Republic of the Philippines

CARRIER

SUPREME COURT

HKG

Manila

FLIGHT
BA 20 M

THIRD DIVISION

DATE
16 APR.

G.R. No. 121824

January 29, 1998

TIME
2100

BRITISH AIRWAYS, petitioner,

STATUS

vs.
COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES,
respondents.

OK
MANILA
BOMBAY
MNL

ROMERO, J.:
BOM
In this appeal by certiorari, petitioner British Airways (BA) seeks to set
aside the decision of respondent Court of Appeals 1 promulgated on
September 7, 1995, which affirmed the award of damages and
attorney's fees made by the Regional Trial Court of Cebu, 7th Judicial
Region, Branch 17, in favor of private respondent GOP Mahtani as well
as the dismissal of its third-party complaint against Philippine Airlines
(PAL). 2
The material and relevant facts are as follows:

PR 310 Y
BA 19 M
16 APR.
23 APR.
1730
0840

On April 16, 1989, Mahtani decided to visit his relatives in Bombay,

India. In anticipation of his visit, he obtained the services of a certain
Mr. Gumar to prepare his travel plans. The latter, in turn, purchased a
ticket from BA where the following itinerary was indicated: 3

OK
OK
HONGKONG

HONGKONG

HKG

PR 311 Y

MANILA

Dissatisfied, BA appealed to the Court of Appeals, which however,

affirmed the trial court's findings. Thus:
On September 4, 1990, BA filed its answer with counter claim 6 to the
complaint raising, as special and affirmative defenses, that Mahtani did
not have a cause of action against it. Likewise, on November 9, 1990,
BA filed a third-party complaint 7 against PAL alleging that the reason
for the non-transfer of the luggage was due to the latter's late arrival in
Hongkong, thus leaving hardly any time for the proper transfer of
Mahtani's luggage to the BA aircraft bound for Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint,
wherein it disclaimed any liability, arguing that there was, in fact,
adequate time to transfer the luggage to BA facilities in Hongkong.
Furthermore, the transfer of the luggage to Hongkong authorities
should be considered as transfer to BA. 8

WHEREFORE, in view of all the foregoing considerations, finding the

Decision appealed from to be in accordance with law and evidence, the
same is hereby AFFIRMED in toto, with costs against defendantappellant.
SO ORDERED. 10
BA is now before us seeking the reversal of the Court of Appeals'
decision.

MNL

Since BA had no direct flights from Manila to Bombay, Mahtani had to

take a flight to Hongkong via PAL, and upon arrival in Hongkong he had
to take a connecting flight to Bombay on board BA.

Prior to his departure, Mahtani checked in at the PAL counter in Manila

his two pieces of luggage containing his clothings and personal effects,
confident that upon reaching Hongkong, the same would be
transferred to the BA flight bound for Bombay.

Unfortunately, when Mahtani arrived in Bombay he discovered that his

luggage was missing and that upon inquiry from the BA
representatives, he was told that the same might have been diverted
to London. After patiently waiting for his luggage for one week, BA
finally advised him to file a claim by accomplishing the "Property
Irregularity Report." 4

After appropriate proceedings and trial, on March 4, 1993, the trial

court rendered its decision in favor of Mahtani, 9 the dispositive
portion of which reads as follows:

WHEREFORE, premises considered, judgment is rendered for the

plaintiff and against the defendant for which defendant is ordered to
pay plaintiff the sum of Seven Thousand (P7,000.00) Pesos for the
value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars
representing the value of the contents of plaintiff's luggage; Fifty
Thousand (P50,000.00) Pesos for moral and actual damages and
twenty percent (20%) of the total amount imposed against the
defendant for attorney's fees and costs of this action.

The Third-Party Complaint against third-party defendant Philippine

Airlines is DISMISSED for lack of cause of action.

SO ORDERED.
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his
complaint for damages and attorney's fees 5 against BA and Mr. Gumar
before the trial court, docketed as Civil Case No. CEB-9076.

In essence, BA assails the award of compensatory damages and

attorney's fees, as well as the dismissal of its third-party complaint
against PAL. 11

Regarding the first assigned issue, BA asserts that the award of

compensatory damages in the separate sum of P7,000.00 for the loss
of Mahtani's two pieces of luggage was without basis since Mahtani in
his complaint 12 stated the following as the value of his personal
belongings:

8.
On the said travel, plaintiff took with him the following
items and its corresponding value, to wit:

1.

personal belonging

P10,000.00

2.

gifts for his parents and relatives $5,000.00

Moreover, he failed to declare a higher valuation with respect to his

luggage, a condition provided for in the ticket, which reads: 13

Liability for loss, delay, or damage to baggage is limited unless a higher

value is declared in advance and additional charges are paid:

1.
For most international travel (including domestic
corporations of international journeys) the liability limit is
approximately U.S. $9.07 per pound (U.S. $20.000) per kilo for checked
baggage and U.S. $400 per passenger for unchecked baggage.

Before we resolve the issues raised by BA, it is needful to state that the
nature of an airline's contract of carriage partakes of two types,
namely: a contract to deliver a cargo or merchandise to its destination
and a contract to transport passengers to their destination. A business
intended to serve the traveling public primarily, it is imbued with public
interest, hence, the law governing common carriers imposes an
exacting standard. 14 Neglect or malfeasance by the carrier's
employees could predictably furnish bases for an action for damages.
15

Since plaintiff did not declare the value of the contents in his luggage
and even failed to show receipts of the alleged gifts for the members of
his family in Bombay, the most that can be expected for compensation
of his lost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00) per kilo,
or combined value of Four Hundred ($400.00) U.S. Dollars for Twenty
kilos representing the contents plus Seven Thousand (P7,000.00) Pesos
representing the purchase price of the two (2) suit cases.

However, as earlier stated, it is the position of BA that there should

have been no separate award for the luggage and the contents thereof
since Mahtani failed to declare a separate higher valuation for the
luggage, 18 and therefore, its liability is limited, at most, only to the
amount stated in the ticket.

Considering the facts of the case, we cannot assent to such specious

argument.

Admittedly, in a contract of air carriage a declaration by the passenger

of a higher value is needed to recover a greater amount. Article 22(1)
of the Warsaw Convention, 19 provides as follows:
In the instant case, it is apparent that the contract of carriage was
between Mahtani and BA. Moreover, it is indubitable that his luggage
never arrived in Bombay on time. Therefore, as in a number of cases 16
we have assessed the airlines' culpability in the form of damages for
breach of contract involving misplaced luggage.

In determining the amount of compensatory damages in this kind of

cases, it is vital that the claimant satisfactorily prove during the trial the
existence of the factual basis of the damages and its causal connection
to defendant's acts. 17

In this regard, the trial court granted the following award as

compensatory damages:

xxx

xxx

American jurisprudence provides that an air carrier is not liable for the
loss of baggage in an amount in excess of the limits specified in the
tariff which was filed with the proper authorities, such tariff being
binding, on the passenger regardless of the passenger's lack of
knowledge thereof or assent thereto. 20 This doctrine is recognized in
this jurisdiction. 21

Notwithstanding the foregoing, we have, nevertheless, ruled against

blind reliance on adhesion contracts where the facts and circumstances
justify that they should be disregarded. 22

In addition, we have held that benefits of limited liability are subject to

waiver such as when the air carrier failed to raise timely objections
during the trial when questions and answers regarding the actual
claims and damages sustained by the passenger were asked. 23

Given the foregoing postulates, the inescapable conclusion is that BA

had waived the defense of limited liability when it allowed Mahtani to
testify as to the actual damages he incurred due to the misplacement
of his luggage, without any objection. In this regard, we quote the
pertinent transcript of stenographic notes of Mahtani's direct
testimony: 24

xxx

(2)
In the transportation of checked baggage and goods, the
liability of the carrier shall be limited to a sum of 250 francs per
kilogram, unless the consignor has made, at time the package was
handed over to the carrier, a special declaration of the value at delivery
and has paid a supplementary sum if the case so requires. In that case
the carrier will be liable to pay a sum not exceeding the declared sum,
unless he proves that the sum is greater than the actual value to the
consignor at delivery.

How much are you going to ask from this court?

P100,000.00.

What else?

Exemplary damages.

How much?

P100,000.00.

to have been waived. The proper time to make a protest or objection is

when, from the question addressed to the witness, or from the answer
thereto, or from the presentation of proof, the inadmissibility of
evidence is, or may be inferred.

the passenger's ticket is considered the principal party and the other
carrier merely subcontractors or agent, is a settled issue.

We cannot agree with the dismissal of the third-complaint.

What else?

Needless to say, factual findings of the trial court, as affirmed by the

Court of Appeals, are entitled to great respect. 28 Since the actual
value of the luggage involved appreciation of evidence, a task within
the competence of the Court of Appeals, its ruling regarding the
amount is assuredly a question of fact, thus, a finding not reviewable
by this Court. 29

The things I lost, $5,000.00 for the gifts I lost and

my personal belongings, P10,000.00.

What about the filing of this case?

The court expenses and attorney's fees is 30%.

Indeed, it is a well-settled doctrine that where the proponent offers

evidence deemed by counsel of the adverse party to be inadmissible
for any reason, the latter has the right to object. However, such right is
a mere privilege which can be waived. Necessarily, the objection must
be made at the earliest opportunity, lest silence when there is
opportunity to speak may operate as a waiver of objections. 25 BA has
precisely failed in this regard.

To compound matters for BA, its counsel failed, not only to interpose a
timely objection, but even conducted his own cross-examination as
well. 26 In the early case of Abrenica v. Gonda, 27 we ruled that:

. . . (I)t has been repeatedly laid down as a rule of evidence that a

protest or objection against the admission of any evidence must be
made at the proper time, and that if not so made it will be understood

As to the issue of the dismissal of BA's third-party complaint against

PAL, the Court of Appeals justified its ruling in this wise, and we quote:
30

Lastly, we sustain the trial court's ruling dismissing appellant's thirdparty complaint against PAL.

The contract of air transportation in this case pursuant to the ticket

issued by appellant to plaintiff-appellee was exclusively between the
plaintiff Mahtani and defendant-appellant BA. When plaintiff boarded
the PAL plane from Manila to Hongkong, PAL was merely acting as a
subcontractor or agent of BA. This is shown by the fact that in the
ticket issued by appellant to plaintiff-appellee, it is specifically provided
on the "Conditions of Contract," paragraph 4 thereof that:

4.
. . . carriage to be performed hereunder by several
successive carriers is regarded as a single operation.

The rule that carriage by plane although performed by successive

carriers is regarded as a single operation and that the carrier issuing

In Firestone Tire and Rubber Company of the Philippines v.

Tempengko, 31 we expounded on the nature of a third-party complaint
thus:

The third-party complaint is, therefore, a procedural device whereby a

"third party" who is neither a party nor privy to the act or deed
complained of by the plaintiff, may be brought into the case with leave
of court, by the defendant, who acts, as third-party plaintiff to enforce
against such third-party defendant a right for contribution, indemnity,
subrogation or any other relief, in respect of the plaintiff's claim. The
third-party complaint is actually independent of and separate and
distinct from the plaintiff's complaint. Were it not for this provision of
the Rules of Court, it would have to be filed independently and
separately from the original complaint by the defendant against the
third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in
respect of plaintiff's claim against a third-party in the original and
principal case with the object of avoiding circuitry of action and
unnecessary proliferation of law suits and of disposing expeditiously in
one litigation the entire subject matter arising from one particular set
of facts.

Undeniably, for the loss of his luggage, Mahtani is entitled to damages

from BA, in view of their contract of carriage. Yet, BA adamantly
disclaimed its liability and instead imputed it to PAL which the latter
naturally denies. In other words, BA and PAL are blaming each other
for the incident.

In resolving this issue, it is worth observing that the contract of air

transportation was exclusively between Mahtani and BA, the latter

merely endorsing the Manila to Hongkong leg of the former's journey

to PAL, as its subcontractor or agent. In fact, the fourth paragraph of
the "Conditions of Contracts" of the ticket 32 issued by BA to Mahtani
confirms that the contract was one of continuous air transportation
from Manila to Bombay.

An action for damages was filed against Lufthansa which, however,

denied any liability, contending that its responsibility towards its
passenger is limited to the occurrence of a mishap on its own line.
Consequently, when Antiporda transferred to Air Kenya, its obligation
as a principal in the contract of carriage ceased; from there on, it
merely acted as a ticketing agent for Air Kenya.

4.
. . . carriage to be performed hereunder by several
successive carriers is regarded as a single operation.

allow BA to sue PAL for indemnification, if it is proven that the latter's

negligence was the proximate cause of Mahtani's unfortunate
experience, instead of totally absolving PAL from any liability.

WHEREFORE, in view of the foregoing, the decision of the Court of

Appeals in CA-G.R. CV No. 43309 dated September 7, 1995 is hereby
MODIFIED, reinstating the third-party complaint filed by British Airways
dated November 9, 1990 against Philippine Airlines. No costs.

In rejecting Lufthansa's argument, we ruled:

Prescinding from the above discussion, it is undisputed that PAL, in
transporting Mahtani from Manila to Hongkong acted as the agent of
BA.

Parenthetically, the Court of Appeals should have been cognizant of

the well-settled rule that an agent is also responsible for any
negligence in the performance of its function. 33 and is liable for
damages which the principal may suffer by reason of its negligent act.
34 Hence, the Court of Appeals erred when it opined that BA, being the
principal, had no cause of action against PAL, its agent or subcontractor.

Also, it is worth mentioning that both BA and PAL are members of the
International Air Transport Association (IATA), wherein member
airlines are regarded as agents of each other in the issuance of the
tickets and other matters pertaining to their relationship. 35 Therefore,
in the instant case, the contractual relationship between BA and PAL is
one of agency, the former being the principal, since it was the one
which issued the confirmed ticket, and the latter the agent.

Our pronouncement that BA is the principal is consistent with our

ruling in Lufthansa German Airlines v. Court of Appeals. 36 In that case,
Lufthansa issued a confirmed ticket to Tirso Antiporda covering five-leg
trip aboard different airlines. Unfortunately, Air Kenya, one of the
airlines which was to carry Antiporda to a specific destination
"bumped" him off.

SO ORDERED.
In the very nature of their contract, Lufthansa is clearly the principal in
the contract of carriage with Antiporda and remains to be so,
regardless of those instances when actual carriage was to be
performed by various carriers. The issuance of confirmed Lufthansa
ticket in favor of Antiporda covering his entire five-leg trip abroad
successive carriers concretely attest to this.

Narvasa, C.J., Melo and Francisco, JJ., concur.

Panganiban, J., concurs in the result.

Republic of the Philippines

Since the instant petition was based on breach of contract of carriage,

Mahtani can only sue BA alone, and not PAL, since the latter was not a
party to the contract. However, this is not to say that PAL is relieved
from any liability due to any of its negligent acts. In China Air Lines, Ltd.
v. Court of Appeals, 37 while not exactly in point, the case, however,
illustrates the principle which governs this particular situation. In that
case, we recognized that a carrier (PAL), acting as an agent of another
carrier, is also liable for its own negligent acts or omission in the
performance of its duties.

SUPREME COURT
Manila

EN BANC

G.R. No. L-20567

Accordingly, to deny BA the procedural remedy of filing a third-party
complaint against PAL for the purpose of ultimately determining who
was primarily at fault as between them, is without legal basis. After all,
such proceeding is in accord with the doctrine against multiplicity of
cases which would entail receiving the same or similar evidence for
both cases and enforcing separate judgments therefor. It must be
borne in mind that the purpose of a third-party complaint is precisely
to avoid delay and circuitry of action and to enable the controversy to
be disposed of in one suit. 38 It is but logical, fair and equitable to

July 30, 1965

PHILIPPINE NATIONAL BANK, petitioner,

vs.
MANILA SURETY and FIDELITY CO., INC. and THE COURT OF APPEALS
(Second Division), respondents.

Besa, Galang and Medina for petitioner.

De Santos and Delfino for respondents.

REYES, J.B.L., J.:

The Philippine National Bank petitions for the review and reversal of
the decision rendered by the Court of Appeals (Second Division), in its
case CA-G.R. No. 24232-R, dismissing the Bank's complaint against
respondent Manila Surety & Fidelity Co., Inc., and modifying the
judgment of the Court of First Instance of Manila in its Civil Case No.
11263.

The material facts of the case, as found by the appellate Court, are as
follows:

The Philippine National Bank had opened a letter of credit and

advanced thereon $120,000.00 to Edgington Oil Refinery for 8,000 tons
of hot asphalt. Of this amount, 2,000 tons worth P279,000.00 were
released and delivered to Adams & Taguba Corporation (known as
ATACO) under a trust receipt guaranteed by Manila Surety & Fidelity
Co. up to the amount of P75,000.00. To pay for the asphalt, ATACO
constituted the Bank its assignee and attorney-in-fact to receive and
collect from the Bureau of Public Works the amount aforesaid out of
funds payable to the assignor under Purchase Order No. 71947. This
assignment (Exhibit "A") stipulated that:

2. The PHILIPPINE NATIONAL BANK is hereby appointed as our

Attorney-in-Fact for us and in our name, place and stead, to collect and
to receive the payments to be made by virtue of the aforesaid
Purchase Order, with full power and authority to execute and deliver
on our behalf, receipt for all payments made to it; to endorse for
deposit or encashment checks, money order and treasury warrants
which said Bank may receive, and to apply said payments to the
settlement of said credit accommodation.

This power of attorney shall also remain irrevocable until our total
indebtedness to the said Bank have been fully liquidated. (Exhibit E)

ATACO delivered to the Bureau of Public Works, and the latter

accepted, asphalt to the total value of P431,466.52. Of this amount the
Bank regularly collected, from April 21, 1948 to November 18, 1948,
P106,382.01. Thereafter, for unexplained reasons, the Bank ceased to
collect, until in 1952 its investigators found that more moneys were
payable to ATACO from the Public Works office, because the latter had
allowed mother creditor to collect funds due to ATACO under the same
purchase order to a total of P311,230.41.

Its demands on the principal debtor and the Surety having been
refused, the Bank sued both in the Court of First Instance of Manila to
recover the balance of P158,563.18 as of February 15, 1950, plus
interests and costs.

On October 4, 1958, the trial court rendered a decision, the dispositive

portion of which reads:

1. Ordering defendants, Adams & Taguba Corporation and Manila

Surety & Fidelity Co., Inc., to pay plaintiff, Philippines National Bank,
the sum of P174,462.34 as of February 24, 1956, minus the amount of
P8,000 which defendant, Manila Surety Co., Inc. paid from March, 1956
to October, 1956 with interest at the rate of 5% per annum from
February 25, 1956, until fully paid provided that the total amount that
should be paid by defendant Manila Surety Co., Inc., on account of this
case shall not exceed P75,000.00, and to pay the costs;

2. Orderinq cross-defendant, Adams & Taguba Corporation, and thirdparty defendant, Pedro A. Taguba, jointly and severally, to pay cross
and third-party plaintiff, Manila Surety & Fidelity Co., Inc., whatever
amount the latter has paid or shall pay under this judgment;

3. Dismissing the complaint insofar as the claim for 17% special tax is
concerned; and

4. Dismissing the counterclaim of defendants Adams & Taguba

Corporation and Manila Surety & Fidelity Co., Inc.

From said decision, only the defendant Surety Company has duly
perfected its appeal. The Central Bank of the Philippines did not
appeal, while defendant ATACO failed to perfect its appeal.

The Bank recoursed to the Court of Appeals, which rendered an

adverse decision and modified the judgment of the court of origin as to
the surety's liability. Its motions for reconsideration having proved
unavailing, the Bank appealed to this Court.

The conditions of this assignment are as follows:

WHEREFORE, judgment is hereby rendered as follows:
1. The same shall remain irrevocable until the said credit accomodation
is fully liquidated.

The Court of Appeals found the Bank to have been negligent in having
stopped collecting from the Bureau of Public Works the moneys falling
due in favor of the principal debtor, ATACO, from and after November
18, 1948, before the debt was fully collected, thereby allowing such

funds to be taken and exhausted by other creditors to the prejudice of

the surety, and held that the Bank's negligence resulted in exoneration
of respondent Manila Surety & Fidelity Company.

they cannot be subrogated to the rights, mortgages and preferences of

the latter. (Emphasis supplied.)

Republic of the Philippines

SUPREME COURT
Manila

This holding is now assailed by the Bank. It contends the power of

attorney obtained from ATACO was merely in additional security in its
favor, and that it was the duty of the surety, and not that of the
creditor, owed see to it that the obligor fulfills his obligation, and that
the creditor owed the surety no duty of active diligence to collect any,
sum from the principal debtor, citing Judge Advocate General vs. Court
of Appeals, G.R. No. L-10671, October 23, 1958.

This argument of appellant Bank misses the point. The Court of Appeals
did not hold the Bank answerable for negligence in failing to collect
from the principal debtor but for its neglect in collecting the sums due
to the debtor from the Bureau of Public Works, contrary to its duty as
holder of an exclusive and irrevocable power of attorney to make such
collections, since an agent is required to act with the care of a good
father of a family (Civ. Code, Art. 1887) and becomes liable for the
damages which the principal may suffer through his non-performance
(Civ. Code, Art. 1884). Certainly, the Bank could not expect that the
Bank would diligently perform its duty under its power of attorney, but
because they could not have collected from the Bureau even if they
had attempted to do so. It must not be forgotten that the Bank's power
to collect was expressly made irrevocable, so that the Bureau of Public
Works could very well refuse to make payments to the principal debtor
itself, and a fortiori reject any demands by the surety.

Even if the assignment with power of attorney from the principal

debtor were considered as mere additional security still, by allowing
the assigned funds to be exhausted without notifying the surety, the
Bank deprived the former of any possibility of recoursing against that
security. The Bank thereby exonerated the surety, pursuant to Article
2080 of the Civil Code:

The appellant points out to its letter of demand, Exhibit "K", addressed
to the Bureau of Public Works, on May 5, 1949, and its letter to ATACO,
Exhibit "G", informing the debtor that as of its date, October 31, 1949,
its outstanding balance was P156,374.83. Said Exhibit "G" has no
bearing on the issue whether the Bank has exercised due diligence in
collecting from the Bureau of Public Works, since the letter was
addressed to ATACO, and the funds were to come from elsewhere. As
to the letter of demand on the Public Works office, it does not appear
that any reply thereto was made; nor that the demand was pressed,
nor that the debtor or the surety were ever apprised that payment was
not being made. The fact remains that because of the Bank's inactivity
the other creditors were enabled to collect P173,870.31, when the
balance due to appellant Bank was only P158,563.18. The finding of
negligence made by the Court of Appeals is thus not only conclusive on
us but fully supported by the evidence.

G.R. No. L-21237

March 22, 1924

JAMES D. BARTON, plaintiff-appellee,

vs.
LEYTE ASPHALT & MINERAL OIL CO., LTD., defendant-appellant.

Even if the Court of Appeals erred on the second reason it advanced in

support of the decision now under appeal, because the rules on
application of payments, giving preference to secured obligations are
only operative in cases where there are several distinct debts, and not
where there is only one that is partially secured, the error is of no
importance, since the principal reason based on the Bank's negligence
furnishes adequate support to the decision of the Court of Appeals that
the surety was thereby released.

Block, Johnston & Greenbaum and Ross, Lawrence & Selph for
appellant.

WHEREFORE, the appealed decision is affirmed, with costs against

appellant Philippine National Bank.

This action was instituted in the Court of First Instance of the City of
Manila by James D. Barton, to recover of the Leyte Asphalt & Mineral
Oil Co., Ltd., as damages for breach of contract, the sum of
$318,563.30, United States currency, and further to secure a judicial
pronouncement to the effect that the plaintiff is entitled to an
extension of the terms of the sales agencies specified in the contract
Exhibit A. The defendant answered with a general denial, and the cause
was heard upon the proof, both documentary and oral, after which the
trial judge entered a judgment absolving the defendant corporation
from four of the six causes of action set forth in the complaint and
giving judgment for the plaintiff to recover of said defendant, upon the

Bengzon, C.J., Concepcion, Paredes, Dizon, Regala, Makalintal,

Bengzon, J.P., and Zaldivar, JJ., concur.
Bautista Angelo and Barerra, JJ., took no part.

ART. 2080. The guarantors, even though they be solidary, are

released from their obligation whenever by come act of the creditor

EN BANC

Frank B. Ingersoll for appellee.

STREET, J.:

first and fourth causes of action, the sum of $202,500, United States
currency, equivalent to $405,000, Philippine currency, with legal
interest from June 2, 1921, and with costs. From this judgment the
defendant company appealed.

CEBU, CEBU, P. I.

with the understanding, however that, should the sales in the above
territory equal or exceed ten thousand (10,000) tons in the year ending
October 1, 1921, then in that event the price of all shipments made
during the above period shall be ten pesos (P10) per ton, and any sum
charged to any of your customers or buyers in the aforesaid territory in
excess of ten pesos (P10) per ton, shall be rebated to you. Said rebate
to be due and payable when the gross sales have equalled or exceeded
ten thousand (10,000) tons in the twelve months period as
hereinbefore described. Rebates on lesser sales to apply as per above
price list.

October 1, 1920.

JAMES D. BARTON, Esq.,

The plaintiff is a citizen of the United States, resident in the City of
Manila, while the defendant is a corporation organized under the law
of the Philippine Islands with its principal office in the City of Cebu,
Province of Cebu, Philippine Islands. Said company appears to be the
owner by a valuable deposit of bituminous limestone and other asphalt
products, located on the Island of Leyte and known as the Lucio mine.
On April 21, 1920, one William Anderson, as president and general
manager of the defendant company, addressed a letter Exhibit B, to
the plaintiff Barton, authorizing the latter to sell the products of the
Lucio mine in the Commonwealth of Australia and New Zealand upon a
scale of prices indicated in said letter.

In the third cause of action stated in the complaint the plaintiff alleges
that during the life of the agency indicated in Exhibit B, he rendered
services to the defendant company in the way of advertising and
demonstrating the products of the defendant and expended large sums
of money in visiting various parts of the world for the purpose of
carrying on said advertising and demonstrations, in shipping to various
parts of the world samples of the products of the defendant, and in
otherwise carrying on advertising work. For these services and
expenditures the plaintiff sought, in said third cause of action, to
recover the sum of $16,563.80, United States currency. The court,
however, absolved the defendant from all liability on this cause of
action and the plaintiff did not appeal, with the result that we are not
now concerned with this phase of the case. Besides, the authority
contained in said Exhibit B was admittedly superseded by the authority
expressed in a later letter, Exhibit A, dated October 1, 1920. This
document bears the approval of the board of directors of the
defendant company and was formally accepted by the plaintiff. As it
supplies the principal basis of the action, it will be quoted in its
entirety.

Cebu Hotel City.

DEAR SIR: You are hereby given the sole and exclusive sales agency
for our bituminous limestone and other asphalt products of the Leyte
Asphalt and Mineral Oil Company, Ltd., May first, 1922, in the following
territory:

Australia Saigon

Java

New Zealand

India

Tasmania Sumatra

Hongkong

China

Siam and the Straits Settlements, also in the United States of America
until May 1, 1921.

As regard bituminous limestone mined from the Lucio property. No

orders for less than one thousand (1,000) tons will be accepted except
under special agreement with us. All orders for said products are to be
billed to you as follows:

All contracts taken with municipal governments will be subject to

inspector before shipping, by any authorized representative of such
governments at whatever price may be contracted for by you and we
agree to accept such contracts subject to draft attached to bill of lading
in full payment of such shipment.

It is understood that the purchasers of the products of the Lucio mine

are to pay freight from the mine carriers to destination and are to be
responsible for all freight, insurance and other charges, providing said
shipment has been accepted by their inspectors.

Per ton
In 1,000 ton lots ........................................... P15

All contracts taken with responsible firms are to be under the same
conditions as with municipal governments.

In 2,000 ton lots ........................................... 14

In 5,000 ton lots ........................................... 12

(Exhibit A)

You are to have full authority to sell said product of the Lucio mine for
any sum see fit in excess of the prices quoted above and such excess in
price shall be your extra and additional profit and commission. Should
we make any collection in excess of the prices quoted, we agree to
remit same to your within ten (10) days of the date of such collections
or payments.

All contracts will be subject to delays caused by the acts of God, over
which the parties hereto have no control.

In 10,000 ton lots .......................................... 10

Secretary
It is understood and agreed that we agree to load all ships, steamers,
boats or other carriers prompty and without delay and load not less
than 1,000 tons each twenty-four hours after March 1, 1921, unless we
so notify you specifically prior to that date we are prepared to load at
that rate, and it is also stipulated that we shall not be required to ship
orders of 5,000 tons except on 30 days notice and 10,000 tons except
on 60 days notice.

Approved by Board of Directors,

October 1, 1920.
(Sgd.) WM. ANDERSON
President

If your sales in the United States reach five thousand tons on or before
May 1, 1921, you are to have sole rights for this territory also for one
year additional and should your sales in the second year reach or
exceed ten thousand tons you are to have the option to renew the
agreement for this territory on the same terms for an additional two
years.

Should your sales equal exceed ten thousand (10,000) tons in the year
ending October 1, 1921, or twenty thousand (20,000) tons by May 1,
1922, then this contract is to be continued automatically for an
additional three years ending April 30, 1925, under the same terms and
conditions as above stipulated.

The products of the other mines can be sold by you in the aforesaid
territories under the same terms and conditions as the products of the
Lucio mine; scale of prices to be mutually agreed upon between us.

Accepted.
(Sgd.) JAMES D. BARTON
Witness D. G. MCVEAN

Upon careful perusal of the fourth paragraph from the end of this
letter it is apparent that some negative word has been inadvertently
omitted before "prepared," so that the full expression should be
"unless we should notify you specifically prior to that date that we are
unprepared to load at that rate," or "not prepared to load at that rate."

Very soon after the aforesaid contract became effective, the plaintiff
requested the defendant company to give him a similar selling agency
for Japan. To this request the defendant company, through its
president, Wm. Anderson, replied, under date of November 27, 1920,
as follows:

LEYTE ASPHALT & MINERAL OIL CO., LTD.

By (Sgd.) WM. ANDERSON
President

(Sgd.) W. C. A. PALMER

Meanwhile the plaintiff had embarked for San Francisco and upon
arriving at that port he entered into an agreement with Ludvigsen &
McCurdy, of that city, whereby said firm was constituted a subagent
and given the sole selling rights for the bituminous limestone products
of the defendant company for the period of one year from November
11, 1920, on terms stated in the letter Exhibit K. The territory assigned
to Ludvigsen & McCurdy included San Francisco and all territory in
California north of said city. Upon an earlier voyage during the same
year to Australia, the plaintiff had already made an agreement with
Frank B. Smith, of Sydney, whereby the latter was to act as the
plaintiff's sales agent for bituminous limestone mined at the
defendant's quarry in Leyte, until February 12, 1921. Later the same
agreement was extended for the period of one year from January 1,
1921. (Exhibit Q.)

In re your request for Japanese agency, will say, that we are willing to
give you, the same commission on all sales made by you in Japan, on
the same basis as your Australian sales, but we do not feel like giving
you a regular agency for Japan until you can make some large sized
sales there, because some other people have given us assurances that
they can handle our Japanese sales, therefore we have decided to
leave this agency open for a time.

On February 5, 1921, Ludvigsen & McCurdy, of San Francisco,

addressed a letter to the plaintiff, then in San Francisco, advising hi
that he might enter an order for six thousand tons of bituminous
limestone to be loaded at Leyte not later than May 5, 1921, upon
terms stated in the letter Exhibit G. Upon this letter the plaintiff
immediately indorsed his acceptance.

The plaintiff then returned to Manila; and on March 2, 1921, Anderson

wrote to him from Cebu, to the effect that the company was behind
with construction and was not then able to handle big contracts.
(Exhibit FF.) On March 12, Anderson was in Manila and the two had an
interview in the Manila Hotel, in the course of which the plaintiff
informed Anderson of the San Francisco order. Anderson thereupon
said that, owing to lack of capital, adequate facilities had not been
provided by the company for filling large orders and suggested that the
plaintiff had better hold up in the matter of taking orders. The plaintiff
expressed surprise at this and told Anderson that he had not only the
San Francisco order (which he says he exhibited to Anderson) but other
orders for large quantities of bituminous limestone to be shipped to
Australia and Shanghai. In another interview on the same Anderson
definitely informed the plaintiff that the contracts which be claimed to
have procured would not be filled.

Three days later the plaintiff addressed a letter (Exhibit Y) to the

defendant company in Cebu, in which he notified the company to be
prepared to ship five thousand tons of bituminous limestone to John
Chapman Co., San Francisco, loading to commence on May 1, and to
proceed at the rate of one thousand tons per day of each twenty-four
hours, weather permitting.

On March 5, 1921, Frank B. Smith, of Sydney, had cabled the plaintiff

an order for five thousand tons of bituminous limestone; and in his
letter of March 15 to the defendant, the plaintiff advised the
defendant company to be prepared to ship another five thousand tons
of bituminous limestone, on or about May 6, 1921, in addition to the
intended consignment for San Francisco. The name Henry E. White was
indicated as the name of the person through whom this contract had
been made, and it was stated that the consignee would be named
later, no destination for the shipment being given. The plaintiff explains
that the name White, as used in this letter, was based on an inference
which he had erroneously drawn from the cable sent by Frank B. Smith,
and his intention was to have the second shipment consigned to
Australia in response to Smith's order.

It will be noted in connection with this letter of the plaintiff, of March

15, 1921, that no mention was made of the names of the person, or
firm, for whom the shipments were really intended. The obvious
explanation that occurs in connection with this is that the plaintiff did
not then care to reveal the fact that the two orders had originated
from his own subagents in San Francisco and Sydney.

To the plaintiff's letter of March 15, the assistant manager of the

defendant company replied on March, 25, 1921, acknowledging the
receipt of an order for five thousand tons of bituminous limestone to
be consigned to John Chapman Co., of San Francisco, and the further
amount of five thousand tons of the same material to be consigned to
Henry E. White, and it was stated that "no orders can be entertained
unless cash has been actually deposited with either the International
Banking Corporation or the Chartered Bank of India, Australia and
China, Cebu." (Exhibit Z.)

To this letter the plaintiff in turn replied from Manila, under date of
March, 1921, questioning the right of the defendant to insist upon a
cash deposit in Cebu prior to the filling of the orders. In conclusion the
plaintiff gave orders for shipment to Australia of five thousand tons, or
more, about May 22, 1921, and ten thousand tons, or more, about
June 1, 1921. In conclusion the plaintiff said "I have arranged for
deposits to be made on these additional shipments if you will signify
your ability to fulfill these orders on the dates mentioned." No name
was mentioned as the purchaser, or purchases, of these intended
Australian consignments.

Soon after writing the letter last above-mentioned, the plaintiff

embarked for China and Japan. With his activities in China we are not
here concerned, but we note that in Tokio, Japan, he came in contact
with one H. Hiwatari, who appears to have been a suitable person for
handling bituminous limestone for construction work in Japan. In the
letter Exhibit X, Hiwatari speaks of himself as if he had been appointed
exclusive sales agent for the plaintiff in Japan, but no document
expressly appointing him such is in evidence.

While the plaintiff was in Tokio he procured the letter Exhibit W,

addressed to himself, to be signed by Hiwatari. This letter, endited by
the plaintiff himself, contains an order for one thousand tons of
bituminous limestone from the quarries of the defendant company, to
be delivered as soon after July 1, 1921, as possible. In this letter
Hiwatari states, "on receipt of the cable from you, notifying me of date
you will be ready to ship, and also tonnage rate, I will agree to transfer
through the Bank of Taiwan, of Tokio, to the Asia Banking Corporation,
of Manila, P. I., the entire payment of $16,000 gold, to be subject to
our order on delivery of documents covering bill of lading of
shipments, the customs report of weight, and prepaid export tax
receipt. I will arrange in advance a confirmed or irrevocable letter of
credit for the above amounts so that payment can be ordered by cable,
in reply to your cable advising shipping date."

In a letter, Exhibit X, of May 16, 1921, Hiwatari informs the plaintiff

that he had shown the contract, signed by himself, to the submanager

of the Taiwan Bank who had given it as his opinion that he would be
able to issue, upon request of Hiwatari, a credit note for the contracted
amount, but he added that the submanager was not personally able to
place his approval on the contract as that was a matter beyond his
authority. Accordingly Hiwatari advised that he was intending to make
further arrangements when the manager of the bank should return
from Formosa.

In the letter of May 5, 1921, containing Hiwatari's order for one

thousand tons of bituminous limestone, it was stated that if the
material should prove satisfactory after being thoroughly tested by the
Paving Department of the City of Tokio, he would contract with the
plaintiff for a minimum quantity of ten thousand additional tons, to be
used within a year from September 1, 1921, and that in this event the
contract was to be automatically extended for an additional four years.
The contents of the letter of May 5 seems to have been conveyed,
though imperfectly, by the plaintiff to his attorney, Mr. Frank B.
Ingersoll, of Manila; and on May 17, 1921, Ingersoll addressed a note
to the defendant company in Cebu in which he stated that he had been
requested by the plaintiff to notify the defendant that the plaintiff had
accepted an order from Hiwatari, of Tokio, approved by the Bank of
Taiwan, for a minimum order of ten thousand tons of the stone
annually for a period of five years, the first shipment of one thousand
tons to be made as early after July 1 as possible. It will be noted that
this communication did not truly reflect the contents of Hiwatari's
letter, which called unconditionally for only one thousand tons, the
taking of the remainder being contingent upon future eventualities.

