Eurotech Industrial Technologies, Inc. vs.

Cuizon, 521 SCRA 584(2007)

Agency; The underlying principle of the contract of agency is to accomplish results by using the services
of othersto do a great variety of things like selling, buying, manufacturing, and transporting.In a
contract of agency, a person binds himself to render some service or to do something in representation or
on behalf of another with the latters consent. The underlying principle of the contract of agency is to
accomplish results by using the services of othersto do a great variety of things like selling, buying,
manufacturing, and transporting. Its purpose is to extend the personality of the principal or the party for
whom another acts and from whom he or she derives the authority to act. It is said that the basis of agency
is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they were personally executed by the principal. By
this legal fiction, the actual or real absence of the principal is converted into his legal or juridical presence
qui facit per alium facit per se.
Same; Elements.The elements of the contract of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third
person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his
authority.

Same; Actions; Parties; Words and Phrases; An agent acting within his authority as such, who did not
acquire any right nor incur any liability arising from a Deed, is not a real property in interest who should
be impleaded; A real party in interest is one who stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit.As we declare that respondent EDWIN acted within his
authority as an agent, who did not acquire any right nor incur any liability arising from the Deed of
Assignment, it follows that he is not a real party in interest who should be impleaded in this case. A real
party in interest is one who stands to be benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit. In this respect, we sustain his exclusion as a defendant in the suit before
the court a quo. Eurotech Industrial Technologies, Inc. vs. Cuizon, 521 SCRA 584(2007)
G.R. No. 167552

April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,

vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION

Same; Article 1897 of the Civil Code reinforces the familiar doctrine that an agent, who acts as such, is
not personally liable to the party with whom he contracts; Exceptions.Article 1897 reinforces the
familiar doctrine that an agent, who acts as such, is not personally liable to the party with whom he
contracts. The same provision, however, presents two instances when an agent becomes personally liable
to a third person. The first is when he expressly binds himself to the obligation and the second is when he
exceeds his authority. In the last instance, the agent can be held liable if he does not give the third party
sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of the exceptions
contained in this provision.

CHICO-NAZARIO, J.:

Same; Managers; The position of manager is unique in that it presupposes the grant of broad powers with
which to conduct the business of the principal.The Deed of Assignment clearly states that respondent
EDWIN signed thereon as the sales manager of Impact Systems. As discussed elsewhere, the position of
manager is unique in that it presupposes the grant of broad powers with which to conduct the business of
the principal, thus: The powers of an agent are particularly broad in the case of one acting as a general
agent or manager; such a position presupposes a degree of confidence reposed and investiture with liberal
powers for the exercise of judgment and discretion in transactions and concerns which are incidental or
appurtenant to the business entrusted to his care and management. In the absence of an agreement to the
contrary, a managing agent may enter into any contracts that he deems reasonably necessary or requisite
for the protection of the interests of his principal entrusted to his management. x x x.

The generative facts of the case are as follows:

Same; In case of excess of authority by the agent, the law does not say that a third person can recover
from both the principal and the agent.We likewise take note of the fact that in this case, petitioner is
seeking to recover both from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state
here that Article 1897 of the New Civil Code upon which petitioner anchors its claim against respondent
EDWIN does not hold that in case of excess of authority, both the agent and the principal are liable to the
other contracting party. To reiterate, the first part of Article 1897 declares that the principal is liable in
cases when the agent acted within the bounds of his authority. Under this, the agent is completely absolved
of any liability. The second part of the said provision presents the situations when the agent himself
becomes liable to a third party when he expressly binds himself or he exceeds the limits of his authority
without giving notice of his powers to the third person. However, it must be pointed out that in case of
excess of authority by the agent, like what petitioner claims exists here, the law does not say that a third
person can recover from both the principal and the agent.

Before Us is a petition for review by certiorari assailing the Decision 1 of the Court of Appeals dated 10
August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech
Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed
the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of
respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.

Petitioner is engaged in the business of importation and distribution of various European industrial
equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales
("Impact Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN).
Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a quo in said
capacity.
From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to
ninety-one thousand three hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents sought to
buy from petitioner one unit of sludge pump valued at P250,000.00 with respondents making a down
payment of fifty thousand pesos (P50,000.00).4 When the sludge pump arrived from the United Kingdom,
petitioner refused to deliver the same to respondents without their having fully settled their indebtedness
to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general manager of
petitioner, executed a Deed of Assignment of receivables in favor of petitioner, the pertinent part of which
states:
1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the
amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment
for the purchase of one unit of Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which receivables the
ASSIGNOR is the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment.7
Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump
as shown by Invoice No. 12034 dated 30 June 1995.8
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment,
proceeded to collect from Toledo Power Company the amount of P365,135.29 as evidenced by Check
Voucher No. 09339prepared by said power company and an official receipt dated 15 August 1995 issued
by Impact Systems.10Alarmed by this development, petitioner made several demands upon respondents to
pay their obligations. As a result, respondents were able to make partial payments to petitioner. On 7
October 1996, petitioners counsel sent respondents a final demand letter wherein it was stated that as of
11 June 1996, respondents total obligations stood at P295,000.00 excluding interests and attorneys
fees.11 Because of respondents failure to abide by said final demand letter, petitioner instituted a
complaint for sum of money, damages, with application for preliminary attachment against herein
respondents before the Regional Trial Court of Cebu City.12

After the filing of respondent EDWINs Memorandum21 in support of his special and affirmative defenses
and petitioners opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002
dropping respondent EDWIN as a party defendant in this case. According to the trial court
A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon
acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single
proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that
plaintiff corporation is represented by its general manager Alberto de Jesus in the contract which is dated
June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems Sales which is owned
solely by defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex "H" is dated June
30, 1995 or two days after the execution of Annex "G", thereby showing that [Impact] Systems Sales
ratified the act of Edwin B. Cuizon; the records further show that plaintiff knew that [Impact] Systems
Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the down payment
of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in
the instant case the principal has ratified the act of its agent and plaintiff knew about said ratification.
Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon in excess of his
powers since [Impact] Systems Sales made a down payment of P50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party
defendant.23

On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of preliminary
attachment.13

Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals
which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the
now assailed Decision of the Court of Appeals states:

On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioners allegations with
respect to the sale transactions entered into by Impact Systems and petitioner between January and April
1995.15 He, however, disputed the total amount of Impact Systems indebtedness to petitioner which,
according to him, amounted to only P220,000.00.16

WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public
respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.24

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in
interest in this case. According to him, he was acting as mere agent of his principal, which was the Impact
Systems, in his transaction with petitioner and the latter was very much aware of this fact. In support of
this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioners Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the
proprietor of a single proprietorship business known as Impact Systems Sales ("Impact
Systems" for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may
be served summons and other processes of the Honorable Court.

Petitioners motion for reconsideration was denied by the appellate court in its Resolution promulgated on
17 March 2005. Hence, the present petition raising, as sole ground for its allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT
RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS
NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS
AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.25
To support its argument, petitioner points to Article 1897 of the New Civil Code which states:

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He
is the Sales Manager of Impact Systems and is sued in this action in such capacity.17

Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless
he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice
of his powers.

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for
Summary Judgment. The trial court granted petitioners motion to declare respondent ERWIN in default
"for his failure to answer within the prescribed period despite the opportunity granted" 18 but it denied
petitioners motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of
the case on 16 October 2001.19However, the conduct of the pre-trial conference was deferred pending the
resolution by the trial court of the special and affirmative defenses raised by respondent EDWIN. 20

Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act of collecting
the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of
Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the
agency relations of respondents, petitioner insists that ERWINs action repudiated EDWINs power to sign
the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent,
petitioner claims that he should be made personally liable for the obligations of his principal. 26

Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into
selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner
directs the attention of this Court to the fact that respondents are bound not only by their principal and
agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the
obvious signs of conspiracy to defraud petitioner.27
In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in
this case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a
mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even to
petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the
said business venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly
states that he was acting as a representative of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do something in representation
or on behalf of another with the latters consent. 29 The underlying principle of the contract of agency is to
accomplish results by using the services of others to do a great variety of things like selling, buying,
manufacturing, and transporting.30 Its purpose is to extend the personality of the principal or the party for
whom another acts and from whom he or she derives the authority to act.31 It is said that the basis of
agency is representation, that is, the agent acts for and on behalf of the principal on matters within the
scope of his authority and said acts have the same legal effect as if they were personally executed by the
principal.32 By this legal fiction, the actual or real absence of the principal is converted into his legal or
juridical presence qui facit per alium facit per se.33
The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts
as a representative and not for himself; (4) the agent acts within the scope of his authority.34
In this case, the parties do not dispute the existence of the agency relationship between respondents
ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether respondent
EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding himself
personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted
beyond the authority granted by his principal and he should therefore bear the effect of his deed pursuant
to Article 1897 of the New Civil Code.

The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such
a position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise
of judgment and discretion in transactions and concerns which are incidental or appurtenant to the
business entrusted to his care and management. In the absence of an agreement to the contrary, a
managing agent may enter into any contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his management. x x x.35
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority
when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge
pump unless it received, in full, the payment for Impact Systems indebtedness.36 We may very well
assume that Impact Systems desperately needed the sludge pump for its business since after it paid the
amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,37 it still persisted in
negotiating with petitioner which culminated in the execution of the Deed of Assignment of its receivables
from Toledo Power Company on 28 June 1995.38The significant amount of time spent on the negotiation
for the sale of the sludge pump underscores Impact Systems perseverance to get hold of the said
equipment. There is, therefore, no doubt in our mind that respondent EDWINs participation in the Deed
of Assignment was "reasonably necessary" or was required in order for him to protect the business of his
principal. Had he not acted in the way he did, the business of his principal would have been adversely
affected and he would have violated his fiduciary relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents
ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil
Code upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of
excess of authority, both the agent and the principal are liable to the other contracting party." 39 To reiterate,
the first part of Article 1897 declares that the principal is liable in cases when the agent acted within the
bounds of his authority. Under this, the agent is completely absolved of any liability. The second part of
the said provision presents the situations when the agent himself becomes liable to a third party when he
expressly binds himself or he exceeds the limits of his authority without giving notice of his powers to the
third person. However, it must be pointed out that in case of excess of authority by the agent, like what
petitioner claims exists here, the law does not say that a third person can recover from both the principal
and the agent.40
As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any
right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in
interest who should be impleaded in this case. A real party in interest is one who "stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit."41 In this respect, we
sustain his exclusion as a defendant in the suit before the court a quo.

We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the
party with whom he contracts. The same provision, however, presents two instances when an agent
becomes personally liable to a third person. The first is when he expressly binds himself to the obligation
and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he does
not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not fall
within any of the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of
Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant
of broad powers with which to conduct the business of the principal, thus:

WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August
2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming
the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the
continuation of the proceedings against respondent Erwin Cuizon.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice

Rallos vs. Felix Go Chan & Sons Realty Corporation, 81 SCRA 251(1978)
Agency, its concept, essential elements and characteristics.By the relationship of agency, one party
called the principal authorizes another called the agent to act for and in his behalf in transactions with
third persons. The essential elements of agency are:(l) there is consent, express or implied, of the parties to
establish the relationship: (2) the object is the execution of a juridical act in relation to a third person; (3)
the agent acts as a representative and not for himself; and (4) the agent acts within the scope of his
authority. Agency is basically personal, representative, and derivative in nature. The authority of the agent
to act emanates from the powers granted to him by his principal; his act is the act of the principal if done
within the scope of the authority. He who acts through another acts himself.
Same: Same; Art. 1930 and Art. 1931 of the Civil Code providing that death of principal or agent
extinguishing agency is only a general rule; Rationale for the provision.Reason of the very nature of the
relationship between principal and agent, agency is extinguished by the death of the principal. Manresa
explains that the rationale for the law is found in the juridical basis of agency which is representation.
Laurent says that the juridical tie between the principal and the agent is severed ipso jure upon the death of
either without necessity for the heirs of the principal to notify the agent of the fact of death of the former.
The same rule prevails at common lawthe death of the principal effects instantaneous and absolute
revocation of the authority of the agent unless the power be coupled with an interest. This is the prevalent
rule in American jurisprudence where it is well-settled that a power without an interest conferred upon an
agent is dissolved by the principals death, and any attempted execution of the power afterwards is not
binding on the heirs or representatives of the deceased.
Same; Same; Art. 1930 and Art. 1931 of the Civil Code exceptions to general rule provided in Art. 1919 of
the Civil Code, that death of principal revokes ipso jure the agency.Is the general rule provided for in
Art. 1919 that the death of the principal or of the agent extinguishes the agency, subject to any exception,
and if so, is the instant case within that exception? That is the determinative point in issue in this litigation
x x x Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule aforementioned.
Same; Same; Same; Contention that despite death of principal the act of attorney-in-fact in selling his
principals share of the disputed property is valid and enforceable since the buyer acted in good faith is
untenable because of the established knowledge of the attorney-in-fact of the death of his principal;
Requisites of Art. 1931 that despite death of principal and of agent is valid not complied with.Under
Art. 1931 of the Civil Code, an act done by the agent after the death of his principal is valid and effective
only under two conditions, viz: (1) that the agent acted without knowledge of the death of the principal,
and (2) that the third person who contracted with the agent himself acted in good faith. Good faith here
means that the third person was not aware of the death of the principal at the time he contracted with said
agent. These two requisites must concur: the absence of one will render the act of the agent invalid and
unenforceable. In the instant case, it cannot be questioned that the agent Simeon Rallos knew of the death
of his principal at the time he sold the latters share in Lot No. 5983 to respondent corporation. x x x On
the basis of the established knowledge of Simeon Rallos concerning the death of his principal, Concepcion
Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack
of knowledge on the part of the agent of the death of his principal; it is not enough that the third person
acted in good faith.
Same; Same; Same; Same; General rule is that an act of agent after death of his principal is void ab initio
unless the same falls under exceptions in Arts. 1930 and 1931 of the Civil Code; Art 1931 being an
exception to the general rule is to be strictly construed.In sustaining the validity of the sale to
respondent corporation, the Court of Appeals reasoned out that there is no provision in the Civil Code
which provides that whatever is done by an agent having knowledge of the death of his principal is void
even with respect to third persons who may have contracted with him in good faith and without

knowledge of the death of the principal. We cannot see the merits of the foregoing argument as it ignores
the existence of the general rule enunciated in Art. 1919 that the death of the principal extinguishes the
agency. That being the general rule it follows a fortiori that any act of an agent after the death of his
principal is void ab initio unless the same falls under the exceptions provided for in the aforementioned
Articles 1930 and 1931. Article 1931, being an exception to the general rule, is to be strictly construed; it
is not to be given an interpretation or application beyond the clear import of its terms for otherwise the
courts will be involved in a process of legislation outside of their judicial function.
Same; Same; Revocation by an act of the principal as a mode of terminating agency distinguished from
revocation by operation of law such as death of principal.Revocation by an act of the principal as a
mode of terminating an agency is to be distinguished from revocation by operation of law such as death of
the principal which obtains in this case. The decision stressed that by reason of the very nature of the
relationship between principal and agent, agency is extinguished ipso jure upon the death of either
principal or agent. Although a revocation of a power of attorney to be effective must be communicated to
the parties concerned, yet a revocation by operation of law, such as by death of the principal is, as a rule,
instantaneously effective inasmuch as by legal fiction the agents exercise of authority is regarded as an
execution of the principals continuing will. With death, the principals will ceases or is terminated; the
source of authority is extinguished.
Same; Same; Law does not impose a duty on the heirs of principal to notify agent of death of principal; If
agent dies, his heirs must notify principal thereof.The Civil Code does not impose a duty on the heirs of
the principal to notify the agent of the death of said principal. What the Code provides in Article 1932 is
that, if the agent dies, his heirs must notify the principal thereof, and in the meantime adopt such measures
as the circumstances may demand in the interest of the latter. Hence, the fact that no notice of the death of
the principal was registered on the certificate of title of the property in the Office of the Register of Deeds,
is not fatal to the cause of the estate of the principal.
Same; Same; No parallel can be drawn between the case of attorney-in-fact who after death of his
principal sold the latters share in the land pursuant to a special power of attorney which the principal had
executed in his favor and that of an innocent purchaser for value of registered land.Holding that the
good faith of a third person in dealing with an agent affords the former sufficient protection, respondent
court drew a parallel between the instant case and that of an innocent purchaser for value of a registered
land, stating that if a person purchases a registered land from one who acquired it in bad faitheven to the
extent of forging or falsifying the deed of sale in his favorthe registered owner has no recourse against
such innocent purchaser for value but only against the forger. To support the correctness of this
parallelism, respondent corporation, in its brief, cites the case of Blondeau, et al. vs. Nano and Vallejo,
61 Phil. 625. x x x The Blondeau decision, however, is not on all fours with the case before Us because
here We are confronted with one who admittedly was an agent of his sister and who sold the property of
the latter after her death with full knowledge of such death. The situation is expressly covered by a
provision of law on agency the terms of which are clear and unmistakable leaving no room for an
interpretation contrary to its tenor, in the same manner that the ruling in Blondeau and the cases cited
therein found a basis in Section 55 of the Land Registration Law.
Same; Same; Conflict of legal opinion in American jurisprudence does not hold true in Philippine law;
Civil Code of the Philippines expressly provides for two exceptions to general rule that death of the
principal revokes the agency; Agents act of executing the sale of property despite notice of death of his
principal is unenforceable against the estate of the principal.One last point raised by respondent
corporation in support of the appealed decision is an 1842 ruling of the
Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the
death of the principal were held to be good, the parties being ignorant of the death. Let us take note

that the Opinion of Justice Rogers was premised on the statement that the parties were ignorant of the
death of the principal. x x x To avoid any wrong impression which the Opinion in Cassiday v. McKenzie
may evoke, mention may be made that the above represents the minority view in American jurisprudence.
x x x Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American
jurisprudence, no such conflict exists in our own for the simple reason that our statute, the Civil Code,
expressly provides for two exceptions to the general rule that death of the principal revokes ipso jure the
agency, to wit: (1) that the agency is coupled with an interest (Art. 1930), and (2) that the act of the agent
was executed without knowledge of the death of the principal and the third person who contracted with the
agent acted also in good faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again
We stress the indispensable requirementthat the agent acted without knowledge or notice of the death of
the principal. In the case before Us the agent Ramon Rallos executed the sale notwithstanding notice of
the death of his principal. Accordingly, the agents act is unenforceable against the estate of his principal.
[Rallos vs. Felix Go Chan & Sons Realty Corporation, 81 SCRA 251(1978)]
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.

sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said
share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan &
Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and the
"Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way of
attorney's fees and payment of costs of suit. Named party defendants were Felix Go Chan & Sons Realty
Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped
from the complaint. The complaint was amended twice; defendant Corporation's Answer contained a
crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint against his
sister, Gerundia Rallos While the case was pending in the trial court, both Simon and his sister Gerundia
died and they were substituted by the respective administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive portion:
A. On Plaintiffs Complaint
(1) Declaring the deed of sale, Exh. "C", null and void
insofar as the one-half pro-indiviso share of Concepcion
Rallos in the property in question, Lot 5983 of the
Cadastral Survey of Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel
Transfer Certificate of Title No. 12989 covering Lot 5983
and to issue in lieu thereof another in the names of FELIX
GO CHAN & SONS REALTY CORPORATION and the
Estate of Concepcion Rallos in the proportion of one-half
(1/2) share each pro-indiviso;

MUOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion
Rallos, sold the latter's undivided share in a parcel of land pursuant to a power of attorney which the
principal had executed in favor. The administrator of the estate of the went to court to have the sale
declared uneanforceable and to recover the disposed share. The trial court granted the relief prayed for, but
upon appeal the Court of Appeals uphold the validity of the sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and
registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered
by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed
a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their
behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold
the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty
Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of Cebu,
TCT No. 11118 was cancelled, and a new transfer certificate of Title No. 12989 was issued in the named
of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a
complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the

(3) Ordering Felix Go Chan & Sons Realty Corporation to

deliver the possession of an undivided one-half (1/2) share of
Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay to
plaintiff in concept of reasonable attorney's fees the sum of
P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and
severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay to
defendant Felix Co Chan & Sons Realty Corporation the sum
of P5,343.45, representing the price of one-half (1/2) share of
lot 5983;

(2) Ordering co-defendant Juan T. Borromeo, administrator

of the Estate of Simeon Rallos, to pay in concept of
reasonable attorney's fees to Felix Go Chan & Sons Realty
Corporation the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of
Estate of Simeon Rallos, against Josefina Rallos special administratrix of the Estate
of Gerundia Rallos:

Agency is basically personal representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done within
the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause
death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the
Spanish Civil Code provides:
ART. 1919. Agency is extinguished.

(1) Dismissing the third-party complaint without prejudice to filing either a

complaint against the regular administrator of the Estate of Gerundia Rallos or a
claim in the Intestate-Estate of Cerundia Rallos, covering the same subject-matter
of the third-party complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the
foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The
appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of the
appellant corporation sustaining the sale in question. 1 The appellee administrator, Ramon Rallos, moved
for a reconsider of the decision but the same was denied in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his principal? Applied more
particularly to the instant case, We have the query. is the sale of the undivided share of Concepcion Rallos
in lot 5983 valid although it was executed by the agent after the death of his principal? What is the law in
this jurisdiction as to the effect of the death of the principal on the authority of the agent to act for and in
behalf of the latter? Is the fact of knowledge of the death of the principal a material factor in determining
the legal effect of an act performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter
tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of
another without being authorized by the latter, or unless he has by law a right to represent him. 3 A
contract entered into in the name of another by one who has no authority or the legal representation or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting
party. 4 Article 1403 (1) of the same Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are justified:
(1) Those entered into in the name of another person by one who hi - been given no
authority or legal representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, caged the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons. The essential elements of
agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the agents acts as a representative
and not for himself, and (4) the agent acts within the scope of his authority. 5

xxx xxx xxx

3. By the death, civil interdiction, insanity or insolvency of the principal or of the
agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is extinguished by
the death of the principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is
found in thejuridical basis of agency which is representation Them being an in. integration of the
personality of the principal integration that of the agent it is not possible for the representation to continue
to exist once the death of either is establish. Pothier agrees with Manresa that by reason of the nature of
agency, death is a necessary cause for its extinction. Laurent says that the juridical tie between the
principal and the agent is severed ipso jure upon the death of either without necessity for the heirs of the
fact to notify the agent of the fact of death of the former. 9
The same rule prevails at common law the death of the principal effects instantaneous and absolute
revocation of the authority of the agent unless the Power be coupled with an interest. 10 This is the
prevalent rule in American Jurisprudence where it is well-settled that a power without an interest confer.
red upon an agent is dissolved by the principal's death, and any attempted execution of the power
afterward is not binding on the heirs or representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent
extinguishes the agency, subject to any exception, and if so, is the instant case within that exception? That
is the determinative point in issue in this litigation. It is the contention of respondent corporation which
was sustained by respondent court that notwithstanding the death of the principal Concepcion Rallos the
act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid and
enforceable inasmuch as the corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death of
the principal, if it has been constituted in the common interest of the latter and of
the agent, or in the interest of a third person who has accepted the stipulation in his
favor.

ART. 1931. Anything done by the agent, without knowledge of the death of the
principal or of any other cause which extinguishes the agency, is valid and shall be
fully effective with respect to third persons who may have contracted with him in
good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon
Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his
principal is valid and effective only under two conditions, viz: (1) that the agent acted without knowledge
of the death of the principal and (2) that the third person who contracted with the agent himself acted in
good faith. Good faith here means that the third person was not aware of the death of the principal at the
time he contracted with said agent. These two requisites must concur the absence of one will render the act
of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his
principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge
of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the trial court. 12 That
Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the court a quo 13 and
of respondent appellate court when the latter stated that Simon Rallos 'must have known of the death of
his sister, and yet he proceeded with the sale of the lot in the name of both his sisters Concepcion and
Gerundia Rallos without informing appellant (the realty corporation) of the death of the former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his principal
Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death of his principal; it is not enough that
the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738
of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale made after the
death of the principal because it was not shown that the agent knew of his principal's demise. 15 To the
same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice
Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented
no proof and there is no indication in the record, that the agent Luy Kim Guan was
aware of the death of his principal at the time he sold the property. The death 6f the
principal does not render the act of an agent unenforceable, where the latter had no
knowledge of such extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that
there is no provision in the Code which provides that whatever is done by an agent having knowledge of
the death of his principal is void even with respect to third persons who may have contracted with him in
good faith and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the general rule
enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the general
rule it follows a fortiorithat any act of an agent after the death of his principal is void ab initio unless the
same fags under the exception provided for in the aforementioned Articles 1930 and 1931. Article 1931,
being an exception to the general rule, is to be strictly construed, it is not to be given an interpretation or

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

In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo
was a co-owner of lands with Agustin Nano. The latter had a power of attorney
supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his
land titles. The power was registered in the Office of the Register of Deeds. When
the lawyer-husband of Angela Blondeau went to that Office, he found all in order
including the power of attorney. But Vallejo denied having executed the power The
lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the
decision of the court a quo, the Supreme Court, quoting the ruling in the case
of Eliason v. Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the
defendant- appellee must be overruled. Agustin Nano had
possession of Jose Vallejo's title papers. Without those title
papers handed over to Nano with the acquiescence of Vallejo,
a fraud could not have been perpetuated. When Fernando de
la Canters, a member of the Philippine Bar and the husband
of Angela Blondeau, the principal plaintiff, searched the
registration record, he found them in due form including the
power of attorney of Vallajo in favor of Nano. If this had not
been so and if thereafter the proper notation of the
encumbrance could not have been made, Angela Blondeau
would not have sent P12,000.00 to the defendant Vallejo.' An
executed transfer of registered lands placed by the registered
owner thereof in the hands of another operates as a
representation to a third party that the holder of the transfer is
authorized to deal with the land.
As between two innocent persons, one of whom must suffer
the consequence of a breach of trust, the one who made it
possible by his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We are
confronted with one who admittedly was an agent of his sister and who sold the property of the latter after
her death with full knowledge of such death. The situation is expressly covered by a provision of law on
agency the terms of which are clear and unmistakable leaving no room for an interpretation contrary to its
tenor, in the same manner that the ruling in Blondeau and the cases cited therein found a basis in Section
55 of the Land Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any voluntary
instrument is presented for registration shall be conclusive authority from the
registered owner to the register of deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instruments, and the new
certificate or memorandum Shall be binding upon the registered owner and upon all
persons claiming under him in favor of every purchaser for value and in good
faith: Provided however, That in all cases of registration provided by fraud, the
owner may pursue all his legal and equitable remedies against the parties to such

fraud without prejudice, however, to the right, of any innocent holder for value of a
certificate of title. ... (Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of
the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the
death of the principal were held to be "good", "the parties being ignorant of the death". Let us take note
that the Opinion of Justice Rogers was premised on the statement that the parties were ignorant of the
death of the principal. We quote from that decision the following:
... Here the precise point is, whether a payment to an agent when the Parties are
ignorant of the death is a good payment. in addition to the case in Campbell before
cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general
question that a payment after the death of principal is not good. Thus, a payment of
sailor's wages to a person having a power of attorney to receive them, has been held
void when the principal was dead at the time of the payment. If, by this case, it is
meant merely to decide the general proposition that by operation of law the death of
the principal is a revocation of the powers of the attorney, no objection can be taken
to it. But if it intended to say that his principle applies where there was 110 notice
of death, or opportunity of twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident
circumstance of the death of the principal, which he did not know, and which by no
possibility could he know? It would be unjust to the agent and unjust to the debtor.
In the civil law, the acts of the agent, done bona fide in ignorance of the death of
his principal are held valid and binding upon the heirs of the latter. The same rule
holds in the Scottish law, and I cannot believe the common law is so unreasonable...
(39 Am. Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be
made that the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett,
the Court said.
There are several cases which seem to hold that although, as a general principle,
death revokes an agency and renders null every act of the agent thereafter
performed, yet that where a payment has been made in ignorance of the death, such
payment will be good. The leading case so holding is that of Cassiday v. McKenzie,
4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii
broadly announced. It is referred to, and seems to have been followed, in the case
of Dick v. Page,17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the
estate of the deceased principal had received the benefit of the money paid, and
therefore the representative of the estate might well have been held to be estopped
from suing for it again. . . . These cases, in so far, at least, as they announce the
doctrine under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday
v. McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand almost, if not
quite, alone in announcing the principle in its broadest scope. (52, Misc. 353, 357,
cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except
so far as it related to the particular facts, was a mere dictum, Baldwin J. said:

The opinion, therefore, of the learned Judge may be regarded more as an

extrajudicial indication of his views on the general subject, than as the adjudication
of the Court upon the point in question. But accordingly all power weight to this
opinion, as the judgment of a of great respectability, it stands alone among common
law authorities and is opposed by an array too formidable to permit us to following
it. (15 Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no
such conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides
for two exceptions to the general rule that death of the principal revokes ipso jure the agency, to wit: (1)
that the agency is coupled with an interest (Art 1930), and (2) that the act of the agent was executed
without knowledge of the death of the principal and the third person who contracted with the agent acted
also in good faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress
the indispensable requirement that the agent acted without knowledge or notice of the death of the
principal In the case before Us the agent Ramon Rallos executed the sale notwithstanding notice of the
death of his principal Accordingly, the agent's act is unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We
affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of
Cebu, quoted in pages 2 and 3 of this Opinion, with costs against respondent realty corporation at all
instances.
So Ordered.
Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.

Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation, 639 SCRA 69(2011)
Subrogation; Words and Phrases; Subrogation is the substitution of one person in the place of another with
reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities.Subrogation is the substitution of one
person in the place of another with reference to a lawful claim or right, so that he who is substituted
succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities.
Doubtless, R&B Insurance is subrogated to the rights of the insured to the extent of the amount it paid the
consignee under the marine insurance, as provided under Article 2207 of the Civil Code, which reads:
ART. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrong-doer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
Common Carriers; Private Carriers; Words and Phrases; One engaged in the business of transporting
goods by land, through its trucking service, is a common carrier, as distinguished from a private carrier
wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry
goods for the general public.At the outset, it is well to resolve the issue of whether Loadmasters and
Glodel are common carriers to determine their liability for the loss of the subject cargo. Under Article
1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the
business of carrying or transporting passenger or goods, or both by land, water or air for compensation,
offering their services to the public. Based on the aforecited definition, Loadmasters is a common carrier
because it is engaged in the business of transporting goods by land, through its trucking service. It is a
common carrier as distinguished from a private carrier wherein the carriage is generally undertaken by
special agreement and it does not hold itself out to carry goods for the general public. The distinction is
significant in the sense that the rights and obligations of the parties to a contract of private carriage are
governed principally by their stipulations, not by the law on common carriers.
Same; Customs Brokers; A customs broker is also regarded as a common carrier, the transportation of
goods being an integral part of its business.In the same vein, Glodel is also considered a common
carrier within the context of Article 1732. In its Memorandum, it states that it is a corporation duly
organized and existing under the laws of the Republic of the Philippines and is engaged in the business of
customs brokering. It cannot be considered otherwise because as held by this Court in Schmitz Transport
& Brokerage Corporation v. Transport Venture, Inc., 456 SCRA 557 (2005), a customs broker is also
regarded as a common carrier, the transportation of goods being an integral part of its business.
Same; Extraordinary Diligence; Words and Phrases; When the Court speaks of extraordinary diligence, it
is that extreme measure of care and caution which persons of unusual prudence and circumspection
observe for securing and preserving their own property or rightsthis exacting standard imposed on
common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the shipper who
is at the mercy of the common carrier once the goods have been lodged for shipment.Loadmasters and
Glodel, being both common carriers, are mandated from the nature of their business and for reasons of
public policy, to observe the extraordinary diligence in the vigilance over the goods transported by them
according to all the circumstances of such case, as required by Article 1733 of the Civil Code. When the
Court speaks of extraordinary diligence, it is that extreme measure of care and caution which persons of
unusual prudence and circumspection observe for securing and preserving their own property or rights.
This exacting standard imposed on common carriers in a contract of carriage of goods is intended to tilt
the scales in favor of the shipper who is at the mercy of the common carrier once the goods have been
lodged for shipment. Thus, in case of loss of the goods, the common carrier is presumed to have been at

fault or to have acted negligently. This presumption of fault or negligence, however, may be rebutted by
proof that the common carrier has observed extraordinary diligence over the goods.
Same; Quasi-Delicts; The responsibility of two or more persons who are liable for a quasi-delict is
solidary.Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and
severally liable to R & B Insuran.ce for the loss of the subject cargo. Under Article 2194 of the New Civil
Code, the responsibility of two or more persons who are liable for a quasi-delict is solidary.
Same; Same; Whenever an employees negligence causes damage or injury to another, there instantly
arises a presumption juris tantum that the employer failed to exercise diligentissimi patris families in the
selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees.It is not disputed that
the subject cargo was lost while in the custody of Loadmasters whose employees (truck driver and helper)
were instrumental in the hijacking or robbery of the shipment. As employer, Loadmasters should be made
answerable for the damages caused by its employees who acted within the scope of their assigned task of
delivering the goods safely to the warehouse. Whenever an employees negligence causes damage or
injury to another, there instantly arises a presumption juris tantum that the employer failed to exercise
diligentissimi patris families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its
employees. To avoid liability for a quasi-delict committed by its employee, an employer must overcome
the presumption by presenting convincing proof that he exercised the care and diligence of a good father
of a family in the selection and supervision of his employee. In this regard, Loadmasters failed.
Same; Same; Agency; Elements; It is a settled rule that the basis for agency is representation, that is, the
agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have
the same legal effect as if they were personally executed by the principal.At this juncture, the Court
clarifies that there exists no principal-agent relationship between Glodel and Loadmasters, as erroneously
found by the CA. Article 1868 of the Civil Code provides: By the contract of agency a person binds
himself to render some service or to do something in representation or on behalf of another, with the
consent or authority of the latter. The elements of a contract of agency are: (1) consent, express or
implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts
within the scope of his authority. Accordingly, there can be no contract of agency between the parties.
Loadmasters never represented Glodel. Neither was it ever authorized to make such representation. It is a
settled rule that the basis for agency is representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts have the same legal effect as if they
were personally executed by the principal. On the part of the principal, there must be an actual intention to
appoint or an intention naturally inferable from his words or actions, while on the part of the agent, there
must be an intention to accept the appointment and act on it. Such mutual intent is not obtaining in this
case.
Same; Same; Where several causes producing an injury are concurrent and each is an efficient cause
without which the injury would not have happened, the injury may be attributed to all or any of the causes
and recovery may be had against any or all of the responsible persons although under the circumstances of
the case, it may appear that one of them was more culpable, and that the duty owed by them to the injured
person was not the same.What then is the extent of the respective liabilities of Loadmasters and Glodel?
Each wrongdoer is liable for the total damage suffered by R&B Insurance. Where there are several causes
for the resulting damages, a party is not relieved from liability, even partially. It is sufficient that the
negligence of a party is an efficient cause without which the damage would not have resulted. It is no
defense to one of the concurrent tortfeasors that the damage would not have resulted from his negligence
alone, without the negligence or wrongful acts of the other concurrent tortfeasor. As stated in the case of
Far Eastern Shipping v. Court of Appeals, 297 SCRA 30 (1998), x x x. Where several causes producing an
injury are concurrent and each is an efficient cause without which the injury would not have happened, the

injury may be attributed to all or any of the causes and recovery may be had against any or all of the
responsible persons although under the circumstances of the case, it may appear that one of them was
more culpable, and that the duty owed by them to the injured person was not the same. No actors
negligence ceases to be a proximate cause merely because it does not exceed the negligence of other
actors. Each wrongdoer is responsible for the entire result and is liable as though his acts were the sole
cause of the injury. There is no contribution between joint tortfeasors whose liability is solidary since both
of them are liable for the total damage. Where the concurrent or successive negligent acts or omissions of
two or more persons, although acting independently, are in combination the direct and proximate cause of
a single injury to a third person, it is impossible to determine in what proportion each contributed to the
injury and either of them is responsible for the whole injury. Where their concurring negligence resulted in
injury or damage to a third party, they become joint tortfeasors and are solidarily liable for the resulting
damage under Article 2194 of the Civil Code.
Actions; Negligence; The Court cannot be a lawyer and take the cudgels for a party who has been at fault
or negligent.Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of
contract of service as the latter is primarily liable for the loss of the subject cargo. In this case, however, it
cannot succeed in seeking judicial sanction against Loadmasters because the records disclose that it did
not properly interpose a cross-claim against the latter. Glodel did not even pray that Loadmasters be liable
for any and all claims that it may be adjudged liable in favor of R&B Insurance. Under the Rules, a
compulsory counterclaim, or a cross-claim, not set up shall be barred. Thus, a cross-claim cannot be set up
for the first time on appeal. For the consequence, Glodel has no one to blame but itself. The Court cannot
come to its aid on equitable grounds. Equity,which has been aptly described as a justice outside legality,
is applied only in the absence of, and never against, statutory law or judicial rules of procedure. The
Court cannot be a lawyer and take the cudgels for a party who has been at fault or negligent. Loadmasters
Customs Services, Inc. vs. Glodel Brokerage Corporation, 639 SCRA 69(2011)
G.R. No. 179446

January 10, 2011

LOADMASTERS CUSTOMS SERVICES, INC., Petitioner,

vs.
GLODEL BROKERAGE CORPORATION and R&B INSURANCE
CORPORATION, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing the August
24, 2007 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 82822, entitled "R&B Insurance
Corporation v. Glodel Brokerage Corporation and Loadmasters Customs Services, Inc.," which held
petitioner Loadmasters Customs Services, Inc. (Loadmasters) liable to respondent Glodel Brokerage
Corporation (Glodel) in the amount of P1,896,789.62 representing the insurance indemnity which R&B
Insurance Corporation (R&B Insurance) paid to the insured-consignee, Columbia Wire and Cable
Corporation (Columbia).
THE FACTS:
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of Columbia to
insure the shipment of 132 bundles of electric copper cathodes against All Risks. On August 28, 2001, the

cargoes were shipped on board the vessel "Richard Rey" from Isabela, Leyte, to Pier 10, North Harbor,
Manila. They arrived on the same date.
Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the pier and
the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for
the use of its delivery trucks to transport the cargoes to Columbias warehouses/plants in Bulacan and
Valenzuela City.
The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its employed
drivers and accompanied by its employed truck helpers. Six (6) truckloads of copper cathodes were to be
delivered to Balagtas, Bulacan, while the other six (6) truckloads were destined for Lawang Bato,
Valenzuela City. The cargoes in six truckloads for Lawang Bato were duly delivered in Columbias
warehouses there. Of the six (6) trucks en route to Balagtas, Bulacan, however, only five (5) reached the
destination. One (1) truck, loaded with 11 bundles or 232 pieces of copper cathodes, failed to deliver its
cargo.
Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the copper cathodes.
Because of this incident, Columbia filed with R&B Insurance a claim for insurance indemnity in the
amount ofP1,903,335.39. After the requisite investigation and adjustment, R&B Insurance paid Columbia
the amount ofP1,896,789.62 as insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Glodel before the
Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No. 02-103040. It sought
reimbursement of the amount it had paid to Columbia for the loss of the subject cargo. It claimed that it
had been subrogated "to the right of the consignee to recover from the party/parties who may be held
legally liable for the loss."2
On November 19, 2003, the RTC rendered a decision3 holding Glodel liable for damages for the loss of
the subject cargo and dismissing Loadmasters counterclaim for damages and attorneys fees against R&B
Insurance. The dispositive portion of the decision reads:
WHEREFORE, all premises considered, the plaintiff having established by preponderance of evidence its
claims against defendant Glodel Brokerage Corporation, judgment is hereby rendered ordering the latter:
1. To pay plaintiff R&B Insurance Corporation the sum of P1,896,789.62 as actual and
compensatory damages, with interest from the date of complaint until fully paid;
2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of the principal
amount recovered as and for attorneys fees plus P1,500.00 per appearance in Court;
3. To pay plaintiff R&B Insurance Corporation the sum of P22,427.18 as litigation expenses.
WHEREAS, the defendant Loadmasters Customs Services, Inc.s counterclaim for damages and attorneys
fees against plaintiff are hereby dismissed.
With costs against defendant Glodel Brokerage Corporation.

SO ORDERED.4
Both R&B Insurance and Glodel appealed the RTC decision to the CA.
On August 24, 2007, the CA rendered the assailed decision which reads in part:
Considering that appellee is an agent of appellant Glodel, whatever liability the latter owes to appellant
R&B Insurance Corporation as insurance indemnity must likewise be the amount it shall be paid by
appellee Loadmasters.
WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the appellee
Loadmasters is likewise held liable to appellant Glodel in the amount of P1,896,789.62 representing the
insurance indemnity appellant Glodel has been held liable to appellant R&B Insurance Corporation.
Appellant Glodels appeal to absolve it from any liability is herein DISMISSED.

Subrogation is the substitution of one person in the place of another with reference to a lawful claim or
right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities.9 Doubtless, R&B Insurance is subrogated to the rights of the insured
to the extent of the amount it paid the consignee under the marine insurance, as provided under Article
2207 of the Civil Code, which reads:
ART. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrong-doer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek
reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort.
The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for the amount of
the indemnity it paid Columbia.

SO ORDERED.5
Hence, Loadmasters filed the present petition for review on certiorari before this Court presenting the
following
ISSUES
1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of the fact
that the latter respondent Glodel did not file a cross-claim against it (Loadmasters)?
2. Under the set of facts established and undisputed in the case, can petitioner
Loadmasters be legally considered as an Agent of respondent Glodel?6
To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it cannot be
considered an agent of Glodel because it never represented the latter in its dealings with the consignee. At
any rate, it further contends that Glodel has no recourse against it for its (Glodels) failure to file a crossclaim pursuant to Section 2, Rule 9 of the 1997 Rules of Civil Procedure.
Glodel, in its Comment,7 counters that Loadmasters is liable to it under its cross-claim because the latter
was grossly negligent in the transportation of the subject cargo. With respect to Loadmasters claim that it
is already estopped from filing a cross-claim, Glodel insists that it can still do so even for the first time on
appeal because there is no rule that provides otherwise. Finally, Glodel argues that its relationship with
Loadmasters is that of Charter wherein the transporter (Loadmasters) is only hired for the specific job of
delivering the merchandise. Thus, the diligence required in this case is merely ordinary diligence or that of
a good father of the family, not the extraordinary diligence required of common carriers.
R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim against
Loadmasters because it was not prevented from presenting evidence to prove its position even without
amending its Answer. As to the relationship between Loadmasters and Glodel, it contends that a contract
of agency existed between the two corporations.8

At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common carriers to
determine their liability for the loss of the subject cargo. Under Article 1732 of the Civil Code, common
carriers are persons, corporations, firms, or associations engaged in the business of carrying or
transporting passenger or goods, or both by land, water or air for compensation, offering their services to
the public.
Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in the business
of transporting goods by land, through its trucking service. It is a common carrier as distinguished from a
private carrier wherein the carriage is generally undertaken by special agreement and it does not hold itself
out to carry goods for the general public.10 The distinction is significant in the sense that "the rights and
obligations of the parties to a contract of private carriage are governed principally by their stipulations, not
by the law on common carriers."11
In the present case, there is no indication that the undertaking in the contract between Loadmasters and
Glodel was private in character. There is no showing that Loadmasters solely and exclusively rendered
services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.12
In the same vein, Glodel is also considered a common carrier within the context of Article 1732. In its
Memorandum,13 it states that it "is a corporation duly organized and existing under the laws of the
Republic of the Philippines and is engaged in the business of customs brokering." It cannot be considered
otherwise because as held by this Court in Schmitz Transport & Brokerage Corporation v. Transport
Venture, Inc.,14 a customs broker is also regarded as a common carrier, the transportation of goods being an
integral part of its business.
Loadmasters and Glodel, being both common carriers, are mandated from the nature of their business and
for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods
transported by them according to all the circumstances of such case, as required by Article 1733 of the
Civil Code. When the Court speaks of extraordinary diligence, it is that extreme measure of care and

caution which persons of unusual prudence and circumspection observe for securing and preserving their
own property or rights.15 This exacting standard imposed on common carriers in a contract of carriage of
goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once
the goods have been lodged for shipment.16 Thus, in case of loss of the goods, the common carrier is
presumed to have been at fault or to have acted negligently.17This presumption of fault or negligence,
however, may be rebutted by proof that the common carrier has observed extraordinary diligence over the
goods.
With respect to the time frame of this extraordinary responsibility, the Civil Code provides that the
exercise of extraordinary diligence lasts from the time the goods are unconditionally placed in the
possession of, and received by, the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive them. 18
Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and severally
liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of the New Civil Code, "the
responsibility of two or more persons who are liable for a quasi-delict is solidary."
Loadmasters claim that it was never privy to the contract entered into by Glodel with the consignee
Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a direct contractual
relation with Columbia, but it is liable for tort under the provisions of Article 2176 of the Civil Code on
quasi-delicts which expressly provide:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service, Inc. v.
Phoenix Assurance Company of New York,/McGee & Co., Inc.19 where this Court held that a tort may arise
despite the absence of a contractual relationship, to wit:
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against Mindanao
Terminal, from which the present case has arisen, states a cause of action. The present action is based
on quasi-delict, arising from the negligent and careless loading and stowing of the cargoes belonging to
Del Monte Produce. Even assuming that both Phoenix and McGee have only been subrogated in the rights
of Del Monte Produce, who is not a party to the contract of service between Mindanao Terminal and Del
Monte, still the insurance carriers may have a cause of action in light of the Courts consistent ruling that
the act that breaks the contract may be also a tort. In fine, a liability for tort may arise even under a
contract, where tort is that which breaches the contract. In the present case, Phoenix and McGee are not
suing for damages for injuries arising from the breach of the contract of service but from the alleged
negligent manner by which Mindanao Terminal handled the cargoes belonging to Del Monte Produce.
Despite the absence of contractual relationship between Del Monte Produce and Mindanao Terminal, the
allegation of negligence on the part of the defendant should be sufficient to establish a cause of action
arising from quasi-delict. [Emphases supplied]
In connection therewith, Article 2180 provides:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or
omissions, but also for those of persons for whom one is responsible.

xxxx
Employers shall be liable for the damages caused by their employees and household helpers acting within
the scope of their assigned tasks, even though the former are not engaged in any business or industry.
It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees
(truck driver and helper) were instrumental in the hijacking or robbery of the shipment. As employer,
Loadmasters should be made answerable for the damages caused by its employees who acted within the
scope of their assigned task of delivering the goods safely to the warehouse.
Whenever an employees negligence causes damage or injury to another, there instantly arises a
presumption juris tantum that the employer failed to exercise diligentissimi patris families in the selection
(culpa in eligiendo) or supervision (culpa in vigilando) of its employees.20 To avoid liability for a quasidelict committed by its employee, an employer must overcome the presumption by presenting convincing
proof that he exercised the care and diligence of a good father of a family in the selection and supervision
of his employee.21 In this regard, Loadmasters failed.
Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to ensure that
Loadmasters would fully comply with the undertaking to safely transport the subject cargo to the
designated destination. It should have been more prudent in entrusting the goods to Loadmasters by taking
precautionary measures, such as providing escorts to accompany the trucks in delivering the cargoes.
Glodel should, therefore, be held liable with Loadmasters. Its defense of force majeure is unavailing.
At this juncture, the Court clarifies that there exists no principal-agent relationship between Glodel and
Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code provides: "By the contract
of agency a person binds himself to render some service or to do something in representation or on behalf
of another, with the consent or authority of the latter." The elements of a contract of agency are: (1)
consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the
agent acts within the scope of his authority.22
Accordingly, there can be no contract of agency between the parties. Loadmasters never represented
Glodel. Neither was it ever authorized to make such representation. It is a settled rule that the basis for
agency is representation, that is, the agent acts for and on behalf of the principal on matters within the
scope of his authority and said acts have the same legal effect as if they were personally executed by the
principal. On the part of the principal, there must be an actual intention to appoint or an intention naturally
inferable from his words or actions, while on the part of the agent, there must be an intention to accept the
appointment and act on it.23 Such mutual intent is not obtaining in this case.
What then is the extent of the respective liabilities of Loadmasters and Glodel? Each wrongdoer is liable
for the total damage suffered by R&B Insurance. Where there are several causes for the resulting damages,
a party is not relieved from liability, even partially. It is sufficient that the negligence of a party is an
efficient cause without which the damage would not have resulted. It is no defense to one of the
concurrent tortfeasors that the damage would not have resulted from his negligence alone, without the
negligence or wrongful acts of the other concurrent tortfeasor. As stated in the case of Far Eastern
Shipping v. Court of Appeals,24

X x x. Where several causes producing an injury are concurrent and each is an efficient cause without
which the injury would not have happened, the injury may be attributed to all or any of the causes and
recovery may be had against any or all of the responsible persons although under the circumstances of the
case, it may appear that one of them was more culpable, and that the duty owed by them to the injured
person was not the same. No actor's negligence ceases to be a proximate cause merely because it does not
exceed the negligence of other actors. Each wrongdoer is responsible for the entire result and is liable as
though his acts were the sole cause of the injury.
There is no contribution between joint tortfeasors whose liability is solidary since both of them are liable
for the total damage. Where the concurrent or successive negligent acts or omissions of two or more
persons, although acting independently, are in combination the direct and proximate cause of a single
injury to a third person, it is impossible to determine in what proportion each contributed to the injury
and either of them is responsible for the whole injury. Where their concurring negligence resulted in
injury or damage to a third party, they become joint tortfeasors and are solidarily liable for the resulting
damage under Article 2194 of the Civil Code. [Emphasis supplied]
The Court now resolves the issue of whether Glodel can collect from Loadmasters, it having failed to file
a cross-claim against the latter.1avvphi1
Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of contract of service
as the latter is primarily liable for the loss of the subject cargo. In this case, however, it cannot succeed in
seeking judicial sanction against Loadmasters because the records disclose that it did not properly
interpose a cross-claim against the latter. Glodel did not even pray that Loadmasters be liable for any and
all claims that it may be adjudged liable in favor of R&B Insurance. Under the Rules, a compulsory
counterclaim, or a cross-claim, not set up shall be barred.25 Thus, a cross-claim cannot be set up for the
first time on appeal.
For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid on equitable
grounds. "Equity, which has been aptly described as a justice outside legality, is applied only in the
absence of, and never against, statutory law or judicial rules of procedure." 26 The Court cannot be a lawyer
and take the cudgels for a party who has been at fault or negligent.
WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of the Court of
Appeals isMODIFIED to read as follows:
WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services, Inc. and
respondent Glodel Brokerage Corporation jointly and severally liable to respondent R&B Insurance
Corporation for the insurance indemnity it paid to consignee Columbia Wire & Cable Corporation and
ordering both parties to pay, jointly and severally, R&B Insurance Corporation a] the amount
of P1,896,789.62 representing the insurance indemnity; b] the amount equivalent to ten (10%) percent
thereof for attorneys fees; and c] the amount ofP22,427.18 for litigation expenses.
The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against petitioner
Loadmasters Customs Services, Inc. is DENIED.

