DOMINGO

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

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

appellant.

MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year 1941
the Northern Theatrical Enterprises Inc., a domestic corporation operated a movie house in
Laoag, Ilocos Norte, and among the persons employed by it was the plaintiff DOMINGO DE
LA CRUZ, hired as a special guard whose duties were to guard the main entrance of the
cine, to maintain peace and order and to report the commission of disorders within the
premises. As such guard he carried a revolver. In the afternoon of July 4, 1941, one
Benjamin Martin wanted to crash the gate or entrance of the movie house. Infuriated by
the refusal of plaintiff De la Cruz to let him in without first providing himself with a ticket,
Martin attacked him with a bolo. De la Cruz defendant himself as best he could until he was
cornered, at which moment to save himself he shot the gate crasher, resulting in the
latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court
of First Instance of Ilocos Norte. After a re-investigation conducted by the Provincial
Fiscal the latter filed a motion to dismiss the complaint, which was granted by the court in
January 1943. On July 8, 1947, De la Cruz was again accused of the same crime of homicide,
in Criminal Case No. 431 of the same Court. After trial, he was finally acquitted of the
charge on January 31, 1948. In both criminal cases De la Cruz employed a lawyer to defend
him. He demanded from his former employer reimbursement of his expenses but was
refused, after which he filed the present action against the movie corporation and the
three members of its board of directors, to recover not only the amounts he had paid his
lawyers but also moral damages said to have been suffered, due to his worry, his neglect of
his interests and his family as well in the supervision of the cultivation of his land, a total of
P15,000. On the basis of the complaint and the answer filed by defendants wherein they
asked for the dismissal of the complaint, as well as the agreed statement of facts, the
Court of First Instance of Ilocos Norte after rejecting the theory of the plaintiff that he
was an agent of the defendants and that as such agent he was entitled to reimbursement of
the expenses incurred by him in connection with the agency (Arts. 1709-1729 of the old
Civil Code), found that plaintiff had no cause of action and dismissed the complaint without
costs. De la Cruz appealed directly to this Tribunal for the reason that only questions of law
are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation and the
plaintiff was not that of principal and agent because the principle of representation was in
no way involved. Plaintiff was not employed to represent the defendant corporation in its
dealings with third parties. He was a mere employee hired to perform a certain specific
duty or task, that of acting as special guard and staying at the main entrance of the movie
house to stop gate crashers and to maintain peace and order within the premises. The
question posed by this appeal is whether an employee or servant who in line of duty and

while in the performance of the task assigned to him, performs an act which eventually
results in his incurring in expenses, caused not directly by his master or employer or his
fellow servants or by reason of his performance of his duty, but rather by a third party or
stranger not in the employ of his employer, may recover said damages against his employer.
The learned trial court in the last paragraph of its decision dismissing the complaint said
that "after studying many laws or provisions of law to find out what law is applicable to the
facts submitted and admitted by the parties, has found none and it has no other alternative
than to dismiss the complaint." The trial court is right. We confess that we are not aware of
any law or judicial authority that is directly applicable to the present case, and realizing the
importance and far-reaching effect of a ruling on the subject-matter we have searched,
though vainly, for judicial authorities and enlightenment. All the laws and principles of law
we have found, as regards master and servants, or employer and employee, refer to cases of
physical injuries, light or serious, resulting in loss of a member of the body or of any one of
the senses, or permanent physical disability or even death, suffered in line of duty and in
the course of the performance of the duties assigned to the servant or employee, and these
cases are mainly governed by the Employer's Liability Act and the Workmen's Compensation
Act. But a case involving damages caused to an employee by a stranger or outsider while said
employee was in the performance of his duties, presents a novel question which under
present legislation we are neither able nor prepared to decide in favor of the employee.
In a case like the present or a similar case of say a driver employed by a transportation
company, who while in the course of employment runs over and inflicts physical injuries on or
causes the death of a pedestrian; and such driver is later charged criminally in court, one
can imagine that it would be to the interest of the employer to give legal help to and defend
its employee in order to show that the latter was not guilty of any crime either deliberately
or through negligence, because should the employee be finally held criminally liable and he is
found to be insolvent, the employer would be subsidiarily liable. That is why, we repeat, it is
to the interest of the employer to render legal assistance to its employee. But we are not
prepared to say and to hold that the giving of said legal assistance to its employees is a
legal obligation. While it might yet and possibly be regarded as a normal obligation, it does
not at present count with the sanction of man-made laws.
If the employer is not legally obliged to give, legal assistance to its employee and provide
him with a lawyer, naturally said employee may not recover the amount he may have paid a
lawyer hired by him.
Viewed from another angle it may be said that the damage suffered by the plaintiff by
reason of the expenses incurred by him in remunerating his lawyer, is not caused by his act
of shooting to death the gate crasher but rather by the filing of the charge of homicide
which made it necessary for him to defend himself with the aid of counsel. Had no criminal
charge been filed against him, there would have been no expenses incurred or damage
suffered. So the damage suffered by plaintiff was caused rather by the improper filing of
the criminal charge, possibly at the instance of the heirs of the deceased gate crasher and
by the State through the Fiscal. We say improper filing, judging by the results of the court
proceedings, namely, acquittal. In other words, the plaintiff was innocent and blameless. If
despite his innocence and despite the absence of any criminal responsibility on his part he
was accused of homicide, then the responsibility for the improper accusation may be laid at

the door of the heirs of the deceased and the State, and so theoretically, they are the
parties that may be held responsible civilly for damages and if this is so, we fail to see now
this responsibility can be transferred to the employer who in no way intervened, much less
initiated the criminal proceedings and whose only connection or relation to the whole affairs
was that he employed plaintiff to perform a special duty or task, which task or duty was
performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the payment of
the lawyer's fee did not flow directly from the performance of his duties but only
indirectly because there was an efficient, intervening cause, namely, the filing of the
criminal charges. In other words, the shooting to death of the deceased by the plaintiff was
not the proximate cause of the damages suffered but may be regarded as only a remote
cause, because from the shooting to the damages suffered there was not that natural and
continuous sequence required to fix civil responsibility.
In view of the foregoing, the judgment of the lower court is affirmed. No costs.

WILLIAM
FRESSEL,
ET
vs.
MARIANO UY CHACO SONS & COMPANY, defendant-appellee.

Rohde
and
Wright
Gilbert, Haussermann, Cohn and Fisher for appellee.

for

AL., plaintiffs-appellants,

appellants.

TRENT, J.:
This is an appeal from a judgment sustaining the demurrer on the ground that the complaint
does not state a cause of action, followed by an order dismissing the case after the
plaintiffs declined to amend.
The complaint, omitting the caption, etc., reads:
2. That during the latter part of the year 1913, the defendant entered into a contract with
one E. Merritt, whereby the said Merritt undertook and agreed with the defendant to build
for the defendant a costly edifice in the city of Manila at the corner of Calle Rosario and
Plaza del Padre Moraga. In the contract it was agreed between the parties thereto, that
the defendant at any time, upon certain contingencies, before the completion of said edifice
could take possession of said edifice in the course of construction and of all the materials in
and about said premises acquired by Merritt for the construction of said edifice.
3. That during the month of August land past, the plaintiffs delivered to Merritt at the said
edifice in the course of construction certain materials of the value of P1,381.21, as per
detailed list hereto attached and marked Exhibit A, which price Merritt had agreed to pay
on the 1st day of September, 1914.
4. That on the 28th day of August, 1914, the defendant under and by virtue of its contract
with Merritt took possession of the incomplete edifice in course of construction together

