medrano was selling his mango orchard, Borbon lost no
30 

time in informing Lee that they had found a property according to his specifications. An ocular inspection of the
property together with Lee was immediately planned; unfortunately, it never pushed through for reasons beyond the
respondents’ control. Since Lee was in a hurry to see the property, he asked the respondents the exact address and
the directions on how to reach Ibaan, Batangas. The respondents thereupon instructed him to look for Teresa
Ganzon, an officer of the Ibaan Rural Bank and the person to talk to regarding the property. While the letter-
authority issued in favor of the respondents was non-exclusive, no evidence was adduced to show that there were
other persons, aside from the respondents, who informed Lee about the property for sale. Ganzon testified that no
advertisement was made announcing the sale of the lot, nor did she give any authority to other brokers/agents to
sell the subject property. The fact that it was Lee who personally called Borbon and asked for directions prove that
31 

it was only through the respondents that Lee learned about the property for sale. Significantly, too, Ms. Teresa
32 

Ganzon testified that there were no other persons other than the respondents who inquired from her about the sale
of the property to Lee. It can thus be readily inferred that the respondents were the only ones who knew about the
33 

property for sale and were responsible in leading a buyer to its consummation. All these circumstances lead us to
the inescapable conclusion that the respondents were the procuring cause of the sale. When there is a close,
proximate and causal connection between the broker’s efforts and the principal’s sale of his property, the broker is
entitled to a commission. 34 

The petitioners insist that the respondents are not entitled to any commission since they did not actually perform any
acts of "negotiation" as required in the letter-authority. They refuse to pay the commission since according to them,
the respondents’ participation in the transaction was not apparent, if not nil. The respondents did not even look at
the property themselves; did not introduce the buyer to the seller; did not hold any conferences with the buyer, nor
take part in concluding the sale. For the non-compliance of this obligation "to negotiate," the petitioners argue, the
respondents are not entitled to any commission.

We find the argument specious.  The letter of authority must be read as a whole and not in its truncated parts.
l^vvphi1.net

Certainly, it was not the intention of Medrano to expect the respondents to do just that (to negotiate) when he issued
the letter of authority. The clear intention is to reward the respondents for procuring a buyer for the property. Before
negotiating a sale, a broker must first and foremost bring in a prospective buyer. It has been held that
a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made. The 35 

essential feature of a broker’s conventional employment is merely to procure a purchaser for a property ready, able,
and willing to buy at the price and on the terms mutually agreed upon by the owner and the purchaser. And it is not
a prerequisite to the right to compensation that the broker conduct the negotiations between the parties after they
have been brought into contact with each other through his efforts. The case of Macondray v. Sellner is quite
36  37 

instructive:

The business of a real estate broker or agent, generally, is only to find a purchaser, and the settled rule as stated by
the courts is that, in the absence of an express contract between the broker and his principal, the implication
generally is that the broker becomes entitled to the usual commissions whenever he brings to his principal a party
who is able and willing to take the property and enter into a valid contract upon the terms then named by the
principal, although the particulars may be arranged and the matter negotiated and completed between the principal
and the purchaser directly.

Notably, there are cases where the right of the brokers to recover commissions were upheld where they actually
took no part in the negotiations, never saw the customer, and even some in which they did nothing except advertise
the property, as long as it can be shown that they were the efficient cause of the sale.38 

In the case at bar, the role of the respondents in the transaction is undisputed. Whether or not they participated in
the negotiations of the sale is of no moment. Armed with an authority to procure a purchaser and with a license to
act as broker, we see no reason why the respondents can not recover compensation for their efforts when, in fact,
they are the procuring cause of the sale. 39 

Anent the validity of the letter-authority signed by Medrano, we find no reversible error with the findings of the
appellate and trial courts that the petitioners are liable thereunder. Such factual findings deserve this Court’s respect
in the absence of any cogent reason to reverse the same. Medrano’s obligation to pay the respondents commission
for their labor and effort in finding a purchaser or a buyer for the described parcel of land is unquestionable. In the
absence of fraud, irregularity or illegality in its execution, such letter-authority serves as a contract, and is
considered as the law between the parties. As such, Medrano can not renege on the promise to pay commission on
the flimsy excuse that he is not the registered owner of the property. The evidence shows that he comported himself
to be the owner of the property. His testimony is quite telling:

Q Mr. Medrano, do you know any of the plaintiffs in this case, Pacita Borbon, Josefina Antonio, and Stella
(sic) F. Flor?

WITNESS

A I know only Stella (sic) F. Flor. The rest, I do not know them. I have never met them, up to now.

Q How about the co-defendant Ibaan Rural Bank?

A I know co-defendant Ibaan Rural Bank, having been the founder and at one time or another, I have served
several capacities from President to Chairman of the Board.

Q Are you familiar with a certain parcel of land located at Barrio Tulay na Patpat, Ibaan, Batangas, with an
area of 17 hectares?

A Yes, Sir. I used to own that property but later on mortgaged it to Ibaan Rural Bank.

Q And what, if any, [did] the bank do to your property after you have mortgaged the same to it?
 A After many demands for payment or redemption of my mortgage, which I failed to do so, the Ibaan Rural
Bank sold it.

Q After it was foreclosed?

A Yes, Sir.

Q Do you recall having made any transaction with plaintiff Stella (sic) F. Flor regarding the property?

A Yes, Sir. Since she is the first cousin of my wife, I remember [that] she came to my office once and
requested for a letter of authority which I issued [in] September 1986, I think, and I gave her the letter of
authority.40 

As to the liability of the bank, we quote with favor the disquisition of the respondent court, to wit:

Further, the appellants cannot use the flimsy excuse (only to evade liability) that "(w)hat Mr. Medrano represented to
the plaintiffs-appellees, without the knowledge or consent of the defendant Bank, did not bind the Bank. Res inter
alios acta alteri nocere non debet." (page 8 of the Appellant’s Brief; page 35 of the Rollo). While it may be true that
technically the Ibaan Rural Bank did not authorize Bienvenido R. Medrano to sell the land under litigation or that the
latter was no longer an officer of the said bank, still, these circumstances do not convince this Court fully well to
absolve the bank. Note that, as former President of the said bank, it is improbable that he (Bienvenido R. Medrano)
was completely oblivious of the developments therein. By reason of his past association with the officers of the said
bank (who are, in fact, his relatives), it is unbelievable that Bienvenido R. Medrano could simply have issued the
said letter of authority without the knowledge of the said officers. Granting por aguendo that Bienvenido R. Medrano
did not act on behalf of the bank, however, We doubt that he had no financial and/or material interest in the said
sale – a fact that could not possibly have eluded Our attention. 41 

From all the foregoing, there can be no other conclusion than the respondents are indeed the procuring cause of the
sale. If not for the respondents, Lee would not have known about the mango plantation being sold by the petitioners.
The sale was consummated. The bank had profited from such transaction. It would certainly be iniquitous if the
respondents would not be rewarded their commission pursuant to the letter of authority.

WHEREFORE, the petition is DENIED due course. The Decision of the Court of Appeals is AFFIRMED.

SO ORDERED.