Manila Memorial Park Cemetery, Inc. vs. Linsangan, 443 SCRA 377(2004)
Actions; Appeals; Jurisdiction; The jurisdiction of the Supreme Court in a petition for review under Rule
45 of the Rules of Court is limited to reviewing only errors of law, not fact; Exceptions.The jurisdiction
of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is limited to reviewing
only errors of law, not fact, unless the factual findings complained of are devoid of support by the
evidence on record or the assailed judgment is based on misapprehension of facts. In BPI Investment
Corporation v. D.G. Carreon Commercial Corporation, this Court ruled: There are instances when the
findings of fact of the trial court and/or Court of Appeals may be reviewed by the Supreme Court, such as
(1) when the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when
the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and
the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and
reply briefs are not disputed by the respondents; and (10) the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and contradicted by the evidence on record.
Contracts; Agency; Elements; By the contract of agency, a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent or authority of the latter.By
the contract of agency, a person binds himself to render some service or to do something in representation
or on behalf of another, with the consent or authority of the latter. Thus, the elements of agency are: (i)
consent, express or implied, of the parties to establish the relationship; (ii) the object is the execution of a
juridical act in relation to a third person; (iii) the agent acts as a representative and not for himself; and
(iv) the agent acts within the scope of his authority.
Same; Same; 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 agentif he does not make such an inquiry, he is
chargeable with knowledge of the agents authority and his ignorance of that authority will not be any
excuse; The principal 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.It is a
settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either
is controverted, the burden of proof is upon them to establish it. 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. If he does not make such an inquiry, he is chargeable with knowledge of the agents authority and
his ignorance of that authority will not be any excuse. As noted by one author, the ignorance of a person
dealing with an agent as to the scope of the latters authority is no excuse to such person and the fault
cannot be thrown upon the principal. A person dealing with an agent assumes the risk of lack of authority
in the agent. He cannot charge the principal by relying upon the agents assumption of authority that
proves to be unfounded. 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.
Same; Same; Attorneys; A greater degree of caution should be expected of lawyers especially in dealings
involving legal documents.In the instant case, it has not been established that Atty. Linsangan even
bothered to inquire whether Baluyot was authorized to agree to terms contrary to those indicated in the
written contract, much less bind MMPCI by her commitment with respect to such agreements. Even if
Baluyot was Atty. Linsangans friend and known to be an agent of MMPCI, her declarations and actions
alone are not sufficient to establish the fact or extent of her authority. Atty. Linsangan as a practicing

lawyer for a relatively long period of time when he signed the contract should have been put on guard
when their agreement was not reflected in the contract. More importantly, Atty. Linsangan should have
been alerted by the fact that Baluyot failed to effect the transfer of rights earlier promised, and was unable
to make good her written commitment, nor convince MMPCI to assent thereto, as evidenced by several
attempts to induce him to enter into other contracts for a higher consideration. As properly pointed out by
MMPCI, as a lawyer, a greater degree of caution should be expected of Atty. Linsangan especially in
dealings involving legal documents. He did not even bother to ask for official receipts of his payments,
nor inquire from MMPCI directly to ascertain the real status of the contract, blindly relying on the
representations of Baluyot. A lawyer by profession, he knew what he was doing when he signed the
written contract, knew the meaning and value of every word or phrase used in the contract, and more
importantly, knew the legal effects which said document produced. He is bound to accept responsibility
for his negligence.
Same; Same; Words and Phrases; The acts of an agent beyond the scope of his authority do not bind the
principal, unless he ratifies them, expressly or impliedly.The acts of an agent beyond the scope of his
authority do not bind the principal, unless he ratifies them, expressly or impliedly. Only the principal can
ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal must have knowledge of
the acts he is to ratify.
Same; Same; Same; Ratification in agency is the adoption or confirmation by one person of an act
performed on his behalf by another without authority; If material facts were suppressed or unknown, there
can be no valid ratification regardless of the purpose or lack thereof in concealing such facts and
regardless of the parties between whom the question of ratification may arise, unless the principals
ignorance of the material facts and circumstances was willful, or that the principal chooses to act in
ignorance of the facts. Ratification in agency is the adoption or confirmation by one person of an act
performed on his behalf by another without authority. The substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge
at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the
person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no
valid ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless
of the parties between whom the question of ratification may arise. Nevertheless, this principle does not
apply if the principals ignorance of the material facts and circumstances was willful, or that the principal
chooses to act in ignorance of the facts. However, in the absence of circumstances putting a reasonably
prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts.
Estoppel; Elements.The essential elements of estoppel are (i) conduct of a party amounting to false
representation or concealment of material facts or at least calculated to convey the impression that the
facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (ii)
intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, the other party;
and (iii) knowledge, actual or constructive, of the real facts.
Same; One who claims the benefit of an estoppel on the ground that he has been misled by the
representations of another must not have been misled through his own want of reasonable care and
circumspection; Estoppel must be intentional and unequivocal, for when misapplied, it can easily become
a most convenient and effective means of injustice.While there is no more question as to the agency
relationship between Baluyot and MMPCI, there is no indication that MMPCI let the public, or
specifically, Atty. Linsangan to believe that Baluyot had the authority to alter the standard contracts of the
company. Neither is there any showing that prior to signing Contract No. 28660, MMPCI had any
knowledge of Baluyots commitment to Atty. Linsangan. One who claims the benefit of an estoppel on the
ground that he has been misled by the representations of another must not have been misled through his
own want of reasonable care and circumspection. Even assuming that Atty. Linsangan was misled by

MMPCIs actuations, he still cannot invoke the principle of estoppel, as he was clearly negligent in his
dealings with Baluyot, and could have easily determined, had he only been cautious and prudent, whether
said agent was clothed with the authority to change the terms of the principals written contract. Estoppel
must be intentional and unequivocal, for when misapplied, it can easily become a most convenient and
effective means of injustice. In view of the lack of sufficient proof showing estoppel, we refuse to hold
MMPCI liable on this score. Manila Memorial Park Cemetery, Inc. vs. Linsangan, 443 SCRA
377(2004)
G.R. No. 151319

November 22, 2004

MANILA MEMORIAL PARK CEMETERY, INC., petitioner,

vs.
PEDRO L. LINSANGAN, respondent.

Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83, Garden
Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April 1985 for
the amount of P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected
to the new contract price, as the same was not the amount previously agreed upon. To convince Atty.
Linsangan, Baluyot executed a document6 confirming that while the contract price is P132,250.00, Atty.
Linsangan would pay only the original price of P95,000.00.
The document reads in part:
The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference
will be issued as discounted to conform to the previous price as previously agreed upon. --P95,000.00
Prepared by:
(Signed)

DECISION

TINGA, J.:
For resolution in this case is a classic and interesting texbook question in the law on agency.
This is a petition for review assailing the Decision1 of the Court of Appeals dated 22 June 2001, and its
Resolution2 dated 12 December 2001 in CA G.R. CV No. 49802 entitled "Pedro L. Linsangan v. Manila
Memorial Cemetery, Inc. et al.," finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and
severally liable with Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.

(MRS.) FLORENCIA C. BALUYOT

Agency Manager
Holy Cross Memorial Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase under Contract No. 28660
states that the total price of P132,250.00 your undertaking is to pay only the total sum of
P95,000.00 under the old price. Further the total sum of P19,838.00 already paid by you under
O.R. # 118912 dated April 6, 1985 has been credited in the total purchase price thereby leaving
a balance of P75,162.00 on a monthly installment of P1,800.00 including interests (sic) charges
for a period of five (5) years.

The facts of the case are as follows:

Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the
Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a
memorial lot under Contract No. 25012 was no longer interested in acquiring the lot and had opted to sell
his rights subject to reimbursement of the amounts he already paid. The contract was for P95,000.00.
Baluyot reassured Atty. Linsangan that once reimbursement is made to the former buyer, the contract
would be transferred to him. Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the
amount to be reimbursed to the original buyer and to complete the down payment to MMPCI.3 Baluyot
issued handwritten and typewritten receipts for these payments. 4
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract No. 28660,
a new contract covering the subject lot in the name of the latter instead of old Contract No. 25012. Atty.
Linsangan protested, but Baluyot assured him that he would still be paying the old price of P95,000.00
with P19,838.00 credited as full down payment leaving a balance of about P75,000.00.5

(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No.
118912. As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each
in favor of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12)
postdated checks in favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for
reasons the latter could not explain, and presented to him another proposal for the purchase of an
equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor their
undertaking.

For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a
Complaint7for Breach of Contract and Damages against the former.

and understood. In canceling the contract, MMPCI merely enforced the terms and conditions imposed
therein.18

Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was cancelled
conformably with the terms of the contract8 because of non-payment of arrearages.9 MMPCI stated that
Baluyot was not an agent but an independent contractor, and as such was not authorized to represent
MMPCI or to use its name except as to the extent expressly stated in the Agency Manager
Agreement.10 Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan and
Baluyot, as it in fact received a down payment and monthly installments as indicated in the
contract.11 Official receipts showing the application of payment were turned over to Baluyot whom Atty.
Linsangan had from the beginning allowed to receive the same in his behalf. Furthermore, whatever
misimpression that Atty. Linsangan may have had must have been rectified by the Account Updating
Arrangement signed by Atty. Linsangan which states that he "expressly admits that Contract No. 28660
'on account of serious delinquencyis now due for cancellation under its terms and conditions.''' 12

Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the former's obligation, as
a party knowingly dealing with an alleged agent, to determine the limitations of such agent's authority,
particularly when such alleged agent's actions were patently questionable. According to MMPCI, Atty.
Linsangan did not even bother to verify Baluyot's authority or ask copies of official receipts for his
payments.19

The trial court held MMPCI and Baluyot jointly and severally liable.13 It found that Baluyot was an agent
of MMPCI and that the latter was estopped from denying this agency, having received and enchased the
checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was
authorized to receive only the down payment, it allowed her to continue to receive postdated checks from
Atty. Linsangan, which it in turn consistently encashed.14

The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's finding that Baluyot
was an agent of MMPCI at the time the disputed contract was entered into, having represented MMPCI's
interest and acting on its behalf in the dealings with clients and customers. Hence, MMPCI is considered
estopped when it allowed Baluyot to act and represent MMPCI even beyond her authority.20 The appellate
court likewise found that the acts of Baluyot bound MMPCI when the latter allowed the former to act for
and in its behalf and stead. While Baluyot's authority "may not have been expressly conferred upon her,
the same may have been derived impliedly by habit or custom, which may have been an accepted practice
in the company for a long period of time." 21 Thus, the Court of Appeals noted, innocent third persons such
as Atty. Linsangan should not be prejudiced where the principal failed to adopt the needed measures to
prevent misrepresentation. Furthermore, if an agent misrepresents to a purchaser and the principal accepts
the benefits of such misrepresentation, he cannot at the same time deny responsibility for such
misrepresentation.22 Finally, the Court of Appeals declared:

The dispositive portion of the decision reads:

WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff
declaring Contract No. 28660 as valid and subsisting and ordering defendants to perform their
undertakings thereof which covers burial lot No. A11 (15), Block 83, Section Garden I, Holy
Cross Memorial Park located at Novaliches, Quezon City. All payments made by plaintiff to
defendants should be credited for his accounts. NO DAMAGES, NO ATTORNEY'S FEES but
with costs against the defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant
Baluyot is GRANTED up to the extent of the costs.

There being absolutely nothing on the record that would show that the court a quo overlooked,
disregarded, or misinterpreted facts of weight and significance, its factual findings and conclusions must
be given great weight and should not be disturbed by this Court on appeal.
WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed
decision in Civil Case No. 88-1253 of the Regional Trial Court, National Capital Judicial
Region, Branch 57 of Makati, is hereby AFFIRMED in toto.
SO ORDERED.23
MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of merit.25

SO ORDERED.

15

MMPCI appealed the trial court's decision to the Court of Appeals.16 It claimed that Atty. Linsangan is
bound by the written contract with MMPCI, the terms of which were clearly set forth therein and read,
understood, and signed by the former.17 It also alleged that Atty. Linsangan, a practicing lawyer for over
thirteen (13) years at the time he entered into the contract, is presumed to know his contractual obligations
and is fully aware that he cannot belatedly and unilaterally change the terms of the contract without the
consent, much less the knowledge of the other contracting party, which was MMPCI. And in this case,
MMPCI did not agree to a change in the contract and in fact implemented the same pursuant to its clear
terms. In view thereof, because of Atty. Linsangan's delinquency, MMPCI validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter
exceeded the terms of her agency, neither did MMPCI ratify Baluyot's acts. It added that it cannot be
charged with making any misrepresentation, nor of having allowed Baluyot to act as though she had full
powers as the written contract expressly stated the terms and conditions which Atty. Linsangan accepted

In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in disregarding
the plain terms of the written contract and Atty. Linsangan's failure to abide by the terms thereof, which
justified its cancellation. In addition, even assuming that Baluyot was an agent of MMPCI, she clearly
exceeded her authority and Atty. Linsangan knew or should have known about this considering his status
as a long-practicing lawyer. MMPCI likewise claims that the Court of Appeals erred in failing to consider
that the facts and the applicable law do not support a judgment against Baluyot only "up to the extent of
costs."26
Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact
faithfully performed his contractual obligations and complied with them in good faith for at least two
years.27 He claims that contrary to MMPCI's position, his profession as a lawyer is immaterial to the
validity of the subject contract and the case at bar.28 According to him, MMPCI had practically admitted in
its Petition that Baluyot was its agent, and thus, the only issue left to be resolved is whether MMPCI
allowed Baluyot to act as though she had full powers to be held solidarily liable with the latter.29

We find for the petitioner MMPCI.

The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is
limited to reviewing only errors of law, not fact, unless the factual findings complained of are devoid of
support by the evidence on record or the assailed judgment is based on misapprehension of facts. 30 In BPI
Investment Corporation v. D.G. Carreon Commercial Corporation, 31 this Court ruled:
There are instances when the findings of fact of the trial court and/or Court of Appeals may be
reviewed by the Supreme Court, such as (1) when the conclusion is a finding grounded entirely
on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the respondents; and (10) the findings of
fact of the Court of Appeals are premised on the supposed absence of evidence and
contradicted by the evidence on record.32
In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of the
case, as well as made conclusions devoid of evidentiary support, hence we review its findings of fact.
By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.33 Thus, the elements of
agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is the
execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and not for
himself; and (iv) the agent acts within the scope of his authority.34
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency Manager
Agreement; an agency manager such as Baluyot is considered an independent contractor and not an
agent.35However, in the same contract, Baluyot as agency manager was authorized to solicit and remit to
MMPCI offers to purchase interment spaces belonging to and sold by the latter.36 Notwithstanding the
claim of MMPCI that Baluyot was an independent contractor, the fact remains that she was authorized to
solicit solely for and in behalf of MMPCI. As properly found both by the trial court and the Court of
Appeals, Baluyot was an agent of MMPCI, having represented the interest of the latter, and having been
allowed by MMPCI to represent it in her dealings with its clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract
procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on
forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms and,
when signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI showed a
total list price of P132,250.00. Likewise, it was clearly stated therein that "Purchaser agrees that he has
read or has had read to him this agreement, that he understands its terms and conditions, and that there are

no covenants, conditions, warranties or representations other than those contained herein." 37 By signing
the Offer to Purchase, Atty. Linsangan signified that he understood its contents. That he and Baluyot had
an agreement different from that contained in the Offer to Purchase is of no moment, and should not affect
MMPCI, as it was obviously made outside Baluyot's authority. To repeat, Baluyot's authority was limited
only to soliciting purchasers. She had no authority to alter the terms of the written contract provided by
MMPCI. The document/letter "confirming" the agreement that Atty. Linsangan would have to pay the old
price was executed by Baluyot alone. Nowhere is there any indication that the same came from MMPCI or
any of its officers.
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in
case either is controverted, the burden of proof is upon them to establish it.38 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.39 If he does not make such an inquiry, he is chargeable with knowledge of the
agent's authority and his ignorance of that authority will not be any excuse.40
As noted by one author, the ignorance of a person dealing with an agent as to the scope of the latter's
authority is no excuse to such person and the fault cannot be thrown upon the principal.41 A person dealing
with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by relying
upon the agent's assumption of authority that proves to be unfounded. 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.42
In the instant case, it has not been established that Atty. Linsangan even bothered to inquire whether
Baluyot was authorized to agree to terms contrary to those indicated in the written contract, much less
bind MMPCI by her commitment with respect to such agreements. Even if Baluyot was Atty. Linsangan's
friend and known to be an agent of MMPCI, her declarations and actions alone are not sufficient to
establish the fact or extent of her authority.43 Atty. Linsangan as a practicing lawyer for a relatively long
period of time when he signed the contract should have been put on guard when their agreement was not
reflected in the contract. More importantly, Atty. Linsangan should have been alerted by the fact that
Baluyot failed to effect the transfer of rights earlier promised, and was unable to make good her written
commitment, nor convince MMPCI to assent thereto, as evidenced by several attempts to induce him to
enter into other contracts for a higher consideration. As properly pointed out by MMPCI, as a lawyer, a
greater degree of caution should be expected of Atty. Linsangan especially in dealings involving legal
documents. He did not even bother to ask for official receipts of his payments, nor inquire from MMPCI
directly to ascertain the real status of the contract, blindly relying on the representations of Baluyot. A
lawyer by profession, he knew what he was doing when he signed the written contract, knew the meaning
and value of every word or phrase used in the contract, and more importantly, knew the legal effects which
said document produced. He is bound to accept responsibility for his negligence.
The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial court,
MMPCI's acts of accepting and encashing the checks issued by Atty. Linsangan as well as allowing
Baluyot to receive checks drawn in the name of MMPCI confirm and ratify the contract of agency. On the
other hand, the Court of Appeals faulted MMPCI in failing to adopt measures to prevent
misrepresentation, and declared that in view of MMPCI's acceptance of the benefits of Baluyot's
misrepresentation, it can no longer deny responsibility therefor.
The Court does not agree. Pertinent to this case are the following provisions of the Civil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with whom
the agent contracted is aware of the limits of the powers granted by the principal. In this case,
however, the agent is liable if he undertook to secure the principal's ratification.
Art. 1910. The principal must comply with all the obligations that the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable
with the agent if the former allowed the latter to act as though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies
them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized
acts. Moreover, the principal must have knowledge of the acts he is to ratify.44
Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by
another without authority. The substance of the doctrine is confirmation after conduct, amounting to a
substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of
ratification of all the material facts and circumstances relating to the unauthorized act of the person who
assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid
ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless of the
parties between whom the question of ratification may arise.45Nevertheless, this principle does not apply if
the principal's ignorance of the material facts and circumstances was willful, or that the principal chooses
to act in ignorance of the facts.46 However, in the absence of circumstances putting a reasonably prudent
man on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts.47
No ratification can be implied in the instant case.

likewise in accord with the contract, albeit made through a check and partly in cash. In view of Baluyot's
failure to give her share in the payment, MMPCI received only P1,800.00 checks, which were clearly
insufficient payment. In fact, Atty. Linsangan would have incurred arrearages that could have caused the
earlier cancellation of the contract, if not for MMPCI's application of some of the checks to his account.
However, the checks alone were not sufficient to cover his obligations.
If MMPCI was aware of the arrangement, it would have refused the latter's check payments for being
insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that
Baluyot had to practically explain to MMPCI's Sales Manager the details of her "arrangement" with Atty.
Linsangan and admit to having made an error in entering such arrangement confirm that MMCPI had no
knowledge of the said agreement. It was only when Baluyot filed her Answer that she claimed that
MMCPI was fully aware of the agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a party
amounting to false representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the party subsequently
attempts to assert; (ii) intent, or at least expectation, that this conduct shall be acted upon by, or at least
influence, the other party; and (iii) knowledge, actual or constructive, of the real facts. 51
While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no
indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the
authority to alter the standard contracts of the company. Neither is there any showing that prior to signing
Contract No. 28660, MMPCI had any knowledge of Baluyot's commitment to Atty. Linsangan. One who
claims the benefit of an estoppel on the ground that he has been misled by the representations of another
must not have been misled through his own want of reasonable care and circumspection.52 Even assuming
that Atty. Linsangan was misled by MMPCI's actuations, he still cannot invoke the principle of estoppel,
as he was clearly negligent in his dealings with Baluyot, and could have easily determined, had he only
been cautious and prudent, whether said agent was clothed with the authority to change the terms of the
principal's written contract. Estoppel must be intentional and unequivocal, for when misapplied, it can
easily become a most convenient and effective means of injustice.53 In view of the lack of sufficient proof
showing estoppel, we refuse to hold MMPCI liable on this score.

A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty. Linsangan was for
the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the counterpart
amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the contract. Thus, every
time an installment falls due, payment was to be made through a check from Atty. Linsangan for
P1,800.00 and a cash component of P1,455.00 from Baluyot.49 However, it appears that while Atty.
Linsangan issued the post-dated checks, Baluyot failed to come up with her part of the bargain. This was
supported by Baluyot's statements in her letter50 to Mr. Clyde Williams, Jr., Sales Manager of MMPCI,
two days after she received the copy of the Complaint. In the letter, she admitted that she was remiss in
her duties when she consented to Atty. Linsangan's proposal that he will pay the old price while the
difference will be shouldered by her. She likewise admitted that the contract suffered arrearages because
while Atty. Linsangan issued the agreed checks, she was unable to give her share of P1,455.00 due to her
own financial difficulties. Baluyot even asked for compassion from MMPCI for the error she committed.

Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority of defendant
Baluyot may not have been expressly conferred upon her; however, the same may have been derived
impliedly by habit or custom which may have been an accepted practice in their company in a long period
of time." A perusal of the records of the case fails to show any indication that there was such a habit or
custom in MMPCI that allows its agents to enter into agreements for lower prices of its interment spaces,
nor to assume a portion of the purchase price of the interment spaces sold at such lower price. No
evidence was ever presented to this effect.

Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is
concerned, the contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty.
Linsangan and MMPCI's authorized officer. The down payment of P19,838.00 given by Atty. Linsangan
was in accordance with the contract as well. Payments of P3,235.00 for at least two installments were

To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the latter
ratifies the same. It also bears emphasis that when the third person 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

As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660 between
MMPCI and by Atty. Linsangan for the purchase of an interment space in the former's cemetery. The other
is the agreement between Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00,
or the difference between P95,000.00, the original price, and P132,250.00, the actual contract price.

was 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.54
This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty. Linsangan.
By affixing his signature in the contract, Atty. Linsangan assented to the terms and conditions thereof.
When Atty. Linsangan incurred delinquencies in payment, MMCPI merely enforced its rights under the
said contract by canceling the same.
Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he claims to be the
terms of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is concerned, is
void and cannot be enforced as against MMPCI. Neither can he hold Baluyot liable for damages under the
same contract, since there is no evidence showing that Baluyot undertook to secure MMPCI's ratification.
At best, the "agreement" between Baluyot and Atty. Linsangan bound only the two of them. As far as
MMPCI is concerned, it bound itself to sell its interment space to Atty. Linsangan for P132,250.00 under
Contract No. 28660, and had in fact received several payments in accordance with the same contract. If
the contract was cancelled due to arrearages, Atty. Linsangan's recourse should only be against Baluyot
who personally undertook to pay the difference between the true contract price of P132,250.00 and the
original proposed price of P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she
promised to shoulder the said difference would be to conclude that MMPCI undertook to pay itself the
difference, a conclusion that is very illogical, if not antithetical to its business interests.
However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages
from Baluyot, not as an agent of MMPCI, but in view of the latter's breach of their separate agreement. To
review, Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangan's P1,800.00 to complete
the monthly installment payment under the contract, which, by her own admission, she was unable to do
due to personal financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed
upon, and were it not for Baluyot's failure to provide the balance, Contract No. 28660 would not have
been cancelled. Thus, Atty. Linsangan has a cause of action against Baluyot, which he can pursue in
another case.
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22 June
2001 and its Resolution dated 12 December 2001 in CA- G.R. CV No. 49802, as well as the Decision in
Civil Case No. 88-1253 of the Regional Trial Court, Makati City Branch 57, are hereby REVERSED and
SET ASIDE. The Complaint in Civil Case No. 88-1253 is DISMISSED for lack of cause of action. No
pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Tuazon vs. Heirs of Bartolome Ramos, 463 SCRA 408(2005)

Remedial Law; Appeals; Supreme Courts role in a petition under Rule 45 is limited to reviewing errors of
law allegedly committed by the Court of Appeals.Well-entrenched is the rule that the Supreme Courts
role in a petition under Rule 45 is limited to reviewing errors of law allegedly committed by the Court of
Appeals. Factual findings of the trial court, especially when affirmed by the CA, are conclusive on the
parties and this Court. Petitioners have not given us sufficient reasons to deviate from this rule.
Civil Law; Agency; In a contract of agency, one binds oneself to render some service or to do something
in representation or on behalf of another, with the latters consent or authority; Elements of Agency.In a
contract of agency, one binds oneself to render some service or to do something in representation or on
behalf of another, with the latters consent or authority. The following are the elements of agency: (1) the
parties consent, express or implied, to establish the relationship; (2) the object, which is the execution of a
juridical act in relation to a third person; (3) the representation, by which the one who acts as an agent
does so, not for oneself, but as a representative; (4) the limitation that the agent acts within the scope of
his or her authority. As the basis of agency is representation, there must be, on the part of the principal, an
actual intention to appoint, an intention naturally inferable from the principals words or actions. In the
same manner, there must be an intention on the part of the agent to accept the appointment and act upon it.
Absent such mutual intent, there is generally no agency.
Same; Same; Declarations of agents alone are generally insufficient to establish the fact or extent of their
authority.The declarations of agents alone are generally insufficient to establish the fact or extent of
their authority. The law makes no presumption of agency; proving its existence, nature and extent is
incumbent upon the person alleging it. In the present case, petitioners raise the fact of agency as an
affirmative defense, yet fail to prove its existence.
Negotiable Instruments Law; After an instrument is dishonored by nonpayment, indorsers cease to be
merely secondarily liable, they become principal debtors whose liability becomes identical to that of the
original obligor.As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks
were to be accepted or paid, or both, according to their tenor; and that in case they were dishonored, she
would pay the corresponding amount. After an instrument is dishonored by nonpayment, indorsers cease
to be merely secondarily liable; they become principal debtors whose liability becomes identical to that of
the original obligor. The holder of a negotiable instrument need not even proceed against the maker before
suing the indorser. Clearly, Evangeline Santosas the drawer of the checksis not an indispensable party
in an action against Maria Tuazon, the indorser of the checks. Tuazon vs. Heirs of Bartolome Ramos,
463 SCRA 408(2005)
G.R. No. 156262 July 14, 2005
MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses ANASTACIO
and MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.
DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case involves the collection of a sum of money. Specifically, this
case arose from the failure of petitioners to pay respondents predecessor-in-interest. This fact was shown

by the non-encashment of checks issued by a third person, but indorsed by herein Petitioner Maria Tuazon
in favor of the said predecessor. Under these circumstances, to enable respondents to collect on the
indebtedness, the check drawer need not be impleaded in the Complaint. Thus, the suit is directed, not
against the drawer, but against the debtor who indorsed the checks in payment of the obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the July 31, 2002
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 46535. The decretal portion of the assailed
Decision reads:
"WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED."
On the other hand, the affirmed Decision3 of Branch 34 of the Regional Trial Court (RTC) of Gapan,
Nueva Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants,
ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to pay the plaintiffs, as follows:
"1. The sum of P1,750,050.00, with interests from the filing of the second amended complaint;
"2. The sum of P50,000.00, as attorneys fees;
"3. The sum of P20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses Leonilo and
Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased Bartolome] Ramos
[predecessor-in-interest of respondents]. That of this [quantity,] x x x only 4,437 cavans [have been paid
for so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment therefor, the spouses Tuazon
issued x x x [several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of funds.
[Respondents] advanced that before issuing said checks[,] spouses Tuazon already knew that they had no
available fund to support the checks, and they failed to provide for the payment of these despite repeated
demands made on them.

"[Respondents] averred that because spouses Tuazon anticipated that they would be sued, they conspired
with the other [defendants] to defraud them as creditors by executing x x x fictitious sales of their
properties. They executed x x x simulated sale[s] [of three lots] in favor of the x x x spouses Buenaventura
x x x[,] as well as their residential lot and the house thereon[,] all located at Nueva Ecija, and another
simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with the Land Transportation
Office of Cabanatuan City on September 7, 1988. [Co-petitioner] Melecio Tuazon, a son of spouses
Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x x over a residential lot located at Nueva
Ecija. Another simulated sale of a Toyota Willys was executed on January 25, 1988 in favor of their other
son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said sales, the titles of these properties
issued in the names of spouses Tuazon were cancelled and new ones were issued in favor of the
[co-]defendants spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon. Resultantly, by the said
ante-dated and simulated sales and the corresponding transfers there was no more property left registered
in the names of spouses Tuazon answerable to creditors, to the damage and prejudice of [respondents].

Issues

"For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos. They alleged that
it was Magdalena Ramos, wife of said deceased, who owned and traded the merchandise and Maria
Tuazon was merely her agent. They argued that it was Evangeline Santos who was the buyer of the rice
and issued the checks to Maria Tuazon as payments therefor. In good faith[,] the checks were received [by
petitioner] from Evangeline Santos and turned over to Ramos without knowing that these were not funded.
And it is for this reason that [petitioners] have been insisting on the inclusion of Evangeline Santos as an
indispensable party, and her non-inclusion was a fatal error. Refuting that the sale of several properties
were fictitious or simulated, spouses Tuazon contended that these were sold because they were then
meeting financial difficulties but the disposals were made for value and in good faith and done before the
filing of the instant suit. To dispute the contention of plaintiffs that they were the buyers of the rice, they
argued that there was no sales invoice, official receipts or like evidence to prove this. They assert that they
were merely agents and should not be held answerable."5

The Petition is unmeritorious.

The corresponding civil and criminal cases were filed by respondents against Spouses Tuazon. Those
cases were later consolidated and amended to include Spouses Anastacio and Mary Buenaventura, with
Alejandro Tuazon and Melecio Tuazon as additional defendants. Having passed away before the pretrial,
Bartolome Ramos was substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case, petitioners moved to file a
third-party complaint against her. Allegedly, she was primarily liable to respondents, because she was the
one who had purchased the merchandise from their predecessor, as evidenced by the fact that the checks
had been drawn in her name. The RTC, however, denied petitioners Motion.
Since the trial court acquitted petitioners in all three of the consolidated criminal cases, they appealed only
its decision finding them civilly liable to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an agency between
respondents and Spouses Tuazon. The appellate court disbelieved petitioners contention that Evangeline
Santos should have been impleaded as an indispensable party. Inasmuch as all the checks had been
indorsed by Maria Tuazon, who thereby became liable to subsequent holders for the amounts stated in
those checks, there was no need to implead Santos.
Hence, this Petition.6

Petitioners raise the following issues for our consideration:

"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are not agents of the
respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering judgment against the petitioners
despite x x x the failure of the respondents to include in their action Evangeline Santos, an indispensable
party to the suit."7
The Courts Ruling

First Issue:
Agency
Well-entrenched is the rule that the Supreme Courts role in a petition under Rule 45 is limited to
reviewing errors of law allegedly committed by the Court of Appeals. Factual findings of the trial court,
especially when affirmed by the CA, are conclusive on the parties and this Court. 8 Petitioners have not
given us sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do something in representation or
on behalf of another, with the latters consent or authority.9 The following are the elements of agency: (1)
the partiesconsent, express or implied, to establish the relationship; (2) the object, which is the execution
of a juridical act in relation to a third person; (3) the representation, by which the one who acts as an agent
does so, not for oneself, but as a representative; (4) the limitation that the agent acts within the scope of
his or her authority.10 As the basis of agency is representation, there must be, on the part of the principal,
an actual intention to appoint, an intention naturally inferable from the principals words or actions. In the
same manner, there must be an intention on the part of the agent to accept the appointment and act upon it.
Absent such mutual intent, there is generally no agency.11
This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice buyers
themselves; they were not mere agents of respondents in their rice dealership. The question of whether a
contract is one of sale or of agency depends on the intention of the parties.12
The declarations of agents alone are generally insufficient to establish the fact or extent of their
authority.13 The law makes no presumption of agency; proving its existence, nature and extent is
incumbent upon the person alleging it.14 In the present case, petitioners raise the fact of agency as an
affirmative defense, yet fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the
amounts represented by the bounced checks, in a separate civil case that they sought to be consolidated
with the current one. If, as they claim, they were mere agents of respondents, petitioners should have
brought the suit against Santos for and on behalf of their alleged principal, in accordance with Section 2 of

Rule 3 of the Rules on Civil Procedure.15 Their filing a suit against her in their own names negates their
claim that they acted as mere agents in selling the rice obtained from Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be impleaded as an
indispensable party. They insist that respondents Complaint against them is based on the bouncing checks
she issued; hence, they point to her as the person primarily liable for the obligation.
We hold that respondents cause of action is clearly founded on petitioners failure to pay the purchase
price of the rice. The trial court held that Petitioner Maria Tuazon had indorsed the questioned checks in
favor of respondents, in accordance with Sections 31 and 63 of the Negotiable Instruments Law.16 That
Santos was the drawer of the checks is thus immaterial to the respondents cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to be
accepted or paid, or both, according to their tenor; and that in case they were dishonored, she would pay
the corresponding amount.17 After an instrument is dishonored by nonpayment, indorsers cease to be
merely secondarily liable; they become principal debtors whose liability becomes identical to that of the
original obligor. The holder of a negotiable instrument need not even proceed against the maker before
suing the indorser.18 Clearly, Evangeline Santos -- as the drawer of the checks -- is not an indispensable
party in an action against Maria Tuazon, the indorser of the checks.
Indispensable parties are defined as "parties in interest without whom no final determination can be
had."19 The instant case was originally one for the collection of the purchase price of the rice bought by
Maria Tuazon from respondents predecessor. In this case, it is clear that there is no privity of contract
between respondents and Santos. Hence, a final determination of the rights and interest of the parties may
be made without any need to implead her.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioners.
SO ORDERED.
ARTEMIO V. PANGANIBAN

Yu Eng Cho vs. Pan American World Airways, Inc., 328 SCRA 717(2000)
Courts; Judgments; Concisely written such as they may be, decisions must still distinctly and clearly
express, at least in minimum essence, its factual and legal bases, which is required by Section 14 of Article
VIII of the Constitution and likewise demanded by the due process clause of the Constitution.The trial
courts finding of facts is but a summary of the testimonies of the witnesses and the documentary evidence
presented by the parties. It did not distinctly and clearly set forth, nor substantiate, the factual and legal
bases for holding respondents TWSI, Pan Am and Tagunicar jointly and severally liable. In Del Mundo vs.
CA, et al. where the trial court, after summarizing the conflicting asseverations of the parties, disposed of
the kernel issue in just two (2) paragraphs, we held: It is understandable that courts, with their heavy
dockets and time constraints, often find themselves with little to spare in the preparation of decisions to
the extent most desirable. We have thus pointed out that judges might learn to synthesize and to simplify
their pronouncements. Nevertheless, concisely written such as they may he, decisions must still distinctly
and clearly express, at least in minimum essence, its factual and legal bases. For failing to explain clearly
and well the factual and legal bases of its award of moral damages, we set it aside in said case. Once more,
we stress that nothing less than Section 14 of Article VIII of the Constitution requires that no decision
shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on
which it is based. This is demanded by the due process clause of the Constitution. In the case at bar, the
decision of the trial court leaves much to be desired both in form and substance. Even while said decision
infringes the Constitution, we will not belabor this infirmity and rather examine the sufficiency of the
evidence submitted by the petitioners.
Agency; Elements; It is a settled rule that persons dealing with an assumed agent are bound at their peril,
if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.By
the contract of agency, a person binds himself to render some service or to do something in representation
or on behalf of another, with the consent or authority of the latter. The elements of agency are: (1) consent,
express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical
act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts
within the scope of his authority. It is a settled rule that persons dealing with an assumed agent are bound
at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted, the burden of proof is upon them to
establish it.
Same; Affidavits; The affidavit of a person agent where she stated that she is an authorized agent of a
particular principal has weak probative value in light of her testimony in court to the contrary.In the
case at bar, petitioners rely on the affidavit of respondent Tagunicar where she stated that she is an
authorized agent of TWSI. This affidavit, however, has weak probative value in light of respondent
Tagunicars testimony in court to the contrary. Affidavits, being taken ex parte, are almost always
incomplete and often inaccurate, sometimes from partial suggestion, or for want of suggestion and
inquiries. Their infirmity as a species of evidence is a matter of judicial experience and are thus
considered inferior to the testimony given in court. Further, affidavits are not complete reproductions of
what the declarant has in mind because they are generally prepared by the administering officer and the
affiant simply signs them after the same have been read to her. Respondent Tagunicar testified that her
affidavit was prepared and typewritten by the secretary of petitioners lawyer, Atty. Acebedo, who both
came with Adrian Yu, son of petitioners, when the latter went to see her at her office. This was confirmed
by Adrian Yu who testified that Atty. Acebedo brought his notarial seal and notarized the affidavit on the
same day. The circumstances under which said affidavit was prepared put in doubt petitioners claim that it
was executed voluntarily by respondent Tagunicar. It appears that the affidavit was prepared and was
based on the answers which respondent Tagunicar gave to the questions propounded to her by Atty.

Acebedo. They never told her that the affidavit would be used in a case to be filed against her. They even
assured her that she would not be included as defendant if she agreed to execute the affidavit.
Same; The declarations of the agent alone are generally insufficient to establish the fact or extent of his
authority.Respondent Tagunicar was prevailed upon by petitioners son and their lawyer to sign the
affidavit despite her objection to the statement therein that she was an agent of TWSI. They assured her
that it is immaterial and that if we file a suit against you we cannot get anything from you. This
purported admission of respondent Tagunicar cannot be used by petitioners to prove their agency
relationship. At any rate, even if such affidavit is to be given any probative value, the existence of the
agency relationship cannot be established on its sole basis. The declarations of the agent alone are
generally insufficient to establish the fact or extent of his authority. In addition, as between the negative
allegation of respondents Canilao and Tagunicar that neither is an agent nor principal of the other, and the
affirmative allegation of petitioners that an agency relationship exists, it is the latter who have the burden
of evidence to prove their allegation, failing in which, their claim must necessarily fail.
Actions; Air Transportation; Damages; The Supreme Court has already warned in the past that it will not
tolerate an abuse of the judicial process by passengers in order to pry on international airlines for damage
awards, like trophies in a safari.Petitioners included respondent Pan Am in the complaint on the
supposition that since TWSI is its duly authorized agent, and respondent Tagunicar is an agent of TWSI,
then Pan Am should also be held responsible for the acts of respondent Tagunicar. Our disquisitions above
show that this contention lacks factual and legal bases. Indeed, there is nothing in the records to show that
respondent Tagunicar has been employed by Pan Am as its agent, except the bare allegation of petitioners.
The real motive of petitioners in suing Pan Am appears in its Amended Complaint that [d]efendants
TWSI, Canilao and Tagunicar may not be financially capable of paying plaintiffs the amounts herein
sought to be recovered, and in such event, defendant Pan Am, being their ultimate principal, is primarily
and/or subsidiarily liable to pay said amounts to plaintiffs. This lends credence to respondent Tagunicars
testimony that she was persuaded to execute an affidavit implicating respondents because petitioners knew
they would not be able to get anything of value from her. In the past, we have warned that this Court will
not tolerate an abuse of the judicial process by passengers in order to pry on international airlines for
damage awards, like trophies in a safari.
Same; Same; Same; Where no demand letter was sent to the airline, the motive of the passengers in suing
said airline is suspect.It grinds against the grain of human experience that petitioners did not insist that
they be allowed to board, considering that it was then doubly difficult to get seats because of the ongoing
Northwest Airlines strike. It is also perplexing that petitioners readily accepted whatever the Tokyo office
had to offer as an alternative. Inexplicably too, no demand letter was sent to respondents TWSI and
Canilao. Nor was a demand letter sent to respondent Pan Am. To say the least, the motive of petitioners in
suing Pan Am is suspect.
Same; Same; Same; Mere refusal to accede to the passengers wishes does not necessarily translate into
damages in the absence of bad faith.We hasten to add that it is not sufficient to prove that Pan Am did
not allow petitioners to board to justify petitioners claim for damages. Mere refusal to accede to the
passengers wishes does not necessarily translate into damages in the absence of bad faith. The settled rule
is that the law presumes good faith such that any person who seeks to be awarded damages due to acts of
another has the burden of proving that the latter acted in bad faith or with ill motive. In the case at bar, we
find the evidence presented by petitioners insufficient to overcome the presumption of good faith. They
have failed to show any wanton, malevolent or reckless misconduct imputable to respondent Pan Am in its
refusal to accommodate petitioners in its Tokyo-San Francisco flight. Pan Am could not have acted in bad
faith because petitioners did not have confirmed tickets and more importantly, they were not in the
passenger manifest. Yu Eng Cho vs. Pan American World Airways, Inc., 328 SCRA 717(2000)]

G.R. No. 123560

March 27, 2000

SPOUSES YU ENG CHO and FRANCISCO TAO YU, petitioners,

vs.
PAN AMERICAN WORLD AIRWAYS, INC., TOURIST WORLD SERVICES, INC., JULIETA
CANILAO and CLAUDIA TAGUNICAR, respondents.
PUNO, J.:
This petition for review seeks a reversal of the 31 August 1995 Decision 1 and 11 January 1998
Resolution 2 of the Court of Appeals holding private respondent Claudia Tagunicar solely liable for moral
and exemplary damages and attorney's fees, and deleting the trial court's award for actual damages.
The facts as found by the trial court are as follows:
Plaintiff Yu Eng Cho is the owner of Young Hardware Co. and Achilles Marketing. In
connection with [this] business, he travels from time to time to Malaysia, Taipei and
Hongkong. On July 10, 1976, plaintiffs bought plane tickets (Exhs. A & B) from defendant
Claudia Tagunicar who represented herself to be an agent of defendant Tourist World Services,
Inc. (TWSI). The destination[s] are Hongkong, Tokyo, San Francisco, U.S.A., for the amount
of P25,000.00 per computation of said defendant Claudia Tagunicar (Exhs. C & C-1). The
purpose of this trip is to go to Fairfield, New Jersey, U.S.A. to buy to two (2) lines of infrared
heating system processing textured plastic article (Exh. K).
On said date, only the passage from Manila to Hongkong, then to Tokyo, were confirmed.
[PAA] Flight 002 from Tokyo to San Francisco was on "RQ" status, meaning "on request". Per
instruction of defendant Claudia Tagunicar, plaintiffs returned after a few days for the
confirmation of the Tokyo-San Francisco segment of the trip. After calling up Canilao of
TWSI, defendant Tagunicar told plaintiffs that their flight is now confirmed all the way.
Thereafter, she attached the confirmation stickers on the plane tickets (Exhs. A & B).

Air Lines (JAL) refunded the plaintiffs the difference of the price for Tokyo-Taipei [and]
Tokyo-San Francisco (Exhs. I & J) in the total amount of P2,602.00.
In view of their failure to reach Fairfield, New Jersey, Radiant Heat Enterprises, Inc. cancelled
Yu Eng Cho's option to buy the two lines of infra-red heating system (Exh. K). The agreement
was for him to inspect the equipment and make final arrangement[s] with the said company not
later than August 7, 1978. From this business transaction, plaintiff Yu Eng Cho expected to
realize a profit of P300,000.00 to P400,000.00.
[A] scrutiny of defendants' respective evidence reveals the following:
Plaintiffs, who were intending to go to the United States, were referred to defendant Claudia
Tagunicar, an independent travel solicitor, for the purchase of their plane tickets. As such travel
solicitor, she helps in the processing of travel papers like passport, plane tickets, booking of
passengers and some assistance at the airport. She is known to defendants Pan-Am,
TWSI/Julieta Canilao, because she has been dealing with them in the past years. Defendant
Tagunicar advised plaintiffs to take Pan-Am because Northwest Airlines was then on strike and
plaintiffs are passing Hongkong, Tokyo, then San Francisco and Pan-Am has a flight from
Tokyo to San Francisco. After verifying from defendant TWSI, thru Julieta Canilao, she
informed plaintiffs that the fare would be P25,093.93 giving them a discount of P738.95 (Exhs.
C, C-1). Plaintiffs, however, gave her a check in the amount of P25,000.00 only for the two
round trip tickets. Out of this transaction, Tagunicar received a 7% commission and 1%
commission for defendant TWSI.
Defendant Claudia Tagunicar purchased the two round-trip Pan-Am tickets from defendant
Julieta Canilao with the following schedules:
Origin Destination Airline Date Time/Travel
Manila Hongkong CX900 7-23-78 1135/1325hrs

A few days before the scheduled flight of plaintiffs, their son, Adrian Yu, called the Pan Am
office to verify the status of the flight. According to said Adrian Yu, a personnel of defendant
Pan Am told him over the phone that plaintiffs' booking[s] are confirmed.

Hongkong Tokyo CS500 7-28-78 1615/2115hrs

On July 23, 1978, plaintiffs left for Hongkong and stayed there for five (5) days. They left
Hongkong for Tokyo on July 28, 1978. Upon their arrival in Tokyo, they called up Pan-Am
office for reconfirmation of their flight to San Francisco. Said office, however, informed them
that their names are not in the manifest. Since plaintiffs were supposed to leave on the 29th of
July, 1978, and could not remain in Japan for more than 72 hours, they were constrained to
agree to accept airline tickets for Taipei instead, per advise of JAL officials. This is the only
option left to them because Northwest Airlines was then on strike, hence, there was no chance
for the plaintiffs to obtain airline seats to the United States within 72 hours. Plaintiffs paid for
these tickets.

The use of another airline, like in this case it is Cathay Pacific out of Manila, is allowed,
although the tickets issued are Pan-Am tickets, as long as it is in connection with a Pan-Am
flight. When the two (2) tickets (Exhs. A & B) were issued to plaintiffs, the letter "RQ" appears
below the printed word "status" for the flights from Tokyo to San Francisco which means
"under request," (Exh. 3-A, 4-A Pan-Am). Before the date of the scheduled departure,
defendant Tagunicar received several calls from the plaintiffs inquiring about the status of their
bookings. Tagunicar in turn called up TWSI/Canilao to verify; and if Canilao would answer
that the bookings are not yet confirmed, she would relate that to the plaintiffs.

Upon reaching Taipei, there were no flight[s] available for plaintiffs, thus, they were forced to
return back to Manila on August 3, 1978, instead of proceeding to the United States. [Japan]

Defendant Tagunicar claims that on July 13, 1978, a few days before the scheduled flight,
plaintiff Yu Eng Cho personally went to her office, pressing her about their flight. She called
up defendant Julieta Canilao, and the latter told her "o sige Claudia, confirm na." She even
noted this in her index card (Exh. L), that it was Julieta who confirmed the booking (Exh. L-1).

Tokyo San Francisco PA002 7-29-78 1930/1640hrs

It was then that she allegedly attached the confirmation stickers (Exhs. 2, 2-B TWSI) to the
tickets. These stickers came from TWSI.

PREMISES CONSIDERED, the decision of the Regional Trial Court is hereby SET ASIDE
and a new one entered declaring appellant Tagunicar solely liable for:

Defendant Tagunicar alleges that it was only in the first week of August, 1978 that she learned
from Adrian Yu, son of plaintiffs, that the latter were not able to take the flight from Tokyo to
San Francisco, U.S.A. After a few days, said Adrian Yu came over with a gentleman and a lady,
who turned out to be a lawyer and his secretary. Defendant Tagunicar claims that plaintiffs
were asking for her help so that they could file an action against Pan-Am. Because of plaintiffs'
promise she will not be involved, she agreed to sign the affidavit (Exh. M) prepared by the
lawyer.

1) Moral damages in the amount of P50,000.00;

2) Exemplary damages in the amount of P25,000.00; and
3) Attorney's fees in the amount of P10,000.00 plus costs of suit.
The award of actual damages is hereby DELETED.