with all the materials on said premises including the materials delivered by plaintiffs and
mentioned in Exhibit A aforesaid.
5. That neither Merritt nor the defendant has paid for the materials mentioned in Exhibit
A, although payment has been demanded, and that on the 2d day of September, 1914, the
plaintiffs demanded of the defendant the return or permission to enter upon said premises
and retake said materials at the time still unused which was refused by defendant.
6. That in pursuance of the contract between Merritt and the defendant, Merritt acted as
the agent for defendant in the acquisition of the materials from plaintiffs.
The appellants insist that the above quoted allegations show that Merritt acted as the
agent of the defendant in purchasing the materials in question and that the defendant, by
taking over and using such materials, accepted and ratified the purchase, thereby obligating
itself to pay for the same. Or, viewed in another light, if the defendant took over the
unfinished building and all the materials on the ground and then completed the structure
according to the plans, specifications, and building permit, it became in fact the successor
or assignee of the first builder, and as successor or assignee, it was as much bound legally
to pay for the materials used as was the original party. The vendor can enforce his contract
against the assignee as readily as against the assignor. While, on the other hand, the
appellee contends that Merritt, being "by the very terms of the contract" an independent
contractor, is the only person liable for the amount claimed.
It is urged that, as the demurrer admits the truth of all the allegations of fact set out in
the complaint, the allegation in paragraph 6 to the effect that Merritt "acted as the agent
for defendant in the acquisition of the materials from plaintiffs," must be, at this stage of
the proceedings, considered as true. The rule, as thus broadly stated, has many limitations
and restrictions.
A more accurate statement of the rule is that a demurrer admits the truth of all material
and relevant facts which are well pleaded. . . . .The admission of the truth of material and
relevant facts well pleaded does not extend to render a demurrer an admission of
inferences or conclusions drawn therefrom, even if alleged in the pleading; nor mere
inferences or conclusions from facts not stated; nor conclusions of law. (Alzua and Arnalot
vs. Johnson, 21 Phil. Rep., 308, 350.)
Upon the question of construction of pleadings, section 106 of the Code of Civil Procedure
provides that:
In the construction of a pleading, for the purpose of determining its effects, its allegations
shall be liberally construed, with a view of substantial justice between the parties.
This section is essentially the same as section 452 of the California Code of Civil Procedure.
"Substantial justice," as used in the two sections, means substantial justice to be
ascertained and determined by fixed rules and positive statutes. (Stevens vs. Ross, 1 Cal.
94, 95.) "Where the language of a pleading is ambiguous, after giving to it a reasonable
intendment, it should be resolved against the pleader. This is especially true on appeal from
a judgment rendered after refusal to amend; where a general and special demurrer to a
complaint has been sustained, and the plaintiff had refused to amend, all ambiguities and

uncertainties must be construed against him." (Sutherland on Code Pleading, vol. 1, sec. 85,
and cases cited.)
The allegations in paragraphs 1 to 5, inclusive, above set forth, do not even intimate that
the relation existing between Merritt and the defendant was that of principal and agent,
but, on the contrary, they demonstrate that Merritt was an independent contractor and
that the materials were purchased by him as such contractor without the intervention of
the defendant. The fact that "the defendant entered into a contract with one E. Merritt,
where by the said Merritt undertook and agreed with the defendant to build for the
defendant a costly edifice" shows that Merritt was authorized to do the work according to
his own method and without being subject to the defendant's control, except as to the
result of the work. He could purchase his materials and supplies from whom he pleased and
at such prices as he desired to pay. Again, the allegations that the "plaintiffs delivered the
Merritt . . . . certain materials (the materials in question) of the value of P1,381.21, . . . .
which price Merritt agreed to pay," show that there were no contractual relations whatever
between the sellers and the defendant. The mere fact that Merritt and the defendant had
stipulated in their building contract that the latter could, "upon certain contingencies," take
possession of the incompleted building and all materials on the ground, did not change
Merritt from an independent contractor to an agent. Suppose that, at the time the building
was taken over Merritt had actually used in the construction thus far P100,000 worth of
materials and supplies which he had purchased on a credit, could those creditors maintain an
action against the defendant for the value of such supplies? Certainly not. The fact that
the P100,000 worth of supplies had been actually used in the building would place those
creditors in no worse position to recover than that of the plaintiffs, although the materials
which the plaintiffs sold to Merritt had not actually gone into the construction. To hold that
either group of creditors can recover would have the effect of compelling the defendants
to pay, as we have indicated, just such prices for materials as Merritt and the sellers saw
fit to fix. In the absence of a statute creating what is known as mechanics' liens, the owner
of a building is not liable for the value of materials purchased by an independent contractor
either as such owner or as the assignee of the contractor.
The allegation in paragraph 6 that Merritt was the agent of the defendant contradicts all
the other allegations and is a mere conclusion drawn from them. Such conclusion is not
admitted, as we have said, by the demurrer.
The allegations in the complaint not being sufficient to constitute a cause of action against
the defendant, the judgment appealed from is affirmed, with costs against the appellants.
So ordered.

G.R. No. L-21601

December 17, 1966

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

W.
H.
Quasha
and
Associates
for
plaintiff-appellant.
Ponce Enrile, Siguion-Reyna, Montecillo and Belo for defendant-appellee.
ZALDIVAR, J.:
On February 6, 1958, plaintiff brought this action against defendant before the Court of
First Instance of Manila to recover certain sums of money representing damages allegedly
suffered by the former in view of the refusal of the latter to comply with the terms of a
management contract entered into between them on January 30, 1937, including attorney's
fees and costs.
Defendant in its answer denied the material allegations of the complaint and set up certain
special defenses, among them, prescription and laches, as bars against the institution of the
present action.
After trial, during which the parties presented testimonial and numerous documentary
evidence, the court a quorendered a decision dismissing the complaint with costs. The court
stated that it did not find sufficient evidence to establish defendant's counterclaim and so
it likewise dismissed the same.
The present appeal was taken to this Court directly by the plaintiff in view of the amount
involved in the case.
The facts of this case, as stated in the decision appealed from, are hereunder quoted for
purposes of this decision:
It appears that the suit involves an operating agreement executed before World War II
between the plaintiff and the defendant whereby the former operated and managed the
mining properties owned by the latter for a management fee of P2,500.00 a month and a
10% participation in the net profits resulting from the operation of the mining properties.
For brevity and convenience, hereafter the plaintiff shall be referred to as NIELSON and
the defendant, LEPANTO.
The antecedents of the case are: The contract in question (Exhibit `C') was made by the
parties on January 30, 1937 for a period of five (5) years. In the latter part of 1941, the
parties agreed to renew the contract for another period of five (5) years, but in the
meantime, the Pacific War broke out in December, 1941.
In January, 1942 operation of the mining properties was disrupted on account of the war. In
February of 1942, the mill, power plant, supplies on hand, equipment, concentrates on hand
and mines, were destroyed upon orders of the United States Army, to prevent their
utilization by the invading Japanese Army. The Japanese forces thereafter occupied the
mining properties, operated the mines during the continuance of the war, and who were
ousted from the mining properties only in August of 1945.
After the mining properties were liberated from the Japanese forces, LEPANTO took
possession thereof and embarked in rebuilding and reconstructing the mines and mill;
setting up new organization; clearing the mill site; repairing the mines; erecting staff
quarters and bodegas and repairing existing structures; installing new machinery and
equipment; repairing roads and maintaining the same; salvaging equipment and storing the

same within the bodegas; doing police work necessary to take care of the materials and
equipment recovered; repairing and renewing the water system; and remembering (Exhibits
"D" and "E"). The rehabilitation and reconstruction of the mine and mill was not completed
until 1948 (Exhibit "F"). On June 26, 1948 the mines resumed operation under the exclusive
management of LEPANTO (Exhibit "F-l").
Shortly after the mines were liberated from the Japanese invaders in 1945, a disagreement
arose between NIELSON and LEPANTO over the status of the operating contract in
question which as renewed expired in 1947. Under the terms thereof, the management
contract shall remain in suspense in case fortuitous event or force majeure, such as war or
civil commotion, adversely affects the work of mining and milling.
"In the event of inundations, floodings of mine, typhoon, earthquake or any other force
majeure, war, insurrection, civil commotion, organized strike, riot, injury to the machinery
or other event or cause reasonably beyond the control of NIELSON and which adversely
affects the work of mining and milling; NIELSON shall report such fact to LEPANTO and
without liability or breach of the terms of this Agreement, the same shall remain in
suspense, wholly or partially during the terms of such inability." (Clause II of Exhibit "C").
NIELSON held the view that, on account of the war, the contract was suspended during the
war; hence the life of the contract should be considered extended for such time of the
period of suspension. On the other hand, LEPANTO contended that the contract should
expire in 1947 as originally agreed upon because the period of suspension accorded by virtue
of the war did not operate to extend further the life of the contract.
No understanding appeared from the record to have been bad by the parties to resolve the
disagreement. In the meantime, LEPANTO rebuilt and reconstructed the mines and was able
to bring the property into operation only in June of 1948, . . . .
Appellant in its brief makes an alternative assignment of errors depending on whether or
not the management contract basis of the action has been extended for a period equivalent
to the period of suspension. If the agreement is suspended our attention should be focused
on the first set of errors claimed to have been committed by the court a quo; but if the
contrary is true, the discussion will then be switched to the alternative set that is claimed
to have been committed. We will first take up the question whether the management
agreement has been extended as a result of the supervening war, and after this question
shall have been determined in the sense sustained by appellant, then the discussion of the
defense of laches and prescription will follow as a consequence.
The pertinent portion of the management contract (Exh. C) which refers to suspension
should any event constitutingforce majeure happen appears in Clause II thereof which we
quote hereunder:
In the event of inundations, floodings of the mine, typhoon, earthquake or any other force
majeure, war, insurrection, civil commotion, organized strike, riot, injury to the machinery
or other event or cause reasonably beyond the control of NIELSON and which adversely
affects the work of mining and milling; NIELSON shall report such fact to LEPANTO and
without liability or breach of the terms of this Agreement, the same shall remain in
suspense, wholly or partially during the terms of such inability.