It will be noted that the only written communications between the

plaintiff and the defendant company in which the former gave notice
of having any orders for the sale of bituminous limestone are the four
letters Exhibit Y, AA, BB, and II. In the first of these letters, dated March
15, 1921, the plaintiff advises the defendant company to be prepared
to ship five thousand tons of bituminous limestone, to be consigned to
John Chapman, Co., of San Francisco, to be loaded by March 5, and a
further consignment of five thousand tons, through a contract with
Henry E. White, consignees to be named later. In the letter Exhibit BB
dated May 17, 1921, the plaintiff's attorney gives notice of the
acceptance by plaintiff of an order from Hiwatari, of Tokio, approved
by the Bank of Taiwan, for a minimum of ten thousand annually for a

10

period of five years, first shipment of a thousand tons to be as early

after July 1 as possible. In the letter Exhibit H the plaintiff gives notice
of an "additional" (?) order from H. E. White, Sydney, for two lots of
bituminous limestone of five thousand tons each, one for shipment not
later than June 30, 1921, and the other by July 20, 1921. In the same
letter thousand tons from F. B. Smith, to be shipped to Brisbane,
Australia, by June 30, and a similar amount within thirty days later.

After the suit was brought, the plaintiff filed an amendment to his
complaint in which he set out, in tabulated form, the orders which he
claims to have received and upon which his letters of notification to
the defendant company were based. In this amended answer the name
of Ludvigsen & McCurdy appears for the first time; and the name of
Frank B. Smith, of Sydney, is used for the first time as the source of the
intended consignments of the letters, Exhibits G, L, M, and W,
containing the orders from Ludvigen & McCurdy, Frank B. Smith and H.
Hiwatari were at no time submitted for inspection to any officer of the
defendant company, except possibly the Exhibit G, which the plaintiff
claims to have shown to Anderson in Manila on March, 12, 1921.

The different items conspiring the award which the trial judge gave in
favor of the plaintiff are all based upon the orders given by Ludvigsen &
McCurdy (Exhibit G), by Frank B. Smith (Exhibit L and M), and by
Hiwatari in Exhibit W; and the appealed does not involve an order
which came from Shanghai, China. We therefore now address
ourselves to the question whether or not the orders contained in
Exhibit G, L, M, and W, in connection with the subsequent notification
thereof given by the plaintiff to the defendant, are sufficient to support
the judgment rendered by the trial court.

The transaction indicated in the orders from Ludvigsen, & McCurdy and
from Frank B. Smith must, in our opinion, be at once excluded from
consideration as emanating from persons who had been constituted
mere agents of the plaintiff. The San Francisco order and the Australian
orders are the same in legal effect as if they were orders signed by the
plaintiff and drawn upon himself; and it cannot be pretended that
those orders represent sales to bona fide purchasers found by the
plaintiff. The original contract by which the plaintiff was appointed

sales agent for a limited period of time in Australia and the United
States contemplated that he should find reliable and solvent buyers
who should be prepared to obligate themselves to take the quantity of
bituminous limestone contracted for upon terms consistent with the
contract. These conditions were not met by the taking of these orders
from the plaintiff's own subagents, which was as if the plaintiff had
bought for himself the commodity which he was authorized to sell to
others. Article 267 of the Code of Commerce declares that no agent
shall purchase for himself or for another that which he has been
ordered to sell. The law has placed its ban upon a broker's purchasing
from his principal unless the latter with full knowledge of all the facts
and circumstances acquiesces in such course; and even then the
broker's action must be characterized by the utmost good faith. A sale
made by a broker to himself without the consent of the principal is
ineffectual whether the broker has been guilty of fraudulent conduct
or not. (4 R. C. L., 276-277.) We think, therefore, that the position of
the defendant company is indubitably sound in so far as it rest upon
the contention that the plaintiff has not in fact found any bona fide
purchasers ready and able to take the commodity contracted for upon
terms compatible with the contract which is the basis of the action.

It will be observed that the contract set out at the beginning of this
opinion contains provisions under which the period of the contract
might be extended. That privilege was probably considered a highly
important incident of the contract and it will be seen that the sale of
five thousand tons which the plaintiff reported for shipment to San
Francisco was precisely adjusted to the purpose of the extension of the
contract for the United States for the period of an additional year; and
the sales reported for shipment to Australia were likewise adjusted to
the requirements for the extention of the contract in that territory.
Given the circumstances surrounding these contracts as they were
reported to the defendant company and the concealment by the
plaintiff of the names of the authors of the orders, -- who after all were
merely the plaintiff's subagents, the officers of the defendant
company might justly have entertained the suspicion that the real and
only person behind those contracts was the plaintiff himself. Such at
least turns out to have been the case.

Much energy has been expended in the briefs upon his appeal over the
contention whether the defendant was justified in laying down the

condition mentioned in the letter of March 26, 1921, to the effect that
no order would be entertained unless cash should be deposited with
either the International Banking Corporation of the Chartered Bank of
India, Australia and China, in Cebu. In this connection the plaintiff
points to the stipulation of the contract which provides that contracts
with responsible parties are to be accepted "subject to draft attached
to bill of lading in full payment of such shipment." What passed
between the parties upon this point appears to have the character of
mere diplomatic parrying, as the plaintiff had no contract from any
responsible purchaser other than his own subagents and the defendant
company could no probably have filled the contracts even if they had
been backed by the Bank of England.

Upon inspection of the plaintiff's letters (Exhibit Y and AA), there will
be found ample assurance that deposits for the amount of each
shipment would be made with a bank in Manila provided the
defendant would indicated its ability to fill the orders; but these
assurance rested upon no other basis than the financial responsibility
of the plaintiff himself, and this circumstance doubtless did not escape
the discernment of the defendant's officers.

With respect to the order from H. Hiwatari, we observe that while he

intimates that he had been promised the exclusive agency under the
plaintiff for Japan, nevertheless it does not affirmatively appear that he
had been in fact appointed to be such at the time he signed to order
Exhibit W at the request of the plaintiff. It may be assumed, therefore,
that he was at that time a stranger to the contract of agency. It clearly
appears, however, that he did not expect to purchase the thousand
tons of bituminous limestone referred to in his order without banking
assistance; and although the submanager of the Bank of Taiwan had
said something encouraging in respect to the matter, nevertheless that
official had refrained from giving his approval to the order Exhibit W. It
is therefore not shown affirmatively that this order proceeds from a
responsible source.

The first assignment of error in the appellant's brief is directed to the

action of the trial judge in refusing to admit Exhibit 2, 7, 8, 9 and 10,
offered by the defendant, and in admitting Exhibit E, offered by the

11

plaintiff. The Exhibit 2 is a letter dated June 25, 1921, or more than
three weeks after the action was instituted, in which the defendant's
assistant general manager undertakes to reply to the plaintiff's letter of
March 29 proceeding. It was evidently intended as an argumentative
presentation of the plaintiff's point of view in the litigation then
pending, and its probative value is so slight, even if admissible at all,
that there was no error on the part of the trial court in excluding it.

Exhibit 7, 8, 9 and 10 comprise correspondence which passed between

the parties by mail or telegraph during the first part of the year 1921.
The subject-matter of this correspondence relates to efforts that were
being made by Anderson to dispose of the controlling in the defendant
corporation, and Exhibit 9 in particular contains an offer from the
plaintiff, representing certain associates, to but out Anderson's interest
for a fixed sum. While these exhibits perhaps shed some light upon the
relations of the parties during the time this controversy was brewing,
the bearing of the matter upon the litigation before us is too remote to
exert any definitive influence on the case. The trial court was not in
error in our opinion in excluding these documents.

Exhibit E is a letter from Anderson to the plaintiff, dated April 21, 1920,
in which information is given concerning the property of the defendant
company. It is stated in this letter that the output of the Lucio (quarry)
during the coming year would probably be at the rate of about five
tons for twenty-four hours, with the equipment then on hand, but that
with the installation of a model cableway which was under
contemplation, the company would be able to handle two thousand
tons in twenty-four hours. We see no legitimate reason for rejecting
this document, although of slight probative value; and her error
imputed to the court in admitting the same was not committed.

Exhibit 14, which was offered in evidence by the defendant, consists of

a carbon copy of a letter dated June 13, 1921, written by the plaintiff to
his attorney, Frank B. Ingersoll, Esq., of Manila, and in which plaintiff
states, among other things, that his profit from the San Francisco
contract would have been at the rate of eigthy-five cents (gold) per
ton. The authenticity of this city document is admitted, and when it
was offered in evidence by the attorney for the defendant the counsel

for the plaintiff announced that he had no objection to the

introduction of this carbon copy in evidence if counsel for the
defendant would explain where this copy was secured. Upon this the
attorney for the defendant informed the court that he received the
letter from the former attorneys of the defendant without explanation
of the manner in which the document had come into their possession.
Upon this the attorney for the plaintiff made this announcement: "We
hereby give notice at this time that unless such an explanation is made,
explaining fully how this carbon copy came into the possession of the
defendant company, or any one representing it, we propose to object
to its admission on the ground that it is a confidential communication
between client and lawyer." No further information was then given by
the attorney for the defendant as to the manner in which the letter
had come to his hands and the trial judge thereupon excluded the
document, on the ground that it was a privileged communication
between client and attorney.

We are of the opinion that this ruling was erroneous; for even
supposing that the letter was within the privilege which protects
communications between attorney and client, this privilege was lost
when the letter came to the hands of the adverse party. And it makes
no difference how the adversary acquired possession. The law protects
the client from the effect of disclosures made by him to his attorney in
the confidence of the legal relation, but when such a document,
containing admissions of the client, comes to the hand of a third party,
and reaches the adversary, it is admissible in evidence. In this
connection Mr. Wigmore says:

reads or obtains possession of a document in original or copy. (5

Wigmore on Evidence, 2d ed., sec. 2326.)

Although the precedents are somewhat confusing, the better doctrine

is to the effect that when papers are offered in evidence a court will
take no notice of how they were obtained, whether legally or illegally,
properly or improperly; nor will it form a collateral issue to try that
question. (10 R. C. L., 931; 1 Greenl. Evid., sec. 254a; State vs. Mathers,
15 L. R. A., 268; Gross vs. State, 33 L. R. A., [N. S.], 477, note.)

Our conclusion upon the entire record is that the judgment appealed
from must be reversed; and the defendant will be absolved from the
complaint. It is so ordered, without special pronouncement as to costs
of either instance.

Araullo, C.J., Johnson, Avancea, Ostrand, Johns and Romualdez, JJ.,

concur.

Separate Opinions

MALCOLM, J., dissenting:

The law provides subjective freedom for the client by assuring him of
exemption from its processes of disclosure against himself or the
attorney or their agents of communication. This much, but not a whit
more, is necessary for the maintenance of the privilege. Since the
means of preserving secrecy of communication are entirely in the
client's hands, and since the privilege is a derogation from the general
testimonial duty and should be strictly construed, it would be improper
to extend its prohibition to third persons who obtain knowledge of the
communications. One who overhears the communication, whether
with or without the client's knowledge, is not within the protection of
the privilege. The same rule ought to apply to one who surreptitiously

An intensive scrutiny of every phase of this case leads me to the

conclusion that the trial judge was correct in his findings of fact and in
his decision. Without encumbering the case with a long and tedious
dissent, I shall endeavor to explain my point of view as briefly and
clearly as possible.

12

A decision must be reached on the record as it is and not on a record as

we would like to have it. The plaintiff and the defendant deliberately
entered into a contract, the basis of this action. The plaintiff,
proceeding pursuant to this contract, spent considerable effort and
used considerable money to advance the interests of the defendant
and to secure orders for its products. These orders were submitted to
the president of the defendant company personally and later formally
by writing. Prior to the institution of the suit, the only objection of the
defendant was that the money should be deposited with either the
International Banking Corporation or the Chartered Bank of India,
Australia and China at Cebu, a stipulation not found in the contract.

A reasonable deduction, therefore, is that the plaintiff presented

orders under circumstances which were a substantial compliance with
the terms of the contract with the defendant, and which insured to the
defendant payment for its deliveries according to the price agreed
upon, and that as the defendant has breached its contract, it must
respond in damages.

But the main point of the plaintiff which the majority decision misses
entirely centers on the proposition that the orders were
communicated by the plaintiff to the defendant, and that the only
objection the defendant had related to the manner of payment. To
emphasize this thought again, let me quote the reply of the defendant
to the plaintiff when the defendant acknowledge receipts of the orders
placed by the plaintiff. The letter reads: "In reply to same we have to
advice you that no orders can be entertained unless cash has been
actually deposited with either the International Banking Corporation or
the Chartered Bank of India, Australia and China, Cebu." (Exhibit Y.)
Prior to the filing of suit, the defendant company never at any time
raised any questioned as to whether the customers secured by plaintiff
were "responsible firms" within the meaning of the contract, and never
secured any information whatsoever as to their financial standing.
Consequently, defendant is now estopped by its conduct from raising
new objections for rejection of the orders. (Mechem on Agency,
section 2441.)

there is no intimation that Exhibit 14 was sent by the client to the

lawyer for the purpose of being communicated to others. The Supreme
Court of Georgia in the case of Southern Railway Co. vs. White ([1899],
108 Ga., 201), held that statements in a letter to a party's attorney
handed by the latter to the opponent's attorney, are confidential
communications and must be excluded.

Briefly, the decision of the majority appears to me to be defective in

the following particulars: (1) It sets aside without good reason the fair
findings of fact as made by the trial court and substitutes therefor
other findings not warranted by the proof; (2) it fails to stress plaintiff's
main argument, and (3) it lay downs uncalled for rules which
undermine the inviolability of a client's communications to his
attorney.

Accordingly, I dissent and vote for an affirmance of the judgment.

Republic of the Philippines

The current running through the majority opinion is that the order
emanated from subagents of the plaintiff, and that no bona fide
purchasers were ready and able to take the commodity contracted for
upon terms compatible with the contract. The answer is, in the first
place, that the contract nowhere prohibits the plaintiff to secure
subagents. The answer is, in the second place, that the orders were so
phrased as to make the persons making them personally responsible.
The Ludvigsen & McCurdy order from San Francisco begins: "You can
enter our order for 6,000 tons of bituminous limestone as per sample
submitted, at $10 gold per ton, f. o. b., island of Leyte, subject to the
following terms and conditions:

* * * "(Exhibit G). The Smith order from Australia contains the

following: "It is therefore with great pleasure I confirm the booking of
the following orders, to be shipped at least within a week of respective
dates: . . ." (Exhibit L). The Japan order starts with the following
sentence: "You can enter my order for 1,000 tons of 1,000 kilos each of
bituminous limestone from the quarries of the Leyte Asphalt and
Mineral Oil Co. . . ." (Exhibit W.)

The majority decision incidentally takes up for consideration

assignments of error 1 and 2 having to do with either the admission or
the rejection by the trial court of certain exhibits. Having in mind that
the Court reverses the court a quo on the facts, what is said relative to
these two assignments is absolutely unnecessary for a judgment, and
even as obiter dicta, contains unfortunate expressions. Exhibit 14, for
example, is a letter addressed by the plaintiff to his lawyer and
probably merely shown to the counsel of the defendant during
negotiations to seek a compromise. Whether that exhibit be
considered improperly rejected or not would not change the result one
iota.

The rule now announced by the Court that it makes no difference how
the adversary acquired possession of the document, and that a court
will take no notice of how it was obtained, is destructive of the
attorney's privilege and constitutes and obstacle to attempts at
friendly compromise. In the case of Uy Chico vs. Union Life Assurance
Society ([1915], 29 Phil., 163), it was held that communications made
by a client to his attorney for the purpose of being communicated to
others are not privileged if they have been so communicated. But here,

SUPREME COURT
Manila

EN BANC

G.R. No. L-3572

September 30, 1952

PAULINO DUMAGUIN, plaintiff-appellant,

vs.
A.I. REYNOLDS, E.J. HARRISON and BIG WEDGE MINING COMPANY,
defendants-appellees.

13

Ernesto Sibal and Taada, Pelaez and Teehankee for appellant.

Juan L. Orbeta for appellee A.I. Reynolds.

Subject: Paulino M. Dumaguin. Male, married, 33 years old, ExSupervising Lineman of the Bureau of Posts, admitted to the hospital at
11:25 a.m. on May 21, 1929.

5.
Que el mencionado Paulino M. Dumaguin ha recibido un
cheque del Gobierno por la cantidad de P412.38, como parte de su
pension.

1.
The patient is well-behaved, oriented in all spheres,
coherent in his speech and has no more illusion or hallucinations; but is
having a delusion that one of the patients in the Hospital is trying to
chloroform him. He consequently keeps away from the said patient.

6.
Que los comparecientes necesitan el importe de dicho
cheque para atender a su subsistencia, pues se hallan en la actualidad
faltos de todo necesario.

Basilio Francisco for appellee E.J. Harrison.

Claro M. Recto for appellee Big Wedge Mining Company.

MONTEMAYOR, J.:

For purposes of this decision, the following facts may be said to be

agreed upon by the parties or to be without dispute. Because the
plaintiff Paulino M. Dumaguin would appear to be the central figure in
this case, we shall begin by making reference to his background and his
status at the time he entered into the transactions and executed the
deeds of conveyance whose legality is now the subject of the present
petition.

Paulino M. Dumaguin was a teacher in the public elementary schools

for a year and a half, and from 1916 to 1918 was the Manager of the
Head Waters Mining Company in Baguio. As Manager of said mining
company Paulino acquired some knowledge of mining. On or before
May 21, 1929, he was a supervising line-man of the Bureau of Posts. On
that date, (May 21, 1929) he was admitted to the Insular Psychopathic
Hospital at San Felipe Neri (now National Psychopathic Hospital),
Mandaluyong, Rizal, said to be suffering from "paranoia". On October
15, 1929, Dr. Toribio Joson, assistant alienist of said Hospital,
submitted the following memorandum:

2.
He is not also sure that his former officemates whom he
erroneously believed chloroformed him before, would not chloroform
him anymore when he goes home.

"Por tanto, suplican al Juzgado que se les autorice a cambiar el referido

cheque, y disponer de su producto para su manutencion."
3.
This type of insanity which Paulino M. Dumaguin is suffering
from is therefore that of Paranoia, which runs a very chronic course of
usually a lifetime, but which may show improvement as the patient
grow older. (See Exhibits 42, folio 195; Emphasis ours).

After Paulino's discharge from the Hospital on or about November 11,

1929, in order to enable his wife to withdraw his retirement gratuity
from the government, on September 16, 1930, she filed guardianship
proceedings in the Court of First Instance of Camarines Sur. Said court
relying presumably on the report of Dr. Joson above-quoted, granted
the petition and appointed her as Paulino's guardian.

On February 2, 1931, Paulino and his guardian in a joint motion before

the Court of Camarines Sur among others alleged that
"MEMORANDUM

To: the Alienist in Charge Insular Psychopathic Hospital, San Felipe

Neri, Rizal.

and asked that they be authorized to cash said check and use its
proceeds for their support:

4.
Que en la actualidad, el citado Paulino M. Dumaguin, ya
esta restablecido, por lo que se le ha permitido dejar el Hospital y
ahora vive con su familia en esta localidad, que es su residencia.

In 1934, the guardianship proceedings were closed.

In and before the year 1930, defendants A.I. Reynolds and E.J. Harrison
as gold prospectors had located some mineral claims in the Itogon
District, sub-province of Benguet, Mountain Province, known as the
"ANACONDA GROUP". They employed Fructuoso Dumaguin, brother of
plaintiff Paulino, in their work as prospectors.

At the beginning of 1931, Fructuoso Dumaguin was thus working for

said defendants Reynolds and Harrison relocating some of their mining
claims previously located and locating new ones, for which work he
was paid P5.00 a day. About the same time his brother Paulino M.
Dumaguin, plaintiff herein, leaving his home in Camarines Sur went up
to Baguio in search of work. To help him Fructuoso got him employed
by the defendants and the two brothers worked together in the mining
business for the defendants.

14

The theory of the plaintiffs that he was employed only to relocate

defendants' mining claims in the Anaconda Group while the defense
claims that like his brother Fructuoso, Paulino was employed not only
to relocate mining claims within the Anaconda Group but also to stake
and locate new mining claims for them. For said work Paulino was also
paid by the day by the defendants.

During the months of May, June and July of that year 1931 the two
brothers Fructuoso and Paulino staked and located ten mining claims
or fractions thereof named Victoria, Greta, Triangle, Lolita, Frank, Paul,
Leo, Loreto, Arthur and G. Ubalde, all said claims or fractions being late
registered in the name of Paulino M. Dumaguin as locator in the office
of the Mining Recorder. By virtue of an instrument (Exhibit A) entitled
"Deed of Transfer" dated September 10, 1931, Paulino M. Dumaguin
conveyed and transferred to defendants A.I. Reynolds and E.J. Harrison
nine of the ten mineral claims just mentioned, and in another
instrument (Exhibit B) on the same date September 10, 1931, Paulino
transferred and conveyed to defendant Reynolds the remaining claim
Victoria.

Later, Reynolds as vendee of the mining claim Victoria by virtue of a

Deed of Sale (Exhibit C) dated November 2, 1931 sold and transferred
said claim to the defendant Big Wedge Mining Company the claims
Frank, Paul, Leo, Loreto, and Arthur. In still another Deed of Sale
(Exhibit J) Reynolds and Harrison sold and transferred to the same Big
Wedge Mining Co. the Greta, Lolita and Triangle fractions or mineral
claims. As a result all the ten mineral claims or fractions transferred by
Paulino to Reynolds and Harrison, with the exception of the claim G.
Ubalde were in turn sold and transferred to the Big Wedge Mining Co..
What was done to this last claim or fraction G. Ubalde, does not appear
on the record, but it must still remain in the name of Reynolds and
Harrison.

Plaintiff Dumaguin initiated this case in the Court of First Instance of

Baguio by filing his original complaint on November 5, 1934, later
amending it on July 26, 1939 and finally re-amending it on June 4,
1940. Under his re-amended complaint which contains three case of
action, he alleges that when he executed the deeds of transfer

(Exhibits A and B) he was under guardianship and did not possess the
mental capacity to contract and so asked the court that the said two
deeds be declared null and void. He also alleged that those two deed
being void, Reynolds and Harrison had no title to transmit to the Big
Wedge Mining Co., by virtue of the deeds of sale, Exhibits C and D
(plaintiff evidently overlooked the deed, Exhibit J) and therefore those
two deeds of sale (Exhibit C and D) should also be declared null and
void, and that he, (Paulino) should be declared the owner of the ten
mining claims or fractions in question. Finally, he claimed that the Big
Wedge Mining Co., had illegally taken possession of the ten mining
claims and profitably worked or operated them and so he asked that
said company be ordered to render an accounting of its operations and
profits made therefrom, and that the defendants should be ordered
jointly and severally to pay to the plaintiff such profits, as may have
been derived by the Big Wedge Mining Co. as shown by its accounts.

Defendants Reynolds and Harrison fled their original answers on

January 30, 1935 and April 12, 1935, respectively, both superseded by
their amended answers on January 22, 1936. Defendant Big Wedge
Mining Co., filed its answer on January 30, 1935 which was amended
January 18, 1936 and later re-amended on February 5, 1940. Reynolds
and Harrison claimed in their answers that plaintiff Paulino and his
brother Fructuoso had been expressly employed by them to locate and
stake mineral claims, and that said two brothers staked and located the
ten mineral claims in question for them (defendants), and that there
was an understanding between the two brothers and the two
defendants that the said mineral claims so located would eventually be
transferred to them. In its turn defendant Big Wedge Mining Co.,
followed the theory of Reynolds and Harrison about Paulino having
been employed by them and having made the location of the mineral
claims in question for their employers, and that the company was not
aware of the alleged mental incapacity of plaintiff at the time that he
executed the deeds of transfer in favor of Reynolds and Harrison, and
that even if the plaintiff was under guardianship at the time, yet he
confirmed and ratified the deeds of transfer by his acts and letters
after his release from guardianship, and that said company bought the
said mineral claims in good faith and for valuable consideration from
the registered owners.

Hearing was held on July 31, 1940. The evidence submitted was mainly
documentary. Only three witnesses took the witness stand. Atty.
Alberto Jamir was presented by the Big Wedge Mining Co. to identify a
copy of a decision rendered by the Securities and Exchange
Commission. Defendant Reynolds testified for the defense. For the
plaintiff, only Fructuoso Dumaguin testified for his brother. Why
Paulino, the plaintiff, did not take the witness stand, if not to support
the allegations of his complaint, at least to refute the evidence for the
defense particularly that which tended to show that he was employed
by defendants Reynolds and Harrison to stake and locate mineral
claims for them with the understanding that he would later transfer
said claims to his employers, is not known to this court. After trial,
Judge Jose R. Carlos before whom the hearing was held, rendered
judgment on January 16, 1941, dismissing the complaint.

Paulino Dumaguin appealed from that decision. His Record on Appeal

was approved on April 16, 1941 and the brief was filed on November 3,
1941 and the brief for the Big Wedge Mining Co. was filed or rather is
dated December 31, 1941. It is not known whether defendants
Reynolds and Harrison ever filed a brief. The fact is that the record of
the case was lost or destroyed during the war and only copies of the
record on appeal and the briefs were salvaged. As to the oral and
documentary evidence which was lost, only those portions of the
transcript and documents reproduced and appearing in the briefs are
now available. But the parties have agreed to the correctness of these
portions so quoted in the briefs.

After the reconstitution of the case, the Court of Appeals which had
taken charge of the appeal found that the amount involved was
beyond its jurisdiction and so certified the case to us. Neither Reynolds
nor Harrison has appeared before the Court of appeals or before this
Court. Appellant's attorney represented that Harrison's counsel could
not appear in the appeal due to lack of authority, not having heard
from his client since liberation and being of the belief that his client is
dead. There was also information to the effect that defendant
Reynolds had been killed during the early part of the occupation by the
Japanese. So, only the Big Wedge Mining Co., is opposing the present
appeal.

15

The decisive and pivotal question here is whether plaintiff Paulino M.

Dumaguin and hid brother Fructuoso acting on their account staked
and located these mining claims or fractions in dispute for Paulino, or
whether they acting as employees and agents of defendants Reynolds
and Harrison, staked and located said claims for and in behalf of their
employers. We agree with the trial court that the great preponderance
of evidence is to the effect that these claims were located for Reynolds
and Harrison by Paulino and Fructuoso as employees, and that the
latter were purposely employed and paid for this work. All the
expenses incident to the skating and location of said claims and
registration of the corresponding declarations of location were paid by
Reynolds and Harrison. It is true that in one part of his testimony,
Fructuoso claimed that he and his brother were employed merely to
relocate the mining claims of the defendants within the Anaconda
Group but later on, he admitted in his testimony and also in his
affidavit (Exhibit 1) which was prepared before these proceedings were
initiated in court that he and his brother Paulino working together
were paid by the defendants Reynolds and Harrison to locate new
mining claims outside the Anaconda Group; that as a matter of fact,
Paulino engaged in this work at the beginning, but because he
(Fructuoso) found that Paulino physically was not equal to the arduous
work of climbing up and down mountains to stake and locate claims,
he was placed in charge of the payroll of the defendants and detailed
to do paper work which, it is presumed, included in the registration of
the declarations of location of the mining claims in the office of the
Mining Recorder, in his name. Fructuoso also admitted that there was
an understanding before and pending the staking and location of said
mining claims that they would eventually be transferred to their real
owners, Reynolds and Harrison.

In consonance to this correct theory that these mining claims were

located for defendants Reynolds and Harrison, as counsel for appellee
well observes, Exhibit A and E are both entitled "Deed of Transfer". This
conveys the idea that Paulino was merely transferring to the real
owners property which technically and in name were registered as his
own. Otherwise, if he really owned these mining claims, the two deeds
(Exhibit A and B) would have been more appropriately entitled "Deed
of Sale" and the body of said instruments should have stated that he
was selling the mining claims. On the other hand, we have the
instruments (Exhibits C and D) wherein Reynolds and Harrison sold said
mining claims or fractions to the Big Wedge Mining Co., and the
documents were each entitled "Deed of Sale".

It would really be unfair, even against public policy to allow a person

employed to stake and locate mining claims for his employer to make
locations on his own account and for his own benefit tho done outside
hours of work or employment, because there is an obvious
incompatibility and conflict of interest between those of the employer
on the one hand and those of the employee on the other, unless there
is a clear and express agreement to the contrary. Judge Carlos in his
well-considered decision correctly states the fiduciary relation between
Paulino and his employers Reynolds and Harrison and the sound and
correct rule and public policy on this matter.

The fiduciary relation between the plaintiff and the defendants A.I.
Reynolds and E.J. Harrison, is very clear from the evidence. Fructuoso
M. Dumaguin, has clearly stated that his brother, Paulino M.
Dumaguin, was working under him while he was locating the claims in
question for A.I. Reynolds and E.J. Harrison. There can be no doubt that
these claims in question were among those which these defendants
wanted staked because, according to Fructuoso Dumaguin himself,
they all adjoined the Anaconda Group, which ground he was specially
instructed to stake for the said defendants. The plaintiff, herein,
therefore, learned of the existence, especially of the fractional mineral
claims, because he was with the party who staked the rest of the
claims in that locality. To permit the plaintiff herein to assert his claim
of ownership over these claims in question would be tantamount to
allowing him to violate and infringe all the sound and age-old rules
which govern principal and agent. There can be no doubt that this
relation existed because Fructuoso M. Dumaguin, the sole witness for
the plaintiff, stated categorically in his affidavit Exhibit I that all the
claims subject of this litigation, except G. Ubalde mineral claim, had
been located and staked by him for A.I. Reynolds and E.J. Harrison,
though the same were recorded in the name of his brother Paulino. It
is quite evident, therefore, that even if no transfers were made or
Exhibit "A" and "B did not exist, these two defendants would still be
entitled to an assignment of the said claims. The evidence of the
fiduciary relation between plaintiff and the defendants A.I. Reynolds
and E.J. Harrison was given by none other than Fructuoso M.
Dumaguin, the brother the only witness of the plaintiff in this case.

Any act of an agent, the object or tendency of which is to commit a

fraud or breach of the agency, should be discouraged. In the first place,
such acts are condemned by public policy. They are against the morals;
therefore, they should never be tolerated. An agent or trustee, or
anybody who acts in a fiduciary capacity, should never be permitted to
capitalize on his fiduciary position to mulct or take advantage of his
principal or employer.

It has been the practice of miners to employ others to stake mining

claims for them. This is usually done after the prospectors have assured
themselves that a mine exists in a certain locality. The man who place
the stake could easily leave fractional mineral claims in between the
claims without reporting the existence of this fractions to his principal.
Later he could stake and claim them. If this is permitted to happen,
bona fide miners can easily be held up by the very man whom they
have employed to stake their mining claims. If the mining industry shall
be protected and the exploitation of the natural resource of this
country encouraged, such practice should not be tolerated. The wrong
or the damage that can be done is unlimited. If agents or employees or
laborers are permitted to conceal or withhold certain mining claims
ordered staked by their employer who gave them specific instructions
to stake the entire ground in a certain locality, the effect will practically
be the condonation and legalization of a holdup. For this reason
Mechem on Agency, Sec. 1224, said the following:

"The well-settled and salutary principle that person who undertakes to

act for another shall not be in the same matter, act for himself, results
also in the other rule, that all profits made and advantage gained by
the agent in the execution of the agency belong to the principal. And it
matters not whether such profit or advantage be the result of the
performance or of the violation of the duty of the agent if it be the fruit
of the agency. If his duty be strictly performed, the resulting profit
accrues to their principal as the legitimate consequence of the relation.
If profit accrues from his violation of duty while executing the agency,
that likewise belongs to the principal, not only because the principal
has to assume the responsibility of the transaction, but also because
the agent cannot be permitted to derive advantage from his own fault.

16

"It is only by rigid adherence to this rule that all temptation can be
removed from one acting in a fiduciary capacity, to abuse his trust or
seek his own advantage in the position which it affords him."

In view of our conclusion and holding that these mining claims were
staked and located for the benefit of the defendants Reynolds and
Harrison, the other points and questions involved in the appeal
exhaustively, in detail and with a wealth of authorities, discussed by
counsel for both appellant and appellee with ability and skill, become
incidental and not of much if any relevancy whatsoever, although we
may discuss one or two of them not so much to strengthen our
decision but rather to render more clear our views.

Appellants contends that the deeds of transfer (Exhibits A and B)

should be annulled for lack of mental capacity because at the time of
their execution he was under guardianship for insanity. It is contended
that altho in a case of execution of a will by a testator who was under
guardianship for mental derangement, the presumption of insanity is
only juris tantum, subject to rebuttal, and nevertheless, mental
incapacity as regards contracts, particularly those transferring
property, under similar circumstances, involves a conclusive
presumption which cannot be rebutted by evidence, We have studied
the arguments and authorities adduced by both counsel on this point
and we are inclined to agree with counsel for appellee that the better
rule is that even in the execution of contracts, in the absence of a
statute to the contrary, the presumption of insanity and mental
incapacity is only prima facie and may be rebutted by evidence; and
that a person under guardianship for insanity may still enter into a valid
contract and even convey property, provided it is proven that at the
time if entering into said contract, he was not insane or that his mental
defect if mentally deranged did not interfere with or affect his capacity
to appreciate the meaning and significance of the transaction entered
into by him.

Section 66.Generally. Of course, not every substandard mentality or

even every mental infirmity has the effect of rendering the afflicted
person disabled for the purpose of entering into contract and making
conveyance. . . . A reasonable test, suggested by several courts for the

purpose of determining whether an infirmity operates to render a

person incapable of binding himself absolutely by contract, is whether
his mind has been so affected as to render him incapable of
understanding the nature and consequences of his acts, or more
exactly, whether his mental powers have become so far affected as to
make him unable to understand the character of the transaction in
question. . . . Some authorities take a view that a grantor may be
competent to execute a deed notwithstanding his disability to transact
business generally, provided he understands the nature of what he is
doing and recollects the property of which he is making a disposition
and to whom he is conveying it. Other authorities, however, take the
position that to sustain a deed, the grantor must have the ability to
transact ordinary business. In any event, if it appears that the grantor
in a deed was incapable of comprehending that the effect of the
instrument, when made, executed, and delivered, would be to divest
him of title to the land covered by the instrument, it is not binding
upon him. . . . (28 Am. Jur., Insane, etc., See Sec. 66, pp. 701-702.)

. . . Even partial insanity will not render a contract voidable unless it

exists in connection with or is referable to the subject matter of the
contract. Similarly, a delusion if unconnected with the transaction in
question, is not sufficient to affect the validity of a contract
consummated by the person thus affected. Monomania or a mental
fixation or abnormality respecting a matter disconnected with the act
of conveying property will not affect the validity of the conveyance. . . .
(Ibid, p. 703.)

There are many case of persons mentally deranged who although they
have been having obsessions and delusions for many years regarding
certain subjects and situations, still are mentally sound in other
respects. There are others who though insane, have their lucid
intervals when in all respects they are perfectly sane and mentally
sound.

In the case of Paulino M. Dumaguin, according to the doctor who

observed and examined him, and who made his report on October 15,
1929, and that was more than two years before Exhibits A and B were
executed, he (Paulino) while in the hospital was "well-behaved,

oriented in all spheres, coherent in his speech and has no more

illusions or hallucinations; but is having a delusions that one of the
patients in the hospital is trying to chloroform him. He consequently
keeps away from said patient and that he was "not sure that his former
officemates whom he erroneously believed chloroformed him before
would not chloroform him anymore when he gets home". This was in
1929. The same year Paulino was discharged from the hospital
presumably because his condition had improved, and on February 2,
1931, Paulino and his wife in a motion assured the court of Camarines
Sur that Paulino was already re-established (ya esta restablecido).
Several months later he went to Baguio looking for work. It is to be
presumed that he was then no longer insane. It is equally to be
presumed that his brother Fructuoso would not have recommended
him for employment by defendants Reynolds and Harrison and actually
let him work for them, at the beginning climbing up and down
mountains to stake and locate claims for his employers; and if Paulino
was then insane, it was not likely that Reynolds and Harrison would
employ him to do the work of staking and locating claims to say
nothing of taking charge of the payroll of their employees, and
registering with the Mining Recorder the declarations of location of
mining claims. There is every reason to believe as we do and hold that
at least from about the beginning of the year 1931 when Paulino began
working for his employers Reynolds and Harrison, and when he
executed Exhibits A and B, he had the mental capacity to transact
ordinary business and was mentally capable of validity entering into a
contract even conveying property to another. But even assuming that
at the time of executing Exhibits A and B, Paulino were still mentally
incapacitated, still, because of his moral and legal obligation to transfer
said claims to his employers, he could through his guardian have been
compelled by the court to execute said transfer, or after termination of
his guardianship obliged personally to execute said transfer to his
employers. He acted as a trustee for his employers and the law will not
allow him to invoke insanity or mental in capacity to violate his trust.