Defendants TWSI/Canilao denied having confirmed the Tokyo-San Francisco segment of

plaintiffs' flight because flights then were really tight because of the on-going strike at
Northwest Airlines. Defendant Claudia Tagunicar is very much aware that [said] particular
segment was not confirmed, because on the very day of plaintiffs' departure, Tagunicar called
up TWSI from the airport; defendant Canilao asked her why she attached stickers on the tickets
when in fact that portion of the flight was not yet confirmed. Neither TWSI nor Pan-Am
confirmed the flight and never authorized defendant Tagunicar to attach the confirmation
stickers. In fact, the confirmation stickers used by defendant Tagunicar are stickers exclusively
for use of Pan-Am only. Furthermore, if it is the travel agency that confirms the booking, the
IATA number of said agency should appear on the validation or confirmation stickers. The
IATA number that appears on the stickers attached to plaintiffs' tickets (Exhs. A & B) is 2-820770 (Exhs. 1, 1-A TWSI), when in fact TWSI's IATA number is 2-83-0770 (Exhs. 5, 5-A
TWSI). 3
A complaint for damages was filed by petitioners against private respondents Pan American World
Airways, Inc. (Pan Am), Tourist World Services, Inc. (TWSI), Julieta Canilao (Canilao), and Claudia
Tagunicar (Tagunicar) for expenses allegedly incurred such as costs of tickets and hotel accommodations
when petitioners were compelled to stay in Hongkong and then in Tokyo by reason of the nonconfirmation of their booking with Pan-Am. In a Decision dated November 14, 1991, the Regional Trial
Court of Manila, Branch 3, held the defendants jointly and severally liable, except defendant Julieta
Canilao, thus:

SO ORDERED.
In so ruling, respondent court found that Tagunicar is an independent travel solicitor and is not a duly
authorized agent or representative of either Pan Am or TWSI. It held that their business transactions are
not sufficient to consider Pan Am as the principal, and Tagunicar and TWSI as its agent and sub-agent,
respectively. It further held that Tagunicar was not authorized to confirm the bookings of, nor issue
validation stickers to, herein petitioners and hence, Pan Am and TWSI cannot be held responsible for her
actions. Finally, it deleted the award for actual damages for lack of proof.
Hence this petition based on the following assignment of errors:
1. the Court of Appeals, in reversing the decision of the trial court, misapplied the ruling
in Nicos Industrial Corporation vs. Court of Appeals, et. al. [206 SCRA 127]; and
2. the findings of the Court of Appeals that petitioners' ticket reservations in question were not
confirmed and that there is no agency relationship among PAN-AM, TWSI and Tagunicar are
contrary to the judicial admissions of PAN-AM, TWSI and Tagunicar and likewise contrary to
the findings of fact of the trial court.
We affirm.

WHEREFORE, judgment is hereby rendered for the plaintiffs and ordering defendants Pan
American World Airways, Inc., Tourist World Services, Inc. and Claudia Tagunicar, jointly and
severally, to pay plaintiffs the sum of P200,000.00 as actual damages, minus P2,602.00 already
refunded to the plaintiffs; P200,000.00 as moral damages; P100,000.00 as exemplary damages;
an amount equivalent to 20% of the award for and as attorney's fees, plus the sum of
P30,000.00 as litigation expenses.

I. The first issue deserves scant consideration. Petitioners contend that contrary to the ruling of the Court
of Appeals, the decision of the trial court conforms to the standards of an ideal decision set in Nicos
Industrial Corporation, et. al. vs. Court of Appeals, et. al., 4 as "that which, with welcome economy of
words, arrives at the factual findings, reaches the legal conclusions, renders its ruling and, having done so,
ends." It is averred that the trial court's decision contains a detailed statement of the relevant facts and
evidence adduced by the parties which thereafter became the bases for the court's conclusions.

Defendants' counterclaims are hereby dismissed for lack of merit.

SO ORDERED.
Only respondents Pan Am and Tagunicar appealed to the Court of Appeals. On 11 August 1995, the
appellate court rendered judgment modifying the amount of damages awarded, holding private respondent
Tagunicar solely liable therefor, and absolving respondents Pan Am and TWSI from any and all liability,
thus:

A careful scrutiny of the decision rendered by the trial court will show that after narrating the evidence of
the parties, it proceeded to dispose of the case with a one-paragraph generalization, to wit:
On the basis of the foregoing facts, the Court is constrained to conclude that defendant Pan-Am
is the principal, and defendants TWSI and Tagunicar, its authorized agent and sub-agent,
respectively. Consequently, defendants Pan-Am, TWSI and Claudia Tagunicar should be held
jointly and severally liable to plaintiffs for damages. Defendant Julieta Canilao, who acted in

her official capacity as Office Manager of defendant TWSI should not be held personally
liable. 5
The trial court's finding of facts is but a summary of the testimonies of the witnesses and the documentary
evidence presented by the parties. It did not distinctly and clearly set forth, nor substantiate, the factual
and legal bases for holding respondents TWSI, Pan Am and Tagunicar jointly and severally liable. In Del
Mundo vs. CA, et al. 6 where the trial court, after summarizing the conflicting asseverations of the parties,
disposed of the kernel issue in just two (2) paragraphs, we held:
It is understandable that courts, with their heavy dockets and time constraints, often find
themselves with little to spare in the preparation of decisions to the extent most desirable. We
have thus pointed out that judges might learn to synthesize and to simplify their
pronouncements. Nevertheless, concisely written such as they may be, decisions must still
distinctly and clearly express, at least in minimum essence, its factual and legal bases.
For failing to explain clearly and well the factual and legal bases of its award of moral damages, we set it
aside in said case. Once more, we stress that nothing less than Section 14 of Article VIII of the
Constitution requires that "no decision shall be rendered by any court without expressing therein clearly
and distinctly the facts and the law on which it is based." This is demanded by the due process clause of
the Constitution. In the case at bar, the decision of the trial court leaves much to be desired both in form
and substance. Even while said decision infringes the Constitution, we will not belabor this infirmity and
rather examine the sufficiency of the evidence submitted by the petitioners.
II. Petitioners assert that Tagunicar is a sub-agent of TWSI while TWSI is a duly authorized ticketing
agent of Pan Am. Proceeding from this premise, they contend that TWSI and Pan Am should be held
liable as principals for the acts of Tagunicar. Petitioners stubbornly insist that the existence of the agency
relationship has been established by the judicial admissions allegedly made by respondents herein, to wit:
(1) the admission made by Pan Am in its Answer that TWSI is its authorized ticket agent; (2) the affidavit
executed by Tagunicar where she admitted that she is a duly authorized agent of TWSI; and (3) the
admission made by Canilao that TWSI received commissions from ticket sales made by Tagunicar.
We do not agree. By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter. 7 The
elements of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative
and not for himself; (4) the agent acts within the scope of his authority. 8 It is a settled rule that persons
dealing with an assumed agent are bound at their peril, if they would hold the principal liable, to ascertain
not only the fact of agency but also the nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to establish it. 9
In the case at bar, petitioners rely on the affidavit of respondent Tagunicar where she stated that she is an
authorized agent of TWSI. This affidavit, however, has weak probative value in light of respondent
Tagunicar's testimony in court to the contrary. Affidavits, being taken ex parte, are almost always
incomplete and often inaccurate, sometimes from partial suggestion, or for want of suggestion and
inquiries. Their infirmity as a species of evidence is a matter of judicial experience and are thus
considered inferior to the testimony given in court. 10Further, affidavits are not complete reproductions of
what the declarant has in mind because they are generally prepared by the administering officer and the
affiant simply signs them after the same have been read to her. 11Respondent Tagunicar testified that her
affidavit was prepared and typewritten by the secretary of petitioners' lawyer, Atty. Acebedo, who both

came with Adrian Yu, son of petitioners, when the latter went to see her at her office. This was confirmed
by Adrian Yu who testified that Atty. Acebedo brought his notarial seal and notarized the affidavit of the
same day. 12 The circumstances under which said affidavit was prepared put in doubt petitioners' claim that
it was executed voluntarily by respondent Tagunicar. It appears that the affidavit was prepared and was
based on the answers which respondent Tagunicar gave to the questions propounded to her by Atty.
Acebedo. 13 They never told her that the affidavit would be used in a case to be filed against her. 14 They
even assured her that she would not be included as defendant if she agreed to execute the
affidavit. 15Respondent Tagunicar was prevailed upon by petitioners' son and their lawyer to sign the
affidavit despite her objection to the statement therein that she was an agent of TWSI. They assured her
that "it is immaterial"16 and that "if we file a suit against you we cannot get anything from you." 17 This
purported admission of respondent Tagunicar cannot be used by petitioners to prove their agency
relationship. At any rate, even if such affidavit is to be given any probative value, the existence of the
agency relationship cannot be established on its sole basis. The declarations of the agent alone are
generally insufficient to establish the fact or extent of his authority. 18 In addition, as between the negative
allegation of respondents Canilao and Tagunicar that neither is an agent nor principal of the other, and the
affirmative allegation of petitioners that an agency relationship exists, it is the latter who have the burden
of evidence to prove their allegation, 19 failing in which, their claim must necessarily fail.
We stress that respondent Tagunicar categorically denied in open court that she is a duly authorized agent
of TWSI, and declared that she is an independent travel agent. 20 We have consistently ruled that in case of
conflict between statements in the affidavit and testimonial declarations, the latter command greater
weight. 21
As further proofs of agency, petitioners call our attention to TWSI's Exhibits "7", "7-A", and "8" which
show that Tagunicar and TWSI received sales commissions from Pan Am. Exhibit "7" 22 is the Ticket Sales
Report submitted by TWSI to Pan Am reflecting the commissions received by TWSI as an agent of Pan
Am. Exhibit "7-A"23 is a listing of the routes taken by passengers who were audited to TWSI's sales report.
Exhibit "8" 24 is a receipt issued by TWSI covering the payment made by Tagunicar for the tickets she
bought from TWSI. These documents cannot justify the decision that Tagunicar was paid a commission
either by TWSI or Pan Am. On the contrary, Tagunicar testified that when she pays TWSI, she already
deducts in advance her commission and merely gives the net amount to TWSI. 25 From all sides of the
legal prism, the transaction is simply a contract of sale wherein Tagunicar buys airline tickets from TWSI
and then sells it at a premium to her clients.
III. Petitioners included respondent Pan Am in the complainant on the supposition that since TWSI is its
duly authorized agent, and respondent Tagunicar is an agent of TWSI, then Pan Am should also be held
responsible for the acts of respondent Tagunicar. Our disquisitions above show that this contention lacks
factual and legal bases. Indeed, there is nothing in the records to show that respondent Tagunicar has been
employed by Pan Am as its agent, except the bare allegation of petitioners. The real motive of petitioners
in suing Pan Am appears in its Amended Complaint that "[d]efendants TWSI, Canilao and Tagunicar may
not be financially capable of paying plaintiffs the amounts herein sought to be recovered, and in such
event, defendant Pan Am, being their ultimate principal, is primarily and/or subsidiary liable to pay the
said amounts to plaintiffs." 26 This lends credence to respondent Tagunicar's testimony that she was
persuaded to execute an affidavit implicating respondents because petitioners knew they would not be able
to get anything of value from her. In the past, we have warned that this Court will not tolerate an abuse of
judicial process by passengers in order to pry on international airlines for damage awards, like "trophies in
a safari." 27
This meritless suit against Pan Am becomes more glaring with petitioner' inaction after they were bumped
off in Tokyo. If petitioners were of the honest belief that Pan Am was responsible for the misfortune which

beset them, there is no evidence to show that they lodged a protest with Pan Am's Tokyo office
immediately after they were refused passage for the flight to San Francisco, or even upon their arrival in
Manila. The testimony of petitioner Yu Eng Cho in this regard is of title value, viz:

q And as a consequence of that, what did you do, if any?

a I am so much scared and worried, so the Japanese Airlines advised us to go to Taipei and I
accepted it.

Atty. Jalandoni: . . .
xxx

xxx

xxx

q Upon arrival at the Tokyo airport, what did you do if any in connection with your schedule[d]
trip?

q Why did you accept the Japan Airlines offer for you to go to Taipei?

a I went to the Hotel, Holiday Inn and from there I immediately called up Pan Am office in
Tokyo to reconfirm my flight, but they told me that our names were not listed in the manifest,
so next morning, very early in the morning I went to the airport, Pan Am office in the airport to
verify and they told me the same and we were not allowed to leave.

a Because there is no chance for us to go to the United States within 72 hours because during
that time Northwest Airlines [was] on strike so the seats are very scarce. So they advised me
better left (sic) before the 72 hours otherwise you will have trouble with the Japanese
immigration.

q You were scheduled to be in Tokyo for how long Mr. Yu?

q As a consequence of that you were force[d] to take the trip to Taipei?

a We have to leave the next day 29th.

a Yes, sir. 28 (emphasis supplied)

q In other words, what was your status as a passenger?

a Transient passengers. We cannot stay for more than 72 hours.
xxx

xxx

xxx

q As a consequence of the fact that you claimed that the Pan Am office in Tokyo told you that
your names were not in the manifest, what did you do, if any?
a I ask[ed] them if I can go anywhere in the State? They told me I can go to LA via Japan
Airlines and I accepted it.
q Do you have the tickets with you that they issued for Los Angels?
a It was taken by the Japanese Airlines instead they issue[d] me a ticket to Taipei.
xxx

xxx

xxx

q Were you able to take the trip to Los Angeles via Pan Am tickets that was issued to you in
lieu of the tickets to San Francisco?
a No, sir.
q Why not?
a The Japanese Airlines said that there were no more available seats.

It grinds against the grain of human experience that petitioners did not insist that they be allowed to board,
considering that it was then doubly difficult to get seats because of the ongoing Northwest Airlines strike.
It is also perplexing that petitioners readily accepted whatever the Tokyo office had to offer as an
alternative. Inexplicably too, no demand letter was sent to respondents TWSI and Canilao. 29 Nor was a
demand letter sent to respondent Pan Am. To say the least, the motive of petitioners in suing Pan Am is
suspect.
We hasten to add that it is not sufficient to prove that Pan Am did not allow petitioners to board to justify
petitioners' claim for damages. Mere refusal to accede to the passenger's wishes does not necessarily
translate into damages in the absence of bad faith. 30 The settled rule is that the law presumes good faith
such that any person who seeks to be awarded damages due to acts of another has the burden of proving
that the latter acted in bad faith or with ill motive. 31 In the case at bar, we find the evidence presented by
petitioners insufficient to overcome the presumption of good faith. They have failed to show any wanton,
malevolent or reckless misconduct imputable to respondent Pan Am in its refusal to accommodate
petitioners in its Tokyo-San Francisco flight. Pan Am could not have acted in bad faith because petitioners
did not have confirmed tickets and more importantly, they were not in the passenger manifest.
In not a few cases, this Court did not hesitable to hold an airline liable for damages for having acted in bad
faith in refusing to accommodate a passenger who had a confirmed ticket and whose name appeared in the
passenger manifest. In Ortigas Jr. v. Lufthansa German Airlines Inc., 32 we ruled that there was a valid
and binding contract between the airline and its passenger after finding that validating sticker on the
passenger's ticket had the letters "O.K." appearing in the "Res. Status" box which means "space
confirmed" and that the ticket is confirmed or validated. In Pan American World Airways Inc. v. IAC, et
al. 33 where a would-be-passenger had the necessary ticket, baggage claim and clearance from immigration
all clearly showing that she was a confirmed passenger and included in the passenger manifest and yet was
denied accommodation in said flight, we awarded damages. InArmovit, et al. v. CA, et al., 34 we upheld the
award of damages made against an airline for gross negligence committed in the issuance of tickets with
erroneous entries as to the time of flight. In Alitalia Airways v. CA, et al.,35 we held that when airline
issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract of carriage
arises, and the passenger has every right to expect that he would fly on that flight and on that date. If he

does not, then the carrier opens itself to a suit for breach of contract of carriage. And finally, an award of
damages was held proper in the case of Zalamea, et al. v. CA, et al., 36 where a confirmed passenger
included in the manifest was denied accommodation in such flight.
On the other hand, the respondent airline in Sarreal, Sr. v. Japan Airlines Co., Ltd., 37 was held not liable
for damages where the passenger was not allowed to board the plane because his ticket had not been
confirmed. We ruled that "[t]he stub that the lady employee put on the petitioner's ticket showed among
other coded items, under the column "status" the letters "RQ" which was understood to mean
"Request." Clearly, this does not mean a confirmation but only a request. JAL Traffic Supervisor
explained that it would have been different if what was written in the stub were the letter "ok" in which
case the petitioner would have been assured of a seat on said flight. But in this case, the petitioner was
more of a wait-listed passenger than a regularly booked passenger."
In the case at bar, petitioners' ticket were on "RQ" status. They were not confirmed passengers and their
names were not listed in the passenger manifest. In other words, this is not a case where Pan Am bound
itself to transport petitioners and thereafter reneged on its obligation. Hence, respondent airline cannot be
held liable for damages.
IV. We hold that respondent Court of Appeals correctly rules that the tickets were never confirmed for
good reasons: (1) The persistent calls made by respondent Tagunicar to Canilao, and those made by
petitioners at the Manila, Hongkong and Tokyo offices in Pan Am, are eloquent indications that petitioners
knew that their tickets have not been confirmed. For, as correctly observed by Pan Am, why would one
continually try to have one's ticket confirmed if it had already been confirmed? (2) The validation stickers
which respondent Tagunicar attached to petitioners' tickets were those intended for the exclusive use of
airline companies. She had no authority to use them. Hence, said validation stickers, wherein the word
"OK" appears in the status box, are not valid and binding. (3) The names of petitioners do not appear in
the passengers manifest. (4) Respondent Tagunicar's "Exhibit 1" 38 shows that the status of the San
Francisco-New York segment was "Ok", meaning it was confirmed, but that the status of the Tokyo-San
Francisco segment was still "on request". (5) Respondent Canilao testified that on the day that petitioners
were to depart for Hongkong, respondent Tagunicar called her from the airport asking for confirmation of
the Tokyo-San Francisco flight, and that when she told respondent Tagunicar that she should not have
allowed petitioners to leave because their tickets have not been confirmed, respondent Tagunicar merely
said "Bahala na." 39 This was never controverted nor refuted by respondent Tagunicar. (6) To prove that it
really did not confirm the bookings of petitioners, respondent Canilao pointed out that the validation
stickers which respondent Tagunicar attached to the tickets of petitioners had IATA No. 2-82-0770
stamped on it, whereas the IATA number of TWSI is 28-30770. 40
Undoubtedly, respondent Tagunicar should be liable for having acted in bad faith in misrepresenting to
petitioners that their tickets have been confirmed. Her culpability, however, was properly mitigated.
Petitioner Yu Eng Cho testified that he repeatedly tried to follow up on the confirmation of their tickets
with Pan Am because he doubted the confirmation made by respondent Tagunicar. 41 This is clear proof
that petitioners knew that they might be bumped off at Tokyo when they decided to proceed with the trip.
Aware of this risk, petitioners exerted efforts to confirm their tickets in Manila, then in Hongkong, and
finally in Tokyo. Resultantly, we find the modification as to the amount of damages awarded just and
equitable under the circumstances.
WHEREFORE, the decision appealed from is hereby AFFIRMED. Cost against petitioners.1wphi1.nt
SO ORDERED.

Davide, Jr., C.J., Kapunan and Pardo, JJ., concur.

Ynares-Santiago, J., took no part.

Orient-Air Services and Hotel Representatives vs. Court of Appeals, 197 SCRA 645(1991)
Contracts; The various stipulation in the contract must be read together to give effect to all.It is a well
settled legal principle that in the interpretation of a contract, the entirety thereof must be taken into
consideration to ascertain the meaning of its provisions. The various stipulations in the contract must be
read together to give effect to all. After a careful examination of the records, the Court finds merit in the
contention of Orient Air that the Agreement, when interpreted in accordance with the foregoing principles,
entitles it to the 3% overriding commission based on total revenue, or as referred to by the parties, total
flown revenue.
Same; Same; Any ambiguity in the contract, the stipulations of which are susceptible of various
interpretations, shall be construed against the party who drafted it.An additional point before finally
disposing of this issue. It is clear from the records that American Air was the party responsible for the
preparation of the Agreement. Consequently, any ambiguity in this contract of adhesion is to be taken
contra proferentem, i.e., construed against the party who caused the ambiguity and could have avoided it
by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that the interpretation
of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. To put it
differently, when several interpretations of a provision are otherwise equally proper, that interpretation or
construction is to be adopted which is most favorable to the party in whose favor the provision was made
and who did not cause the ambiguity. We therefore agree with the respondent appellate courts declaration
that: Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read
against the party who drafted it.
Agency; An agent-principal relationship can only be effected with the consent of the principal, and must
not, in any way be compelled by law or by any court.By affirming this ruling of the trial court,
respondent appellate court, in effect, compels American Air to extend its personality to Orient Air. Such
would be violative of the principles and essence of agency, defined by law as a contract whereby a person
binds himself to render some service or to do something in representation or on behalf of another, WITH
THE CONSENT OR AUTHORITY OF THE LATTER. (emphasis supplied) In an agent-principal
relationship, the personality of the principal is extended through the facility of the agent. In so doing, the
agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have
him do. Such a relationship can only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court. The Agreement itself between the parties states that either
party may terminate the Agreement without cause by giving the other 30 days notice by letter, telegram or
cable. (emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent appellate
court reinstating Orient Air as general sales agent of American Air. [Orient-Air Services and Hotel
Representatives vs. Court of Appeals, 197 SCRA 645(1991)]
G.R. No. 76931

May 29, 1991

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the Court of
Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel
Representatives, Inc." which affirmed, with modification, the decision 2 of the Regional Trial Court of
Manila, Branch IV, which dismissed the complaint and granted therein defendant's counterclaim for
agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier
offering passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives (hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its exclusive
general sales agent within the Philippines for the sale of air passenger transportation. Pertinent provisions
of the agreement are reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales Agent within
the Philippines, including any United States military installation therein which are not serviced
by an Air Carrier Representation Office (ACRO), for the sale of air passenger transportation.
The services to be performed by Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if
necessary, employing staff competent and sufficient to do so;

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

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

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

G.R. No. 76933

(c) arranging for distribution of American's timetables, tariffs and promotional

material to sales agents and the general public in the assigned territory;

May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.

(d) servicing and supervising of sales agents (including such sub-agents as may be
appointed by Orient Air Services with the prior written consent of American) in the

assigned territory including if required by American the control of remittances and

commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public
in the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within the United
States, neither Orient Air Services nor its sub-agents will perform services for any other air
carrier similar to those to be performed hereunder for American without the prior written
consent of American. Subject to periodic instructions and continued consent from American,
Orient Air Services may sell air passenger transportation to be performed within the United
States by other scheduled air carriers provided American does not provide substantially
equivalent schedules between the points involved.
xxx

xxx

xxx

4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock or
exchange orders, less commissions to which Orient Air Services is entitled hereunder, not less
frequently than semi-monthly, on the 15th and last days of each month for sales made during
the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on American's
ticket stock or on exchange orders, less applicable commissions to which Orient Air Services is
entitled hereunder, are the property of American and shall be held in trust by Orient Air
Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder by Orient
Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of transportation
by Orient Air Services or its sub-agents over American's services and any connecting through
air transportation, when made on American's ticket stock, equal to the following percentages of
the tariff fares and charges:
(i) For transportation solely between points within the United States and between
such points and Canada: 7% or such other rate(s) as may be prescribed by the Air
Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation between
points other than those described above: 8% or such other rate(s) as may be
prescribed by the International Air Transport Association.

(b) Overriding commission

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

xxx

xxx

10. Default
If Orient Air Services shall at any time default in observing or performing any of the provisions
of this Agreement or shall become bankrupt or make any assignment for the benefit of or enter
into any agreement or promise with its creditors or go into liquidation, or suffer any of its
goods to be taken in execution, or if it ceases to be in business, this Agreement may, at the
option of American, be terminated forthwith and American may, without prejudice to any of its
rights under this Agreement, take possession of any ticket forms, exchange orders, traffic
material or other property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of the
International Air Transport Association and the Air Traffic Conference of America, and such
rules or resolutions shall control in the event of any conflict with the provisions hereof.
xxx

xxx

xxx

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

xxx

x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to
promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of US
$254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally by
Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air with
the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and Restraining Order 4 averring the aforesaid basis for the
termination of the Agreement as well as therein defendant's previous record of failures "to promptly settle
past outstanding refunds of which there were available funds in the possession of the defendant, . . . to the
damage and prejudice of plaintiff." 5

In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations
of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts, contending that after
application thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a
balance in unpaid overriding commissions. Further, the defendant contended that the actions taken by
American Air in the course of terminating the Agreement as well as the termination itself were untenable,
Orient Air claiming that American Air's precipitous conduct had occasioned prejudice to its business
interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the trial court ruled
in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of
defendant and against plaintiff dismissing the complaint and holding the termination made by
the latter as affecting the GSA agreement illegal and improper and order the plaintiff to
reinstate defendant as its general sales agent for passenger tranportation in the Philippines in
accordance with said GSA agreement; plaintiff is ordered to pay defendant the balance of the
overriding commission on total flown revenue covering the period from March 16, 1977 to
December 31, 1980 in the amount of US$84,821.31 plus the additional amount of US$8,000.00
by way of proper 3% overriding commission per month commencing from January 1, 1981
until such reinstatement or said amounts in its Philippine peso equivalent legally prevailing at
the time of payment plus legal interest to commence from the filing of the counterclaim up to
the time of payment. Further, plaintiff is directed to pay defendant the amount of One Million
Five Hundred Thousand (Pl,500,000.00) pesos as and for exemplary damages; and the amount
of Three Hundred Thousand (P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27
January 1986, affirmed the findings of the court a quo on their material points but with some
modifications with respect to the monetary awards granted. The dispositive portion of the appellate court's
decision is as follows:

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

the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof
and arguing for its reversal. The appellate court's decision was also the subject of a Motion for Partial
Reconsideration by Orient Air which prayed for the restoration of the trial court's ruling with respect to the
monetary awards. The Court of Appeals, by resolution promulgated on 17 December 1986, denied
American Air's motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the
trial court's award of exemplary damages and attorney's fees, but granted insofar as the rate of
exchange is concerned. The decision of January 27, 1986 is modified in paragraphs (1) and (2)
of the dispositive part so that the payment of the sums mentioned therein shall be at their
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing
on the date of actual payment. 9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10 of this
Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding
commission. It is the stand of American Air that such commission is based only on sales of its services
actually negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales." As basis thereof,
primary reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration, is quoted as
follows:
5. Commissions

WHEREFORE, with the following modifications

a) . . .

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

b) Overriding Commission

2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding
commission per month starting January 1, 1981 until date of termination, May 9, 1981 or its
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing
on July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the
answer with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;

In addition to the above commission, American will pay Orient Air Services an overriding
commission of 3% of the tariff fees and charges for all sales of transportation over American's
services by Orient Air Servicesor its sub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having
opted to appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement to
the disputed overriding commission based only on ticketed sales. This is supposed to be the clear meaning
of the underscored portion of the above provision. Thus, to be entitled to the 3% overriding commission,
the sale must be made by Orient Air and the sale must be done with the use of American Air's ticket
stocks.

On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission
covers the total revenue of American Air and not merely that derived from ticketed sales undertaken by
Orient Air. The latter, in justification of its submission, invokes its designation as the exclusive General
Sales Agent of American Air, with the corresponding obligations arising from such agency, such as, the
promotion and solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all
sales of transportation over American Air's services are necessarily by Orient Air." 11
It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken
into consideration to ascertain the meaning of its provisions. 12 The various stipulations in the contract
must be read together to give effect to all. 13 After a careful examination of the records, the Court finds
merit in the contention of Orient Air that the Agreement, when interpreted in accordance with the
foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as referred to
by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the
promotion and marketing of American Air's services for air passenger transportation, and the solicitation
of sales therefor. In return for such efforts and services, Orient Air was to be paid commissions of two (2)
kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and charges from sales by
Orient Air when made on American Air ticket stock; and second, an overriding commission of 3% of tariff
fares and charges for all sales of passenger transportation over American Air services. It is immediately
observed that the precondition attached to the first type of commission does not obtain for the second type
of commissions. The latter type of commissions would accrue for sales of American Air services made not
on its ticket stock but on the ticket stock of other air carriers sold by such carriers or other authorized
ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding
commissions to sales from American Air ticket stock would erase any distinction between the two (2)
types of commissions and would lead to the absurd conclusion that the parties had entered into a contract
with meaningless provisions. Such an interpretation must at all times be avoided with every effort exerted
to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air
was the party responsible for the preparation of the Agreement. Consequently, any ambiguity in this
"contract of adhesion" is to be taken "contra proferentem", i.e., construed against the party who caused the
ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil
Code provides that the interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity. 14 To put it differently, when several interpretations of a provision are otherwise
equally proper, that interpretation or construction is to be adopted which is most favorable to the party in
whose favor the provision was made and who did not cause the ambiguity. 15 We therefore agree with the
respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be
read against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate
court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from
paragraph 4 of the Agreement, Exh. F, which provides for remittances to American less
commissions to which Orient is entitled, and from paragraph 5(d) which specifically allows
Orient to retain the full amount of its commissions. Since, as stated ante, Orient is entitled to

the 3% override. American's premise, therefore, for the cancellation of the Agreement did not
exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air was
entitled to an overriding commission based on total flown revenue. American Air's perception that Orient
Air was remiss or in default of its obligations under the Agreement was, in fact, a situation where the latter
acted in accordance with the Agreementthat of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air. Since the latter was still obligated to Orient Air
by way of such commissions. Orient Air was clearly justified in retaining and refusing to remit the sums
claimed by American Air. The latter's termination of the Agreement was, therefore, without cause and
basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial court's award of
exemplary damages and attorney's fees. This Court sees no error in such modification and, thus, affirms
the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the
trial court.1wphi1We refer particularly to the lower court's decision ordering American Air to "reinstate
defendant as its general sales agent for passenger transportation in the Philippines in accordance with said
GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to
extend its personality to Orient Air. Such would be violative of the principles and essence of agency,
defined by law as a contract whereby "a person binds himself to render some service or to do something in
representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE
LATTER . 17 (emphasis supplied) In an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have him do. Such a relationship can only be effected
with the consent of the principal, which must not, in any way, be compelled by law or by any court. The
Agreement itself between the parties states that "either party may terminate the Agreement without
cause by giving the other 30 days' notice by letter, telegram or cable." (emphasis supplied) We, therefore,
set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as general sales
agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the
respondent Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs against
petitioner American Air.
SO ORDERED.
Melencio-Herrera, and Regalado, JJ., concur.
Paras, J., took no part. Son is a partner in one of the counsel.
Sarmiento, J., is on leave.

Bordador vs. Luz, 283 SCRA 374(1997)

Actions; Appeals; Judgments; Concurrent factual findings of the trial court and the Court of Appeals are
entitled to great weight. Petitioners argue that the Court of Appeals erred in adopting the findings of the
court a quo that respondent spouses are not liable to them, as said conclusion of the trial court is
contradicted by the finding of fact of the appellate court that (Deganos) acted as agent of his sister
(Brigida Luz). In support of this contention, petitioners quoted several letters sent to them by Brigida D.
Luz wherein the latter acknowledged her obligation to petitioners and requested for more time to fulfill the
same. They likewise aver that Brigida testified in the trial court that Deganos took some gold articles from
petitioners and delivered the same to her. Both the Court of Appeals and the trial court, however, found as
a fact that the aforementioned letters concerned the previous obligations of Brigida to petitioners, and had
nothing to do with the money sought to be recovered in the instant case. Such concurrent factual findings
are entitled to great weight, hence, petitioners cannot plausibly claim in this appellate review that the
letters were in the nature of acknowledgements by Brigida that she was the principal of Deganos in the
subject transactions.

Same; Same; Presumption of Regularity; It is a legal presumption, born of wisdom and experience, that
official duty has been regularly performed; that the proceedings of a judicial tribunal are regular and valid,
and that judicial acts and duties have been and will be duly and properly performed.The fact that a
resolution was issued by said court within a relatively short period of time after the records of the case
were elevated to the office of the ponente cannot, by itself, be deemed irregular. There is no showing
whatsoever that the resolution was issued without considering the reply filed by petitioners. In fact, that
brief pleading filed by petitioners does not exhibit any esoteric or ponderous argument which could not be
analyzed within an hour. It is a legal presumption, born of wisdom and experience, that official duty has
been regularly performed; that the proceedings of a judicial tribunal are regular and valid, and that judicial
acts and duties have been and will be duly and properly performed. The burden of proving irregularity in
official conduct is on the part of petitioners and they have utterly failed to do so. It is thus reprehensible
for them to cast aspersions on a court of law on the bases of conjectures or surmises, especially since one
of the petitioners appears to be a member of the Philippine Bar. Bordador vs. Luz, 283 SCRA 374(1997)
G.R. No. 130148 December 15, 1997

Contracts; Agency; The basis for agency is representation.The basis for agency is representation. Here,
there is no showing that Brigida consented to the acts of Deganos or authorized him to act on her behalf,
much less with respect to the particular transactions involved. Petitioners attempt to foist liability on
respondent spouses through the supposed agency relation with Deganos is groundless and ill-advised.

JOSE BORDADOR and LYDIA BORDADOR, petitioners,

vs.
BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO DEGANOS, respondents.

Same; Same; A person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent. Besides, it was grossly and inexcusably negligent of petitioners to entrust to
Deganos, not once or twice but on at least six occasions as evidenced by six receipts, several pieces of
jewelry of substantial value without requiring a written authorization from his alleged principal. A person
dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.

REGALADO, J.:

Actions; Independent Civil Actions; Judgments; A final judgment rendered in a civil case absolving the
defendant from civil liability is no bar to a criminal action.Petitioners have apparently lost sight of
Article 33 of the Civil Code which provides that in cases involving alleged fraudulent acts, a civil action
for damages, entirely separate and distinct from the criminal action, may be brought by the injured party.
Such civil action shall proceed independently of the criminal prosecution and shall require only a
preponderance of evidence. It is worth noting that this civil case was instituted four years before the
criminal case for estafa was filed, and that although there was a move to consolidate both cases, the same
was denied by the trial court. Consequently, it was the duty of the two branches of the Regional Trial
Court concerned to independently proceed with the civil and criminal cases. It will also be observed that a
final judgment rendered in a civil action absolving the defendant from civil liability is no bar to a criminal
action.
Courts; Speedy Disposition of Cases; It is ironic that while some litigants malign the judiciary for being
supposedly slothful in disposing of cases, petitioners are making a show of calling out for justice because
the Court of Appeals issued a resolution disposing of a case sooner than expected of it.It is ironic that
while some litigants malign the judiciary for being supposedly slothful in disposing of cases, petitioners
are making a show of calling out for justice because the Court of Appeals issued a resolution disposing of
a case sooner than expected of it. They would even deny the exercise of discretion by the appellate court
to prioritize its action on cases in line with the procedure it has adopted in disposing thereof and in
declogging its dockets. It is definitely not for the parties to determine and dictate when and how a tribunal
should act upon those cases since they are not even aware of the status of the dockets and the internal rules
and policies for acting thereon.

In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-G.R. CV No.
49175 affirming the adjudication of the Regional Trial Court of Malolos, Bulacan which found private
respondent Narciso Deganos liable to petitioners for actual damages, but absolved respondent spouses
Brigida D. Luz and Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent resolution of
the Court of Appeals which denied their motion for reconsideration of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and respondent Brigida D. Luz,
also known as Aida D. Luz, was their regular customer. On several occasions during the period from April
27, 1987 to September 4, 1987, respondent Narciso Deganos, the brother to Brigida D. Luz, received
several pieces of gold and jewelry from petitioner amounting to P382,816.00. 1 These items and their
prices were indicated in seventeen receipts covering the same. Eleven of the receipts stated that they were
received for a certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that they were
received for Brigida D. Luz. 2
Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and return the unsold
items to petitioners. Deganos remitted only the sum of P53,207.00. He neither paid the balance of the sales
proceeds, nor did he return any unsold item to petitioners. By January 1990, the total of his unpaid
account to petitioners, including interest, reached the sum of P725,463.98. 3 Petitioners eventually filed a
complaint in the barangay court against Deganos to recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case, appeared as a witness
for Deganos and ultimately, she and her husband, together with Deganos, signed a compromise agreement
with petitioners. In that compromise agreement, Deganos obligated himself to pay petitioners, on
installment basis, the balance of his account plus interest thereon. However, he failed to comply with his
aforestated undertakings.

On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial Court of Malolos,
Bulacan against Deganos and Brigida, D. Luz for recovery of a sum of money and damages, with an
application for preliminary attachment. 4 Ernesto Luz was impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with estafa 5 in the
Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal Case No. 785-M-94. That
criminal case appears to be still pending in said trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the agent of Brigida D. Luz
when he received the subject items of jewelry and, because he failed to pay for the same, Brigida, as
principal, and her spouse are solidarily liable with him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners, he claimed that
the same was only in the sum of P382,816.00 and not P725,463.98. He further asserted that it was he
alone who was involved in the transaction with the petitioners; that he neither acted as agent for nor was
he authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of the receipts
indicated that the items were received by him for the latter. He further claimed that he never delivered any
of the items he received from petitioners to Brigida.
Brigida, on her part, denied that she had anything to do with the transactions between petitioners and
Dangerous. She claimed that she never authorized Deganos to receive any item of jewelry in her behalf
and, for that matter, neither did she actually receive any of the articles in question.
After trial, the court below found that only Deganos was liable to petitioners for the amount and damages
claimed. It held that while Brigida D. Luz did have transactions with petitioners in the past, the items
involved were already paid for and all that Brigida owed petitioners was the sum of P21,483.00
representing interest on the principal account which she had previously paid for. 6
The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts that the items
were received by Deganos for Evelyn Aquino and Brigida D. Luz. 7 Said court was "persuaded that
Brigida D. Luz was behind Deganos," but because there was no memorandum to this effect, the agreement
between the parties was unenforceable under the Statute of Frauds. 8 Absent the required memorandum or
any written document connecting the respondent Luz spouses with the subject receipts, or authorizing
Deganos to act on their behalf, the alleged agreement between petitioners and Brigida D. Luz was
unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest thereon June 25,
1990, and attorney's fees. Brigida D. Luz was ordered to pay P21,483.00 representing the interest on her
own personal loan. She and her co-defendant spouse were absolved from any other or further liability. 9
As stated at the outset, petitioners appealed the judgment of the court a quo to the Court Appeals which
affirmed said judgment. 10 The motion for reconsideration filed by petitioners was subsequently
dismissed, 11 hence the present recourse to this Court.
The primary issue in the instant petition is whether or not herein respondent spouses are liable to
petitioners for the latter's claim for money and damages in the sum of P725,463.98, plus interests and
attorney's fees, despite the fact that the evidence does not show that they signed any of the subject receipts
or authorized Deganos to received the items of jewelry on their behalf.

Petitioners argue that the Court of Appeals erred in adopting the findings of the court a quo that
respondent spouses are not liable to them, as said conclusion of the trial court is contradicted by the
finding of fact of the appellate court that "(Deganos) acted as agent of his sister (Brigida Luz)." 12 In
support of this contention, petitioners quoted several letters sent to them by Brigida D. Luz wherein the
latter acknowledged her obligation to petitioners and requested for more time to fulfill the same. They
likewise aver that Brigida testified in the trial court that Deganos took some gold articles from petitioners
and delivered the same to her.
Both the Court of Appeals and the trial court, however, found as a fact that the aforementioned letters
concerned the previous obligations of Brigida to petitioners, and had nothing to do with the money sought
to be recovered in the instant case. Such concurrent factual findings are entitled to great weight, hence,
petitioners cannot plausibly claim in this appellate review that the letters were in the nature of
acknowledgments by Brigida that she was the principal of Deganos in the subject transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to her, there is no
showing whatsoever that her statement referred to the items which are the subject matter of this case. It
cannot, therefore, be validly said that she admitted her liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him with apparent
authority as her agent and held him out to the public as such, hence Brigida can not be permitted to deny
said authority to innocent third parties who dealt with Deganos under such belief. 13 Petitioners further
represent that the Court of Appeals recognized in its decision that Deganos was an agent of Brigida. 14
The evidence does not support the theory of petitioners that Deganos was an agent of Brigida D. Luz and
that the latter should consequently be held solidarily liable with Deganos in his obligation to petitioners.
While the quoted statement in the findings of fact of the assailed appellate decision mentioned that
Deganos ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the Court of Appeals
categorically stated that, "(Brigida Luz) never authorized her brother (Deganos) to act for and in her
behalf in any transaction with Petitioners . . . . 15 It is clear, therefore, that even assuming arguendo that
Deganos acted as an agent of Brigida, the latter never authorized him to act on her behalf with regard to
the transaction subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to render some service
or to do something in representation or on behalf of another, with the consent or
authority of the latter.
The basis for agency is representation. Here, there is no showing that Brigida consented to the
acts of Deganos or authorized him to act on her behalf, much less with respect to the particular
transactions involved. Petitioners' attempt to foist liability on respondent spouses through the
supposed agency relation with Deganos is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice
but on at least six occasions as evidenced by six receipts, several pieces of jewelry of substantial value
without requiring a written authorization from his alleged principal. A person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the agent. 16

The records show that neither an express nor an implied agency was proven to have existed between
Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in their transactions with
Deganos, cannot seek relief from the effects of their negligence by conjuring a supposed agency relation
between the two respondents where no evidence supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision of the court
below, which it affirmed, is "null and void" as it contradicted its ruling in CA-G.R. SP No. 39445 holding
that there is "sufficient evidence/proof" against Brigida D. Luz and Deganos for estafa in the pending
criminal case. They further aver that said appellate court erred in ruling against them in this civil action
since the same would result in an inevitable conflict of decisions should be trial court convict the accused
in the criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and Deganos had
filed a demurrer to evidence and a motion for reconsideration in the aforestated criminal case, both of
which were denied by the trial court. They then filed a petition for certiorari in the Court of Appeals to set
aside the denial of their demurrer and motion for reconsideration but, as just stated, their petition therefor
was dismissed. 17
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in CA-G.R. SP
No. 39445 with respect to the criminal case is equivalent to a finding that there is sufficient evidence in
the estafa case against Brigida D. Luz and Deganos. Hence, as already stated, petitioners theorize that the
decision and resolution of the Court of Appeals now being impugned in the case at bar would result in a
possible conflict with the prospective decision in the criminal case. Instead of promulgating the present
decision and resolution under review, so they suggest, the Court of Appeals should have awaited the
decision in the criminal case, so as not to render academic or preempt the same or, worse, create two
conflicting rulings. 18
Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in cases
involving alleged fraudulent acts, a civil action for damages, entirely separate and distinct from the
criminal action, may be brought by the injured party. Such civil action shall proceed independently of the
criminal prosecution and shall require only a preponderance of evidence.
It is worth noting that this civil case was instituted four years before the criminal case for estafa was filed,
and that although there was a move to consolidate both cases, the same was denied by the trial court.
Consequently, it was the duty of the two branches of the Regional Trial Court concerned to independently
proceed with the civil and criminal cases. It will also be observed that a final judgment rendered in a civil
action absolving the defendant from civil liability is no bar to a criminal action. 19
It is clear, therefore, that this civil case may proceed independently of the criminal case 20 especially
because while both cases are based on the same facts, the quantum of proof required for holding the
parties liable therein differ. Thus, it is improvident of petitioners to claim that the decision and resolution
of the Court of Appeals in the present case would be preemptive of the outcome of the criminal case. Their
fancied fear of possible conflict between the disposition of this civil case and the coutcome of the pending
criminal case is illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue the denial
resolution dated August 18, 1997, as the same was tainted with irregularities and badges of fraud
perpetrated by its court officers. 21 They charge that said appellate court, through conspiracy and fraud on
the part of its officers, gravely abused its discretion in issuing that resolution denying their motion for

reconsideration. They claim that said resolution was drafted by the ponente, then signed and issued by the
members of the Eleventh Division of said court within one and a half days from the elevation thereof by
the division clerk of court to the office of the ponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution as the same was made
without waiting for the lapse of the ten-day period for respondents to file their comment and for
petitioners to file their reply. It was allegedly impossible for the Court of Appeals to resolve the issue in
just one and a half days, especially because its ponente, the late Justice Maximiano C. Asuncion, was then
recuperating from surgery and, that, additionally, "hundreds of more important cases were pending." 22
These lamentable allegation of irregularities in the Court of Appeals and in the conduct of its officers
strikes us as a desperate attempt of petitioners to induce this Court to give credence to their arguments
which, as already found by both the trial and intermediate appellate courts, are devoid of factual and legal
substance. The regrettably irresponsible attempt to tarnish the image of the intermediate appellate tribunal
and its judicial officers through ad hominem imputations could well be contumacious, but we are inclined
to let that pass with a strict admonition that petitioners refrain from indulging in such conduct in
litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial court's
decision. 23Petitioners moved for reconsideration and the Court of Appeals ordered respondents to file a
comment. Respondents filed the same on August 5, 1997 24 and petitioners filed their reply to said
comment on August 15, 1997. 25 The Eleventh Division of said court issued the questioned resolution
denying petitioner's motion for reconsideration on August 18, 1997. 26
It is ironic that while some litigants malign the judiciary for being supposedly slothful in disposing of
cases, petitioners are making a show of calling out for justice because the Court of Appeals issued a
resolution disposing of a case sooner than expected of it. They would even deny the exercise of discretion
by the appellate court to prioritize its action on cases in line with the procedure it has adopted in disposing
thereof and in declogging its dockets. It is definitely not for the parties to determine and dictate when and
how a tribunal should act upon those cases since they are not even aware of the status of the dockets and
the internal rules and policies for acting thereon.
The fact that a resolution was issued by said court within a relatively short period of time after the records
of the case were elevated to the office of the ponente cannot, by itself, be deemed irregular. There is no
showing whatsoever that the resolution was issued without considering the reply filed by petitioners. In
fact, that brief pleading filed by petitioners does not exhibit any esoteric or ponderous argument which
could not be analyzed within an hour. It is a legal presumption, born of wisdom and experience, that
official duty has been regularly performed; 27 that the proceedings of a judicial tribunal are regular and
valid, and that judicial acts and duties have been and will be duly and properly performed. 28 The burden
of proving irregularity in official conduct is on the part of petitioners and they have utterly failed to do so.
It is thus reprehensible for them to cast aspersions on a court of law on the bases of conjectures or
surmises, especially since one of the petitioners appears to be a member of the Philippine Bar.
Lastly, petitioners fault the trial court's holding that whatever contract of agency was established between
Brigida D. Luz and Narciso Deganos is unenforceable under the Statute of Frauds as that aspect of this
case allegedly is not covered thereby. 29 They proceed on the premise that the Statute of Frauds applies
only to executory contracts and not to executed or to partially executed ones. From there, they move on to
claim that the contract involved in this case was an executed contract as the items had already been

delivered by petitioners to Brigida D. Luz, hence, such delivery resulted in the execution of the contract
and removed the same from the coverage of the Statute of Frauds.
Petitioners' claim is speciously unmeritorious. It should be emphasized that neither the trial court nor the
appellate court categorically stated that there was such a contractual relation between these two
respondents. The trial court merely said that if there was such an agency existing between them, the same
is unenforceable as the contract would fall under the Statute of Frauds which requires the presentation of a
note or memorandum thereof in order to be enforceable in court. That was merely a preparatory statement
of a principle of law. What was finally proven as a matter of fact is that there was no such contract
between Brigida D. Luz and Narciso Deganos, executed or partially executed, and no delivery of any of
the items subject of this case was ever made to the former.
WHEREFORE, no error having been committed by the Court of Appeals in affirming the judgment of the
court a quo, its challenged decision and resolution are hereby AFFIRMED and the instant petition is
DENIED, with double costs against petitioners.
SO ORDERED.
Puno, Mendoza and Martinez, JJ., concur.

Apex Mining Co., Inc. vs. Southeast Mindanao Gold Mining Corp., 492 SCRA 355(2006)
Appeals; The established rule is that in the exercise of the Supreme Courts power of review, the Court not
being a trier of facts, does not normally embark on a re-examination of the evidence presented by the
contending parties during the trial of the case considering that the findings of facts of the Court of Appeals
are conclusive and binding on the Court; Exceptions.The established rule is that in the exercise of the
Supreme Courts power of review, the Court not being a trier of facts, does not normally embark on a reexamination of the evidence presented by the contending parties during the trial of the case considering
that the findings of facts of the Court of Appeals are conclusive and binding on the Court. This rule,
however, admits of exceptions as recognized by jurisprudence, to wit: (1) [w]hen the findings are
grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its
findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8)
when the findings are conclusions without citation of specific evidence on which they are based; (9) when
the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered, would justify a different
conclusion.
Natural Resources; Mines; Administrative Law; The power of administration over mineral lands and
minerals vested on the Director of Mines includes the power to prescribe terms and conditions in granting
exploration permits to qualified entities.Under Section 90 of Presidential Decree No. 463, the applicable
statute during the issuance of EP 133, the DENR Secretary, through Director of BMG, is charged with
carrying out the said law. Also, under Commonwealth Act No. 136, also known as An Act Creating The
Bureau of Mines, which was approved on 7 November 1936, the Director of Mines has the direct charge
of the administration of the mineral lands and minerals, and of the survey, classification, lease or any other
form of concession or disposition thereof under the Mining Act. This power of administration includes the
power to prescribe terms and conditions in granting exploration permits to qualified entities. Thus, in the
grant of EP 133 in favor of the MMC, the Director of the BMG acted within his power in laying down the
terms and conditions attendant thereto.
Same; Same; Corporation Law; Agency; Elements; The mere fact that an entity may be a 100% subsidiary
corporation of another corporation does not necessarily mean that the former is a duly authorized agent of
the latterfor a contract of agency to exist, it is essential that the principal consents that the other party,
the agent, shall act on its behalf, and the agent consents so as to act.Condition number 6 categorically
states that the permit shall be for the exclusive use and benefit of MMC or its duly authorized agents.
While it may be true that SEM, the assignee of EP 133, is a 100% subsidiary corporation of MMC, records
are bereft of any evidence showing that the former is the duly authorized agent of the latter. For a contract
of agency to exist, it is essential that the principal consents that the other party, the agent, shall act on its
behalf, and the agent consents so as to act. In the case of Yu Eng Cho v. Pan American World Airways,
Inc., 328 SCRA 717, 728 (2000), this Court had the occasion to set forth the elements of agency, viz.: (1)
consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the
agent acts within the scope of his authority. The existence of the elements of agency is a factual matter that
needs to be established or proven by evidence. The burden of proving that agency is extant in a certain
case rests in the party who sets forth such allegation. This is based on the principle that he who alleges a
fact has the burden of proving it. It must likewise be emphasized that the evidence to prove this fact must
be clear, positive and convincing.