A careful scrutiny of the clause above-quoted will at once reveal that in order that the
management contract may be deemed suspended two events must take place which must be
brought in a satisfactory manner to the attention of defendant within a reasonable time, to
wit: (1) the event constituting the force majeure must be reasonably beyond the control of
Nielson, and (2) it must adversely affect the work of mining and milling the company is
called upon to undertake. As long as these two condition exist the agreement is deem
suspended.
Does the evidence on record show that these two conditions had existed which may justify
the conclusion that the management agreement had been suspended in the sense
entertained by appellant? Let us go to the evidence.
It is a matter that this Court can take judicial notice of that war supervened in our country
and that the mines in the Philippines were either destroyed or taken over by the occupation
forces with a view to their operation. The Lepanto mines were no exception for not was the
mine itself destroyed but the mill, power plant, supplies on hand, equipment and the like that
were being used there were destroyed as well. Thus, the following is what appears in the
Lepanto Company Mining Report dated March 13, 1946 submitted by its President C. A.
DeWitt to the defendant:1 "In February of 1942, our mill, power plant, supplies on hand,
equipment, concentrates on hand, and mine, were destroyed upon orders of the U.S. Army to
prevent their utilization by the enemy." The report also mentions the report submitted by
Mr. Blessing, an official of Nielson, that "the original mill was destroyed in 1942" and "the
original power plant and all the installed equipment were destroyed in 1942." It is then
undeniable that beginning February, 1942 the operation of the Lepanto mines stopped or
became suspended as a result of the destruction of the mill, power plant and other
important equipment necessary for such operation in view of a cause which was clearly
beyond the control of Nielson and that as a consequence such destruction adversely
affected the work of mining and milling which the latter was called upon to undertake under
the management contract. Consequently, by virtue of the very terms of said contract the
same may be deemed suspended from February, 1942 and as of that month the contract
still had 60 months to go.
On the other hand, the record shows that the defendant admitted that the occupation
forces operated its mining properties subject of the management contract, 2 and from the
very report submitted by President DeWitt it appears that the date of the liberation of
the mine was August 1, 1945 although at the time there were still many booby
traps.3 Similarly, in a report submitted by the defendant to its stockholders dated August
25, 1948, the following appears: "Your Directors take pleasure in reporting that June 26,
1948 marked the official return to operations of this Company of its properties in
Mankayan, Mountain Province, Philippines."4
It is, therefore, clear from the foregoing that the Lepanto mines were liberated on August
1, 1945, but because of the period of rehabilitation and reconstruction that had to be made
as a result of the destruction of the mill, power plant and other necessary equipment for its
operation it cannot be said that the suspension of the contract ended on that date. Hence,
the contract must still be deemed suspended during the succeeding years of reconstruction
and rehabilitation, and this period can only be said to have ended on June 26, 1948 when, as
reported by the defendant, the company officially resumed the mining operations of the

Lepanto. It should here be stated that this period of suspension from February, 1942 to
June 26, 1948 is the one urged by plaintiff.5
It having been shown that the operation of the Lepanto mines on the part of Nielson had
been suspended during the period set out above within the purview of the management
contract, the next question that needs to be determined is the effect of such suspension.
Stated in another way, the question now to be determined is whether such suspension had
the effect of extending the period of the management contract for the period of said
suspension. To elucidate this matter, we again need to resort to the evidence.
For appellant Nielson two witnesses testified, declaring that the suspension had the effect
of extending the period of the contract, namely, George T. Scholey and Mark Nestle.
Scholey was a mining engineer since 1929, an incorporator, general manager and director of
Nielson and Company; and for some time he was also the vice-president and director of the
Lepanto Company during the pre-war days and, as such, he was an officer of both appellant
and appellee companies. As vice-president of Lepanto and general manager of Nielson,
Scholey participated in the negotiation of the management contract to the extent that he
initialed the same both as witness and as an officer of both corporations. This witness
testified in this case to the effect that the standard force majeureclause embodied in the
management contract was taken from similar mining contracts regarding mining operations
and the understanding regarding the nature and effect of said clause was that when there
is suspension of the operation that suspension meant the extension of the contract. Thus, to
the question, "Before the war, what was the understanding of the people in the particular
trend of business with respect to the force majeure clause?", Scholey answered: "That was
our understanding that the suspension meant the extension of time lost." 6
Mark Nestle, the other witness, testified along similar line. He had been connected with
Nielson since 1937 until the time he took the witness stand and had been a director,
manager, and president of the same company. When he was propounded the question: "Do
you know what was the custom or usage at that time in connection with force
majeure clause?", Nestle answered, "In the mining world the force majeure clause is
generally considered. When a calamity comes up and stops the work like in war, flood,
inundation or fire, etc., the work is suspended for the duration of the calamity, and the
period of the contract is extended after the calamity is over to enable the person to do the
big work or recover his money which he has invested, or accomplish what his obligation is to
a third person ."7
And the above testimonial evidence finds support in the very minutes of the special meeting
of the Board of Directors of the Lepanto Company issued on March 10, 1945 which was then
chairmaned by Atty. C. A. DeWitt. We read the following from said report:
The Chairman also stated that the contract with Nielson and Company would soon expire if
the obligations were not suspended, in which case we should have to pay them the retaining
fee of P2,500.00 a month. He believes however, that there is a provision in the contract
suspending the effects thereof in cases like the present, and that even if it were not there,
the law itself would suspend the operations of the contract on account of the war. Anyhow,
he stated, we shall have no difficulty in solving satisfactorily any problem we may have with
Nielson and Company.8

Thus, we can see from the above that even in the opinion of Mr. DeWitt himself, who at the
time was the chairman of the Board of Directors of the Lepanto Company, the management
contract would then expire unless the period therein rated is suspended but that, however,
he expressed the belief that the period was extended because of the provision contained
therein suspending the effects thereof should any of the case of force majeure happen like
in the present case, and that even if such provision did not exist the law would have the
effect of suspending it on account of the war. In substance, Atty. DeWitt expressed the
opinion that as a result of the suspension of the mining operation because of the effects of
the war the period of the contract had been extended.
Contrary to what appellant's evidence reflects insofar as the interpretation of the force
majeure clause is concerned, however, appellee gives Us an opposite interpretation invoking
in support thereof not only a letter Atty. DeWitt sent to Nielson on October 20,
1945,9 wherein he expressed for the first time an opinion contrary to what he reported to
the Board of Directors of Lepanto Company as stated in the portion of the minutes of its
Board of Directors as quoted above, but also the ruling laid down by our Supreme Court in
some cases decided sometime ago, to the effect that the war does not have the effect of
extending the term of a contract that the parties may enter into regarding a particular
transaction, citing in this connection the cases of Victorias Planters Association v. Victorias
Milling Company, 51 O.G. 4010; Rosario S. Vda. de Lacson, et al. v. Abelardo G. Diaz , 87 Phil.
150; and Lo Ching y So Young Chong Co. v. Court of Appeals, et al., 81 Phil. 601.
To bolster up its theory, appellee also contends that the evidence regarding the alleged
custom or usage in mining contract that appellant's witnesses tried to introduce was
incompetent because (a) said custom was not specifically pleaded; (b) Lepanto made timely
and repeated objections to the introduction of said evidence; (c) Nielson failed to show the
essential elements of usage which must be shown to exist before any proof thereof can be
given to affect the contract; and (d) the testimony of its witnesses cannot prevail over the
very terms of the management contract which, as a rule, is supposed to contain all the
terms and conditions by which the parties intended to be bound.
It is here necessary to analyze the contradictory evidence which the parties have
presented regarding the interpretation of the force majeure clause in the management
contract.
At the outset, it should be stated that, as a rule, in the construction and interpretation of a
document the intention of the parties must be sought (Rule 130, Section 10, Rules of Court).
This is the basic rule in the interpretation of contracts because all other rules are but
ancilliary to the ascertainment of the meaning intended by the parties. And once this
intention has been ascertained it becomes an integral part of the contract as though it had
been originally expressed therein in unequivocal terms (Shoreline Oil Corp. v. Guy, App. 189,
So., 348, cited in 17A C.J.S., p. 47). How is this intention determined?
One pattern is to ascertain the contemporaneous and subsequent acts of the contracting
parties in relation to the transaction under consideration (Article 1371, Civil Code). In this
particular case, it is worthy of note what Atty. C. A. DeWitt has stated in the special
meeting of the Board of Directors of Lepanto in the portion of the minutes already quoted
above wherein, as already stated, he expressed the opinion that the life of the contract, if