In relation with this alleged incapacity of Paulino, it is interesting to

note that when he and his lawyers filed his first complaint in 1934, that
is, about three years after executing Exhibits A and B, they said nothing
about being mentally incapacitated in 1931. They did not ask for the
annulment of the deeds of transfer (Exhibits A an B) on the ground of
lack of mental capacity. They assumed and took it for granted and led
others to believe that said deeds of transfer were valid. They only
asked for the payment of damages. It was not until five years later in

17

the year 1939 when they filed the first amended complaint that they
raised this question of mental incapacity. It took him and his lawyers
almost five years to discover and claim that he (Paulino) was not
mentally capable to enter into a contra when he executed exhibits A
and B. In view of all this, we may well and logically presume that all the
time that Paulino was employed by Reynolds and Harrison to locate
and register mining claims for them, and at the same time he executed
Exhibits A and B and for several years thereafter when he continued in
their employ, neither Fructuoso, Paulino's brother nor defendants
Reynold and Harrison had any reason to suspect, much less, to believe
that Paulino was other than a sane, responsible and mentally capable
individual, able to take care not only of him and his interest but also of
the interest of his employers. Neither did the other employees of
Reynolds and Harrison to whom Paulino paid wages on pay-days, be
being in charge of the payroll, and the Mining Recorder before whom
he executed proper and valid affidavits of locations for purpose of
registration, note any mental incapacity on the part of Paulino. All this
goes to reinforce the finding that Paulino was mentally sane and
capable in 1931.

did convey to defendant Big Wedge Mining Co., in Exhibits C, D, and

J.1wphl.nt

In view of the foregoing, finding no reversible error in the decision

appealed from the same is hereby affirmed, with costs.

Paras, C.J., Bengzon, Padilla, Jugo, Bautista Angelo and Labrador, JJ.,
concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

Counsel for appellant next contends that Exhibits A and B should be

declared void for lack of consideration. Said two deeds each mentions
P1.00 and other valuable consideration, the receipt whereof was
acknowledge, to be the consideration. We believe that consideration is
sufficient, this aside from the provision of law (Article 1277 of the Civil
Code), that consideration in a contract will be presumed and that it is
licit, unless the debtor prove the contrary which Paulino in this case
failed to establish. Furthermore, according to Reynolds, in
consideration of the transfer of these mining claims, he had later paid
Paulino between P3,000 and P5,000. This was not refuted by Paulino.
Moreover, under the view we take of the mining claims having been
located for the benefit of defendants Reynolds and Harrison, by
Paulino in his capacity as their employee, paid for that purpose, no
consideration for the conveyances was even necessary. He was merely
fulfilling an obligation and complying with a trust.

In conclusion we find and hold that Exhibits A and B were valid

conveyances executed by one who was mentally capable.
Consequently, Reynolds and Harrison had a valid title to convey as they

G.R. No. L-30573

MAKASIAR, J.:

Petitioner-appellant Vicente M. Domingo, now deceased and

represented by his heirs, Antonina Raymundo vda. de Domingo,
Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all
surnamed Domingo, sought the reversal of the majority decision dated,
March 12, 1969 of the Special Division of Five of the Court of Appeals
affirming the judgment of the trial court, which sentenced the said
Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the
intervenor Teofilo P. Purisima P2,607.50 with interest on both amounts
from the date of the filing of the complaint, to pay Gregorio Domingo
P1,000.00 as moral and exemplary damages and P500.00 as attorney's
fees plus costs.

October 29, 1971

VICENTE M. DOMINGO, represented by his heirs, ANTONINA

RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE
JR., SALVADOR, IRENE and JOSELITO, all surnamed DOMINGO,
petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee,
PURISIMA, intervenor-respondent.

TEOFILO

Teofilo Leonin for petitioners-appellants.

Osorio, Osorio & Osorio for respondent-appellee.

P.

The following facts were found to be established by the majority of the

Special Division of Five of the Court of Appeals:

In a document Exhibit "A" executed on June 2, 1956, Vicente M.

Domingo granted Gregorio Domingo, a real estate broker, the exclusive
agency to sell his lot No. 883 of Piedad Estate with an area of about
88,477 square meters at the rate of P2.00 per square meter (or for
P176,954.00) with a commission of 5% on the total price, if the
property is sold by Vicente or by anyone else during the 30-day
duration of the agency or if the property is sold by Vicente within three
months from the termination of the agency to apurchaser to whom it
was submitted by Gregorio during the continuance of the agency with
notice to Vicente. The said agency contract was in triplicate, one copy
was given to Vicente, while the original and another copy were
retained by Gregorio.

Teofilo P. Purisima in his own behalf as intervenor-respondent.

18

On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima

to look for a buyer, promising him one-half of the 5% commission.

Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a

prospective buyer.

Oscar de Leon submitted a written offer which was very much lower
than the price of P2.00 per square meter (Exhibit "B"). Vicente directed
Gregorio to tell Oscar de Leon to raise his offer. After several
conferences between Gregorio and Oscar de Leon, the latter raised his
offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to
which Vicente agreed by signing Exhibit "C". Upon demand of Vicente,
Oscar de Leon issued to him a check in the amount of P1,000.00 as
earnest money, after which Vicente advanced to Gregorio the sum of
P300.00. Oscar de Leon confirmed his former offer to pay for the
property at P1.20 per square meter in another letter, Exhibit "D".
Subsequently, Vicente asked for an additional amount of P1,000.00 as
earnest money, which Oscar de Leon promised to deliver to him.
Thereafter, Exhibit "C" was amended to the effect that Oscar de Leon
will vacate on or about September 15, 1956 his house and lot at
Denver Street, Quezon City which is part of the purchase price. It was
again amended to the effect that Oscar will vacate his house and lot on
December 1, 1956, because his wife was on the family way and Vicente
could stay in lot No. 883 of Piedad Estate until June 1, 1957, in a
document dated June 30, 1956 (the year 1957 therein is a mere
typographical error) and marked Exhibit "D". Pursuant to his promise
to Gregorio, Oscar gave him as a gift or propina the sum of One
Thousand Pesos (P1,000.00) for succeeding in persuading Vicente to
sell his lot at P1.20 per square meter or a total in round figure of One
Hundred Nine Thousand Pesos (P109,000.00). This gift of One
Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente.
Neither did Oscar pay Vicente the additional amount of One Thousand
Pesos (P1,000.00) by way of earnest money. In the deed of sale was
not executed on August 1, 1956 as stipulated in Exhibit "C" nor on
August 15, 1956 as extended by Vicente, Oscar told Gregorio that he
did not receive his money from his brother in the United States, for
which reason he was giving up the negotiation including the amount of
One Thousand Pesos (P1,000.00) given as earnest money to Vicente
and the One Thousand Pesos (P1,000.00) given to Gregorio as propina
or gift. When Oscar did not see him after several weeks, Gregorio

sensed something fishy. So, he went to Vicente and read a portion of

Exhibit "A" marked habit "A-1" to the effect that Vicente was still
committed to pay him 5% commission, if the sale is consummated
within three months after the expiration of the 30-day period of the
exclusive agency in his favor from the execution of the agency contract
on June 2, 1956 to a purchaser brought by Gregorio to Vicente during
the said 30-day period. Vicente grabbed the original of Exhibit "A" and
tore it to pieces. Gregorio held his peace, not wanting to antagonize
Vicente further, because he had still duplicate of Exhibit "A". From his
meeting with Vicente, Gregorio proceeded to the office of the Register
of Deeds of Quezon City, where he discovered Exhibit "G' deed of sale
executed on September 17, 1956 by Amparo Diaz, wife of Oscar de
Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon
City, in favor Vicente as down payment by Oscar de Leon on the
purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus
learning that Vicente sold his property to the same buyer, Oscar de
Leon and his wife, he demanded in writting payment of his commission
on the sale price of One Hundred Nine Thousand Pesos (P109,000.00),
Exhibit "H". He also conferred with Oscar de Leon, who told him that
Vicente went to him and asked him to eliminate Gregorio in the
transaction and that he would sell his property to him for One Hundred
Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's
letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the
5% commission because he sold the property not to Gregorio's buyer,
Oscar de Leon, but to another buyer, Amparo Diaz, wife of Oscar de
Leon.

The Court of Appeals found from the evidence that Exhibit "A", the
exclusive agency contract, is genuine; that Amparo Diaz, the vendee,
being the wife of Oscar de Leon the sale by Vicente of his property is
practically a sale to Oscar de Leon since husband and wife have
common or identical interests; that Gregorio and intervenor Teofilo
Purisima were the efficient cause in the consummation of the sale in
favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de
Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as
"propina" or gift and not as additional earnest money to be given to
the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar
de Leon with respect to the additional earnest money, does not appear
to have been answered by Oscar de Leon and therefore there is no
writing or document supporting Oscar de Leon's testimony that he paid
an additional earnest money of One Thousand Pesos (P1,000.00) to
Gregorio for delivery to Vicente, unlike the first amount of One

Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as

earnest money, evidenced by the letter Exhibit "4"; and that Vicente
did not even mention such additional earnest money in his two replies
Exhibits "I" and "J" to Gregorio's letter of demand of the 5%
commission.

The three issues in this appeal are (1) whether the failure on the part of
Gregorio to disclose to Vicente the payment to him by Oscar de Leon of
the amount of One Thousand Pesos (P1,000.00) as gift or "propina" for
having persuaded Vicente to reduce the purchase price from P2.00 to
P1.20 per square meter, so constitutes fraud as to cause a forfeiture of
his commission on the sale price; (2) whether Vicente or Gregorio
should be liable directly to the intervenor Teofilo Purisima for the
latter's share in the expected commission of Gregorio by reason of the
sale; and (3) whether the award of legal interest, moral and exemplary
damages, attorney's fees and costs, was proper.

Unfortunately, the majority opinion penned by Justice Edilberto

Soriano and concurred in by Justice Juan Enriquez did not touch on
these issues which were extensively discussed by Justice Magno
Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his
concurring opinion, affirmed that it does not constitute breach of trust
or fraud on the part of the broker and regarded same as merely part of
the whole process of bringing about the meeting of the minds of the
seller and the purchaser and that the commitment from the prospect
buyer that he would give a reward to Gregorio if he could effect better
terms for him from the seller, independent of his legitimate
commission, is not fraudulent, because the principal can reject the
terms offered by the prospective buyer if he believes that such terms
are onerous disadvantageous to him. On the other hand, Justice
Gatmaitan, with whom Justice Antonio Cafizares corner held the view
that such an act on the part of Gregorio was fraudulent and constituted
a breach of trust, which should deprive him of his right to the
commission.

The duties and liabilities of a broker to his employer are essentially

those which an agent owes to his principal. 1

19

Consequently, the decisive legal provisions are in found Articles 1891

and 1909 of the New Civil Code.

Art. 1891. Every agent is bound to render an account of his

transactions and to deliver to the principal whatever he may have
received by virtue of the agency, even though it may not be owing to
the principal.

Every stipulation exempting the agent from the obligation to render an

account shall be void.

xxx

xxx

Paragraph 2 of Article 1891 is a new addition designed to stress the

highest loyalty that is required to an agent condemning as void any
stipulation exempting the agent from the duty and liability imposed on
him in paragraph one thereof.

agency had existed. The fact that the principal may have been
benefited by the valuable services of the said agent does not exculpate
the agent who has only himself to blame for such a result by reason of
his treachery or perfidy.

Article 1909 of the New Civil Code is essentially a reinstatement of

Article 1726 of the old Spanish Civil Code which reads thus:

This Court has been consistent in the rigorous application of Article

1720 of the old Spanish Civil Code. Thus, for failure to deliver sums of
money paid to him as an insurance agent for the account of his
employer as required by said Article 1720, said insurance agent was
convicted estafa. 4 An administrator of an estate was likewise under
the same Article 1720 for failure to render an account of his
administration to the heirs unless the heirs consented thereto or are
estopped by having accepted the correctness of his account previously
rendered. 5

Art. 1726. The agent is liable not only for fraud, but also for
negligence, which shall be judged with more or less severity by the
courts, according to whether the agency was gratuitous or for a price
or reward.

xxx

Art. 1909. The agent is responsible not only for fraud but also for
negligence, which shall be judged with more less rigor by the courts,
according to whether the agency was or was not for a compensation.

Article 1891 of the New Civil Code amends Article 17 of the old Spanish
Civil Code which provides that:

Art. 1720. Every agent is bound to give an account of his transaction

and to pay to the principal whatever he may have received by virtue of
the agency, even though what he has received is not due to the
principal.

The modification contained in the first paragraph Article 1891 consists

in changing the phrase "to pay" to "to deliver", which latter term is
more comprehensive than the former.

The aforecited provisions demand the utmost good faith, fidelity,

honesty, candor and fairness on the part of the agent, the real estate
broker in this case, to his principal, the vendor. The law imposes upon
the agent the absolute obligation to make a full disclosure or complete
account to his principal of all his transactions and other material facts
relevant to the agency, so much so that the law as amended does not
countenance any stipulation exempting the agent from such an
obligation and considers such an exemption as void. The duty of an
agent is likened to that of a trustee. This is not a technical or arbitrary
rule but a rule founded on the highest and truest principle of morality
as well as of the strictest justice. 2

Hence, an agent who takes a secret profit in the nature of a bonus,

gratuity or personal benefit from the vendee, without revealing the
same to his principal, the vendor, is guilty of a breach of his loyalty to
the principal and forfeits his right to collect the commission from his
principal, even if the principal does not suffer any injury by reason of
such breach of fidelity, or that he obtained better results or that the
agency is a gratuitous one, or that usage or custom allows it; because
the rule is to prevent the possibility of any wrong, not to remedy or
repair an actual damage. 3 By taking such profit or bonus or gift or
propina from the vendee, the agent thereby assumes a position wholly
inconsistent with that of being an agent for hisprincipal, who has a
right to treat him, insofar as his commission is concerned, as if no

Because of his responsibility under the aforecited article 1720, an

agent is likewise liable for estafa for failure to deliver to his principal
the total amount collected by him in behalf of his principal and cannot
retain the commission pertaining to him by subtracting the same from
his collections. 6

A lawyer is equally liable unnder said Article 1720 if he fails to deliver

to his client all the money and property received by him for his client
despite his attorney's lien. 7 The duty of a commission agent to render
a full account his operations to his principal was reiterated in Duhart,
etc. vs. Macias. 8

The American jurisprudence on this score is well-nigh unanimous.

Where a principal has paid an agent or broker a commission while

ignorant of the fact that the latter has been unfaithful, the principal
may recover back the commission paid, since an agent or broker who
has been unfaithful is not entitled to any compensation.

20

xxx

xxx

xxx

In discussing the right of the principal to recover commissions retained

by an unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass.
331, 94 NE 260, 34 LRA (NS) 1046, said: "It is well settled that the agent
is bound to exercise the utmost good faith in his dealings with his
principal. As Lord Cairns said, this rule "is not a technical or arbitrary
rule. It is a rule founded on the highest and truest principles, of
morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the
agent does not conduct himself with entire fidelity towards his
principal, but is guilty of taking a secret profit or commission in regard
the matter in which he is employed, he loses his right to compensation
on the ground that he has taken a position wholly inconsistent with
that of agent for his employer, and which gives his employer, upon
discovering it, the right to treat him so far as compensation, at least, is
concerned as if no agency had existed. This may operate to give to the
principal the benefit of valuable services rendered by the agent, but
the agent has only himself to blame for that result."

xxx

xxx

xxx

The intent with which the agent took a secret profit has been held
immaterial where the agent has in fact entered into a relationship
inconsistent with his agency, since the law condemns the corrupting
tendency of the inconsistent relationship. Little vs. Phipps (1911) 94 NE
260. 9

As a general rule, it is a breach of good faith and loyalty to his principal

for an agent, while the agency exists, so to deal with the subject matter
thereof, or with information acquired during the course of the agency,
as to make a profit out of it for himself in excess of his lawful
compensation; and if he does so he may be held as a trustee and may
be compelled to account to his principal for all profits, advantages,
rights, or privileges acquired by him in such dealings, whether in
performance or in violation of his duties, and be required to transfer
them to his principal upon being reimbursed for his expenditures for
the same, unless the principal has consented to or ratified the

transaction knowing that benefit or profit would accrue or had

accrued, to the agent, or unless with such knowledge he has allowed
the agent so as to change his condition that he cannot be put in status
quo. The application of this rule is not affected by the fact that the
principal did not suffer any injury by reason of the agent's dealings or
that he in fact obtained better results; nor is it affected by the fact that
there is a usage or custom to the contrary or that the agency is a
gratuitous one. (Emphasis applied.) 10

In the case at bar, defendant-appellee Gregorio Domingo as the broker,

received a gift or propina in the amount of One Thousand Pesos
(P1,000.00) from the prospective buyer Oscar de Leon, without the
knowledge and consent of his principal, herein petitioner-appellant
Vicente Domingo. His acceptance of said substantial monetary gift
corrupted his duty to serve the interests only of his principal and
undermined his loyalty to his principal, who gave him partial advance
of Three Hundred Pesos (P300.00) on his commission. As a
consequence, instead of exerting his best to persuade his prospective
buyer to purchase the property on the most advantageous terms
desired by his principal, the broker, herein defendant-appellee
Gregorio Domingo, succeeded in persuading his principal to accept the
counter-offer of the prospective buyer to purchase the property at
P1.20 per square meter or One Hundred Nine Thousand Pesos
(P109,000.00) in round figure for the lot of 88,477 square meters,
which is very much lower the the price of P2.00 per square meter or
One Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos
(P176,954.00) for said lot originally offered by his principal.

The duty embodied in Article 1891 of the New Civil Code will not apply
if the agent or broker acted only as a middleman with the task of
merely bringing together the vendor and vendee, who themselves
thereafter will negotiate on the terms and conditions of the
transaction. Neither would the rule apply if the agent or broker had
informed the principal of the gift or bonus or profit he received from
the purchaser and his principal did not object therto. 11 Herein
defendant-appellee Gregorio Domingo was not merely a middleman of
the petitioner-appellant Vicente Domingo and the buyer Oscar de
Leon. He was the broker and agent of said petitioner-appellant only.
And therein petitioner-appellant was not aware of the gift of One
Thousand Pesos (P1,000.00) received by Gregorio Domingo from the

prospective buyer; much less did he consent to his agent's accepting

such a gift.

The fact that the buyer appearing in the deed of sale is Amparo Diaz,
the wife of Oscar de Leon, does not materially alter the situation;
because the transaction, to be valid, must necessarily be with the
consent of the husband Oscar de Leon, who is the administrator of
their conjugal assets including their house and lot at No. 40 Denver
Street, Cubao, Quezon City, which were given as part of and
constituted the down payment on, the purchase price of herein
petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law
and in fact, it was still Oscar de Leon who was the buyer.

As a necessary consequence of such breach of trust, defendantappellee Gregorio Domingo must forfeit his right to the commission
and must return the part of the commission he received from his
principal.

Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover

from Gregorio Domingo his one-half share of whatever amounts
Gregorio Domingo received by virtue of the transaction as his subagency contract was with Gregorio Domingo alone and not with
Vicente Domingo, who was not even aware of such sub-agency. Since
Gregorio Domingo received from Vicente Domingo and Oscar de Leon
respectively the amounts of Three Hundred Pesos (P300.00) and One
Thousand Pesos (P1,000.00) or a total of One Thousand Three Hundred
Pesos (P1,300.00), one-half of the same, which is Six Hundred Fifty
Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo
Purisima.

Because Gregorio Domingo's clearly unfounded complaint caused

Vicente Domingo mental anguish and serious anxiety as well as
wounded feelings, petitioner-appellant Vicente Domingo should be
awarded moral damages in the reasonable amount of One Thousand
Pesos (P1,000.00) attorney's fees in the reasonable amount of One
Thousand Pesos (P1,000.00), considering that this case has been
pending for the last fifteen (15) years from its filing on October 3, 1956.

21

plaintiff vs. Enrique de Valera, defendant" regarding a certain sum of

money.chanroblesvirtualawlibrary chanrobles virtual law library
WHEREFORE, the judgment is hereby rendered, reversing the decision
of the Court of Appeals and directing defendant-appellee Gregorio
Domingo: (1) to pay to the heirs of Vicente Domingo the sum of One
Thousand Pesos (P1,000.00) as moral damages and One Thousand
Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the
sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

Second. That Mr. Bemberger took possession of the personal property

attached by the plaintiff in said case, as well as other personal property
not attached, and the respondent disposed of a certain amount of steel
bars which the defendant Enrique de Valera had deposited with the
Chairman King Chio.chanroblesvirtualawlibrary chanrobles virtual law
library

render an accounting to S. M. Berger nor has he been willing to send or

deliver to his client the money collected at any
time.chanroblesvirtualawlibrary chanrobles virtual law library

Seventh. That the excuse of the respondent that he could not render
an accounting to his client because Mr. Cedrum did not give him a list
of the merchandise taken by the latter and because Mr. Berger took
with him the receipt of King Chio, Exhibit H, and certain notes in
connection with King Chio's account, is not admissible:

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando,

Teehankee, Barredo and Villamor, JJ., concur.

EN BANC
April 7, 1924

Third. That Mr. Bamberger, as he admitted in his answer and

statement, has disposed of a lot 83 tins of canned peas at the price of
10 centavos per tin and one case of catchup at the price P10, without
due authorization.chanroblesvirtualawlibrary chanrobles virtual law
library

( a) Because Mr. Cendrum declared that he furnished Mr. Bemberger

with the list in question, and the respondent made a note in his book
of the merchandise turned over.chanroblesvirtualawlibrary chanrobles
virtual law library

In re H. V. BAMBERGER
H. V. Bamberger in his own behalf.
Attorney-General Villa-Real for the Government.

OSTRAND, J.:

At the instance of the Attorney-General, disbarment proceedings have

been instituted against Attorney H. V. Bamberger for alleged
malpractice in his profession. The matter has been investigated by the
provincial fiscal of Iloilo, aided by an assistant attorney of the Bureau of
Justice, and after receiving considerable testimony and other evidence,
and after hearing the respondent, the fiscal summarizes the facts
found as follows:

First. That Mr. H. V. Bamberger was attorney for the plaintiff in the
case No. 4076 of the Court of First Instance of Iloilo "S. M. Berger,

Fourth. That while all the merchandise was in the possession of Mr. H.
V. Bamberger, the respondent, he collected and received the amount
of P2,178.82 as he admitted, either from debtor of Enrique de Valera,
especially the Chinaman King Chio, or for having disposed of some
merchandise. It is also an admitted fact by him that he is accountable
fro P1,187 to S. M. Berger & Co.chanroblesvirtualawlibrary chanrobles
virtual law library

Fifth. That Mr. Bamberger has, on various occasions, required either by

Mr. Block, in the name of S. M. Berger & Co., or by Messrs. S. M. Berger
& Co. themselves, to render an immediate accounting which he has
disregarded without any reasonable cause.chanroblesvirtualawlibrary
chanrobles virtual law library

Sixth. That Mr. H. V. Bamberger, since the civil case No. 4076 above
referred to has been decided, on July 22, 1921, and completely
determinated as per the stipulation and agreement, Exhibit T and the
answer of the defendant admitting all and every one of the allegations
in the amended complaint of the plaintiff, has not made any effort to

( b) Because the evidence of the complaint shows clearly that Mr.

Bamberger never asked Mr. Berger for Exhibit H and other notes he
needed to render his account and if Mr. Berger [Bamberger] had
written to Mr. Berger for the papers he needed for his accounting, Mr.
Berger would have, of course, given them to him with
pleasure.chanroblesvirtualawlibrary chanrobles virtual law library

( c) Because if we were true that he could not give a complete

accounting in regard to King Chio's account without such papers and
notes, it is not understood why he prepared and acknowledge before a
notary the document Exhibit 2, which is an assignment of the account
owed to King Chio by the Talisay-Silay Milling Co. amounting to P5,390.
This document was executed on April 25, 1922.

Upon the facts stated the fiscal recommends that the respondent be
suspended from the practice of law.chanroblesvirtualawlibrary
chanrobles virtual law library

22

The findings quoted are amply supported by the evidence. Whether

the respondent, after deducting proper attorney's fees, owes his client
any considerable sum of money, we need not here decide; that must
be determined an another and different proceeding. But attorneys are
bound to promptly account to their clients for money or property
received by them as such, and the fact that an attorney has a lien for
fees on money in his hands does not relieve him from liability. (6 C. J.,
693.) Notwithstanding repeated demands on the part of his client, the
defendant has for several years failed to render an accounting of the
money received by him on behalf of his client and the excuses offered
for his failure to do so are so inadequate as to merit no consideration.
The respondent is clearly guilty of professional misconduct in falling to
account to S. M. Berger & Co. for money received by him as attorney
for the latter.chanroblesvirtualawlibrary chanrobles virtual law library

It is therefore ordered that H. V. Bamberger be and he hereby is

suspended from his office of lawyer for the period of six months
beginning with the date upon which he is notified of this order.

Araullo, C. J., Johnson, Street, Avancea, Johns and Romualdez, JJ.,

concur
Republic of the Philippines

ROMUALDEZ, J.:

This appeal taken by the defendants against the judgment of the Court
of First Instance of Manila recinding the contract Exhibit A, sentencing
them to pay the plaintiffs P5,919.11 with legal interest thereon from
the date of the filing of the complaint, with costs, and in addition,
sentencing the defendant Ernesto Macias to render a detailed account
of the agency's business, is based upon the following assignment of
errors as committed by the court below:

1. The trial court erred in not dissolving the attachment upon the films
belonging to the defendants because there never existed any writ of
attachment in favor of the present plaintiffs Eugenio Duhart and Pedro
Duhart.

2. The trial court erred in declaring that the contract Exhibit A or 45

was made by the plaintiffs as managing partners of Duhart Freres &
Cie., and in not declaring that said contract was made by and the name
of the partnership Duhart Freres & Cie.

SUPREME COURT
3. The trial court erred in declaring that the document Exhibit A was a
contract of agency and in ordering its rescission, and in not declaring
that said document was a partnership contract of joint account.

Manila
EN BANC
G.R. No. L-32502

March 18, 1903

DUHART FRERES Y CIE., plaintiff-appellee, vs.ERNESTO MACIAS Y

CONTADOR and E. MACIAS COMMISSION IMPEX CO., defendantsappallants.

4. The trial court erred in sentencing the defendants to pay to the

plaintiffs the sum of P5,919.11 with legal interest from the date the
claim was entered.

Harvey & O' Brien and Eugenio Angeles for appellants.

5. The trial court erred in not declaring that the plaintiffs has violated
the terms of the contract Exhibit A.

C.A. Sobral for appellee.

6. The trial court erred in ordering the defendants to pay to the

plaintiff s the sum of P5,919.11 plus legal interest, and ordering at the
same time that the defendants render an accounting of the business of
the partnership.

7. The trial court erred in dismissing the counterclaim of the

defendants for damages suffered by them, and in not declaring that
inasmuch as contract Exhibit 45 or A had paying back to the defendants
all the capital invested by the defendants Ernesto Macias in the
business of the partnership E. Macias Com. Impex Co., Ltd.

8. The trial court erred in dismissing the motion for a new trial
requested by the defendants.

The change made in the names of the plaintiffs by the amended

complaint filed on October 14, 1927, substituting for the partnership
"Duhart Freres & Cie.," the names of Pedro Duhart and Eugenio
Duhart, who according to said amended complaint are the sole
collective partners, and the managing partners according to the
evidence, does not constitute a substantial alternation of the party
plaintiff, and does not effect the validity and legal force of the
attachment of the defendants' property, issued in favor of said "Duhart
Freres & Cie.," upon a prior complaint, which writ still subsist as well in
favor of the original plaintiff "Duhart Freres & Cie.," as for the same
entity in the persons of its own sole collective partners, the plaintiffs
Pedro Duhart and Eugenio Duhart. Whenever it happens, as in the
instant case, that there is no real change of the party plaintiff, the writ
of attachment issued in favor of said plaintiff as an entry, remains
unchanged and in favor of said plaintiff as and there is no necessity for
issuing another in favor of such as may later appear in the cause as
plaintiff, so long as they are to all intents and purposes the same party
plaintiff or its successors-in-interest. The alternation thus introduced
into the complaint does not amount to a real change in the party
plaintiff. Furthermore, this question has already been decided by this
court against the defendants herein in the certiorari proceedings
instituted by them on January, 1928, G.R. No. 28895.1

23

The appellants contend that as the plaintiffs subscribed the contract

Exhibit A on behalf of the partnership "Duhart Freres & Cie," they
cannot now sue in their town behalf, and in the instant action must be
instituted by the partnership. It was so done in the beginning, but said
defendant having demurred, and the court sustained their demurrer,
the complaint had to bee amended, naming the collective partners as
plaintiffs in favor of the original plaintiff, the partnership "Duhart
Freres & Cie., It is to be noted that the present plaintiffs, in executing
and signing the contract Exhibit A, did so, according to its own terms,
"as partners of the firm "Duhart Freres & Cie." doing business in the
aforementioned city." At any rate, the defendant, Ernesto Macias,
who, in Exhibit A contracted with the plaintiffs, cannot now gainsay
their right to bring this suit as partners of said firm. As to the defendant
"E Macias Commission Impex Co., Ltd.," the parties entered into an
agreement in contract Exhibit A (Clause V) as an agency under said
commercial name, and it appears from paragraph 2 of the fifth special
defense of the defendants that said defendant is an agency created
and organized in the Philippines by virtue of said contract Exhibit A.
The defendants come under the doctrine laid down by this court in
Strachan & MacMurray vs. Emaldi (22 Phil., 295).

There is no merit in the assertion that the contract evidence by

instruments Exhibit A, is a joint-account partnership contract. We are
not concerned with an accidental association confined to definite
transaction, being thus free from any solemnity in its formation (art.
240, Code of Commerce; Merchantile Law, Carreras, p. 300, 3d
edition), nor did they in the contract agree upon any capital, or that
Ernesto Macias subscribed or would contribute a part of said capital
(art. 239, Code of Commerce). On the contrary, it is the opening of an
"agency," a word and an idea, repeated and explained throughout the
instrument as signifying, a commercial agency. And notwithstanding
the wise sphere of action granted to said agency, the parties does not
render it any the less an agency, which, however, agreed upon a limit,
until further stipulation, as may be seen in clause VIII of the contract,
namely, "commissions," which are one of the kinds of a commercial
agency, specifically so called in article 244 of the Code of Commerce.

We see no sufficient reason for holding that the plaintiffs violated the
contract, and therefore, we find no error in the judgment appealed
from ordering the dismissal of the defendants' counterclaim.

It appears of record that the defendant Ernesto Macias violated clauses

VIII, XI, XII, and XIII of the contract, for it has been established that if he
did open a banking credit for fifty per cent centum of the value of his
orders, which were not paid, neither paid for the credit, nor sent a
monthly statement, nor kept accounts, nor forwarded to the plaintiffs
a balance and semestral inventory. All of which gives the plaintiffs a
right to rescind the contract as agreed upon in clause XIX thereof.

As to the amount awarded to the plaintiffs, we find no reason in these

proceedings to depart lower court's findings in this matter.

With regard to the order that defendant Macias render a detailed

account to the plaintiffs of the business of said agency, as prayed for in
the complaint, we deem it justified. It is simply the consequence of the
recession of the contract of agency, also decreed by the court below.
Every agent must give an account of his operations, a general principle
expressly laid down in article 1720 of the Civil Code. It is no obstacle to
this order to render accounts that a sum of money has been adjudged
to the plaintiffs, or that the defendants' counterclaim has been
dismissed. Both the claim of said sum of the counterclaim are
questioned raised and submitted by the parties to the court, which, in
view of the evidence, had no decide and did in fact decide, and it has
not been shown that they represent all the transactions between the
parties or all the operations of the agency.

The appeal being without merit, we affirm the judgment appealed

from, with cost against the defendants. So ordered.

Johnson, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ., concur.

EN BANC
[G.R. No. L-9572. July 31, 1956.]JOAQUIN GUZMAN, Petitioner, vs.
THE HONORABLE COURT OF APPEALS, Respondent.

DECISION
REYES, J.B.L., J.:

Appeal by certiorari from the decision of the Court of Appeals finding

Appellant Joaquin Guzman guilty of the crime of qualified theft.

The facts, as found by the

follows:chanroblesvirtuallawlibrary

Court

of

Appeals,

are

as

That accused Joaquin Guzman was a travelling sales agent of the New
Life Commercial of Aparri, Cagayan. On March 2, 1903, Guzman left
Manila with 45 cases of different assortments of La Tondea wine, in a
truck driven by Andres Buenaventura, with Federico Cabacungan as
washing (helper), on their return trip to Aparri, by way of Ilocos Norte.
Along the route, the accused made various cash sales of wine and
when they reached Ballesteros, Cagayan, at about 3 oclock in the
afternoon of March 5, 1953, said accused had in his possession the
amount of P4,873.62. Here, they parked their truck at the Sambrano
Station and the accused left his companions until supper time at past
7:chanroblesvirtuallawlibrary00 p.m. When they retired for the night,
driver Buenaventura and the accused occupied the drivers
compartment of the truck, Buenaventura lying on the drivers seat and
the accused taking the upper deck with which the truck was provided
(see photograph Exhibit A). The washing, Cabacungan, slept in the body
of the truck where the wines were kept. There was a wall between the
body of the truck and the drivers compartment; chan
roblesvirtualawlibraryand on that night all the windows were locked
from inside. In the morning of March 6, 1953, accused Guzman told the
driver that he lost the amount of P2,840.50, and his firearm license.
Upon the advice of the driver, said accused reported the matter to the
Chief of Police of Ballesteros, who gave him a certificate of loss of his

24

firearm license. They were proceeding to their home journey when, at

the outskirts of Ballesteros, they were met by a tax collector and
policeman Mariano David who told the accused to return to Ballesteros
and execute an affidavit regarding the alleged theft. Before the
accused returned to Ballesteros, he entrusted to the driver
Buenaventura, the amount of P1,630 in cash and a check for P403.12
under the proper receipt (Exhibit C), with the sales invoices, for
delivery to the manager, Enrique Go, of the company of Aparri. Driver
and washing continued the trip and arrived at Aparri between 3 and 4
oclock in the afternoon of the same day. The driver delivered the
money and invoices to Enrique Go and informed the latter of the loss.
Go reported the matter to the Philippine Constabulary. The PC
investigators and Go picked the accused at his house at Aparri at 8
oclock in the morning, on March 7, 1953, after having failed to see him
(accused) at Ballesteros the previous night. Questioned at the PC
barracks as to how much money he still had, the accused stated that he
had only P3, in his person. On March 10, 1953, the accused wrote to
Go, requesting him to defer the filing of the criminal complaint until
March 16, 1953, on which date he promised to refund the amount lost
(Exhibit G). On March 17, 1953, the said accused paid the amount of
P1,500 to Go. On April 1, 1953, the accused was prosecuted for theft
for the shortage of P804.70. (Appellants Brief, pp. 13-15.)

Appellant Guzman claims, first, that under the above findings of fact,
he had committed only the crime of estafa; chan
roblesvirtualawlibraryand second, as the crimes of estafa and theft are
essentially different offenses, he should be acquitted of the present
charge for qualified theft, although proceedings may be filed anew
against him for the proper offense.

We agree with Appellant that under the above facts, the Court of
Appeals erred in holding that he had only the material or physical
possession of the said merchandise or its proceeds, because he was
not the owner thereof; chan roblesvirtualawlibraryhe was simply
holding the money for and in behalf of his employer.

While it is true that Appellant received the proceeds of his wine sales
as travelling salesman for the complainant, for and in behalf of the

latter as his principal, and that possession of the agent is possession of

the principal, an agent, unlike a servant or messenger, has both the
physical and juridical possession of the goods received in agency, or
the proceeds thereof, which takes the place of the goods after their
sale by the agent. His duty to turn over the proceeds of the agency
depends upon his discharge, as well as the result of the accounting
between him and the principal; chan roblesvirtualawlibraryand he may
set up his right of possession as against that of the principal until the
agency is terminated.

Phil., 682; chan roblesvirtualawlibraryPeople vs. Leachon, 56 Phil.,

737).

The case cited by the Court of Appeals (People vs. Locson, 57 Phil.,
325), in support of its theory that Appellant only had the material
possession of the merchandise he was selling for his principal, or their
proceeds, is not in point. In said case, the receiving teller of a bank who
misappropriated money received by him for the bank, was held guilty
of qualified theft on the theory that the possession of the teller is the
possession of the bank. There is an essential distinction between the
possession by a receiving teller of funds received from third persons
paid to the bank, and an agent who receives the proceeds of sales of
merchandise delivered to him in agency by his principal. In the former
case, payment by third persons to the teller is payment to the bank
itself; chan roblesvirtualawlibrarythe teller is a mere custodian or
keeper of the funds received, and has no independent right or title to
retain or possess the same as against the bank. An agent, on the other
hand, can even assert, as against his own principal, an independent,
autonomous, right to retain the money or goods received in
consequence of the agency; chan roblesvirtualawlibraryas when the
principal fails to reimburse him for advances he has made, and
indemnify him for damages suffered without his fault (Article 1915,
new Civil Code; chan roblesvirtualawlibraryArticle 1730, old).

The undersigned accuses Joaquin Guzman of the crime of Qualified

Theft, defined and penalized under Articles 308 and 309, No. 3 in
connection with Article 310 of the Revised Penal Code, as amended by
Commonwealth Acts Nos. 273 and 417 and Republic Act No. 120,
committed as follows:chanroblesvirtuallawlibrary.