Same; Same; Same; Same; Assignment; Words and Phrases; Where an entity is not an agent of a
corporation who was earlier granted an Exploration Permit, the assignment or transfer made by the latter
in favor of the former is null and void for directly contravening the terms and conditions of the grant of
said Exploration Permit; The concept of agency is distinct from assignmentin agency, the agent acts not
on his own but on behalf of his principal, while in assignment, there is total transfer or relinquishment of
right by the assignor to the assignee.In the instant Petitions, it is incumbent upon either MMC or SEM
to prove that a contract of agency actually exists between them so as to allow SEM to use and benefit from
EP 133 as the agent of MMC. SEM did not claim nor submit proof that it is the designated agent of MMC
to represent the latter in its business dealings or undertakings. SEM cannot, therefore, be considered as an
agent of MMC which can use EP 133 and benefit from it. Since SEM is not an authorized agent of MMC,
it goes without saying that the assignment or transfer of the permit in favor of SEM is null and void as it
directly contravenes the terms and conditions of the grant of EP 133. Furthermore, the concept of agency
is distinct from assignment. In agency, the agent acts not on his own behalf but on behalf of his principal.
While in assignment, there is total transfer or relinquishment of right by the assignor to the assignee.The
assignee takes the place of the assignor and is no longer bound to the latter.
Same; Same; Same; Same; Same; Exploration permits are strictly granted to entities or individuals
possessing the resources and capability to undertake mining operations.The condition stipulating that
the permit is for the exclusive use of the permittee or its duly authorized agent is not without any reason.
Exploration permits are strictly granted to entities or individuals possessing the resources and capability to
undertake mining operations. Without such a condition, non-qualified entities or individuals could
circumvent the strict requirements under the law by the simple expediency acquiring the permit from the
original permittee.
Same; Same; Same; Same; Same; The Court cannot lend recognition to the Court of Appeals theory that a
100% subsidiary of another corporation is automatically an agent of the lattera corporation is an
artificial being created by operation of law, having the right of succession and the powers, attributes, and
properties expressly authorized by law or incident to its existence.We cannot lend recognition to the
Court of Appeals theory that SEM, being a 100% subsidiary of MMC, is automatically an agent of MMC.
A corporation is an artificial being created by operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or incident to its existence. It is an artificial
being invested by law with a personality separate and distinct from those of the persons composing it as
well as from that of any other legal entity to which it may be related. Resultantly, absent any clear proof to
the contrary, SEM is a separate and distinct entity from MMC.
Same; Same; Same; Same; Same; Doctrine of Piercing the Veil of Corporate Fiction; The doctrine of
piercing the corporate veil cannot be used as a vehicle to commit prohibited acts because these acts are the
ones which the doctrine seeks to preventthe assignment of the Exploration Permit in favor of another
corporation is utilized to circumvent the condition of non-transferability.The Court of Appeals
pathetically invokes the doctrine of piercing the corporate veil to legitimize the prohibited transfer or
assignment of EP 133. It stresses that SEM is just a business conduit of MMC, hence, the distinct legal
personalities of the two entities should not be recognized. True, the corporate mask may be removed when
the corporation is just an alter ego or a mere conduit of a person or of another corporation. For reasons of
public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed against a third person. However, this Court
has made a caveat in the application of the doctrine of piercing the corporate veil. Courts should be
mindful of the milieu where it is to be applied. Only in cases where the corporate fiction was misused to
such an extent that injustice, fraud or crime was committed against another, in disregard of its rights may
the veil be pierced and removed. Thus, a subsidiary corporation may be made to answer for the liabilities
and/or illegalities done by the parent corporation if the former was organized for the purpose of evading
obligations that the latter may have entered into. In other words, this doctrine is in place in order to expose

and hold liable a corporation which commits illegal acts and use the corporate fiction to avoid liability
from the said acts. The doctrine of piercing the corporate veil cannot therefore be used as a vehicle to
commit prohibited acts because these acts are the ones which the doctrine seeks to prevent. To our mind,
the application of the foregoing doctrine is unwarranted. The assignment of the permit in favor of SEM is
utilized to circumvent the condition of non-transferability of the exploration permit. To allow SEM to
avail itself of this doctrine and to approve the validity of the assignment is tantamount to sanctioning
illegal act which is what the doctrine precisely seeks to forestall.
Same; Same; Same; Same; Same; Absent prior approval of the Secretary of the Department of
Environment and Natural Resources, the assignment of an Exploration Permit is without legal effect.
The records are bereft of any indication that the assignment bears the imprimatur of the Secretary of the
DENR. Presidential Decree No. 463, which is the governing law when the assignment was executed,
explicitly requires that the transfer or assignment of mining rights, including the right to explore a mining
area, must be with the prior approval of the Secretary of DENR. Quite conspicuously, SEM did not
dispute the allegation that the Deed of Assignment was made without the prior approval of the Secretary
of DENR. Absent the prior approval of the Secretary of DENR, the assignment of EP 133, was, therefore,
without legal effect for violating the mandatory provision of Presidential Decree No. 463.
Same; Same; Same; The DENR Secretary has no power to convert forest reserves into non-forest reserves.
Against the backdrop of the applicable statutes which govern the issuance of DAO No. 66, this Court is
constrained to rule that said administrative order was issued not in accordance with the laws. Inescapably,
DAO No. 66, declaring 729 hectares of the areas covered by the Agusan-Davao-Surigao Forest Reserve as
non-forest land open to small-scale mining operations, is null and void as, verily, the DENR Secretary has
no power to convert forest reserves into non-forest reserves.
Same; Same; Upon the effectivity of the 1987 Constitution, the State assumed a more dynamic role in the
exploration, development and utilization of the natural resources of the country.Upon the effectivity of
the 1987 Constitution, the State assumed a more dynamic role in the exploration, development and
utilization of the natural resources of the country. With this policy, the State may pursue full control and
supervision of the exploration, development and utilization of the countrys natural mineral resources. The
options open to the State are through direct undertaking or by entering into co-production, joint venture, or
production-sharing agreements, or by entering into agreement with foreign-owned corporations for largescale exploration, development and utilization.
Same; Same; Mining operations in the Diwalwal Mineral Reservation are now within the full control of
the State through the executive branch, and pursuant to Section 5 of Republic Act No. 7942, the State can
either directly undertake the exploration, development and utilization of the area or it can enter into
agreements with qualified entities.Recognizing the importance of the countrys natural resources, not
only for national economic development, but also for its security and national defense, Section 5 of
Republic Act No. 7942 empowers the President, when the national interest so requires, to establish
mineral reservations where mining operations shall be undertaken directly by the State or through a
contractor. To implement the intent and provisions of Proclamation No. 297, the DENR Secretary issued
DAO No. 2002-18 dated 12 August 2002 declaring an emergency situation in the Diwalwal Gold Rush
Area and ordering the stoppage of all mining operations therein. The issue on who has priority right over
the disputed area is deemed overtaken by the above subsequent developments particularly with the
issuance of Proclamation 297 and DAO No. 2002-18, both being constitutionally-sanctioned acts of the
Executive Branch. Mining operations in the Diwalwal Mineral Reservation are now, therefore, within the
full control of the State through the executive branch. Pursuant to Section 5 of Republic Act No. 7942, the
State can either directly undertake the exploration, development and utilization of the area or it can enter
into agreements with qualified entities.

Same; Same; The State may not be precluded from considering a direct takeover of the mines, if it is the
only plausible remedy in sight to the gnawing complexities generated by the gold rush.It is now up to
the Executive Department whether to take the first option, i.e., to undertake directly the mining operations
of the Diwalwal Gold Rush Area. As already ruled, the State may not be precluded from considering a
direct takeover of the mines, if it is the only plausible remedy in sight to the gnawing complexities
generated by the gold rush. The State need be guided only by the demands of public interest in settling on
this option, as well as its material and logistic feasibility. The State can also opt to award mining
operations in the mineral reservation to private entities including petitioners Apex and Balite, if it wishes.
The exercise of this prerogative lies with the Executive Department over which courts will not interfere.
[Apex Mining Co., Inc. vs. Southeast Mindanao Gold Mining Corp., 492 SCRA 355(2006)]
G.R. Nos. 152613 & 152628

November 20, 2009

APEX MINING CO., INC., petitioner,

vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication board, provincial
mining regulatory board (PMRB-DAVAO), MONKAYO INTEGRATED SMALL SCALE MINERS
ASSOCIATION, INC., ROSENDO VILLAFLOR, BALITE COMMUNAL PORTAL MINING
COOPERATIVE, DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTINGBATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS
GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN
ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN,
LETICIA ALQUEZA and JOEL BRILLANTES Management Mining Corporation, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 152619-20
BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., APEX MINING CO., INC., The Mines
Adjudication Board, Provincial Mining Regulatory Board (PMRB-DAVAO), MONKAYO
INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR,
DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD
MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG,
RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION,
MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN,
LETICIA ALQUEZA and JOEL BRILLANTES Management Mining Corporation, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 152870-71
THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR O. RAMOS
(Chairman), UNDERSECRETARY VIRGILIO MARCELO (Member) and DIRECTOR
HORACIO RAMOS (Member),petitioners,

vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, Respondent.

During the Oral Argument, the Court identified the following principal issues to be discussed by the
parties:

RESOLUTION

1. Whether the transfer or assignment of Exploration Permit (EP) 133 by MMC to SEM was
validly made without violating any of the terms and conditions set forth in Presidential Decree
No. 463 and EP 133 itself.

This resolves the motion for reconsideration dated 12 July 2006, filed by Southeast Mindanao Gold
Mining Corporation (SEM), of this Courts Decision dated 23 June 2006 (Assailed Decision). The
Assailed Decision held that the assignment of Exploration Permit (EP) 133 in favor of SEM violated one
of the conditions stipulated in the permit, i.e., that the same shall be for the exclusive use and benefit of
Marcopper Mining Corporation (MMC) or its duly authorized agents. Since SEM did not claim or submit
evidence that it was a designated agent of MMC, the latter cannot be considered as an agent of the former
that can use EP 133 and benefit from it. It also ruled that the transfer of EP 133 violated Presidential
Decree No. 463, which requires that the assignment of a mining right be made with the prior approval of
the Secretary of the Department of Environment and Natural Resources (DENR). Moreover, the Assailed
Decision pointed out that EP 133 expired by non-renewal since it was not renewed before or after its
expiration.

2. Whether Southeast Mindanao Mining Corp. acquired a vested right over the disputed area,
which constitutes a property right protected by the Constitution.

CHICO-NAZARIO, J.:

The Assailed Decision likewise upheld the validity of Proclamation No. 297 absent any question against
its validity. In view of this, and considering that under Section 5 of Republic Act No. 7942, otherwise
known as the "Mining Act of 1995," mining operations in mineral reservations may be undertaken directly
by the State or through a contractor, the Court deemed the issue of ownership of priority right over the
contested Diwalwal Gold Rush Area as having been overtaken by the said proclamation. Thus, it was held
in the Assailed Decision that it is now within the prerogative of the Executive Department to undertake
directly the mining operations of the disputed area or to award the operations to private entities including
petitioners Apex and Balite, subject to applicable laws, rules and regulations, and provided that these
private entities are qualified.
SEM also filed a Motion for Referral of Case to the Court En Banc and for Oral Arguments dated 22
August 2006.
Apex, for its part, filed a Motion for Clarification of the Assailed Decision, praying that the Court
elucidate on the Decisions pronouncement that "mining operations, are now, therefore within the full
control of the State through the executive branch." Moreover, Apex asks this Court to order the Mines and
Geosciences Board (MGB) to accept its application for an exploration permit.

3. Whether the assailed Decision dated 23 June 2006 of the Third Division in this case is
contrary to and overturns the earlier Decision of this Court in Apex v. Garcia (G.R. No. 92605,
16 July 1991, 199 SCRA 278).
4. Whether the issuance of Proclamation No. 297 declaring the disputed area as mineral
reservation outweighs the claims of SEM, Apex Mining Co. Inc. and Balite Communal Portal
Mining Cooperative over the Diwalwal Gold Rush Area.
5. Whether the issue of the legality/constitutionality of Proclamation No. 297 was belatedly
raised.
6. Assuming that the legality/constitutionality of Proclamation No. 297 was timely raised,
whether said proclamation violates any of the following:
a. Article XII, Section 4 of the Constitution;
b. Section 1 of Republic Act No. 3092;
c. Section 14 of the Administrative Code of 1987;
d. Section 5(a) of Republic Act No. 7586;
e. Section 4(a) of Republic Act No. 6657; and
f. Section 2, Subsection 2.1.2 of Executive Order No. 318 dated 9 June 2004.

In its Manifestation and Motion dated 28 July 2006, Balite echoes the same concern as that of Apex on the
actual takeover by the State of the mining industry in the disputed area to the exclusion of the private
sector. In addition, Balite prays for this Court to direct MGB to accept its application for an exploration
permit.

After hearing the arguments of the parties, the Court required them to submit their respective memoranda.
Memoranda were accordingly filed by SEM, Apex, Balite and Mines Adjudication Board (MAB).
We shall resolve the second issue before dwelling on the first, third and the rest of the issues.

Camilo Banad, et al., likewise filed a motion for reconsideration and prayed that the disputed area be
awarded to them.
In the Resolution dated 15 April 2008, the Court En Banc resolved to accept the instant cases. The Court,
in a resolution dated 29 April 2008, resolved to set the cases for Oral Argument on 1 July 2008.

MMC or SEM Did Not Have Vested Rights Over the Diwalwal Gold Rush Area
Petitioner SEM vigorously argues that Apex Mining Co., Inc. v. Garcia 1 vested in MMC mining rights
over the disputed area. It claims that the mining rights that MMC acquired under the said case were the
ones assigned to SEM, and not the right to explore under MMCs EP 133. It insists that mining rights,

once obtained, continue to subsist regardless of the validity of the exploration permit; thus, mining rights
are independent of the exploration permit and therefore do not expire with the permit. SEM insists that a
mining right is a vested property right that not even the government can take away. To support this thesis,
SEM cites this Courts ruling in McDaniel v. Apacible and Cuisia2 and in Gold Creek Mining Corporation
v. Rodriguez,3 which were decided in 1922 and 1938, respectively.
McDaniel and Gold Creek Mining Corporation are not in point.
In 1916, McDaniel, petitioner therein, located minerals, i.e., petroleum, on an unoccupied public land and
registered his mineral claims with the office of the mining recorder pursuant to the Philippine Bill of 1902,
where a mining claim locator, soon after locating the mine, enjoyed possessory rights with respect to such
mining claim with or without a patent therefor. In that case, the Agriculture Secretary, by virtue of Act No.
2932, approved in 1920, which provides that "all public lands may be leased by the then Secretary of
Agriculture and Natural Resources," was about to grant the application for lease of therein respondent,
overlapping the mining claims of the subject petitioner. Petitioner argued that, being a valid locator, he had
vested right over the public land where his mining claims were located. There, the Court ruled that the
mining claim perfected under the Philippine Bill of 1902, is "property in the highest sense of that term,
which may be sold and conveyed, and will pass by descent, and is not therefore subject to the disposal of
the Government." The Court then declared that since petitioner had already perfected his mining claim
under the Philippine Bill of 1902, a subsequent statute, i.e., Act No. 2932, could not operate to deprive
him of his already perfected mining claim, without violating his property right.
Gold Creek Mining reiterated the ruling in McDaniel that a perfected mining claim under the Philippine
Bill of 1902 no longer formed part of the public domain; hence, such mining claim does not come within
the prohibition against the alienation of natural resources under Section 1, Article XII of the 1935
Constitution.
Gleaned from the ruling on the foregoing cases is that for this law to apply, it must be established that the
mining claim must have been perfected when the Philippine Bill of 1902 was still in force and effect. This
is so because, unlike the subsequent laws that prohibit the alienation of mining lands, the Philippine Bill
of 1902 sanctioned the alienation of mining lands to private individuals. The Philippine Bill of 1902
contained provisions for, among many other things, the open and free exploration, occupation and
purchase of mineral deposits and the land where they may be found. It declared "all valuable mineral
deposits in public lands in the Philippine Islands, both surveyed and unsurveyed x x x to be free and open
to exploration, occupation, and purchase, and the land in which they are found to occupation and
purchase, by citizens of the United States, or of said Islands x x x."4 Pursuant to this law, the holder of the
mineral claim is entitled to all the minerals that may lie within his claim, provided he does three acts:
First, he enters the mining land and locates a plot of ground measuring, where possible, but not exceeding,
one thousand feet in length by one thousand feet in breadth, in as nearly a rectangular form as
possible.5 Second, the mining locator has to record the mineral claim in the mining recorder within thirty
(30) days after the location thereof.6 Lastly, he must comply with the annual actual work
requirement.7 Complete mining rights, namely, the rights to explore, develop and utilize, are acquired by a
mining locator by simply following the foregoing requirements.1avvphi1
With the effectivity of the 1935 Constitution, where the regalian doctrine was adopted, it was declared that
all natural resources of the Philippines, including mineral lands and minerals, were property belonging to
the State.8Excluded, however, from the property of public domain were the mineral lands and minerals
that were located and perfected by virtue of the Philippine Bill of 1902, since they were already
considered private properties of the locators. 9

Commonwealth Act No. 137 or the Mining Act of 1936, which expressly adopted the regalian doctrine
following the provision of the 1935 Constitution, also proscribed the alienation of mining lands and
granted only lease rights to mining claimants, who were prohibited from purchasing the mining claim
itself.
When Presidential Decree No. 463, which revised Commonwealth Act No. 137, was in force in 1974, it
likewise recognized the regalian doctrine embodied in the 1973 Constitution. It declared that all mineral
deposits and public and private lands belonged to the state while, nonetheless, recognizing mineral rights
that had already been existing under the Philippine Bill of 1902 as being beyond the purview of the
regalian doctrine.10 The possessory rights of mining claim holders under the Philippine Bill of 1902
remained intact and effective, and such rights were recognized as property rights that the holders could
convey or pass by descent.11
In the instant cases, SEM does not aver or prove that its mining rights had been perfected and completed
when the Philippine Bill of 1902 was still the operative law. Surely, it is impossible for SEM to
successfully assert that it acquired mining rights over the disputed area in accordance with the same bill,
since it was only in 1984 that MMC, SEMs predecessor-in-interest, filed its declaration of locations and
its prospecting permit application in compliance with Presidential Decree No. 463. It was on 1 July 1985
and 10 March 1986 that a Prospecting Permit and EP 133, respectively, were issued to MMC. Considering
these facts, there is no possibility that MMC or SEM could have acquired a perfected mining claim under
the auspices of the Philippine Bill of 1902. Whatever mining rights MMC had that it invalidly transferred
to SEM cannot, by any stretch of imagination, be considered "mining rights" as contemplated under the
Philippine Bill of 1902 and immortalized in McDaniel and Gold Creek Mining.
SEM likens EP 133 with a building permit. SEM likewise equates its supposed rights attached to the
exploration permit with the rights that a private property land owner has to said landholding. This analogy
has no basis in law. As earlier discussed, under the 1935, 1973 and 1987 Constitutions, national wealth,
such as mineral resources, are owned by the State and not by their discoverer. The discoverer or locator
can only develop and utilize said minerals for his own benefit if he has complied with all the requirements
set forth by applicable laws and if the State has conferred on him such right through permits, concessions
or agreements. In other words, without the imprimatur of the State, any mining aspirant does not have any
definitive right over the mineral land because, unlike a private landholding, mineral land is owned by the
State, and the same cannot be alienated to any private person as explicitly stated in Section 2, Article XIV
of the 1987 Constitution:
All lands of public domain, waters, minerals x x x and all other natural resources are owned by the State.
With the exception of agricultural lands, all other natural resources shall not be alienated. (Emphases
supplied.)
Further, a closer scrutiny of the deed of assignment in favor of SEM reveals that MMC assigned to the
former the rights and interests it had in EP 133, thus:
1. That for ONE PESO (P1.00) and other valuable consideration received by the ASSIGNOR from the
ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and CONVEYS unto the ASSIGNEE
whatever rights or interest the ASSIGNOR may have in the area situated in Monkayo, Davao del Norte
and Cateel, Davao Oriental, identified as Exploration Permit No. 133 and Application for a Permit to
Prospect in Bunawan, Agusan del Sur respectively. (Emphasis supplied.)

It is evident that what MMC had over the disputed area during the assignment was an exploration permit.
Clearly, the right that SEM acquired was limited to exploration, only because MMC was a mere holder of
an exploration permit. As previously explained, SEM did not acquire the rights inherent in the permit, as
the assignment by MMC to SEM was done in violation of the condition stipulated in the permit, and the
assignment was effected without the approval of the proper authority in contravention of the provision of
the mining law governing at that time. In addition, the permit expired on 6 July 1994. It is, therefore, quite
clear that SEM has no right over the area.
Even assuming arguendo that SEM obtained the rights attached in EP 133, said rights cannot be
considered as property rights protected under the fundamental law.
An exploration permit does not automatically ripen into a right to extract and utilize the minerals; much
less does it develop into a vested right. The holder of an exploration permit only has the right to conduct
exploration works on the area awarded. Presidential Decree No. 463 defined exploration as "the
examination and investigation of lands supposed to contain valuable minerals, by drilling, trenching, shaft
sinking, tunneling, test pitting and other means, for the purpose of probing the presence of mineral
deposits and the extent thereof." Exploration does not include development and exploitation of the
minerals found. Development is defined by the same statute as the steps necessarily taken to reach an ore
body or mineral deposit so that it can be mined, whereas exploitation is defined as "the extraction and
utilization of mineral deposits." An exploration permit is nothing more than a mere right accorded to its
holder to be given priority in the governments consideration in the granting of the right to develop and
utilize the minerals over the area. An exploration permit is merely inchoate, in that the holder still has to
comply with the terms and conditions embodied in the permit. This is manifest in the language of
Presidential Decree No. 463, thus:
Sec. 8. x x x The right to exploit therein shall be awarded by the President under such terms and
conditions as recommended by the Director and approved by the Secretary Provided, That the persons or
corporations who undertook prospecting and exploration of said area shall be given priority.
In La Bugal-Blaan Tribal Association, Inc. v. Ramos,12 this Court emphasized:
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the right to
conduct exploration for all minerals in specified areas. Such a permit does not amount to an authorization
to extract and carry off the mineral resources that may be discovered. x x x.
Pursuant to Section 24 of RA 7942, an exploration permit grantee who determines the commercial
viability of a mining area may, within the term of the permit, file with the MGB a declaration of mining
project feasibility accompanied by a work program for development. The approval of the mining project
feasibility and compliance with other requirements of RA 7942 vests in the grantee the exclusive right to
an MPSA or any other mineral agreement, or to an FTAA. (Underscoring ours.)
The non-acquisition by MMC or SEM of any vested right over the disputed area is supported by this
Courts ruling in Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining Cooperative 13 :
Clearly then, the Apex Mining case did not invest petitioner with any definite right to the Diwalwal mines
which it could now set up against respondent BCMC and other mining groups.

Incidentally, it must likewise be pointed out that under no circumstances may petitioners rights under EP
No. 133 be regarded as total and absolute. As correctly held by the Court of Appeals in its challenged
decision, EP No. 133 merely evidences a privilege granted by the State, which may be amended, modified
or rescinded when the national interest so requires. x x x. (Underscoring supplied.)
Unfortunately, SEM cannot be given priority to develop and exploit the area covered by EP 133 because,
as discussed in the assailed Decision, EP 133 expired by non-renewal on 6 July 1994. Also, as already
mentioned, the transfer of the said permit to SEM was without legal effect because it was done in
contravention of Presidential Decree No. 463 which requires prior approval from the proper authority.
Simply told, SEM holds nothing for it to be entitled to conduct mining activities in the disputed mineral
land.
SEM wants to impress on this Court that its alleged mining rights, by virtue of its being a transferee of EP
133, is similar to a Financial and Technical Assistance Agreement (FTAA) of a foreign contractor, which
merits protection by the due process clause of the Constitution. SEM cites La Bugal-Blaan Tribal
Association, Inc. v. Ramos,14 as follows:
To say that an FTAA is just like a mere timber license or permit and does not involve contract or property
rights which merit protection by the due process clause of the Constitution, and may therefore be revoked
or cancelled in the blink of an eye, is to adopt a well-nigh confiscatory stance; at the very least, it is
downright dismissive of the property rights of businesspersons and corporate entities that have
investments in the mining industry, whose investments, operations and expenditures do contribute to the
general welfare of the people, the coffers of government, and the strength of the economy. x x x.
Again, this argument is not meritorious. SEM did not acquire the rights attached to EP 133, since their
transfer was without legal effect. Granting for the sake of argument that SEM was a valid transferee of the
permit, its right is not that of a mining contractor. An exploration permit grantee is vested with the right to
conduct exploration only, while an FTAA or MPSA contractor is authorized to extract and carry off the
mineral resources that may be discovered in the area.15 An exploration permit holder still has to comply
with the mining project feasibility and other requirements under the mining law. It has to obtain approval
of such accomplished requirements from the appropriate government agencies. Upon obtaining this
approval, the exploration permit holder has to file an application for an FTAA or an MPSA and have it
approved also. Until the MPSA application of SEM is approved, it cannot lawfully claim that it possesses
the rights of an MPSA or FTAA holder, thus:
x x x prior to the issuance of such FTAA or mineral agreement, the exploration permit grantee (or
prospective contractor) cannot yet be deemed to have entered into any contract or agreement with the
State x x x.16
But again, SEM is not qualified to apply for an FTAA or any mineral agreement, considering that it is not
a holder of a valid exploration permit, since EP 133 expired by non-renewal and the transfer to it of the
same permit has no legal value.
More importantly, assuming arguendo that SEM has a valid exploration permit, it cannot assert any
mining right over the disputed area, since the State has taken over the mining operations therein, pursuant
to Proclamation No. 297 issued by the President on 25 November 2002. The Court has consistently ruled
that the nature of a natural resource exploration permit is analogous to that of a license. In Republic v.
Rosemoor Mining and Development Corporation, this Court articulated:

Like timber permits, mining exploration permits do not vest in the grantee any permanent or irrevocable
right within the purview of the non-impairment of contract and due process clauses of the Constitution,
since the State, under its all-encompassing police power, may alter, modify or amend the same, in
accordance with the demands of the general welfare.17 (Emphasis supplied.)
As a mere license or privilege, an exploration permit can be validly amended by the President of the
Republic when national interests suitably necessitate. The Court instructed thus:
Timber licenses, permits and license agreements are the principal instruments by which the State regulates
the utilization and disposition of forest resources to the end that the public welfare is promoted. x x x They
may be validly amended, modified, replaced or rescinded by the Chief Executive when national interests
so require.18
Recognizing the importance of the countrys natural resources, not only for national economic
development, but also for its security and national defense, Section 5 of Republic Act No. 7942 empowers
the President, when the national interest so requires, to establish mineral reservations where mining
operations shall be undertaken directly by the State or through a contractor, viz:
SEC 5. Mineral Reservations. When the national interest so requires, such as when there is a need to
preserve strategic raw materials for industries critical to national development, or certain minerals for
scientific, cultural or ecological value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in existing mineral reservations
and such other reservations as may thereafter be established, shall be undertaken by the Department or
through a contractor x x x. (Emphasis supplied.)
Due to the pressing concerns in the Diwalwal Gold Rush Area brought about by unregulated small to
medium-scale mining operations causing ecological, health and peace and order problems, the President,
on 25 November 2002, issued Proclamation No. 297, which declared the area as a mineral reservation and
as an environmentally critical area. This executive fiat was aimed at preventing the further dissipation of
the natural environment and rationalizing the mining operations in the area in order to attain an orderly
balance between socio-economic growth and environmental protection. The area being a mineral
reservation, the Executive Department has full control over it pursuant to Section 5 of Republic Act No.
7942. It can either directly undertake the exploration, development and utilization of the minerals found
therein, or it can enter into agreements with qualified entities. Since the Executive Department now has
control over the exploration, development and utilization of the resources in the disputed area, SEMs
exploration permit, assuming that it is still valid, has been effectively withdrawn. The exercise of such
power through Proclamation No. 297 is in accord with jura regalia, where the State exercises its sovereign
power as owner of lands of the public domain and the mineral deposits found within. Thus, Article XII,
Section 2 of the 1987 Constitution emphasizes:
SEC. 2. All lands of the public domain, water, minerals, coal, petroleum, and other mineral oils, all forces
of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are
owned by the State. With the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources shall be under the full control
and supervision of the State. The State may directly undertake such activities, or it may enter into coproduction, joint venture, or product-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens. (Emphasis supplied.)

Furthermore, said proclamation cannot be denounced as offensive to the fundamental law because the
State is sanctioned to do so in the exercise of its police power.19 The issues on health and peace and order,
as well the decadence of the forest resources brought about by unregulated mining in the area, are matters
of national interest. The declaration of the Chief Executive making the area a mineral reservation,
therefore, is sanctioned by Section 5 of Republic Act No. 7942.
The Assignment of EP No. 133 by MMC in Favor of SEM Violated Section 97 of Presidential Decree No.
463 and the Terms and Conditions Set Forth in the Permit
SEM claims that the approval requirement under Section 97 of Presidential Decree No. 463 is not
applicable to this case, because MMC neither applied for nor was granted a mining lease contract. The
said provision states:
SEC. 97. Assignment of Mining Rights. A mining lease contract or any interest therein shall not be
transferred, assigned, or subleased without the prior approval of the Secretary: Provided, that such
transfer, assignment or sublease may be made only to a qualified person possessing the resources and
capability to continue the mining operations of the lessee and that the assignor has complied with all the
obligations of the lease: Provided, further, That such transfer or assignment shall be duly registered with
the office of the mining recorder concerned. (Emphasis supplied.)
Exploration Permit 133 was issued in favor of MMC on 10 March 1986, when Presidential Decree No.
463 was still the governing law. Presidential Decree No. 463 pertains to the old system of exploration,
development and utilization of natural resources through "license, concession or lease." 20
Pursuant to this law, a mining lease contract confers on the lessee or his successors the right to extract, to
remove, process and utilize the mineral deposits found on or underneath the surface of his mining claims
covered by the lease. The lessee may also enter into a service contract for the exploration, development
and exploitation of the minerals from the lands covered by his lease, to wit:
SEC. 44. A mining lease contract shall grant to the lessee, his heirs, successors, and assigns the right to
extract all mineral deposits found on or underneath the surface of his mining claims covered by the lease,
continued vertically downward; to remove, process, and otherwise utilize the mineral deposits for his own
benefit; and to use the lands covered by the lease for the purpose or purposes specified therein x x x That a
lessee may on his own or through the Government, enter into a service contract for the exploration,
development and exploitation of his claims and the processing and marketing of the product thereof,
subject to the rules and regulations that shall be promulgated by the Director, with the approval of the
Secretary x x x. (Emphases supplied.)
In other words, the lessees interests are not only limited to the extraction or utilization of the minerals in
the contract area, but also to include the right to explore and develop the same. This right to explore the
mining claim or the contract area is derived from the exploration permit duly issued by the proper
authority. An exploration permit is, thus, covered by the term "any other interest therein." Section 97 is
entitled, "Assignment of Mining Rights." This alone gives a hint that before mining rights -- namely, the
rights to explore, develop and utilize -- are transferred or assigned, prior approval must be obtained from
the DENR Secretary. An exploration permit, thus, cannot be assigned without the imprimatur of the
Secretary of the DENR.

It is instructive to note that under Section 13 of Presidential Decree No. 463, the prospecting and
exploration of minerals in government reservations, such as forest reservations, are prohibited, except with
the permission of the government agency concerned. It is the government agency concerned that has the
prerogative to conduct prospecting, exploration and exploitation of such reserved lands.21 It is only in
instances wherein said government agency, in this case the Bureau of Mines, cannot undertake said mining
operations that qualified persons may be allowed by the government to undertake such operations. PNOCEDC v. Veneracion, Jr.22outlines the five requirements for acquiring mining rights in reserved lands under
Presidential Decree No. 463: (1) a prospecting permit from the agency that has jurisdiction over the land;
(2) an exploration permit from the Bureau of Mines and Geo-Sciences (BMGS); (3) if the exploration
reveals the presence of commercial deposit, application to BMGS by the permit holder for the exclusion of
the area from the reservation; (4) a grant by the President of the application to exclude the area from the
reservation; and (5) a mining agreement (lease, license or concession) approved by the DENR Secretary.
Here, MMC met the first and second requirements and obtained an exploration permit over the disputed
forest reserved land. Although MMC still has to prove to the government that it is qualified to develop and
utilize the subject mineral land, as it has yet to go through the remaining process before it can secure a
lease agreement, nonetheless, it is bound to follow Section 97 of Presidential Decree No. 463. The logic is
not hard to discern. If a lease holder, who has already demonstrated to the government his capacity and
qualifications to further develop and utilize the minerals within the contract area, is prohibited from
transferring his mining rights (rights to explore, develop and utilize), with more reason will this
proscription apply with extra force to a mere exploration permit holder who is yet to exhibit his
qualifications in conducting mining operations. The rationale for the approval requirement under Section
97 of Presidential Decree No. 463 is not hard to see. Exploration permits are strictly granted to entities or
individuals possessing the resources and capability to undertake mining operations. Mining industry is a
major support of the national economy and the continuous and intensified exploration, development and
wise utilization of mining resources is vital for national development. For this reason, Presidential Decree
No. 463 makes it imperative that in awarding mining operations, only persons possessing the financial
resources and technical skill for modern exploratory and development techniques are encouraged to
undertake the exploration, development and utilization of the countrys natural resources. The preamble of
Presidential Decree No. 463 provides thus:
WHEREAS, effective and continuous mining operations require considerable outlays of capital and
resources, and make it imperative that persons possessing the financial resources and technical skills for
modern exploratory and development techniques be encouraged to undertake the exploration,
development and exploitation of our mineral resources;
The Court has said that a "preamble" is the key to understanding the statute, written to open the minds of
the makers to the mischiefs that are to be remedied, and the purposes that are to be accomplished, by the
provisions of the statute.23 As such, when the statute itself is ambiguous and difficult to interpret, the
preamble may be resorted to as a key to understanding the statute.
Indubitably, without the scrutiny by the government agency as to the qualifications of the would-be
transferee of an exploration permit, the same may fall into the hands of non-qualified entities, which
would be counter-productive to the development of the mining industry. It cannot be overemphasized that
the exploration, development and utilization of the countrys natural resources are matters vital to the
public interest and the general welfare; hence, their regulation must be of utmost concern to the
government, since these natural resources are not only critical to the nations security, but they also ensure
the countrys survival as a viable and sovereign republic.24

The approval requirement of the Secretary of the DENR for the assignment of exploration permits is
bolstered by Section 25 of Republic Act No. 7942 (otherwise known as the Philippine Mining Act of
1995), which provides that:
Sec. 25. Transfer or Assignment. An exploration permit may be transferred or assigned to a qualified
person subject to the approval of the Secretary upon the recommendation of the Director.
SEM further posits that Section 97 of Presidential Decree No. 463, which requires the prior approval of
the DENR when there is a transfer of mining rights, cannot be applied to the assignment of EP 133
executed by MMC in favor of SEM because during the execution of the Deed of Assignment on 16
February 1994, Executive Order No. 27925 became the governing statute, inasmuch as the latter abrogated
the old mining system -- i.e., license, concession or lease -- which was espoused by the former.
This contention is not well taken. While Presidential Decree No. 463 has already been repealed by
Executive Order No. 279, the administrative aspect of the former law nonetheless remains applicable.
Hence, the transfer or assignment of exploration permits still needs the prior approval of the Secretary of
the DENR. As ruled in Miners Association of the Philippines, Inc. v. Factoran, Jr.26 :
Presidential Decree No. 463, as amended, pertains to the old system of exploration, development and
utilization of natural resources through "license, concession or lease" which, however, has been
disallowed by Article XII, Section 2 of the 1987 Constitution. By virtue of the said constitutional mandate
and its implementing law, Executive Order No. 279, which superseded Executive Order No. 211, the
provisions dealing on "license, concession, or lease" of mineral resources under Presidential Decree No.
463, as amended, and other existing mining laws are deemed repealed and, therefore, ceased to operate as
the governing law. In other words, in all other areas of administration and management of mineral lands,
the provisions of Presidential Decree No. 463, as amended, and other existing mining laws, still govern.
(Emphasis supplied.)
Not only did the assignment of EP 133 to SEM violate Section 97 of Presidential Decree No. 463, it
likewise transgressed one of the conditions stipulated in the grant of the said permit. The following terms
and conditions attached to EP 133 are as follows:27
1. That the permittee shall abide by the work program submitted with the application or
statements made later in support thereof, and which shall be considered as conditions and
essential parts of this permit;
2. That permittee shall maintain a complete record of all activities and accounting of all
expenditures incurred therein subject to periodic inspection and verification at reasonable
intervals by the Bureau of Mines at the expense of the applicant;
3. That the permittee shall submit to the Director of Mines within 15 days after the end of each
calendar quarter a report under oath of a full and complete statement of the work done in the
area covered by the permit;
4. That the term of this permit shall be for two (2) years to be effective from this date,
renewable for the same period at the discretion of the Director of Mines and upon request of
the applicant;

5. That the Director of Mines may at any time cancel this permit for violation of its provision
or in case of trouble or breach of peace arising in the area subject hereof by reason of
conflicting interests without any responsibility on the part of the government as to expenditures
for exploration that might have been incurred, or as to other damages that might have been
suffered by the permittee;
6. That this permit shall be for the exclusive use and benefit of the permittee or his duly
authorized agents and shall be used for mineral exploration purposes only and for no other
purpose.
It must be noted that under Section 9028 of Presidential Decree No. 463, which was the applicable statute
during the issuance of EP 133, the DENR Secretary, through the Director of the Bureau of Mines and
Geosciences, was charged with carrying out the said law. Also, under Commonwealth Act No. 136, also
known as "An Act Creating the Bureau of Mines," which was approved on 7 November 1936, the Director
of Mines had the direct charge of the administration of the mineral lands and minerals; and of the survey,
classification, lease or any other form of concession or disposition thereof under the Mining Act. 29 This
power of administration included the power to prescribe terms and conditions in granting exploration
permits to qualified entities.
Thus, in the grant of EP 133 in favor of the MMC, the Director of the BMG acted within his power in
laying down the terms and conditions attendant thereto. MMC and SEM did not dispute the
reasonableness of said conditions.
Quite conspicuous is the fact that neither MMC nor SEM denied that they were unaware of the terms and
conditions attached to EP 133. MMC and SEM did not present any evidence that they objected to these
conditions. Indubitably, MMC wholeheartedly accepted these terms and conditions, which formed part of
the grant of the permit. MMC agreed to abide by these conditions. It must be accentuated that a party to a
contract cannot deny its validity, without outrage to ones sense of justice and fairness, after enjoying its
benefits.30 Where parties have entered into a well-defined contractual relationship, it is imperative that
they should honor and adhere to their rights and obligations as stated in their contracts, because
obligations arising from these have the force of law between the contracting parties and should be
complied with in good faith.31 Condition Number 6 categorically states that the permit shall be for the
exclusive use and benefit of MMC or its duly authorized agents. While it may be true that SEM, the
assignee of EP 133, is a 100% subsidiary corporation of MMC, records are bereft of any evidence
showing that the former is the duly authorized agent of the latter. This Court cannot condone such utter
disregard on the part of MMC to honor its obligations under the permit. Undoubtedly, having violated this
condition, the assignment of EP 133 to SEM is void and has no legal effect.
To boot, SEM squandered whatever rights it assumed it had under EP 133. On 6 July 1993, EP 133 was
extended for twelve more months or until 6 July 1994. MMC or SEM, however, never renewed EP 133
either prior to or after its expiration. Thus, EP 133 expired by non-renewal on 6 July 1994. With the
expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal Gold Rush Area.
The Assailed Decision Resolved Facts and Issues That Transpired after the Promulgation of Apex Mining
Co., Inc. v. Garcia
SEM asserts that the 23 June 2006 Decision reversed the 16 July 1991 Decision of the Court en banc
entitled, "Apex Mining Co., Inc. v. Garcia."32

The assailed Decision DID NOT overturn the 16 July 1991 Decision in Apex Mining Co., Inc. v. Garcia.
It must be pointed out that what Apex Mining Co., Inc. v. Garcia resolved was the issue of which, between
Apex and MMC, availed itself of the proper procedure in acquiring the right to prospect and to explore in
the Agusan-Davao-Surigao Forest Reserve. Apex registered its Declarations of Location (DOL) with the
then BMGS, while MMC was granted a permit to prospect by the Bureau of Forest Development (BFD)
and was subsequently granted an exploration permit by the BMGS. Taking into consideration Presidential
Decree No. 463, which provides that "mining rights within forest reservation can be acquired by initially
applying for a permit to prospect with the BFD and subsequently for a permit to explore with the BMGS,"
the Court therein ruled that MMC availed itself of the proper procedure to validly operate within the forest
reserve or reservation.
While it is true that Apex Mining Co., Inc. v. Garcia settled the issue of which between Apex and MMC
was legally entitled to explore in the disputed area, such rights, though, were extinguished by subsequent
events that transpired after the decision was promulgated. These subsequent events, which were not
attendant in Apex Mining Co., Inc. v. Garcia33 dated 16 July 1991, are the following:
(1) the expiration of EP 133 by non-renewal on 6 July 1994;
(2) the transfer/assignment of EP 133 to SEM on 16 February 1994 which was done in
violation to the condition of EP 133 proscribing its transfer;
(3) the transfer/assignment of EP 133 to SEM is without legal effect for violating PD 463
which mandates that the assignment of mining rights must be with the prior approval of the
Secretary of the DENR.
Moreover, in Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining Cooperative, 34 the
Court, through Associate Justice Consuelo Ynares-Santiago (now retired), declared that Apex Mining Co.,
Inc. v. Garcia did not deal with the issues of the expiration of EP 133 and the validity of the transfer of EP
133 to SEM, viz:
Neither can the Apex Mining case foreclose any question pertaining to the continuing validity of EP No.
133 on grounds which arose after the judgment in said case was promulgated. While it is true that the
Apex Mining case settled the issue of who between Apex and Marcopper validly acquired mining rights
over the disputed area by availing of the proper procedural requisites mandated by law, it certainly did not
deal with the question raised by the oppositors in the Consolidated Mines cases, i.e., whether EP No. 133
had already expired and remained valid subsequent to its transfer by Marcopper to petitioner. (Emphasis
supplied.)
What is more revealing is that in the Resolution dated 26 November 1992, resolving the motion for
reconsideration of Apex Mining Co., Inc. v. Garcia, the Court clarified that the ruling on the said decision
was binding only between Apex and MMC and with respect the particular issue raised therein. Facts and
issues not attendant to the said decision, as in these cases, are not settled by the same. A portion of the
disposition of the Apex Mining Co., Inc. v. Garcia Resolution dated 26 November 1992 decrees:
x x x The decision rendered in this case is conclusive only between the parties with respect to the
particular issue herein raised and under the set of circumstances herein prevailing. In no case should the
decision be considered as a precedent to resolve or settle claims of persons/entities not parties hereto.

Neither is it intended to unsettle rights of persons/entities which have been acquired or which may have
accrued upon reliance on laws passed by the appropriate agencies. (Emphasis supplied.)

SEM asserts that Article XII, Section 4 of the Constitution, bars the President from excluding forest
reserves/reservations and proclaiming the same as mineral reservations, since the power to de-classify
them resides in Congress.

The Issue of the Constitutionality of Proclamation Is Raised Belatedly

Section 4, Article XII of the Constitution reads:
In its last-ditch effort to salvage its case, SEM contends that Proclamation No. 297, issued by President
Gloria Macapagal-Arroyo and declaring the Diwalwal Gold Rush Area as a mineral reservation, is invalid
on the ground that it lacks the concurrence of Congress as mandated by Section 4, Article XII of the
Constitution; Section 1 of Republic Act No. 3092; Section 14 of Executive Order No. 292, otherwise
known as the Administrative Code of 1987; Section 5(a) of Republic Act No. 7586, and Section 4(a) of
Republic Act No. 6657.
It is well-settled that when questions of constitutionality are raised, the court can exercise its power of
judicial review only if the following requisites are present: (1) an actual and appropriate case exists; (2)
there is a personal and substantial interest of the party raising the constitutional question; (3) the exercise
of judicial review is pleaded at the earliest opportunity; and (4) the constitutional question is the lis mota
of the case.
Taking into consideration the foregoing requisites of judicial review, it is readily clear that the third
requisite is absent. The general rule is that the question of constitutionality must be raised at the earliest
opportunity, so that if it is not raised in the pleadings, ordinarily it may not be raised at the trial; and if not
raised in the trial court, it will not be considered on appeal.35
In the instant case, it must be pointed out that in the Reply to Respondent SEMs Consolidated Comment
filed on 20 May 2003, MAB mentioned Proclamation No. 297, which was issued on 25 November 2002.
This proclamation, according to the MAB, has rendered SEMs claim over the contested area moot, as the
President has already declared the same as a mineral reservation and as an environmentally critical area.
SEM did not put to issue the validity of said proclamation in any of its pleadings despite numerous
opportunities to question the same. It was only after the assailed Decision was promulgated -- i.e., in
SEMs Motion for Reconsideration of the questioned Decision filed on 13 July 2006 and its Motion for
Referral of the Case to the Court En Banc and for Oral Arguments filed on 22 August 2006 -- that it
assailed the validity of said proclamation.
Certainly, posing the question on the constitutionality of Proclamation No. 297 for the first time in its
Motion for Reconsideration is, indeed, too late.36
In fact, this Court, when it rendered the Decision it merely recognized that the questioned proclamation
came from a co-equal branch of government, which entitled it to a strong presumption of
constitutionality.37 The presumption of its constitutionality stands inasmuch as the parties in the instant
cases did not question its validity, much less present any evidence to prove that the same is
unconstitutional. This is in line with the precept that administrative issuances have the force and effect of
law and that they benefit from the same presumption of validity and constitutionality enjoyed by statutes. 38
Proclamation No. 297 Is in Harmony with Article XII, Section 4, of the Constitution
At any rate, even if this Court were to consider the arguments belatedly raised by SEM, said arguments are
not meritorious.

The Congress shall as soon as possible, determine by law the specific limits of forest lands and national
parks, marking clearly their boundaries on the ground. Thereafter, such forest lands and national parks
shall be conserved and may not be increased nor diminished, except by law. The Congress shall provide,
for such periods as it may determine, measures to prohibit logging in endangered forests and in watershed
areas.
The above-quoted provision says that the area covered by forest lands and national parks may not be
expanded or reduced, unless pursuant to a law enacted by Congress. Clear in the language of the
constitutional provision is its prospective tenor, since it speaks in this manner: "Congress shall as soon as
possible." It is only after the specific limits of the forest lands shall have been determined by the
legislature will this constitutional restriction apply. SEM does not allege nor present any evidence that
Congress had already enacted a statute determining with specific limits forest lands and national parks.
Considering the absence of such law, Proclamation No. 297 could not have violated Section 4, Article XII
of the 1987 Constitution. In PICOP Resources, Inc. v. Base Metals Mineral Resources Corporation, 39 the
Court had the occasion to similarly rule in this fashion:
x x x Sec. 4, Art. XII of the 1987 Constitution, on the other hand, provides that Congress shall determine
the specific limits of forest lands and national parks, marking clearly their boundaries on the ground. Once
this is done, the area thus covered by said forest lands and national parks may not be expanded or reduced
except also by congressional legislation. Since Congress has yet to enact a law determining the specific
limits of the forest lands covered by Proclamation No. 369 and marking clearly its boundaries on the
ground, there can be no occasion that could give rise to a violation of the constitutional provision.
Section 4, Article XII of the Constitution, addresses the concern of the drafters of the 1987 Constitution
about forests and the preservation of national parks. This was brought about by the drafters awareness and
fear of the continuing destruction of this countrys forests.40 In view of this concern, Congress is tasked to
fix by law the specific limits of forest lands and national parks, after which the trees in these areas are to
be taken care of.41Hence, these forest lands and national parks that Congress is to delimit through a law
could be changed only by Congress.
In addition, there is nothing in the constitutional provision that prohibits the President from declaring a
forest land as an environmentally critical area and from regulating the mining operations therein by
declaring it as a mineral reservation in order to prevent the further degradation of the forest environment
and to resolve the health and peace and order problems that beset the area.
A closer examination of Section 4, Article XII of the Constitution and Proclamation No. 297 reveals that
there is nothing contradictory between the two. Proclamation No. 297, a measure to attain and maintain a
rational and orderly balance between socio-economic growth and environmental protection, jibes with the
constitutional policy of preserving and protecting the forest lands from being further devastated by
denudation. In other words, the proclamation in question is in line with Section 4, Article XII of the
Constitution, as the former fosters the preservation of the forest environment of the Diwalwal area and is
aimed at preventing the further degradation of the same. These objectives are the very same reasons why
the subject constitutional provision is in place.

What is more, jurisprudence has recognized the policy of multiple land use in our laws towards the end
that the countrys precious natural resources may be rationally explored, developed, utilized and
conserved.42 It has been held that forest reserves or reservations can at the same time be open to mining
operations, provided a prior written clearance by the government agency having jurisdiction over such
reservation is obtained. In other words mineral lands can exist within forest reservations. These two terms
are not anti-thetical. This is made manifest if we read Section 47 of Presidential Decree No. 705 or the
Revised Forestry Code of the Philippines, which provides:
Mining operations in forest lands shall be regulated and conducted with due regard to protection,
development and utilization of other surface resources. Location, prospecting, exploration, utilization or
exploitation of mineral resources in forest reservations shall be governed by mining laws, rules and
regulations. (Emphasis supplied.)
Also, Section 6 of Republic Act No. 7942 or the Mining Act of 1995, states that mining operations in
reserved lands other than mineral reservations, such as forest reserves/reservations, are allowed, viz:
Mining operations in reserved lands other than mineral reservations may be undertaken by the
Department, subject to limitations as herein provided. In the event that the Department cannot undertake
such activities, they may be undertaken by a qualified person in accordance with the rules and regulations
promulgated by the Secretary. (Emphasis supplied.)
Since forest reservations can be made mineral lands where mining operations are conducted, then there is
no argument that the disputed land, which lies within a forest reservation, can be declared as a mineral
reservation as well.

proclamation powers of the President to modify or set aside for any other purposes such as mineral
reservation.
To bolster its contention that the President cannot disestablish forest reserves into mineral reservations,
SEM makes reference to Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987,
which partly recites:
The President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by law. The
reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise
provided by law or proclamation. (Emphases supplied.)
SEM further contends that Section 7 of Republic Act No. 7586,46 which declares that the disestablishment
of a protected area shall be done by Congress, and Section 4(a) of Republic Act No. 6657, 47 which in turn
requires a law passed by Congress before any forest reserve can be reclassified, militate against the
validity of Proclamation No. 297.
Proclamation No. 297, declaring a certain portion of land located in Monkayo, Compostela Valley, with an
area of 8,100 hectares, more or less, as a mineral reservation, was issued by the President pursuant to
Section 5 of Republic Act No. 7942, also known as the "Philippine Mining Act of 1995."
Proclamation No. 297 did not modify the boundaries of the Agusan-Davao-Surigao Forest Reserve since,
as earlier discussed, mineral reservations can exist within forest reserves because of the multiple land use
policy. The metes and bounds of a forest reservation remain intact even if, within the said area, a mineral
land is located and thereafter declared as a mineral reservation.