not extended, would last only until January, 1947 and yet he said that there is a provision in
the contract that the war had the effect of suspending the agreement and that the effect
of that suspension was that the agreement would have to continue with the result that
Lepanto would have to pay the monthly retaining fee of P2,500.00. And this belief that the
war suspended the agreement and that the suspension meant its extension was so firm that
he went to the extent that even if there was no provision for suspension in the agreement
the law itself would suspend it.
It is true that Mr. DeWitt later sent a letter to Nielson dated October 20, 1945 wherein
apparently he changed his mind because there he stated that the contract was merely
suspended, but not extended, by reason of the war, contrary to the opinion he expressed in
the meeting of the Board of Directors already adverted to, but between the two opinions of
Atty. DeWitt We are inclined to give more weight and validity to the former not only
because such was given by him against his own interest but also because it was given before
the Board of Directors of Lepanto and in the presence, of some Nielson officials 10 who, on
that occasion were naturally led to believe that that was the true meaning of the suspension
clause, while the second opinion was merely self-serving and was given as a mere
afterthought.
Appellee also claims that the issue of true intent of the parties was not brought out in the
complaint, but anent this matter suffice it to state that in paragraph No. 19 of the
complaint appellant pleaded that the contract was extended. 11 This is a sufficient allegation
considering that the rules on pleadings must as a rule be liberally construed.
It is likewise noteworthy that in this issue of the intention of the parties regarding the
meaning and usage concerning the force majeure clause, the testimony adduced by appellant
is uncontradicted. If such were not true, appellee should have at least attempted to offer
contradictory evidence. This it did not do. Not even Lepanto's President, Mr. V. E. Lednicky
who took the witness stand, contradicted said evidence.
In holding that the suspension of the agreement meant the extension of the same for a
period equivalent to the suspension, We do not have the least intention of overruling the
cases cited by appellee. We simply want to say that the ruling laid down in said cases does
not apply here because the material facts involved therein are not the same as those
obtaining in the present. The rule of stare decisis cannot be invoked where there is no
analogy between the material facts of the decision relied upon and those of the instant
case.
Thus, in Victorias Planters Association vs. Victorias Milling Company , 51 O.G. 4010, there
was no evidence at all regarding the intention of the parties to extend the contract
equivalent to the period of suspension caused by the war. Neither was there evidence that
the parties understood the suspension to mean extension; nor was there evidence of usage
and custom in the industry that the suspension meant the extension of the agreement. All
these matters, however, obtain in the instant case.
Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz , 87 Phil. 150, the issue
referred to the interpretation of a pre-war contract of lease of sugar cane lands and the
liability of the lessee to pay rent during and immediately following the Japanese occupation
and where the defendant claimed the right of an extension of the lease to make up for the

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

In resume, there is sufficient justification for Us to conclude that the cases cited by
appellee are inapplicable because the facts therein involved do not run parallel to those
obtaining in the present case.
We shall now consider appellee's defense of laches. Appellee is correct in its contention
that the defense of laches applies independently of prescription. Laches is different from
the statute of limitations. Prescription is concerned with the fact of delay, whereas laches
is concerned with the effect of delay. Prescription is a matter of time; laches is principally
a question of inequity of permitting a claim to be enforced, this inequity being founded on
some change in the condition of the property or the relation of the parties. Prescription is
statutory; laches is not. Laches applies in equity, whereas prescription applies at law.
Prescription is based on fixed time, laches is not. (30 C.J.S., p. 522; See also Pomeroy's
Equity Jurisprudence, Vol. 2, 5th ed., p. 177).
The question to determine is whether appellant Nielson is guilty of laches within the
meaning contemplated by the authorities on the matter. In the leading case of Go Chi Gun,
et al. vs. Go Cho, et al., 96 Phil. 622, this Court enumerated the essential elements of laches
as follows:
(1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the
situation of which complaint is made and for which the complaint seeks a remedy; (2) delay
in asserting the complainant's rights, the complainant having had knowledge or notice of the
defendant's conduct and having been afforded an opportunity to institute a suit; (3) lack of
knowledge or notice on the part of the defendant that the complainant would assert the
right on which he bases his suit; and (4) injury or prejudice to the defendant in the event
relief is accorded to the complainant, or the suit is not held barred.

Are these requisites present in the case at bar?

The first element is conceded by appellant Nielson when it claimed that defendant refused
to pay its management fees, its percentage of profits and refused to allow it to resume the
management operation.
Anent the second element, while it is true that appellant Nielson knew since 1945 that
appellee Lepanto has refused to permit it to resume management and that since 1948
appellee has resumed operation of the mines and it filed its complaint only on February 6,
1958, there being apparent delay in filing the present action, We find the delay justified
and as such cannot constitute laches. It appears that appellant had not abandoned its right
to operate the mines for even before the termination of the suspension of the agreement
as early as January 20, 194612 and even before March 10, 1945, it already claimed its right
to the extension of the contract,13 and it pressed its claim for the balance of its share in
the profits from the 1941 operation 14 by reason of which negotiations had taken place for
the settlement of the claim15 and it was only on June 25, 1957 that appellee finally denied
the claim. There is, therefore, only a period of less than one year that had elapsed from the
date of the final denial of the claim to the date of the filing of the complaint, which
certainly cannot be considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said that appellee Lepanto
did not know that appellant would assert its rights on which it based suit. The evidence
shows that Nielson had been claiming for some time its rights under the contract, as
already shown above.
Neither is the fourth element present, for if there has been some delay in bringing the case
to court it was mainly due to the attempts at arbitration and negotiation made by both
parties. If Lepanto's documents were lost, it was not caused by the delay of the filing of
the suit but because of the war.
Another reason why appellant Nielson cannot be held guilty of laches is that the delay in the
filing of the complaint in the present case was the inevitable of the protracted negotiations
between the parties concerning the settlement of their differences. It appears that
Nielson asked for arbitration16 which was granted. A committee consisting of Messrs.
DeWitt, Farnell and Blessing was appointed to act on said differences but Mr. DeWitt
always tried to evade the issue17 until he was taken ill and died. Mr. Farnell offered to
Nielson the sum of P13,000.58 by way of compromise of all its claim arising from the
management contract18 but apparently the offer was refused. Negotiations continued with
the exchange of letters between the parties but with no satisfactory result. 19 It can be said
that the delay due to protracted negotiations was caused by both parties. Lepanto,
therefore, cannot be permitted to take advantage of such delay or to question the
propriety of the action taken by Nielson. The defense of laches is an equitable one and
equity should be applied with an even hand. A person will not be permitted to take advantage
of, or to question the validity, or propriety of, any act or omission of another which was
committed or omitted upon his own request or was caused by his conduct (R. H. Stearns Co.
vs. United States, 291 U.S. 54, 78 L. Ed. 647, 54 S. Ct., 325; United States vs. Henry
Prentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).