As Appellant converted to his own use proceeds of sales of

merchandise delivered to him as agent, which he received in trust for
and under obligation to deliver and turn over to his principal, he is
guilty of the crime of estafa as defined by Article 315, paragraph 1,
subparagraph (c), of the Revised Penal Code. This has been the
consistent ruling of this Court in cases where a sales agent
misappropriates or fails to turn over to his principal proceeds of things
or goods he was commissioned or authorized to sell for the latter. (U.
S. vs. Reyes, 36 Phil., 791; chan roblesvirtualawlibraryU. S. vs. Lim, 36

The next question is whether the present information for qualified

theft alleges sufficient facts to sustain a conviction for estafa under
Article 315, paragraph 1, subparagraph (b), of the Revised Penal Code.
The information reads:chanroblesvirtuallawlibrary

That on or about the 6th day of March, 1953, in the municipality of

Aparri, province of Cagayan, and within the jurisdiction of this
Honorable Court, the said accused Joaquin Guzman, while in the
employ of Enrique Go and with grave abuse of confidence did then and
there, willfully, unlawfully, and feloniously, with intent to gain but
without violence against or intimidation of persons nor force upon
things, without the consent of the owner Enrique Go alias Ngo Yat,
take and carry away for his personal use and benefit the sum of eight
hundred four pesos and seventy centavos (P804.70) to the damages
and prejudice of said Enrique Go alias Ngo Yat, in the amount of
P804.70. (Original Records p. 22.)

Article 315, paragraph 1, subparagraph (b), on the other hand,

provides:chanroblesvirtuallawlibrary

Swindling (estafa). Any person who shall defraud another by any of

the means mentioned hereinbelow shall be punished
by:chanroblesvirtuallawlibrary

25

xxx

xxx

xxx

Republic of the Philippines

Co., Ltd., for ....................................................................... P12,000

SUPREME COURT
(2)
With
unfaithfulness
namely:chanroblesvirtuallawlibrary

or

abuse

of

confidence,

Manila

Policy No. 4382, issued by The China Fire Insurance

EN BANC

Co., Ltd., for .......................................................................... 15,000

G.R. No. 16492

xxx

xxx

March 9, 1922

xxx

(b) By misappropriating or converting, to the prejudice of another,

money, goods, or any other personal property received by the offender
in trust or on commission, or for administration, or under any other
obligation involving, the duty to make delivery of, or to return the
same, even though such obligation be totally or partially guaranteed by
a bond; chan roblesvirtualawlibraryor by denying having received such
money, good, or other property;

E. MACIAS & CO., importers and exporters, plaintiff-appellant,

Policy No. 326, issued by The Yang-Tsze Insurance

vs.

Ass'n., Ltd., for ..................................................................... 10,000

WARNER, BARNES & CO., in its capacity as agents of "The China Fire
Insurance Co.," of "The Yang-Tsze" and of "The State Assurance Co.,
Ltd.," defendant-appellant.

Policy No. 796111, issued by The State Assurance

Co., Ltd., for ............................................................................ 8,000

Ramon Sotelo for plaintiff-appellant.

Cohn, Fisher & DeWitt for defendant-appellant.

Under the above definition of estafa, it is an essential element of the

crime that the money or goods misappropriated or converted by the
accused to the prejudice of another was received by him in trust or on
commission, or for administration, or under any other obligation
involving the duty to make delivery of, or to retain the same. No such
allegation appears in the above information. Consequently, we agree
with Appellant that he cannot be convicted thereunder of the crime of
estafa as defined by the article above.

Wherefore, the decision appealed from is reversed, and Appellant

Joaquin Guzman acquitted of the crime of qualified theft. Appellant
should, however, be held in custody pending the filing of another
information against him for estafa under Article 315, paragraph 1,
subparagraph (b), of the Revised Penal Code. Without costs in this
instance. SO ORDERED.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo,

Labrador, Concepcion, Endencia, and Felix, JJ., concur.

STATEMENT

The plaintiff is a corporation duly registered and domiciled in Manila.

The defendant is a corporation duly licensed to do business in the
Philippine Islands, and is the resident agent of insurance companies
"The China Fire Insurance Company, Limited, of Hongkong," "The YangTsze Insurance Association Limited, of Shanghai," and "The State
Assurance Company, Limited, of Liverpool. The plaintiff is an importer
of textures and commercial articles for wholesale.

In the ordinary course of business, it applied for, and obtained, the

following policies against loss by fire:

Policy No. 4143, issued by The China Fire Insurance

Policy No. 4143, of P12,000, recites that Mrs. Rosario Vizcarra, having
paid to the China Fire Insurance Company, Limited, P102 for insuring
against or damage by fire certain merchandise the description of which
follows, "the company agrees with the insured that, if the property
above described, or any party thereof, shall be destroyed or damaged
by fire between September 16, 1918, and September 16, 1919," etc.,
"The company will, out of its capital, stock and funds, pay or make
good all such loss or damage, not exceeding" the amount of the policy.
This policy was later duly assigned to the plaintiff.

Policy No. 4382, for P15,000, was issued by the same company to, and
in the name of, plaintiff.

Policy No. 326, for P10,000, was issued to, and in the name of policy
No. 326, for P10,000, was issued to, and in the name of the plaintiff by
The Yang-Tsze Insurance Association, Limited, and recites that the
premium of P125 was paid by the plaintiff to the association, and that,
in the event of loss by fire between certain dates, "the funds and
property of the said association shall be subject and liable to pay,

26

reinstate, or make good to the said assured, their heirs, executors, or

administrators, such loss or damage as shall be occasioned by fire to
the property above-mentioned and hereby insured," not exceeding the
amount of the policy.

Policy No. 796111, for P8,000, was issued by The States Assurance
Company, Limited, to the plaintiff for a premium of P100, which was
paid to the Assurance Company through the defendant, its authorized
agent, and recites that "the company agrees with the insured that in
the event of loss by fire between certain dates, the company will, out
of its capital, stock and funds, pay the amount of such loss or damage,"
not exceeding the amount of the policy, and it is attested by the
defendant, through its "Cashier and Accountant and Manager, Agents,
State Assurance Co., Ltd.," authorized agents of the Assurance
Company.

Policy No. 4143 is attested "on behalf of The China Fire Insurance
Company, Limited," by the cashier and accountant and manager of the
defendant, as agents of The China Fire Insurance Company, Limited.
The same is true as to policy no. 4382.

Policy No. 326 recites the payment of a premium of P125 by the

plaintiff to The Yang-Tsze Insurance Association, Limited, and that, in
the event of loss, "the funds and property of the said association shall
be subject and liable to pay, reinstate, or make good to the said
assured, their heirs, executors, or administrators, such loss or damage
as shall be occasioned by fire or lightning to the property" insured, not
exceeding the amount of the policy, and it is attested by the
defendant, through its cashier and accountant and manager, as agents
of the association "under the authority of a Power of Attorney from
The Yang-Tsze Insurance Association, Limited," "to sign, for and on
behalf of the said Association, etc."

March 25, 1919, and while the policies were in force, a loss occurred in
which the insured property was more or less damaged by fire and the
use of water resulting from the fire.

The plaintiff made a claim for damages under its policies, but could not
agree as to the amount of loss sustained. It sold the insured property in
its then damaged condition, and brought this action against Warner,
Barnes & Co., in its capacity as agents, to recover the difference
between the amount of the policies and the amount realized from the
sale of the property, and in the first cause of action, it prayed for
judgment for P23,052.99, and in the second cause of action P9,857.15.

The numbers and amounts of the policies and the names of the
insurance companies are set forth and alleged in the complaint.

The answer admits that the defendants is the resident agent of the
insurance companies, the issuance of the policies, and that a fire
occurred on March 25, 1919, in the building in which the goods
covered by the insurance policies were stored, and that to extinguish
the fire three packages of goods were damage by water not to exceed
P500, and denies generally all other material allegations of the
complaint.

As a further and separate defense, the defendant pleads certain

provisions in the policies, among which was a written notice of loss,
and all other insurance and certain detailed information. It is then
alleged

That although frequently requested to do so, plaintiff failed and

refused to deliver to defendant or to any other person authorized to
receive it, any claim in writing specifying the articles or items of
property damaged or destroyed and of the alleged amount of the loss
or damage caused thereto.

That defendant was at all times ready and willing to pay, on behalf of
the insurance companies by whom said policies were issued, and to the
extent for which each was proportionately liable, the actual damage to

plaintiff's goods covered by the risks insured against, upon compliance

within the time limited, with the terms of the clause of the contracts of
insurance above set forth.

Defendants prays judgment for costs.

Before the trial, counsel for the defendant objected to the introduction
of any evidence in the case, and moved "that judgment be entered for
the defendant on the pleadings upon the ground that it appears from
the averment of the complaint that the plaintiff has had no contractual
relations with the defendant, and that the action has not been brought
against the real party in interest." The objection and motion was
overruled and exception duly taken. After trial the court found that
there was due the plaintiff from the three insurance companies
p18,493.29 with interest thereon at the rate of 6 per cent per annum,
from the date of the commencement of the action, and costs, and
rendered the following judgment:

It is, therefore, ordered that judgment be entered against Warner,

Barnes & Co., Ltd., in its capacity as agent and representative in the
Philippine Islands for The China fire Insurance Company, Ltd., The YangTsze Insurance Association, Ltd., and The State Assurance Co., Ltd., for
the payment to the plaintiff, E. Macias & Co., of the sum of P18,493.29,
the amount of this judgment to be prorated by Warner, Barnes & Co.,
among the three insurance companies above-mentioned by it
represented, in proportion to the interest insured by each of said three
insurance companies, according to the policies issued by them in favor
of the plaintiff, and sued upon in this action.

The defendant then filed a motion to set aside the judgment and for a
new trial, which was overruled and exception taken. From this
judgment the defendant appealed, claiming that "the court erred in
overruling defendant's motion for judgment on the pleadings; that the
court erred in giving judgment for the plaintiff; that the court erred in
denying defendants motion for a new trial," and specifying other
assignments which are not material to this opinion, Plaintiff also
appealed.

27

JOHNS, J.:

The material facts are not in dispute it must be conceded that the
policies in question were issued by the different insurance companies,
through the defendant as their respective agent; that they were issued
in consideration of a premium which was paid by the insured to the
respective companies for the amount of the policies, as alleged; that
the defendant was, and is now, the resident agent in Manila of the
companies, and was authorized to solicit and do business for them as
such agent; that each company is a foreign corporation. The principal
office and place business of the The China Fire Insurance Company is at
Hongkong; of The Yang-Tsze Insurance Association is at Shanghai; and
of The State Assurance Company is at Liverpool. As such foreign
corporations they were duly authorized and licensed to do insurance
business in the Philippine Islands, and, to that end and for that
purpose, the defendant corporation, Warner, Barnes & Co., was the
agent of each company.

All of the policies are in writing, and recite that the premium was paid
by the insured to the insurance company which issued the policy, and
that, in the event of a loss, the insurance company which issued it will
pay to the insured the amount of the policy.

This is not a case of an undisclosed agent or an undisclosed principal. It

is a case of a disclosed agent and a disclosed principal.

The policies on their face shows that the defendant was the agent of
the respective companies, and that it was acting as such agent in
dealing with the plaintiff. That in the issuance and delivery of the
policies, the defendant was doing business in the name of, acting for,
and representing, the respective insurance companies. The different

policies expressly recite that, in the event of a loss, the respective

companies agree to compensate the plaintiff for the amount of the
loss. the defendant company did not insure the property of the
plaintiff, or in any manner agree to pay the plaintiff the amount of any
loss. There is no contract of any kind. either oral or written, between
the plaintiff and Warner, Barnes & Co. Plaintiff's contracts are with the
insurance companies, and are in writing, and the premiums were paid
to the insurance companies, and are in writing, and the premiums were
paid to the insurance companies and the policies were issued by, and
in the name of, the insurance companies, and on the face of the policy
itself, the plaintiff knew that the defendant was acting as agent for,
and was representing, the respective insurance companies in the
issuance and deliver of the policies. The defendant company did not
contract or agree to do anything or to pay the plaintiff any money at
any time or on any condition, either as agent or principal.

There is a very important distinction between the power and duties of

a resident insurance agent of a foreign company and that of an
executor, administrator, or receiver. An insurance agent as such is not
responsible for, and does not have, any control over the corpus or
estate of the corporate property, as does an executor, administrator,
or receiver. Subject only to the order of the court, such officers are
legal custodians and have actual possession of the corporate property.
It is under their control and within their jurisdiction.

As stated by counsel for Warner, Barnes & Co., an attorney of record

for an insurance company has greater power and authority to act for,
and bind, the company than does a soliciting agent of an insurance
company. Yet, no attorney would contend that a personal action would
lie against local attorneys who represent a foreign corporation to
recover on a contract made by the corporation. On the same principles
by which plaintiff seeks to recover from the defendant, an action could
be maintained against the cashier of any bank on every foreign draft
which he signed for, and on behalf of, the bank.

Every cause of action ex contractu must be founded upon a contract,

oral or written, either express or implied.

Warner, Barnes & Co., as principal or agent, did not make any contract,
either or written, with the plaintiff. The contracts were made between
the respective insurance companies and the insured, and were made
by the insurance companies, through Warner, Barnes & Co., as their
agent.

As in the case of a bank draft, it is not the cashier of the bank who
makes the contract to pay the money evidenced by the draft, it is the
bank, acting through its cashier, that makes the contract. So, in the
instant case, it was the insurance companies, acting through Warner,
Barnes & Co., as their agent, that made the written contracts wit the
insured.

The trial court attached much importance to the fact that in the further
and separate answer, an admission was made "that defendant was at
all times ready and will not to pay, on behalf of the insurance
companies by whom each was proportionately liable, the actual
damage" sustained by the plaintiff covered by the policies upon the
terms and conditions therein stated.

When analyzed, that is nothing more than a statement that the

companies were ready and willing to prorate the amount when the
losses were legally ascertained. Again, there is not claim or pretense
that Warner, Barnes & Co. had any authority to act for, and represent
the insurance companies in the pending action, or to appear for them
or make any admission which would bind them. As a local agent, it
could not do that without express authority. That power could only
exercised by an executive officer of the company, or a person who was
duly authorized to act for, and represent, the company in legal
proceedings, and there is no claim or pretense, either express or
implied, that the defendant has any such authority.

Plaintiff's cause of action, if any, is direct against the insurance

companies that issued the policies and agreed to pay the losses.

28

The only defendant in the instant case is "Warner, Barnes & Co., in its
capacity as agents of:" the insurance companies. Warner, Barnes & Co.
did not make any contract with the plaintiff, and are not liable to the
plaintiff on any contract, either as principal or agent. For such reason,
plaintiff is not entitled to recover its losses from Warner, Barnes & Co.,
either as principal or agent. There is no breach of any contract with the
plaintiff by Warners, Barnes & Co., either as agent or principal, for the
simple reason that Warner, Barnes & Co., as agent or principal, never
made any contract, oral or written, with the plaintiff. This defense was
promptly raised before the taking of the testimony, and again renewed
on the motion to set aside the judgment.

. . . and in case the sheriff or attaching officer is sued for damages as a

result of the attachment. . . .
BENGZON, J.:

This action for damages against Deputy Sheriff Jose S. Dineros was
dismissed by Hon. Pantaleon Pelayo, Judge of Iloilo, on the ground that
it is the Sheriff who is responsible, if at all not this deputy.

Such decision resulted from a motion for judgment on the pleadings.

The facts are short and simple:
Plaintiff's own evidence shows that any cause of action it may have is
against the insurance companies which issued the policies.

The complaint is dismissed, and the judgment of the lower court is

reversed, and one will be entered here in favor of Warner, Barnes &
Co., Ltd., against the plaintiff, for costs in both this and the lower court.
So ordered.

Pursuant to a writ of execution issued in Civil Case No. 1062 entitled

"Rosario Suero vs. Jose Morata" Jose S. Dineros as Deputy Sheriff and
in the name of the Sheriff sold at public auction to Jose Bermejo and
Rosario Suero the property attached therein, disregarding the thirdparty claim of Loreto Lorca (herein Plaintiff) who asserted ownership
over said property. This suit for damages is the result of said auction
sale. Defendant, in his answer, denied liability, pointing out, that he
had merely acted for and on behalf of Provincial Sheriff, Cipriano
Cabaluna.

Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand

and Romualdez, JJ., concur.
Republic of the Philippines
SUPREME COURT

The appellant insists here that Dineros was responsible in view of sec.
334 of the Revised Administrative Code and sec. 15, Rule 39, Rules of
Court, which provides as follows:

Manila
EN BANC
G.R. No. L-10919

February 28, 1958

LORETO LORCA, plaintiff-appellant, vs.

JOSE S. DINEROS, defendant-appellee.
Pedro B. Puya for appellant.Manuel F. Zamora for appellee.

SEC. 334 Right of Bonded Officer to require Bond from Deputy or

assistant. A sheriff or other accountable official may require any of
his deputies or assistants, not bonded in the fidelity fund, to give an
adequate personal bond as security against loss by reason of any
wrong doing on the part of such deputy or assistant. The taking of such
security shall in no wise impair the independent civil liability of any of
the parties.

In the light of section 330 of the Administrative Code we think the

above provisions apply where the deputy acts in his own name or is
guilty of active malfeasance1 or possibly where he exceeds the limits of
his agency. In this case it is clear from the certificate of sale attached to
the complaint as Annex C that Dineros acted all the time in the name of
the Ex-Officio Provincial Sheriff of Iloilo; and no allegations of
misfeasance are made. The Sheriff is liable to third persons on the acts
of his deputy,2 in the same manner that the principal is responsible for
the acts of his agent, that is why he is required to post a bond for "the
benefit of whom it may concern," (Section 330, Revised Administrative
Code) for instance the owners of property unlawfully sold by him on
execution.3

The complaint should not have been dismissed, appellant argues, since
the court could have included the Sheriff as party defendant, in line
with Rule 3, section 11 of the Rules of Court. However, what should
have been done was not "inclusion" as plaintiff asked, nor "exclusion"
under said section 11. It was "substitution" of the deputy by the
Sheriff. Anyway, the word "may" in said see. 11 implies direction of the
court; and we are shown no reasons indicating abuse thereof.

This is not the first time an action is dismissed for the reason that the
agent instead of his principal was made the party defendant. (See
Macias & Co. vs. Warner Barnes, 43 Phil., 155; Banque Generate Belge
vs. Walter Bull & Co., 84 Phil., 164, 47 Off. Gaz., 138.)

Judgment affirmed, with costs against appellant.

Paras, C.J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador,

Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.

29

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 137162

January 24, 2007

CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA,

IGNACIO E. RUBIO, THE HEIRS OF LUZ R. BALOLOY, namely,
ALEJANDRINO R. BALOLOY and BAYANI R. BALOLOY, Petitioners, vs.
RUFINA LIM, Respondent.

DECISION

[and] the heirs of Luz Baloloy, namely: Alejandrino, Bayani, and other
co-heirs; that said vendors executed a contract of sale dated April 10,
1990 in her favor; that Ignacio Rubio and the heirs of Luz Baloloy
received [a down payment] or earnest money in the amount of
P102,169.86 and P450,000, respectively; that it was agreed in the
contract of sale that the vendors would secure certificates of title
covering their respective hereditary shares; that the balance of the
purchase price would be paid to each heir upon presentation of their
individual certificate[s] of [title]; that Ignacio Rubio refused to receive
the other half of the down payment which is P[100,000]; that Ignacio
Rubio refused and still refuses to deliver to [respondent] the
certificates of title covering his share on the two lots; that with respect
to the heirs of Luz Baloloy, they also refused and still refuse to perform
the delivery of the two certificates of title covering their share in the
disputed lots; that respondent was and is ready and willing to pay
Ignacio Rubio and the heirs of Luz Baloloy upon presentation of their
individual certificates of title, free from whatever lien and
encumbrance;

AZCUNA, J.:

This is an appeal by certiorari1 to annul and set aside the Decision and
Resolution of the Court of Appeals (CA) dated October 26, 1998 and
January 11, 1999, respectively, in CA-G.R. CV No. 48282, entitled
"Rufina Lim v. Corazon L. Escueta, etc., et. al."

As to petitioner Corazon Escueta, in spite of her knowledge that the

disputed lots have already been sold by Ignacio Rubio to respondent, it
is alleged that a simulated deed of sale involving said lots was effected
by Ignacio Rubio in her favor; and that the simulated deed of sale by
Rubio to Escueta has raised doubts and clouds over respondents title.

In their separate amended answers, petitioners denied the material

allegations of the complaint and alleged inter alia the following:
The facts2 appear as follows:

For the heirs of Luz Baloloy (Baloloys for brevity):

Respondent Rufina Lim filed an action to remove cloud on, or quiet
title to, real property, with preliminary injunction and issuance of [a
hold-departure order] from the Philippines against Ignacio E. Rubio.
Respondent amended her complaint to include specific performance
and damages.

Respondent has no cause of action, because the subject contract of

sale has no more force and effect as far as the Baloloys are concerned,
since they have withdrawn their offer to sell for the reason that
respondent failed to pay the balance of the purchase price as orally
promised on or before May 1, 1990.

For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta
(Escueta for brevity):

Respondent has no cause of action, because Rubio has not entered into
a contract of sale with her; that he has appointed his daughter Patricia
Llamas to be his attorney-in-fact and not in favor of Virginia Rubio
Laygo Lim (Lim for brevity) who was the one who represented him in
the sale of the disputed lots in favor of respondent; that the P100,000
respondent claimed he received as down payment for the lots is a
simple transaction by way of a loan with Lim.

The Baloloys failed to appear at the pre-trial. Upon motion of

respondent, the trial court declared the Baloloys in default. They then
filed a motion to lift the order declaring them in default, which was
denied by the trial court in an order dated November 27, 1991.
Consequently, respondent was allowed to adduce evidence ex parte.
Thereafter, the trial court rendered a partial decision dated July 23,
1993 against the Baloloys, the dispositive portion of which reads as
follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of

[respondent] and against [petitioners, heirs] of Luz R. Balolo[y],
namely: Alejandrino Baloloy and Bayani Baloloy. The [petitioners]
Alejandrino Baloloy and Bayani Baloloy are ordered to immediately
execute an [Absolute] Deed of Sale over their hereditary share in the
properties covered by TCT No. 74392 and TCT No. 74394, after
payment to them by [respondent] the amount of P[1,050,000] or
consignation of said amount in Court. [For] failure of [petitioners]
Alejandrino Baloloy and Bayani Baloloy to execute the Absolute Deed
of Sale over their hereditary share in the property covered by TCT No.
T-74392 and TCT No. T-74394 in favor of [respondent], the Clerk of
Court is ordered to execute the necessary Absolute Deed of Sale in
behalf of the Baloloys in favor of [respondent,] with a consideration of
P[1,500,000]. Further[,] [petitioners] Alejandrino Baloloy and Bayani
Baloloy are ordered to jointly and severally pay [respondent] moral
damages in the amount of P*50,000+ and P*20,000+ for attorneys fees.
The adverse claim annotated at the back of TCT No. T-74392 and TCT

In her amended complaint, respondent averred inter alia that she

bought the hereditary shares (consisting of 10 lots) of Ignacio Rubio

30

No. T-74394[,] insofar as the shares of Alejandrino Baloloy and Bayani

Baloloy are concerned[,] [is] ordered cancelled.

SO ORDERED.5
WHEREFORE, upon all the foregoing premises considered, this Court
rules:
Petitioners Motion for Reconsideration of the CA Decision was denied.
Hence, this petition.

With costs against [petitioners] Alejandrino Baloloy and Bayani Baloloy.

SO ORDERED.3

The Baloloys filed a petition for relief from judgment and order dated
July 4, 1994 and supplemental petition dated July 7, 1994. This was
denied by the trial court in an order dated September 16, 1994. Hence,
appeal to the Court of Appeals was taken challenging the order
denying the petition for relief.

1. the appeal of the Baloloys from the Order denying the Petition for
Relief from Judgment and Orders dated July 4, 1994 and Supplemental
Petition dated July 7, 1994 is DISMISSED. The Order appealed from is
AFFIRMED.

The issues are:

I
2. the Decision dismissing *respondents+ complaint is REVERSED and
SET ASIDE and a new one is entered. Accordingly,
THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION
FOR RELIEF FROM JUDGMENT FILED BY THE BALOLOYS.
a. the validity of the subject contract of sale in favor of [respondent] is
upheld.

Trial on the merits ensued between respondent and Rubio and

Escueta. After trial, the trial court rendered its assailed Decision, as
follows:

IN VIEW OF THE FOREGOING, the complaint [and] amended complaint

are dismissed against [petitioners] Corazon L. Escueta, Ignacio E.
Rubio[,] and the Register of Deeds. The counterclaim of [petitioners]
[is] also dismissed. However, [petitioner] Ignacio E. Rubio is ordered to
return to the [respondent], Rufina Lim[,] the amount of P102,169.80[,]
with interest at the rate of six percent (6%) per annum from April 10,
[1990] until the same is fully paid. Without pronouncement as to costs.

SO ORDERED.4

On appeal, the CA affirmed the trial courts order and partial decision,
but reversed the later decision. The dispositive portion of its assailed
Decision reads:

II
b. Rubio is directed to execute a Deed of Absolute Sale conditioned
upon the payment of the balance of the purchase price by
[respondent] within 30 days from the receipt of the entry of judgment
of this Decision.

c. the contracts of sale between Rubio and Escueta involving Rubios

share in the disputed properties is declared NULL and VOID.

THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE

COMPLAINT AND IN AWARDING MORAL DAMAGES AND ATTORNEYS
FEES IN FAVOR OF RESPONDENT RUFINA L. LIM CONSIDERING THAT:

A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE

BETWEEN VIRGINIA LAYGO-LIM AND RUFINA LIM.

d. Rubio and Escueta are ordered to pay jointly and severally the
[respondent] the amount of P[20,000] as moral damages and P[20,000]
as attorneys fees.

B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA

LAYGO-LIM IS A CONTRACT TO SELL AND NOT A CONTRACT OF SALE.

3. the appeal of Rubio and Escueta on the denial of their counterclaim

is DISMISSED.

C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER

OBLIGATIONS UNDER THE CONTRACT TO SELL THEREBY WARRANTING
THE CANCELLATION THEREOF.

31

D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING

INTO THE CONTRACT OF SALE WITH IGNACIO E. RUBIO.

signature appearing on the "Joint Special Power of Attorney," which

constituted Virginia as her true and lawful attorney-in-fact in selling
Rubios properties.

III
THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND
CORAZON L. ESCUETA IS VALID.

Dealing with an assumed agent, respondent should ascertain not only

the fact of agency, but also the nature and extent of the formers
authority. Besides, Virginia exceeded the authority for failing to comply
with her obligations under the "Joint Special Power of Attorney."

IV
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING
PETITIONERS COUNTERCLAIMS.
Briefly, the issue is whether the contract of sale between petitioners
and respondent is valid.

The amount encashed by Rubio represented not the down payment,

but the payment of respondents debt. His acceptance and encashment
of the check was not a ratification of the contract of sale.

Petitioners argue, as follows:

First, the CA did not consider the circumstances surrounding
petitioners failure to appear at the pre-trial and to file the petition for
relief on time.

As to the failure to appear at the pre-trial, there was fraud, accident

and/or excusable neglect, because petitioner Bayani was in the United
States. There was no service of the notice of pre-trial or order. Neither
did the former counsel of record inform him. Consequently, the order
declaring him in default is void, and all subsequent proceedings,
orders, or decision are void.

Furthermore, petitioner Alejandrino was not clothed with a power of

attorney to appear on behalf of Bayani at the pre-trial conference.

Second, the sale by Virginia to respondent is not binding. Petitioner

Rubio did not authorize Virginia to transact business in his behalf
pertaining to the property. The Special Power of Attorney was
constituted in favor of Llamas, and the latter was not empowered to
designate a substitute attorney-in-fact. Llamas even disowned her

Third, the contract between respondent and Virginia is a contract to

sell, not a contract of sale. The real character of the contract is not the
title given, but the intention of the parties. They intended to reserve
ownership of the property to petitioners pending full payment of the
purchase price. Together with taxes and other fees due on the
properties, these are conditions precedent for the perfection of the
sale. Even assuming that the contract is ambiguous, the same must be
resolved against respondent, the party who caused the same.

Fourth, Respondent failed to faithfully fulfill her part of the obligation.

Thus, Rubio had the right to sell his properties to Escueta who
exercised due diligence in ascertaining ownership of the properties
sold to her. Besides, a purchaser need not inquire beyond what
appears in a Torrens title.

The petition lacks merit. The contract of sale between petitioners and
respondent is valid.lawphil.net

Bayani Baloloy was represented by his attorney-in-fact, Alejandrino

Baloloy. In the Baloloys answer to the original complaint and amended

complaint, the allegations relating to the personal circumstances of the

Baloloys are clearly admitted.

"An admission, verbal or written, made by a party in the course of the

proceedings in the same case, does not require proof."6 The "factual
admission in the pleadings on record [dispenses] with the need x x x to
present evidence to prove the admitted fact."7 It cannot, therefore,
"be controverted by the party making such admission, and [is]
conclusive"8 as to them. All proofs submitted by them "contrary
thereto or inconsistent therewith should be ignored whether objection
is interposed by a party or not."9 Besides, there is no showing that a
palpable mistake has been committed in their admission or that no
admission has been made by them.

Pre-trial is mandatory.10 The notices of pre-trial had been sent to both

the Baloloys and their former counsel of record. Being served with
notice, he is "charged with the duty of notifying the party represented
by him."11 He must "see to it that his client receives such notice and
attends the pre-trial."12 What the Baloloys and their former counsel
have alleged instead in their Motion to Lift Order of As In Default dated
December 11, 1991 is the belated receipt of Bayani Baloloys special
power of attorney in favor of their former counsel, not that they have
not received the notice or been informed of the scheduled pre-trial.
Not having raised the ground of lack of a special power of attorney in
their motion, they are now deemed to have waived it. Certainly, they
cannot raise it at this late stage of the proceedings. For lack of
representation, Bayani Baloloy was properly declared in default.

Section 3 of Rule 38 of the Rules of Court states:

SEC. 3. Time for filing petition; contents and verification. A petition

provided for in either of the preceding sections of this Rule must be
verified, filed within sixty (60) days after the petitioner learns of the
judgment, final order, or other proceeding to be set aside, and not
more than six (6) months after such judgment or final order was
entered, or such proceeding was taken; and must be accompanied with
affidavits showing the fraud, accident, mistake, or excusable negligence

32

relied upon, and the facts constituting the petitioners good and
substantial cause of action or defense, as the case may be.

There is no reason for the Baloloys to ignore the effects of the abovecited rule. "The 60-day period is reckoned from the time the party
acquired knowledge of the order, judgment or proceedings and not
from the date he actually read the same."13 As aptly put by the
appellate court:

which ordinary prudence could not have guarded against, and by

reason of which the party applying has probably been impaired in his
rights."16 There is also no proof of either a "mistake x x x of law"17 or
an excusable negligence "caused by failure to receive notice of x x x the
trial x x x that it would not be necessary for him to take an active part
in the case x x x by relying on another person to attend to the case for
him, when such other person x x x was chargeable with that duty x x x,
or by other circumstances not involving fault of the moving party."18

Article 1892 of the Civil Code provides:

The evidence on record as far as this issue is concerned shows that
Atty. Arsenio Villalon, Jr., the former counsel of record of the Baloloys
received a copy of the partial decision dated June 23, 1993 on April 5,
1994. At that time, said former counsel is still their counsel of record.
The reckoning of the 60 day period therefore is the date when the said
counsel of record received a copy of the partial decision which was on
April 5, 1994. The petition for relief was filed by the new counsel on
July 4, 1994 which means that 90 days have already lapsed or 30 days
beyond the 60 day period. Moreover, the records further show that the
Baloloys received the partial decision on September 13, 1993 as
evidenced by Registry return cards which bear the numbers 02597 and
02598 signed by Mr. Alejandrino Baloloy.

The Baloloys[,] apparently in an attempt to cure the lapse of the

aforesaid reglementary period to file a petition for relief from
judgment[,] included in its petition the two Orders dated May 6, 1994
and June 29, 1994. The first Order denied Baloloys motion to fix the
period within which plaintiffs-appellants pay the balance of the
purchase price. The second Order refers to the grant of partial
execution, i.e. on the aspect of damages. These Orders are only
consequences of the partial decision subject of the petition for relief,
and thus, cannot be considered in the determination of the
reglementary period within which to file the said petition for relief.

Furthermore, no fraud, accident, mistake, or excusable negligence

exists in order that the petition for relief may be granted.14 There is no
proof of extrinsic fraud that "prevents a party from having a trial x x x
or from presenting all of his case to the court"15 or an "accident x x x

Art. 1892. The agent may appoint a substitute if the principal has not
prohibited him from doing so; but he shall be responsible for the acts
of the substitute:

(1) When he was not given the power to appoint one x x x.

Applying the above-quoted provision to the special power of attorney

executed by Ignacio Rubio in favor of his daughter Patricia Llamas, it is
clear that she is not prohibited from appointing a substitute. By
authorizing Virginia Lim to sell the subject properties, Patricia merely
acted within the limits of the authority given by her father, but she will
have to be "responsible for the acts of the sub-agent,"19 among which
is precisely the sale of the subject properties in favor of respondent.

Even assuming that Virginia Lim has no authority to sell the subject
properties, the contract she executed in favor of respondent is not
void, but simply unenforceable, under the second paragraph of Article
1317 of the Civil Code which reads:

Art. 1317. x x x

A contract entered into in the name of another by one who has no

authority or legal representation, or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked
by the other contracting party.

Ignacio Rubio merely denies the contract of sale. He claims, without

substantiation, that what he received was a loan, not the down
payment for the sale of the subject properties. His acceptance and
encashment of the check, however, constitute ratification of the
contract of sale and "produce the effects of an express power of
agency."20 "[H]is action necessarily implies that he waived his right of
action to avoid the contract, and, consequently, it also implies the tacit,
if not express, confirmation of the said sale effected" by Virginia Lim in
favor of respondent.

Similarly, the Baloloys have ratified the contract of sale when they
accepted and enjoyed its benefits. "The doctrine of estoppel applicable
to petitioners here is not only that which prohibits a party from
assuming inconsistent positions, based on the principle of election, but
that which precludes him from repudiating an obligation voluntarily
assumed after having accepted benefits therefrom. To countenance
such repudiation would be contrary to equity, and would put a
premium on fraud or misrepresentation."21

Indeed, Virginia Lim and respondent have entered into a contract of

sale. Not only has the title to the subject properties passed to the latter
upon delivery of the thing sold, but there is also no stipulation in the
contract that states the ownership is to be reserved in or "retained by
the vendor until full payment of the price."22

Applying Article 1544 of the Civil Code, a second buyer of the property
who may have had actual or constructive knowledge of such defect in
the sellers title, or at least was charged with the obligation to discover
such defect, cannot be a registrant in good faith. Such second buyer
cannot defeat the first buyers title. In case a title is issued to the
second buyer, the first buyer may seek reconveyance of the property

33

subject of the sale.23 Even the argument that a purchaser need not
inquire beyond what appears in a Torrens title does not hold water. A
perusal of the certificates of title alone will reveal that the subject
properties are registered in common, not in the individual names of
the heirs.

Nothing in the contract "prevents the obligation of the vendor to

convey title from becoming effective"24 or gives "the vendor the right
to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period."25 Petitioners themselves have failed to deliver
their individual certificates of title, for which reason it is obvious that
respondent cannot be expected to pay the stipulated taxes, fees, and
expenses.

"[A]ll the elements of a valid contract of sale under Article 1458 of the
Civil Code are present, such as: (1) consent or meeting of the minds; (2)
determinate subject matter; and (3) price certain in money or its
equivalent."26 Ignacio Rubio, the Baloloys, and their co-heirs sold their
hereditary shares for a price certain to which respondent agreed to buy
and pay for the subject properties. "The offer and the acceptance are
concurrent, since the minds of the contracting parties meet in the
terms of the agreement."27

YNARES-SANTIAGO, J.:
Consequently, Ignacio Rubio could no longer sell the subject properties
to Corazon Escueta, after having sold them to respondent. "[I]n a
contract of sale, the vendor loses ownership over the property and
cannot recover it until and unless the contract is resolved or rescinded
x x x."31 The records do not show that Ignacio Rubio asked for a
rescission of the contract. What he adduced was a belated revocation
of the special power of attorney he executed in favor of Patricia
Llamas. "In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time agreed
upon the rescission of the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as long as no demand
for rescission of the contract has been made upon him either judicially
or by a notarial act."32

WHEREFORE, the petition is DENIED. The Decision and Resolution of

the Court of Appeals in CA-G.R. CV No. 48282, dated

During the period from July 1992 to September 1992, Leonida Quilatan
delivered pieces of jewelry to petitioner Virgie Serona to be sold on
commission basis. By oral agreement of the parties, petitioner shall
remit payment or return the pieces of jewelry if not sold to Quilatan,
both within 30 days from receipt of the items.

Upon petitioners failure to pay on September 24, 1992, Quilatan

required her to execute an acknowledgment receipt (Exhibit B)
indicating their agreement and the total amount due, to wit:

Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay

kumuha ng mga alahas kay Gng. Leonida Quilatan na may kabuohang
halaga na P567,750.00 para ipagbili para ako magkakomisyon at
ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing
alahas kung hindi mabibili sa loob ng 30 araw.