Republic Act No. 7942 Otherwise Known as the "Philippine Mining Act of 1995," is the Applicable Law
Determined to rivet its crumbling cause, SEM then argues that Proclamation No. 297 is invalid, as it
transgressed the statutes governing the exclusion of areas already declared as forest reserves, such as
Section 1 of Republic Act No. 3092,43 Section 14 of the Administrative Code of 1987, Section 5(a) of
Republic Act No. 7586,44 and Section 4(a) of Republic Act No. 6657.45
Citing Section 1 of Republic Act No. 3092, which provides as follows:
Upon the recommendation of the Director of Forestry, with the approval of the Department Head, the
President of the Philippines shall set apart forest reserves which shall include denuded forest lands from
the public lands and he shall by proclamation declare the establishment of such forest reserves and the
boundaries thereof, and thereafter such forest reserves shall not be entered, or otherwise disposed of, but
shall remain indefinitely as such for forest uses.
The President of the Philippines may, in like manner upon the recommendation of the Director of Forestry,
with the approval of the Department head, by proclamation, modify the boundaries of any such forest
reserve to conform with subsequent precise survey but not to exclude any portion thereof except with the
concurrence of Congress. (Underscoring supplied.)
SEM submits that the foregoing provision is the governing statute on the exclusion of areas already
declared as forest reserves. Thus, areas already set aside by law as forest reserves are no longer within the

More to the point, a perusal of Republic Act No. 3092, "An Act to Amend Certain Sections of the Revised
Administrative Code of 1917," which was approved on 17 August 1961, and the Administrative Code of
1987, shows that only those public lands declared by the President as reserved pursuant to these two
statutes are to remain subject to the specific purpose. The tenor of the cited provisions, namely: "the
President of the Philippines shall set apart forest reserves" and "the reserved land shall thereafter remain,"
speaks of future public reservations to be declared, pursuant to these two statutes. These provisions do not
apply to forest reservations earlier declared as such, as in this case, which was proclaimed way back on 27
February 1931, by Governor General Dwight F. Davis under Proclamation No. 369.
Over and above that, Section 5 of Republic Act No. 7942 authorizes the President to establish mineral
reservations, to wit:
Sec. 5. Mineral Reservations. - When the national interest so requires, such as when there is a need to
preserve strategic raw materials for industries critical to national development, or certain minerals for
scientific, cultural or ecological value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in existing mineral reservations
and such other reservations as may thereafter be established, shall be undertaken by the Department or
through a contractor x x x. (Emphasis supplied.)
It is a rudimentary principle in legal hermeneutics that where there are two acts or provisions, one of
which is special and particular and certainly involves the matter in question, the other general, which, if
standing alone, would include the matter and thus conflict with the special act or provision, the special act

must as intended be taken as constituting an exception to the general act or provision, especially when
such general and special acts or provisions are contemporaneous, as the Legislature is not to be presumed
to have intended a conflict.
Hence, it has become an established rule of statutory construction that where one statute deals with a
subject in general terms, and another deals with a part of the same subject in a more detailed way, the two
should be harmonized if possible; but if there is any conflict, the latter shall prevail regardless of whether
it was passed prior to the general statute. Or where two statutes are of contrary tenor or of different dates
but are of equal theoretical application to a particular case, the one specially designed therefor should
prevail over the other.
It must be observed that Republic Act No. 3092, "An Act to Amend Certain Sections of the Revised
Administrative Code of 1917," and the Administrative Code of 1987, are general laws. Section 1 of
Republic Act No. 3092 and Section 14 of the Administrative Code of 1987 require the concurrence of
Congress before any portion of a forest reserve can be validly excluded therefrom. These provisions are
broad since they deal with all kinds of exclusion or reclassification relative to forest reserves, i.e., forest
reserve areas can be transformed into all kinds of public purposes, not only the establishment of a mineral
reservation. Section 5 of Republic Act No. 7942 is a special provision, as it specifically treats of the
establishment of mineral reservations only. Said provision grants the President the power to proclaim a
mineral land as a mineral reservation, regardless of whether such land is also an existing forest
reservation.
Sec. 5(a) of Republic Act No. 7586 provides:
Sec. 5. Establishment and Extent of the System. The establishment and operationalization of the
System shall involve the following:
(a) All areas or islands in the Philippines proclaimed, designated or set aside, pursuant to a law,
presidential decree, presidential proclamation or executive order as national park, game refuge, bird and
wildlife sanctuary, wilderness area, strict nature reserve, watershed, mangrove reserve, fish sanctuary,
natural and historical landmark, protected and managed landscape/seascape as well as identified virgin
forests before the effectivity of this Act are hereby designated as initial components of the System. The
initial components of the System shall be governed by existing laws, rules and regulations, not
inconsistent with this Act.
Glaring in the foregoing enumeration of areas comprising the initial component of the NIPAS System
under Republic Act No. 7586 is the absence of forest reserves. Only protected areas enumerated under
said provision cannot be modified. Since the subject matter of Proclamation No. 297 is a forest reservation
proclaimed as a mineral reserve, Republic Act No. 7586 cannot possibly be made applicable. Neither can
Proclamation No. 297 possibly violate said law.
Similarly, Section 4(a) of Republic Act No. 6657 cannot be made applicable to the instant case.
Section 4(a) of Republic Act No. 6657 reads:
All alienable and disposable lands of the public domain devoted to or suitable for agriculture. No
reclassification of forest or mineral lands to agricultural lands shall be undertaken after the approval of

this Act until Congress, taking into account ecological, developmental and equity considerations, shall
have determined by law, the specific limits of the public domain. (Underscoring supplied.)
Section 4(a) of Republic Act No. 6657 prohibits the reclassification of forest or mineral lands into
agricultural lands until Congress shall have determined by law the specific limits of the public domain. A
cursory reading of this provision will readily show that the same is not relevant to the instant controversy,
as there has been no reclassification of a forest or mineral land into an agricultural land.
Furthermore, the settled rule of statutory construction is that if two or more laws of different dates and of
contrary tenors are of equal theoretical application to a particular case, the statute of later date must
prevail being a later expression of legislative will.48
In the case at bar, there is no question that Republic Act No. 7942 was signed into law later than Republic
Act No. 3092, the Administrative Code of 1987,49 Republic Act No. 7586 and Republic Act No. 6657.
Applying the cited principle, the provisions of Republic Act No. 3092, the Administrative Code of 1987,
Republic Act No. 7586 and Republic Act No. 6657 cited by SEM must yield to Section 5 of Republic Act
No. 7942.
Camilo Banad, et al., Cannot Seek Relief from This Court
Camilo Banad and his group admit that they are members of the Balite Cooperative. They, however, claim
that they are distinct from Balite and move that this Court recognize them as prior mining locators.
Unfortunately for them, this Court cannot grant any relief they seek. Records reveal that although they
were parties to the instant cases before the Court of Appeals, they did not file a petition for review before
this Court to contest the decision of the appellate court. The only petitioners in the instant cases are the
MAB, SEM, Balite and Apex. Consequently, having no personality in the instant cases, they cannot seek
any relief from this Court.
Apexs Motion for Clarification and Balites Manifestation and Motion
In its Motion for Clarification, Apex desires that the Court elucidate the assailed Decisions
pronouncement that "mining operations, are now, therefore within the full control of the State through the
executive branch" and place the said pronouncement in the proper perspective as the declaration in La
Bugal-BLaan, which states that
The concept of control adopted in Section 2 of Article XII must be taken to mean less than dictatorial, allencompassing control; but nevertheless sufficient to give the State the power to direct, restrain, regulate
and govern the affairs of the extractive enterprise.50
Apex states that the subject portion of the assailed Decision could send a chilling effect to potential
investors in the mining industry, who may be of the impression that the State has taken over the mining
industry, not as regulator but as an operator. It is of the opinion that the State cannot directly undertake
mining operations.
Moreover, Apex is apprehensive of the following portion in the questioned Decision "The State can also
opt to award mining operations in the mineral reservation to private entities including petitioner Apex and

Balite, if it wishes." It avers that the phrase "if it wishes" may whimsically be interpreted to mean a
blanket authority of the administrative authority to reject the formers application for an exploration
permit even though it complies with the prescribed policies, rules and regulations.1 a vv p h i 1

when this administrative body whimsically denies the applications of qualified applicants that the Court
may interfere. But until then, the Court has no power to direct said administrative body to accept the
application of any qualified applicant.

Apex likewise asks this Court to order the MGB to accept its application for an exploration permit.

In view of this, the Court cannot grant the prayer of Apex and Balite asking the Court to direct the MGB
to accept their applications pending before the MGB.

Balite echoes the same concern as that of Apex on the actual take-over by the State of the mining industry
in the disputed area to the exclusion of the private sector. In addition, Balite prays that this Court direct
MGB to accept Balites application for an exploration permit.
Contrary to the contention of Apex and Balite, the fourth paragraph of Section 2, Article XII of the
Constitution and Section 5 of Republic Act No. 7942 sanctions the State, through the executive
department, to undertake mining operations directly, as an operator and not as a mere regulator of mineral
undertakings. This is made clearer by the fourth paragraph of Section 2, Article XII of the 1987
Constitution, which provides in part:
SEC. 2. x x x The State may directly undertake such activities, or it may enter into co-production, joint
venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. x x x. (Emphasis supplied.)
Also, Section 5 of Republic Act No. 7942 states that the mining operations in mineral reservations shall be
undertaken by the Department of Environment and Natural Resources or a contractor, to wit:
SEC. 5. Mineral Reservations. When the national interest so requires, such as when there is a need to
preserve strategic raw materials for industries critical to national development, or certain minerals for
scientific, cultural or ecological value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in existing mineral reservations
and such other reservations as may thereafter be established, shall be undertaken by the Department or
through a contractor x x x. (Emphasis supplied.)
Undoubtedly, the Constitution, as well as Republic Act No. 7942, allows the executive department to
undertake mining operations. Besides, La Bugal-BLaan, cited by Apex, did not refer to the fourth
sentence of Section 2, Article XII of the Constitution, but to the third sentence of the said provision, which
states:
SEC. 2. x x x The exploration, development, and utilization of natural resources shall be under the full
control and supervision of the State. x x x.
Pursuant to Section 5 of Republic Act No. 7942, the executive department has the option to undertake
directly the mining operations in the Diwalwal Gold Rush Area or to award mining operations therein to
private entities. The phrase "if it wishes" must be understood within the context of this provision. Hence,
the Court cannot dictate this co-equal branch to choose which of the two options to select. It is the sole
prerogative of the executive department to undertake directly or to award the mining operations of the
contested area.
Even assuming that the proper authority may decide to award the mining operations of the disputed area,
this Court cannot arrogate unto itself the task of determining who, among the applicants, is qualified. It is
the duty of the appropriate administrative body to determine the qualifications of the applicants. It is only

SEMs Manifestation and Motion dated 25 January 2007

SEM wants to emphasize that its predecessor-in-interest, Marcopper or MMC, complied with the
mandatory exploration work program, required under EP 133, by attaching therewith quarterly reports on
exploration work from 20 June 1986 to March 1994.
It must be observed that this is the very first time at this very late stage that SEM has presented the
quarterly exploration reports. From the early phase of this controversy, SEM did not disprove the
arguments of the other parties that Marcopper violated the terms under EP 133, among other violations, by
not complying with the mandatory exploration work program. Neither did it present evidence for the
appreciation of the lower tribunals. Hence, the non-compliance with the mandatory exploration work
program was not made an issue in any stage of the proceedings. The rule is that an issue that was not
raised in the lower court or tribunal cannot be raised for the first time on appeal, as this would violate the
basic rules of fair play, justice and due process.51 Thus, this Court cannot take cognizance of the issue of
whether or not MMC complied with the mandatory work program.
In sum, this Court finds:
1. The assailed Decision did not overturn the 16 July 1991 Decision in Apex Mining Co., Inc.
v. Garcia. The former was decided on facts and issues that were not attendant in the latter, such
as the expiration of EP 133, the violation of the condition embodied in EP 133 prohibiting its
assignment, and the unauthorized and invalid assignment of EP 133 by MMC to SEM, since
this assignment was effected without the approval of the Secretary of DENR;
2. SEM did not acquire vested right over the disputed area because its supposed right was
extinguished by the expiration of its exploration permit and by its violation of the condition
prohibiting the assignment of EP 133 by MMC to SEM. In addition, even assuming that SEM
has a valid exploration permit, such is a mere license that can be withdrawn by the State. In
fact, the same has been withdrawn by the issuance of Proclamation No. 297, which places the
disputed area under the full control of the State through the Executive Department;
3. The approval requirement under Section 97 of Presidential Decree No. 463 applies to the
assignment of EP 133 by MMC to SEM, since the exploration permit is an interest in a mining
lease contract;
4. The issue of the constitutionality and the legality of Proclamation No. 297 was raised
belatedly, as SEM questions the same for the first time in its Motion for Reconsideration. Even
if the issue were to be entertained, the said proclamation is found to be in harmony with the
Constitution and other existing statutes;

5. The motion for reconsideration of Camilo Banad, et al. cannot be passed upon because they
are not parties to the instant cases;
6. The prayers of Apex and Balite asking the Court to direct the MGB to accept their
applications for exploration permits cannot be granted, since it is the Executive Department
that has the prerogative to accept such applications, if ever it decides to award the mining
operations in the disputed area to a private entity;
7. The Court cannot pass upon the issue of whether or not MMC complied with the mandatory
exploration work program, as such was a non-issue and was not raised before the Court of
Appeals and the lower tribunals.
WHEREFORE, premises considered, the Court holds:
1. The Motions for Reconsideration filed by Camilo Banad, et al. and Southeast Mindanao
Gold Mining Corporation are DENIED for lack of merit;
2. The Motion for Clarification of Apex Mining Co., Inc. and the Manifestation and Motion of
the Balite Communal Portal Mining Cooperative, insofar as these motions/manifestation ask
the Court to direct the Mines and Geo-Sciences Bureau to accept their respective applications
for exploration permits, are DENIED;

CONCHITA CARPIO MORALES

Associate Justice

On official leave
PRESBITERO J. VELASCO, JR.*
Associate Justice

(No Part)
ANTONIO EDUARDO B. NACHURA**
Associate Justice

TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

ARTURO D. BRION
Associate Justice

On official leave
DIOSDADO M. PERALTA*
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

3. The Manifestation and Urgent Motion dated 25 January 2007 of Southeast Mindanao Gold
Mining Corporation is DENIED.
4. The State, through the Executive Department, should it so desire, may now award mining
operations in the disputed area to any qualified entities it may determine. The Mines and
Geosciences Bureau may process exploration permits pending before it, taking into
consideration the applicable mining laws, rules and regulations relative thereto.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice

ANTONIO T. CARPIO
Associate Justice

On official leave
RENATO C. CORONA*
Associate Justice

C E R T I F I C AT I O N
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer of the opinion of
the Court.
REYNATO S. PUNO
Chief Justice

Victorias Milling Co., Inc. vs. Court of Appeals, 333 SCRA 663(2000)
Appeals; Pleadings and Practice; It is settled that an issue which was not raised during the trial in the court
below could not be raised for the first time on appeal as to do so would be offensive to the basic rules of
fair play, justice, and due process.Anent the first issue, we find from the records that petitioner raised
this issue for the first time on appeal. It is settled that an issue which was not raised during the trial in the
court below could not be raised for the first time on appeal as to do so would be offensive to the basic
rules of fair play, justice, and due process. Nonetheless, the Court of Appeals opted to address this issue,
hence, now a matter for our consideration.
Agency; The basis of agency is representationon the part of the principal, there must be an actual
intention to appoint or an intention naturally inferable from his words or actions, while on the part of the
agent, there must be an intention to accept the appointment and act on it; One factor which most clearly
distinguishes agency from other legal concepts is controlone person (the agent) agreeing to act under
the control or direction of another (the principal).It is clear from Article 1868 that the basis of agency is
representation. On the part of the principal, there must be an actual intention to appoint or an intention
naturally inferable from his words or actions; and on the part of the agent, there must be an intention to
accept the appointment and act on it, and in the absence of such intent, there is generally no agency. One
factor which most clearly distinguishes agency from other legal concepts is control; one personthe agent
agrees to act under the control or direction of anotherthe principal. Indeed, the very word agency
has come to connote control by the principal. The control factor, more than any other, has caused the
courts to put contracts between principal and agent in a separate category.
Same; An authorization given to another containing the phrase for and in our behalf does not necessarily
establish an agency, as ultimately, what is decisive is the intention of the parties, and the use of the words
sold and endorsed means that the parties intended a contract of sale, and not an agency.It appears
plain to us that private respondent CSC was a buyer of the SLDFR form, and not an agent of STM. Private
respondent CSC was not subject to STMs control. The question of whether a contract is one of sale or
agency depends on the intention of the parties as gathered from the whole scope and effect of the language
employed. That the authorization given to CSC contained the phrase for and in our (STMs) behalf did
not establish an agency. Ultimately, what is decisive is the intention of the parties. That no agency was
meant to be established by the CSC and STM is clearly shown by CSCs communication to petitioner that
SLDR No. 1214M had been sold and endorsed to it. The use of the words sold and endorsed means
that STM and CSC intended a contract of sale, and not an agency. Hence, on this score, no error was
committed by the respondent appellate court when it held that CSC was not STMs agent and could
independently sue petitioner.
Compensation; Where the articles had been fully paid for, the vendor and the assignee of vendee are not
mutually creditors and debtors of each other and compensation could not take place pursuant to Article
1279 of the Civil Code.On the second issue, proceeding from the theory that the transactions entered
into between petitioner and STM are but serial parts of one account, petitioner insists that its debt has been
offset by its claim for STMs unpaid purchases, pursuant to Article 1279 of the Civil Code. However, the
trial court found, and the Court of Appeals concurred, that the purchase of sugar covered by SLDR No.
1214M was a separate and independent transaction; it was not a serial part of a single transaction or of one
account contrary to petitioners insistence. Evidence on record shows, without being rebutted, that
petitioner had been paid for the sugar purchased under SLDR No. 1214M. Petitioner clearly had the
obligation to deliver said commodity to STM or its assignee. Since said sugar had been fully paid for,
petitioner and CSC, as assignee of STM, were not mutually creditors and debtors of each other. No
reversible error could thereby be imputed to respondent appellate court when it refused to apply Article
1279 of the Civil Code to the present case.

Sale; Words and Phrases; Where the terms and conditions clearly show that the vendor transferred title to
the articles to the buyer or his assignee upon payment of the purchase price, the same clearly establish a
contract of sale, not a contract to sell.The aforequoted terms and conditions clearly show that petitioner
transferred title to the sugar to the buyer or his assignee upon payment of the purchase price. Said terms
clearly establish a contract of sale, not a contract to sell. Petitioner is now estopped from alleging the
contrary. The contract is the law between the contracting parties. And where the terms and conditions so
stipulated are not contrary to law, morals, good customs, public policy or public order, the contract is valid
and must be upheld. Having transferred title to the sugar in question, petitioner is now obliged to deliver it
to the purchaser or its assignee. Victorias Milling Co., Inc. vs. Court of Appeals, 333 SCRA 663(2000)
G.R. No. 117356

June 19, 2000

VICTORIAS MILLING CO., INC., petitioner,

vs.
COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision
of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent
court's resolution of September 30, 1994 modifying said decision. Both decision and resolution amended
the judgment dated February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil
Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co.,
Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts
(SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave rise to the
instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained
50 kilograms and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated October
16, 1989."1 The transaction it covered was a "direct sale." 2 The SLDR also contains an additional note
which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)." 3
On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in
SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three checks
postdated November 13, 1989 in payment. That same day, CSC wrote petitioner that it had been
authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a
copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC "to withdraw for and in
our behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214
dated October 16, 1989 in the total quantity of 25,000 bags."4
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as
payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging
receipt of the said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also
covered SLDR No. 1213.

Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was
allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow
further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23,
1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused
further withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had been
withdrawn.5 CSC thus inquired when it would be allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against
SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the cleared checks. 6
On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared
checks had been fully withdrawn and hence, there would be no more deliveries of the commodity to
STM's account. Petitioner also noted that CSC had represented itself to be STM's agent as it had
withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118.
Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and herein
petitioner. Since the former could not be served with summons, the case proceeded only against the latter.
During the trial, it was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy
who could not be reached through summons.7 CSC, however, did not bother to pursue its case against her,
but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M.
Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be
ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the award of P1,104,000.00
in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and litigation
expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags.8 Since STM had
already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with
CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery
receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs
prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said
party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to
defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith.
Petitioner then prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as moral
damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also
prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and
P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the merits.

As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and
against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of
refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as
unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of
P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of refined sugar
in the amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."9
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of
P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the
purchase price of P15,950,000.00 for the 25,000 bags of sugar bought by her covered by SLDR No. 1213
on the same date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15
inclusive which are post-dated checks dated October 27, 1989 issued by St. Therese Merchandising in
favor of Victorias Milling Company at the time it purchased the 50,000 bags of sugar covered by SLDR
No. 1213 and 1214. Said checks appear to have been honored and duly credited to the account of Victorias
Milling Company because on October 27, 1989 Victorias Milling Company issued official receipt no.
34734 in favor of St. Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1). The
testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer printout of defendant
Victorias Milling Company showing the quantity and value of the purchases made by St. Therese
Merchandising, the SLDR no. issued to cover the purchase, the official reciept no. and the status of
payment. It is clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same has
been fully paid as indicated by the word 'cleared' appearing under the column of 'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the
25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been
fully paid is supported only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling
Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion
that the purchase price has not been fully paid and is not corroborated by any positive evidence. There is
an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in
payment of the purchased price were dishonored. However, said witness failed to present in Court any
dishonored check or any replacement check. Said witness likewise failed to present any bank record
showing that the checks issued by the buyer, Teresita Ng Go, in payment of the purchase price of the sugar
covered by SLDR No. 1214 were dishonored."10
Petitioner appealed the trial courts decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions
involving only one account or one general contract of sale. Pursuant to this contract, STM or any of its
authorized agents could withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M

was only one of 22 SLDRs issued to STM and since the latter had already withdrawn its full quota of
sugar under the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of
sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate
and independent transactions and that the details of the series of purchases were contained in a single
statement with a consolidated summary of cleared check payments and sugar stock withdrawals because
this a more convenient system than issuing separate statements for each purchase.
The appellate court considered the following issues: (a) Whether or not the transaction between petitioner
and STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether or
not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer
from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to
deliver 23,000 bagsallegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to
wit:

"Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586
cannot be made the basis for such a finding. The rule is explicit that courts should consider the evidence
only for the purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for
this is to afford the party against whom the evidence is presented to object thereto if he deems it necessary.
Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which was offered to prove that
checks in the total amount of P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff,
Records p. 58) cannot be used to prove the proposition that 12,586 bags of sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L. Santos
[TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that it had
withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw anymore.
Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent
demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining 23,000 bags
of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar delivery to the
STM corresponded only to the value of cleared checks; and that all sugar corresponded to cleared checks
had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It did not present
evidence to show how many bags of sugar had been withdrawn against SLDR No. 1214M, precisely
because of its theory that all sales in question were a series of one single transaction and withdrawal of
sugar depended on the clearing of checks paid therefor.

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

"After a second look at the evidence, We see no reason to overturn the findings of the trial court on this
point."13
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private respondent's specially
informing petitioner that respondent was authorized by buyer STM to withdraw sugar against
SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the original) private
respondent's withdrawing 2,000 bags of sugar for STM, and STM's empowering other persons
as its agents to withdraw sugar against the same SLDR No. 1214M, rendered respondent like
the other persons, an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81
SCRA 252, and precluded it from subsequently claiming and proving being an assignee of
SLDR No. 1214M and from suing by itself for its enforcement because it was conclusively
presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art.
1431, Civil Code).

"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."12
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.

"2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain
relevant and undisputed facts which, had they been considered, would have shown that
petitioner was not liable, except for 69 bags of sugar, and which would justify review of its
conclusion of facts by this Honorable Court.
"3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and
1626 of the Civil Code when it ruled that compensation applied only to credits from one SLDR
or contract and not to those from two or more distinct contracts between the same parties; and
erred in denying petitioner's right to setoff all its credits arising prior to notice of assignment
from other sales or SLDRs against private respondent's claim as assignee under SLDR No.
1214M, so as to extinguish or reduce its liability to 69 bags, because the law on
compensation applies precisely to two or more distinct contracts between the same parties
(emphasis in the original).

"4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in
Exh. F between petitioner and STM, respondent's admission of its balance, and STM's
acquiescence thereto by silence for almost one year did not render Exh. `F' an account stated
and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No.
1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to its
availability at the Nawaco warehouse, made the sale conditional and prevented STM or private
respondent from acquiring title to the sugar; and the non-availability of sugar freed petitioner
from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded
respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against its
assignor."14
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM
and hence, estopped to sue upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the
transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on
the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR
No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from further
obligations.
(4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean
hands doctrine" to preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the first time on
appeal.1avvphi1 It is settled that an issue which was not raised during the trial in the court below could not
be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play, justice,
and due process.15 Nonetheless, the Court of Appeals opted to address this issue, hence, now a matter for
our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR
No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our
behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar
(SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags."16
The Civil Code defines a contract of agency as follows:

"Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter."
It is clear from Article 1868 that the basis of agency is representation.17 On the part of the principal, there
must be an actual intention to appoint18 or an intention naturally inferable from his words or actions;19 and
on the part of the agent, there must be an intention to accept the appointment and act on it, 20 and in the
absence of such intent, there is generally no agency.21 One factor which most clearly distinguishes agency
from other legal concepts is control; one person - the agent - agrees to act under the control or direction of
another - the principal. Indeed, the very word "agency" has come to connote control by the principal. 22 The
control factor, more than any other, has caused the courts to put contracts between principal and agent in a
separate category.23 The Court of Appeals, in finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law
makes no presumption of agency, and it is always a fact to be proved, with the burden of proof resting
upon the persons alleging the agency, to show not only the fact of its existence, but also its nature and
extent (Antonio vs. Enriquez[CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish
the existence of an agency relation between plaintiff-appellee and STM. The fact alone that it (STM) had
authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as
pointing to the existence of an agency relation ...It should be viewed in the context of all the circumstances
obtaining. Although it would seem STM represented plaintiff-appellee as being its agent by the use of the
phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January 1990, plaintiff-appellee
informed defendant-appellant that SLDFR No. 1214M had been "sold and endorsed" to it by STM
(Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000 bags of sugar covered by
the SLDR No. 1214M were sold and transferred by STM to it ...A conclusion that there was a valid sale
and transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiff-appellee to sue in its
own name, without need of joining its imputed principal STM as co-plaintiff."24
In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and
not an agent of STM. Private respondent CSC was not subject to STM's control. The question of whether a
contract is one of sale or agency depends on the intention of the parties as gathered from the whole scope
and effect of the language employed.25 That the authorization given to CSC contained the phrase "for and
in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of the
parties.26 That no agency was meant to be established by the CSC and STM is clearly shown by CSC's
communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it. 27 The use of the
words "sold and endorsed" means that STM and CSC intended a contract of sale, and not an agency.
Hence, on this score, no error was committed by the respondent appellate court when it held that CSC was
not STM's agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into between petitioner and
STM are but serial parts of one account, petitioner insists that its debt has been offset by its claim for
STM's unpaid purchases, pursuant to Article 1279 of the Civil Code.28 However, the trial court found, and
the Court of Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a separate
and independent transaction; it was not a serial part of a single transaction or of one account contrary to
petitioner's insistence. Evidence on record shows, without being rebutted, that petitioner had been paid for
the sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to deliver said
commodity to STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC, as
assignee of STM, were not mutually creditors and debtors of each other. No reversible error could thereby
be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the
present case.

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

Dominion Insurance Corporation vs. Court of Appeals, 376 SCRA 239(2002)

Civil Law; Contracts; Agency; The basis for agency is representation; There must be an actual intention by
the principal to appoint and on the part of the agent an intention to accept the appointment and act on it,
otherwise there is generally no agency.By the contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another, with the consent or authority of the
latter. The basis for agency is representation. On the part of the principal, there must be an actual intention
to appoint or an intention naturally inferrable from his words or actions; and on the part of the agent, there
must be an intention to accept the appointment and act on it, and in the absence of such intent, there is
generally no agency. Dominion Insurance Corporation vs. Court of Appeals, 376 SCRA 239(2002)
G.R. No. 129919

February 6, 2002

1992 and April 6, 1992, in all of which dates no pre-trial conference was held. The record shows that
except for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were cancelled
at the instance of defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon
joint request of the parties.
"On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were
present. Despite due notice, defendant and counsel did not appear, although a messenger, Roy Gamboa,
submitted to the trial court a handwritten note sent to him by defendants counsel which instructed him to
request for postponement. Plaintiffs counsel objected to the desired postponement and moved to have
defendant declared as in default. This was granted by the trial court in the following order:
"ORDER

DOMINION INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari1 from the decision of the Court of Appeals2 affirming the decision3 of the
Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion Insurance
Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the
total amount advanced by Guevarra in the payment of the claims of Dominions clients.
The Facts

"When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo
Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain Roy who was
requested to ask for postponement, Atty. Maglalang vigorously objected to any postponement on the
ground that the note is but a mere scrap of paper and moved that the defendant corporation be declared as
in default for its failure to appear in court despite due notice.
"Finding the verbal motion of plaintiffs counsel to be meritorious and considering that the pre-trial
conference has been repeatedly postponed on motion of the defendant Corporation, the defendant
Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is allowed to present his
evidence on June 16, 1992 at 9:00 oclock in the morning.
"The plaintiff and his counsel are notified of this order in open court.
"SO ORDERED.

The facts, as found by the Court of Appeals, are as follows:

"Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary
exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992. The exhibits were
admitted in evidence in an order dated July 17, 1992.

"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money
against defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of
P156,473.90 which he claimed to have advanced in his capacity as manager of defendant to satisfy certain
claims filed by defendants clients.

"On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF DEFAULT. It alleged
therein that the failure of counsel to attend the pre-trial conference was due to an unavoidable
circumstance and that counsel had sent his representative on that date to inform the trial court of his
inability to appear. The Motion was vehemently opposed by plaintiff.

"In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53,
representing premiums that plaintiff allegedly failed to remit.

"On August 25, 1992 the trial court denied defendants motion for reasons, among others, that it was
neither verified nor supported by an affidavit of merit and that it further failed to allege or specify the facts
constituting his meritorious defense.

"On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time
relevant to the case, was its Regional Manager for Central Luzon area.
"In due time, third-party defendant Austria filed his answer.
"Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991,
March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992, March 17,

"On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time
counsel revealed to the trial court that the reason for his nonappearance at the pre-trial conference was his
illness. An Affidavit of Merit executed by its Executive Vice-President purporting to explain its
meritorious defense was attached to the said Motion. Just the same, in an Order dated November 13, 1992,
the trial court denied said Motion.

"On November 18, 1992, the court a quo rendered judgment as follows:

by Mr. Rodolfo Guevarra xxx to be our Agency Manager in San Fdo., for our place and stead, to do and
perform the following acts and things:

"WHEREFORE, premises considered, judgment is hereby rendered ordering:

"1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90
representing the total amount advanced by plaintiff in the payment of the claims of defendants
clients;
"2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees;
"3. The dismissal of the counter-claim of the defendant and the third-party complaint;

"1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as
usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL
ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents
and sub-agents.
"2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds
for and on our behalf.

On December 14, 1992, Dominion appealed the decision to the Court of Appeals.5

"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and
receive and give effectual receipts and discharge for all money to which the FIRST
CONTINENTAL ASSURANCE COMPANY, INC.,18 may hereafter become due, owing
payable or transferable to said Corporation by reason of or in connection with the abovementioned appointment.

On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court.6 On
September 3, 1996, Dominion filed with the Court of Appeals a motion for reconsideration.7 On July 16,
1997, the Court of Appeals denied the motion.8

"4. To receive notices, summons, and legal processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal
proceedings against the said Corporation." 19 [Emphasis supplied]

"4. The defendant to pay the costs of suit." 4

Hence, this appeal.9

The agency comprises all the business of the principal, 20 but, couched in general terms, it is limited only to
acts of administration.21
The Issues

The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for petitioner,
and (2) whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his personal
money in settling the claims of several insured.
The Court's Ruling

A general power permits the agent to do all acts for which the law does not require a special
power.22 Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney do
not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The
pertinent portion that applies to this case provides that:

The petition is without merit.

"Article 1878. Special powers of attorney are necessary in the following cases:

By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.10 The basis for agency is
representation.11 On the part of the principal, there must be an actual intention to appoint12 or an intention
naturally inferrable from his words or actions;13 and on the part of the agent, there must be an intention to
accept the appointment and act on it,14 and in the absence of such intent, there is generally no agency.15

"(1) To make such payments as are not usually considered as acts of administration;

A perusal of the Special Power of Attorney16 would show that petitioner (represented by third-party
defendant Austria) and respondent Guevarra intended to enter into a principal-agent relationship. Despite
the word "special" in the title of the document, the contents reveal that what was constituted was actually a
general agency. The terms of the agreement read:

The payment of claims is not an act of administration. The settlement of claims is not included among the
acts enumerated in the Special Power of Attorney, neither is it of a character similar to the acts enumerated
therein. A special power of attorney is required before respondent Guevarra could settle the insurance
claims of the insured.

"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a corporation duly organized and
existing under and by virtue of the laws of the Republic of the Philippines, xxx represented by the
undersigned as Regional Manager, xxx do hereby appoint RSG Guevarra Insurance Services represented

Respondent Guevarras authority to settle claims is embodied in the Memorandum of Management

Agreement23dated February 18, 1987 which enumerates the scope of respondent Guevarras duties and
responsibilities as agency manager for San Fernando, Pampanga, as follows:

"x x x

xxx

xxx

"(15) Any other act of strict dominion."

"x x x

xxx

xxx

"1. You are hereby given authority to settle and dispose of all motor car claims in the amount
of P5,000.00 with prior approval of the Regional Office.
"2. Full authority is given you on TPPI claims settlement.
"xxx

xxx

x x x "24

In settling the claims mentioned above, respondent Guevarras authority is further limited by the written
standard authority to pay,25 which states that the payment shall come from respondent Guevarras
revolving fund or collection. The authority to pay is worded as follows:
"This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS
__________________ (P ) representing the payment on the _________________ claim of assured
_______________ under Policy No. ______ in that accident of ___________ at ____________.
"It is further expected, release papers will be signed and authorized by the concerned and attached to the
corresponding claim folder after effecting payment of the claim.

"Whoever pays for another may demand from the debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can recover only insofar as the payment has been
beneficial to the debtor."
In this case, when the risk insured against occurred, petitioners liability as insurer arose.1wphi1 This
obligation was extinguished when respondent Guevarra paid the claims and obtained Release of Claim
Loss and Subrogation Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may
demand for reimbursement from his principal. To rule otherwise would result in unjust enrichment of
petitioner.
The extent to which petitioner was benefited by the settlement of the insurance claims could best be
proven by the Release of Claim Loss and Subrogation Receipts 27 which were attached to the original
complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the possession of respondent
Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from the above
amount.
The outstanding balance and the production/remittance for the period corresponding to the claims was
P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be
reimbursed to respondent Guevarra.

"(sgd.) FERNANDO C. AUSTRIA

Regional Manager"26
[Emphasis supplied]

The Fallo

The instruction of petitioner as the principal could not be any clearer.1wphi1 Respondent Guevarra was
authorized to pay the claim of the insured, but the payment shall come from the revolving fund or
collection in his possession.
Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in
the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This
conclusion is in accord with Article 1918, Civil Code, which states that:
"The principal is not liable for the expenses incurred by the agent in the following cases:
"(1) If the agent acted in contravention of the principals instructions, unless the latter should
wish to avail himself of the benefits derived from the contract;
"xxx

xxx

xxx"

However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right
to recover may still be justified under the general law on obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court of
Appeals28 and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga,29 in that petitioner is
ordered to pay respondent Guevarra the amount of P112,672.11 representing the total amount advanced by
the latter in the payment of the claims of petitioners clients.
No costs in this instance.
SO ORDERED.
Davide, Jr., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

Nielson & Company, Inc. vs. Lepanto Consolidated Mining Company, 26 SCRA 540(1968)
Pleading and practice; Appeal; Change of theory on appeal not allowable.It is the rule, and the settled
doctrine, that a party cannot change his theory on appealthat is, that a party cannot raise in the appellate
court any question of law or of fact that was not raised in the court below or which was not within the
issue made by the parties in their pleadings (Sec. 19, Rule 49, old Rules of Court; Sec. 18 of Revised
Rules of Court; Hautea v. Magallon, L-20345, Nov. 28, 1964; Northern Motors, Inc. v. Prince Line, L13884, Feb. 29, 1960; American Express Co. v. Natividad, 46 Phil. 207; Agoncillo v. Javier, 38 Phil. 424;
Molina v. Somes, 24 Phil. 49).
Civil Law; Contracts; "Agency" and "lease of service" compared and distinguished.In both agency and
lease of services one of the parties binds himself to render some service to the other party. Agency,
however, is distinguished from lease of work or services in that the basis of agency is representation,
while in the lease of work or services the basis is employment. The lessor of services does not represent
his employer, while the agent represents his principal. Agency is a preparatory contract, as agency "does
not stop with the agency because the purpose is to enter into other contracts." The most characteristic
feature of an agency relationship is the agent's power to bring about business relations between his
principal and third persons. "The agent is destined to execute juridical acts (creation, modification or
extinction of relations with .third parties). Lease of services contemplate only material (non-juridical)
acts." (Reyes & Puno, An Outline of Philippine Civil Law, Vol. V, p. 277).
Same; Obligations and contracts; Moratorium law; Republic Act No. 342 not applicable to debts
contracted during the war.Republic Act No. 342 does not apply to debts contracted during the war and
did not lift the moratorium in relation thereto (Uy v. Kalaw Katigbak, L-1830, Dec. 31, 1949; Sison v.
Mirasol, L-4711, Oct. 3, 1952; Compaia Maritima v. Court of Appeals, L-14949, May 30, 1960). Said
Rep. Act No. 342, however, modified Executive Order No. 32 as to pre-war debts, making the protection
available only to debtors who had war damage claims (Sison v. Mirasol, L-4711, Oct. 3, 1952, cited in
Abraham, et al. v. Intestate Estate of Ysmael, et al., L-16741, Jan. 31, 1962).
Corporation law; Shares of stock; Consideration for which shares of stock may be issued; A share of stock
coming from stock dividends declared cannot be issued to one who is not a stockholder of a corporation.
From the provision of Section 16 of the Corporation Law, the consideration for which shares of stock
may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock are given the
special name "stock dividends" only if they are issued in lieu of undistributed profits. If shares of stocks
are issued in exchange of cash or property then those shares do not fall under the category of "stock
dividends". A corporation may legally issue shares of stock in consideration of services rendered to it by a
person not a stockholder, or in payment of its indebtedness. It is the shares of stock ,that are originally
issued by the corporation and forming part of the capital that can be exchanged for cash or services
rendered, or property; that is, if the corporation has original shares of stock unsold or unsubscribed, either
coming from the original capitalization or f rom the increased capitalization. Those shares of stock may be
issued to a person who is not a stockholder, or to a person already a stockholder in exchange for services
rendered or for cash or property. But a share of stock coming from stock dividends declared cannot be
issued to one who is not a stockholder of a corporation.
Under Section 16 of the Corporation Law stock dividends can not be issued to a person who is not a
stockholder in payment of services rendered.
Same; "Stock dividend"; "Dividend"; Concept and nature.A "stock dividend" is any dividend payable in
shares of stock of the corporation declaring or authorizing such dividend. It is, as what the term itself
implies, a distribution of the shares of stock of the corporation among the stockholders as dividends. A
stock dividend of a corporation is a dividend paid in shares of stock instead of cash, and is properly

payable only out of surplus profits (Sec. 16, Corporation Law). So, a stock dividend is actually two things:
(1) a dividend, and (2) the enforced use of the dividend money to purchase additional shares of stock at
par. (Words and Phrases, p. 270). When a corporation issues stock dividends, it shows that the
corporation's accumulated profits have been capitalized instead of distributed to the stockholders or
retained as surplus available f or distribution, in money or kind, should opportunity offer. Far from being a
realization of profits for the stockholder, it tends rather ,to postpone said realization, in ,that the fund
represented by the new stock has been transferred from surplus to assets and no longer available for actual
distribution (Fisher v. Trinidad, 43 Phil. 973). Thus, it is apparent that stock dividends are issued only to
stockholders. This is so because only stockholders are entitled to dividends. They are the only ones who
have a right to a proportional share in that part of the surplus which is declared as dividends. A stock
dividend really adds nothing to the interest of the stockholder; the proportional interest of each
stockholder remains the same (Towne v. Eisner, 62 L. Ed. 372). If a stockholder is deprived of his stock
dividendsand this happens if the shares of stock f orming part of the stock dividends are issued to a
nonstockholderthen the proportion of the stockholder's interest changes radically. Stock dividends are
civil fruits of the original investment, and to the owners of the shares belong the civil fruits (Art. 441,
Civil Code). The term "dividend" both in the technical sense and its ordinary acceptation, is that part or
portion of the profits of the enterprise which the corporation, by its governing agents, sets apart for ratable
division among the holders of the capital stock. It means the fund actually set aside, and declared by the
directors of the corporation as a dividend, and duly ordered by the directory, or by the stockholders, at a
corporate meeting, to be divided or distributed among the stockholders according to their respective
interests (7 Thompson on Corporations 134135). Nielson & Company, Inc. vs. Lepanto Consolidated
Mining Company, 26 SCRA 540(1968)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21601

December 28, 1968

NIELSON & COMPANY, INC., plaintiff-appellant,

vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.
RES OLUTIO N
ZALDIVAR, J.:
Lepanto seeks the reconsideration of the decision rendered on December 17, 1966. The motion for
reconsideration is based on two sets of grounds the first set consisting of four principal grounds, and
the second set consisting of five alternative grounds, as follows:
Principal Grounds:
1. The court erred in overlooking and failing to apply the proper law applicable to the agency
or management contract in question, namely, Article 1733 of the Old Civil Code (Article 1920
of the new), by virtue of which said agency was effectively revoked and terminated in 1945

when, as stated in paragraph 20 of the complaint, "defendant voluntarily ... prevented plaintiff
from resuming management and operation of said mining properties."
2. The court erred in holding that paragraph II of the management contract (Exhibit C)
suspended the period of said contract.
3. The court erred in reversing the ruling of the trial judge, based on well-settled jurisprudence
of this Supreme Court, that the management agreement was only suspended but not extended
on account of the war.
4. The court erred in reversing the finding of the trial judge that Nielson's action had
prescribed, but considering only the first claim and ignoring the prescriptibility of the other
claims.

in question, that plea of its right to terminate was not based upon the ground that the relation between
Lepanto and Nielson was that of principal and agent but upon the ground that Nielson had allegedly not
complied with certain terms of the management contract. If Lepanto had thought of considering the
management contract as one of agency it could have amended its answer by stating exactly its position. It
could have asserted its theory of agency in its memorandum for the lower court and in its brief on appeal.
This, Lepanto did not do. It is the rule, and the settled doctrine of this Court, that a party cannot change his
theory on appeal that is, that a party cannot raise in the appellate court any question of law or of fact
that was not raised in the court below or which was not within the issue made by the parties in their
pleadings (Section 19, Rule 49 of the old Rules of Court, and also Section 18 of the new Rules of Court;
Hautea vs. Magallon, L-20345, November 28, 1964; Northern Motors, Inc. vs. Prince Line, L-13884,
February 29, 1960; American Express Co. vs. Natividad, 46 Phil. 207; Agoncillo vs. Javier, 38 Phil. 424
and Molina vs. Somes, 24 Phil 49).
At any rate, even if we allow Lepanto to assert its new theory at this very late stage of the proceedings,
this Court cannot sustain the same.

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

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

9. The court erred in rendering judgment for attorney's fees.

Article 1709 of the Old Civil Code, defining contract of agency, provides:
We are going to dwell on these grounds in the order they are presented.
By the contract of agency, one person binds himself to render some service or do something for
the account or at the request of another.

1. In its first principal ground Lepanto claims that its own counsel and this Court had overlooked the real
nature of the management contract entered into by and between Lepanto and Nielson, and the law that is
applicable on said contract. Lepanto now asserts for the first time and this is done in a motion for
reconsideration - that the management contract in question is a contract of agency such that it has the right
to revoke and terminate the said contract, as it did terminate the same, under the law of agency, and
particularly pursuant to Article 1733 of the Old Civil Code (Article 1920 of the New Civil Code).

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

We have taken note that Lepanto is advancing a new theory. We have carefully examined the pleadings
filed by Lepanto in the lower court, its memorandum and its brief on appeal, and never did it assert the
theory that it has the right to terminate the management contract because that contract is one of agency
which it could terminate at will. While it is true that in its ninth and tenth special affirmative defenses, in
its answer in the court below, Lepanto pleaded that it had the right to terminate the management contract

In both agency and lease of services one of the parties binds himself to render some service to the other
party. Agency, however, is distinguished from lease of work or services in that the basis of agency is
representation, while in the lease of work or services the basis is employment. The lessor of services does
not represent his employer, while the agent represents his principal. Manresa, in his "Commentarios al

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

Codigo Civil Espaol" (1931, Tomo IX, pp. 372-373), points out that the element of representation
distinguishes agency from lease of services, as follows:
Nuestro art. 1.709 como el art. 1.984 del Codigo de Napoleon y cuantos textos legales citamos
en lasconcordancias, expresan claramente esta idea de la representacion, "hacer alguna cosa
por cuenta o encargo de otra" dice nuestro Codigo; "poder de hacer alguna cosa para el
mandante o en su nombre" dice el Codigo de Napoleon, y en tales palabras aparece vivo y
luminoso el concepto y la teoria de la representacion, tan fecunda en ensenanzas, que a su sola
luz es como se explican las diferencias que separan el mandato del arrendamiento de servicios,
de los contratos inominados, del consejo y de la gestion de negocios.
En efecto, en el arrendamiento de servicios al obligarse para su ejecucion, se trabaja, en
verdad, para el dueno que remunera la labor, pero ni se le representa ni se obra en su nombre....
On the basis of the interpretation of Article 1709 of the old Civil Code, Article 1868 of the new Civil Code
has defined the contract of agency in more explicit terms, as follows:
By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
There is another obvious distinction between agency and lease of services. Agency is a preparatory
contract, as agency "does not stop with the agency because the purpose is to enter into other contracts."
The most characteristic feature of an agency relationship is the agent's power to bring about business
relations between his principal and third persons. "The agent is destined to execute juridical acts (creation,
modification or extinction of relations with third parties). Lease of services contemplate only material
(non-juridical) acts." (Reyes and Puno, "An Outline of Philippine Civil Law," Vol. V, p. 277).
In the light of the interpretations we have mentioned in the foregoing paragraphs let us now determine the
nature of the management contract in question. Under the contract, Nielson had agreed, for a period of
five years, with the right to renew for a like period, to explore, develop and operate the mining claims of
Lepanto, and to mine, or mine and mill, such pay ore as may be found therein and to market the metallic
products recovered therefrom which may prove to be marketable, as well as to render for Lepanto other
services specified in the contract. We gather from the contract that the work undertaken by Nielson was to
take complete charge subject at all times to the general control of the Board of Directors of Lepanto, of the
exploration and development of the mining claims, of the hiring of a sufficient and competent staff and of
sufficient and capable laborers, of the prospecting and development of the mine, of the erection and
operation of the mill, and of the benefication and marketing of the minerals found on the mining
properties; and in carrying out said obligation Nielson should proceed diligently and in accordance with
the best mining practice. In connection with its work Nielson was to submit reports, maps, plans and
recommendations with respect to the operation and development of the mining properties, make
recommendations and plans on the erection or enlargement of any existing mill, dispatch mining engineers
and technicians to the mining properties as from time to time may reasonably be required to investigate
and make recommendations without cost or expense to Lepanto. Nielson was also to "act as purchasing
agent of supplies, equipment and other necessary purchases by Lepanto, provided, however, that no
purchase shall be made without the prior approval of Lepanto; and provided further, that no commission
shall be claimed or retained by Nielson on such purchase"; and "to submit all requisition for supplies, all
constricts and arrangement with engineers, and staff and all matters requiring the expenditures of money,
present or future, for prior approval by Lepanto; and also to make contracts subject to the prior approve of

Lepanto for the sale and marketing of the minerals mined from said properties, when said products are in a
suitable condition for marketing."1
It thus appears that the principal and paramount undertaking of Nielson under the management contract
was the operation and development of the mine and the operation of the mill. All the other undertakings
mentioned in the contract are necessary or incidental to the principal undertaking these other
undertakings being dependent upon the work on the development of the mine and the operation of the
mill. In the performance of this principal undertaking Nielson was not in any way executing juridical acts
for Lepanto, destined to create, modify or extinguish business relations between Lepanto and third
persons. In other words, in performing its principal undertaking Nielson was not acting as an agent of
Lepanto, in the sense that the term agent is interpreted under the law of agency, but as one who was
performing material acts for an employer, for a compensation.
It is true that the management contract provides that Nielson would also act as purchasing agent of
supplies and enter into contracts regarding the sale of mineral, but the contract also provides that Nielson
could not make any purchase, or sell the minerals, without the prior approval of Lepanto. It is clear,
therefore, that even in these cases Nielson could not execute juridical acts which would bind Lepanto
without first securing the approval of Lepanto. Nielson, then, was to act only as an intermediary, not as an
agent.
Lepanto contends that the management contract in question being one of agency it had the right to
terminate the contract at will pursuant to the provision of Article 1733 of the old Civil Code. We find,
however, a proviso in the management contract which militates against this stand of Lepanto. Paragraph
XI of the contract provides:
Both parties to this agreement fully recognize that the terms of this Agreement are made
possible only because of the faith or confidence that the Officials of each company have in the
other; therefore, in order to assure that such confidence and faith shall abide and continue,
NIELSON agrees that LEPANTO may cancel this Agreement at any time upon ninety (90)
days written notice, in the event that NIELSON for any reason whatsoever, except acts of God,
strike and other causes beyond its control, shall cease to prosecute the operation and
development of the properties herein described, in good faith and in accordance with approved
mining practice.
It is thus seen, from the above-quoted provision of paragraph XI of the management contract, that Lepanto
could not terminate the agreement at will. Lepanto could terminate or cancel the agreement by giving
notice of termination ninety days in advance only in the event that Nielson should prosecute in bad faith
and not in accordance with approved mining practice the operation and development of the mining
properties of Lepanto. Lepanto could not terminate the agreement if Nielson should cease to prosecute the
operation and development of the mining properties by reason of acts of God, strike and other causes
beyond the control of Nielson.
The phrase "Both parties to this agreement fully recognize that the terms of this agreement are made
possible only because of the faith and confidence of the officials of each company have in the other" in
paragraph XI of the management contract does not qualify the relation between Lepanto and Nielson as
that of principal and agent based on trust and confidence, such that the contractual relation may be
terminated by the principal at any time that the principal loses trust and confidence in the agent. Rather,
that phrase simply implies the circumstance that brought about the execution of the management contract.