Had the action of Nielson prescribed? The court a quo held that the action of Nielson is
already barred by the statute of limitations, and that ruling is now assailed by the appellant
in this appeal. In urging that the court a quoerred in reaching that conclusion the appellant
has discussed the issue with reference to particular claims.
The first claim is with regard to the 10% share in profits of 1941 operations. Inasmuch as
appellee Lepanto alleges that the correct basis of the computation of the sharing in the net
profits shall be as provided for in Clause V of the Management Contract, while appellant
Nielson maintains that the basis should be what is contained in the minutes of the special
meeting of the Board of Directors of Lepanto on August 21, 1940, this question must first
be elucidated before the main issue is discussed.
The facts relative to the matter of profit sharing follow: In the management contract
entered into between the parties on January 30, 1937, which was renewed for another five
years, it was stipulated that Nielson would receive a compensation of P2,500.00 a month
plus 10% of the net profits from the operation of the properties for the preceding month.
In 1940, a dispute arose regarding the computation of the 10% share of Nielson in the
profits. The Board of Directors of Lepanto, realizing that the mechanics of the contract
was unfair to Nielson, authorized its President to enter into an agreement with Nielson
modifying the pertinent provision of the contract effective January 1, 1940 in such a way
that Nielson shall receive (1) 10% of the dividends declared and paid, when and as paid,
during the period of the contract and at the end of each year, (2) 10% of any depletion
reserve that may be set up, and (3) 10% of any amount expended during the year out of
surplus earnings for capital account. 20 Counsel for the appellee admitted during the trial
that the extract of the minutes as found in Exhibit B is a faithful copy from the
original. 21 Mr. George Scholey testified that the foregoing modification was agreed upon. 22
Lepanto claims that this new basis of computation should be rejected (1) because the
contract was clear on the point of the 10% share and it was so alleged by Nielson in its
complaint, and (2) the minutes of the special meeting held on August 21, 1940 was not
signed.
It appearing that the issue concerning the sharing of the profits had been raised in
appellant's complaint and evidence on the matter was introduced 23 the same can be taken
into account even if no amendment of the pleading to make it conform to the evidence has
been made, for the same is authorized by Section 4, Rule 17, of the old Rules of Court (now
Section 5, Rule 10, of the new Rules of Court).
Coming now to the question of prescription raised by defendant Lepanto, it is contended by
the latter that the period to be considered for the prescription of the claim regarding
participation in the profits is only four years, because the modification of the sharing
embodied in the management contract is merely verbal, no written document to that effect
having been presented. This contention is untenable. The modification appears in the
minutes of the special meeting of the Board of Directors of Lepanto held on August 21,
1940, it having been made upon the authority of its President, and in said minutes the terms
of the modification had been specified. This is sufficient to have the agreement considered,
for the purpose of applying the statute of limitations, as a written contract even if the
minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that a writing

containing the terms of a contract if adopted by two persons may constitute a contract in
writing even if the same is not signed by either of the parties (3 A.L.R., 2d, pp. 812-813).
Another authority says that an unsigned agreement the terms of which are embodied in a
document unconditionally accepted by both parties is a written contract (Corbin on
Contracts, Vol. 1, p. 85)
The modification, therefore, made in the management contract relative to the participation
in the profits by appellant, as contained in the minutes of the special meeting of the Board
of Directors of Lepanto held on August 21, 1940, should be considered as a written contract
insofar as the application of the statutes of limitations is concerned. Hence, the action
thereon prescribes within ten (10) years pursuant to Section 43 of Act 190.
Coming now to the facts, We find that the right of Nielson to its 10% participation in the
1941 operations accrued on December 21, 1941 and the right to commence an action thereon
began on January 1, 1942 so that the action must be brought within ten (10) years from the
latter date. It is true that the complaint was filed only on February 6, 1958, that is sixteen
(16) years, one (1) month and five (5) days after the right of action accrued, but the action
has not yet prescribed for various reasons which We will hereafter discuss.
The first reason is the operation of the Moratorium Law, for appellant's claim is undeniably
a claim for money. Said claim accrued on December 31, 1941, and Lepanto is a war sufferer.
Hence the claim was covered by Executive Order No. 32 of March 10, 1945. It is well
settled that the operation of the Moratorium Law suspends the running of the statue of
limitations (Pacific Commercial Co. vs. Aquino, G.R. No. L-10274, February 27, 1957).
This Court has held that the Moratorium Law had been enforced for eight (8) years, two (2)
months and eight (8) days (Tioseco vs. Day, et al., L-9944, April 30, 1957; Levy Hermanos,
Inc. vs. Perez, L-14487, April 29, 1960), and deducting this period from the time that had
elapsed since the accrual of the right of action to the date of the filing of the complaint,
the extent of which is sixteen (16) years, one (1) month and five (5) days, we would have less
than eight (8) years to be counted for purposes of prescription. Hence appellant's action on
its claim of 10% on the 1941 profits had not yet prescribed.
Another reason that may be taken into account in support of the no-bar theory of appellant
is the arbitration clause embodied in the management contract which requires that any
disagreement as to any amount of profits before an action may be taken to court shall be
subject to arbitration. 24 This agreement to arbitrate is valid and binding. 25 It cannot be
ignored by Lepanto. Hence Nielson could not bring an action on its participation in the 1941
operations-profits until the condition relative to arbitration had been first complied
with. 26 The evidence shows that an arbitration committee was constituted but it failed to
accomplish its purpose on June 25, 1957. 27 From this date to the filing of the complaint the
required period for prescription has not yet elapsed.
Nielson claims the following: (1) 10% share in the dividends declared in 1941, exclusive of
interest, amounting to P17,500.00; (2) 10% in the depletion reserves for 1941; and (3) 10%
in the profits for years prior to 1948 amounting to P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar year of 1954 28 shows
that it declared a 10% cash dividend in December, 1941, the amount of which is

P175,000.00. The evidence in this connection (Exhibits L and O) was admitted without
objection by counsel for Lepanto. 29 Nielson claims 10% share in said amount with interest
thereon at 6% per annum. The document (Exhibit L) was even recognized by Lepanto's
President V. L. Lednicky, 30 and this claim is predicated on the provision of paragraph V of
the management contract as modified pursuant to the proposal of Lepanto at the special
meeting of the Board of Directors on August 21, 1940 (Exh. B), whereby it was provided
that Nielson would be entitled to 10% of any dividends to be declared and paid during the
period of the contract.
With regard to the second claim, Nielson admits that there is no evidence regarding the
amount set aside by Lepanto for depletion reserve for 1941 31 and so the 10% participation
claimed thereon cannot be assessed.
Anent the third claim relative to the 10% participation of Nielson on the sum of
P197,647.08, which appears in Lepanto's annual report for 1948 32 and entered as profit for
prior years in the statement of income and surplus, which amount consisted "almost in its
entirety of proceeds of copper concentrates shipped to the United States during 1947,"
this claim should to denied because the amount is not "dividend declared and paid" within
the purview of the management contract.
The fifth assignment of error of appellant refers to the failure of the lower court to order
Lepanto to pay its management fees for January, 1942, and for the full period of extension
amounting to P150,000.00, or P2,500.00 a month for sixty (60) months, a total of
P152,500.00 with interest thereon from the date of judicial demand.
It is true that the claim of management fee for January, 1942 was not among the causes of
action in the complaint, but inasmuch as the contract was suspended in February, 1942 and
the management fees asked for included that of January, 1942, the fact that such claim
was not included in a specific manner in the complaint is of no moment because an appellate
court may treat the pleading as amended to conform to the evidence where the facts show
that the plaintiff is entitled to relief other than what is asked for in the complaint (Alonzo
vs. Villamor, 16 Phil. 315). The evidence shows that the last payment made by Lepanto for
management fee was for November and December, 1941. 33 If, as We have declared, the
management contract was suspended beginning February 1942, it follows that Nielson is
entitled to the management fee for January, 1942.
Let us now come to the management fees claimed by Nielson for the period of extension. In
this respect, it has been shown that the management contract was extended from June 27,
1948 to June 26, 1953, or for a period of sixty (60) months. During this period Nielson had
a right to continue in the management of the mining properties of Lepanto and Lepanto was
under obligation to let Nielson do it and to pay the corresponding management fees.
Appellant Nielson insisted in performing its part of the contract but Lepanto prevented it
from doing so. Hence, by virtue of Article 1186 of the Civil Code, there was a constructive
fulfillment an the part of Nielson of its obligation to manage said mining properties in
accordance with the contract and Lepanto had the reciprocal obligation to pay the
corresponding management fees and other benefits that would have accrued to Nielson if
Lepanto allowed it (Nielson) to continue in the management of the mines during the
extended period of five (5) years.