October 26, 1998 and January 11, 1999, respectively, are hereby
AFFIRMED. Costs against petitioners.
Las Pinas, September 24, 1992.1
SO ORDERED Republic of the Philippines

In fact, earnest money has been given by respondent. "[I]t shall be

considered as part of the price and as proof of the perfection of the
contract.28 It constitutes an advance payment to "be deducted from
the total price."29

SUPREME COURT Manila

The receipt was signed by petitioner and a witness, Rufina G.

Navarette.

FIRST DIVISION
G.R. No. 130423

Article 1477 of the same Code also states that "[t]he ownership of the
thing sold shall be transferred to the vendee upon actual or
constructive delivery thereof."30 In the present case, there is actual
delivery as manifested by acts simultaneous with and subsequent to
the contract of sale when respondent not only took possession of the
subject properties but also allowed their use as parking terminal for
jeepneys and buses. Moreover, the execution itself of the contract of
sale is constructive delivery.

VIRGIE SERONA, petitioner, vs. HON. COURT OF APPEALS and THE

PEOPLE OF THE PHILIPPINES, respondents.

Unknown to Quilatan, petitioner had earlier entrusted the jewelry to

one Marichu Labrador for the latter to sell on commission basis.
Petitioner was not able to collect payment from Labrador, which
caused her to likewise fail to pay her obligation to Quilatan.

DECISION
Subsequently, Quilatan, through counsel, sent a formal letter of
demand2 to petitioner for failure to settle her obligation. Quilatan
executed a complaint affidavit3 against petitioner before the Office of

34

the Assistant Provincial Prosecutor. Thereafter, an information for

estafa under Article 315, paragraph 1(b)4 of the Revised Penal Code
was filed against petitioner, which was raffled to Branch 255 of the
Regional Trial Court of Las Pinas. The information alleged:

That on or about and sometime during the period from July 1992 up to
September 1992, in the Municipality of Las Pinas, Metro Manila,
Philippines, and within the jurisdiction of this Honorable Court, the said
accused received in trust from the complainant Leonida E. Quilatan
various pieces of jewelry in the total value of P567,750.00 to be sold on
commission basis under the express duty and obligation of remitting
the proceeds thereof to the said complainant if sold or returning the
same to the latter if unsold but the said accused once in possession of
said various pieces of jewelry, with unfaithfulness and abuse of
confidence and with intent to defraud, did then and there willfully,
unlawfully and feloniously misappropriate and convert the same for
her own personal use and benefit and despite oral and written
demands, she failed and refused to account for said jewelry or the
proceeds of sale thereof, to the damage and prejudice of complainant
Leonida E. Quilatan in the aforestated total amount of P567,750.00.

CONTRARY TO LAW.5

Marichu Labrador who failed to pay for the same, thereby causing her
to default in paying Quilatan.10 She presented handwritten receipts
(Exhibits 1 & 2)11 evidencing payments made to Quilatan prior to the
filing of the criminal case.

Marichu Labrador confirmed that she received pieces of jewelry from

petitioner worth P441,035.00. She identified an acknowledgment
receipt (Exhibit 3)12 signed by her dated July 5, 1992 and testified that
she sold the jewelry to a person who absconded without paying her.
Labrador also explained that in the past, she too had directly
transacted with Quilatan for the sale of jewelry on commission basis;
however, due to her outstanding account with the latter, she got
jewelry from petitioner instead.13

WHEREFORE, the appealed decision finding the accused-appellant

guilty beyond reasonable doubt of the crime of estafa is hereby
AFFIRMED with the following MODIFICATION:

Considering that the amount involved is P424,750.00, the penalty

should be imposed in its maximum period adding one (1) year for each
additional P10,000.00 albeit the total penalty should not exceed
Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby
SENTENCED to suffer the penalty of imprisonment ranging from Four
(4) Years and One (1) Day of Prision Correccional as minimum to
Twenty (20) Years of Reclusion Temporal.

On November 17, 1994, the trial court rendered a decision finding

petitioner guilty of estafa, the dispositive portion of which reads:
SO ORDERED.15
WHEREFORE, in the light of the foregoing, the court finds the accused
Virgie Serona guilty beyond reasonable doubt, and as the amount
misappropriated is P424,750.00 the penalty provided under the first
paragraph of Article 315 of the Revised Penal Code has to be imposed
which shall be in the maximum period plus one (1) year for every
additional P10,000.00.

Petitioner pleaded not guilty to the charge upon arraignment.6 Trial on

the merits thereafter ensued.

Quilatan testified that petitioner was able to remit P100,000.00 and

returned P43,000.00 worth of jewelriy;7 that at the start, petitioner
was prompt in settling her obligation; however, subsequently the
payments were remitted late;8 that petitioner still owed her in the
amount of P424,750.00.9

Petitioner appealed to the Court of Appeals, which affirmed the

judgment of conviction but modified the penalty as follows:

Upon denial of her motion for reconsideration,16 petitioner filed the

instant petition under Rule 45, alleging that:

I
Applying the Indeterminate Sentence Law, the said accused is hereby
sentenced to suffer the penalty of imprisonment ranging from FOUR
(4) YEARS and ONE (1) DAY of prision correccional as minimum to TEN
(10) YEARS and ONE (1) DAY of prision mayor as maximum; to pay the
sum of P424,750.00 as cost for the unreturned jewelries; to suffer the
accessory penalties provided by law; and to pay the costs.

SO ORDERED.14

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING

THAT THERE WAS AN ABUSE OF CONFIDENCE ON THE PART OF
PETITIONER IN ENTRUSTING THE SUBJECT JEWELRIES (sic) TO HER SUBAGENT FOR SALE ON COMMISSION TO PROSPECTIVE BUYERS.

II

On the other hand, petitioner admitted that she received several

pieces of jewelry from Quilatan and that she indeed failed to pay for
the same. She claimed that she entrusted the pieces of jewelry to

35

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING

THAT THERE WAS MISAPPROPRIATION OR CONVERSION ON THE PART
OF PETITIONER WHEN SHE FAILED TO RETURN THE SUBJECT JEWELRIES
(sic) TO PRIVATE COMPLAINANT.17

Petitioner argues that the prosecution failed to establish the elements

of estafa as penalized under Article 315, par. 1(b) of the Revised Penal
Code. In particular, she submits that she neither abused the confidence
reposed upon her by Quilatan nor converted or misappropriated the
subject jewelry; that her giving the pieces of jewelry to a sub-agent for
sale on commission basis did not violate her undertaking with Quilatan.
Moreover, petitioner delivered the jewelry to Labrador under the same
terms upon which it was originally entrusted to her. It was established
that petitioner had not derived any personal benefit from the loss of
the jewelry. Consequently, it cannot be said that she misappropriated
or converted the same.

We find merit in the petition.

The elements of estafa through misappropriation or conversion as

defined in Article 315, par. 1(b) of the Revised Penal Code are: (1) that
the money, good or other personal property is received by the
offender in trust, or on commission, or for administration, or under any
other obligation involving the duty to make delivery of, or to return,
the same; (2) that there be misappropriation or conversion of such
money or property by the offender or denial on his part of such
receipt; (3) that such misappropriation or conversion or denial is to the
prejudice of another; and (4) that there is a demand made by the
offended party on the offender.18 While the first, third and fourth
elements are concededly present, we find the second element of
misappropriation or conversion to be lacking in the case at bar.

Petitioner did not ipso facto commit the crime of estafa through
conversion or misappropriation by delivering the jewelry to a subagent for sale on commission basis. We are unable to agree with the
lower courts conclusion that this fact alone is sufficient ground for

holding that petitioner disposed of the jewelry "as if it were hers,

thereby committing conversion and a clear breach of trust."19

It must be pointed out that the law on agency in our jurisdiction allows
the appointment by an agent of a substitute or sub-agent in the
absence of an express agreement to the contrary between the agent
and the principal.20 In the case at bar, the appointment of Labrador as
petitioners sub-agent was not expressly prohibited by Quilatan, as the
acknowledgment receipt, Exhibit B, does not contain any such
limitation. Neither does it appear that petitioner was verbally
forbidden by Quilatan from passing on the jewelry to another person
before the acknowledgment receipt was executed or at any other time.
Thus, it cannot be said that petitioners act of entrusting the jewelry to
Labrador is characterized by abuse of confidence because such an act
was not proscribed and is, in fact, legally sanctioned.

The essence of estafa under Article 315, par. 1(b) is the appropriation
or conversion of money or property received to the prejudice of the
owner. The words "convert" and "misappropriated" connote an act of
using or disposing of anothers property as if it were ones own, or of
devoting it to a purpose or use different from that agreed upon. To
misappropriate for ones own use includes not only conversion to ones
personal advantage, but also every attempt to dispose of the property
of another without right.21

In the case at bar, it was established that the inability of petitioner as

agent to comply with her duty to return either the pieces of jewelry or
the proceeds of its sale to her principal Quilatan was due, in turn, to
the failure of Labrador to abide by her agreement with petitioner.
Notably, Labrador testified that she obligated herself to sell the jewelry
in behalf of petitioner also on commission basis or to return the same if
not sold. In other words, the pieces of jewelry were given by petitioner
to Labrador to achieve the very same end for which they were
delivered to her in the first place. Consequently, there is no conversion
since the pieces of jewelry were not devoted to a purpose or use
different from that agreed upon.

Similarly, it cannot be said that petitioner misappropriated the jewelry

or delivered them to Labrador "without right." Aside from the fact that
no condition or limitation was imposed on the mode or manner by
which petitioner was to effect the sale, it is also consistent with usual
practice for the seller to necessarily part with the valuables in order to
find a buyer and allow inspection of the items for sale.

In People v. Nepomuceno,22 the accused-appellant was acquitted of

estafa on facts similar to the instant case. Accused-appellant therein
undertook to sell two diamond rings in behalf of the complainant on
commission basis, with the obligation to return the same in a few days
if not sold. However, by reason of the fact that the rings were delivered
also for sale on commission to sub-agents who failed to account for the
rings or the proceeds of its sale, accused-appellant likewise failed to
make good his obligation to the complainant thereby giving rise to the
charge of estafa. In absolving the accused-appellant of the crime
charged, we held:

Where, as in the present case, the agents to whom personal property

was entrusted for sale, conclusively proves the inability to return the
same is solely due to malfeasance of a subagent to whom the first
agent had actually entrusted the property in good faith, and for the
same purpose for which it was received; there being no prohibition to
do so and the chattel being delivered to the subagent before the
owner demands its return or before such return becomes due, we hold
that the first agent can not be held guilty of estafa by either
misappropriation or conversion. The abuse of confidence that is
characteristic of this offense is missing under the circumstances.23

Accordingly, petitioner herein must be acquitted. The lower courts

reliance on People v. Flores24 and U.S. v. Panes25 to justify petitioners
conviction is misplaced, considering that the factual background of the
cited cases differ from those which obtain in the case at bar. In Flores,
the accused received a ring to sell under the condition that she would
return it the following day if not sold and without authority to retain
the ring or to give it to a sub-agent. The accused in Panes, meanwhile,
was obliged to return the jewelry he received upon demand, but
passed on the same to a sub-agent even after demand for its return

36

had already been made. In the foregoing cases, it was held that there
was conversion or misappropriation.

Furthermore, in Lim v. Court of Appeals,26 the Court, citing

Nepomuceno and the case of People v. Trinidad,27 held that:

In cases of estafa the profit or gain must be obtained by the accused

personally, through his own acts, and his mere negligence in permitting
another to take advantage or benefit from the entrusted chattel
cannot constitute estafa under Article 315, paragraph 1-b, of the
Revised Penal Code; unless of course the evidence should disclose that
the agent acted in conspiracy or connivance with the one who carried
out the actual misappropriation, then the accused would be
answerable for the acts of his co-conspirators. If there is no such
evidence, direct or circumstantial, and if the proof is clear that the
accused herself was the innocent victim of her sub-agents
faithlessness, her acquittal is in order.28 (Italics copied)

Labrador admitted that she received the jewelry from petitioner and
sold the same to a third person. She further acknowledged that she
owed petitioner P441,035.00, thereby negating any criminal intent on
the part of petitioner. There is no showing that petitioner derived
personal benefit from or conspired with Labrador to deprive Quilatan
of the jewelry or its value. Consequently, there is no estafa within
contemplation of the law.

WHEREFORE, the petition is GRANTED. The decision of the Court of

Appeals in CA-G.R. CR No. 17222 dated April 30,1997 and its resolution
dated August 28, 1997 are REVERSED and SET ASIDE. Petitioner Virgie
Serona is ACQUITTED of the crime charged, but is held civilly liable in
the amount of P424,750.00 as actual damages, plus legal interest,
without subsidiary imprisonment in case of insolvency.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-31739

March 11, 1930

LEONOR MENDEZONA, plaintiff-appellee, vs. ENCARNACION C. VIUDA

DE GOITIA, administratrix of the estate of Benigno Goitia, defendantappellant.

----------------------------G.R. No. L-31740

March 11, 1930

VALENTINA IZAGUIRRE Y NAZABAL, plaintiff-appellee, vs.

Notwithstanding the above, however, petitioner is not entirely free
from any liability towards Quilatan. The rule is that an accused
acquitted of estafa may nevertheless be held civilly liable where the
facts established by the evidence so warrant. Then too, an agent who is
not prohibited from appointing a sub-agent but does so without
express authority is responsible for the acts of the sub-agent.29
Considering that the civil action for the recovery of civil liability arising
from the offense is deemed instituted with the criminal action,30
petitioner is liable to pay complainant Quilatan the value of the unpaid
pieces of jewelry.

The plaintiffs, Leonor Mendezona and Valentina Izaguirre y Nazabal,

filed separate claims with the committee of claims and appraisal
against the intestate estate of Benigno Goitia y Lazaga (Court of First
Instance of Manila, civil case No. 30273), the first for the amount of
P5,940, and the second, P2,376. By order of the court dated June 16,
1927, these claims were heard by the committee. The claimants
presented their evidence, which the committee deemed insufficient
and disapproved their claims. Both claimants appealed from the report
of the committee, and in accordance with section 776 of the Code of
Civil Procedure, filed a new complaint which was later amended with
the approval of the court, there being nothing in the bill of exceptions
to show that the defendant, or the administratrix of the deceased
Benigno Goitia, excepted to the court's order admitting the
amendments to the complaints.

ENCARNACION C. VIUDA DE GOITIA, ETC., defendant-appellant.

Avancea and Lata for appellant.

Ramon Sotelo for appellees.

VILLAMOR, J.:

The defendant answered the amended complaints, pleading in special

defense, that not having no knowledge of the supposed management
of their rights in the "Tren de Aguadas," and , furthermore, not having
seen nor received any money of the plaintiff's from said business, she
is not in a position to render an account of any sort to the plaintiffs,
either in her own personal capacity or as judicial administratrix of
Benigno Goitia's intestate estate.

By agreement of the parties, both cases were tried together, and the
trial court rendered but one decision upon them on October 31, 1928,
holding it sufficiently proved, "that defendant Encarnacion C. Vda, de
Goitia has been duly appointed judicial administratrix of the estate of
her deceased husband Benigno Goitia in special proceeding No. 30273
of this court; that Benigno Goitia was the representative and attorneyin-fact of the plaintiffs in the joint-account partnership known as the
"Tren de Aguadas" and located in the City of Manila, of which the
plaintiff Leonor Mendezona, widow of Juan Bautista Goitia, owns 180
shares worth P18,000, and the plaintiff Valentina Izaguirre y Nazabal
owns 72 shares worth P7,200; that prior to 1915, Benigno Goitia, at
that time the manager of the aforesaid co-partnership, collected the
dividends for the plaintiffs, which he remitted to them every year; that
prior to 1915, the usual dividends which Benigno Goitia forwarded to
plaintiff Leonor Mendezona each year were P540, and to plaintiff

37

Valentina Izaguirre y Nazabal, P216; that from 1915 until his death in
August, 1926, Benigno Goitia failed to remit to the dividends upon
their shares in the "Tren de Aguadas"; that some time before his death,
more particularly, in July, 1926, Benigno Goitia, who was no longer the
manager of the said business, receive as attorney-in-fact of both
plaintiff, the amount of P90 as dividend upon plaintiff Leonor
Mendezona's shares, and P36 upon Valentina Izaguirre y Nazabal's
stock; that from 1915 to 1926, the "Tren de Aguadas" paid dividends to
the share-holders, one of them, Ramon Salinas, having received the
total amount of P1,155 as ordinary and special dividends upon his 15
shares' that calculating the dividends due from 1915 to 1926 upon
Leonor Mendezona's 180 shares at P540 per annum, and at P216
yearly upon the 72 shares held by Valentina Izaguirre y Nazabal,
counsel for both plaintiffs filed their claims with the committee of
claims and appraisal of the estate of Benigno Goitia, and, upon their
disallowance, appealed from the committee's decision by means of the
complaints in these two cases."

The trial court likewise deemed it proven that "during the period from
1915 to 1926, Benigno Goitia collected and received certain sums as
dividends and profits upon the plaintiffs's stock in the "Tren de
Aguadas" in his capacity as representative and attorney-in-fact for both
of them, which he has neither remitted nor accounted for to the said
plaintiffs, although it has been prove that said Benigno Goitia was their
attorney-in-fact and representative in the "Tren de Aguadas" up to the
time of his death."

The court below therefore ordered the defendant, as judicial

administratrix of Benigno Goitia's estate to render a judicial account of
the intestate estate of the deceased Benigno Goitia, in special
proceeding No. 30273 of this court (below), to render an account of
the amounts collected by her aforesaid husband Benigno Goitia, as
attorney-in-fact and representative of the plaintiffs Leonor Mendezona
and Valentina Izaguirre y Nazabal in the copartnership known as the
"Tren de Aguadas" from 1915 to July, 1926, within thirty days from
notice of this decision; and that the defendant may see, examine, and
make a copy of the books and documents relative to the business of
the aforementioned copartnership, in accordance with the provisions
of section 664 of the Code of Civil Procedure. Without special
pronouncement of costs.

On December 15, 1928, at the instance of the plaintiffs, the trial court
set the 15th of January, 1929, as the date on which the defendant
should present her account of the dividends and profits collected by
the decedent, as attorney-in-fact for the plaintiffs, with regard to the
"Tren de Aguatas" copartnership, form 1915 to 1926, and the hearing
was postponed to the 7th of February, 1929.

On February 6, 1929, the defendant, reiterating her exception to the

court's decision enjoining her to render accounts, manifested that after
a painstaking examination of the books of account of the copartnership
"Tren de Aguadas," and several attempts to obtain data from Ruperto
Santos, the manager and administrator thereof, she has found no more
evidence of any amount received by her late husband, Benigno de
Goitia, than a book of accounts where she came upon an item of P90
for Leonor Mendezona, and another of P36 for Valentina Izaguirre.

In view of this report and the evidence taken at the hearing the court
rendered a suppletory judgment, upon motion of the plaintiffs dated
December 3, 1928; and taking into account chiefly the testimony of
Ruperto Santos and Ramon Salinas, it was held that, upon the basis of
the dividends received by the witness Salinas on his fifteen shares in
the "Tren de Aguadas" from 1915 to 1925, it appears that the
dividends distributed for each share was equal to one-fifteenth of
P1,087.50, that is P72.50. Thus the dividends upon plaintiff Leonor
Mendezona's 180 shares would be P13,050, and upon the 72 shares
pertaining to Valentina Izaguirre, P5,220; and these sums, added to
those collected by the attorney-in-fact Benigno Goitia as part of the
1926 dividends, P90 for Leonor Mendezona, and P36 for Valentina
Izaguirre, show that Benigno Goitia thereby received P13,140 in behalf
of Leonor Mendezona, and P5,256 in behalf of Valentina Izaguirre.

Wherefore, the court ordered the defendant, as judicial administratrix

of the estate of the deceased Benigno Goitia, to pay the plaintiff
Leonor Mendezona the sum of P13,140 with legal interest from the
date of the filing of the complaint, and to pay the plaintiff Valentina
Izaguirre P5,256 likewise with legal interest from the date of the filing
of the complaint, and moreover, to pay the costs of both instances.

The defendant duly appealed from this judgment to this Supreme

Court through the proper bill of exceptions.

The fundamental question raised by the appellant in the first

assignment of error refers to the court's jurisdiction to admit the
amended complaints whereby the plaintiffs claim P13,680 and P5,470
respectively, whereas the claims presented to the committee of claims
and appraisal were only for P5,940 and P2,376, respectively. Appellant
contends that the plaintiffs have not perfected their appeal in
accoundance with section 773 of the Code of Civil Procedure in
claiming more in their complaints than in the claims filed with the
committee of claims and appraisal, by including therein, not only the
yearly dividends paid from 1915 to 1925, inclusive, but also the
ordinary and extraordinary dividends upon their shares for the years of
1915 to 1926, alleged to have been delivered to Benigno Goitia.

The fact that the claims filed with the committee were upon the basis
of annual dividends, while those filed with the court below were on
ordinary and extraordinary dividends, is of no importance, for, after all
they refer to the same amounts received by the deceased Benigno
Goitia in the name and for the benefit of the plaintiffs. The question to
be decided is whether or not in this jurisdiction a greater sum may be
claimed before the court than was claimed before the committee. It
should be noted that according to the cases cited by the appellant on
pages 12 and 13 of her brief, to wit, Patrick vs. Howard, 47 Mich., 40;
10 N. W. 71. 72; Dayton vs. Dakin's Estate, 61 N. W., 349; and Luizzi vs.
Brandy's Estate, 113 N. W., 574; 140 Mich., 73; 12 Detroit Leg., 59, the
claims passed upon by the committee cannot be enlarged in the Circuit
Court by amendment. But counsel for the appellees draws our
attention to the doctrines of the Vermont Supreme Court (Maughan vs.
Burns' Estate, 64 Vt., 316; 23 Atlantic, 583), permitting an
augmentative amendment to the claim filed with the committee.

In the Maughan case, supra, the court stated:

38

ROWELL, J. This is an appeal from the decision and report of the

commissioners on the estate of Michael Burns. Plaintiff presented her
claim to the commissioners at $2,789.65. The ad damnum in her
declaration filed in the probate court was $3,500. In the country court
she recovered $3,813.49. Thereupon she moved for leave to amend
her declaration by raising the ad damnum to $4,000, which was
granted, and she had judgment for the amount of her recovery. The
identical claim presented to the commissioners was the claim tried
above. The amount of plaintiff's recovery rested on the quantum
meruit. The jury found that she merited more than she estimated her
claim when she presented it to the commissioners. But such
underestimate did not preclude her from recovering more, if the
testimony show her entitled to it, as presumably it did, as more was
found. The fact of such estimate was evidence against here deserving
more, as it was an implied admission that what she claimed was
enough; but the admission was not conclusive upon her, and did not
prevent 527; Stowe vs. Bishop, 58 Vt., 498; 3 Atl. Rep., 494; Hard vs.
Burton, 62 Vt., 314; 20 Atl. Rep., 269.)

It is conceded that in common-low actions the court has power to raise

the ad damnum at any time; but it is claimed that as the probate court
is not a common-low court, but is a court of special and limited
jurisdiction, and has by statue original jurisdiction of settlement of the
estates of deceased person, the country court has no power to raise
the ad damnum of the declaration filed in the probate court. The
county court has, by statue, appellate jurisdiction of matters originally
within the jurisdiction of the probate court and in such appeals it sits as
a higher court of probate, and its jurisdiction is co-extensive with that
of the probate court. It is not limited to the particular questions that
arose in the probate court in the matter appealed, but is expressly
extended to matters originally within the jurisdiction of that court. It is
an appellate court for the rehearing and the re-examination of matters
not particular questions merely that have been acted upon in the
court below. (Adams vs. Adams, 21 Vt., 162) And these matters
embrace even those that rest in discretion. (Holmes vs. Holmes, 26 Vt.,
536.) In Francis vs. Lathrope, 2 Tyler, 372, the claimant was allowed, on
terms, to file a declaration in the country court, he having omitted to
file one in the probate court as required by statute. It was within the
jurisdiction of the probate court to have allowed this amendment, and,
as the county court had all the jurisdiction of the probate court in this
behalf, it also had power to allow the amendment.

from trust relations between the plaintiffs and the late Benigno Goitia
as their attorney-in-fact.
However this may be, in this jurisdiction there is a rule governing the
question raised in this assignment of error, namely, section 776 of the
Code of Civil Procedure, as construed in the cases of Zaragoza vs.
Estate of De Viademonte (10 Phil., 23); Escuin vs. Escuin (11 Phil., 332);
and In re Estate of Santos (18 Phil., 403). This section provides:

SEC. 776. Upon the lodging of such appeal; with the clerk, the disputed
claim shall stand for trial in the same manner as any other action in the
Court of First Instance, the creditor being deemed to be the plaintiff,
and the estate the defendant, and pleading as in other actions shall be
filed.

Just as in ordinary actions in which the pleadings may be amended, so

in the instant case, the original complaint for the same amounts
claimed before the committee was altered, increasing the amounts,
and the amended complaint was approved by the court and not
objected to by the adverse party. The character of the action
throughout is the same. The action before the committee rested on the
contention that as attorney-in-fact for the plaintiffs with respect to the
partnership "Tren de Aguadas," the late Benigno Goitia had received
dividends upon their shares which he failed to turn over to them; the
appeal to the Court of First Instance is founded on the same
contention. When the claim was filed with the committee, counsel for
the plaintiffs merely made a calculation of the amounts due, in view of
the fact that he had not all the data from the plaintiffs, who live in
Spain; but after filing the complaint on appeal with the court of First
Instance, he discovered that his clients were entitled to larger sums,
and was therefore compelled to change the amount of the claims.

Considering the distance that separated the plaintiffs from their

attorney-in-fact, the deceased Benigno Goitia, and that the latter failed
to supply them with data from 1915 until his death in 1926, it is natural
that they had to resort to calculating the amounts due them from the
"Tren de Aguadas." To deny them the right to amend their complaint in
accordance with section 776, when they had secured more definite
information as to the amounts due them, would be an injustice,
especially when it is taken into consideration that this action arises

The first error is therefore overruled.

The allegation found in the second assignment of error that the

plaintiffs are not in reality interested parties in this case is untenable. It
does not appear from the bill of exceptions that the appellant
demurred on the ground of misjoinder of parties, or alleged such
misjoinder in her answer. In accordance with section 93 of the Code of
Civil Procedure, the appellant has waived the right to raise any
objection on the ground that the plaintiffs are not the real parties in
interest, or that they are not the owners of the stock in question.
(Broce vs. Broce, 4 Phil., 611; and Ortiz vs. Aramburo, 8 Phil., 98)
Furthermore it appears from Exhibits D, E, F, and G, that the late
Benigno Goitia recognized that those shares of the "Tren de Aguadas"
really belonged to the plaintiffs. And above all, Exhibit K-1, which is a
copy of the balance sheet for May and June, 1926, taken from the
books of the partnership, clearly shows that Leonor Mendezona owned
180 shares, and Valentina Izaguirre, 72 shares. Therefore the appellant
cannot now contend that the plaintiffs are not the real interested
parties.

In the third assignment of error it is argued that following section 676

of the Code of Civil Procedure, the court below had no power to order
the defendant to render an account of dividends supposed to have
been received by her deceased husband. We are of opinion that the
order of the court enjoining the appellant to render an account of all
the amounts collected by her aforesaid husband Benigno Goitia as
representative and attorney-in-fact of the plaintiffs, from 1915 until
June, 1926, was made for the purpose of giving her an opportunity of
showing, if she could, just what amounts the deceased Goitia received
on account of the appellees' stock. There is no reversible error in this;
for, as the complaint demanded the return of amounts alleged to have
been received by the deceased attorney-in-fact represented by the
appellant, it was quite in order to determine whether such amounts
were really received or not.

39

The fourth assignment of error relates to Exhibits A and B, being the

appellees' depositions made before the American consul at Bilbao,
Spain, in accordance with section 356 of the Code of Civil Procedure.
Counsel for the appellant was notified of the taking of these
depositions, and he did not suggest any other interrogatory in addition
to the questions of the committee. When these depositions were read
in court, the defendant objected to their admission, invoking section
383, No. 7, of the Code of Civil Procedure. Her objection referred
mainly to the following questions:

1. Did Mr. Benigno Goitia render you an account of your partnership in

the "Tren de Aguadas?" Yes, until the year 1914.

2. From the year 1915, did Mr. Benigno Goitia send you any report or
money on account of profits upon your shares? He sent me nothing,
nor did he answer, my letters.

3. did you ever ask him to send you a statement of your account Yes,
several times by letter, but I never received an answer.

The first of these questions tends to show the relationship between the
principals and their attorney-in-fact Benigno Goitia up to 1914.
Supposing it was error to permit such a question, it would not be
reversible error, for that very relationship is proved by Exhibits C to F,
and H to I. As to the other two questions, it is to be noted that the
deponents deny having received from the deceased Benigno Goitia any
money on account of profits on their shares, since 1915. We are of
opinion that the claimants' denial that a certain fact occurred before
the death of their attorney-in-fact Benigno Agoitia does not come
within the legal prohibitions (section 383, No. 7, Code of Civil
Procedure). The law prohibits a witness directly interested in a claim
against the estate of a decedent from testifying upon a matter of fact
which took place before the death of the deceased. The underlying
principle of this prohibition is to protect the intestate estate from
fictitious claims. But this protection should not be treated as an
absolute bar or prohibition from the filing of just claims against the
decedent's estate.

The facts in the case of Maxilom vs. Tabotabo (9 Phil., 390), differ from
those in the case at bar. In that case, the plaintiff Maxilom liquidated
his accounts with the deceased Tabotabo during his lifetime, with the
result that there was a balance in his favor and against Tabotabo of
P312.37, Mexican currency. The liquidation was signed by both
Maxilom and Tabotabo. In spite of this, some years later, or in 1906,
Maxilom filed a claim against the estate of Tabotabo for P1,062.37,
Mexican currency, alleging that P750 which included the 1899
liquidation had not really been received, and that therefore instead of
P312.37, Mexican currency, that liquidation should have shown a
balance of P1,062.37 in favor of Maxilom. It is evident that in view of
the prohibition of section 383, paragraph 7, of the Code of Civil
Procedure, Maxilom could not testify in his own behalf against
Tabotabo's estate, so as to alter the balance of the liquidation made by
and between himself and the decedent. But in the case before us there
has been no such liquidation between the plaintiffs and the deceased
Goitia. They testify, denying any such liquidation. To apply to them the
rule that "if death has sealed the lips of one of the parties, the law
seals those of the other," would be to exclude all possibility of a claim
against the testamentary estate. We do not believe that this was the
legislator's intention.

The plaintiffs-appellees did not testify to a fact which took place before
their representative's death, but on the contrary denied that it had
taken place at all, i.e. they denied that a liquidation had been made or
any money remitted on account of their shares in the "Tren de
Aguadas" which is the ground of their claim. It was incumbent upon
the appellant to prove by proper evidence that the affirmative
proposition was true, either by bringing into court the books which the
attorney-in-fact was in duty bound to keep, or by introducing copies of
the drafts kept by the banks which drew them, as was the decedents's
usual practice according to Exhibit I, or by other similar evidence.

The appellant admits having found a book of accounts kept by the

decedent showing an item of P90 for the account of Leonor
Mendezona and another of P36 for the account of Valentina Izaguirre,
which agrees with the statement of Ruperto Santos, who succeeded
Benigno Goitia in the administration of said partnership, to the effect

that the deceased attorney-in-fact had collected the amounts due the
plaintiffs as dividends on their shares for the months of May and June,
1926, or P90 for Leonor Mendezona, and P36 for Valentina Izaguirre,
amounts which had not been remitted by the deceased to the
plaintiffs.

Finally, the appellant complains that the trial court held by mere
inference that Benigno Goitia received from the "Tren de Aguadas" the
amounts of P13,140 and P5,265 for Mendezona and Izaguirre,
respectively, as dividends for the years from 1915 to 1926, inclusive,
and in holding again, by mere inference, that Benigno Goitia did not
remit said sums to the plaintiffs.

It is a well established fact in the record that the plaintiffs had an

interest or some shares in the partnership called "Tren de Aguadas,"
Mendezona holding 180 shares, worth P18,000, and Izaguirre, 72
shares worth P7,200. By the testimony of Ruperto Santos, former
secretary of Benigno Goitia and his successor in the administration of
that partnership, it appears that the deceased Benigno Goitia had
received the dividends due the appellees for the months of May and
June, 1926. And according to Exhibit K-I, the dividend for the months of
May and June was P0.50 a share. And witness Ramon Salinas, a
practising attorney and one of the shareholders of the partnership
"Tren de Aguadas," testified, from a notebook which he had, that he
received from the "Tren de Aguadas" the following ordinary dividends:
P45 in 1915; P45 in 1916; P45 in 1917; P45 in 1918; P45 in 1919; P90 in
1920; P67.50 in 1921, and P45 each for 1922, 1923, 4924, 1925, and
1926. By way of extraordinary dividends, the witness testified that he
received P22.50 each year from 1915 to 1918 inclusive; P45 in 1919;
P60 in 1920; P37.50 in 1921, 1922, 1923, and 1924; P15 in 1925; and
P22.50 in 1926. He further stated that he received P165 in 1918 as his
share of the proceeds of the sale of the boat Santolan. Summing up all
these amounts, we find that the witness Ramon Salinas, from 1915 to
1925, received a total of P1,087.50.

It further appears that Ruperto Santos assured the court that the
dividends for the period from 1915 to 1926 have been distributed
among the shareholders, and that the late Benigno Goitia received the

40

dividends due on the shares pertaining to Leonor Mendezona and

Valentina Izaguirre, deducting them from the total distribution. In view
of these data, the court below reached the conclusion, on the basis of
the dividends received by partner Ramon Salinas, that the attorney-infact Benigno Goitia received for the plaintiffs-appellees, respectively,
the amounts of P13,140 and P5.256, including the dividends for 1926,
or P90 for Leonor Mendezona, and P36 for Valentina Izaguirre.

As to the interest imposed in the judgment appealed from, it is

sufficient to cite article 1724 of the Civil Code, which provides that an
agent shall be liable for interest upon any sums he may have applied to
his own use, from the day on which he did so, and upon those which he
still owes, after the expiration of the agency, from the time of his
default.

The judgment appealed form being in accordance with the merits of

the case, we are of opinion, and so hold, that the same must be, as it is
hereby, affirmed, with costs against the appellant. So ordered.

Johnson, Malcolm, Ostrand, Johns, Romualdez and Villa-Real, JJ.,

concur.
Republic of the Philippines
SUPREME COURT
Manila

Ledesma, Sumulong and Quintos for appellee.

MAPA, J.:

On November 19, 1888, Juan de Vargas y Amaya, the defendant's

husband, executed a power of attorney to Enrique Grupe, authorizing
him, among other things, to dispose of all his property, and particularly
of a certain house and lot known as No. 24 Calle Nueva, Malate, in the
city of Manila, for the price at which it was actually sold. He was also
authorized to mortgage the house for the purpose of securing the
payment of any amount advanced to his wife, Dolores Orozco de
Rivero, who, inasmuch as the property had been acquired with funds
belonging to the conjugal partnership, was a necessary party to its sale
or incumbrance.

On the 21st of January, 1890, Enrique Grupe and Dolores Orozco de

Rivero obtained a loan from the plaintiff secured by a mortgage on the
property referred to in the power of attorney. In the caption of the
instrument evidencing the debt it is stated that Grupe and Dolores
Orozco appeared as the parties of the first part and Gonzalo Tuason,
the plaintiff, as the party of the second part; that Grupe acted for
himself and also in behalf of Juan Vargas by virtue of the power
granted him by the latter, and that Dolores Orozco appeared merely
for the purpose of complying with the requirement contained in the
power of attorney. In the body of the instrument the following
appears:

3.
Grupe pledges as special security for the payment of the
debt 13 shares of stock in the "Compaia de los Tranvias de Filipinas,"
which shares he has delivered to his creditor duly indorsed so that the
latter in case of his insolvency may dispose of the same without any
further formalities.

4.
To secure the payment of the 2,200 pesos delivered to
Dolores Orozco as aforesaid he specially mortgages the house and lot
No. 24, Calle Nueva, Malate, in the city of Manila (the same house
referred to in the power at attorney executed by Vargas to Grupe).

5.
Dolores Orozco states that, in accordance with the
requirement contained in the power of attorney executed by Vargas to
Grupe, she appears for the purpose of confirming the mortgage
created upon the property in question.

6.
Gonzalo Tuason does hereby accept all rights and actions
accruing to him under his contract.

EN BANC
G.R. No. L-2344

this distribution of the amount borrowed, he assumes liability for the

whole sum of 3,500 pesos, which he promises to repay in current gold
or silver coin, without discount, in this city on the date of the maturity
of the loan, he otherwise to be liable for all expenses incurred and
damages suffered by his creditor by reason of his failure to comply with
any or all of the conditions stipulated herein, and to pay further
interest at the rate of 1 per cent per month from the date of default
until the debt is fully paid.

February 10, 1906

GONZALO TUASON, plaintiff-appellee, vs. DOLORES OROZCO,

defendant-appellant.

Hartigan, Marple, Rohde and Gutierrez for appellant.

1.
Enrique Grupe acknowledges to have this day received from
Gonzalo Tuason as a loan, after deducting therefrom the interest
agreed upon, the sum of 3,500 pesos in cash, to his entire satisfaction,
which sum he promises to pay within one year from the date hereof.