Thus, in the annual report for 19362, submitted by Mr. C. A. Dewit, President of Lepanto, to its
stockholders, under date of March 15, 1937, we read the following:

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

To the stockholders
xxx

xxx

xxx

The incorporation of our Company was effected as a result of negotiations with Messrs.
Nielson & Co., Inc., and an offer by these gentlemen to Messrs. C. I. Cookes and V. L.
Lednicky, dated August 11, 1936, reading as follows:
Messrs. Cookes and Lednicky,
Present
Re: Mankayan Copper Mines
GENTLEMEN:
After an examination of your property by our engineers, we have decided to offer as
we hereby offer to underwrite the entire issue of stock of a corporation to be formed
for the purpose of taking over said properties, said corporation to have an
authorized capital of P1,750,000.00, of which P700,000.00 will be issued in escrow
to the claim-owners in exchange for their claims, and the balance of P1,050,000.00
we will sell to the public at par or take ourselves.

It is understood that the development and mining operations on said property, and
the erection of the mill thereon, and the expenditures therefor shall be subject to the
general control of the Board of Directors of the proposed corporation, and, in case
you accept this proposition, that a detailed operating contract will be entered into,
covering the relationships between the parties.
Yours very truly,
(Sgd.) L. R. Nielson
Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson & Co., took
subscriptions for One Million Fifty Thousand Pesos (P1,050,000.00) in shares of our Company
and their underwriting and brokerage commission has been paid. More than fifty per cent of
these subscriptions have been paid to the Company in cash. The claim owners have transferred
their claims to the Corporation, but the P700,000.00 in stock which they are to receive therefor,
is as yet held in escrow.
Immediately upon the formation of the Corporation Messrs. Nielson & Co., assumed the
Management of the property under the control of the Board of Directors. A modification in the
Management Contract was made with the consent of all the then stockholders, in virtue of
which the compensation of Messrs. Nielson & Co., was increased to P2,500.00 per month
when mill construction began. The formal Management Contract was not entered into until
January 30, 1937.

The arrangement will be under the following conditions:

xxx
1. The subscriptions for cash shall be payable 50% at time of subscription and the
balance subject to the call of the Board of Directors of the proposed corporation.
2. We shall have an underwriting and brokerage commission of 10% of the
P1,050,000.00 to be sold for cash to the public, said commission to be payable from
the first payment of 50% on each subscription.
3. We will bear the cost of preparing and mailing any prospectus that may be
required, but no such prospectus will be sent out until the text thereof has been first
approved by the Board of Directors of the proposed corporation.
4. That after the organization of the corporation, all operating contract be entered
into between ourselves and said corporation, under the terms which the property
will be developed and mined and a mill erected, under our supervision, our
compensation to be P2,000.00 per month until the property is put on a profitable
basis and P2,500.00 per month plus 10% of the net profits for a period of five years
thereafter.

xxx

xxx

Manila, March 15, 1937

(Sgd.) C. A. DeWitt
President
We can gather from the foregoing statements in the annual report for 1936, and from the provision of
paragraph XI of the Management contract, that the employment by Lepanto of Nielson to operate and
manage its mines was principally in consideration of the know-how and technical services that Nielson
offered Lepanto. The contract thus entered into pursuant to the offer made by Nielson and accepted by
Lepanto was a "detailed operating contract". It was not a contract of agency. Nowhere in the record is it
shown that Lepanto considered Nielson as its agent and that Lepanto terminated the management contract
because it had lost its trust and confidence in Nielson.
The contention of Lepanto that it had terminated the management contract in 1945, following the
liberation of the mines from Japanese control, because the relation between it and Nielson was one of
agency and as such it could terminate the agency at will, is, therefore, untenable. On the other hand, it can
be said that, in asserting that it had terminated or cancelled the management contract in 1945, Lepanto had
thereby violated the express terms of the management contract. The management contract was renewed to
last until January 31, 1947, so that the contract had yet almost two years to go upon the liberation of

the mines in 1945. There is no showing that Nielson had ceased to prosecute the operation and
development of the mines in good faith and in accordance with approved mining practice which would
warrant the termination of the contract upon ninety days written notice. In fact there was no such written
notice of termination. It is an admitted fact that Nielson ceased to operate and develop the mines because
of the war a cause beyond the control of Nielson. Indeed, if the management contract in question was
intended to create a relationship of principal and agent between Lepanto and Nielson, paragraph XI of the
contract should not have been inserted because, as provided in Article 1733 of the old Civil Code, agency
is essentially revocable at the will of the principal that means, with or without cause. But precisely said
paragraph XI was inserted in the management contract to provide for the cause for its revocation. The
provision of paragraph XI must be given effect.
In the construction of an instrument where there are several provisions or particulars, such a construction
is, if possible, to be adopted as will give effect to all,3 and if some stipulation of any contract should admit
of several meanings, it shall be understood as bearing that import which is most adequate to render it
effectual.4
It is Our considered view that by express stipulation of the parties, the management contract in question is
not revocable at the will of Lepanto. We rule that this management contract is not a contract of agency as
defined in Article 1709 of the old Civil Code, but a contract of lease of services as defined in Article 1544
of the same Code. This contract can not be unilaterally revoked by Lepanto.

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

The first ground of the motion for reconsideration should, therefore, be brushed aside.
2. In the second, third and fifth grounds of its motion for reconsideration, Lepanto maintains that this
Court erred, in holding that paragraph 11 of the management contract suspended the period of said
contract, in holding that the agreement was not only suspended but was extended on account of the war,
and in holding that the period of suspension on account of the war lasted from February, 1942 to June 26,
1948. We are going to discuss these three grounds together because they are interrelated.
In our decision we have dwelt lengthily on the points that the management contract was suspended
because of the war, and that the period of the contract was extended for a period equivalent to the time
when Nielson was unable to perform the work of mining and milling because of the adverse effects of the
war on the work of mining and milling.
It is the contention of Lepanto that the happening of those events, and the effects of those events, simply
suspended the performance of the obligations by either party in the contract, but did not suspend the
period of the contract, much less extended the period of the contract.
We have conscientiously considered the arguments of Lepanto in support of these three grounds, but We
are not persuaded to reconsider the rulings that We made in Our decision.
We want to say a little more on these points, however. Paragraph II of the management contract provides
as follows:
In the event of inundation, flooding of the mine, typhoon, earthquake or any other force
majeure, war, insurrection, civil commotion, organized strike, riot, fire, injury to the machinery
or other event or cause reasonably beyond the control of NIELSON and which adversely
affects the work of mining and milling; NIELSON shall report such fact to LEPANTO and

Probably, what Nielson meant was, it was prevented by Lepanto to assume again the
management of the mine in 1945, at the precise time when defendant was at the feverish phase
of rehabilitation and although the contract had already been suspended. (Lepanto's Brief, p. 9).
... it was impossible, as a result of the destruction of the mine, for the plaintiff to manage and
operate the same and because, as provided in the agreement, the contract was suspended by
reason of the war (Lepanto's Brief, pp. 9-10).
Clause II, by its terms, is clear that the contract is suspended in case fortuitous event or force
majeure, such as war, adversely affects the work of mining and milling. (Lepanto's Brief, p.
49).
Lepanto is correct when it said that the obligations under the contract were suspended upon the happening
of any of the events enumerated in paragraph II of the management contract. Indeed, those obligations
were suspended because the contract itself was suspended. When we talk of a contract that has been
suspended we certainly mean that the contract temporarily ceased to be operative, and the contract
becomes operative again upon the happening of a condition or when a situation obtains which
warrants the termination of the suspension of the contract.
In Our decision We pointed out that the agreement in the management contract would be suspended when
two conditions concur, namely: (1) the happening of the event constituting a force majeure that was
reasonably beyond the control of Nielson, and (2) that the event constituting the force majeure adversely
affected the work of mining and milling. The suspension, therefore, would last not only while the event
constituting the force majeure continued to occur but also for as long as the adverse effects of the force
majeure on the work of mining and milling had not been eliminated. Under the management contract the
happening alone of the event constituting the force majeure which did not affect adversely the work of

mining and milling would not suspend the period of the contract. It is only when the two conditions
concur that the period of the agreement is suspended.
It is not denied that because of the war, in February 1942, the mine, the original mill, the original power
plant, the supplies and equipment, and all installations at the Mankayan mines of Lepanto, were destroyed
upon order of the United States Army, to prevent their utilization by the enemy. It is not denied that for the
duration of the war Nielson could not undertake the work of mining and milling. When the mines were
liberated from the enemy in August, 1945, the condition of the mines, the mill, the power plant and other
installations, was not the same as in February 1942 when they were ordered destroyed by the US army.
Certainly, upon the liberation of the mines from the enemy, the work of mining and milling could not be
undertaken by Nielson under the same favorable circumstances that obtained before February 1942. The
work of mining and milling, as undertaken by Nielson in January, 1942, could not be resumed by Nielson
soon after liberation because of the adverse effects of the war, and this situation continued until June of
1948. Hence, the suspension of the management contract did not end upon the liberation of the mines in
August, 1945. The mines and the mill and the installations, laid waste by the ravages of war, had to be
reconstructed and rehabilitated, and it can be said that it was only on June 26, 1948 that the adverse effects
of the war on the work of mining and milling had ended, because it was on that date that the operation of
the mines and the mill was resumed. The period of suspension should, therefore, be reckoned from
February 1942 until June 26, 1948, because it was during this period that the war and the adverse effects
of the war on the work of mining and milling had lasted. The mines and the installations had to be
rehabilitated because of the adverse effects of the war. The work of rehabilitation started soon after the
liberation of the mines in August, 1945 and lasted until June 26, 1948 when, as stated in Lepanto's annual
report to its stockholders for the year 1948, "June 28, 1948 marked the official return to operation of this
company at its properties at Mankayan, Mountain Province, Philippines" (Exh. F-1).
Lepanto would argue that if the management contract was suspended at all the suspension should cease in
August of 1945, contending that the effects of the war should cease upon the liberation of the mines from
the enemy. This contention cannot be sustained, because the period of rehabilitation was still a period
when the physical effects of the war the destruction of the mines and of all the mining installations
adversely affected, and made impossible, the work of mining and milling. Hence, the period of the
reconstruction and rehabilitation of the mines and the installations must be counted as part of the period of
suspension of the contract.
Lepanto claims that it would not be unfair to end the period of suspension upon the liberation of the mines
because soon after the liberation of the mines Nielson insisted to resume the management work, and that
Nielson was under obligation to reconstruct the mill in the same way that it was under obligation to
construct the mill in 1937. This contention is untenable. It is true that Nielson insisted to resume its
management work after liberation, but this was only for the purpose of restoring the mines, the mill, and
other installations to their operating and producing condition as of February 1942 when they were ordered
destroyed. It is not shown by any evidence in the record, that Nielson had agreed, or would have agreed,
that the period of suspension of the contract would end upon the liberation of the mines. This is so
because, as found by this Court, the intention of the parties in the management contract, and as understood
by them, the management contract was suspended for as long as the adverse effects of the force majeure
on the work of mining and milling had not been removed, and the contract would be extended for as long
as it was suspended. Under the management contract Nielson had the obligation to erect and operate the
mill, but not to erect or reconstruct the mill in case of its destruction by force majeure.
It is the considered view of this court that it would not be fair to Nielson to consider the suspension of the
contract as terminated upon the liberation of the mines because then Nielson would be placed in a
situation whereby it would have to suffer the adverse effects of the war on the work of mining and milling.

The evidence shows that as of January 1942 the operation of the mines under the management of Nielson
was already under beneficial conditions, so much so that dividends were already declared by Lepanto for
the years 1939, 1940 and 1941. To make the management contract immediately operative after the
liberation of the mines from the Japanese, at the time when the mines and all its installations were laid
waste as a result of the war, would be to place Nielson in a situation whereby it would lose all the benefits
of what it had accomplished in placing the Lepanto mines in profitable operation before the outbreak of
the war in December, 1941. The record shows that Nielson started its management operation way back in
1936, even before the management contract was entered into. As early as August 1936 Nielson negotiated
with Messrs. C. I. Cookes and V. L. Lednicky for the operation of the Mankayan mines and it was the
result of those negotiations that Lepanto was incorporated; that it was Nielson that helped to capitalize
Lepanto, and that after the formation of the corporation (Lepanto) Nielson immediately assumed the
management of the mining properties of Lepanto. It was not until January 30, 1937 when the management
contract in question was entered into between Lepanto and Nielson (Exhibit A).
A contract for the management and operation of mines calls for a speculative and risky venture on the part
of the manager-operator. The manager-operator invests its technical know-how, undertakes back-breaking
efforts and tremendous spade-work, so to say, in the first years of its management and operation of the
mines, in the expectation that the investment and the efforts employed might be rewarded later with
success. This expected success may never come. This had happened in the very case of the Mankayan
mines where, as recounted by Mr. Lednicky of Lepanto, various persons and entities of different
nationalities, including Lednicky himself, invested all their money and failed. The manager-operator may
not strike sufficient ore in the first, second, third, or fourth year of the management contract, or he may not
strike ore even until the end of the fifth year. Unless the manager-operator strikes sufficient quantity of ore
he cannot expect profits or reward for his investment and efforts. In the case of Nielson, its corps of
competent engineers, geologists, and technicians begun working on the Mankayan mines of Lepanto since
the latter part of 1936, and continued their work without success and profit through 1937, 1938, and the
earlier part of 1939. It was only in December of 1939 when the efforts of Nielson started to be rewarded
when Lepanto realized profits and the first dividends were declared. From that time on Nielson could
expect profit to come to it as in fact Lepanto declared dividends for 1940 and 1941 if the
development and operation of the mines and the mill would continue unhampered. The operation, and the
expected profits, however, would still be subject to hazards due to the occurrence of fortuitous events,
fires, earthquakes, strikes, war, etc., constituting force majeure, which would result in the destruction of
the mines and the mill. One of these diverse causes, or one after the other, may consume the whole period
of the contract, and if it should happen that way the manager-operator would reap no profit to compensate
for the first years of spade-work and investment of efforts and know-how. Hence, in fairness to the
manager-operator, so that he may not be deprived of the benefits of the work he had accomplished, the
force majeure clause is incorporated as a standard clause in contracts for the management and operation of
mines.
The nature of the contract for the management and operation of mines justifies the interpretation of the
force majeure clause, that a period equal to the period of suspension due to force majeure should be added
to the original term of the contract by way of an extension. We, therefore, reiterate the ruling in Our
decision that the management contract in the instant case was suspended from February, 1942 to June 26,
1948, and that from the latter date the contract had yet five years to go.
3. In the fourth ground of its motion for reconsideration, Lepanto maintains that this Court erred in
reversing the finding of the trial court that Nielson's action has prescribed, by considering only the first
claim and ignoring the prescriptibility of the other claims.
This ground of the motion for reconsideration has no merit.

In Our decision We stated that the claims of Nielson are based on a written document, and, as such, the
cause of action prescribes in ten years.5 Inasmuch as there are different claims which accrued on different
dates the prescriptive periods for all the claims are not the same. The claims of Nielson that have been
awarded by this Court are itemized in the dispositive part of the decision.
The first item of the awards in Our decision refers to Nielson's compensation in the sum of P17,500.00,
which is equivalent to 10% of the cash dividends declared by Lepanto in December, 1941. As we have
stated in Our decision, this claim accrued on December 31, 1941, and the right to commence an action
thereon started on January 1, 1942. We declared that the action on this claim did not prescribe although the
complaint was filed on February 6, 1958 or after a lapse of 16 years, 1 month and 5 days because of
the operation of the moratorium law.
We declared that under the applicable decisions of this Court 6 the moratorium period of 8 years, 2 months
and 8 days should be deducted from the period that had elapsed since the accrual of the cause of action to
the date of the filing of the complaint, so that there is a period of less than 8 years to be reckoned for the
purpose of prescription.
This claim of Nielson is covered by Executive Order No. 32, issued on March 10, 1945, which provides as
follows:
Enforcement of payments of all debts and other monetary obligations payable in the
Philippines, except debts and other monetary obligations entered into in any area after
declaration by Presidential Proclamation that such area has been freed from enemy occupation
and control, is temporarily suspended pending action by the Commonwealth Government. (41
O.G. 56-57; Emphasis supplied)
Executive Order No. 32 covered all debts and monetary obligation contracted before the war (or before
December 8, 1941) and those contracted subsequent to December 8, 1941 and during the Japanese
occupation. Republic Act No. 342, approved on July 26, 1948, lifted the moratorium provided for in
Executive Order No. 32 on pre-war (or pre-December 8, 1941) debts of debtors who had not filed war
damage claims with the United States War Damage Commission. In other words, after the effectivity of
Republic Act No. 342, the debt moratorium was limited: (1) to debts and other monetary obligations
which were contracted after December 8, 1941 and during the Japanese occupation, and (2) to those prewar (or pre-December 8, 1941) debts and other monetary obligations where the debtors filed war damage
claims. That was the situation up to May 18, 1953 when this Court declared Republic Act No. 342
unconstitutional.7 It has been held by this Court, however, that from March 10, 1945 when Executive
Order No. 32 was issued, to May 18, 1953 when Republic Act No. 342 was declared unconstitutional
or a period of 8 years, 2 months and 8 days the debt moratorium was in force, and had the effect of
suspending the period of prescription.8
Lepanto is wrong when in its motion for reconsideration it claims that the moratorium provided for in
Executive Order No. 32 was continued by Republic Act No. 342 "only with respect to debtors of pre-war
obligations or those incurred prior to December 8, 1941," and that "the moratorium
was lifted and terminated with respect to obligations incurred after December 8, 1941." 9
This Court has held that Republic Act No. 342 does not apply to debts contracted during the war and did
not lift the moratorium in relations thereto.10 In the case of Abraham, et al. vs. Intestate Estate of Juan C.
Ysmael, et al., L-16741, Jan. 31, 1962, this Court said:

Respondents, however, contend that Republic Act No. 342, which took effect on July 26, 1948,
lifted the moratorium on debts contracted during the Japanese occupation. The court has
already held that Republic Act No. 342 did not lift the moratorium on debts contracted during
the war (Uy vs. Kalaw Katigbak, G.R. No. L-1830, Dec. 31, 1949) but modified Executive
Order No. 32 as to pre-war debts, making the protection available only to debtors who had war
damage claims (Sison v. Mirasol, G.R. No. L-4711, Oct. 3, 1952).
We therefore reiterate the ruling in Our decision that the claim involved in the first item awarded to
Nielson had not prescribed.
What we have stated herein regarding the non-prescription of the cause of action of the claim involved in
the first item in the award also holds true with respect to the second item in the award, which refers to
Nielson's claim for management fee of P2,500.00 for January, 1942. Lepanto admits that this second item,
like the first, is a monetary obligation. The right of action of Nielson regarding this claim accrued on
January 31, 1942.
As regards items 3, 4, 5, 6 and 7 in the awards in the decision, the moratorium law is not applicable. That
is the reason why in Our decision We did not discuss the question of prescription regarding these items.
The claims of Nielson involved in these items are based on the management contract, and Nielson's cause
of action regarding these claims prescribes in ten years. Corollary to Our ruling that the management
contract was suspended from February, 1942 until June 26, 1948, and that the contract was extended for
five years from June 26, 1948, the right of action of Nielson to claim for what is due to it during that
period of extension accrued during the period from June 26, 1948 till the end of the five-year extension
period or until June 26, 1953. And so, even if We reckon June 26, 1948 as the starting date of the ten-year
period in connection with the prescriptibility of the claims involved in items 3, 4, 5, 6 and 7 of the awards
in the decision, it is obvious that when the complaint was filed on February 6, 1958 the ten-year
prescriptive period had not yet lapsed.
In Our decision We have also ruled that the right of action of Nielson against Lepanto had not prescribed
because of the arbitration clause in the Management contract. We are satisfied that there is evidence that
Nielson had asked for arbitration, and an arbitration committee had been constituted. The arbitration
committee, however, failed to bring about any settlement of the differences between Nielson and Lepanto.
On June 25, 1957 counsel for Lepanto definitely advised Nielson that they were not entertaining any claim
of Nielson. The complaint in this case was filed on February 6, 1958.
4. In the sixth ground of its motion for reconsideration, Lepanto maintains that this Court "erred in
awarding as damages (a) 10% of the cash dividends declared and paid in December, 1941; (b) the
management fee of P2,500.00 for the month of January 1942; and (c) the full contract price for the
extended period of 60 months, since the damages were never demanded nor proved and, in any case, not
allowable under the general law on damages."
We have stated in Our decision that the original agreement in the management contract regarding the
compensation of Nielson was modified, such that instead of receiving a monthly compensation of
P2,500.00 plus 10% of the net profits from the operation of the properties for the preceding
month,11 Nielson would receive a compensation of P2,500.00 a month, plus (1) 10% of the dividends
declared and paid, when and as paid, during the period of the contract, and at the end of each year, (2)
10% of any depletion reserve that may be set up, and (3) 10% of any amount expended during the year out
of surplus earnings for capital account.

It is shown that in December, 1941, cash dividends amounting to P175,000.00 was declared by
Lepanto.12Nielson, therefore, should receive the equivalent of 10% of this amount, or the sum of
P17,500.00. We have found that this amount was not paid to Nielson.
In its motion for reconsideration, Lepanto inserted a photographic copy of page 127 of its cash
disbursement book, allegedly for 1941, in an effort to show that this amount of P17,500.00 had been paid
to Nielson. It appears, however, in this photographic copy of page 127 of the cash disbursement book that
the sum of P17,500.00 was entered on October 29 as "surplus a/c Nielson & Co. Inc." The entry does not
make any reference to dividends or participation of Nielson in the profits. On the other hand, in the
photographic copy of page 89 of the 1941 cash disbursement book, also attached to the motion for
reconsideration, there is an entry for P17,500.00 on April 23, 1941 which states "Accts. Pay. Particip.
Nielson & Co. Inc." This entry for April 23, 1941 may really be the participation of Nielson in the profits
based on dividends declared in April 1941 as shown in Exhibit L. But in the same Exhibit L it is not stated
that any dividend was declared in October 1941. On the contrary it is stated in Exhibit L that dividends
were declared in December 1941. We cannot entertain this piece of evidence for several reasons: (1)
because this evidence was not presented during the trial in the court below; (2) there is no showing that
this piece of evidence is newly discovered and that Lepanto was not in possession of said evidence when
this case was being tried in the court below; and (3) according to Exhibit L cash dividends of P175,000.00
were declared in December, 1941, and so the sum of P17,500.00 which appears to have been paid to
Nielson in October 1941 could not be payment of the equivalent of 10% of the cash dividends that were
later declared in December, 1941.
As regards the management fee of Nielson corresponding to January, 1942, in the sum of P2,500.00, We
have also found that Nielson is entitled to be paid this amount, and that this amount was not paid by
Lepanto to Nielson. Whereas, Lepanto was able to prove that it had paid the management fees of Nielson
for November and December, 1941,13 it was not able to present any evidence to show that the management
fee of P2,500.00 for January, 1942 had been paid.
It having been declared in Our decision, as well as in this resolution, that the management contract had
been extended for 5 years, or sixty months, from June 27, 1948 to June 26, 1953, and that the cause of
action of Nielson to claim for its compensation during that period of extension had not prescribed, it
follows that Nielson should be awarded the management fees during the whole period of extension, plus
the 10% of the value of the dividends declared during the said period of extension, the 10% of the
depletion reserve that was set up, and the 10% of any amount expended out of surplus earnings for capital
account.
5. In the seventh ground of its motion for reconsideration, Lepanto maintains that this Court erred in
ordering Lepanto to issue and deliver to Nielson shares of stock together with fruits thereof.
In Our decision, We declared that pursuant to the modified agreement regarding the compensation of
Nielson which provides, among others, that Nielson would receive 10% of any dividends declared and
paid, when and as paid, Nielson should be paid 10% of the stock dividends declared by Lepanto during the
period of extension of the contract.
It is not denied that on November 28, 1949, Lepanto declared stock dividends worth P1,000,000.00; and
on August 22, 1950, it declared stock dividends worth P2,000,000.00). In other words, during the period
of extension Lepanto had declared stock dividends worth P3,000,000.00. We held in Our decision that
Nielson is entitled to receive l0% of the stock dividends declared, or shares of stock worth P300,000.00 at

the par value of P0.10 per share. We ordered Lepanto to issue and deliver to Nielson those shares of stocks
as well as all the fruits or dividends that accrued to said shares.
In its motion for reconsideration, Lepanto contends that the payment to Nielson of stock dividends as
compensation for its services under the management contract is a violation of the Corporation Law, and
that it was not, and it could not be, the intention of Lepanto and Nielson as contracting parties that
the services of Nielson should be paid in shares of stock taken out of stock dividends declared by Lepanto.
We have assiduously considered the arguments adduced by Lepanto in support of its contention, as well as
the answer of Nielson in this connection, and We have arrived at the conclusion that there is merit in the
contention of Lepanto.
Section 16 of the Corporation Law, in part, provides as follows:
No corporation organized under this Act shall create or issue bills, notes or other evidence of
debt, for circulation as money, and no corporation shall issue stock or bonds except in
exchange for actual cash paid to the corporation or for: (1) property actually received by it at a
fair valuation equal to the par or issued value of the stock or bonds so issued; and in case of
disagreement as to their value, the same shall be presumed to be the assessed value or the value
appearing in invoices or other commercial documents, as the case may be; and the burden or
proof that the real present value of the property is greater than the assessed value or value
appearing in invoices or other commercial documents, as the case may be, shall be upon the
corporation, or for (2) profits earned by it but not distributed among its stockholders or
members; Provided, however, That no stock or bond dividend shall be issued without the
approval of stockholders representing not less than two-thirds of all stock then outstanding and
entitled to vote at a general meeting of the corporation or at a special meeting duly called for
the purpose.
xxx

xxx

xxx

No corporation shall make or declare any dividend except from the surplus profits arising from
its business, or divide or distribute its capital stock or property other than actual profits among
its members or stockholders until after the payment of its debts and the termination of its
existence by limitation or lawful dissolution: Provided, That banking, savings and loan, and
trust corporations may receive deposits and issue certificates of deposit, checks, drafts, and
bills of exchange, and the like in the transaction of the ordinary business of banking, savings
and loan, and trust corporations. (As amended by Act No. 2792, and Act No. 3518; Emphasis
supplied.)
From the above-quoted provision of Section 16 of the Corporation Law, the consideration for which
shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock are
given the special name "stock dividends" only if they are issued in lieu of undistributed profits. If shares
of stocks are issued in exchange of cash or property then those shares do not fall under the category of
"stock dividends". A corporation may legally issue shares of stock in consideration of services rendered to
it by a person not a stockholder, or in payment of its indebtedness. A share of stock issued to pay for
services rendered is equivalent to a stock issued in exchange of property, because services is equivalent to
property.14 Likewise a share of stock issued in payment of indebtedness is equivalent to issuing a stock in
exchange for cash. But a share of stock thus issued should be part of the original capital stock of the
corporation upon its organization, or part of the stocks issued when the increase of the capitalization of a
corporation is properly authorized. In other words, it is the shares of stock that are originally issued by the

corporation and forming part of the capital that can be exchanged for cash or services rendered, or
property; that is, if the corporation has original shares of stock unsold or unsubscribed, either coming from
the original capitalization or from the increased capitalization. Those shares of stock may be issued to a
person who is not a stockholder, or to a person already a stockholder in exchange for services rendered or
for cash or property. But a share of stock coming from stock dividends declared cannot be issued to one
who is not a stockholder of a corporation.
A "stock dividend" is any dividend payable in shares of stock of the corporation declaring or authorizing
such dividend. It is, what the term itself implies, a distribution of the shares of stock of the corporation
among the stockholders as dividends. A stock dividend of a corporation is a dividend paid in shares of
stock instead of cash, and is properly payable only out of surplus profits.15 So, a stock dividend is actually
two things: (1) a dividend, and (2) the enforced use of the dividend money to purchase additional shares of
stock at par.16 When a corporation issues stock dividends, it shows that the corporation's accumulated
profits have been capitalized instead of distributed to the stockholders or retained as surplus available for
distribution, in money or kind, should opportunity offer. Far from being a realization of profits for the
stockholder, it tends rather to postpone said realization, in that the fund represented by the new stock has
been transferred from surplus to assets and no longer available for actual distribution. 17 Thus, it is apparent
that stock dividends are issued only to stockholders. This is so because only stockholders are entitled to
dividends. They are the only ones who have a right to a proportional share in that part of the surplus which
is declared as dividends. A stock dividend really adds nothing to the interest of the stockholder; the
proportional interest of each stockholder remains the same.18If a stockholder is deprived of his stock
dividends - and this happens if the shares of stock forming part of the stock dividends are issued to a nonstockholder then the proportion of the stockholder's interest changes radically. Stock dividends are civil
fruits of the original investment, and to the owners of the shares belong the civil fruits. 19
The term "dividend" both in the technical sense and its ordinary acceptation, is that part or portion of the
profits of the enterprise which the corporation, by its governing agents, sets apart for ratable division
among the holders of the capital stock. It means the fund actually set aside, and declared by the directors
of the corporation as dividends and duly ordered by the director, or by the stockholders at a corporate
meeting, to be divided or distributed among the stockholders according to their respective interests. 20
It is Our considered view, therefore, that under Section 16 of the Corporation Law stock dividends can not
be issued to a person who is not a stockholder in payment of services rendered. And so, in the case at bar
Nielson can not be paid in shares of stock which form part of the stock dividends of Lepanto for services it
rendered under the management contract. We sustain the contention of Lepanto that the understanding
between Lepanto and Nielson was simply to make the cash value of the stock dividends declared as the
basis for determining the amount of compensation that should be paid to Nielson, in the proportion of 10%
of the cash value of the stock dividends declared. And this conclusion of Ours finds support in the record.
We had adverted to in Our decision that in 1940 there was some dispute between Lepanto and Nielson
regarding the application and interpretation of certain provisions of the original contract particularly with
regard to the 10% participation of Nielson in the net profits, so that some adjustments had to be made. In
the minutes of the meeting of the Board of Directors of Lepanto on August 21, 1940, We read the
following:
The Chairman stated that he believed that it would be better to tie the computation of the 10%
participation of Nielson & Company, Inc. to the dividend, because Nielson will then be able to
definitely compute its net participation by the amount of the dividends declared. In addition to
the dividend, we have been setting up a depletion reserve and it does not seem fair to burden

the 10% participation of Nielson with the depletion reserve, as the depletion reserve should not
be considered as an operating expense. After a prolonged discussion, upon motion duly made
and seconded, it was
RESOLVED, That the President, be, and he hereby is, authorized to enter into an agreement
with Nielson & Company, Inc., modifying Paragraph V of management contract of January 30,
1937, effective January 1, 1940, in such a way that Nielson & Company, Inc. shall receive 10%
of any dividends declared and paid, when and as paid during the period of the contract and at
the end of each year, 10% of any depletion reserve that may be set up and 10% of any amount
expended during the year out of surplus earnings for capital account. (Emphasis supplied.)
From the sentence, "The Chairman stated that he believed that it would be better to tie the computation of
the 10% participation of Nielson & Company, Inc., to the dividend, because Nielson will then be able to
definitely compute its net participation by the amount of the dividends declared" the idea is conveyed that
the intention of Lepanto, as expressed by its Chairman C. A. DeWitt, was to make the value of the
dividends declared whether the dividends were in cash or in stock as the basis for determining the
amount of compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the
dividends so declared. It does not mean, however, that the compensation of Nielson would be taken from
the amount actually declared as cash dividend to be distributed to the stockholder, nor from the shares of
stocks to be issued to the stockholders as stock dividends, but from the other assets or funds of the
corporation which are not burdened by the dividends thus declared. In other words, if, for example, cash
dividends of P300,000.00 are declared, Nielson would be entitled to a compensation of P30,000.00, but
this P30,000.00 should not be taken from the P300,000.00 to be distributed as cash dividends to the
stockholders but from some other funds or assets of the corporation which are not included in the amount
to answer for the cash dividends thus declared. This is so because if the P30,000.00 would be taken out
from the P300,000.00 declared as cash dividends, then the stockholders would not be getting P300,000.00
as dividends but only P270,000.00. There would be a dilution of the dividend that corresponds to each
share of stock held by the stockholders. Similarly, if there were stock dividends worth one million pesos
that were declared, which means an issuance of ten million shares at the par value of ten centavos per
share, it does not mean that Nielson would be given 100,000 shares. It only means that Nielson should be
given the equivalent of 10% of the aggregate cash value of those shares issued as stock dividends. That
this was the understanding of Nielson itself is borne out by the fact that in its appeal brief Nielson urged
that it should be paid "P300,000.00 being 10% of the P3,000,000.00 stock dividends declared on
November 28, 1949 and August 20, 1950...."21
We, therefore, reconsider that part of Our decision which declares that Nielson is entitled to shares of
stock worth P300,000.00 based on the stock dividends declared on November 28, 1949 and on August 20,
1950, together with all the fruits accruing thereto. Instead, We declare that Nielson is entitled to payment
by Lepanto of P300,000.00 in cash, which is equivalent to 10% of the money value of the stock dividends
worth P3,000,000.00 which were declared on November 28, 1949 and on August 20, 1950, with interest
thereon at the rate of 6% from February 6, 1958.
6. In the eighth ground of its motion for reconsideration Lepanto maintains that this Court erred in
awarding to Nielson an undetermined amount of shares of stock and/or cash, which award can not be
ascertained and executed without further litigation.
In view of Our ruling in this resolution that Nielson is not entitled to receive shares of stock as stock
dividends in payment of its compensation under the management contract, We do not consider it necessary

to discuss this ground of the motion for reconsideration. The awards in the present case are all reduced to
specific sums of money.

(8) Fifty thousand pesos (P50,000.00) as attorney's fees; and

(9) The costs.

7. In the ninth ground of its motion for reconsideration Lepanto maintains that this Court erred in
rendering judgment or attorney's fees.
The matter of the award of attorney's fees is within the sound discretion of this Court. In Our decision We
have stated the reason why the award of P50,000.00 for attorney's fees is considered by this Court as
reasonable.
Accordingly, We resolve to modify the decision that We rendered on December 17, 1966, in the sense that
instead of awarding Nielson shares of stock worth P300,000.00 at the par value of ten centavos (P0.10)
per share based on the stock dividends declared by Lepanto on November 28, 1949 and August 20, 1950,
together with their fruits, Nielson should be awarded the sum of P300,000.00 which is an amount
equivalent to 10% of the cash value of the stock dividends thus declared, as part of the compensation due
Nielson under the management contract. The dispositive portion of the decision should, therefore, be
amended, to read as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the court a
quo and enter in lieu thereof another, ordering the appellee Lepanto to pay the appellant Nielson the
different amounts as specified hereinbelow:
(1) Seventeen thousand five hundred pesos (P17,500.00), equivalent to 10% of the cash dividends of
December, 1941, with legal interest thereon from the date of the filing of the complaint;
(2) Two thousand five hundred pesos (P2,500.00) as management fee for January 1942, with legal interest
thereon from the date of the filing of the complaint;
(3) One hundred fifty thousand pesos (P150,000.00), representing management fees for the sixty-month
period of extension of the management contract, with legal interest thereon from the date of the filing of
the complaint;
(4) One million four hundred thousand pesos (P1,400,000.00), equivalent to 10% of the cash dividends
declared during the period of extension of the management contract, with legal interest thereon from the
date of the filing of the complaint;
(5) Three hundred thousand pesos (P300,000.00), equivalent to 10% of the cash value of the stock
dividends declared on November 28, 1949 and August 20, 1950, with legal interest thereon from the date
of the filing of the complaint;
(6) Fifty three thousand nine hundred twenty eight pesos and eighty eight centavos (P53,928.88),
equivalent to 10% of the depletion reserve set up during the period of extension, with legal interest
thereon from the date of the filing of the complaint;
(7) Six hundred ninety four thousand three hundred sixty four pesos and seventy six centavos
(P694,364.76), equivalent to 10% of the expenses for capital account during the period of extension, with
legal interest thereon from the date of the filing of the complaint;

It is so ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez and Castro, JJ., concur.
Fernando, Capistrano, Teehankee and Barredo, JJ., took no part.

De la Cruz vs. Northern Theatrical Enterprises, Inc., et al., 95 Phil. 739(1954)

1.EMPLOYER AND EMPLOYEE; DAMAGES CAUSED TO EMPLOYEE BY A STRANGER CAN
NOT BE RECOVERED FROM EMPLOYER GIVING LEGAL ASSISTANCE TO EMPLOYEE is NOT
A LEGAL BUT A MORAL OBLIGATION.A claim of an employee against his employer for damages
caused to the former by a stranger or outsider while said employee was in the performance of his duties,
presents a novel question which under present legislation can not be decided in favor of the employee.
While it is to the interest of the employer to give legal help to, and defend, its employees charged
criminally in court, in order to show that he was ,not guilty of any crime either deliberately or through
negligence, because should the employee be finally held criminally liable and he is found to be insolvent,
the employer would be subsidiarily liable, such legal assistance might be regarded as a moral obligation
but it does not at present count with the sanction of man-made laws. If the employer is not legally obliged
to give legal assistance to its employee and provide him with a lawyer, naturally said employee may not
recover from his employer the amount he may have paid a lawyer hired by him.
2.ID.; ID.; PARTIES WHO MAY BE HELD RESPONSIBLE FOR DAMAGES. If despite the absence
of any criminal responsibility on the part of the employee he was accused of homicide, the responsibility
for the improper accusation may be laid at the door of the heirs of the deceased at whose instance the
action was filed by the State through the Fiscal. This responsibility can not be transferred to his employer,
who in no way intervened, much less initiated the criminal proceedings and whose only connection or
relation to the whole affair was that it employed plaintiff to perform a specific duty or task, which was
performed lawfully and without negligence. De la Cruz vs. Northern Theatrical Enterprises, Inc., et
al., 95 Phil. 739(1954)
G.R. No. L-7089

August 31, 1954

DOMINGO DE LA CRUZ, plaintiff-appellant,

vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.
Conrado Rubio for appellant.
Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year 1941 the Northern
Theatrical Enterprises Inc., a domestic corporation operated a movie house in Laoag, Ilocos Norte, and
among the persons employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard
whose duties were to guard the main entrance of the cine, to maintain peace and order and to report the
commission of disorders within the premises. As such guard he carried a revolver. In the afternoon of July
4, 1941, one Benjamin Martin wanted to crash the gate or entrance of the movie house. Infuriated by the
refusal of plaintiff De la Cruz to let him in without first providing himself with a ticket, Martin attacked
him with a bolo. De la Cruz defendant himself as best he could until he was cornered, at which moment to
save himself he shot the gate crasher, resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of First
Instance of Ilocos Norte. After a re-investigation conducted by the Provincial Fiscal the latter filed a
motion to dismiss the complaint, which was granted by the court in January 1943. On July 8, 1947, De la
Cruz was again accused of the same crime of homicide, in Criminal Case No. 431 of the same Court. After

trial, he was finally acquitted of the charge on January 31, 1948. In both criminal cases De la Cruz
employed a lawyer to defend him. He demanded from his former employer reimbursement of his expenses
but was refused, after which he filed the present action against the movie corporation and the three
members of its board of directors, to recover not only the amounts he had paid his lawyers but also moral
damages said to have been suffered, due to his worry, his neglect of his interests and his family as well in
the supervision of the cultivation of his land, a total of P15,000. On the basis of the complaint and the
answer filed by defendants wherein they asked for the dismissal of the complaint, as well as the agreed
statement of facts, the Court of First Instance of Ilocos Norte after rejecting the theory of the plaintiff that
he was an agent of the defendants and that as such agent he was entitled to reimbursement of the expenses
incurred by him in connection with the agency (Arts. 1709-1729 of the old Civil Code), found that
plaintiff had no cause of action and dismissed the complaint without costs. De la Cruz appealed directly to
this Tribunal for the reason that only questions of law are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation and the plaintiff was not
that of principal and agent because the principle of representation was in no way involved. Plaintiff was
not employed to represent the defendant corporation in its dealings with third parties. He was a mere
employee hired to perform a certain specific duty or task, that of acting as special guard and staying at the
main entrance of the movie house to stop gate crashers and to maintain peace and order within the
premises. The question posed by this appeal is whether an employee or servant who in line of duty and
while in the performance of the task assigned to him, performs an act which eventually results in his
incurring in expenses, caused not 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.
Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L., JJ., concur.

Fressel vs. Mariano Uy Chaco Sons & Co., 34 Phil. 122(1916)

1.INDEPENDENT CONTRACTOR.Where one party to a contract was authorized to do work
according to his own method and without being subject to the other party's control, except as to the result
of the work, he is an independent contractor and not an agent.
2.ASSIGNMENT; MECHANICS' LIENS.In the absence of a statute creating 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, 3. PLEADINGS.On an appeal from a judgment
rendered after a refusal to amend, ambiguous matter will be resolved against the pleader.
4.ID.; MATTERS NOT ADMITTED BY DEMURRER.The admission of the truth of material and
relevant f acts well pleaded does not extend to render a demurrer an admission of mere conclusions of
facts not stated nor conclusions of law, Fressel vs. Mariano Uy Chaco Sons & Co., 34 Phil. 122(1916)
G.R. No. L-10918

March 4, 1916

WILLIAM FRESSEL, ET AL., plaintiffs-appellants,

vs.
MARIANO UY CHACO SONS & COMPANY, defendant-appellee.
Rohde and Wright for appellants.
Gilbert, Haussermann, Cohn and Fisher for appellee.
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.
Arellano, C.J., Torres, Johnson and Araullo, JJ., concur.
Moreland, J., concurs in the result.
Carson, J., dissents.

Shell Co. of the Phils., Ltd. vs. Firemens Ins. Co. of Newark, N.J., et al., 100 Phil., 757(1957)
1.PRINCIPAL AND AGENT; WHEN AGENCY EXISTS AND NOT AN INDEPENDENT
CONTRACTOR.Where the operator of a gasoline and service station owed his position to the company
and the latter could remove him or terminate his services at will; that the service station belonged to the
company and bore its tradename and the operator sold only the products of the company; that the
equipment used by the operator belonged to the company and were just loaned to the operator and the
company took charge of their repair and maintenance; that an employee of the company supervised the
operator and conducted periodic inspection of the companys gasoline and service station; that the price of
the products sold by the operator was fixed by the company and not by the operator; and that the receipts
signed by the operator indicated that he was a mere agent. Held: that the operator is an agent of the
company and not an independent contractor.
2.CONTRACTS; NATURE OF CONTRACT; COURTS NOT BOUND UPON THE NAME GIVEN BY
PARTIES.To determine the nature of a contract courts do not have or are not bound to rely upon the
name or title given it by the contracting parties, should there be a controversy as to what they really had
intended to enter into, but the way the contracting parties do or perform their respective obligations
stipulated or agreed upon may be shown and inquired into, and should such performance conflict with the
name or title given the contract by the parties, the former must prevail over the latter. Shell Co. of the
Phils., Ltd. vs. Firemens Ins. Co. of Newark, N.J., et al., 100 Phil., 757(1957)
G.R. No. L-8169

January 29, 1957

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

vs.
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY COMMERCIAL
CASUALTY INSURANCE CO., SALVADOR SISON, PORFIRIO DE LA FUENTE and THE
COURT OF APPEALS (First Division),respondents.
Ross, Selph, Carrascoso & Janda for petitioner.
J. A. Wolfson and Manuel Y. Macias for respondents.
PADILLA, J.:
Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals which reversed that of
the Court of First Instance of Manila and sentenced ". . . the defendants-appellees to pay, jointly and
severally, the plaintiffs-appellants the sum of P1,651.38, with legal interest from December 6, 1947
(Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and the costs in both instances."
The Court of Appeals found the following:
Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee, the Shell Company of
the Philippine Islands, Ltd. accept the statement of facts made by the trial court in its decision
and appearing on pages 23 to 37 of the Record on Appeal, we quote hereunder such statement:

It is a fact that a Plymounth car owned by Salvador R. Sison was brought, on September 3,
1947 to the Shell Gasoline and Service Station, located at the corner of Marques de Comillas
and Isaac Peral Streets, Manila, for washing, greasing and spraying. The operator of the station,
having agreed to do service upon payment of P8.00, the car was placed on a hydraulic lifter
under the direction of the personnel of the station.
What happened to the car is recounted by Perlito Sison, as follows:
Q. Will you please describe how they proceeded to do the work?
A. Yes, sir. The first thing that was done, as I saw, was to drive the car over the
lifter. Then by the aid of the two grease men they raised up my car up to six feet
high, and then washing was done. After washing, the next step was greasing. Before
greasing was finished, there is a part near the shelf of the right fender, right front
fender, of my car to be greased, but the the grease men cannot reached that part, so
the next thing to be done was to loosen the lifter just a few feet lower. Then upon
releasing the valve to make the car lower, a little bit lower . . .
Q. Who released the valve?
A. The greasemen, for the escape of the air. As the escape of the air is too strong for
my ear I faced backward. I faced toward Isaac Peral Street, and covered my ear.
After the escaped of the air has been finished, the air coming out from the valve, I
turned to face the car and I saw the car swaying at that time, and just for a few
second the car fell., (t.s.n. pp. 22-23.)
The case was immediately reported to the Manila Adjustor Company, the adjustor of the firemen's
Insurance Company and the Commercial Casualty Insurance Company, as the car was insured with these
insurance companies. After having been inspected by one Mr. Baylon, representative of the Manila
Adjustor Company, the damaged car was taken to the shops of the Philippine Motors, Incorporated, for
repair upon order of the Firemen's Insurance Company and the Commercial Casualty Company, with the
consent of Salvador R. Sison. The car was restored to running condition after repairs amounting to
P1,651.38, and was delivered to Salvador R. Sison, who, in turn made assignments of his rights to recover
damages in favor of the Firemen's Insurance Company and the Commercial Casualty Insurance Company.
On the other hand, the fall of the car from the hydraulic lifter has been explained by Alfonso
M. Adriano, a greaseman in the Shell Gasoline and Service Station, as follows:
Q. Were you able to lift the car on the hydraulic lifter on the occasion, September 3,
1947?
A. Yes, sir.
Q. To what height did you raise more or less?

This is an action for recovery of sum of money, based on alleged negligence of the defendants.
A. More or less five feet, sir.

Q. After lifting that car that height, what did you do with the car?
A. I also washed it, sir.
Q. And after washing?
A. I greased it.

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

Q. On that occasion, have you been able to finish greasing and washing the car?
A. There is one point which I could not reach.
Q. And what did you do then?
A. I lowered the lifter in order to reach that point.

The insurance companies after paying the sum of P1,651.38 for the damage and charging the
balance of P100.00 to Salvador Sison in accordance with the terms of the insurance contract,
have filed this action together with said Salvador Sison for the recovery of the total amount of
the damage from the defendants on the ground of negligence (Record on Appeal, pp. 1-6).
The defendant Porfirio de la Fuente denied negligence in the operation of the lifter in his
separate answer and contended further that the accidental fall of the car was caused by
unforseen event (Record on Appeal, pp. 17-19).

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

A. I pushed and pressed the valve in its gradual pressure.
Q. Were you able to reach the portion which you were not able to reach while it was
lower?
A. No more, sir.
Q. Why?
A. Because when I was lowering the lifter I saw that the car was swinging and it
fell.
THE COURT. Why did the car swing and fall?
WITNESS: 'That is what I do not know, sir'. (t.s.n., p.67.)
The position of Defendant Porfirio de la Fuente is stated in his counter-statement of facts which is
hereunder also reproduced:
In the afternoon of September 3, 1947, an automobile belonging to the plaintiff Salvador Sison
was brought by his son, Perlito Sison, to the gasoline and service station at the corner of
Marques de Comillas and Isaac Peral Streets, City of Manila, Philippines, owned by the
defendant The Shell Company of the Philippine Islands, Limited, but operated by the defendant
Porfirio de la Fuente, for the purpose of having said car washed and greased for a consideration
of P8.00 (t.s.n., pp. 19-20.) Said car was insured against loss or damage by Firemen's Insurance
Company of Newark, New Jersey, and Commercial Casualty Insurance Company jointly for
the sum of P10,000 (Exhibits "A', "B", and "D").