We find that the preponderance of evidence is to the effect that Nielson had insisted in
managing the mining properties soon after liberation. In the report 34 of Lepanto, submitted
to its stockholders for the period from 1941 to March 13, 1946, are stated the activities of
Nielson's officials in relation to Nielson's insistence in continuing the management. This
report was admitted in evidence without objection. We find the following in the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San Fernando (La Union) to
await the liberation of the mines. (Mr. Blessing was the Treasurer and Metallurgist of
Nielson). Blessing with Clark and Stanford went to the property on July 16 and found that
while the mill site had been cleared of the enemy the latter was still holding the area
around the staff houses and putting up a strong defense. As a result, they returned to San
Fernando and later went back to the mines on July 26. Mr. Blessing made the report, dated
August 6, recommending a program of operation. Mr. Nielson himself spent a day in the mine
early in December, 1945 and reiterated the program which Mr. Blessing had outlined. Two or
three weeks before the date of the report, Mr. Coldren of the Nielson organization also
visited the mine and told President C. A. DeWitt of Lepanto that he thought that the mine
could be put in condition for the delivery of the ore within ten (10) days. And according to
Mark Nestle, a witness of appellant, Nielson had several men including engineers to do the
job in the mines and to resume the work. These engineers were in fact sent to the mine site
and submitted reports of what they had done. 35
On the other hand, appellee claims that Nielson was not ready and able to resume the work
in the mines, relying mainly on the testimony of Dr. Juan Nabong, former secretary of both
Nielson and Lepanto, given in the separate case of Nancy Irving Romero vs. Lepanto
Consolidated Mining Company (Civil Case No. 652, CFI, Baguio), to the effect that as far as
he knew "Nielson and Company had not attempted to operate the Lepanto Consolidated
Mining Company because Mr. Nielson was not here in the Philippines after the last war. He
came back later," and that Nielson and Company had no money nor stocks with which to
start the operation. He was asked by counsel for the appellee if he had testified that way in
Civil Case No. 652 of the Court of First Instance of Baguio, and he answered that he did not
confirm it fully. When this witness was asked by the same counsel whether he confirmed
that testimony, he said that when he testified in that case he was not fully aware of what
happened and that after he learned more about the officials of the corporation it was only
then that he became aware that Nielson had really sent his men to the mines along with Mr.
Blessing and that he was aware of this fact personally. He further said that Mr. Nielson was
here in 1945 and "he was going out and contacting his people." 36
Lepanto admits, in its own brief, that Nielson had really insisted in taking over the
management and operation of the mines but that it (Lepanto) unequivocally refuse to allow
it. The following is what appears in the brief of the appellee:
It was while defendant was in the midst of the rehabilitation work which was fully
described earlier, still reeling under the terrible devastation and destruction wrought by
war on its mine that Nielson insisted in taking over the management and operation of the
mine. Nielson thus put Lepanto in a position where defendant, under the circumstances, had
to refuse, as in fact it did, Nielson's insistence in taking over the management and operation
because, as was obvious, it was impossible, as a result of the destruction of the mine, for
the plaintiff to manage and operate the same and because, as provided in the agreement,

the contract was suspended by reason of the war. The stand of Lepanto in disallowing
Nielson to assume again the management of the mine in 1945 was unequivocal and cannot be
misinterpreted, infra.37
Based on the foregoing facts and circumstances, and Our conclusion that the management
contract was extended, We believe that Nielson is entitled to the management fees for the
period of extension. Nielson should be awarded on this claim sixty times its monthly pay of
P2,500.00, or a total of P150,000.00.
In its sixth assignment of error Nielson contends that the lower court erred in not ordering
Lepanto to pay it (Nielson) the 10% share in the profits of operation realized during the
period of five (5) years from the resumption of its post-war operations of the Mankayan
mines, in the total sum of P2,403,053.20 with interest thereon at the rate of 6% per annum
from February 6, 1958 until full payment. 38
The above claim of Nielson refers to four categories, namely: (1) cash dividends; (2) stock
dividends; (3) depletion reserves; and (4) amount expended on capital investment.
Anent the first category, Lepanto's report for the calendar year 1954 39 contains a record
of the cash dividends it paid up to the date of said report, and the post-war dividends paid
by it corresponding to the years included in the period of extension of the management
contract are as follows:
POST-WAR
8

10%

November

1949

P 200,000.00

10%

July

1950

300,000.00

10

10%

October

1950

500,000.00

11

20%

December

1950

1,000,000.00

12

20%

March

1951

1,000,000.00

13

20%

June

1951

1,000,000.00

14

20%

September

1951

1,000,000.00

15

40%

December

1951

2,000,000.00

16

20%

March

1952

1,000,000.00

17

20%

May

1952

1,000,000.00

18

20%

July

1952

1,000,000.00

19

20%

September

1952

1,000,000.00

20

20%

December

1952

1,000,000.00

21

20%

March

1953

1,000,000.00

22

20%

June

1953

TOTAL

1,000,000.00
P14,000,000.00

According to the terms of the management contract as modified, appellant is entitled to

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

In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K p. 41, the depletion reserve was
P147,141.54.
In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve set up as P277,493.25.
Regarding the depletion reserve set up in 1948 it should be noted that the amount given was
for the whole year. Inasmuch as the contract was extended only for the last half of the
year 1948, said amount of P11,602.80 should be divided by two, and so Nielson is only
entitled to 10% of the half amounting to P5,801.40.
Likewise, the amount of depletion reserve for the year 1953 was for the whole year and
since the contract was extended only until the first half of the year, said amount of
P277,493.25 should be divided by two, and so Nielson is only entitled to 10% of the half
amounting to P138,746.62. Summing up the entire depletion reserves, from the middle of
1948 to the middle of 1953, we would have a total of P539,298.81, of which Nielson is
entitled to 10%, or to the sum of P53,928.88.
Finally, with regard to the fourth category, there is no figure in the record representing
the value of the fixed assets as of the beginning of the period of extension on June 27,
1948. It is possible, however, to arrive at the amount needed by adding to the value of the
fixed assets as of December 31, 1947 one-half of the amount spent for capital account in
the year 1948. As of December 31, 1947, the value of the fixed assets was
P1,061,878.88 41and as of December 31, 1948, the value of the fixed assets was
P3,270,408.07. 42 Hence, the increase in the value of the fixed assets for the year 1948
was P2,208,529.19, one-half of which is P1,104,264.59, which amount represents the
expenses for capital account for the first half of the year 1948. If to this amount we add
the fixed assets as of December 31, 1947 amounting to P1,061,878.88, we would have a total
of P2,166,143.47 which represents the fixed assets at the beginning of the second half of
the year 1948.
There is also no figure representing the value of the fixed assets when the contract,
as extended, ended on June 26, 1953; but this may be computed by getting one-half of the
expenses for capital account made in 1953 and adding the same to the value of the fixed
assets as of December 31, 1953 is P9,755,840.41 43 which the value of the fixed assets as
of December 31, 1952 is P8,463,741.82, the difference being P1,292,098.69. One-half of
this amount is P646,049.34 which would represent the expenses for capital account up to
June, 1953. This amount added to the value of the fixed assets as of December 31, 1952
would give a total of P9,109,791.16 which would be the value of fixed assets at the end of
June, 1953.
The increase, therefore, of the value of the fixed assets of Lepanto from June, 1948 to
June, 1953 is P6,943,647.69, which amount represents the difference between the value of
the fixed assets of Lepanto in the year 1948 and in the year 1953, as stated above. On this
amount Nielson is entitled to a share of 10% or to the amount of P694,364.76.
Considering that most of the claims of appellant have been entertained, as pointed out in
this decision, We believe that appellant is entitled to be awarded attorney's fees, especially
when, according to the undisputed testimony of Mr. Mark Nestle, Nielson obliged himself to
pay attorney's fees in connection with the institution of the present case. In this respect,

We believe, considering the intricate nature of the case, an award of fifty thousand
(P50,000.00) pesos for attorney's fees would be reasonable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of
the court a quo and enter in lieu thereof another, ordering the appellee Lepanto to pay
appellant Nielson the different amounts as specified hereinbelow:
(1) 10% share of cash dividends of December, 1941 in the amount of P17,500.00, with legal
interest thereon from the date of the filing of the complaint;
(2) management fee for January, 1942 in the amount of P2,500.00, with legal interest
thereon from the date of the filing of the complaint;
(3) management fees for the sixty-month period of extension of the management contract,
amounting to P150,000.00, with legal interest from the date of the filing of the complaint;
(4) 10% share in the cash dividends during the period of extension of the management
contract, amounting to P1,400,000.00, with legal interest thereon from the date of the
filing of the complaint;
(5) 10% of the depletion reserve set up during the period of extension, amounting to
P53,928.88, with legal interest thereon from the date of the filing of the complaint;
(6) 10% of the expenses for capital account during the period of extension, amounting to
P694,364.76, with legal interest thereon from the date of the filing of the complaint;
(7) to issue and deliver to Nielson and Co., Inc. shares of stock of Lepanto Consolidated
Mining Co. at par value equivalent to the total of Nielson's l0% share in the stock dividends
declared on November 28, 1949 and August 22, 1950, together with all cash and stock
dividends, if any, as may have been declared and issued subsequent to November 28, 1949
and August 22, 1950, as fruits that accrued to said shares;
If sufficient shares of stock of Lepanto's are not available to satisfy this judgment,
defendant-appellee shall pay plaintiff-appellant an amount in cash equivalent to the market
value of said shares at the time of default (12 C.J.S., p. 130), that is, all shares of the stock
that should have been delivered to Nielson before the filing of the complaint must be paid
at their market value as of the date of the filing of the complaint; and all shares, if any,
that should have been delivered after the filing of the complaint at the market value of the
shares at the time Lepanto disposed of all its available shares, for it is only then that
Lepanto placed itself in condition of not being able to perform its obligation (Article 1160,
Civil Code);
(8) the sum of P50,000.00 as attorney's fees; and
(9) the costs. It is so ordered.