2.
Grupe also declares that of the 3,500 pesos, he has
delivered to Dolores Orozco the sum of 2,200 pesos, having retained
the remaining 1,300 pesos for use in his business; that notwithstanding

This instrument was duly recorded in the Registry of Property, and it

appears therefrom that Enrique Grupe, as attorney in fact for Vargas,
received from the plaintiff a loan of 2,200 pesos and delivered the
same to the defendant; that to secure its payment he mortgaged the
property of his principal with defendant's consent as required in the
power of attorney. He also received 1,300 pesos. This amount he
borrowed for his own use. The recovery of this sum not being involved

41

in this action, it will not be necessary to refer to it in this decision. The

complaint refers only to the 2,200 pesos delivered to the defendant
under the terms of the agreement.

This being an action for the recovery of the debt referred to, the court
below properly admitted the instrument executed January 21, 1890,
evidencing the debt.

The defendant denies having received this sum, but her denial can not
overcome the proof to the contrary contained in the agreement. She
was one of the parties to that instrument and signed it. This necessarily
implies an admission on her part that the statements in the agreement
relating to her are true. She executed another act which corroborates
the delivery to her of the money in question that is, her personal
intervention in the execution of the mortgage and her statement in the
deed that the mortgage had been created with her knowledge and
consent. The lien was created precisely upon the assumption that she
had received that amount and for the purpose of securing its payment.

The appellant claims that the instrument is evidence of a debt

personally incurred by Enrique Grupe for his own benefit, and not
incurred for the benefit of his principal, Vargas, as alleged in the
complaint. As a matter of fact, Grupe, by the terms of the agreement,
bound himself personally to pay the debt. The appellant's contention
however, can not be sustained. The agreement, so far as that amount
is concerned, was signed by Grupe as attorney in fact for Vargas.
Pursuant to instructions contained in the power of attorney the money
was delivered to Varga's wife, the defendant in this case. To secure the
payment of the debt, Varga's property was mortgaged. His wife took
part in the execution of the mortgage as required in the power of
attorney. A debt thus incurred by the agent is binding directly upon the
principal, provided the former acted, as in the present case, within the
scope of his authority. (Art. 1727 of the Civil Code.) The fact that the
agent has also bound himself to pay the debt does not relieve from
liability the principal for whose benefit the debt was incurred. The
individual liability of the agent constitutes in the present case a further
security in favor of the creditor and does not affect or preclude the
liability of the principal. In the present case the latter's liability was
further guaranteed by a mortgage upon his property. The law does not
provide that the agent can not bind himself personally to the
fulfillment of an obligation incurred by him in the name and on behalf
of his principal. On the contrary, it provides that such act on the part of
an agent would be valid. (Art. 1725 of the Civil Code.)

In addition to this the defendant wrote a letter on October 23, 1903, to

the attorneys for the plaintiff promising to pay the debt on or before
the 5th day of November following. The defendant admits the
authenticity of this letter, which is a further evidence of the fact that
she had received the amount in question. Thirteen years had elapsed
since she signed the mortgage deed. During all this time she never
denied having received the money. On the contrary, she promised to
settle within a short time. The only explanation that we can find for
this is that she actually received the money as set forth in the
instrument.

The fact that the defendant received the money from her husband's
agent and not from the creditor does not affect the validity of the
mortgage in view of the conditions contained in the power of attorney
under which the mortgage was created. Nowhere does it appear in this
power that the money was to be delivered to her by the creditor
himself and not through the agent or any other person. The important
thing was that she should have received the money. This we think is
fully established by the record.

The above mortgage being valid and having been duly recorded in the
Register of Property, directly subjects the property thus encumbered,
whoever its possessor may be, to the fulfillment of the obligation for
the security of which it was created. (Art. 1876 of the Civil Code and
art. 105 of the Mortgage Law.) This presents another phase of the
question. Under the view we have taken of the case it is practically of
no importance whether or not Enrique Grupe bound himself personally
to pay the debt in question. Be this as it may and assuming that Vargas,
though principal in the agency, was not the principal debtor, the right
in rem arising from the mortgage would have justified the creditor in
bringing his action directly against the property encumbered had he

chosen to foreclose the mortgage rather than to sue Grupe, the alleged
principal debtor. This would be true irrespective of the personal
liability incurred by Grupe. The result would be practically the same
even though it were admitted that appellant's contention is correct.

The appellant also alleges that Enrique Grupe pledged to the plaintiff
thirteen shares of stock in the "Compaia de los Tranvias de Filipinas"
to secure the payment of the entire debt, and contends that it must be
shown what has become of these shares, the value of which might be
amply sufficient to pay the debt, before proceeding to foreclose the
mortgage. This contention can not be sustained in the face of the law
above quoted to the effect that a mortgage directly subjects the
property encumbered, whoever its possessor may be, to the fulfillment
of the obligation for the security of which it was created. Moreover it
was incumbent upon the appellant to show that the debt had been
paid with those shares. Payment is not presumed but must be proved.
It is a defense which the defendant may interpose. It was therefore her
duty to show this fact affirmatively. She failed, however, to do so.

The appellant's final contention is that in order to render judgment

against the mortgaged property it would be necessary that the minor
children of Juan de Vargas be made parties defendant in this action,
they having an interest in the property. Under article 154 of the Civil
Code, which was in force at the time of the death of Vargas, the
defendant had the parental authority over her children and
consequently the legal representation of their persons and property.
(Arts. 155 and 159 of the Civil Code.) It can not be said, therefore, that
they were not properly represented at the trial. Furthermore this
action was brought against the defendant in her capacity as
administratrix of the estate of the deceased Vargas. She did not deny in
her answer that she was such administratix.

Vargas having incurred this debt during his marriage, the same should
not be paid out of property belonging to the defendant exclusively but
from that pertaining to the conjugal partnership. This fact should be
borne in mind in case the proceeds of the mortgaged property be not
sufficient to ay the debt and interest thereon. The judgment of the

42

court below should be modified in so far as it holds the defendant

personally liable for the payment of the debt.

The judgment thus modified is affirmed and the defendant is hereby

ordered to pay to the plaintiff the sum of 2,200 pesos as principal,
together with interest thereon from the 21st day of January, 1891,
until the debt shall have been fully discharged. The appellant shall pay
the costs of this appeal.

After the expiration of ten days let judgment be entered in accordance

herewith and let the case be remanded to the court below for
execution. So ordered.

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

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19689

April 4, 1923

PHILIPPINE NATIONAL BANK, plaintiff-appellant,

FAIRCHILD & CO., INC., defendant-appellee.

vs.

WELCH,

By this action the plaintiff, the Philippine National Bank, seeks to

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

In the first half of the year 1918, a corporation , known as La Compaa

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

As La Compaa Naviera was an entirely new enterprise in the shipping

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

Quintin Paredes for appellant.

Ross and Lawrence for appellee.

STREET, J.:

It appears that Welch, Fairchild & Co. Was not numbered among the
original promoters of La Compaa Naviera, but its interests are to a
considerable extent involved in the general shipping conditions in the
Islands and it looked with a friendly eye upon the new enterprise.
Moreover, the mercantile ramifications of Welch, Fairchild, & Co.
appear to be extensive; and its friendly offices were freely exerted in

behalf of La Compaa Naviera, not only through Welch & Co., the
correspondent of the defendant in San Francisco, but also through Mr.
Geo. H. Fairchild, the president of Welch, Fairchild & Co. who left
Manila for the United States in March of the year 1918 and remained
in that country for more than a year. Upon this visit to the United
States Mr. Fairchild was kept advised as to certain needs of La
Compaa Naviera, and he acted for it in important matters requiring
attention in the United States. In particular it was through the efforts
of himself and of Judge James Ross, as attorney, that the consent of
the proper authorities in Washington, D. C., was obtained for the
transfer of the Benito Juarez to Philippine registry.

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

In response to these communications the Philippine National Bank, on

August 14, sent a cablegram to its correspondent in San Francisco
authorizing payment of the purchase price of the Benito Juarez,

43

without the production of either bill of sale or insurance policy. Under

these circumstances the vessel was delivered and money paid over
without the production or delivery of the documents mentioned.

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

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

As would naturally happen in an insurance of this amount, the risk was

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

As was perhaps but natural under the circumstances, the Philippine

National Bank appears to have exhibited no concern about its loan of
$125,000 to La Compaa Naviera, or about the proceeds of the
insurance on the Benito Juarez, until after the period of credit allowed
by the bank on the loan to La Compaa Naviera had expired, that is to
say, after May 17, 1919. A short while after this date, an incident
occurred upon which the attorneys for the defendant in this case have
placed great emphasis, and it is this: In the latter part of the month
aforesaid Welch & Co., having collected $13,000 upon account of the
insurance on the Benito Juarez, attempted to remit it by telegraphic
transfer to Welch, Fairchild & Co. in Manila, but by some mistake or

other, the money was remitted to the Philippine National Bank in New
York, and it was not until about a month later that authority was
received by the Philippine National Bank in Manila to pay to Welch,
Fairchild & Co. the sum of $13,000 upon account of said insurance.

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

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

acknowledged himself vanquished, and in the end said that he must

have been mistaken in his contention and that the attorney was right.

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

As the bank officials already knew that the insurance had been
collected many months previously by Welch, Fairchild & Co., it is
evident that the making of demand for delivery of a policy for $125,000
was a mere formula by which the bank intended to plant a contention
that the proceeds of the insurance, to the extent of $125,000,
belonged to it. To this demand Welch, Fairchild & Co. responded with a
negative.

Meanwhile, what had become of the proceeds of the insurance upon

the Benito Juarez? That money, as we have already seen, came to the
hands of Welch, Fairchild & Co. in Manila and has there rested, having
been applied by Welch, Fairchild & Co. in part satisfaction of
indebtedness incurred by La Compaa Naviera to it. This disposition of
the insurance money was made by Welch, Fairchild & Co. with the tacit
approval of La Compaa Naviera, the credits being notified to the

44

latter by the former as the remittances were received to Manila and

entered in the accounts of both companies accordingly.

1919, P168,724; upon August 31, 1919, P169,932.41; upon September

30, 1919, P185,651.73.

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

The foregoing statement of facts makes comprehensible the

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

The result of these expenditures and advances of money by Welch,

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

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

before us in effect is one where, notwithstanding the promise held out

jointly by principal and agent in the letters of August 8 and 10, 1918,
the two have conspired to make an application of the proceeds of the
insurance entirely contrary to the tenor of said letters. This cannot be
permitted.

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

As to the argument founded upon the delay of the bank in asserting its
right to the insurance money, it is enough to say that mere delay
unaccompanied by acts sufficient to create an equitable estoppel does
not destroy legal rights, but such delay as occurred here is in part
explained by the fact that the loan to La Compaa Naviera did not
mature till May 17, 1919, and a demand for the surrender of the
proceeds of the insurance before that date would have seemed
premature. Besides, it is to be borne in mind that most of the insurance
was not in fact collected until in June of 1919. It is true that in the
month of March previous about P50,000 of this insurance had been
remitted to Manila for Welch, Fairchild & Co. through the plaintiff
bank, and the bank, we assume, took notice of the source of the
remittance. However, its failure then to assert its claim to the money is
not a matter of legitimate criticism, since the loan was not then due.
After May 17, 1919, the situation was somewhat different; and as we
have already seen, the bank was not slow in asserting its right to the
remittance that came through the bank in June to Welch, Fairchild &
Co., consisting of $13,000 of the proceeds of this insurance.

45

This brings us to consider the legal effect of the incident which

culminated on July 23, 1919, when the bank abandoned its previous
position with regard to this remittance and passed the money to the
credit of the defendant, with interest upon the same during the time
payment had been withheld. The most, we think, that can fairly be said
about that incident is that the bank president admitted himself to be a
convert to the proposition advanced by the attorney for the defendant
to the effect that as the defendant had merely acted as agent for La
Compaa Naviera in the matter, the bank must look exclusively to La
Compaa Naviera for the fulfillment of the promise about the
insurance money. As a statement of legal doctrine that proposition
was, as we have already shown, a mistake; but of course it would have
been a matter of indifference if La Compaa Naviera had remained
solvent. One consideration that must have operated on the mind of the
president of the bank in releasing this money was that it had been
remitted in ordinary course of exchange through the bank to the
defendant, which was an entirely responsible party; and even though
the bank may have had the power to intercept the remittance, the
president may have considered that the commercial integrity of the
institution in matters of exchange was perhaps worth more than could
be gained by an obstinate insistence on its right to this money. There is
no evidence whatever that the president of the bank assumed to
release the defendant from any obligation which might have been
incurred by virtue of the letter of August 8, 1918.

From intimations contained in the testimony of some of the witnesses

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

It is insisted, however, that the attitude of the bank has been such that
the defendant has been misled to its prejudice, in that only did it give
large credit to La Compaa Naviera for sums to be recouped from this
insurance money but that in reliance upon its right to that money it
refrained from taking the steps that it might have taken to save itself
from loss; and in this connection it is suggested that but for the
incident in July, 1919, when the bank waived its claim to the $13,000
remitted through it to Welch, Fairchild & Co., the defendant would
have sought and would have been able to get additional security in the
form of mortgages or pledges of one or more vessels belonging to La
Compaa Naviera.

The proof in our opinion shows little or no tangible basis for these
contentions; and so far as we can see not one dollar was ever
advanced by the defendant to La Compaa Naviera upon the faith of
any request, promise, or representation of the bank in that behalf
extended; and it should be noted that the large losses incurred by the
defendant for advances to that concern after July 23, 1919, were
mostly incurred in the desperate effort to retrieve its position by
operating the San Pedro. The suggestion that, but for the misleading
attitude of the bank, the defendant would have been able to obtain
additional security loses much of its force when it is considered that
upon December 31, 1921, the defendant's book still showed unsecured
indebtedness against La Compaa Naviera to the amount of nearly
P50,000. The idea that, but for the attitude assumed by the bank, the
defendant would have materially bettered its position, is a speculation
too remote to affect the issue of this action.

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

(Sgd.) MANUEL ARAULLO

Chief Justice

Separate Opinions

MALCOLM, J., dissenting:

In my opinion judgment should be affirmed, for the reason that no

contractual relation ever existed between Welch, Fairchild & Co., and
the Philippine National Bank with respect to the fund in question.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

In the light of what has been said, it becomes necessary to reverse, as

we hereby do reverse, the judgment appealed from; and judgment will
be entered in favor of the plaintiff to recover of the defendant the sum
of P250,000, with lawful interest from May 31, 1921, the date of the
filling of the complaint. No special pronouncement will be made as to
costs. So ordered.

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

G.R. No. L-11442

May 23, 1958

MANUELA T. VDA. DE SALVATIERRA, petitioner, vs.

HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of
First Instance of Leyte, Branch II, and SEGUNDINO REFUERZO,
respondents.
Jimenez, Tantuico, Jr. and Tolete for petitioner.
Francisco Astilla for respondent Segundino Refuerzo.

46

FELIX, J.:

This is a petition for certiorari filed by Manuela T. Vda. de Salvatierra

seeking to nullify the order of the Court of First Instance of Leyte in
Civil Case No. 1912, dated March 21, 1956, relieving Segundino
Refuerzo of liability for the contract entered into between the former
and the Philippine Fibers Producers Co., Inc., of which Refuerzo is the
president. The facts of the case are as follows:

Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of

land located at Maghobas, Poblacion, Burauen, Teyte. On March 7,
1954, said landholder entered into a contract of lease with the
Philippine Fibers Producers Co., Inc., allegedly a corporation "duly
organized and existing under the laws of the Philippines, domiciled at
Burauen, Leyte, Philippines, and with business address therein,
represented in this instance by Mr. Segundino Q. Refuerzo, the
President". It was provided in said contract, among other things, that
the lifetime of the lease would be for a period of 10 years; that the
land would be planted to kenaf, ramie or other crops suitable to the
soil; that the lessor would be entitled to 30 per cent of the net income
accruing from the harvest of any, crop without being responsible for
the cost of production thereof; and that after every harvest, the lessee
was bound to declare at the earliest possible time the income derived
therefrom and to deliver the corresponding share due the lessor.

Apparently, the aforementioned obligations imposed on the alleged

corporation were not complied with because on April 5, 1955, Alanuela
T. Vda, de Salvatierra filed with the Court of First Instance of Leyte a
complaint against the Philippine Fibers Producers Co., Inc., and
Segundino Q. Refuerzo, for accounting, rescission and damages (Civil
Case No. 1912). She averred that sometime in April, 1954, defendants
planted kenaf on 3 hectares of the leased property which crop was, at
the time of the commencement of the action, already harvested,
processed and sold by defendants; that notwithstanding that fact,
defendants refused to render an accounting of the income derived
therefrom and to deliver the lessor's share; that the estimated gross
income was P4,500, and the deductible expenses amounted to P1,000;
that as defendants' refusal to undertake such task was in violation of

the terms of the covenant entered into between the plaintiff and
defendant corporation, a rescission was but proper.

As defendants apparently failed to file their answer to the complaint,

of which they were allegedly notified, the Court declared them in
default and proceeded to receive plaintiff's evidence. On June 8, 1955,
the lower Court rendered judgment granting plaintiff's prayer, and
required defendants to render a complete accounting of the harvest of
the land subject of the proceeding within 15 days from receipt of the
decision and to deliver 30 per cent of the net income realized from the
last harvest to plaintiff, with legal interest from the date defendants
received payment for said crop. It was further provide that upon
defendants' failure to abide by the said requirement, the gross income
would be fixed at P4,200 or a net income of P3,200 after deducting the
expenses for production, 30 per cent of which or P960 was held to be
due the plaintiff pursuant to the aforementioned contract of lease,
which was declared rescinded.

No appeal therefrom having been perfected within the reglementary

period, the Court, upon motion of plaintiff, issued a writ of execution,
in virtue of which the Provincial Sheriff of Leyte caused the attachment
of 3 parcels of land registered in the name of Segundino Refuerzo. No
property of the Philippine Fibers Producers Co., Inc., was found
available for attachment. On January 31, 1956, defendant Segundino
Refuerzo filed a motion claiming that the decision rendered in said Civil
Case No. 1912 was null and void with respect to him, there being no
allegation in the complaint pointing to his personal liability and thus
prayed that an order be issued limiting such liability to defendant
corporation. Over plaintiff's opposition, the Court a quo granted the
same and ordered the Provincial Sheriff of Leyte to release all
properties belonging to the movant that might have already been
attached, after finding that the evidence on record made no mention
or referred to any fact which might hold movant personally liable
therein. As plaintiff's petition for relief from said order was denied,
Manuela T. Vda. de Salvatierra instituted the instant action asserting
that the trial Judge in issuing the order complained of, acted with grave
abuse of discretion and prayed that same be declared a nullity.

From the foregoing narration of facts, it is clear that the order sought
to be nullified was issued by tile respondent Judge upon motion of
defendant Refuerzo, obviously pursuant to Rule 38 of the Rules of
Court. Section 3 of said Rule, however, in providing for the period
within which such a motion may be filed, prescribes that:

SEC. 3. WHEN PETITION FILED; CONTENTS AND VERIFICATION. A

petition provided for in either of the preceding sections of this rule
must be verified, filed within sixty days after the petitioner learns of
the judgment, order, or other proceeding to be set aside, and not more
than six months after such judgment or order was entered, or such
proceeding was taken; and must be must be accompanied with
affidavit showing the fraud, accident, mistake, or excusable negligence
relied upon, and the facts constituting the petitioner is good and
substantial cause of action or defense, as the case may be, which he
may prove if his petition be granted". (Rule 38)

The aforequoted provision treats of 2 periods, i.e., 60 days after

petitioner learns of the judgment, and not more than 6 months after
the judgment or order was rendered, both of which must be satisfied.
As the decision in the case at bar was under date of June 8, 1955,
whereas the motion filed by respondent Refuerzo was dated January
31, 1956, or after the lapse of 7 months and 23 days, the filing of the
aforementioned motion was clearly made beyond the prescriptive
period provided for by the rules. The remedy allowed by Rule 38 to a
party adversely affected by a decision or order is certainly an alert of
grace or benevolence intended to afford said litigant a penultimate
opportunity to protect his interest. Considering the nature of such
relief and the purpose behind it, the periods fixed by said rule are nonextendible and never interrupted; nor could it be subjected to any
condition or contingency because it is of itself devised to meet a
condition or contingency (Palomares vs. Jimenez,* G.R. No. L-4513,
January 31, 1952). On this score alone, therefore, the petition for a writ
of certiorari filed herein may be granted. However, taking note of the
question presented by the motion for relief involved herein, We deem
it wise to delve in and pass upon the merit of the same.

47

Refuerzo, in praying for his exoneration from any liability resulting

from the non-fulfillment of the obligation imposed on defendant
Philippine Fibers Producers Co., Inc., interposed the defense that the
complaint filed with the lower court contained no allegation which
would hold him liable personally, for while it was stated therein that he
was a signatory to the lease contract, he did so in his capacity as
president of the corporation. And this allegation was found by the
Court a quo to be supported by the records. Plaintiff on the other hand
tried to refute this averment by contending that her failure to specify
defendant's personal liability was due to the fact that all the time she
was under the impression that the Philippine Fibers Producers Co., Inc.,
represented by Refuerzo was a duly registered corporation as
appearing in the contract, but a subsequent inquiry from the Securities
and Exchange Commission yielded otherwise. While as a general rule a
person who has contracted or dealt with an association in such a way
as to recognize its existence as a corporate body is estopped from
denying the same in an action arising out of such transaction or
dealing, (Asia Banking Corporation vs. Standard Products Co., 46 Phil.,
114; Compania Agricola de Ultramar vs. Reyes, 4 Phil., 1; Ohta
Development Co.; vs. Steamship Pompey, 49 Phil., 117), yet this
doctrine may not be held to be applicable where fraud takes a part in
the said transaction. In the instant case, on plaintiff's charge that she
was unaware of the fact that the Philippine Fibers Producers Co., Inc.,
had no juridical personality, defendant Refuerzo gave no confirmation
or denial and the circumstances surrounding the execution of the
contract lead to the inescapable conclusion that plaintiff Manuela T.
Vda. de Salvatierra was really made to believe that such corporation
was duly organized in accordance with law.

There can be no question that a corporation with registered has a

juridical personality separate and distinct from its component
members or stockholders and officers such that a corporation cannot
be held liable for the personal indebtedness of a stockholder even if he
should be its president (Walter A. Smith Co. vs. Ford, SC-G.R. No.
42420) and conversely, a stockholder or member cannot be held
personally liable for any financial obligation be, the corporation in
excess of his unpaid subscription. But this rule is understood to refer
merely to registered corporations and cannot be made applicable to
the liability of members of an unincorporated association. The reason
behind this doctrine is obvious-since an organization which before the
law is non-existent has no personality and would be incompetent to act
and appropriate for itself the powers and attribute of a corporation as

provided by law; it cannot create agents or confer authority on another

to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk.
And as it is an elementary principle of law that a person who acts as an
agent without authority or without a principal is himself regarded as
the principal, possessed of all the rights and subject to all the liabilities
of a principal, a person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and
obligations and comes personally liable for contracts entered into or
for other acts performed as such, agent (Fay vs. Noble, 7 Cushing
[Mass.] 188. Cited in II Tolentino's Commercial Laws of the Philippines,
Fifth Ed., P. 689-690). Considering that defendant Refuerzo, as
president of the unregistered corporation Philippine Fibers Producers
Co., Inc., was the moving spirit behind the consummation of the lease
agreement by acting as its representative, his liability cannot be limited
or restricted that imposed upon corporate shareholders. In acting on
behalf of a corporation which he knew to be unregistered, he assumed
the risk of reaping the consequential damages or resultant rights, if
any, arising out of such transaction.

Wherefore, the order of the lower Court of March 21, 1956, amending
its previous decision on this matter and ordering the Provincial Sheriff
of Leyte to release any and all properties of movant therein which
might have been attached in the execution of such judgment, is hereby
set aside and nullified as if it had never been issued. With costs against
respondent Segundino Refuerzo. It is so ordered.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo,

Labrador, Concepcion, Reyes, J.B.L., and Endencia, JJ., concur.

PURISMA, J.:

This Petition for Review on certiorari assails the 25 July 1995 decision
of the Court of Appeals 1 in CA GR CV No. 41407, entitled "Nicholas Y.
Cervantes vs. Philippine Air Lines Inc.", affirming in toto the judgment
of the trial court dismissing petitioner's complaint for damages.

On March 27, 1989, the private respondent, Philippines Air Lines, Inc.
(PAL), issued to the herein petitioner, Nicholas Cervantes (Cervantes), a
round trip plane ticket for Manila-Honolulu-Los Angeles-HonoluluManila, which ticket expressly provided an expiry of date of one year
from issuance, i.e., until March 27, 1990. The issuance of the said plane
ticket was in compliance with a Compromise Agreement entered into
between the contending parties in two previous suits, docketed as Civil
Case Nos. 3392 and 3451 before the Regional Trial Court in Surigao
City. 2

On March 23, 1990, four days before the expiry date of subject ticket,
the petitioner used it. Upon his arrival in Los Angeles on the same day,
he immediately booked his Los Angeles-Manila return ticket with the
PAL office, and it was confirmed for the April 2, 1990 flight.

Upon learning that the same PAL plane would make a stop-over in San
Francisco, and considering that he would be there on April 2, 1990,
petitioner made arrangements with PAL for him to board the flight In
San Francisco instead of boarding in Las Angeles.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION G.R. No. 125138

March 2, 1999

On April 2, 1990, when the petitioner checked in at the PAL counter in

San Francisco, he was not allowed to board. The PAL personnel
concerned marked the following notation on his ticket: "TICKET NOT
ACCEPTED DUE EXPIRATION OF VALIDITY."

NICHOLAS Y. CERVANTES, petitioner, vs.

COURT OF APPEALS AND THE PHILIPPINE AIR LINES, INC., respondent.

48

Aggrieved, petitioner Cervantes filed a Complaint for Damages, for

breach of contract of carriage docketed as Civil Case No. 3807 before
Branch 32 of the Regional Trial Court of Surigao del Norte in Surigao
City. But the said complaint was dismissed for lack of merit. 3

On September 20, 1993, petitioner interposed an appeal to the Court

of Appeals, which came out with a Decision, on July 25, 1995,
upholding the dismissal of the case.

On May 22, 1996, petitioner came to this Court via the Petition for
Review under consideration.

The issues raised for resolution are: (1) Whether or not the act of the
PAL agents in confirming subject ticket extended the period of validity
of petitioner's ticket; (2) Whether or not the defense of lack of
authority was correctly ruled upon; and (3) Whether or not the denial
of the award for damages was proper.

To rule on the first issue, there is a need to quote the findings below.
As a rule, conclusions and findings of fact arrived at by the trial court
are entitled to great weight on appeal and should not be disturbed
unless for strong and cogent reasons. 4

The facts of the case as found by the lower court 5 are, as follows:

The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant)
provides that it is not valid after March 27, 1990. (Exhibit 1-F). It is also
stipulated in paragraph 8 of the Conditions of Contract (Exhibit 1, page
2) as follows:

8.
This ticket is good for carriage for one year from date of
issue, except as otherwise provided in this ticket, in carrier's tariffs,
conditions of carriage, or related regulations. The fare for carriage
hereunder is subject to change prior to commencement of carriage.
Carrier may refuse transportation if the applicable fare has not been
paid. 6

The question on the validity of subject ticket can be resolved in light of

the ruling in the case of Lufthansa vs. Court of Appeals. 7 In the said
case, the Tolentinos were issued first class tickets on April 3, 1982,
which will be valid until April 10, 1983. On June 10, 1982, they changed
their accommodations to economy class but the replacement tickets
still contained the same restriction. On May 7, 1983, Tolentino
requested that subject tickets be extended, which request was refused
by the petitioner on the ground that the said tickets had already
expired. The non-extension of their tickets prompted the Tolentinos to
bring a complaint for breach of contract of carriage against the
petitioner. In ruling against the award of damages, the Court held that
the "ticket constitute the contract between the parties. It is axiomatic
that when the terms are clear and leave no doubt as to the intention of
the contracting parties, contracts are to be interpreted according to
their literal meaning."

In his effort to evade this inevitable conclusion, petitioner theorized

that the confirmation by the PAL's agents in Los Angeles and San
Francisco changed the compromise agreement between the parties.

negative. Both had no authority to do so. Appellant knew this from the
very start when he called up the Legal Department of appellee in the
Philippines before he left for the United States of America. He had first
hand knowledge that the ticket in question would expire on March 27,
1990 and that to secure an extension, he would have to file a written
request for extension at the PAL's office in the Philippines (TSN,
Testimony of Nicholas Cervantes, August 2, 1991, pp. 20-23). Despite
this knowledge, appellant persisted to use the ticket in question." 9

From the aforestated facts, it can be gleaned that the petitioner was
fully aware that there was a need to send a letter to the legal counsel
of PAL for the extension of the period of validity of his ticket.

Since the PAL agents are not privy to the said Agreement and
petitioner knew that a written request to the legal counsel of PAL was
necessary, he cannot use what the PAL agents did to his advantage.
The said agents, according to the Court of Appeals, 10 acted without
authority when they confirmed the flights of the petitioner.

Under Article 1989 11 of the New Civil Code, the acts an agent beyond
the scope of his authority do not bind the principal, unless the latter
ratifies the same expressly or impliedly. Furthermore, when the third
person (herein petitioner) knows that the agent was acting beyond his
power or authority, the principal cannot be held liable for the acts of
the agent. If the said third person is aware of such limits of authority,
he is to blame, and is not entitled to recover damages from the agent,
unless the latter undertook to secure the principal's ratification. 12

As aptly by the appellate court:

. . . on March 23, 1990, he was aware of the risk that his ticket could
expire, as it did, before he returned to the Philippines.' (pp. 320-321,
Original Records) 8

Anent the second issue, petitioner's stance that the defense of lack of
authority on the part of the PAL employees was deemed waived under
Rule 9, Section 2 of the Revised Rules of Court, is unsustainable.
Thereunder, failure of a party to put up defenses in their answer or in a
motion to dismiss is a waiver thereof.

The question is: "Did these two (2) employees, in effect, extend the
validity or lifetime of the ticket in question? The answer is in the

49

Petitioner stresses that the alleged lack of authority of the PAL

employees was neither raised in the answer nor in the motion to
dismiss. But records show that the question of whether there was
authority on the part of the PAL employees was acted upon by the trial
court when Nicholas Cervantes was presented as a witness and the
depositions of the PAL employees, Georgina M. Reyes and Ruth
Villanueva, were presented.

The admission by Cervantes that he was told by PAL's legal counsel that
he had to submit a letter requesting for an extension of the validity of
subject tickets was tantamount to knowledge on his part that the PAL
employees had no authority to extend the validity of subject tickets
and only PAL's legal counsel was authorized to do so.

However, notwithstanding PAL's failure to raise the defense of lack of

authority of the said PAL agents in its answer or in a motion to dismiss,
the omission was cured since the said issue was litigated upon, as
shown by the testimony of the petitioner in the course of trial. Rule 10,
Section 5 of the 1997 Rules of Civil Procedure provides:

Sec. 5.
Amendment to conform, or authorize presentation of
evidence. When issues not raised by the pleadings are tried with
express or implied consent of the parties, as if they had been raised in
the pleadings. Such amendment of the pleadings as may be necessary
to cause them to conform to the evidence and to raise these issues
may be made upon motion of any party at any time, even after
judgment; but failure to amend does not affect the result of the trial of
these issues. . . .

Re: the third issue, an award of damages is improper because

petitioner failed to show that PAL acted in bad faith in refusing to allow
him to board its plane in San Francisco.

Republic of the Philippines

In awarding moral damages for breach of contract of carriage, the
breach must be wanton and deliberately injurious or the one
responsible acted fraudulently or with malice or bad faith. 14
Petitioner knew there was a strong possibility that he could not use the
subject ticket, so much so that he bought a back-up ticket to ensure his
departure. Should there be a finding of bad faith, we are of the opinion
that it should be on the petitioner. What the employees of PAL did was
one of simple negligence. No injury resulted on the part of petitioner
because he had a back-up ticket should PAL refuse to accommodate
him with the use of subject ticket.

SUPREME COURT

Neither can the claim for exemplary damages be upheld. Such kind of
damages is imposed by way of example or correction for the public
good, and the existence of bad faith is established. The wrongful act
must be accompanied by bad faith, and an award of damages would be
allowed only if the guilty party acted in a wanton, fraudulent, reckless
or malevolent manner. 15 Here, there is no showing that PAL acted in
such a manner. An award for attorney's fees is also improper.

SAFIC ALCAN & CIE, petitioner,

Baguio City

FIRST DIVISION

G.R. No. 126751

March 28, 2001

vs.
IMPERIAL VEGETABLE OIL CO., INC., respondent.

YNARES-SANTIAGO, J.:
WHEREFORE, the Petition is DENIED and the decision of the Court of
Appeals dated July 25, 1995 AFFIRMED in toto. No pronouncement as
to costs.

SO ORDERED.
Thus, "when evidence is presented by one party, with the express or
implied consent of the adverse party, as to issues not alleged in the
pleadings, judgment may be rendered validly as regards the said issue,
which shall be treated as if they have been raised in the pleadings.
There is implied consent to the evidence thus presented when the
adverse party fails to object thereto." 13

Panganiban, J., is on leave.

Romero and Gonzaga-Reyes, JJ., concur.

Vitug, J., abroad official business.

Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French

corporation engaged in the international purchase, sale and trading of
coconut oil. It filed with the Regional Trial Court of Manila, Branch XXV,
a complaint dated February 26, 1987 against private respondent
Imperial Vegetable Oil Co., Inc. (hereinafter, "IVO"), docketed as Civil
Case No. 87- 39597. Petitioner Safic alleged that on July 1, 1986 and
September 25, 1986, it placed purchase orders with IVO for 2,000 long
tons of crude coconut oil, valued at US$222.50 per ton, covered by
Purchase Contract Nos. A601446 and A601655, respectively, to be
delivered within the month of January 1987. Private respondent,
however, failed to deliver the said coconut oil and, instead, offered a
"wash out" settlement, whereby the coconut oil subject of the
purchase contracts were to be "sold back" to IVO at the prevailing price
in the international market at the time of wash out. Thus, IVO bound

50

itself to pay to Safic the difference between the said prevailing price
and the contract price of the 2,000 long tons of crude coconut oil,
which amounted to US$293,500.00. IVO failed to pay this amount
despite repeated oral and written demands.

Under its second cause of action, Safic alleged that on eight occasions
between April 24, 1986 and October 31, 1986, it placed purchase
orders with IVO for a total of 4,750 tons of crude coconut oil, covered
by Purchase Contract Nos. A601297A/B, A601384, A601385, A601391,
A601415, A601681, A601683 and A601770A/B/C/. When IVO failed to
honor its obligation under the wash out settlement narrated above,
Safic demanded that IVO make marginal deposits within forty-eight
hours on the eight purchase contracts in amounts equivalent to the
difference between the contract price and the market price of the
coconut oil, to compensate it for the damages it suffered when it was
forced to acquire coconut oil at a higher price. IVO failed to make the
prescribed marginal deposits on the eight contracts, in the aggregate
amount of US$391,593.62, despite written demand therefor.

The demand for marginal deposits was based on the customs of the
trade, as governed by the provisions of the standard N.I.O.P. Contract
arid the FOSFA Contract, to wit:

N.I.O.P. Contract, Rule 54 - If the financial condition of either party to a

contract subject to these rules becomes so impaired as to create a
reasonable doubt as to the ability of such party to perform its
obligations under the contract, the other party may from time to time
demand marginal deposits to be made within forty-eight (48) hours
after receipt of such demand, such deposits not to exceed the
difference between the contract price and the market price of the
goods covered by the contract on the day upon which such demand is
made, such deposit to bear interest at the prime rate plus one percent
(1%) per annum. Failure to make such deposit within the time specified
shall constitute a breach of contract by the party upon whom demand
for deposit is made, and all losses and expenses resulting from such
breach shall be for the account of the party upon whom such demand
is made. (Underscoring ours.)1

FOSFA Contract, Rule 54 - BANKRUPTCY/INSOLVENCY: If before the

fulfillment of this contract either party shall suspend payment, commit
an act of bankruptcy, notify any of his creditors that he is unable to
meet his debts or that he has suspended payment or that he is about
to suspend payment of his debts, convene, call or hold a meeting
either of his creditors or to pass a resolution to go into liquidation
(except for a voluntary winding up of a solvent company for the
purpose of reconstruction or amalgamation) or shall apply for an
official moratorium, have a petition presented for winding up or shal1i
have a Receiver appointed, the contract shall forthwith be closed
either at the market price then current for similar goods or, at the
option of the other party at a price to be ascertained by repurchase or
resale and the difference between the contract price and such closingout price shall be the amount which the other party shall be entitled to
claim shall be liable to account for under this contract (sic). Should
either party be dissatisfied with the price, the matter shall be referred
to arbitration. Where no such resale or repurchase takes place, the
closing-out price shall be fixed by a Price Settlement Committee
appointed by the Federation. (Underscoring ours.)2

Hence, Safic prayed that IVO be ordered to pay the sums of

US$293,500.00 and US$391,593.62, plus attorney's fees and litigation
expenses. The complaint also included an application for a writ of
preliminary attachment against the properties of IVO.

Upon Safic's posting of the requisite bond, the trial court issued a writ
of preliminary attachment. Subsequently, the trial court ordered that
the assets of IVO be placed under receivership, in order to ensure the
preservation of the same.