The owner of the car forthwith notified the insurers who ordered their adjustor, the Manila Adjustor
Company, to investigate the incident and after such investigation the damaged car, upon order of the
insures and with the consent of the owner, was brought to the shop of the Philippine Motors, Inc. The car
was restored to running condition after thereon which amounted to P1,651.38 and returned to the owner
who assigned his right to collect the aforesaid amount to the Firemen's Insurance Company and the
Commercial Casualty Insurance Company.
On 6 December 1947 the insures and the owner of the car brought an action in the Court of First Instance
of Manila against the Shell Company of the Philippines, Ltd. and Porfirio de la Fuente to recover from
them, jointly and severally, the sum of P1,651.38, interest thereon at the legal rate from the filing of the
complaint until fully paid, the costs. After trial the Court dismissed the complaint. The plaintiffs appealed.
The Court of Appeals reversed the judgment and sentenced the defendant to pay the amount sought to be
recovered, legal interest and costs, as stated at the beginning of this opinion.
In arriving at the conclusion that on 3 September 1947 when the car was brought to the station for
servicing Profirio de la Fuente, the operator of the gasoline and service station, was an agent of the Shell
Company of the Philippines, Ltd., the Court of Appeals found that
. . . De la Fuente owned his position to the Shell Company which could remove him terminate
his services at any time from the said Company, and he undertook to sell the Shell Company's
products exculusively at the said Station. For this purpose, De la Fuente was placed in
possession of the gasoline and service station under consideration, and was provided with all
the equipments needed to operate it, by the said Company, such as the tools and articles listed
on Exhibit 2 which the hydraulic lifter (hoist) and accessories, from which Sison's automobile
fell on the date in question (Exhibit 1 and 2). These equipments were delivered to De la Fuente
on a so-called loan basis. The Shell Company took charge of its care and maintenance and
rendered to the public or its customers at that station for the proper functioning of the
equipment. Witness Antonio Tiongson, who was sales superintendent of the Shell Company,
and witness Augusto Sawyer, foreman of the same Company, supervised the operators and
conducted periodic inspection of the Company's gasoline and service station, the service

station in question inclusive. Explaining his duties and responsibilities and the reason for the
loan, Tiongson said: "mainly of the supervision of sales or (of) our dealers and rountinary
inspection of the equipment loaned by the Company" (t.s.n., 107); "we merely inquire about
how the equipments are, whether they have complaints, and whether if said equipments are in
proper order . . .", (t.s.n., 110); station equipments are "loaned for the exclusive use of the
dealer on condition that all supplies to be sold by said dealer should be exclusively Shell, so as
a concession we loan equipments for their use . . .," "for the proper functioning of the
equipments, we answer and see to it that the equipments are in good running order usable
condition . . .," "with respect to the public." (t.s.n., 111-112). De la Fuente, as operator, was
given special prices by the Company for the gasoline products sold therein. Exhibit 1 Shell,
which was a receipt by Antonio Tiongson and signed by the De la Fuente, acknowledging the
delivery of equipments of the gasoline and service station in question was subsequently
replaced by Exhibit 2 Shell, an official from of the inventory of the equipment which De la
Fuente signed above the words: "Agent's signature" And the service station in question had
been marked "SHELL", and all advertisements therein bore the same sign. . . .
. . . De la Fuente was the operator of the station "by grace" of the Defendant Company which
could and did remove him as it pleased; that all the equipments needed to operate the station
was owned by the Defendant Company which took charge of their proper care and
maintenance, despite the fact that they were loaned to him; that the Defendant company did not
leave the fixing of price for gasoline to De la Fuente; on the other hand, the Defendant
company had complete control thereof; and that Tiongson, the sales representative of the
Defendant Company, had supervision over De la Fuente in the operation of the station, and in
the sale of Defendant Company's products therein. . . .
Taking into consideration the fact that the operator owed his position to the company and the latter could
remove him or terminate his services at will; that the service station belonged to the company and bore its
tradename and the operator sold only the products of the company; that the equipment used by the
operator belonged to the company and were just loaned to the operator and the company took charge of
their repair and maintenance; that an employee of the company supervised the operator and conducted
periodic inspection of the company's gasoline and service station; that the price of the products sold by the
operator was fixed by the company and not by the operator; and that the receipt signed by the operator
indicated that he was a mere agent, the finding of the Court of Appeals that the operator was an agent of
the company and not an independent contractor should not be disturbed.
To determine the nature of a contract courts do not have or are not bound to rely upon the name or title
given it by the contracting parties, should there be a controversy as to what they really had intended to
enter into, but the way the contracting parties do or perform their respective obligation stipulated or agreed
upon may be shown and inquired into, and should such performance conflict with the name or title given
the contract by the parties, the former must prevail over the latter.
It was admitted by the operator of the gasoline and service station that "the car was carefully and centrally
placed on the platform of the lifter . . ." and the Court of Appeals found that
. . . the fall of Appellant Sison's car from the hydraulic lift and the damage caused therefor,
were the result of the jerking and swaying of the lift when the valve was released, and that the
jerking was due to some accident and unforeseen shortcoming of the mechanism itself, which
caused its faulty or defective operation or functioning,

. . . the servicing job on Appellant Sison's automobile was accepted by De la Fuente in the
normal and ordinary conduct of his business as operator of his co-appellee's service station,
and that the jerking and swaying of the hydraulic lift which caused the fall of the subject car
were due to its defective condition, resulting in its faulty operation. . . .
As the act of the agent or his employees acting within the scope of his authority is the act of the principal,
the breach of the undertaking by the agent is one for which the principal is answerable. Moreover, the
company undertook to "answer and see to it that the equipments are in good running order and usable
condition;" and the Court of Appeals found that the Company's mechanic failed to make a thorough check
up of the hydraulic lifter and the check up made by its mechanic was "merely routine" by raising "the
lifter once or twice and after observing that the operator was satisfactory, he (the mechanic) left the place."
The latter was negligent and the company must answer for the negligent act of its mechanic which was the
cause of the fall of the car from the hydraulic lifter.
The judgment under review is affirmed, with costs against the petitioner.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
Endencia and Felix, JJ., concur.

Africa, et al. vs. Caltex (Phil.), Inc., et al., 16 SCRA 448(1966)

Evidence; Requisites for admissibility of entries in official records.There are three requisites for
admissibility of evidence under Section 35, Rule 123, Rules of Court: (a) that the entry was made by a
public officer, or by another person, specially enjoined by law to do so; (b) that it was made by the public
officer in the performance of his duties, or by such other person in the performance of a duty specially
enjoined by law; and (c) that the public officer or other person had sufficient knowledge of the facts by
him slated, which must have been acquired by him personally or through official information (Moran,
Comments on the Rules of Court, Vol. 3, p. 393).
Same; Hearsay rule; Reports not considered an exception to hearsay rule.The reports of the police and
fire departments do not constitute an exception to the hearsay rule. For, the facts stated therein were not
acquired by the reporting officers through official information, not having been given by the informants
pursuant to any duty to do so.
Same; Report submitted by a police officer in the performonce of his duties.The report submitted by a
police officer in the performance of his duties, on the basis of his own personal observation of the facts
reported, may properly be considered as an exception to the hearsay rule.
Same; Presumption of negligence under the doctrine of res ipsa loquitur.Where the thing which caused
the injury complained of is shown to be under the management of the defendant or his servants and the
accident is such as in the ordinary course of things does not happen if those who have its management or
control use proper care, it affords reasonable evidence, in the absence of explanation by the defendant, that
the accident arose from want of care (45 C.J. 1193).
Same; Application of principle to the case at bar.The gasoline-station, with all its appliances, equipment
and employees, was under the control of appellees. A fire occurred therein and spread to and burned the
neighboring houses. The person who knew or could have known how the fire started were the appellees
and their employees, but they gave no explanation thereof whatsoever. It is a fair and reasonable inference
that the incident happened because of want of care.
Torts; Quasi-delicts; Force majeure; Intervention of unforeseen and unexpected cause.The intervention
of an unforeseen and unexpected cause is not sufficient to relieve a wrongdoer from consequences of
negligence, if such negligence directly and proximately cooperates with the independent cause in the
resulting injury. (MacAfee v. Travers Gas Corporation, 153 S.W. 2nd 442.)
Damages; Liability of owner of gasoline station; Case at bar.A fire broke out at the Caltex service
station. It started while gasoline was being hosed from a tank into the underground storage. The fire
spread to and burned several neighboring houses owned by appellants. Issue: Whether Caltex should be
held liable for the damages caused to appellants. Held: This question depends on whether the operator of
the gasoline station was an independent contractor or an agent of Caltex. Under the license agreement the
operator would pay Caltex the purely nominal sum of P1.00 for the use of the premises and all equipment
therein. The operator could sell only Caltex products. Maintenance of the station and its equipment was
subject to the approval, in other words control, of Caltex. The operator could not assign or transfer his
rights as licensee without the consent of Caltex. Termination of the contract was a right granted only to
Caltex but not to the operator. These provisions of the contract show that the operator was virtually an
employee of the Caltex, not an independent contractor. Hence, Caltex should be liable for damages caused
to appellants. Africa, et al. vs. Caltex (Phil.), Inc., et al., 16 SCRA 448(1966)
G.R. No. L-12986

March 31, 1966

THE SPOUSES BERNABE AFRICA and SOLEDAD C. AFRICA, and the HEIRS OF DOMINGA
ONG,petitioners-appellants,
vs.
CALTEX (PHIL.), INC., MATEO BOQUIREN and THE COURT OF APPEALS, respondentsappellees.
Ross, Selph, Carrascoso and Janda for the respondents.
Bernabe Africa, etc. for the petitioners.
MAKALINTAL., J.:
This case is before us on a petition for review of the decision of the Court of Appeals, which affirmed that
of the Court of First Instance of Manila dismissing petitioners' second amended complaint against
respondents.
The action is for damages under Articles 1902 and 1903 of the old Civil Code. It appears that in the
afternoon of March 18, 1948 a fire broke out at the Caltex service station at the corner of Antipolo street
and Rizal Avenue, Manila. It started while gasoline was being hosed from a tank truck into the
underground storage, right at the opening of the receiving tank where the nozzle of the hose was inserted.
The fire spread to and burned several neighboring houses, including the personal properties and effects
inside them. Their owners, among them petitioners here, sued respondents Caltex (Phil.), Inc. and Mateo
Boquiren, the first as alleged owner of the station and the second as its agent in charge of operation.
Negligence on the part of both of them was attributed as the cause of the fire.
The trial court and the Court of Appeals found that petitioners failed to prove negligence and that
respondents had exercised due care in the premises and with respect to the supervision of their employees.
The first question before Us refers to the admissibility of certain reports on the fire prepared by the Manila
Police and Fire Departments and by a certain Captain Tinio of the Armed Forces of the Philippines.
Portions of the first two reports are as follows:
1. Police Department report:
Investigation disclosed that at about 4:00 P.M. March 18, 1948, while Leandro
Flores was transferring gasoline from a tank truck, plate No. T-5292 into the
underground tank of the Caltex Gasoline Station located at the corner of Rizal
Avenue and Antipolo Street, this City, an unknown Filipino lighted a cigarette and
threw the burning match stick near the main valve of the said underground tank.
Due to the gasoline fumes, fire suddenly blazed. Quick action of Leandro Flores in
pulling off the gasoline hose connecting the truck with the underground tank
prevented a terrific explosion. However, the flames scattered due to the hose from
which the gasoline was spouting. It burned the truck and the following accessorias
and residences.
2. The Fire Department report:
In connection with their allegation that the premises was (sic) subleased for the installation of a
coca-cola and cigarette stand, the complainants furnished this Office a copy of a photograph

taken during the fire and which is submitted herewith. it appears in this picture that there are in
the premises a coca-cola cooler and a rack which according to information gathered in the
neighborhood contained cigarettes and matches, installed between the gasoline pumps and the
underground tanks.
The report of Captain Tinio reproduced information given by a certain Benito Morales regarding the
history of the gasoline station and what the chief of the fire department had told him on the same subject.
The foregoing reports were ruled out as "double hearsay" by the Court of Appeals and hence inadmissible.
This ruling is now assigned as error. It is contended: first, that said reports were admitted by the trial court
without objection on the part of respondents; secondly, that with respect to the police report (Exhibit VAfrica) which appears signed by a Detective Zapanta allegedly "for Salvador Capacillo," the latter was
presented as witness but respondents waived their right to cross-examine him although they had the
opportunity to do so; and thirdly, that in any event the said reports are admissible as an exception to the
hearsay rule under section 35 of Rule 123, now Rule 130.
The first contention is not borne out by the record. The transcript of the hearing of September 17, 1953
(pp. 167-170) shows that the reports in question, when offered as evidence, were objected to by counsel
for each of respondents on the ground that they were hearsay and that they were "irrelevant, immaterial
and impertinent." Indeed, in the court's resolution only Exhibits J, K, K-5 and X-6 were admitted without
objection; the admission of the others, including the disputed ones, carried no such explanation.
On the second point, although Detective Capacillo did take the witness stand, he was not examined and he
did not testify as to the facts mentioned in his alleged report (signed by Detective Zapanta). All he said
was that he was one of those who investigated "the location of the fire and, if possible, gather witnesses as
to the occurrence, and that he brought the report with him. There was nothing, therefore, on which he need
be cross-examined; and the contents of the report, as to which he did not testify, did not thereby become
competent evidence. And even if he had testified, his testimony would still have been objectionable as far
as information gathered by him from third persons was concerned.
Petitioners maintain, however, that the reports in themselves, that is, without further testimonial evidence
on their contents, fall within the scope of section 35, Rule 123, which provides that "entries in official
records made in the performance of his duty by a public officer of the Philippines, or by a person in the
performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated."
There are three requisites for admissibility under the rule just mentioned: (a) that the entry was made by a
public officer, or by another person specially enjoined by law to do so; (b) that it was made by the public
officer in the performance of his duties, or by such other person in the performance of a duty specially
enjoined by law; and (c) that the public officer or other person had sufficient knowledge of the facts by
him stated, which must have been acquired by him personally or through official information (Moran,
Comments on the Rules of Court, Vol. 3 [1957] p. 398).
Of the three requisites just stated, only the last need be considered here. Obviously the material facts
recited in the reports as to the cause and circumstances of the fire were not within the personal knowledge
of the officers who conducted the investigation. Was knowledge of such facts, however, acquired by them
through official information? As to some facts the sources thereof are not even identified. Others are
attributed to Leopoldo Medina, referred to as an employee at the gas station were the fire occurred; to
Leandro Flores, driver of the tank truck from which gasoline was being transferred at the time to the
underground tank of the station; and to respondent Mateo Boquiren, who could not, according to Exhibit

V-Africa, give any reason as to the origin of the fire. To qualify their statements as "official information"
acquired by the officers who prepared the reports, the persons who made the statements not only must
have personal knowledge of the facts stated but must have the duty to give such statements for record. 1
The reports in question do not constitute an exception to the hearsay rule; the facts stated therein were not
acquired by the reporting officers through official information, not having been given by the informants
pursuant to any duty to do so.
The next question is whether or not, without proof as to the cause and origin of the fire, the doctrine of res
ipsa loquitur should apply so as to presume negligence on the part of appellees. Both the trial court and
the appellate court refused to apply the doctrine in the instant case on the grounds that "as to (its)
applicability ... in the Philippines, there seems to he nothing definite," and that while the rules do not
prohibit its adoption in appropriate cases, "in the case at bar, however, we find no practical use for such
doctrine." The question deserves more than such summary dismissal. The doctrine has actually been
applied in this jurisdiction, in the case of Espiritu vs. Philippine Power and Development Co. (CA-G.R.
No. 3240-R, September 20, 1949), wherein the decision of the Court of Appeals was penned by Mr.
Justice J.B.L. Reyes now a member of the Supreme Court.
The facts of that case are stated in the decision as follows:
In the afternoon of May 5, 1946, while the plaintiff-appellee and other companions were
loading grass between the municipalities of Bay and Calauan, in the province of Laguna, with
clear weather and without any wind blowing, an electric transmission wire, installed and
maintained by the defendant Philippine Power and Development Co., Inc. alongside the road,
suddenly parted, and one of the broken ends hit the head of the plaintiff as he was about to
board the truck. As a result, plaintiff received the full shock of 4,400 volts carried by the wire
and was knocked unconscious to the ground. The electric charge coursed through his body and
caused extensive and serious multiple burns from skull to legs, leaving the bone exposed in
some parts and causing intense pain and wounds that were not completely healed when the
case was tried on June 18, 1947, over one year after the mishap.
The defendant therein disclaimed liability on the ground that the plaintiff had failed to show any specific
act of negligence, but the appellate court overruled the defense under the doctrine of res ipsa loquitur. The
court said:
The first point is directed against the sufficiency of plaintiff's evidence to place appellant on its
defense. While it is the rule, as contended by the appellant, that in case of noncontractual
negligence, or culpa aquiliana, the burden of proof is on the plaintiff to establish that the
proximate cause of his injury was the negligence of the defendant, it is also a recognized
principal that "where the thing which caused injury, without fault of the injured person, is
under the exclusive control of the defendant and the injury is such as in the ordinary course of
things does not occur if he having such control use proper care, it affords reasonable evidence,
in the absence of the explanation, that the injury arose from defendant's want of care."
And the burden of evidence is shifted to him to establish that he has observed due care and
diligence. (San Juan Light & Transit Co. v. Requena, 244, U.S. 89, 56 L. ed. 680.) This rule is
known by the name of res ipsa loquitur (the transaction speaks for itself), and is peculiarly
applicable to the case at bar, where it is unquestioned that the plaintiff had every right to be on
the highway, and the electric wire was under the sole control of defendant company. In the

ordinary course of events, electric wires do not part suddenly in fair weather and injure people,
unless they are subjected to unusual strain and stress or there are defects in their installation,
maintenance and supervision; just as barrels do not ordinarily roll out of the warehouse
windows to injure passersby, unless some one was negligent. (Byrne v. Boadle, 2 H & Co. 722;
159 Eng. Reprint 299, the leading case that established that rule). Consequently, in the absence
of contributory negligence (which is admittedly not present), the fact that the wire snapped
suffices to raise a reasonable presumption of negligence in its installation, care and
maintenance. Thereafter, as observed by Chief Baron Pollock, "if there are any facts
inconsistent with negligence, it is for the defendant to prove."
It is true of course that decisions of the Court of Appeals do not lay down doctrines binding on the
Supreme Court, but we do not consider this a reason for not applying the particular doctrine of res ipsa
loquitur in the case at bar. Gasoline is a highly combustible material, in the storage and sale of which
extreme care must be taken. On the other hand, fire is not considered a fortuitous event, as it arises almost
invariably from some act of man. A case strikingly similar to the one before Us is Jones vs. Shell
Petroleum Corporation, et al., 171 So. 447:
Arthur O. Jones is the owner of a building in the city of Hammon which in the year 1934 was
leased to the Shell Petroleum Corporation for a gasoline filling station. On October 8, 1934,
during the term of the lease, while gasoline was being transferred from the tank wagon, also
operated by the Shell Petroleum Corporation, to the underground tank of the station, a fire
started with resulting damages to the building owned by Jones. Alleging that the damages to
his building amounted to $516.95, Jones sued the Shell Petroleum Corporation for the recovery
of that amount. The judge of the district court, after hearing the testimony, concluded that
plaintiff was entitled to a recovery and rendered judgment in his favor for $427.82. The Court
of Appeals for the First Circuit reversed this judgment, on the ground the testimony failed to
show with reasonable certainty any negligence on the part of the Shell Petroleum Corporation
or any of its agents or employees. Plaintiff applied to this Court for a Writ of Review which
was granted, and the case is now before us for decision.1wph1.t
In resolving the issue of negligence, the Supreme Court of Louisiana held:
Plaintiff's petition contains two distinct charges of negligence one relating to the cause of
the fire and the other relating to the spreading of the gasoline about the filling station.

the doctrine of res ipsa loquitur. There are many cases in which the doctrine may be
successfully invoked and this, we think, is one of them.
Where the thing which caused the injury complained of is shown to be under the management
of defendant or his servants and the accident is such as in the ordinary course of things does
not happen if those who have its management or control use proper care, it affords reasonable
evidence, in absence of explanation by defendant, that the accident arose from want of care.
(45 C.J. #768, p. 1193).
This statement of the rule of res ipsa loquitur has been widely approved and adopted by the
courts of last resort. Some of the cases in this jurisdiction in which the doctrine has been
applied are the following, viz.: Maus v. Broderick, 51 La. Ann. 1153, 25 So. 977; Hebert v.
Lake Charles Ice, etc., Co., 111 La. 522, 35 So. 731, 64 L.R.A. 101, 100 Am. St. Rep. 505;
Willis v. Vicksburg, etc., R. Co., 115 La. 63, 38 So. 892; Bents v. Page, 115 La. 560, 39 So.
599.
The principle enunciated in the aforequoted case applies with equal force here. The gasoline station, with
all its appliances, equipment and employees, was under the control of appellees. A fire occurred therein
and spread to and burned the neighboring houses. The persons who knew or could have known how the
fire started were appellees and their employees, but they gave no explanation thereof whatsoever. It is a
fair and reasonable inference that the incident happened because of want of care.
In the report submitted by Captain Leoncio Mariano of the Manila Police Department (Exh. X-1 Africa)
the following appears:
Investigation of the basic complaint disclosed that the Caltex Gasoline Station complained of
occupies a lot approximately 10 m x 10 m at the southwest corner of Rizal Avenue and
Antipolo. The location is within a very busy business district near the Obrero Market, a
railroad crossing and very thickly populated neighborhood where a great number of people mill
around t
until
gasoline

Other than an expert to assess the damages caused plaintiff's building by the fire, no witnesses
were placed on the stand by the defendant.
Taking up plaintiff's charge of negligence relating to the cause of the fire, we find it established
by the record that the filling station and the tank truck were under the control of the defendant
and operated by its agents or employees. We further find from the uncontradicted testimony of
plaintiff's witnesses that fire started in the underground tank attached to the filling station while
it was being filled from the tank truck and while both the tank and the truck were in charge of
and being operated by the agents or employees of the defendant, extended to the hose and tank
truck, and was communicated from the burning hose, tank truck, and escaping gasoline to the
building owned by the plaintiff.
Predicated on these circumstances and the further circumstance of defendant's failure to
explain the cause of the fire or to show its lack of knowledge of the cause, plaintiff has evoked

tever be theWactjvities of these peopleor lighting a cigarette cannot be excluded and this
constitute a secondary hazard to its operation which in turn endangers the entire neighborhood
to conflagration.
Furthermore, aside from precautions already taken by its operator the concrete walls south and
west adjoining the neighborhood are only 2-1/2 meters high at most and cannot avoid the
flames from leaping over it in case of fire.
Records show that there have been two cases of fire which caused not only material damages
but desperation and also panic in the neighborhood.

Although the soft drinks stand had been eliminated, this gasoline service station is also used by
its operator as a garage and repair shop for his fleet of taxicabs numbering ten or more, adding
another risk to the possible outbreak of fire at this already small but crowded gasoline station.
The foregoing report, having been submitted by a police officer in the performance of his duties on the
basis of his own personal observation of the facts reported, may properly be considered as an exception to
the hearsay rule. These facts, descriptive of the location and objective circumstances surrounding the
operation of the gasoline station in question, strengthen the presumption of negligence under the doctrine
of res ipsa loquitur, since on their face they called for more stringent measures of caution than those which
would satisfy the standard of due diligence under ordinary circumstances. There is no more eloquent
demonstration of this than the statement of Leandro Flores before the police investigator. Flores was the
driver of the gasoline tank wagon who, alone and without assistance, was transferring the contents thereof
into the underground storage when the fire broke out. He said: "Before loading the underground tank there
were no people, but while the loading was going on, there were people who went to drink coca-cola (at the
coca-cola stand) which is about a meter from the hole leading to the underground tank." He added that
when the tank was almost filled he went to the tank truck to close the valve, and while he had his back
turned to the "manhole" he, heard someone shout "fire."
Even then the fire possibly would not have spread to the neighboring houses were it not for another
negligent omission on the part of defendants, namely, their failure to provide a concrete wall high enough
to prevent the flames from leaping over it. As it was the concrete wall was only 2-1/2 meters high, and
beyond that height it consisted merely of galvanized iron sheets, which would predictably crumple and
melt when subjected to intense heat. Defendants' negligence, therefore, was not only with respect to the
cause of the fire but also with respect to the spread thereof to the neighboring houses.
There is an admission on the part of Boquiren in his amended answer to the second amended complaint
that "the fire was caused through the acts of a stranger who, without authority, or permission of answering
defendant, passed through the gasoline station and negligently threw a lighted match in the premises." No
evidence on this point was adduced, but assuming the allegation to be true certainly any unfavorable
inference from the admission may be taken against Boquiren it does not extenuate his negligence. A
decision of the Supreme Court of Texas, upon facts analogous to those of the present case, states the rule
which we find acceptable here. "It is the rule that those who distribute a dangerous article or agent, owe a
degree of protection to the public proportionate to and commensurate with a danger involved ... we think it
is the generally accepted rule as applied to torts that 'if the effects of the actor's negligent conduct actively
and continuously operate to bring about harm to another, the fact that the active and substantially
simultaneous operation of the effects of a third person's innocent, tortious or criminal act is also a
substantial factor in bringing about the harm, does not protect the actor from liability.' (Restatement of the
Law of Torts, vol. 2, p. 1184, #439). Stated in another way, "The intention of an unforeseen and
unexpected cause, is not sufficient to relieve a wrongdoer from consequences of negligence, if such
negligence directly and proximately cooperates with the independent cause in the resulting injury."
(MacAfee, et al. vs. Traver's Gas Corporation, 153 S.W. 2nd 442.)

The next issue is whether Caltex should be held liable for the damages caused to appellants. This issue
depends on whether Boquiren was an independent contractor, as held by the Court of Appeals, or an agent
of Caltex. This question, in the light of the facts not controverted, is one of law and hence may be passed
upon by this Court. These facts are: (1) Boquiren made an admission that he was an agent of Caltex; (2) at
the time of the fire Caltex owned the gasoline station and all the equipment therein; (3) Caltex exercised
control over Boquiren in the management of the state; (4) the delivery truck used in delivering gasoline to
the station had the name of CALTEX painted on it; and (5) the license to store gasoline at the station was
in the name of Caltex, which paid the license fees. (Exhibit T-Africa; Exhibit U-Africa; Exhibit X-5
Africa; Exhibit X-6 Africa; Exhibit Y-Africa).
In Boquiren's amended answer to the second amended complaint, he denied that he directed one of his
drivers to remove gasoline from the truck into the tank and alleged that the "alleged driver, if one there
was, was not in his employ, the driver being an employee of the Caltex (Phil.) Inc. and/or the owners of
the gasoline station." It is true that Boquiren later on amended his answer, and that among the changes was
one to the effect that he was not acting as agent of Caltex. But then again, in his motion to dismiss
appellants' second amended complaint the ground alleged was that it stated no cause of action since under
the allegations thereof he was merely acting as agent of Caltex, such that he could not have incurred
personal liability. A motion to dismiss on this ground is deemed to be an admission of the facts alleged in
the complaint.
Caltex admits that it owned the gasoline station as well as the equipment therein, but claims that the
business conducted at the service station in question was owned and operated by Boquiren. But Caltex did
not present any contract with Boquiren that would reveal the nature of their relationship at the time of the
fire. There must have been one in existence at that time. Instead, what was presented was a license
agreement manifestly tailored for purposes of this case, since it was entered into shortly before the
expiration of the one-year period it was intended to operate. This so-called license agreement (Exhibit 5Caltex) was executed on November 29, 1948, but made effective as of January 1, 1948 so as to cover the
date of the fire, namely, March 18, 1948. This retroactivity provision is quite significant, and gives rise to
the conclusion that it was designed precisely to free Caltex from any responsibility with respect to the fire,
as shown by the clause that Caltex "shall not be liable for any injury to person or property while in the
property herein licensed, it being understood and agreed that LICENSEE (Boquiren) is not an employee,
representative or agent of LICENSOR (Caltex)."
But even if the license agreement were to govern, Boquiren can hardly be considered an independent
contractor. Under that agreement Boquiren would pay Caltex the purely nominal sum of P1.00 for the use
of the premises and all the equipment therein. He could sell only Caltex Products. Maintenance of the
station and its equipment was subject to the approval, in other words control, of Caltex. Boquiren could
not assign or transfer his rights as licensee without the consent of Caltex. The license agreement was
supposed to be from January 1, 1948 to December 31, 1948, and thereafter until terminated by Caltex
upon two days prior written notice. Caltex could at any time cancel and terminate the agreement in case
Boquiren ceased to sell Caltex products, or did not conduct the business with due diligence, in the
judgment of Caltex. Termination of the contract was therefore a right granted only to Caltex but not to
Boquiren. These provisions of the contract show the extent of the control of Caltex over Boquiren. The
control was such that the latter was virtually an employee of the former.
Taking into consideration the fact that the operator owed his position to the company and the
latter could remove him or terminate his services at will; that the service station belonged to
the company and bore its tradename and the operator sold only the products of the company;
that the equipment used by the operator belonged to the company and were just loaned to the
operator and the company took charge of their repair and maintenance; that an employee of the

company supervised the operator and conducted periodic inspection of the company's gasoline
and service station; that the price of the products sold by the operator was fixed by the
company and not by the operator; and that the receipts signed by the operator indicated that he
was a mere agent, the finding of the Court of Appeals that the operator was an agent of the
company and not an independent contractor should not be disturbed.
To determine the nature of a contract courts do not have or are not bound to rely upon the name
or title given it by the contracting parties, should thereby a controversy as to what they really
had intended to enter into, but the way the contracting parties do or perform their respective
obligations stipulated or agreed upon may be shown and inquired into, and should such
performance conflict with the name or title given the contract by the parties, the former must
prevail over the latter. (Shell Company of the Philippines, Ltd. vs. Firemens' Insurance
Company of Newark, New Jersey, 100 Phil. 757).
The written contract was apparently drawn for the purpose of creating the apparent relationship
of employer and independent contractor, and of avoiding liability for the negligence of the
employees about the station; but the company was not satisfied to allow such relationship to
exist. The evidence shows that it immediately assumed control, and proceeded to direct the
method by which the work contracted for should be performed. By reserving the right to
terminate the contract at will, it retained the means of compelling submission to its orders.
Having elected to assume control and to direct the means and methods by which the work has
to be performed, it must be held liable for the negligence of those performing service under its
direction. We think the evidence was sufficient to sustain the verdict of the jury. (Gulf Refining
Company v. Rogers, 57 S.W. 2d, 183).
Caltex further argues that the gasoline stored in the station belonged to Boquiren. But no cash invoices
were presented to show that Boquiren had bought said gasoline from Caltex. Neither was there a sales
contract to prove the same.
As found by the trial court the Africas sustained a loss of P9,005.80, after deducting the amount of
P2,000.00 collected by them on the insurance of the house. The deduction is now challenged as erroneous
on the ground that Article 2207 of the New Civil Code, which provides for the subrogation of the insurer
to the rights of the insured, was not yet in effect when the loss took place. However, regardless of the
silence of the law on this point at that time, the amount that should be recovered be measured by the
damages actually suffered, otherwise the principle prohibiting unjust enrichment would be violated. With
respect to the claim of the heirs of Ong P7,500.00 was adjudged by the lower court on the basis of the
assessed value of the property destroyed, namely, P1,500.00, disregarding the testimony of one of the Ong
children that said property was worth P4,000.00. We agree that the court erred, since it is of common
knowledge that the assessment for taxation purposes is not an accurate gauge of fair market value, and in
this case should not prevail over positive evidence of such value. The heirs of Ong are therefore entitled to
P10,000.00.
Wherefore, the decision appealed from is reversed and respondents-appellees are held liable solidarily to
appellants, and ordered to pay them the aforesaid sum of P9,005.80 and P10,000.00, respectively, with
interest from the filing of the complaint, and costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Regala, Bengzon, J.P., Zaldivar and
Sanchez, JJ., concur.
Dizon, J., took no part.

De la Pea vs. Hidalgo., 16 Phil. 450(1910)

1.AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY.When the agent and
administrator of property informs his principal by letter that for reasons of health and medical treatment he
is about to depart from the place where he is executing his trust and wherein the said property is situated,
and abandons the property, turns it over to a third party, renders accounts of its revenues up to the date on
which he ceases to hold his position and transmits to his principal a general statement which summarizes
and embraces all the balances of his accounts since he began the administration to the date of the
termination of his trust, and, without stating when he may return to take charge of the administration of
the said property, asks his principal to execute a power of attorney in due form in favor of and transmit the
same to another person who took charge of the administration of the said property, it is but reasonable and
just to conclude that the said agent had expressly and definitely renounced his agency and that such
agency was duly terminated, in accordance with the provisions of article 1732 of the Civil Code, and,
although the agent in his aforementioned letter did not use the words "renouncing the agency," yet such
words were undoubtedly so understood and accepted by the principal, because of the lapse of nearly nine
years up to the time of the latter's death, without his having interrogated either the renouncing agent,
disapproving what he had done, or the person who substituted the latter.
2.ID. ; ID. ; ID.The person who took charge of the administration of property without express
authorization and without a power of attorney executed by the owner thereof, and performed the duties of
his office without opposition or absolute prohibition on the owner's part, expressly communicated to the
said person, is concluded to have administered the said property by virtue of an 'implied agency, in
acordance with the provisions of article 1710 of the Civil Code, since the said owner of the property,
knowing perfectly well that the said person took charge of the administration of the same, through
designation by such owner's former agent who had to absent himself from the place for well-founded
reasons, remained silent for nearly nine years. Although he did not send a new power of attorney to the
said person who took charge of his property, the fact remains that, during the .period stated, he neither
opposed nor prohibited the new agent with respect to the administration, nor did he appoint another person
in his confidence; wherefore it must be concluded that this new agent acted by virtue of an implied
agency, equivalent to a legitimate agency, tacitly conferred by the owner of the property administered.
3.ID. ; ID. ; ID.It is improper to compare the case where the owner of the property is unaware of the
officious management of a third party in the former's interests, with the case where, having perfect
knowledge that his interests and property were so being managed and administered, he did not object, but
in fact consented to such management and administration for many years; for the reason that an
administration by virtue of an implied agency derives its origin from a contract, and the management of
another's business without the knowledge of the owner thereof, is based solely on a quasi-contracta
distinction sanctioned by the jurisprudence established by the supreme court of Spain in its decision of
July 7, 1881.
4.ID. ; ID. ; ID.The agent and administrator who was obliged to leave his charge for a legitimate cause
and who duly informed his principal, is thenceforward released and freed from the results and
consequences of the management of the person who substituted him with the consent, even tacit though it
be, of his principal. For this reason, the latter has no right to claim damages against his former agent
whose conduct was in accordance with the provisions of article 1736 of the Civil Code, for the care of the
property and interests of another can not require that the agent make the sacrifice of his health, of his life,
and of his own interests, it having been shown that it was impossible for the latter to continue in the
discharge of his duties.
5. ID.; ID.; ID.; LIABILITY OF ADMINISTRATOR.The administrator is only responsible for the
result and consequences of his administration during the period when he had charge of his principal's

property. His responsibility can not be held to extend beyond the period of his administration, especially
as the representative of the testate succession of the deceased owner of the property ad issued in his favor
an instrument whereby he acknowledges that the said administration was satisfactorily terminated.
6.ID.; ID.; ID.; ACCOUNTING; PAYMENT.It is not sufficient that the agent shall have rendered a
satisfactory accounting; in addition thereto it is indispensable that he pay to his principal, or to the owner
of the property administered, any balance shown by such accounts.
7.DEBTS AND DEBTORS; INTEREST.According to the provisions of article 1755 of the Civil Code,
interest shall be owed only when it has been expressly stipulated, and article 1108 of the same code
provides that should the debtor, who is obliged to pay a certain sum of money, be in default and fail to
fulfill the agreement made with his creditor, he must pay, as indemnity for losses and damages, should
there be no stipulation to the contrary, the interest agreed upon, and should there be no express stipulation,
the legal interest; but, in order that the debtor may be considered to be in default and obliged to pay such
indemnity it is necessary, as a general rule, that his creditor demand of him the fulfillment of his
obligation, judicially or extrajudicially, except in such cases as are limitedly specified in article 1100 of
the aforesaid code. De la Pea vs. Hidalgo., 16 Phil. 450(1910)
G.R. No. L-5486

August 17, 1910

JOSE DE LA PEA Y DE RAMON, plaintiff-appellant,

vs.
FEDERICO HIDALGO, defendant-appellant.
O'Brien and DeWitt, for plaintiff and appellant.
E. Gutierrez Repilde, for defendant and appellant.
TORRES, J.:
On May 23, 1906, Jose dela Pea y de Ramon, and Vicenta de Ramon, in her own behalf and as the legal
guardian of her son Roberto de la Pea, filed in the Court of First Instance of Manila a written complaint
against of Federico Hidalgo, Antonio Hidalgo, and Francisco Hidalgo, and, after the said complaint,
already amended, had been answered by the defendants Antonio and Francisco Hidalgo, and the other
defendant, Federico Hidalgo, had moved for the dismissal of this complaint, the plaintiff, Jose de la Pea y
de Ramon, as the judicial administrator of the estate of the deceased Jose de la Pea y Gomiz, with the
consent of the court filed a second amended complaint prosecuting his action solely against Federico
Hidalgo, who answered the same in writing on the 21st of may and at the same time filed a counterclaim,
which was also answered by the defendant.
On October 22, 1907, the case was brought up for hearing and oral testimony was adduced by both parties,
the exhibits introduced being attached to the record. In view of such testimony and of documentary
evidence, the court, on March 24, 1908, rendered judgment in favor of the plaintiff-administrator for the
sum of P13,606.19 and legal interest from the date of the filing of the complaint on May 24, 1906, and the
costs of the trial.
Both the plaintiff and the defendant filed notice of appeal from this judgment and also asked for the
annulment of the same and for a new trial, on the ground that the evidence did not justify the said
judgment and that the latter was contrary to law. The defendant, on April 1, 1908, presented a written
motion for new hearing, alleging the discovery of new evidence favorable to him and which would

necessarily influence the decision such evidence or to introduce it at the trial of the case, notwithstanding
the fact that he had used all due diligence. His petition was accompanied by affidavits from Attorney
Eduardo Gutierrez Repilde and Federico Hidalgo, and was granted by order of the court of the 4th of
April.
At this stage of the proceedings and on August 10, 1908, the plaintiff Pea y De Ramon filed a third
amended complaint, with the permission of the court, alleging, among other things, as a first cause of
action, that during the period of time from November 12, 1887, to January 7, 1904, when Federico
Hidalgo had possession of and administered the following properties, to wit; one house and lot at No. 48
Calle San Luis; another house and lot at No. 6 Calle Cortada; another house and lot at 56 Calle San Luis,
and a fenced lot on the same street, all of the district of Ermita, and another house and lot at No. 81 Calle
Looban de Paco, belonging to his principal, Jose de la Pea y Gomiz, according to the power of attorney
executed in his favor and exhibited with the complaint under letter A, the defendant, as such agent,
collected the rents and income from the said properties, amounting to P50,244, which sum, collected in
partial amounts and on different dates, he should have deposited, in accordance with the verbal agreement
between the deceased and himself, the defendant, in the general treasury of the Spanish Government at an
interest of 5 per cent per annum, which interest on accrual was likewise to be deposited in order that it also
might bear interest; that the defendant did not remit or pay to Jose de la Pea y Gomiz, during the latter's
lifetime, nor to nay representative of the said De la Pea y Gomiz, the sum aforestated nor any part
thereof, with the sole exception of P1,289.03, nor has he deposited the unpaid balance of the said sum in
the treasury, according to agreement, wherefore he has become liable to his principal and to the defendantadministrator for the said sum, together with its interest, which amounts to P72,548.24 and that, whereas
the defendant has not paid over all nor any part of the last mentioned sum, he is liable for the same, as
well as for the interest thereon at 6 per cent per annum from the time of the filing of the complaint, and for
the costs of the suit.
In the said amended complaint, the plaintiff alleged as a second cause of action: That on December 9,
1887, Gonzalo Tuason deposited in the general treasury of the Spanish Government, to the credit of Pea
y Gomiz, the sum of 6,360 pesos, at 5 per cent interest per annum, and on December 20, 1888, the
defendant, as the agent of Pea y Gomiz, withdrew the said amount with its interest, that is, 6,751.60
pesos, and disposed of the same for his own use and benefit, without having paid all or any part of the said
sum to Pea y Gomiz, or to the plaintiff after the latter's death, notwithstanding the demands made upon
him: wherefore the defendant now owes the said sum of 6,751.60 pesos, with interest at the rate of 5 per
cent per annum, compounded annually, from the 20th of December, 1888, to the time of the filing of this
complaint, and from the latter date at 6 per cent, in accordance with law.
The complaint recites as a third cause of action: that, on or about November 25, 1887, defendant's
principal, Pea y Gomiz, on his voyage to Spain, remitted from Singapore, one of the ports to call, to
Father Ramon Caviedas, a Franciscan friar residing in this city, the sum of 6,000 pesos with the request to
deliver the same, which he did, to defendant, who, on receiving this money, appropriated it to himself and
converted it to his own use and benefit, since he only remitted to Pea y Gomiz in Sapin, by draft, 737.24
pesos, on December 20, 1888; and, later, on December 21, 1889, he likewise remitted by another draft 860
pesos, without having returned or paid the balance of the said sum, notwithstanding the demands made
upon him so to do: wherefore the defendant owes to the plaintiff, for the third cause of action, the sum of
P4,402.76, with interest at the rate of 5 per cent per annum, compounded yearly, to the time of the filing of
the complaint and with interest at 6 per cent from that date, as provided by law.
As a fourth cause of action the plaintiff alleges that, on or about January 23, 1904, on his arrival from
Spain and without having any knowledge or information of the true condition of affairs relative to the
property of the deceased Pea y Gomiz and its administration, he delivered and paid to the defendant at

his request the sum of P2,000, derived from the property of the deceased, which sum the defendant has not
returned notwithstanding the demands made upon him so to do.
Wherefore the plaintiff petitions the court to render judgment sentencing the defendant to pay, as first
cause of action, the sum of P72,548.24, with interest thereon at the rate of 6 per cent per annum from May
24, 1906, the date of the filing of the complaint, and the costs; as a second cause of action, the sum of
P15,774.19, with interest at the rate of 6 per cent per annum from the said date of the filing of the
complaint, and costs; as a third cause of action, P9,811.13, with interest from the aforesaid date, and costs;
and, finally, as a fourth cause of action, he prays that the defendant be sentenced to refund the sum of
P2,000, with interest thereon at the rate of 6 per cent per annum from the 23d of January, 1904, and to pay
the costs of trial.
The defendant, Federico Hidalgo, in his answer to the third amended complaint, sets forth: That he admits
the second, third, and fourth allegations contained in the first, second, third, and fourth causes of action,
and denies generally and specifically each one and all of the allegations contained in the complaint, with
the exception of those expressly admitted in his answer; that, as a special defense against the first cause of
action, he, the defendant, alleges that on November 18, 1887, by virtue of the powers conferred upon him
by Pea y Gomiz, he took charge of the administration of the latter's property and administered the same
until December 31, 1893, when for reasons of health he ceased to discharge the duties of said position;
that during the years 1889, 1890, 1891, and 1892, the defendant continually by letter requested Pea y
Gomiz, his principal, to appoint a person to substitute him in the administration of the latter's property,
inasmuch as the defendant, for reasons of health, was unable to continue in his trust; that, on March 22,
1894, the defendant Federico Hidalgo, because of serious illness, was absolutely obliged to leave these
Islands and embarked on the steamer Isla de Luzon for Sapin, on which date the defendant notified his
principal that, for the reason aforestated, he had renounced his powers and turned over the administration
of his property to Antonio Hidalgo, to whom he should transmit a power of attorney for the fulfillment, in
due form, of the trust that the defendant had been discharging since January 1, 1894, or else execute a
power of attorney in favor of such other person as he might deem proper;
That prior to the said date of March 22, the defendant came, rendered accounts to his principal, and on the
date when he embarked for Spain rendered the accounts pertaining to the years 1892 and 1893, which
were those that yet remained to be forwarded, and transmitted to him a general statement of accounts
embracing the period from November 18, 1887, to December 31, 1893, with a balance of 6,774.50 pesos
in favor of Pea y Gomiz, which remained in the control of the acting administrator, Antonio Hidalgo; that
from the 22nd of March, 1894, when the defendant left these Islands, to the date of his answer to the said
complaint, he has not again intervened nor taken any part directly or indirectly in the administration of the
property of Pea y Gomiz, the latter's administrator by express authorization having been Antonio
Hidalgo, from January 1, 1894, to October, 1902, who, on this latter date, delegated his powers to
Francisco Hidalgo, who in turn administered the said property until January 7, 1904; that the defendant,
notwithstanding his having rendered, in 1894, all his accounts to Jose Pea y Gomiz, again rendered to the
plaintiff in 1904 those pertaining to the period from 1887 to December 31, 1893, which accounts the
plaintiff approved without any protest whatever and received to his entire satisfaction the balance due and
the vouchers and documents and documents relating to the property of the deceased Pea y Gomiz and
issued to the defendant the proper acquaintance therefor.
As a special defense to the second cause of action, the defendant alleged that, on December 9, 1886, Jose
de la Pea y Gomiz himself deposited in the caja general de depositos (General Deposit Bank) the sum of
6,000 pesos, at 6 per cent interest for the term of one year, in two deposit receipts of 3,000 pesos each,
which two deposit receipts, with the interest accrued thereon, amounted to 6,360 pesos, ad were collected
by Gonzalo Tuason, through indorsement by Pea y Gomiz, on December 9, 1887, and on this same date