ANDRES
vs.
PARSONS HARDWARE CO., defendant-appellee.

Alfredo
Chicote,
Jose
Arnaiz
Crossfield & O'Brien for appellee.

and

Pascual

QUIROGA, plaintiff-appellant,

B.

Azanza

for

appellant.

AVANCEA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was entered
into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights
and obligations the present defendant later subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH
MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA"
BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan
Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's
establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in
Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the
invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the
dozen, whether of the same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of
sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the
freight, insurance, and cost of unloading from the vessel at the point where the beds are
received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment
when made shall be considered as a prompt payment, and as such a deduction of 2 per cent
shall be made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr. Parsons may deem
convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any
alteration in price which he may plan to make in respect to his beds, and agrees that if on
the date when such alteration takes effect he should have any order pending to be served
to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby
be lowered, but shall not be affected by said alteration if the price thereby be increased,
for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price
at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.

ART. 2. In compensation for the expenses of advertisement which, for the benefit of both
contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the
obligation to offer and give the preference to Mr. Parsons in case anyone should apply for
the exclusive agency for any island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga"
beds in all the towns of the Archipelago where there are no exclusive agents, and shall
immediately report such action to Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated by either of
the contracting parties on a previous notice of ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of them
constitute the subject matter of this appeal and both substantially amount to the averment
that the defendant violated the following obligations: not to sell the beds at higher prices
than those of the invoices; to have an open establishment in Iloilo; itself to conduct the
agency; to keep the beds on public exhibition, and to pay for the advertisement expenses
for the same; and to order the beds by the dozen and in no other manner. As may be seen,
with the exception of the obligation on the part of the defendant to order the beds by the
dozen and in no other manner, none of the obligations imputed to the defendant in the two
causes of action are expressly set forth in the contract. But the plaintiff alleged that the
defendant was his agent for the sale of his beds in Iloilo, and that said obligations are
implied in a contract of commercial agency. The whole question, therefore, reduced itself to
a determination as to whether the defendant, by reason of the contract hereinbefore
transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the
contract in question, what was essential, as constituting its cause and subject matter, is
that the plaintiff was to furnish the defendant with the beds which the latter might order,
at the price stipulated, and that the defendant was to pay the price in the manner
stipulated. The price agreed upon was the one determined by the plaintiff for the sale of
these beds in Manila, with a discount of from 20 to 25 per cent, according to their class.
Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in
cash, if the defendant so preferred, and in these last two cases an additional discount was
to be allowed for prompt payment. These are precisely the essential features of a contract
of purchase and sale. There was the obligation on the part of the plaintiff to supply the
beds, and, on the part of the defendant, to pay their price. These features exclude the
legal conception of an agency or order to sell whereby the mandatory or agent received the
thing to sell it, and does not pay its price, but delivers to the principal the price he obtains
from the sale of the thing to a third person, and if he does not succeed in selling it, he
returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on
receiving the beds, was necessarily obliged to pay their price within the term fixed, without
any other consideration and regardless as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the defendant and
the plaintiff is one of purchase and sale, in order to show that it was not one made on the
basis of a commission on sales, as the plaintiff claims it was, for these contracts are
incompatible with each other. But, besides, examining the clauses of this contract, none of

them is found that substantially supports the plaintiff's contention. Not a single one of
these clauses necessarily conveys the idea of an agency. The words commission on sales used
in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere
discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses
that the defendant was the only one that could sell the plaintiff's beds in the Visayan
Islands. With regard to the remaining clauses, the least that can be said is that they are
not incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of
the defendant corporation and who established and managed the latter's business in Iloilo.
It appears that this witness, prior to the time of his testimony, had serious trouble with
the defendant, had maintained a civil suit against it, and had even accused one of its
partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the
contract Exhibit A, and, when questioned as to what was his purpose in contracting with the
plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales .
However, according to the defendant's evidence, it was Mariano Lopez Santos, a director of
the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated
the truth, his statement as to what was his idea in contracting with the plaintiff is of no
importance, inasmuch as the agreements contained in Exhibit A which he claims to have
drafted, constitute, as we have said, a contract of purchase and sale, and not one of
commercial agency. This only means that Ernesto Vidal was mistaken in his classification of
the contract. But it must be understood that a contract is what the law defines it to be, and
not what it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it could
not sell; that, without previous notice, it forwarded to the defendant the beds that it
wanted; and that the defendant received its commission for the beds sold by the plaintiff
directly to persons in Iloilo. But all this, at the most only shows that, on the part of both of
them, there was mutual tolerance in the performance of the contract in disregard of its
terms; and it gives no right to have the contract considered, not as the parties stipulated it,
but as they performed it. Only the acts of the contracting parties, subsequent to, and in
connection with, the execution of the contract, must be considered for the purpose of
interpreting the contract, when such interpretation is necessary, but not when, as in the
instant case, its essential agreements are clearly set forth and plainly show that the
contract belongs to a certain kind and not to another. Furthermore, the return made was of
certain brass beds, and was not effected in exchange for the price paid for them, but was
for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's
prior consent with respect to said beds, which shows that it was not considered that the
defendant had a right, by virtue of the contract, to make this return. As regards the
shipment of beds without previous notice, it is insinuated in the record that these brass
beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed
to their return. And with respect to the so-called commissions, we have said that they
merely constituted a discount on the invoice price, and the reason for applying this benefit
to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant
obligated itself in the contract to incur the expenses of advertisement of the plaintiff's
beds, such sales were to be considered as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only one expressly
imposed by the contract, the effect of its breach would only entitle the plaintiff to
disregard the orders which the defendant might place under other conditions; but if the
plaintiff consents to fill them, he waives his right and cannot complain for having acted thus
at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff
and the defendant was one of purchase and sale, and that the obligations the breach of
which is alleged as a cause of action are not imposed upon the defendant, either by
agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So ordered

BEHN,
MEYER
&
CO.
(LTD.), plaintiff-appellee,
vs.
W. T. NOLTING, Collector of Internal Revenue, and ANGEL GARCIA, treasurer of the city
of Zamboanga,defendants-appellants.

Attorney-General
P. J. Moore for appellee.

Avancea

for

appellants.

JOHNSON, J.:
The only question presented to the court in this case is whether the transactions or
business which the plaintiff was engaged in, as disclosed by the following agreement,
constituted said plaintiff a real-estate broker as defined by section 144 paragraph 2 of Act
No. 1189.
This action was brought by the plaintiff against the defendants for the purpose of
recovering the sum of P580 which had been paid by the plaintiff to said treasurer of the
city of Zamboanga under protest.
The cause was submitted to the lower court upon the following agreement:
1. That the plaintiff is, and was during the times hereinafter mentioned, a corporation
organized under the laws of Singapore, duly registered under the laws of the Philippine
Islands, with branch office in Zamboanga, P. I.; that the defendant. W. T. Nolting is, and
was at all times hereinafter mentioned, Insular Collector of Internal Revenue, residing in
Manila, P. I.
2. That from the 1st day of January, 1906, until the 26th day of November, 1912, the
plaintiff was and has been engaged in business as a wholesale liquor dealer, manufactured
tobacco dealer, merchant, and exporter and importer.
3. That the defendant, W. T. Nolting, as Collector of Internal Revenue, demanded that the
plaintiff obtain a license as a real-estate broker and pay the sum of five hundred eighty

pesos (P580) therefor, covering the years 1906 to 1912, inclusive, and the penalty for
delinquency.
4. That as a result of said demand made by aforesaid defendant, the plaintiff, on the 26th
day of November, 1912, paid to the treasurer of the city of Zamboanga the sum of five
hundred eighty pesos (P580) and at the time said payment was made the plaintiff presented
to the said treasurer a written protest against the payment of the same, said protest being
as follows:
"ZAMBOANGA,
P.
I., November
26,
"THE
COLLECTOR
OF
INTERNAL
Manila,
P.
"(Through Municipal Treasurer, Zamboanga.)