In its answer, IVO raised the following special affirmative defenses:

Safic had no legal capacity to sue because it was doing business in the
Philippines without the requisite license or authority; the subject
contracts were speculative contracts entered into by IVO's then
President, Dominador Monteverde, in contravention of the prohibition
by the Board of Directors against engaging in speculative paper trading,
and despite IVO's lack of the necessary license from Central Bank to
engage in such kind of trading activity; and that under Article 2018 of

the Civil Code, if a contract which purports to be for the delivery of

goods, securities or shares of stock is entered into with the intention
that the difference between the price stipulated and the exchange or
market price at the time of the pretended delivery shall be paid by the
loser to the winner, the transaction is null and void.1wphi1.nt

IVO set up counterclaims anchored on harassment, paralyzation of

business, financial losses, rumor-mongering and oppressive action.
Later, IVO filed a supplemental counterclaim alleging that it was unable
to operate its business normally because of the arrest of most of its
physical assets; that its suppliers were driven away; and that its major
creditors have inundated it with claims for immediate payment of its
debts, and China Banking Corporation had foreclosed its chattel and
real estate mortgages.

During the trial, the lower court found that in 1985, prior to the date of
the contracts sued upon, the parties had entered into and
consummated a number of contracts for the sale of crude coconut oil.
In those transactions, Safic placed several orders and IVO faithfully
filled up those orders by shipping out the required crude coconut oil to
Safic, totaling 3,500 metric tons. Anent the 1986 contracts being sued
upon, the trial court refused to declare the same as gambling
transactions, as defined in Article 2018 of the Civil Code, although they
involved some degree of speculation. After all, the court noted, every
business enterprise carries with it a certain measure of speculation or
risk. However, the contracts performed in 1985, on one hand, and the
1986 contracts subject of this case, on the other hand, differed in that
under the 1985 contracts, deliveries were to be made within two
months. This, as alleged by Safic, was the time needed for milling and
building up oil inventory. Meanwhile, the 1986 contracts stipulated
that the coconut oil were to be delivered within period ranging from
eight months to eleven to twelve months after the placing of orders.
The coconuts that were supposed to be milled were in all likelihood not
yet growing when Dominador Monteverde sold the crude coconut oil.
As such, the 1986 contracts constituted trading in futures or in mere
expectations.

51

The lower court further held that the subject contracts were ultra vires
and were entered into by Dominador Monteverde without authority
from the Board of Directors. It distinguished between the 1985
contracts, where Safic likewise dealt with Dominador Monteverde,
who was presumably authorized to bind IVO, and the 1986 contracts,
which were highly speculative in character. Moreover, the 1985
contracts were covered by letters of credit, while the 1986 contracts
were payable by telegraphic transfers, which were nothing more than
mere promises to pay once the shipments became ready. For these
reasons, the lower court held that Safic cannot invoke the 1985
contracts as an implied corporate sanction for the high-risk 1986
contracts, which were evidently entered into by Monteverde for his
personal benefit.

The trial court ruled that Safic failed to substantiate its claim for actual
damages. Likewise, it rejected IVO's counterclaim and supplemental
counterclaim.

Thus, on August 28, 1992, the trial court rendered judgment as follows:

WHEREFORE, judgment is hereby rendered dismissing the complaint of

plaintiff Safic Alcan & Cie, without prejudice to any action it might
subsequently institute against Dominador Monteverde, the former
President of Imperial Vegetable Oil Co., Inc., arising from the subject
matter of this case. The counterclaim and supplemental counterclaim
of the latter defendant are likewise hereby dismissed for lack of merit.
No pronouncement as to costs.

The writ of preliminary attachment issued in this case as well as the

order placing Imperial Vegetable Oil Co., Inc. under receivership are
hereby dissolved and set aside.3

Both IVO and Safic appealed to the Court of Appeals, jointly docketed
as CA-G.R. CV No.40820.

IVO raised only one assignment of error, viz:

THE TRIAL COURT ERRED IN HOLDING 'I'HAT THE ISSUANCE OF THE

WRIT OF PRELIMINARY ATTACHMENT WAS NOT THE MAIN CAUSE OF
THE DAMAGES SUFFERED BY DEFENDANT AND IN NOT AWARDING
DEFENDANT-APPELLANT SUCH DAMAGES.

For its part, Safic argued that:

THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT,

DOMINADOR MONTEVERDE, ENTERED INTO CONTRACTS WHICH WERE
ULTRA VIRES AND WHICH DID NOT BIND OR MAKE IVO LIABLE.

THE TRIAL COURT ERRED IN HOLDING THA SAFIC WAS UNABLE TO

PROVE THE DAMAGES SUFFERED BY IT AND IN NOT AWARDING SUCH
DAMAGES.

THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE UNDER
THE WASH OUT CONTRACTS.

On September 12, 1996, the Court of Appeals rendered the assailed

Decision dismissing the, appeals and affirming the judgment appealed
from in toto.4

Hence, Safic filed the instant petition for review with this Court,
substantially reiterating the errors it raised before the Court of Appeals
and maintaining that the Court of Appeals grievously erred when:

a. it declared that the 1986 forward contracts (i.e., Contracts Nos.

A601446 and A60155 (sic) involving 2,000 long tons of crude coconut
oil, and Contracts Nos. A60l297A/B, A601385, A60l39l, A60l4l5,
A601681. A601683 and A60l770A/B/C involving 4,500 tons of crude
coconut oil) were unauthorized acts of Dominador Monteverde which
do not bind IVO in whose name they were entered into. In this
connection, the Court of Appeals erred when (i) it ignored its own
finding that (a) Dominador Monteverde, as IVO's President, had "an
implied authority to make any contract necessary or appropriate to the
contract of the ordinary business of the company"; and (b) Dominador
Monteverde had validly entered into similar forward contracts for and
on behalf of IVO in 1985; (ii) it distinguished between the 1986 forward
contracts despite the fact that the Manila RTC has struck down IVO's
objection to the 1986 forward contracts (i.e. that they were highly
speculative paper trading which the IVO Board of Directors had
prohibited Dominador Monteverde from engaging in because it is a
form of gambling where the parties do not intend actual delivery of the
coconut oil sold) and instead found that the 1986 forward contracts
were not gambling; (iii) it relied on the testimony of Mr. Rodrigo
Monteverde in concluding that the IVO Board of Directors did not
authorize its President, Dominador Monteverde, to enter into the 1986
forward contracts; and (iv) it did not find IVO, in any case, estopped
from denying responsibility for, and liability under, the 1986 forward
contracts because IVO had recognized itself bound to similar forward
contracts which Dominador Monteverde entered into (for and on
behalf of IVO) with Safic in 1985 notwithstanding that Dominador
Monteverde was (like in the 1986 forward contracts) not expressly
authorized by the IVO Board of Directors to enter into such forward
contracts;

b. it declared that Safic was not able, to prove damages suffered by it,
despite the fact that Safic had presented not only testimonial, but also
documentary, evidence which proved the higher amount it had to pay
for crude coconut oil (vis--vis the contract price it was to pay to IVO)
when IVO refused to deliver the crude coconut oil bought by Safic
under the 1986 forward contracts; and

c. it failed to resolve the issue of whether or not IVO is liable to Safic

under the wash out contracts involving Contracts Nos. A601446 and
A60155 (sic), despite the fact that Safic had properly raised the issue

52

on its appeal, and the evidence and the law support Safic's position
that IVO is so liable to Safic.

In fine, Safic insists that the appellate court grievously erred when it
did not declare that IVO's President, Dominador Monteverde, validly
entered into the 1986 contracts for and on behalf of IVO.

We disagree.

Article III, Section 3 [g] of the By-Laws5 of IVO provides, among others,
that

Section 3. Powers and Duties of the President. - The President shall be

elected by the Board of Directors from their own number .

He shall have the following duties:

xxx

xxx

xxx

[g] Have direct and active management of the business and operation
of the corporation, conducting the same according to, the orders,
resolutions and instruction of the Board of Directors and according to
his own discretion whenever and wherever the same is not expressly
limited by such orders, resolutions and instructions.

It can be clearly seen from the foregoing provision of IVO's By-laws that
Monteverde had no blanket authority to bind IVO to any contract. He
must act according to the instructions of the Board of Directors. Even
in instances when he was authorized to act according to his discretion,
that discretion must not conflict with prior Board orders, resolutions

and instructions. The evidence shows that the IVO Board knew nothing
of the 1986 contracts6 and that it did not authorize Monteverde to
enter into speculative contracts.7 In fact, Monteverde had earlier
proposed that the company engage in such transactions but the IVO
Board rejected his proposal.8 Since the 1986 contracts marked a sharp
departure from past IVO transactions, Safic should have obtained from
Monteverde the prior authorization of the IVO Board. Safic can not rely
on the doctrine of implied agency because before the controversial
1986 contracts, IVO did not enter into identical contracts with Safic.
The basis for agency is representation and a person dealing with an
agent is put upon inquiry and must discover upon his peril the
authority of the agent.9 In the case of Bacaltos Coal Mines v. Court of
Appeals,10 we elucidated the rule on dealing with an agent thus:

Every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. If he does not make
such inquiry, he is chargeable with knowledge of the agent's authority,
and his ignorance of that authority will not be any excuse. Persons
dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the
principal, to ascertain not only the fact of the agency but also the
nature and extent of the authority, and in case either is controverted,
the burden of proof is upon them to establish it.11

The most prudent thing petitioner should have done was to ascertain
the extent of the authority of Dominador Monteverde. Being remiss in
this regard, petitioner can not seek relief on the basis of a supposed
agency.

Under Article 189812 of the Civil Code, the acts of an agent beyond the
scope of his authority do not bind the principal unless the latter ratifies
the same expressly or impliedly. It also bears emphasizing that when
the third person knows that the agent was acting beyond his power or
authority, the principal can not be held liable for the acts of the agent.
If the said third person is aware of such limits of authority, he is to
blame, and is not entitled to recover damages from the agent, unless
the latter undertook to secure the principal's ratification.13

There was no such ratification in this case. When Monteverde entered

into the speculative contracts with Safic, he did not secure the Board's
approval.14 He also did not submit the contracts to the Board after
their consummation so there was, in fact, no occasion at all for
ratification. The contracts were not reported in IVO's export sales book
and turn-out book.15 Neither were they reflected in other books and
records of the corporation.16 It must be pointed out that the Board of
Directors, not Monteverde, exercises corporate power.17 Clearly,
Monteverde's speculative contracts with Safic never bound IVO and
Safic can not therefore enforce those contracts against IVO.

To bolster its cause, Safic raises the novel point that the IVO Board of
Directors did not set limitations on the extent of Monteverde's
authority to sell coconut oil. It must be borne in mind in this regard
that a question that was never raised in the courts below can not be
allowed to be raised for the first time on appeal without offending
basic rules of fair play, justice and due process.18 Such an issue was
not brought to the fore either in the trial court or the appellate court,
and would have been disregarded by the latter tribunal for the reasons
previously stated. With more reason, the same does not deserve
consideration by this Court.

Be that as it may, Safic's belated contention that the IVO Board of

Directors did not set limitations on Monteverde's authority to sell
coconut oil is belied by what appears on the record. Rodrigo
Monteverde, who succeeded Dominador Monteverde as IVO President,
testified that the IVO Board had set down the policy of engaging in
purely physical trading thus:

Q. Now you said that IVO is engaged in trading. With whom does, it
usually trade its oil?

A. I am not too familiar with trading because as of March 1987, I was

not yet an officer of the corporation, although I was at the time already
a stockholder, I think IVO is engaged in trading oil.

53

Q. As far as you know, what kind of trading was IVO engaged with?

Well, the witness said they are engaged in physical trading and what I
am saying [is] if there are any other kind or form of trading.

contract[s] but it was rejected by the Board of Directors. It was only

Ador Monteverde who then wanted to engaged (sic) in this future[s]
contract[s].

A. It was purely on physical trading.

Court
Q.

Do you know where this meeting took place?

A.

As far as I know it was sometime in 1985.

Q. How did you know this?

Witness may answer if he knows.

A. As a stockholder, rather as member of [the] Board of Directors, I

frequently visited the plant and from my observation, as I have to
supervise and monitor purchases of copras and also the sale of the
same, I observed that the policy of the corporation is for the company
to engaged (sic) or to purely engaged (sic) in physical trading.

Witness
Q.
Do you know why the Board of Directors rejected the
proposal of Dominador Monteverde that the company should engaged
(sic) in future[s] contracts?
A.
Trading future[s] contracts wherein the trader commits a
price and to deliver coconut oil in the future in which he is yet to
acquire the stocks in the future.

Q. What do you mean by physical trading?

Atty. Fernando

Atty. Abad
A. Physical Trading means - we buy and sell copras that are only
available to us. We only have to sell the available stocks in our
inventory.

Objection, your Honor, no basis.

Q.

Who established the so-called physical trading in IVO?

Court

Q. And what is the other form of trading?

A.

The Board of Directors, sir.

Why don't you lay the basis?

Atty. Fernando
Atty. Abad.
Atty. Abad
No basis, your Honor.
Q.

How did you know that?

Q. Were you a member of the board at the time?

Atty. Abad
A.
There was a meeting held in the office at the factory and it
was brought out and suggested by our former president, Dominador
Monteverde, that the company should engaged (sic) in future[s]

A. In 1975, I am already a stockholder and a member.

54

Atty. Abad
Q. Then would [you] now answer my question?

Q.

Do you have a copy of the minutes of your meeting in 1985?

Q.
What do you mean by that the future[s] contracts were not
entered into the books of accounts of the company?

Atty. Fernando

A.
Incidentally our Secretary of the Board of Directors, Mr.
Elfren Sarte, died in 1987 or 1988, and despite [the] request of our
office for us to be furnished a copy he was not able to furnish us a
copy.19

Witness

No basis, your Honor. What we are talking is about 1985.

xxx

xxx

xxx

Atty. Abad

A.
Those were not recorded at all in the books of accounts of
the company, sir.20

Atty. Abad
Q. When you mentioned about the meeting in 1985 wherein the Board
of Directors rejected the future[s] contract[s], were you already a
member of the Board of Directors at that time?

A.

xxx

xxx

xxx

Q. You said the Board of Directors were against the company engaging
in future[s] contracts. As far as you know, has this policy of the Board
of Directors been observed or followed?

Q. What did you do when you discovered these transactions?

Witness

A. There was again a meeting by the Board of Directors of the

corporation and that we agreed to remove the president and then I
was made to replace him as president.

Yes, sir.

Q.
Do you know the reason why the said proposal of Mr.
Dominador Monteverde to engage in future[s] contract[s] was rejected
by the Board of Directors?
A.

Yes, sir.
Q. What else?

A.
Because this future[s] contract is too risky and it partakes of
gambling.

Q.
How far has this Dominador Monteverde been using the
name of I.V.0. in selling future contracts without the proper authority
and consent of the company's Board of Directors?

A.
And a resolution was passed disowning the illegal activities
of the former president.21

Q.
Do you keep records of the Board meetings of the
company?
A.
Dominador Monteverde never records those transactions
he entered into in connection with these future[s] contracts in the
company's books of accounts.
A.

Petitioner next argues that there was actually no difference between

the 1985 physical contracts and the 1986 futures contracts.

Yes, sir.

55

The contention is unpersuasive for, as aptly pointed out by the trial

court and sustained by the appellate court

Rejecting IVO's position, SAFIC claims that there is no distinction

between the 1985 and 1986 contracts, both of which groups of
contracts were signed or authorized by IVO's President, Dominador
Monteverde. The 1986 contracts, SAFIC would bewail, were similarly
with their 1985 predecessors, forward sales contracts in which IVO had
undertaken to deliver the crude coconut oil months after such
contracts were entered into. The lead time between the closing of the
deal and the delivery of the oil supposedly allowed the seller to
accumulate enough copra to mill and to build up its inventory and so
meet its delivery commitment to its foreign buyers. SAFIC concludes
that the 1986 contracts were equally binding, as the 1985 contracts
were, on IVO.

shipping documents covering the cargo, its opening usually mark[s] the
fact that the transaction would be consummated. On the other hand,
seven out of the ten 1986 contracts were to be paid by telegraphic
transfer upon presentation of the shipping documents. Unlike the
letter of credit, a mere promise to pay by telegraphic transfer gives no
assurance of [the] buyer's compliance with its contracts. This fact lends
an uncertain element in the 1986 contracts.1wphi1.nt

Petitioner further contends that both the trial and appellate courts
erred in concluding that Safic was not able to prove its claim for
damages. Petitioner first points out that its wash out agreements with
Monteverde where IVO allegedly agreed to pay US$293,500.00 for
some of the failed contracts was proof enough and, second, that it
presented purchases of coconut oil it made from others during the
period of IVO's default.

3.
Apart from the above, it is not disputed that with respect to
the 1985 contracts, IVO faithfully complied with Central Bank Circular
No. 151 dated April 1, 1963, requiring a coconut oil exporter to submit
a Report of Foreign Sales within twenty-four (24) hours "after the
closing of the relative sales contract" with a foreign buyer of coconut
oil. But with respect to the disputed 1986 contracts, the parties
stipulated during the hearing that none of these contracts were ever
reported to the Central Bank, in violation of its above requirement.
(See Stipulation of Facts dated June 13, 1990). The 1986 sales were,
therefore suspect.

We remain unconvinced. The so-called "wash out" agreements are

clearly ultra vires and not binding on IVO. Furthermore, such
agreements did not prove Safic's actual losses in the transactions in
question. The fact is that Safic did not pay for the coconut oil that it
supposedly ordered from IVO through Monteverede. Safic only claims
that, since it was ready to pay when IVO was not ready to deliver, Safic
suffered damages to the extent that they had to buy the same
commodity from others at higher prices.

Subjecting the evidence on both sides to close scrutiny, the Court has
found some remarkable distinctions between the 1985 and 1986
contracts. x x x

1.
The 1985 contracts were performed within an average of
two months from the date of the sale. On the other hand, the 1986
contracts were to be performed within an average of eight and a half
months from the dates of the sale. All the supposed performances fell
in 1987. Indeed, the contract covered by Exhibit J was to be performed
11 to 12 months from the execution of the contract. These pattern (sic)
belies plaintiffs contention that the lead time merely allowed for
milling and building up of oil inventory. It is evident that the 1986
contracts constituted trading in futures or in mere expectations. In all
likelihood, the coconuts that were supposed to be milled for oil were
not yet on their trees when Dominador Monteverde sold the crude oil
to SAFIC.

2.
The mode of payment agreed on by the parties in their 1985
contracts was uniformly thru the opening of a letter of credit LC by
SAFIC in favor of IVO. Since the buyer's letter of credit guarantees
payment to the seller as soon as the latter is able to present the

4.
It is not disputed that, unlike the 1985 contacts, the 1986
contracts were never recorded either in the 1986 accounting books of
IVO or in its annual financial statement for 1986, a document that was
prepared prior to the controversy. (Exhibits 6 to 6-0 and 7 to 7-1).
Emelita Ortega, formerly an assistant of Dominador Monteverde,
testified that they were strange goings-on about the 1986 contract.
They were neither recorded in the books nor reported to the Central
Bank. What is more, in those unreported cases where profits were
made, such profits were ordered remitted to unknown accounts in
California, U.S.A., by Dominador Monteverde.

xxx

xxx

xxx

Evidently, Dominador Monteverde made business or himself, using the

name of IVO but concealing from it his speculative transactions.

The foregoing claim of petitioner is not, however, substantiated by the

evidence and only raises several questions, to wit: 1.] Did Safic commit
to deliver the quantity of oil covered by the 1986 contracts to its own
buyers? Who were these buyers? What were the terms of those
contracts with respect to quantity, price and date of delivery? 2.] Did
Safic pay damages to its buyers? Where were the receipts? Did Safic
have to procure the equivalent oil from other sources? If so, who were
these sources? Where were their contracts and what were the terms of
these contracts as to quantity, price and date of delivery?

The records disclose that during the course of the proceedings in the
trial court, IVO filed an amended motion22 for production and
inspection of the following documents: a.] contracts of resale of
coconut oil that Safic bought from IVO; b.] the records of the pooling
and sales contracts covering the oil from such pooling, if the coconut
oil has been pooled and sold as general oil; c.] the contracts of the
purchase of oil that, according to Safic, it had to resort to in order to fill
up alleged undelivered commitments of IVO; d.] all other contracts,
confirmations, invoices, wash out agreements and other documents of
sale related to (a), (b) and (c). This amended motion was opposed by

56

Safic.23 The trial court, however, in its September 16, 1988 Order ,24
ruled that:

From the analysis of the parties' respective positions, conclusion can

easily be drawn therefrom that there is materiality in the defendant's
move: firstly, plaintiff seeks to recover damages from the defendant
and these are intimately related to plaintiffs alleged losses which it
attributes to the default of the defendant in its contractual
commitments; secondly, the documents are specified in the amended
motion. As such, plaintiff would entertain no confusion as to what,
which documents to locate and produce considering plaintiff to be
(without doubt) a reputable going concern in the management of the
affairs which is serviced by competent, industrious, hardworking and
diligent personnel; thirdly, the desired production and inspection of
the documents was precipitated by the testimony of plaintiffs witness
(Donald O'Meara) who admitted, in open court, that they are available.
If the said witness represented that the documents, as generally
described, are available, reason there would be none for the same
witness to say later that they could not be produced, even after they
have been clearly described.

Besides, if the Court may additionally dwell on the issue of damages,

the production and inspection of the desired documents would be of
tremendous help in the ultimate resolution thereof. Plaintiff claims for
the award of liquidated or actual damages to the tune of
US$391,593.62 which, certainly, is a huge amount in terms of pesos,
and which defendant disputes. As the defendant cannot be precluded
in taking exceptions to the correctness and validity of such claim which
plaintiffs witness (Donald O'Meara) testified to, and as, by this nature
of the plaintiffs claim for damages, proof thereof is a must which can
be better served, if not amply ascertained by examining the records of
the related sales admitted to be in plaintiffs possession, the amended
motion for production and inspection of the defendant is in order.

The interest of justice will be served best, if there would be a full

disclosure by the parties on both sides of all documents related to the
transactions in litigation.

Notwithstanding the foregoing ruling of the trial court, Safic did not
produce the required documents, prompting the court a quo to
assume that if produced, the documents would have been adverse to
Safic's cause. In its efforts to bolster its claim for damages it
purportedly sustained, Safic suggests a substitute mode of computing
its damages by getting the average price it paid for certain quantities of
coconut oil that it allegedly bought in 1987 and deducting this from the
average price of the 1986 contracts. But this mode of computation if
flawed .because: 1.] it is conjectural since it rests on average prices not
on actual prices multiplied by the actual volume of coconut oil per
contract; and 2.] it is based on the unproven assumption that the 1987
contracts of purchase provided the coconut oil needed to make up for
the failed 1986 contracts. There is also no evidence that Safic had
contracted to supply third parties with coconut oil from the 1986
contracts and that Safic had to buy such oil from others to meet the
requirement.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19001

November 11, 1922

HARRY E. KEELER ELECTRIC CO., INC., plaintiff-appellant, vs.

DOMINGO RODRIGUEZ, defendant-appellee.

Hartford Beaumont for appellant.

Ross and Lawrence and Antonio T. Carrascoso, Jr., for appellee.

Along the same vein, it is worthy to note that the quantities of oil
covered by its 1987 contracts with third parties do not match the
quantities of oil provided under the 1986 contracts. Had Safic produced
the documents that the trial court required, a substantially correct
determination of its actual damages would have been possible. This,
unfortunately, was not the case. Suffice it to state in this regard that
"[T]he power of the courts to grant damages and attorney's fees
demands factual, legal and equitable justification; its basis cannot be
left to speculation and conjecture."25

STATEMENT

The plaintiff is a domestic corporation with its principal office in the

city of Manila and engaged in the electrical business, and among other
things in the sale of what is known as the "Matthews" electric plant,
and the defendant is a resident of Talisay, Occidental Negros, and A. C.
Montelibano was a resident of Iloilo.

WHEREFORE, in view of all the foregoing, the petition is DENIED for

lack of merit.

SO ORDERED.

Davide, Jr., Puno*, Kapunan, and Pardo, JJ., concur.

Having this information, Montelibano approached plaintiff at its Manila

office, claiming that he was from Iloilo and lived with Governor Yulo;
that he could find purchaser for the "Matthews" plant, and was told by
the plaintiff that for any plant that he could sell or any customer that
he could find he would be paid a commission of 10 per cent for his
services, if the sale was consummated. Among other persons.
Montelibano interviews the defendant, and, through his efforts, one of
the "Matthews" plants was sold by the plaintiff to the defendant, and
was shipped from Manila to Iloilo, and later installed on defendant's
premises after which, without the knowledge of the plaintiff, the
defendant paid the purchase price to Montelibano. As a result, plaintiff

57

commenced this action against the defendant, alleging that about

August 18, 1920, it sold and delivered to the defendant the electric
plant at the agreed price of P2,513.55 no part of which has been paid,
the demands judgment for the amount with interest from October 20,
1920.

For answer, the defendant admits the corporation of the plaintiff, and
denies all other material allegations of the complaint, and, as an
affirmative defense, alleges "that on or about the 18th of August, 1920,
the plaintiff sold and delivered to the defendant a certain electric plant
and that the defendant paid the plaintiff the value of said electric
plant, to wit: P2,513.55."

It appears from the testimony of H. E. Keeler that he was president of

the plaintiff and that the plant in question was shipped from Manila to
Iloilo and consigned to the plaintiff itself, and that at the time of the
shipment the plaintiff sent Juan Cenar, one of its employees, with the
shipment, for the purpose of installing the plant on defendant's
premises. That plaintiff gave Cenar a statement of the account,
including some extras and the expenses of the mechanic, making a
total of P2,563,95. That Montelibano had no authority from the
plaintiff to receive or receipt for money. That in truth and in fact his
services were limited and confined to the finding of purchasers for the
"Matthews" plant to whom the plaintiff would later make and
consummate the sale. That Montelibano was not an electrician, could
not install the plant and did not know anything about its mechanism.

I, and he assured me that he was duly authorized to collect the value of

the electrical plant.

The receipt offered in evidence is headed:

STATEMENT

Folio No. 2494

Mr. DOMINGO RODRIGUEZ,

Iloilo, Iloilo, P.I.

Upon such issues the testimony was taken, and the lower court
rendered judgment for the defendant, from which the plaintiff appeals,
claiming that the court erred in holding that the payment to A. C.
Montelibano would discharge the debt of defendant, and in holding
that the bill was given to Montelibano for collection purposes, and that
the plaintiff had held out Montelibano to the defendant as an agent
authorized to collect, and in rendering judgment for the defendant,
and in not rendering judgment for the plaintiff.

JOHNS, J.:

The testimony is conclusive that the defendant paid the amount of

plaintiff's claim to Montelibano, and that no part of the money was
ever paid to the plaintiff. The defendant, having alleged that the
plaintiff sold and delivered the plant to him, and that he paid the
plaintiff the purchase price, it devolved upon the defendant to prove
the payment to the plaintiff by a preponderance of the evidence.

Cenar, as a witness for the plaintiff, testified that he went with

shipment of the plant from Manila to Iloilo, for the purpose of
installing, testing it, and to see that everything was satisfactory. That
he was there about nine days, and that he installed the plant, and that
it was tested and approved by the defendant. He also says that he
personally took with him the statement of account of the plaintiff
against the defendant, and that after he was there a few days, the
defendant asked to see the statement, and that he gave it to him, and
the defendant said, "he was going to keep it." I said that was all right "if
you want." "I made no effort at all to collect the amount from him
because Mr. Rodriguez told me he was going to pay for the plant here
in Manila." That after the plant was installed and approved, he
delivered it to the defendant and returned to Manila.

The only testimony on the part of the defendant is that of himself in

the form of a deposition in which he says that Montelibano sold and
delivered the plant to him, and "was the one who ordered the
installation of that electrical plant," and he introduced in evidence as
part of his deposition a statement and receipt which Montelibano
signed to whom he paid the money. When asked why he paid the
money to Montelibano, the witness says:

In account with
HARRY E. KEELER ELECTRIC COMPANY, INC.
221 Calle Echaque, Quiapo, Manila, P.I.
MANILA, P.I., August 18, 1920.

The answer alleges and the receipt shows upon its face that the
plaintiff sold the plant to the defendant, and that he bought it from the
plaintiff. The receipt is signed as follows:

Received payment
HARRY E. KEELER ELECTRIC CO. Inc.,

Recibi
Because he was the one who sold, delivered, and installed the
electrical plant, and he presented to me the account, Exhibits A and A-

(Sgd.) A. C. MONTELIBANO.

58

There is nothing on the face of this receipt to show that Montelibano

was the agent of, or that he was acting for, the plaintiff. It is his own
personal receipt and his own personal signature. Outside of the fact
that Montelibano received the money and signed this receipt, there is
no evidence that he had any authority, real or apparent, to receive or
receipt for the money. Neither is there any evidence that the plaintiff
ever delivered the statement to Montelibano, or authorized anyone to
deliver it to him, and it is very apparent that the statement in question
is the one which was delivered by the plaintiff to Cenar, and is the one
which Cenar delivered to the defendant at the request of the
defendant.

The evidence of the defendant that Montelibano was the one who sold
him the plant is in direct conflict with his own pleadings and the receipt
statement which he offered in evidence. This statement also shows
upon its face that P81.60 of the bill is for:

To Passage round trip, 1st Class @

P40.80 a trip ........................................... P81.60.

Electric plant accessories and installation are paid to Montelibano

about three weeks Keeler Company did not present bill.
And article 1727 provides:

This is in direct conflict with the receipted statement, which the

defendant offered in evidence, signed by Montelibano. That shows
upon its face that it was an itemized statement of the account of
plaintiff with the defendant. Again, it will be noted that the receipt
which Montelibano signed is not dated, and it does not show when the
money was paid: Speaking of Montelibano, the defendant also
testified: "and he assured me that he was duly authorized to collect the
value of the electrical plant." This shows upon its face that the question
of Montelibano's authority to receive the money must have been
discussed between them, and that, in making the payment, defendant
relied upon Montelibano's own statements and representation, as to
his authority, to receipt for the money.

In the final analysis, the plant was sold by the plaintiff to the
defendant, and was consigned by the plaintiff to the plaintiff at Iloilo
where it was installed by Cenar, acting for, and representing, the
plaintiff, whose expense for the trip is included in, and made a part of,
the bill which was receipted by Montelibano.

Plus Labor @ P5.00 per day

Machine's transportation ................. 9.85.

This claim must be for the expenses of Cenar in going to Iloilo from
Manila and return, to install the plant, and is strong evidence that it
was Cenar and not Montelibano who installed the plant. If
Montelibano installed the plant, as defendant claims, there would not
have been any necessity for Cenar to make this trip at the expense of
the defendant. After Cenar's return to Manila, the plaintiff wrote a
letter to the defendant requesting the payment of its account, in
answer to which the defendant on September 24 sent the following
telegram:

There is no evidence that the plaintiff ever delivered any statements to

Montelibano, or that he was authorized to receive or receipt for the
money, and defendant's own telegram shows that the plaintiff "did not
present bill" to defendant. He now claims that at the very time this
telegram was sent, he had the receipt of Montelibano for the money
upon the identical statement of account which it is admitted the
plaintiff did render to the defendant.

Article 1162 of the Civil Code provides:

Payment must be made to the persons in whose favor the obligation is

constituted, or to another authorized to receive it in his name.

The principal shall be liable as to matters with respect to which the

agent has exceeded his authority only when he ratifies the same
expressly or by implication.

In the case of Ormachea Tin-Conco vs. Trillana (13 Phil., 194), this court
held:

The repayment of a debt must be made to the person in whose favor

the obligation is constituted, or to another expressly authorized to
receive the payment in his name.

Mechem on Agency, volume I, section 743, says:

In approaching the consideration of the inquiry whether an assumed

authority exist in a given case, there are certain fundamental principles
which must not be overlooked. Among these are, as has been seen, (1)
that the law indulges in no bare presumptions that an agency exists: it
must be proved or presumed from facts; (2) that the agent cannot
establish his own authority, either by his representations or by
assuming to exercise it; (3) that an authority cannot be established by
mere rumor or general reputation; (4)that even a general authority is
not an unlimited one; and (5) that every authority must find its
ultimate source in some act or omission of the principal. An
assumption of authority to act as agent for another of itself challenges
inquiry. Like a railroad crossing, it should be in itself a sign of danger
and suggest the duty to "stop, look, and listen." It is therefore declared
to be a fundamental rule, never to be lost sight of and not easily to be
overestimated, that persons dealing with an assumed agent, whether
the assumed agency be a general or special one, are bound at their
peril, if they would hold the principal, to ascertain not only the fact of

59

the agency but the nature and extent of the authority, and in case
either is controverted, the burden of proof is upon them to establish it.

. . . It is, moreover, in any case entirely within the power of the person
dealing with the agent to satisfy himself that the agent has the
authority he assumes to exercise, or to decline to enter into relations
with him. (Melchem on Agency, vol. I, sec. 746.)

The person dealing with the agent must also act with ordinary
prudence and reasonable diligence. Obviously, if he knows or has good
reason to believe that the agent is exceeding his authority, he cannot
claim protection. So if the suggestions of probable limitations be of
such a clear and reasonable quality, or if the character assumed by the
agent is of such a suspicious or unreasonable nature, or if the authority
which he seeks to exercise is of such an unusual or improbable
character, as would suffice to put an ordinarily prudent man upon his
guard, the party dealing with him may not shut his eyes to the real
state of the case, but should either refuse to deal with the agent at all,
or should ascertain from the principal the true condition of affairs.
(Mechem on Agency, vol. I, sec 752.)

Applying the above rules, the testimony is conclusive that the plaintiff
never authorized Montelibano to receive or receipt for money in its
behalf, and that the defendant had no right to assume by any act or
deed of the plaintiff that Montelibano was authorized to receive the
money, and that the defendant made the payment at his own risk and
on the sole representations of Montelibano that he was authorized to
receipt for the money.

The judgment of the lower court is reversed, and one will be entered
here in favor of the plaintiff and against the defendant for the sum of
P2,513.55 with interest at the legal rate from January 10, 1921, with
costs in favor of the appellant. So ordered.

Araullo, C. J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand,

and Romualdez, JJ., concur.

Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case No. CEB-8187
2 holding petitioners Bacaltos Coal Mines and German A. Bacaltos and
their co-defendant Rene R. Savellon jointly and severally liable to
private respondent San Miguel Corporation under a Trip Charter Party.

The paramount issue raised is whether Savellon was duly authorized by

the petitioners to enter into the Trip Charter Party (Exhibit "A") 3 under
and by virtue of an Authorization (Exhibit "C" and Exhibit "1"), 4 dated
1 March 1988, the pertinent portions of which read as follows:

I.
GERMAN A. BACALTOS, of legal age, Filipino, widower, and
residing at second street, Espina Village, Cebu City, province of Cebu,
Philippines, do hereby authorize RENE R. SAVELLON, of legal age,
Filipino and residing at 376-R Osmea Blvd., Cebu City, Province of
Cebu, Philippines, to use the coal operating contract of BACALTOS
COAL MINES of which I am the proprietor, for any legitimate purpose
that it may serve. Namely, but not by way of limitation, as follows:

Republic of the Philippines

SUPREME COURT

(1)
To acquire purchase orders for and in behalf of BACALTOS
COAL MINES;

Manila
And not only must the person dealing with the agent ascertain the
existence of the conditions, but he must also, as in other cases, be able
to trace the source of his reliance to some word or act of the principal
himself if the latter is to be held responsible. As has often been pointed
out, the agent alone cannot enlarge or extend his authority by his own
acts or statements, nor can he alone remove limitations or waive
conditions imposed by his principal. To charge the principal in such a
case, the principal's consent or concurrence must be shown. (Mechem
on Agency, vol. I, section 757.)

FIRST DIVISION
G.R. No. 114091

June 29, 1995

BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners, vs.

HON. COURT OF APPEALS and SAN MIGUEL CORPORATION,
respondents.
DAVIDE, JR., J.:

This was a single transaction between the plaintiff and the

defendant.lawph!l.net

(2)
To engage in trading under the style of BACALTOS COAL
MINES/RENE SAVELLON;

Petitioners seek the reversal of the decision of 30 September 1993 of

the Court of Appeals in CA-G.R. CV No. 35180, 1 entitled "San Miguel
Corporation vs. Bacaltos Coal Mines, German A. Bacaltos and Rene R.
Savellon," which affirmed the decision of 19 August 1991 of the

(3)
To collect all receivables due or in arrears from people or
companies having dealings under BACALTOS COAL MINES/RENE
SAVELLON;

(4)
To extend to any person or company by substitution the
same extent of authority that is granted to Rene Savellon;

60

(5)
In connection with the preceeding paragraphs to execute
and sign documents, contracts, and other pertinent papers.

Savellon did not file his Answer and was declared in default on 17 July
1990. 8
3.
Whether or not the plaintiff was correct and not mistaken in
issuing the checks in payment of the contract in the name of defendant
Savellon and not in the name of defendant Bacaltos Coal Mines;

Further, I hereby give and grant to RENE SAVELLON full authority to do

and perform all and every lawful act requisite or necessary to carry into
effect the foregoing stipulations as fully to all intents and purposes as I
might or would lawfully do if personally present, with full power of
substitution and revocation.