Tuason, in the name of Pea y Gomiz, again deposited the said sum of 6,360 pesos in the General Deposit
Bank, at the same rate of interest, for the term of one year and in two deposit receipts of 3,180 pesos each,
registered under Nos. 1336 and 1337; that, on December 20, 1888, father Ramon Caviedas, a Franciscan
friar, delivered to the defendant, Federico Hidalgo, by order of De la Pea y Gomiz, the said two deposit
receipts with the request to collect the interest due thereon viz., 741.60 pesos an to remit it by draft on
London, drawn in favor of De la Pea y Gomiz, to deposit again the 6,000 pesos in the said General
Deposit Bank, for one year, in a single deposit, and in the latter's name, and to deliver to him, the said
Father Caviedas, the corresponding deposit receipt and the draft on London for their transmittal to Pea y
Gomiz: all of which was performed by the defendant who acquired the said draft in favor of De la Pea y
Gomiz from the Chartered Bank of India, Australia and China, on December 20, 1888, and delivered the
draft, together with the receipt from the General Deposit Bank, to Father Caviedas, and on the same date,
by letter, notified Pea y Gomiz of the transactions executed; that on December 20, 1889, the said Father
Hidalgo, by order of Pea y Gomiz, the aforesaid deposit receipt from the General Deposit Bank, with the
request to remit, in favor of his constituent, the interest thereon, amounting to 360 pesos, besides 500
pesos of the capital, that is 860 pesos in all, and to again deposit the rest, 5,500 pesos, in the General
Deposit Bank for another year in Pea y Gomiz's own name, and to deliver to Father Caviedas the deposit
receipt and the draft on London, for their transmittal to his constituent; all of which the defendant did; he
again deposited the rest of the capital, 5,500 pesos, in the General Deposit Bank, in the name of Pea y
Gomiz, for one year at 5 per cent interest, under registry number 3,320, and obtained from the house of J.
M. Tuason and Co. a draft on London for 860 pesos in favor of Pea y Gomiz, on December 21, 1889, and
thereupon delivered the said receipt and draft to Father Caviedas, of which acts, when performed, the
defendant advised Pea y Gomiz by letter of December 24, 1889' and that, on December 20, 1890, the said
Father Ramon Caviedas delivered to the defendant, by order of Pea y Gomiz, the said deposit receipt for
5,500 pesos with the request that he withdraw from the General Deposit Bank the capital and accrued
interest, which amounted all together to 5,775 pesos, and that he deliver this amount to Father Caviedas,
which he did, in order that it might be remitted to Pea y Gomiz.
The defendant denied each of the allegations contained in the third cause of action, and avers that they are
all false and calumnious.
He likewise makes a general and specific denial of all the allegations of the fourth cause of action.
As a counterclaim the defendant alleges that Jose Pea y Gomiz owed and had not paid the defendant, up
to the date of his death, the sum of 4,000 pesos with interest at 6 per cent per annum, and 3,600 pesos, and
on the plaintiff's being presented with the receipt subscribed by his father, Pea y Gomiz, on the said date
of January 15th, and evidencing his debt, plaintiff freely and voluntarily offered to exchange for the said
receipt another document executed by him, and transcribed in the complaint. Defendant further alleges
that, up to the date of his counterclaim, the plaintiff has not paid him the said sum, with the exception of
2,000 pesos. Wherefore the defendant prays the court to render judgment absolving him from the
complaint with the costs against the plaintiff, and to adjudge that the latter shall pay to the defendant the
sum 9,000 pesos, which he still owes defendant, with legal interest thereon from the date of the
counterclaim, to wit, May 21, 1907, and to grant such other and further relief as may be just and equitable.
On the 25th of September, 1908, and subsequent dates, the new trial was held; oral testimony was adduced
by both parties, and the documentary evidence was attached to the record of the proceedings, which show
that the defendant objected and took exception to the introduction of certain oral and documentary
evidence produced by the plaintiff. On February 26, 1909, the court in deciding the case found that the
defendant, Federico Hidalgo, as administrator of the estate of the deceased Pea y Gomiz, actually owed
by the plaintiff, on the date of the filing of the complaint, the sum of P37,084.93; that the plaintiff was not
entitled to recover any sum whatever from the defendant for the alleged second, third, and fourth causes of

action; that the plaintiff actually owed the defendant, on the filing of the complaint, the sum of P10,155,
which the defendant was entitled to deduct from the sum owing by him to the plaintiff. Judgment was
therefore entered against the defendant, Federico Hidalgo, for the payment of P26,629.93, with interest
thereon at the rate of 6 per cent per annum from May 23, 1906, and the costs of the trial.
Both parties filed written exceptions to this judgment and asked, separately, for its annulment and that a
new trial be ordered, on the grounds that the findings of fact contained in the judgment were not supported
nor justified by the evidence produced, and because the said judgment was contrary to law, the defendant
stating in writing that his exception and motion for a new trial referred exclusively to that part of the
judgment that was condemnatory to him. By order of the 10th of April, 1909, the motions made by both
parties were denied, to which they excepted and announced their intention to file their respective bills of
exceptions.
By written motions of the 24th of March, 1909, the plaintiff prayed for the execution of the said judgment,
and the defendant being informed thereof solicited a suspension of the issuance of the corresponding writ
of execution until his motion for a new trial should be decided or his bill of exceptions for the appeal be
approved, binding himself to give such bond as the court might fix. The court, therefore, by order of the
25th of the same month, granted the suspension asked for, conditioned upon the defendants giving a bond,
fixed at P34,000 by another order of the same date, to guarantee compliance with the judgment rendered
should it be affirmed, or with any other decision that might be rendered in the case by the Supreme Court.
This bond was furnished by the defendant on the 26th of the same month.
On April 16 and May 4, 1909, the defendant and the plaintiff filed their respective bills of exceptions,
which were certified to and approved by order of May 8th and forwarded to the clerk of this court.
Before proceeding to examine the disputed facts to make such legal findings as follows from a
consideration of the same and of the questions of law to which such facts give rise, and for the purpose of
avoiding confusion and obtaining the greatest clearness and an easy comprehension of this decision, it is
indispensable to premise: First, that as before related, the original and first complaint filed by the plaintiff
was drawn against Federico Hidalgo, Antonio Hidalgo, and Francisco Hidalgo, the three persons who had
successively administered the property of Jose de la Pea y Gomiz, now deceased; but afterwards the
action was directed solely against Federico Hidalgo, to the exclusion of the other defendants, Antonio and
Francisco Hidalgo, in the second and third amended complaints, the latter of the date of August 10, 1908,
after the issuance by the court of the order of April 4th of the same year, granting the new trial solicited by
the defendant on his being notified of the ruling of the 24th of the previous month of March; second, that
the administration of the property mentioned, from the time its owner left these Islands and returned to
Spain, lasted from November 18, 1887, to January 7, 1904; and third that, the administration of the said
Federico, Antonio, and Francisco Hidalgo, having lasted so long, it is necessary to divide it into three
periods in order to fix the time during which they respectively administered De la Pea's property: During
the first period, from November 18, 1887, to December 31, 1893, the property of the absent Jose de la
Pea y Gomiz was administered by his agent, Federico Hidalgo, under power of attorney; during the
second period, from January 1, 1894, to September, 1902, Antonio Hidalgo administered the said property,
and during the third period, from October, 1902, to January 7, 1904, Francisco Hidalgo was its
administrator.
Before Jose de la Pea y Gomiz embarked for Spain, on November 12, 1887, he executed before a notary
a power of attorney in favor of Federico Hidalgo, Antonio L. Rocha, Francisco Roxas and Isidro Llado, so
that, as his agents, they might represent him and administer, in the order in which they were appointed,

various properties he owned and possessed in Manila. The first agent, Federico Hidalgo, took charge of
the administration of the said property on the 18th of November, 1887.
After Federico Hidalgo had occupied the position of agent and administrator of De la Pea's property for
several years, the former wrote to the latter requesting him to designate a person who might substitute him
in his said position in the event of his being obliged to absent himself from these Islands, as one of those
appointed in the said power of attorney had died and the others did not wish to take charge of the
administration of their principal's property. The defendant, Hidalgo, stated that his constituent, Pea y
Gomiz, did not even answer his letters, to approve or object to the former's accounts, and did not appoint
or designate another person who might substitute the defendant in his administration of his constituent's
property. These statements were neither denied nor proven to be the record show any evidence tending to
disapprove them, while it does show, attached to the record and exhibited by the defendant himself,
several letters written by Hidalgo and addressed to Pea y Gomiz, which prove the said statements, and
also a letter from the priest Pedro Gomiz, a relative of the deceased Jose de la Pea y Gomiz, addressed to
Federico Hidalgo, telling the latter that the writer had seen among the papers of the deceased several
letters from the agent, Federico Hidalgo, in which the latter requested the designation of a substitute,
because he had to leave this country for Spain, and also asked for the approval or disapproval of the
accounts of his administration which had been transmitted to his constituent, Pea y Gomiz.
For reasons of health and by order of his physician, Federico Hidalgo was obliged, on March 22, 1894, to
embark for Spain, and, on preparing for his departure, he rendered the accounts of his administration
corresponding to the last quarters, up to December 31, 1893, not as yet transmitted, and forwarded them to
his constituent with a general statement of all the partial balances, which amounted to the sum total of
6,774.50 pesos, by letter of the date of March 22, 1894, addressed to his principal, Pea y Gomiz. In this
letter the defendant informed the latter of the writer's intended departure from this country and of his
having provisionally turned over the administration of the said property to his cousin, Antonio Hidalgo,
upon whom the writer had conferred a general power of attorney, but asking, in case that this was not
sufficient, that Pea send to Antonio Hidalgo a new power of attorney.
This notifications is of the greatest importance in the decision of this case. The plaintiff avers that he
found no such letter among his father's papers after the latter's death, for which reason he did not have it in
his possession, but on the introduction of a copy thereof by the defendant at the trial, it was admitted
without objection by the plaintiff (p. 81 of the record); wherefore, in spite of the denial of the plaintiff and
of his averment of his not having found that said original among his father's papers, justice demands that it
be concluded that this letter of the 22d of March, 1894, was sent to, and was received by Jose de la Pea y
Gomiz, during his lifetime, for its transmittal, with inclosure of the last partial accounts of Federico
Hidalgo's administration and of the general resume of balances, being affirmed by the defendant, the fact
of the plaintiff's having found among his deceased father's paper's the said resume which he exhibited at
the trial, shows conclusively that it was received by the deceased, as well as the letter of transmittal of the
22nd of March, 1894, one of the several letters written by Hidalgo, which the said priest, Father Gomiz,
affirms that he saw among the papers of the deceased Pea, the dates of which ran from 1890 to 1894; and
it is also shown by the record that the defendant Hidalgo positively asserted that the said letter of March
was the only one that he wrote to Pea during the year 1894; From all of which it is deduced that the
constituent, Pea y Gomiz, was informed of the departure of his agent from these Islands for reasons of
health and because of the physician's advice, of the latter's having turned over the administration of the
property to Antonio Hidalgo, and of his agent's the defendant's petition that he send a new power of
attorney to the substitute.
The existence, amount the papers of the deceased, of the aforementioned statement of all accounts
rendered, which comprise the whole period of the administration of the property of the constituent by the

defendant, Federico Hidalgo, from November 18, 1887, to December 31, 1893 a statement transmitted
with the last partial accounts which were a continuation of those already previously received and the
said letter of March 22, 1894, fully prove that Jose de la Pea y Gomiz also received the said letter,
informed himself of its contents, and had full knowledge that Antonio Hidalgo commenced to administer
his property from January of that year. They likewise prove that he did no see fit to execute a new power
of attorney in the letter's favor, nor to appoint or designate a new agent to take charge of the administration
of his property that had been abandoned by the defendant, Federico Hidalgo.
From the procedure followed by the agent, Federico Hidalgo, it is logically inferred that he had definitely
renounced his agency was duly terminated, according to the provisions of article 1732 of the Civil Code,
because, although in the said letter of March 22, 1894, the word "renounce" was not employed in
connection with the agency or power of attorney executed in his favor, yet when the agent informs his
principal that for reasons of health and by medical advice he is about to depart from the place where he is
exercising his trust and where the property subject to his administration is situated, abandons the property,
turns it over a third party, without stating when he may return to take charge of the administration, renders
accounts of its revenues up to a certain date, December 31, 1893, and transmits to his principal a general
statement which summarizes and embraces all the balances of his accounts since he began to exercise his
agency to the date when he ceased to hold his trust, and asks that a power of attorney in due form in due
form be executed and transmitted to another person who substituted him and took charge of the
administration of the principal's property, it is then reasonable and just to conclude that the said agent
expressly and definitely renounced his agency, and it may not be alleged that the designation of Antonio
Hidalgo to take charge of the said administration was that of a mere proceed lasted for more than fifteen
years, for such an allegation would be in conflict with the nature of the agency.
This renouncement was confirmed by the subsequent procedure, as well as of the agent as of the principal,
until the latter died, on August 2, 1902, since the principal Pea did not disapprove the designation of
Antonio Hidalgo, nor did he appoint another, nor send a new power of attorney to the same, as he was
requested to by the previous administrator who abandoned his charge; and the trial record certainly
contains no proof that the defendant, since he left these Islands in March, 1894, until January, 1904, when
he returned to this city, took any part whatever, directly or even indirectly, in the said administration of the
principal's property, while Antonio Hidalgo was the only person who was in charge of the aforementioned
administration of De la Pea y Gomiz's property and the one who was to represent the latter in his
business affairs, with his tacit consent. From all of which it is perfectly concluded (unless here be proof to
the contrary, and none appears in the record), that Antonio Hidalgo acted in the matter of the
administration of the property of Jose de la Pea y Gomiz by virtue of an implied agency derived from the
latter, in accordance with the provisions of article 1710 of the Civil Code.
The proof of the tacit consent of the principal, Jose de la Pea y Gomiz, the owner of the property
administered a consent embracing the essential element of a legitimate agency, article 1710 before
cited consists in that Pea, knowing that on account of the departure of Federico Hidalgo from the
Philippines for reasons of health, Antonio Hidalgo took charge of the administration of his property, for
which Federico Hidalgo, his agent, who was giving up his trust, requested him to send a new power of
attorney in favor of the said Antonio Hidalgo, nevertheless he, Jose de la Pea y Gomiz, saw fit not to
execute nor transmit any power of attorney whatever to the new administrator of his property and
remained silent for nearly nine years; and, in that the said principal, being able to prohibit the party
designated, Antonio Hidalgo, from continuing in the exercise of his position as administrator, and being
able to appoint another agent, did neither the one nor the other. Wherefore, in permitting Antonio Hidalgo
to administer his property in this city during such a number of years, it is inferred, from the procedure and
silence of the owner thereof, that he consented to have Antonio Hidalgo administer his property, and in
fact created in his favor an implied agency, as the true and legitimate administrator.

Antonio Hidalgo administered the aforementioned property of De la Pea y Gomiz, not in the character of
business manager, but as agent by virtue of an implied agency vested in him by its owner who was not
unaware of the fact, who knew perfectly well that the said Antonio Hidalgo took charge of the
administration of that property on account of the obligatory absence of his previous agent for whom it was
an impossibility to continue in the discharge of his duties.

In the power of attorney executed by Pea y Gomiz in this city on November 12, 1887, in favor of, among
others, Federico Hidalgo, no authority was conferred upon the latter by his principal to substitute the
power or agency in favor of another person; wherefore the agent could not, by virtue of the said power of
attorney, appoint any person to substitute or relieve him in the administration of the principal's property,
for the lack of a clause of substitution in the said instrument authorizing him so to do.

It is improper to compare the case where the owner of the property is ignorant of the officious
management of the third party, with the case where he had perfect knowledge of the management and
administration of the same, which administration and management, far from being opposed by him was
indeed consented to by him for nearly nine years, as was done by Pea y Gomiz. The administration and
management, by virtue of an implied agency, is essentially distinguished from that management of
another's business, in this respect, that while the former originated from a contract, the latter is derived
only from a qausi-contract.

The designation of Antonio Hidalgo was not made as a result of substitution of the power of attorney
executed by Pea in favor of the defendant, but in order that the principal's property should not be
abandoned, inasmuch as, for the purposes of the discharge of the duties of administrator of the same, the
agent, who was about to absent himself from this city, requested his principal to send to the party,
provisionally designated by the former, a new power of attorney, for the reason that the general power of
attorney which Federico Hidalgo had left, executed in favor of his cousin Antonio Hidalgo, was so
executed in his own name and for his own affairs, and not in the name of Pea y Gomiz, as the latter had
not authorized him to take such action.

The implied agency is founded on the lack of contradiction or opposition, which constitutes simultaneous
agreement on the part of the presumed principal to the execution of the contract, while in the management
of another's business there is no simultaneous consent, either express or implied, but a fiction or
presumption of consent because of the benefit received.
The distinction between an agency and a business management has been established by the jurisprudence
of the supreme court (of Spain) in its noteworthy decision of the 7th of July, 1881, setting up the following
doctrine:
That laws 28 and 32, title 12 Partida 3, refer to the expenses incurred in things not one's own
and without power of attorney from those to whom they belong, and therefore the said laws are
not applicable to this suit where the petition of the plaintiff is founded on the verbal request
made to him by the defendant or the latter's employees to do some hauling, and where,
consequently, questions that arise from a contract that produces reciprocal rights and duties can
not be governed by the said laws.
It being absolutely necessary for Federico Hidalgo to leave this city and abandon the administration of the
property of his principal, Pea y Gomiz, for reasons of health, he made delivery of the property and of his
administration to Antonio Hidalgo and gave notice of what he had done to his constituent, Pea, in order
that the latter might send a new power of attorney to Antonio Hidalgo, the person charged with the
administration of the property. Pea y Gomiz did not send the power of attorney requested, did not oppose
or prohibit Antonio Hidalgo's containing to administer his property, and consented to his doing so for
nearly nine years. Consequently the second administrator must be considered as a legitimate agent of the
said principal, as a result of the tacit agreement on the latter's part, and the previous agent, who necessarily
abandoned and ceased to hold his position, as completely free and clear from the consequences and results
of the second administration, continued by a third party and accepted by his principal; for it is a fact,
undenied nor even doubted, that the said first administrator had to abandon this country and the
administration of Pea's property for reasons of health, which made it possible for him to continue in the
discharge of his duties without serious detriment to himself, his conduct being in accordance with the
provisions of article 1736 of the Civil Code.

If the owner of the property provisionally administered at the time by Antonio Hidalgo, saw fit to keep
silent, even after having received the aforesaid letter of March 22, 1894, and during the lapse of nearly ten
years, without counter commanding or disapproving the designation of the person who took charge of the
administration of his property, knowing perfectly well that his previous agent was obliged, by sickness and
medical advice to leave this city where such property was situated, he is not entitled afterwards to hold
amenable the agent who had to abandon this country for good and valid reasons, inasmuch as the latter
immediately reported to his principal the action taken by himself and informed him of the person who had
taken charge of the administration of his property, which otherwise would have been left abandoned. From
the time of that notification the agent who, for legitimate cause, ceased to exercise his trust, was free and
clear from the results and consequences of the management of the person who substituted him with the
consent, even only a tacit one, of the principal, inasmuch as the said owner of the property could have
objected to could have prohibited the continuance in the administration thereof, of the party designated by
his agent, and could have opportunely appointed another agent or mandatory of his own confidence to
look after his property and if he did not do so, he is obliged to abide by the consequences of his negligence
and abandonment and has no right to claim damages against his previous agent, who complied with his
duty and did all that he could and ought to have done, in accordance with the law.
The defendant Federico Hidalgo, having ceased in his administration of the property belonging to Pea y
Gomiz, on account of physical impossibility, which cessation he duly reported to his principal and also
informed him of the person who relieved him as such administrator, and for whom he had requested a new
power of attorney, is only liable for the results and consequences of his administration during the period
when the said property was in his charge, and therefore his liability can not extend beyond the period of
his management, as his agency terminated by the tacit or implied approval of his principal, judging from
the latter's silence in neither objecting to nor in anywise prohibiting Antonio Hidalgo's continuing to
administer his property, notwithstanding the lapse of the many years since he learned by letter of the
action taken by his previous agent, Federico Hidalgo.
Moreover, this latter, in announcing the termination of his agency, transmitted the last partial accounts that
he had not rendered, up to December 31, 1893, together with a general statement of all the resulting
balances covering the period of his administration, and Jose de la Pea y Gomiz remained silent and
offered no objection whatever to the said accounts and did not manifest his disapproval of the same nor of
the general statement, which he must have received in April or may, 1894, to the time he died, in August,
1902; and when his son, the plaintiff, came to this city in company with the defendant, Federico Hidalgo,
they traveled together from Spain and arrived in Manila during one of the early days of January, 1904, the
former, for the purpose of taking charge of the estate left by his father, and after the plaintiff had examined

the accounts kept by Federico Hidalgo, his deceased father's first agent, he approved them and therefore
issued in favor of the defendant the document, Exhibit 5, found on page 936 of the second record of trial,
dated January 15, 1904, in which Jose de la Pea y de Ramon acknowledged having received from his
deceased father's old agent the accounts, balances, and vouchers to his entire satisfaction, and gave an
acquittance in full settlement of the administration that had been commended to the defendant Hidalgo.
This document, written in the handwriting of the plaintiff, Pea y de Ramon, appears to be executed in a
form considered to be sufficient by its author, and, notwithstanding the allegations of the said plaintiff, the
record contains no proof of any kind of Federico Hidalgo's having obtained it by coercion, intimidation,
deceit, or fraud; neither is its shown to have been duly impugned as false, criminally or civilly, for the
statements therein made by the plaintiff are too explicit and definite to allow, without proof of some vice
or defect leading to nullification, of its being considered as void and without value or legal effect.
With respect to the responsibility contracted by the defendant, as regards the payment of the balance
shown by the accounts rendered by him, it is not enough that the agent should have satisfactorily rendered
the accounts pertaining to his trust, but it is also indispensable that it be proved that he had paid to his
principal, or to the owner of the property administered, the balance resulting from his accounts. This
balance, which was allowed in the judgment appealed from, notwithstanding the allegations of the
plaintiff, which were not deemed as established, amounts to P6,774.50, according to the proofs adduced at
the trial. It was the imperative duty of the administrator, Federico Hidalgo, to transmit this sum to his
principal, Jose de la Pea y Gomiz, as the final balance of the accounts of his administration, struck on
December 31, 1893, and by his failure so to do and delivery of the said sum to his successor, Antonio
Hidalgo, he acted improperly, and must pay the same to the plaintiff.
Antonio Hidalgo took charge of the administration of Pea y Gomiz's property from January, 1894, to
September, 1902, that is, during the second period of administration of the several properties that belonged
to the deceased Pea.
Although the plaintiff, in his original complaint, had included the said Antonio Hidalgo as one of the
responsible defendants, yet he afterwards excluded him, as well from the second as from the third
amended complaint, and consequently the liability that might attach to Antonio Hidalgo was not
discussed, nor was it considered in the judgment of the lower court; neither can it be in the decision, for
the reason that the said Antonio Hidalgo is not a party to this suit. However, the said liability of Antonio
Hidalgo is imputed to Federico Hidalgo, and so it is that, in the complain t, the claim is made solely
against Federico Hidalgo, in order that the latter might be adjudged to pay the amounts which constitute
the balance owing from him who might be responsible, Antonio Hidalgo, during the period of this latter's
administration.
Federico Hidalgo, in our opinion, could not and can not be responsible for the administration of the
property that belonged to the deceased Pea y Gomiz, which was administered by Antonio Hidalgo during
eight years and some months, that is, during the second period, because of the sole fact of his having
turned over to the latter the administration of the said property on his departure from this city of Spain.
Neither law nor reason obliged Federico Hidalgo to remain in this country at the cost of his health and
perhaps of his life, even though he were the administrator of certain property belonged to Pea y Gomiz,
since the care of the property and interests of another does not require sacrifice on the part of the agent of
his own life and interests. Federico Hidalgo was obliged to deliver the said property belonging to Pea y
Gomiz to Antonio Hidalgo for good and valid reasons, and reasons, and in proceeding in the manner
aforesaid he complied with the duty required of him by law and justice and acted as a diligent agent. If the
principal, Jose de la Pea Gomiz, the owner of the property mentioned, although informed opportunely of

what had occurred saw fit to keep silent, not to object to the arrangements made, not to send the power of
attorney requested by Federico Hidalgo in favor of Antonio Hidalgo, and took no action nor made any
inquiry whatever to ascertain how his property was being administered by the second agent, although to
the time of his death more than eight years had elapsed, the previous agent, who ceased in the discharge of
his duties, can in nowise be held liable for the consequences of such abandonment, nor for the results of
the administration of property by Antonio Hidalgo, for the reason that, since his departure from this
country, he has not had the least intervention nor even indirect participation in the aforementioned
administration of the said Antonio Hidalgo who, under the law, was the agent or administrator by virtue of
an implied agency, which is equivalent in its results to an express agency, executed by the owner of the
property. Consequently, Federico Hidalgo is not required to render accounts of the administration
corresponding to the second period mentioned, nor to pay the balance that such accounts may show to be
owing.
At the first trial of this cause, Federico Hidalgo, testified under oath that his principal, Jose Pea y Gomiz,
did not agree to the appointment of Antonio Hidalgo, chosen by the witness, not to such appointee's taking
charge of the administration of his property. Aside from the fact that the trial record does not show honor
on what date Pea expressed such disagreement it is certain that, in view of the theory of defense
maintained by the defendant Hidalgo could have said, by means of a no, that his principal did not agree to
the appointment of the said Antonio Hidalgo, and the intercalation of the word no in the statement quoted
is more inexplicable in that the attorney for the adverse party moved that the said answer be stricken from
the record, as he objected to its appearing therein.
Were it true that the principal Jose de la Pea by Gomiz, had neither agreed to the designation of Antonio
Hidalgo, nor to the latter's administering his property, he would immediately have appointed another agent
and administrator, since he knew that Federico Hidalgo had left the place where his property was situated
and that it would be abandoned, had he not wished that Antonio Hidalgo should continue to administer it.
If the latter continued in the administration of the property for so long a time, nearly nine years, it was
because the said Pea agreed and gave his consent to the acts performed by his outgoing agent, and for
this reason the answer given by Federico Hidalgo mistakenly, or not, that his principal, Pea, did not agree
to the appointment of Antonio Hidalgo, is immaterial and does not affect the terms of this decision.
If the defendant is not responsible for the results of the administration of said property administered by
Antonio Hidalgo during the second period before referred to, neither is he responsible for that performed
during the third period by Francisco Hidalgo, inasmuch as the latter was not even chosen by the defendant
who, on October 1, 1902, when Francisco Hidalgo took charge of Peas' property that had been turned
over to him by Antonio Hidalgo, was in Spain and had no knowledge of nor intervention in such delivery;
wherefore the defendant can in no manner be obliged to pay to the plaintiff any sum that may be found
owing by Francisco Hidalgo.
The trial judge taking into consideration that, by the evidence adduced at the hearing, it was proved
that Francisco Hidalgo rendered accounts to the plaintiff of the administration of the property in question
during the said third period, that is, for one year, three months, and someday, and that he delivered to the
plaintiff the balance of 1,280.03 pesos, for which the latter issued to the said third administrator the
document Exhibit 2, written in his own handwriting under date of January 7, 1904, and the signature
which, affixed by himself, he admitted in his testimony was authentic, on its being exhibited to him
found that the plaintiff, Pea y de Ramon, was not entitled to recover any sum whatever for the rents
pertaining to the administration of his property by the said Francisco Hidalgo.

All the reasons hereinbefore given relate to the first cause of action, whereby claim is made against
Federico Hidalgo for the payment of the sum of P72,548.24 and interest at the rate of 6 per cent per
centum, and they have decided some of the errors assigned by the appellants in their briefs to the judgment
appealed from.
Two amounts are have claimed which have one and the same origin, yet are based on two causes of action,
the second and the third alleged by the plaintiff; and although the latter, afterwards convinced by the truth
and of the impropriety of his claim, had to waive the said third cause of action during the second hearing
of this cause (pp. 57 and 42 of the record of the evidence), the trial judge, on the grounds that the said
second and third causes of action refer to the same certificates of deposit of the treasury of the Spanish
Government, found, in the judgment appealed from, that the plaintiff was not entitled to recover anything
for the aforesaid second and third causes of action a finding that is proper and just, although qualified
as erroneous by the plaintiff in his brief.
It appears, from the evidence taken in this cause, that Jose de la Pea y Gomiz, according to the
certificates issued by the chief of the division his lifetime, after having in 1882 withdrawn from the
General Deposit Bank of the Spanish Government a deposit of 17,000 pesos and its interest deposit any
sum therein until December 9, 1886, when he deposited two amounts of 3,000 pesos each, that is, 6,000
pesos in all, the two deposit receipts for the same being afterwards endorsed in favor of Gonzalo Tuason.
The latter, on December 9, 1887, withdrew the deposit and took out the said two amounts, together with
the interest due thereon, and on the same date redeposited them in the sum of 6,360 pesos at 5 per cent per
annum in the name of Jose de la Pea y Gomiz. On the 20th of December of the following year, 1888, the
defendant Hidalgo received from his principal, Pea y Gomiz, through Father Ramon Caviedas, the two
said letters of credit, in order that he might withdraw from the General Deposit Bank the two amounts
deposited, together with the interest due thereon, amounting to 741 pesos, and with this interest purchase a
draft on London in favor of its owner and then redeposit the original capital of 6,000 pesos. This, the
defendant Hidalgo did and then delivered the draft and the deposit receipt to Father Caviedas, of all of
which transactions he informed his principal by letter of the same date, transcribed on page 947 of the
second trial record.
In the following year, 1889, Father Ramon Caviedas again delivered to the defendant Hidalgo the
aforementioned deposit receipt with the request to withdraw from the General Deposit bank the sum
deposited and to purchase a draft of 860 pesos on London in favor of their owner, Jose de la Pea y
Gomiz, and, after deducting the cost of the said draft from the capital and interest withdrawn from deposit,
amounting to 6,360 pesos, to redeposit the remainder, 5,500 pesos, in the bank mentioned, in accordance
with the instructions from Pea y Gomiz: All of which was done by the defendant Hidalgo, who delivered
to Father Caviedas the receipt for the new deposit of 5,500 pesos as accredited by the reply-letter,
transcribed on page 169 of the record, and by the letter addressed by Hidalgo to Pea, of the date of
December 20 of that year and shown as an original exhibit by the plaintiff himself on page 29 of the
record of the evidence.
Lastly, in December, 1890, Father Caviedas, aforementioned, delivered to the defendant Hidalgo the said
deposit receipt for 5,500 pesos in order that he might withdraw this amount from deposit and deliver it
with the interest thereon to the former for the purpose of remitting it by draft to Jose de la Pea; this
Hidalgo did, according to a reply-letter from Father Caviedas, the original of which appears on page 979
of the file of exhibits and is copied on page 171 of the trial record, and is apparently confirmed by the
latter in his sworn testimony.

So that the two amounts of 3,000 pesos each, expressed in two deposit receipts received from De la Pea y
Gomiz by Father Ramon Caviedas and afterwards delivered to Francisco Hidalgo for the successive
operations of remittance and redeposit in the bank before mentioned, are the same and only ones that were
on deposit in the said bank in the name of their owner, Pea y Gomiz. The defendant Hidalgo made two
remittances by drafts of London, one in 1888 for 741.60 pesos, through a draft purchased from the
Chartered Bank, and another in 1889 for 860 pesos, through a draft purchased from the house of Tuason &
Co., and both in favor of Pea y Gomiz, who received through Father Ramon Caviedas the remainder,
5,500 pesos, of the sums deposited. For these reasons, the trial judge was of the opinion that the
certificates of deposit sent by Pea y Gomiz to Father Ramon Caviedas and those received from the latter
by the defendant Hidalgo were identicals, as were likewise the total amounts expressed by the said
receipts or certificates of deposit, from the sum of which were deducted the amounts remitted to Pea y
Gomiz and the remainder deposited after each anual operation until, finally, the sum of 5,500 pesos was
remitted to its owner, Pea y Gomiz, according to his instructions, through the said Father Caviedas. The
lower court, in concluding its judgment, found that the plaintiff was entitled to recover any sum whatever
for the said second and third causes of action, notwithstanding that, as hereinbefore stated, the said
plaintiff withdrew the third cause of action. This finding of the court, with respect to the collection of the
amounts of the aforementioned deposit receipts, is perfectly legal and in accordance with justice,
inasmuch as it is a sustained by abundant and conclusive documentary evidence, which proves in an
incontrovertible manner the unrighteousness of the claim made by the plaintiff in twice seeking payment,
by means of the said second and third causes of action, of the said sum which, after various operations of
deposit and remittance during three years, was finally returned with its interest to the possession of its
owner, Pea y Gomiz.
From the trial had in this case, it also appears conclusively proved that Jose de la Pea y Gomiz owed,
during his lifetime, to Federico Hidalgo, 7,600 pesos, 4,000 pesos of which were to bear interest at the rate
of 6 per cent per annum, and the remainder without any interest, and that, notwithstanding the lapse of the
period of three years, from November, 1887, within which he bound himself to repay the amount
borrowed, and in spite of his creditor's demand of payment, made by registered letter, the original copy of
which is on page 38 of the file of exhibits and a transcription thereof on page 930 of the first and second
record of the evidence, the debt was not paid up to the time of the debtor's death. For such reasons, the
trial court, in the judgment appealed from, found that there was a preponderance of evidence to prove that
this loan had been made and that the plaintiff actually owed the defendant the sum loaned, as well as the
interest thereon, after deducting therefrom the 2,000 pesos which the defendant received from the plaintiff
on account of the credit, and that the former was entitled to recover.
It appears from the pleadings and evidence at the trial that in January, 1904, on the arrival in this city of
Federico de la Pea de Ramon, and on the occasion of the latter's proceeding to examine the accounts
previously rendered, up to December 31, 1893, by the defendant Hidalgo to the plaintiff's father, then
deceased, Hidalgo made demand upon the plaintiff, Pea y de Ramon, for the payment of the said debt of
his father, although the creditor Hidalgo acceded to the requests of the plaintiff to grant the latter an
extension of time until he should be able to sell one of the properties of the estate. It was at that time,
according to the defendant, that the plaintiff Pea took up the instrument of indebtedness, executed by his
deceased father during his lifetime, and delivered to the defendant in exchange therefor the document of
the date of January 15, 1904, found on page 924 of the second record of evidence, whereby the plaintiff,
Jose de la Pea, bound himself to pay his father's debt of 11,000 pesos, owing to the defendant Hidalgo,
out of the proceeds of the sale of some of the properties specified in the said document, which was written
and signed by the plaintiff in his own handwriting.
The plaintiff not only executed the said document acknowledging his father's debt and binding himself to
settle it, but also, several days after the sale of a lot belonging to the estate, paid to the creditor on account

the sum of 2,000 pesos, according to the receipt issued by the latter and exhibited on page 108 of the first
record of evidence.

sum of P9,000 with legal interest thereon at the rate of 6 per cent per annum from 21st of may, 1907, the
date of the counterclaim.

The said document, expressive of the obligation contracted by the plaintiff Pea y de Ramon that he
would pay to the defendant the debt of plaintiff's deceased father, amounting to 11,000 pesos, out of the
proceeds from some of the properties of the estate, has not been denied nor impugned as false; and not
withstanding the averment made by the plaintiff that when he signed he lacked information and
knowledge of the true condition of the affairs concerning Hidalgo's connection with the property that be
absolutely no proof whatever is shown in the trial record of the creditor's having obtained the said
document through deceit or fraud circumstances in a certain manner incompatible with the explicit
statements contained therein. For these reasons, the trial court, weighing the whole of the evidence
furnished by the record, found that the loan of the said 7,600 pesos was truly and positively made, and that
the plaintiff must pay the same to the defendant, with the interest thereon, and that he was not entitled to
recover the 2,000 pesos, as an undue payment made by him to the defendant creditor. For the foregoing
reason the others errors assigned by the plaintiff to the judgment appealed from are dismissed.

The judgment appealed from, together with that part thereof relative to the statement it contains
concerning the equivalence between the Philippine peso and the Mexican peso, is affirmed in so far as it is
in agreement with the findings of this decision, and the said judgment is reversed in so far as it is not in
accordance herewith. No special finding is made as to costs assessed in either instance, and to the plaintiff
is reserved any right that he may be entitled to enforce against Antonio Hidalgo.

With respect to the obligation to pay the interest due on the amounts concerned in this decision, it must be
borne in mind that, as provided by article 1755 of the Civil Code, interest shall only be owed when it has
been expressly stipulated, and that should the debtor, who is obliged to pay a certain sum of money, be in
default and fail to fulfill the agreement made with his creditor, he must pay, as indemnity for losses and
damages, the interest agreed upon, and should there be no express stipulation, the legal interest (art. 1108
of the Civil Code); but, in order that the debtor may be considered to be in default and obliged to pay the
indemnity, it is required, as a general rule, that his creditor shall demand of such debtor the fulfillment of
his obligation, judicially or extrajudicially, except in such cases as are limitedly specified in article 1100 of
the Civil Code.
It was not expressly stipulated that either the balance of the last account rendered by the defendant
Federico Hidalgo in 1893, or the sum which the plaintiff bound himself to pay to the defendant, in the
instrument of the 15th of January, 1904, should bear interest; nor is there proof that a judicial or
extrajudicial demand was made, on the part of the respective creditors concerned, until the date of
complaint, on the part of the plaintiff, and that of the counterclaim, on the part of the defendant. Therefore
no legal interest is owing for the time prior to the respectives dates of the complaint and counterclaim.
By virtue, then, of the reasons herein before set forth, it is proper, in our opinion, to adjudge, as we do
hereby adjudge, that the defendant, Federico Hidalgo, shall pay to the plaintiff, Jose de la Pea y de
Ramon, as administrator of the estate of the deceased Jose de la Pea y Gomiz, the sum of P6,774.50, and
the legal interest thereon at the rate of 6 per cent per annum from 23rd of May, 1906, the date of the filing
of the original complaint in this case; that we should and hereby do declare that the said defendant
Federico Hidalgo, is not bound to gibe nor render accounts of the administration of the property of the said
deceased Jose de la Pea y Gomiz administered, respectively, by Antonio Hidalgo, from January, 1894, to
September 30, 1902, and by Francisco Hidalgo, from October 1, 1902, to January 7, 1904, and therefore
the defendant, Federico Hidalgo, not being responsible for the results of the administration of the said
property administered by the said Antonio and Francisco Hidalgo, we do absolve the said defendant from
the complaint filed by the plaintiff, in so far as it concerns the accounts pertaining to the aforesaid two
periods of administration and relates to the payment of the balances resulting from such accounts; and that
we should and hereby do absolve the defendant Hidalgo from the complaint with respect to the demand
for the payment of the sums of P15,774.19 and P2,000, with their respective interests, on account of the
second and the fourth cause of action, respectively, and because the plaintiff renounced and withdrew his
complaint, with respect to the third cause of action; and that we should and do likewise adjudge, that the
plaintiff, Jose de la Pea y de Ramon, shall pay to Federico Hidalgo, by reason of the counterclaim, the

Arellano, C.J., Johnson, Moreland and Trent, JJ., concur.

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Is., 66 SCRA 29(1975)
Negotiable Instruments Law; Checks; Banks; Agency; Where check is deposited with a collecting bank
relationship created is that of agency, not creditor-debtor. Same rule follows where after drawee-bank paid
the collecting bank, it was found that signature of payee of checks was forged by one who previously
encashed them.When the petitioner deposited the checks with the respondent, the nature of the
relationship created at that stage was one of agency, that is, the bank was to collect from the drawee of the
checks the corresponding proceeds. It is true that the respondent had already collected the proceeds of the
checks when it debited the petitioners account, so that following the rule in Gullas vs. Philippine National
Bank it might be argued that the relationship between the parties had become that of creditor and debtor as
to preclude the respondent from using the petitioners funds to make payments not authorized by the latter.
It is our view nonetheless that no creditor-debtor relationship was created between the parties. x x x Since
under the foregoing provision of Section 23 of the Negotiable Instruments Law, a forged signature in a
negotiable instrument is wholly inoperative and no right to discharge it or enforce its payment can be
acquired through or under the forged signature except against a party who cannot invoke the forgery, it
stands to reason, upon the facts of record, that the respondent, as a collecting bank which indorsed the
checks to the drawee-banks for clearing, should be liable to the latter for reimbursement, for, as found by
the court a quo and by the appellate court, the indorsements on the checks had been forged prior to their
delivery to the petitioner. In legal contemplation, therefore, the payments made by the drawee-banks to the
respondent on account of the said checks were ineffective; and, such being the case, the relationship of
creditor and debtor between petitioner and the respondent had not been validly effected, the checks not
having been properly and legitimately converted into cash. In Great Eastern Life Ins. Co. vs. Hongkong &
Shanghai Bank, the Court rule that it is the obligation of the collecting bank to reimburse the drawee-bank
the value of the checks subsequently found to contain the forged indorsement of the payee. The reason is
that the bank with which the check was deposited has, no right to pay the sum stated therein to the forger
or anyone else upon a forged signature. x x x The petitioner must in turn shoulder the loss of the
amounts which the respondent, as its collecting agent, had to reimburse to the drawee-banks.
Same; Same; Same; Same; Lapse of 3 months after collecting bank obtained proceeds of checks from
drawee-bank before it informed depositor of fact checks were forged not material where collecting bank
acted promptly upon being informed of forgery. Moreover, depositor of a check as indorser warrants that it
is genuine and in all respects what it purports to be.We do not consider material for the purposes of the
case at bar that more than three months had elapsed since the proceeds of the checks in question were
collected by respondent. The records shows that the respondent had acted promptly after being informed
that the indorsements on the checks were forged. Moreover having received the checks merely for
collection and deposit, the respondent cannot be expected to know or ascertain the genuineness of all prior
indorsements on the said checks. Indeed, having itself indorsed them to the respondent in accordance with
the rules and practices of commercial banks, of which the Court takes due cognizance, the petitioner is
deemed to have given the warranty prescribed in Section 66 of the Negotiable Instruments Law that every
single one of those checks is genuine and in all respects what it purports to be.
Same; Same; Same; Same; One who accepts and encashes a check from an individual knowing that the
payee is a corporation does so at his peril.The petitioner was, moreover, grossly recreant in accepting
the checks in questions from Ramirez. It could not have escaped the attention of the petitioner that the
payee of all the checks was a corporationthe Inter-Island Gas Service, Inc. Yet, the petitioner cashed
these checks, to a mere individual who was admittedly a habitue at its jai-alai games without making any
inquiry as to his authority to exchange checks belonging to the payee-corporation. x x x Any person taking
checks made payable to a corporation, which can act only by agents, does so at his peril, and must abide
by the consequences if the agent who indorses the same is without authority. It must be noted further that
three of the checks in question are crossed checks, namely, exhs. 21, 25 and 27, which may only be
deposited, but not encashed; yet, petitioner negligently accepted them for cash. That two of the crossed

checks, namely, exhs. 21 and 25, are bearer instruments would not, in our view, exculpate the petitioner
from liability with respect to them. The fact that they are bearer checks and at the same time crossed
checks should have aroused the petitioners suspicion as to the title of Ramirez over them and his
authority to cash them (apparently to purchase jai-alai tickets from the petitioner), it appearing on their
face that a corporate entitythe Inter-Island Gas Service, Inc.was the payee thereof.
Same; One who indorses a bearer instrument incurs liability of general indorser that instrument is genuine.
At all events, under Section 67 of the Negotiable Instruments Law, Where a person places his
indorsement on an instrument negotiable by delivery he incurs all the liability of an indorser, and under
Section 66 of the same statute a general indorser warrants that the instrument is genuine and in all
respects what it purports to be.
Same; Contracts; Banks; Checks; Provision in deposit slip that bank reserves to itself right to charge back
item to account of its depositor at any time before current funds actually received by Bank does not negate
right of Bank to debit depositors account for value of forged checks after drawee-bank had paid the
collecting bank because the transfer of funds from drawee-bank to collecting bank in such cases is
ineffectual.The provision in the deposit slip issued by the respondent which stipulates that it reserves
to itself, the right to charge back the item to the account of its depositor, at any time before current
funds or solvent credits shall have been actually received by the Bank, would not materially affect the
conclusion we have reached. That stipulation prescribes that there must be an actual receipt by the bank of
current funds or solvent credits; but as we have earlier indicated the transfer by the drawee-banks of funds
to the respondent on account of the checks in question was ineffectual because made under the mistaken
and valid assumption that the indorsements of the payee thereon were genuine. x x x There was, therefore,
in contemplation of law, no valid payment of money made by the drawee-banks to the respondent on
account of the questioned checks. Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Is., 66 SCRA
29(1975)
JAI-ALAI CORPORATION OF THE PHILIPPINES, Petitioner, v. BANK OF THE PHILIPPINE
ISLAND, Respondent.
CASTRO, J.:
This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter referred to as the petitioner)
for review of the decision of the Court of Appeals in C.A.-G.R. 34042-R dated June 25, 1968 in favor of
the Bank of the Philippine Islands (hereinafter referred to as the respondent).
From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58 were deposited by the
petitioner in its current account with the respondent bank. The particulars of these checks are as follows:
1. Drawn by the Delta Engineering Service upon the Pacific Banking Corporation and payable to the InterIsland Gas Service Inc. or order:
Date Check Exhibit
Deposited Number Amount Number
4/2/59 B-352680 P500.00 18
4/20/59 A-156907 372.32 19

4/24/59 A-156924 397.82 20

5/4/59 B-364764 250.00 23

collecting bank, the return of the amounts they had paid on account thereof. When the drawee-banks
returned the checks to the respondent, the latter paid their value which the former in turn paid to the InterIsland Gas. The respondent, for its part, debited the petitioner's current account and forwarded to the latter
the checks containing the forged indorsements, which the petitioner, however, refused to accept.

5/6/59 B-364775 250.00 24

2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation and payable to the InterIsland Gas Service, Inc. or bearer:
4/13/59 B-335063 P 2108.70 21
4/27/59 B-335072 P2210.94 22
3. Drawn by the Luzon Tinsmith & Company upon the China Banking Corporation and payable to the
Inter-Island Gas Service, Inc. or bearer:

On October 8, 1959 the petitioner drew against its current account with the respondent a check for
P135,000 payable to the order of the Mariano Olondriz y Cia. in payment of certain shares of stock. The
check was, however, dishonored by the respondent as its records showed that as of October 8, 1959 the
current account of the petitioner, after netting out the value of the checks P8,030.58) with the forged
indorsements, had a balance of only P128,257.65.
The petitioner then filed a complaint against the respondent with the Court of First Instance of Manila,
which was however dismissed by the trial court after due trial, and as well by the Court of Appeals, on
appeal.
Hence, the present recourse.

5/18/59 VN430188 P940.80 25

The issues posed by the petitioner in the instant petition may be briefly stated as follows:
4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank and payable to the InterIsland Gas Service, Inc. order:
5/14/59 1860160 P 500.00 26
5/18/59 1860660 P 500.00 27
All the foregoing checks, which were acquired by the petitioner from one Antonio J. Ramirez, a sales
agent of the Inter-Island Gas and a regular bettor at jai-alai games, were, upon deposit, temporarily
credited to the petitioner's account in accordance with the clause printed on the deposit slips issued by the
respondent and which reads:
"Any credit allowed the depositor on the books of the Bank for checks or drafts hereby received for
deposit, is provisional only, until such time as the proceeds thereof, in current funds or solvent credits,
shall have been actually received by the Bank and the latter reserves to itself the right to charge back the
item to the account of its depositor, at any time before that event, regardless of whether or not the item
itself can be returned."
About the latter part of July 1959, after Ramirez had resigned from the Inter-Island Gas and after the
checks had been submitted to inter-bank clearing, the Inter-Island Gas discovered that all the indorsements
made on the checks purportedly by its cashiers, Santiago Amplayo and Vicenta Mucor (who were merely
authorized to deposit checks issued payable to the said company) as well as the rubber stamp impression
thereon reading "Inter-Island Gas Service, Inc.," were forgeries. In due time, the Inter-Island Gas advised
the petitioner, the respondent, the drawers and the drawee-banks of the said checks about the forgeries,
and filed a criminal complaint against Ramirez with the Office of the City Fiscal of Manila. 1
The respondent's cashier, Ramon Sarthou, upon receipt of the latter of Inter-Island Gas dated August 31,
1959, called up the petitioner's cashier, Manuel Garcia, and advised the latter that in view of the
circumstances he would debit the value of the checks against the petitioner's account as soon as they were
returned by the respective drawee-banks.
Meanwhile, the drawers of the checks, having been notified of the forgeries, demanded reimbursement to
their respective accounts from the drawee-banks, which in turn demanded from the respondent, as

(a) Whether the respondent had the right to debit the petitioner's current account in the amount
corresponding to the total value of the checks in question after more than three months had elapsed from
the date their value was credited to the petitioner's account:(b) Whether the respondent is estopped from
claiming that the amount of P8,030.58, representing the total value of the checks with the forged
indorsements, had not been properly credited to the petitioner's account, since the same had already been
paid by the drawee-banks and received in due course by the respondent; and(c) On the assumption that the
respondent had improperly debited the petitioner's current account, whether the latter is entitled to
damages.
These three issues interlock and will be resolved jointly.
In our opinion, the respondent acted within legal bounds when it debited the petitioner's account. When
the petitioner deposited the checks with the respondent, the nature of the relationship created at that stage
was one of agency, that is, the bank was to collect from the drawees of the checks the corresponding
proceeds. It is true that the respondent had already collected the proceeds of the checks when it debited the
petitioner's account, so that following the rule in Gullas vs. Philippine National Bank 2 it might be argued
that the relationship between the parties had become that of creditor and debtor as to preclude the
respondent from using the petitioner's funds to make payments not authorized by the latter. It is our view
nonetheless that no creditor-debtor relationship was created between the parties.
Section 23 of the Negotiable Instruments Law (Act 2031) states that 3
"When a signature is forged or made without the authority of the person whose signature it purports to be,
it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or under such signature, unless the
party against whom it is sought to enforce such right is precluded from setting up the forgery or want of
authority."
Since under the foregoing provision, a forged signature in a negotiable instrument is wholly inoperative
and no right to discharge it or enforce its payment can be acquired through or under the forged signature
except against a party who cannot invoke the forgery, it stands to reason, upon the facts of record, that the
respondent, as a collecting bank which indorsed the checks to the drawee-banks for clearing, should be

liable to the latter for reimbursement, for, as found by the court a quo and by the appellate court, the
indorsements on the checks had been forged prior to their delivery to the petitioner. In legal
contemplation, therefore, the payments made by the drawee-banks to the respondent on account of the said
checks were ineffective; and, such being the case, the relationship of creditor and debtor between the
petitioner and the respondent had not been validly effected, the checks not having been properly and
legitimately converted into cash. 4
In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5 the Court ruled that it is the obligation of
the collecting bank to reimburse the drawee-bank the value of the checks subsequently found to contain
the forged indorsement of the payee. The reason is that the bank with which the check was deposited has
no right to pay the sum stated therein to the forger "or anyone else upon a forged signature." "It was its
duty to know," said the Court, "that [the payee's] endorsement was genuine before cashing the check." The
petitioner must in turn shoulder the loss of the amounts which the respondent; as its collecting agent, had
to reimburse to the drawee-banks.
We do not consider material for the purposes of the case at bar that more than three months had elapsed
since the proceeds of the checks in question were collected by the respondent. The record shows that the
respondent had acted promptly after being informed that the indorsements on the checks were forged.
Moreover, having received the checks merely for collection and deposit, the respondent cannot he
expected to know or ascertain the genuineness of all prior indorsements on the said checks. Indeed, having
itself indorsed them to the respondent in accordance with the rules and practices of commercial banks, of
which the Court takes due cognizance, the petitioner is deemed to have given the warranty prescribed in
Section 66 of the Negotiable Instruments Law that every single one of those checks "is genuine and in all
respects what it purports to be.".
The petitioner was, moreover, grossly recreant in accepting the checks in question from Ramirez. It could
not have escaped the attention of the petitioner that the payee of all the checks was a corporation the
Inter-Island Gas Service, Inc. Yet, the petitioner cashed these checks to a mere individual who was
admittedly a habitue at its jai-alai games without making any inquiry as to his authority to exchange
checks belonging to the payee-corporation. In Insular Drug Co. vs. National 6 the Court made the
pronouncement that.

That two of the crossed checks, namely, exhs. 21 and 25, are bearer instruments would not, in our view,
exculpate the petitioner from liability with respect to them. The fact that they are bearer checks and at the
same time crossed checks should have aroused the petitioner's suspicion as to the title of Ramirez over
them and his authority to cash them (apparently to purchase jai-alai tickets from the petitioner), it
appearing on their face that a corporate entity the Inter Island Gas Service, Inc. was the payee
thereof and Ramirez delivered the said checks to the petitioner ostensibly on the strength of the payee's
cashiers' indorsements.
At all events, under Section 67 of the Negotiable Instruments Law, "Where a person places his
indorsement on an instrument negotiable by delivery he incurs all the liability of an indorser," and under
Section 66 of the same statute a general indorser warrants that the instrument "is genuine and in all
respects what it purports to be." Considering that the petitioner indorsed the said checks when it deposited
them with the respondent, the petitioner as an indorser guaranteed the genuineness of all prior
indorsements thereon. The respondent which relied upon the petitioner's warranty should not be held liable
for the resulting loss. This conclusion applied similarly to exh. 22 which is an uncrossed bearer
instrument, for under Section 65 of the Negotiable Instrument Law. "Every person negotiating an
instrument by delivery . . . warrants (a) That the instrument is genuine and in all respects what it purports
to be." Under that same section this warranty "extends in favor of no holder other than the immediate
transferee," which, in the case at bar, would be the respondent.
The provision in the deposit slip issued by the respondent which stipulates that it "reserves to itself the
right to charge back the item to the account of its depositor," at any time before "current funds or solvent
credits shall have been actually received by the Bank," would not materially affect the conclusion we have
reached. That stipulation prescribes that there must be an actual receipt by the bank of current funds or
solvent credits; but as we have earlier indicated the transfer by the drawee-banks of funds to the
respondent on account of the checks in question was ineffectual because made under the mistaken and
valid assumption that the indorsements of the payee thereon were genuine. Under article 2154 of the New
Civil Code "If something is received when there is no right to demand it and it was unduly delivered
through mistake, the obligation to return it arises." There was, therefore, in contemplation of law, no valid
payment of money made by the drawee-banks to the respondent on account of the questioned checks.
ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at petitioner's cost.

". . . The right of an agent to indorse commercial paper is a very responsible power and will not be lightly
inferred. A salesman with authority to collect money belonging to his principal does not have the implied
authority to indorse checks received in payment. Any person taking checks made payable to a corporation,
which can act only by agents, does so at his peril, and must abide by the consequences if the agent who
indorses the same is without authority." (underscoring supplied)
It must be noted further that three of the checks in question are crossed checks, namely, exhs. 21, 25 and
27, which may only be deposited, but not encashed; yet, the petitioner negligently accepted them for cash.

Makasiar, Esguerra, Muoz Palma and Martin, JJ., concur.

Teehankee, J., is on leave.