1912.
REVENUE,"
I.

"SIR: We have the honor to hand you herewith our check for the sum of P580, in payment
of the demand for internal revenue tax as a real-estate broker made on us as per your
letter dated November 19, 1912. At the same time we desire to protest the payment of this
act for the following reasons:
"First. That Behn, Meyer & Co. (Ltd.) are not now, and never have been, engaged in the
business of a real estate broker, either for themselves or for others.
"Second. That Behn, Meyer & Co. (Ltd.) are not engaged in the business of stock brokerage
either for themselves or for others.
"Third. That this tax demanded by you herewith paid is double tax upon Behn, Meyer & Co.
(Ltd.)
"Fourth. That Behn, Meyer & Co. (Ltd.) for more than six years last past has been, and are
now paying a wholesale liquor dealer's license in the sum of P60 per year.
"Fifth. That Behn, Meyer & Co. (Ltd.) are not now, and for more than six years last past has
been paying a wholesale fermented liquor license in the sum of P60 per year.
"Sixth. That Behn, Meyer & Co. (Ltd.) are now, and for more than six years last past has
been paying an internal revenue tax as manufactured tobacco dealers.
"Seventh. That Behn. Meyer & Co. (Ltd.) are now, and for more than six years last past has
been paying a general merchandise tax, and that for the present year the general
merchandise tax, under schedule C, paragraph 1, license No. 46927, has been : 1st quarter,
P290.03; 2nd quarter, P351.67; 3d quarter, P311.13.lawphil.net
"Eighth. That under said general merchant's license, Behn ,Meyer & Co. (Ltd.) during six
years last past has been, and are now engaged in the business, among other things, of buying
and selling copra, hemp, and other native products of the Islands. The copra bought by
Behn, Meyer & Co. (Ltd.) is sold in the foreign markets, and export duty is paid on the same.
"Wherefore, it is the opinion of Behn, Meyer & Co .(Ltd.) that the tax for which the above
remittance is made is unlawful, illegal and unjust, and for the reasons enumerated do hereby
protest against the collection of the same.

"Very respectfully."
5. That the defendant, W. T. Nolting, as Collector of Internal Revenue, on the 10th day of
December, 1912, decide adversely to the protest of this plaintiff, said decision being as
follows:
"MANILA,
P.
"Subject:
Schedule
D.
Meyer
&
"Messrs.
BEHN,
"Zamboanga, Moro.

I., December
Taxes
due
Company,
MEYER

10,
from
Messrs.
Zamboanga,
&

1912.
Behn,
Moro.
CO.,

"GENTLEMEN:
"Referring to your protest dated November 26th against the collection from you of the sum
of P580 as internal revenue tax and penalty on your occupation of real-estate broker, I have
the honor to state that the undersigned holds adversely to said protest and same is hereby
denied.
"In this connection your attention is respectfully invited to section 52 of Act No. 1189.
"Very respectfully.
"WM. T. NOLTING."
6. That from the year 1906 to the year 1912 the plaintiff was engaged in the business,
among other things, of buying and selling copra, hemp, and other native products of the
Islands, and in such business the aforesaid plaintiff advanced money for the future delivery
of copra, hemp, and took as security for the future delivery of such copra or hemp so
contracted for a mortgage on the land upon which said copra or hemp was produced, and
charging a discount on the future deliveries of said copra or hemp, which was compensation
for the money so advanced.
7. That the negotiations above mentioned were made in the form and by means of written
mortgages, a blank form whereof signed by the attorneys for both parties herein, marked
Exhibit A, is hereto attached and made a part hereof.
The parties in this case pray this honorable court to render its decision on the facts herein
agreed upon after having heard the oral briefs of their attorneys if they desire to submit
same.
Zamboanga, Department of Mindanao and Sulu, P. I., this 18th day of December, 1914.
P.
Attorney
ISIDRO
Attorney for defendant.

J.

for

MOORE,
plaintiff
VAMENTA,

Upon said agreement, the cause was submitted to the lower court.
Subparagraph 2 of section 144 of Act No. 1189, known as the Internal Revenue Law,
provides:

Every real-estate broker shall pay eighty pesos. Every person, firm or company whose
business it is for themselves or others to negotiate purchases or sales of lands, buildings, or
interests therein, or to negotiate loans secured by lands, buildings, or interest therein, or
to rent real estate for others or to collect rents thereon, shall be regarded as a real-estate
broker.
By reference to paragraph 4 of the agreed statement of facts above we find that Behn,
Meyer & Co. (Ltd.) are not now and never have been engaged in the business of a real-estate
broker, either for themselves or for others; that said company is not engaged in the
business of stock brokerage, either for themselves or for others; that from the year 1906
to 1912 said company was engaged in the business, among other things, of buying and selling
copra, hemp, and other native products of the Islands, and in such business the aforesaid
plaintiff advanced money for the future delivery of copra, hemp, and took as security for
the future delivery of such copra and hemp so contracted for, a mortgage upon the land
upon which said copra or hemp was produced, and charging a discount on the future
deliveries of said copra or hemp, which was in compensation for the money so advanced.
From said agreed statement of facts it is evident that the contract which the plaintiff
made with their customers was for the purchase of agricultural products; that the
payments were made in advance; that to secure the delivery of said products or a return of
the money so paid in advance the plaintiff took a mortgage upon the land upon which the
products were to be produced; that the taking of said mortgage was a mere incident to the
business of the plaintiff in buying and selling agricultural products, and was not a business in
itself. The business of the plaintiff was not a business "for themselves or for others, to
negotiate the purchase or sale of lands, buildings, or interest therein, or to negotiate loans
secured by lands, buildings, or interest therein, or to tent real estate for others, or to
collect rents thereon," but the business was to purchase and sell agricultural products, and
that the tasking of said mortgages was a mere incident of their principal business. It could
hardly be held that a man who is engaged in the hardware and plumbing business, for
example, who took a mortgage upon a residence in which he had placed extensive plumbing
and sanitary apparatus, in order to secure the price of his labor and material, was engaged
"as a real-estate broker."
A "real-estate broker has been variously defined. A broker is generally defined as one who
is engaged, for others, on a commission, negotiating contracts relative to property with the
custody of which he has no concern; the negotiator between other parties, never acting in
his own name, but in the name of those who employed him; he is strictly a middleman and for
some purposes the agent of both parties. (19 Cyc., 186; Henderson vs. The State, 50 Ind.,
234; Black's Law Dictionary.) A broker is one whose occupation it is to bring parties
together to bargain, or to bargain for them, in matters of trade, commerce or navigation.
(Mechem on Agency, sec. 13; Wharton on Agency, sec. 695.) Judge Storey, in his work on
Agency, defines a broker as an agent employed to make bargains and contracts between
other persons, in matters of trade, commerce or navigation, for a compensation commonly
called brokerage. (Storey on Agency, sec. 28.) A real-estate broker negotiates the purchase
or sale of real property. He may also procure loans on mortgage security, collect rents, and
attend to the letting and leasing of houses and lands. (Bouvier's Law Dictionary.) A broker
acts for another. In the present case the plaintiff was acting for itself. Whatever was done

with reference to the taking of the mortgages in question was done as an incident of its own
business. By the contract of brokerage a person binds himself to render some service or to
do something in behalf of or at the request of another person. (Art. 1209, Civil Code.)
It may be said that a man's business, or the business of a corporation, is that which busies
or occupies his time, attention, or labor, as his principal concern or occupation.
(Territory vs. Harris, 19 Pac. Rep, 286.) Many persons make an occasional loan of money,
secured by a mortgage, in the due course of their business. That fact, however, will not
constitute such a person a real-estate broker.
The said P580 was collected from the plaintiff upon the theory that it was a real-estate
broker. In our judgment the record clearly shows that the plaintiff was not a real-estate
broker. Therefore the said tax collected illegally and should be repaid.
For the foregoing reasons, we are of the opinion that the judgment of the lower court
should be affirmed. Therefore let a judgment be entered in favor of the plaintiff and
against the defendant, as Collector of Internal Revenue, for the sum of P580, together with
interest hereon at the legal rate from the 23d of January, 1913, until paid, together with
costs. So ordered.