The Trip Charter Party was executed on 19 October 1988 "by and
between BACALTOS COAL MINES, represented by its Chief Operating
Officer, RENE ROSEL SAVELLON" and private respondent San Miguel
Corporation (hereinafter SMC), represented by Francisco B. Manzon,
Jr., its "SAVP and Director, Plant Operations-Mandaue" Thereunder,
Savellon claims that Bacaltos Coal Mines is the owner of the vessel M/V
Premship II and that for P650,000.00 to be paid within seven days after
the execution of the contract, it "lets, demises" the vessel to charterer
SMC "for three round trips to Davao."

As payment of the aforesaid consideration, SMC issued a check (Exhibit

"B") 5 payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL
MINES" for which Savellon issued a receipt under the heading of
BACALTOS COAL MINES with the address at No 376-R Osmea Blvd.,
Cebu City (Exhibit "B-1"). 6

At the pre-trial conference on 1 February 1991, the petitioners and

SMC agreed to submit the following issues for resolution:
4.
Plaintiff

counterclaim. 9

1.
Whether or not defendants are jointly liable to plaintiff for
damages on account of breach of contract;

After trial, the lower court rendered the assailed decision in favor of
SMC and against the petitioners and Savellon as follows:

2.
Whether or not the defendants acted in good faith in its
representations to the plaintiff;

WHEREFORE, by preponderance of evidence, the Court hereby renders

judgment in favor of plaintiff and against defendants, ordering
defendants Rene Savellon, Bacaltos Coal Mines and German A.
Bacaltos, jointly and severally, to pay to plaintiff:

3.
Whether or not defendant Bacaltos was duly enriched on
the payment made by the plaintiff for the use of the vessel;
1.
The amount of P433,000.00 by way of reimbursement of
the consideration paid by plaintiff, plus 12% interest to start from date
of written demand, which is June 14, 1989;
4.
Whether or not defendant Bacaltos is estopped to deny the
authorization given to defendant Savellon;
2.

The vessel was able to make only one trip. Its demands to comply with
the contract having been unheeded, SMC filed against the petitioners
and Rene Savellon the complaint in Civil Case No. CEB-8187 for specific
performance and damages. In their Answer, 7 the petitioners alleged
that Savellon was not their Chief Operating Officer and that the powers
granted to him are only those clearly expressed in the Authorization
which do not include the power to enter into any contract with SMC.
They further claimed that if it is true that SMC entered into a contract
with them, it should have issued the check in their favor. They setup
counterclaims for moral and exemplary damages and attorney's fees.

Whether or not the plaintiff is liable on defendants'

The amount of P20,000.00 by way of exemplary damages;

Defendants
3.
The amount of P20,000.00 as attorney's fees and P5,000.00
as Litigation expenses. Plus costs. 10
1.
Whether or not the plaintiff should have first investigated
the ownership of vessel M/V PREM [SHIP] II before entering into any
contract with defendant Savellon;

2.
Whether or not defendant Savellon was authorized to enter
into a shipping contract with the [plaintiff] corporation;

It ruled that the Authorization given by German Bacaltos to Savellon

necessarily included the power to enter into the Trip Charter Party. It
did not give credence to the petitioners' claim that the authorization
refers only to coal or coal mining and not to shipping because,
according to it, "the business of coal mining may also involve the

61

shipping of products" and "a company such as a coal mining company

is not prohibited to engage in entering into a Trip Charter Party
contract." It further reasoned out that even assuming that the
petitioners did not intend to authorize Savellon to enter into the Trip
Charter Party, they are still liable because: (a) SMC appears to be an
innocent party which has no knowledge of the real intent of the parties
to the Authorization and has reason to rely on the written
Authorization submitted by Savellon pursuant to Articles 1900 and
1902 of the Civil Code; (b) Savellon issued an official receipt of Bacaltos
Coal Mines (Exhibit "B-1") for the consideration of the Trip Charter
Party, and the petitioners denial that they caused the printing of such
official receipt is "lame" because they submitted only a cash voucher
and not their official receipt; (c) the "Notice of Readiness" (Exhibit "A1") is written on a paper with the letterhead "Bacaltos Coal Mines" and
the logo therein is the same as that appearing in their voucher; (d) the
petitioners were benefited by the payment because the real payee in
the check is actually Bacaltos Coal Mines and since in the Authorization
they authorized Savellon to collect receivables due or in arrears, the
check was then properly delivered to Savellon; and, (e) if indeed
Savellon had not been authorized or if indeed he exceeded his
authority or if the Trip Charter Party was personal to him and the
petitioners have nothing to do with it, then Savellon should have
"bother[ed] to answer" the complaint and the petitioners should have
filed "a cross-claim" against him.

In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the

petitioners asserted that the trial court erred in: (a) not holding that
SMC was negligent in (1) not verifying the credentials of Savellon and
the ownership of the vessel, (2) issuing the check in the name of
Savellon in trust for Bacaltos Coal Mines thereby allowing Savellon to
encash the check, and, (3) making full payment of P650,000.00 after
the vessel made only one trip and before it completed three trips as
required in the Trip Charter Party; (b) holding that under the authority
given to him Savellon was authorized to enter into the Trip Charter
Party; and, (c) holding German Bacaltos jointly and severally liable with
Savellon and Bacaltos Coal Mines. 11

As stated at the beginning, the Court of Appeals affirmed in toto the

judgment of the trial court. It held that: (a) the credentials of Savellon
is not an issue since the petitioners impliedly admitted the agency

while the ownership of the vessel was warranted on the face of the
Trip Charter Party; (b) SMC was not negligent when it issued the check
in the name of Savellon in trust for Bacaltos Coal Mines since the
Authorization clearly provides that collectibles of the petitioners can be
coursed through Savellon as the agent; (c) the Authorization includes
the power to enter into the Trip Charter Party because the "five
prerogatives" enumerated in the former is prefaced by the phrase "but
not by way of limitation"; (d) the petitioners' statement that the check
should have been issued in the name of Bacaltos Coal Mines is another
implicit admission that the Trip Charter Party is part and parcel of the
petitioners' business notwithstanding German Bacaltos's contrary
interpretation when he testified, and in any event, the construction of
obscure words should not favor him since he prepared the
Authorization in favor of Savellon; and, (e) German Bacaltos admitted
in the Answer that he is the proprietor of Bacaltos Coal Mines and he
likewise represented himself to be so in the Authorization itself, hence
he should not now be permitted to disavow what he initially stated to
be true and to interpose the defense that Bacaltos Coal Mines has a
distinct legal personality.

Their motion for a reconsideration of the above decision having been

denied, the petitioners filed the instant petition wherein they raise the
following errors:

I.
THE RESPONDENT COURT ERRED IN HOLDING THAT RENE
SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP CHARTER PARTY
CONTRACT WITH PRIVATE RESPONDENT INSPITE OF ITS FINDING THAT
SUCH AUTHORITY CANNOT BE FOUND IN THE FOUR CORNERS OF THE
AUTHORIZATION;

II.
THE RESPONDENT COURT ERRED IN NOT HOLDING THAT BY
ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN TRUST FOR
BACALTOS COAL MINES, THE PRIVATE RESPONDENT WAS THE AUTHOR
OF ITS OWN DAMAGE; AND

III.
THE RESPONDENT COURT ERRED IN HOLDING PETITIONER
GERMAN BACALTOS JOINTLY AND SEVERALLY LIABLE WITH RENE

SAVELLON AND CO-PETITIONER BACALTOS COAL MINES IN SPITE OF

THE FINDING OF THE COURT A QUO THAT PETITIONER BACALTOS COAL
MINES AND PETITIONER BACALTOS ARE TWO DISTINCT AND SEPARATE
LEGAL PERSONALITIES. 12

After due deliberations on the allegations, issues raised, and

arguments adduced in the petition, and the comment thereto and
reply to the comment, the Court resolved to give due course to the
petition.

Every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. If he does not make
such inquiry, he is chargeable with knowledge of the agent's authority,
and his ignorance of that authority will not be any excuse. Persons
dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the
principal, to ascertain not only the fact of the agency but also the
nature and extent of the authority, and in case either is controverted,
the burden of proof is upon them to establish it. 13 American
jurisprudence 14 summarizes the rule in dealing with an agent as
follows:

A third person dealing with a known agent may not act negligently with
regard to the extent of the agent's authority or blindly trust the agent's
statements in such respect. Rather, he must use reasonable diligence
and prudence to ascertain whether the agent is acting and dealing with
him within the scope of his powers. The mere opinion of an agent as to
the extent of his powers, or his mere assumption of authority without
foundation, will not bind the principal; and a third person dealing with
a known agent must bear the burden of determining for himself, by the
exercise of reasonable diligence and prudence, the existence or
nonexistence of the agent's authority to act in the premises. In other
words, whether the agency is general or special, the third person is
bound to ascertain not only the fact of agency, but the nature and
extent of the authority. The principal, on the other hand, may act on
the presumption that third persons dealing with his agent will not be
negligent in failing to ascertain the extent of his authority as well as the
existence of his agency.

62

Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez, 15 quoting

Mechem on Agency:

The person dealing with the agent must also act with ordinary
prudence and reasonable diligence. Obviously, if he knows or has good
reason to believe that the agent is exceeding his authority, he cannot
claim protection. So if the suggestions of probable limitations be of
such a clear and reasonable quality, or if the character assumed by the
agent is of such a suspicious or unreasonable nature, or if the authority
which he seeks to exercise is of such an unusual or improbable
character, as would suffice to put an ordinarily prudent man upon his
guard, the party dealing with him may not shut his eyes to the real
estate of the case, but should either refuse to deal with the agent at
all, or should ascertain from the principal the true condition of affairs.
[emphasis supplied].

In the instant case, since the agency of Savellon is based on a written

document, the Authorization of 1 March 1988 (Exhibits "C" and "1"),
the extent and scope of his powers must be determined on the basis
thereof. The language of the Authorization is clear. It pertinently states
as follows:

I.
GERMAN A. BACALTOS do hereby authorize RENE R.
SAVELLON . . . to use the coal operating contract of BACALTOS COAL
MINES, of which I am the proprietor, for any legitimate purpose that it
may serve. Namely, but not by way of limitation, as follows . . .
[emphasis supplied].

There is only one express power granted to Savellon, viz., to use the
coal operating contract for any legitimate purpose it may serve. The
enumerated "five prerogatives" to employ the term used by the
Court of Appeals are nothing but the specific prerogatives subsumed
under or classified as part of or as examples of the power to use the
coal operating contract. The clause "but not by way of limitation"
which precedes the enumeration could only refer to or contemplate

other prerogatives which must exclusively pertain or relate or be

germane to the power to use the coal operating contract. The
conclusion then of the Court of Appeals that the Authorization includes
the power to enter into the Trip Chapter Party because the "five
prerogatives" are prefaced by such clause, is seriously flawed. It fails to
note that the broadest scope of Savellon's authority is limited to the
use of the coal operating contract and the clause cannot contemplate
any other power not included in the enumeration or which are
unrelated either to the power to use the coal operating contract or to
those already enumerated. In short, while the clause allows some room
for flexibility, it can comprehend only additional prerogatives falling
within the primary power and within the same class as those
enumerated. The trial court, however, went further by hastily making a
sweeping conclusion that "a company such as a coal mining company is
not prohibited to engage in entering into a Trip Charter Party contract."
16 But what the trial court failed to consider was that there is no
evidence at all that Bacaltos Coal Mines as a coal mining company
owns and operates vessels, and even if it owned any such vessels, that
it was allowed to charter or lease them. The trial court also failed to
note that the Authorization is not a general power of attorney. It is a
special power of attorney for it refers to a clear mandate specifically
authorizing the performance of a specific power and of express acts
subsumed therein. 17 In short, both courts below unreasonably
expanded the express terms of or otherwise gave unrestricted meaning
to a clause which was precisely intended to prevent unwarranted and
unlimited expansion of the powers entrusted to Savellon. The
suggestion of the Court of Appeals that there is obscurity in the
Authorization which must be construed against German Bacaltos
because he prepared the Authorization has no leg to stand on
inasmuch as there is no obscurity or ambiguity in the instrument. If any
obscurity or ambiguity indeed existed, then there will be more reason
to place SMC on guard and for it to exercise due diligence in seeking
clarification or enlightenment thereon, for that was part of its duty to
discover upon its peril the nature and extent of Savellon's written
agency. Unfortunately, it did not.

Howsoever viewed, the foregoing conclusions of the Court of Appeals

and the trial court are tenuous and farfetched, bringing to
unreasonable limits the clear parameters of the powers granted in the
Authorization.

Furthermore, had SMC exercised due diligence and prudence, it should

have known in no time that there is absolutely nothing on the face of
the Authorization that confers upon Savellon the authority to enter
into any Trip Charter Party. Its conclusion to the contrary is based
solely on the second prerogative under the Authorization, to wit:

(2)
To engage in trading under the style of BACALTOS COAL
MINES/RENE SAVELLON;

unmindful that such is but a part of the primary authority to use the
coal operating contract which it did not even require Savellon to
produce. Its principal witness, Mr. Valdescona, expressly so admitted
on cross-examination, thus:

Atty. Zosa (to witness ON CROSS)

Q
You said that in your office Mr. Rene Savellon presented to
you this authorization marked Exhibit "C" and Exhibit "1" for the
defendant?

Yes, sir.

Q
Did you read in the first part[y] of this authorization Mr.
Valdescona that Mr. Rene Savellon was authorized as the coal
operating contract of Bacaltos Coal Mines?

Yes, sir.

Q
Did it not occur to you that you should have examined
further the authorization of Mr. Rene Savellon, whether or not this coal

63

operating contract allows Mr. Savellon to enter into a trip charter

party?

A
Yes, sir. We discussed about the extent of his authorization
and he referred us to the number 2 provision of this authorization
which is to engage in trading under the style of Bacaltos Coal
Mines/Rene Savellon, which we followed up to the check preparation
because it is part of the authority.

Q
In other words, you examined this and you found out that
Mr. Savellon is authorized to use the coal operating contract of
Bacaltos Coal Mines?

indispensable to an inquiry into the extent or scope of his authority.

For this reason, we now deem it necessary to examine the nature of a
coal operating contract.

A coal operating contract is governed by P.D. No. 972 (The Coal

Development Act of 1976), as amended by P.D. No. 1174. It is one of
the authorized ways of active exploration, development, and
production of coal resources 19 in a specified contract area. 20 Section
9 of the decree prescribes the obligation of the contractor, thus:

Sec. 9.
Obligations of Operator in Coal Operating Contract. The
operator under a coal operating contract shall undertake, manage and
execute the coal operations which shall include:

Yes, sir.

Q
You doubted his authority but you found out in paragraph 2
that he is authorized that's why you agreed and entered into that trip
charter party?

(a)
The examination and investigation of lands supposed to
contain coal, by detailed surface geologic mapping, core drilling,
trenching, test pitting and other appropriate means, for the purpose of
probing the presence of coal deposits and the extent thereof;

(b)

Provide the requisite financing;

(c)
Perform the work obligations and program prescribed in the
coal operating contract which shall not be less than those prescribed in
this Decree;

(d)
Operate the area on behalf of the Government in
accordance with good coal mining practices using modern methods
appropriate for the geological conditions of the area to enable
maximum economic production of coal, avoiding hazards to life, health
and property, avoiding pollution of air, lands and waters, and pursuant
to an efficient and economic program of operation;

(e)
Furnish the Energy Development Board promptly with all
information, data and reports which it may require;.

(f)
Maintain detailed technical records and account of its
expenditures;
(b)
Steps necessary to reach the coal deposit so that it can be
mined, including but not limited to shaft sinking and tunneling; and

A
We did not doubt his authority but we were questioning as
to the extent of his operating contract.

(g)
Conform to regulations regarding, among others, safety
demarcation of agreement acreage and work areas, non-interference
(c)

The extraction and utilization of coal deposits.

with the rights of the other petroleum, mineral and natural resources
operators;

Q
Did you not require Mr. Savellon to produce that coal
operating contract of Bacaltos Coal Mines?
The Government shall oversee the management of the operation
contemplated in a coal operating contract and in this connection, shall
require the operator to:
A

No sir. We did not. 18

(a)

(h)
Maintain all necessary equipment in good order and allow
access to these as well as to the exploration, development and
production sites and operations to inspectors authorized by the Energy
Development Board;

Provide all the necessary service and technology;

Since the principal subject of the Authorization is the coal operating

contract, SMC should have required its presentation to determine what
it is and how it may be used by Savellon. Such a determination is

64

(i)
Allow representatives authorized by the Energy
Development Board full access to their accounts, books and records for
tax and other fiscal purposes.

Did he mention the owner of that vessel?

A

Yes, sir. That it is Bacaltos.

He further declared as follows:

Section 11 thereof provides for the minimum terms and conditions of a

coal operating contract.
Q

From the foregoing, it is obvious that a scrutiny of the coal operating

contract of Bacaltos Coal Mines would have provided SMC knowledge
of the activities which are germane, related, or incident to the power
to use it. But it did not even require Savellon to produce the same.

Did he present a document to you?

Q
When you entered into a trip charter contract did you check
the ownership of M/V Premship?

Yes, sir. He presented to us the authorization.

Q
When Mr. Rene Savellon presented to you the authorization
what did you do?.
SMC's negligence was further compounded by its failure to verify if
Bacaltos Coal Mines owned a vessel. A party desiring to charter a vessel
must satisfy itself that the other party is the owner of the vessel or is at
least entitled to its possession with power to lease or charter the
vessel. In the instant case, SMC made no such attempt. It merely
satisfied itself with the claim of Savellon that the vessel it was leasing is
owned by Bacaltos Coal Mines and relied on the presentation of the
Authorization as well as its test on the sea worthiness of the vessel.
Valdescona thus declared on direct examination as follows:

A
On the strength of that authorization we initially asked him
for us to check the vessel to see its sea worthiness, and we assigned
our in-house surveyor to check the sea worthiness of the vessel which
was on dry dock that time in Danao.

Q
A
In October, a certain Rene Savellon called our office offering
us shipping services. So I told him to give us a formal proposal and also
for him to come to our office so that we can go over his proposal and
formally discuss his offer.

Did Mr. Rene Savellon go to your office?

A
Few days later he came to our office and gave us his
proposal verbally offering a vessel for us to use for our cargo.

Yes, sir . 21

A
carrier.

A
The representation made by Mr. Rene Savellon was that
Bacaltos Coal Mines operates the vessel and on the strength of the
authorization he showed us we were made to believe that it was
Bacaltos Coal Mines that owned it.

COURT: (to witness)

In other words, you just believed Rene Savellon?

Yes, sir.

What was the result of your inspection?

We found out the vessel's sea worthiness to be our cargo

COURT: (to witness)

After that what did you do?

Q

You did not check with Bacaltos Coal Mines?

That is the representation he made.

After that we were discussing the condition of the contract.

Were you able to execute that contract?

65

Did he show you document regarding this M/V Premship II?

No document shown. 22

raised the issue of inadmissibility under the best evidence rule only
belatedly in this petition. But although Exhibit "A-1" remains admissible
for not having been timely objected to, it has no probative value as to
the ownership of the vessel.

declaration of solidary liability, holding defendant RENE R. SAVELLON

solely liable for the amounts adjudged, and ordering the dismissal of
the case as against herein petitioners.

SO ORDERED.
The Authorization itself does not state that Bacaltos Coal Mines owns
any vessel, and since it is clear therefrom that it is not engaged in
shipping but in coal mining or in coal business, SMC should have
required the presentation of pertinent documentary proof of
ownership of the vessel to be chartered. Its in-house surveyor who saw
the vessel while drydocked in Danao and thereafter conducted a sea
worthiness test could not have failed to ascertain the registered owner
of the vessel. The petitioners themselves declared in open court that
they have not leased any vessel for they do not need it in their coal
operations 23 thereby implying that they do not even own one.

The Court of Appeals' asseveration that there was no need to verify the
ownership of the vessel because such ownership is warranted on the
face of the trip charter party begs the question since Savellon's
authority to enter into that contract is the very heart of the
controversy.

We are not prepared to accept SMC's contention that the petitioners'

claim that they are not engaged in shipping and do not own any ship is
belied by the fact that they maintained a pre-printed business form
known as a "Notice of Readiness" (Exhibit "A-1"). 24 This paper is only
a photocopy and, despite its reservation to present the original for
purposes of comparison at the next
hearing, 25 SMC failed to produce the latter. This "Notice of Readiness"
is not, therefore, the best evidence, hence inadmissible under Section
3, Rule 130 of the Rules of Court. It is true that when SMC made a
formal offer of its exhibits, the petitioners did not object to the
admission of Exhibit "A-1," the "Notice of Readiness," under the best
evidence rule but on the ground that Savellon was not authorized to
enter into the Trip Charter Party and that the party who signed it, one
Elmer Baliquig, is not the petitioners' employee but of Premier
Shipping Lines, the owner of the vessel in question. 26 The petitioners

There is likewise no proof that the petitioners received the

consideration of the Trip Charter Party. The petitioners denied having
received it. 27 The evidence for SMC established beyond doubt that it
was Savellon who requested in writing on 19 October 1988 that the
check in payment therefor be drawn in favor of BACALTOS COAL
MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in
favor of RENE SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit
"B") and delivered it to Savellon who there upon issued a receipt
(Exhibit "B-1"). We agree with the petitioners that SMC committed
negligence in drawing the check in the manner aforestated. It even
disregarded the request of Savellon that it be drawn in favor of
BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that
the transaction was permitted in the Authorization, the check should
still have been drawn in favor of the principal. SMC then made possible
the wrong done. There is an equitable maxim that between two
innocent parties, the one who made it possible for the wrong to be
done should be the one to bear the resulting loss. 28 For this rule to
apply, the condition precedent is that both parties must be innocent. In
the present case, however, SMC is guilty of not ascertaining the extent
and limits of the authority of Savellon. In not doing so, SMC dealt with
Savellon at its own peril.

Having thus found that SMC was the author of its own damage and
that the petitioners are, therefore, free from any liability, it has
become unnecessary to discuss the issue of whether Bacaltos Coal
Mines is a corporation with a personality distinct and separate from
German Bacaltos.

Bellosillo, Quiason, and Kapunan, JJ., concur.

Padilla, J., took no part.

THIRD DIVISION

PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA

(represented by Mother and Attorney-in-Fact VIRGINIA CASTILLA),
Petitioners,

- versus -

COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA

OCAMPO, EUFEMIA SAN AGUSTIN-MAGSINO, ZENAIDA SAN
AGUSTIN-McCRAE, MILAGROS SAN AGUSTIN-FORTMAN, MINERVA
SAN AGUSTIN-ATKINSON, FERDINAND SAN AGUSTIN, RAUL SAN
AGUSTIN, ISABELITA SAN AGUSTIN-LUSTENBERGER and VIRGILIO SAN
AGUSTIN,
Respondents.

WHEREFORE, the instant petition is GRANTED and the challenged

decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV
No. 35180 is hereby REVERSED and SET ASIDE and another judgment is
hereby rendered MODIFYING the judgment of the Regional Trial Court
of Cebu, Branch 9, in Civil Case No. CEB-8187 by setting aside the

G.R. No. 160346

66

Present:
CARPIO MORALES, J.,*
CHICO-NAZARIO,**
Acting Chairperson,

For our resolution is a petition for review on certiorari assailing

the April 23, 2003 Decision[1] and October 8, 2003 Resolution[2] of the
Court of Appeals (CA) in CA-G.R. CV No. 59426. The appellate court, in
the said decision and resolution, reversed and set aside the January 14,
1998 Decision[3] of the Regional Trial Court (RTC), which ruled in favor
of petitioners.

VELASCO, JR.,
NACHURA, and

The dispute stemmed from the following facts.

PERALTA, JJ.

Promulgated:

August 25, 2009

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

DECISION

During their lifetime, spouses Pedro San Agustin and Agatona

Genil were able to acquire a 246-square meter parcel of land situated
in Barangay Anos, Los Baos, Laguna and covered by Original
Certificate of Title (OCT) No. O-(1655) 0-15.[4] Agatona Genil died on
September 13, 1990 while Pedro San Agustin died on September 14,
1991. Both died intestate, survived by their eight (8) children:
respondents Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva,
Isabelita and Virgilio.

Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed

of Absolute Sale of Undivided Shares[5] conveying in favor of
petitioners (the Pahuds, for brevity) their respective shares from the
lot they inherited from their deceased parents for P525,000.00.[6]
Eufemia also signed the deed on behalf of her four (4) other co-heirs,
namely: Isabelita on the basis of a special power of attorney executed
on September 28, 1991,[7] and also for Milagros, Minerva, and Zenaida
but without their apparent written authority.[8] The deed of sale was
also not notarized.[9]

NACHURA, J.:

On July 21, 1992, the Pahuds paid P35,792.31 to the Los Baos
Rural Bank where the subject property was mortgaged.[10] The bank
issued a release of mortgage and turned over the owners copy of the
OCT to the Pahuds.[11] Over the following months, the Pahuds made
more payments to Eufemia and her siblings totaling to
P350,000.00.[12] They agreed to use the remaining P87,500.00[13] to
defray the payment for taxes and the expenses in transferring the title

of the property.[14] When Eufemia and her co-heirs drafted an extrajudicial settlement of estate to facilitate the transfer of the title to the
Pahuds, Virgilio refused to sign it.[15]

On July 8, 1993, Virgilios co-heirs filed a complaint[16] for judicial

partition of the subject property before the RTC of Calamba, Laguna.
On November 28, 1994, in the course of the proceedings for judicial
partition, a Compromise Agreement[17] was signed with seven (7) of
the co-heirs agreeing to sell their undivided shares to Virgilio for
P700,000.00. The compromise agreement was, however, not approved
by the trial court because Atty. Dimetrio Hilbero, lawyer for Eufemia
and her six (6) co-heirs, refused to sign the agreement because he
knew of the previous sale made to the Pahuds.[18]

On December 1, 1994, Eufemia acknowledged having received

P700,000.00 from Virgilio.[19] Virgilio then sold the entire property to
spouses Isagani Belarmino and Leticia Ocampo (Belarminos) sometime
in 1994. The Belarminos immediately constructed a building on the
subject property.

Alarmed and bewildered by the ongoing construction on the lot

they purchased, the Pahuds immediately confronted Eufemia who
confirmed to them that Virgilio had sold the property to the
Belarminos.[20]
Aggrieved, the Pahuds filed a complaint in
intervention[21] in the pending case for judicial partition.

After trial, the RTC upheld the validity of the sale to petitioners.
The dispositive portion of the decision reads:

WHEREFORE, the foregoing considered, the Court orders:

1.
the sale of the 7/8 portion of the property covered by OCT No. O
(1655) O-15 by the plaintiffs as heirs of deceased Sps. Pedro San

67

Agustin and Agatona Genil in favor of the Intervenors-Third Party

plaintiffs as valid and enforceable, but obligating the Intervenors-Third
Party plaintiffs to complete the payment of the purchase price of
P437,500.00 by paying the balance of P87,500.00 to defendant Fe (sic)
San Agustin Magsino. Upon receipt of the balance, the plaintiff shall
formalize the sale of the 7/8 portion in favor of the Intervenor[s]-Third
Party plaintiffs;

2.
declaring the document entitled Salaysay sa Pagsang-ayon sa
Bilihan (Exh. 2-a) signed by plaintiff Eufemia San Agustin attached to
the unapproved Compromise Agreement (Exh. 2) as not a valid sale
in favor of defendant Virgilio San Agustin;

3.
declaring the sale (Exh. 4) made by defendant Virgilio San
Agustin of the property covered by OCT No. O (1655)-O-15 registered
in the names of Spouses Pedro San Agustin and Agatona Genil in favor
of Third-party defendant Spouses Isagani and Leticia Belarmino as not a
valid sale and as inexistent;

4.
declaring the defendant Virgilio San Agustin and the Third-Party
defendants spouses Isagani and Leticia Belarmino as in bad faith in
buying the portion of the property already sold by the plaintiffs in favor
of the Intervenors-Third Party Plaintiffs and the Third-Party Defendant
Sps. Isagani and Leticia Belarmino in constructing the two-[storey]
building in (sic) the property subject of this case; and

SO ORDERED.[23]

Not satisfied, respondents appealed the decision to the CA arguing, in

the main, that the sale made by Eufemia for and on behalf of her other
co-heirs to the Pahuds should have been declared void and inexistent
for want of a written authority from her co-heirs. The CA yielded and
set aside the findings of the trial court. In disposing the issue, the CA
ruled:

WHEREFORE, in view of the foregoing, the Decision dated

January 14, 1998, rendered by the Regional Trial Court of Calamba,
Laguna, Branch 92 in Civil Case No. 2011-93-C for Judicial Partition is
hereby REVERSED and SET ASIDE, and a new one entered, as follows:

(1)
The case for partition among the plaintiffs-appellees and
appellant Virgilio is now considered closed and terminated;

(2)
Ordering plaintiffs-appellees to return to intervenors-appellees
the total amount they received from the latter, plus an interest of 12%
per annum from the time the complaint [in] intervention was filed on
April 12, 1995 until actual payment of the same;

(3) Declaring the sale of appellant Virgilio San Agustin to appellants

spouses, Isagani and Leticia Belarmino[,] as valid and binding;
5.
declaring the parties as not entitled to any damages, with the
parties shouldering their respective responsibilities regarding the
payment of attorney*+s fees to their respective lawyers.

(4) Declaring appellants-spouses as buyers in good faith and for value

and are the owners of the subject property.

No pronouncement as to costs.

Petitioners now come to this Court raising the following arguments:

I.
The Court of Appeals committed grave and reversible error
when it did not apply the second paragraph of Article 1317 of the New
Civil Code insofar as ratification is concerned to the sale of the 4/8
portion of the subject property executed by respondents San Agustin in
favor of petitioners;

II.
The Court of Appeals committed grave and reversible error in
holding that respondents spouses Belarminos are in good faith when
they bought the subject property from respondent Virgilio San Agustin
despite the findings of fact by the court a quo that they were in bad
faith which clearly contravenes the presence of long line of case laws
upholding the task of giving utmost weight and value to the factual
findings of the trial court during appeals; [and]

III.
The Court of Appeals committed grave and reversible error in
holding that respondents spouses Belarminos have superior rights over
the property in question than petitioners despite the fact that the
latter were prior in possession thereby misapplying the provisions of
Article 1544 of the New Civil Code.[24]

The focal issue to be resolved is the status of the sale of the subject
property by Eufemia and her co-heirs to the Pahuds. We find the
transaction to be valid and enforceable.

No pronouncement as to costs.
SO ORDERED.[22]

Article 1874 of the Civil Code plainly provides:

68

Art. 1874. When a sale of a piece of land or any interest therein

is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.

Also, under Article 1878,[25] a special power of attorney is necessary

for an agent to enter into a contract by which the ownership of an
immovable property is transmitted or acquired, either gratuitously or
for a valuable consideration. Such stringent statutory requirement has
been explained in Cosmic Lumber Corporation v. Court of Appeals:[26]

[T]he authority of an agent to execute a contract [of] sale of real estate

must be conferred in writing and must give him specific authority,
either to conduct the general business of the principal or to execute a
binding contract containing terms and conditions which are in the
contract he did execute. A special power of attorney is necessary to
enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable
consideration. The express mandate required by law to enable an
appointee of an agency (couched) in general terms to sell must be one
that expressly mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned. For the principal to confer the right
upon an agent to sell real estate, a power of attorney must so express
the powers of the agent in clear and unmistakable language. When
there is any reasonable doubt that the language so used conveys such
power, no such construction shall be given the document.[27]

In several cases, we have repeatedly held that the absence of a written

authority to sell a piece of land is, ipso jure, void,[28] precisely to
protect the interest of an unsuspecting owner from being prejudiced
by the unwarranted act of another.

Based on the foregoing, it is not difficult to conclude, in principle, that

the sale made by Eufemia, Isabelita and her two brothers to the
Pahuds sometime in 1992 should be valid only with respect to the 4/8
portion of the subject property. The sale with respect to the 3/8
portion, representing the shares of Zenaida, Milagros, and Minerva, is
void because Eufemia could not dispose of the interest of her co-heirs
in the said lot absent any written authority from the latter, as explicitly
required by law. This was, in fact, the ruling of the CA.

Still, in their petition, the Pahuds argue that the sale with respect to
the 3/8 portion of the land should have been deemed ratified when the
three co-heirs, namely: Milagros, Minerva, and Zenaida, executed their
respective special power of attorneys[29] authorizing Eufemia to
represent them in the sale of their shares in the subject property.[30]

While the sale with respect to the 3/8 portion is void by express
provision of law and not susceptible to ratification,[31] we
nevertheless uphold its validity on the basis of the common law
principle of estoppel.

Article 1431 of the Civil Code provides:

Art. 1431. Through estoppel an admission or representation is

rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon.

True, at the time of the sale to the Pahuds, Eufemia was not armed
with the requisite special power of attorney to dispose of the 3/8
portion of the property. Initially, in their answer to the complaint in
intervention,[32] Eufemia and her other co-heirs denied having sold
their shares to the Pahuds. During the pre-trial conference, however,
they admitted that they had indeed sold 7/8 of the property to the
Pahuds sometime in 1992.[33] Thus, the previous denial was

superseded, if not accordingly amended, by their subsequent

admission.[34] Moreover, in their Comment,[35] the said co-heirs
again admitted the sale made to petitioners.[36]

Interestingly, in no instance did the three (3) heirs concerned assail the
validity of the transaction made by Eufemia to the Pahuds on the basis
of want of written authority to sell. They could have easily filed a case
for annulment of the sale of their respective shares against Eufemia
and the Pahuds. Instead, they opted to remain silent and left the task
of raising the validity of the sale as an issue to their co-heir, Virgilio,
who is not privy to the said transaction. They cannot be allowed to rely
on Eufemia, their attorney-in-fact, to impugn the validity of the first
transaction because to allow them to do so would be tantamount to
giving premium to their sisters dishonest and fraudulent deed.
Undeniably, therefore, the silence and passivity of the three co-heirs
on the issue bar them from making a contrary claim.

It is a basic rule in the law of agency that a principal is subject to

liability for loss caused to another by the latters reliance upon a
deceitful representation by an agent in the course of his employment
(1) if the representation is authorized; (2) if it is within the implied
authority of the agent to make for the principal; or (3) if it is apparently
authorized, regardless of whether the agent was authorized by him or
not to make the representation.[37]

By their continued silence, Zenaida, Milagros and Minerva have caused

the Pahuds to believe that they have indeed clothed Eufemia with the
authority to transact on their behalf. Clearly, the three co-heirs are
now estopped from impugning the validity of the sale from assailing
the authority of Eufemia to enter into such transaction.

Accordingly, the subsequent sale made by the seven co-heirs to Virgilio

was void because they no longer had any interest over the subject
property which they could alienate at the time of the second
transaction.[38] Nemo dat quod non habet. Virgilio, however, could
still alienate his 1/8 undivided share to the Belarminos.

69

The Belarminos, for their part, cannot argue that they purchased the
property from Virgilio in good faith. As a general rule, a purchaser of a
real property is not required to make any further inquiry beyond what
the certificate of title indicates on its face.[39] But the rule excludes
those who purchase with knowledge of the defect in the title of the
vendor or of facts sufficient to induce a reasonable and prudent person
to inquire into the status of the property.[40] Such purchaser cannot
close his eyes to facts which should put a reasonable man on guard,
and later claim that he acted in good faith on the belief that there was
no defect in the title of the vendor. His mere refusal to believe that
such defect exists, or his obvious neglect by closing his eyes to the
possibility of the existence of a defect in the vendors title, will not
make him an innocent purchaser for value, if afterwards it turns out
that the title was, in fact, defective. In such a case, he is deemed to
have bought the property at his own risk, and any injury or prejudice
occasioned by such transaction must be borne by him.[41]

WHEREFORE, premises considered, the April 23, 2003 Decision of the

Court of Appeals as well as its October 8, 2003 Resolution in CA-G.R. CV
No. 59426, are REVERSED and SET ASIDE. Accordingly, the January 14,
1998 Decision of Branch 92 of the Regional Trial Court of Calamba,
Laguna is REINSTATED with the MODIFICATION that the sale made by
respondent Virgilio San Agustin to respondent spouses Isagani
Belarmino and Leticia Ocampo is valid only with respect to the 1/8
portion of the subject property. The trial court is ordered to proceed
with the partition of the property with dispatch.

SO ORDERED.

In the case at bar, the Belarminos were fully aware that the property
was registered not in the name of the immediate transferor, Virgilio,
but remained in the name of Pedro San Agustin and Agatona Genil.[42]
This fact alone is sufficient impetus to make further inquiry and, thus,
negate their claim that they are purchasers for value in good faith.[43]
They knew that the property was still subject of partition proceedings
before the trial court, and that the compromise agreement signed by
the heirs was not approved by the RTC following the opposition of the
counsel for Eufemia and her six other co-heirs.[44] The Belarminos,
being transferees pendente lite, are deemed buyers in mala fide, and
they stand exactly in the shoes of the transferor and are bound by any
judgment or decree which may be rendered for or against the
transferor.[45] Furthermore, had they verified the status of the
property by asking the neighboring residents, they would have been
able to talk to the Pahuds who occupy an adjoining business
establishment[46] and would have known that a portion of the
property had already been sold. All these existing and readily verifiable
facts are sufficient to suggest that the Belarminos knew that they were
buying the property at their own risk.

70