1
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES
INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL
REPRESENTATIVES, INCORPORATED, respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air
Service and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines,
Inc.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on
certiorari of a decision1 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 decision2 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;
(b) providing and maintaining a suitable area in its place
of business to be used exclusively for the transaction of the
business of American;
(c) arranging for distribution of American's timetables,
tariffs and promotional material to sales agents and the
general public in the assigned territory;
(d) servicing and supervising of sales agents (including
such sub-agents as may be appointed by Orient Air Services
with the prior written consent of American) in the assigned
territory including if required by American the control of
remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales
agents and the general public in the assigned territory.
In connection with scheduled or non-scheduled air passenger
transportation within the United States, neither Orient Air
Services nor its sub-agents will perform services for any other
air carrier similar to those to be performed hereunder for
American without the prior written consent of American.
Subject to periodic instructions and continued consent from
American, Orient Air Services may sell air passenger
transportation to be performed within the United States by
other scheduled air carriers provided American does not
provide substantially equivalent schedules between the
points involved.
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
2
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 Order4 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 Answer6 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:
WHEREFORE, with the following modifications
1) American is ordered to pay Orient the sum of
US$53,491.11 representing the balance of the latter's
overriding commission covering the period March 16, 1977 to
December 31, 1980, or its Philippine peso equivalent in
accordance with the official rate of exchange legally
prevailing on July 10, 1981, the date the counterclaim was
filed;
2) American is ordered to pay Orient the sum of
US$7,440.00 as the latter's overriding commission per month
starting January 1, 1981 until date of termination, May 9,
1981 or its Philippine peso equivalent in accordance with the
official rate of exchange legally prevailing on July 10, 1981,
the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said
amounts from July 10, 1981 the date the answer with
counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary
damages of P200,000.00;
5) American is ordered to pay Orient the sum of
P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the
aforementioned decision, assailing the substance thereof and
arguing for its reversal. The appellate court's decision was
also the subject of a Motion for Partial Reconsideration by
Orient Air which prayed for the restoration of the trial court's
ruling with respect to the monetary awards. The Court of
Appeals, by resolution promulgated on 17 December 1986,
denied American Air's motion and with respect to that of
Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar
as it prays for affirmance of the trial court's award of
3
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
resolution10 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
a) ...
b) Overriding Commission
In addition to the above commission, American will pay
Orient Air Services an overriding commission of 3% of the
tariff fees and charges for all sales of transportation over
American's services by Orient Air Services or 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:
4
It is not denied that Orient withheld remittances but such
action finds justification from paragraph 4 of the Agreement,
Exh. F, which provides for remittances to American less
commissions to which Orient is entitled, and from paragraph
5(d) which specifically allows Orient to retain the full amount
of its commissions. Since, as stated ante, Orient is entitled to
the 3% override. American's premise, therefore, for the
cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court.
As earlier established, Orient Air was entitled to an overriding
commission based on total flown revenue. American Air's
perception that Orient Air was remiss or in default of its
obligations under the Agreement was, in fact, a situation
where the latter acted in accordance with the Agreement
that of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air.
Since the latter was still obligated to Orient Air by way of such
commissions. Orient Air was clearly justified in retaining and
refusing to remit the sums claimed by American Air. The
latter's termination of the Agreement was, therefore, without
cause and basis, for which it should be held liable to Orient
Air.
On the matter of damages, the respondent appellate court
modified by reduction the trial court's award of exemplary
damages and attorney's fees. This Court sees no error in such
modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred
in affirming the rest of the decision of the trial court.1wphi1
We 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
 5

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.

Footnotes
1 Penned by Justice Serafin B. Camilon and concurred in by
Justices Jose C. Campos, Jr. and Desiderio P. Jurado.
2 Penned by Judge Herminio C. Mariano.
3 Rollo, pp. 110-118.
4 Rollo, p. 102.
5 Ibid., p. 104.
6 Ibid., p. 121.
7 Rollo, p. 162.
8 Rollo, pp. 173-174.
9 Ibid., p. 210.
10 Rollo, p. 212.
11 Rollo, p. 291.
12 NAESS Shipping Philippines, Inc. vs. NLRC, G.R. No. 73441,
4 September 1987, 153 SCRA 657.
13 North Negros Sugar Co. vs. Compania General de Tabacos,
No. L-9277, 29 March 1957; Article 1374, Civil Code of the
Philippines.
14 Equitable Banking Corporation vs. Intermediate Appellate
Court, G.R. No. 74451, 25 May 1988, 161 SCRA 518.
15 Government of the Philippine Islands vs. Derham Brothers
and the International Banking Corporation, 36 Phil. 960.
The Lawphil Project - Arellano Law Foundation

======================

Republic of the Philippines
SUPREME COURT
Manila
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.
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 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
6
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;
(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:

(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)
7
the agents acts as a representative and not for himself, and
(4) the agent acts within the scope of his authority. 5
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.
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 the juridical
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
8
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 fortiori that 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
9
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)
10
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.
Footnotes
1 p. 40, rollo
2 p, 42, Ibid.
3 Art. 1317, Civil Code of the Philippines
4 Ibid
5 Art. 1868, Civil Code. By the contract of the agency
of a person blinds himself to render some service or to do
something in representation or on behalf of another, with the
consent of the authority of the latter.
Art. 1881, Civil Code. The Agent must act within the scope of
his authority. He may do acts as may be conductive to the
accomplishment of the purpose of the agency.
11 Manresa 422-423; 4 Sanchez Roman 478, 2nd Ed.; 26
Scaevola, 243, 262; Tolentino, Comments, Civil Code of the
Philippines, p.340, vol. 5, 1959 Ed.
See also Columbia University Club v. Higgins, D.CN.Y., 23 f.
Supp. 572, 574; Valentine Oil Co. v. Young 109 P. 2d 180, 185.
6 74 C.J.S. 4; Valentine Oil Co. v. Powers, 59 N.W. 2d
160, 163, 157 Neb. 87; Purnell v. City of Florence, 175 So.
417, 27 Ala. App. 516; Stroman Motor Co. v. Brown, 243 P.
133, 126 Ok. 36
 11

7 See Art. 1919 of the Civil Code

8 Hermosa v. Longara, 1953, 93 Phil. 977, 983; Del

Rosario, et al. v. Abad, et al., 1958, 104 Phil. 648, 652

9 11 Manresa 572-573; Tolentino, supra, 369-370

10 2 Kent Comm. 641, cited in Williston on Contracts,

3rd Ed., Vol. 2, p. 288

11 See Notes on Acts of agent after principal's death, 39

Am. Dec. 81,83, citing Ewell's Evans on Agency, 116; Dunlap's
Paley on Agency, 186; Story on Agency, see. 488; Harper v.
Little. 11 Am. Dec. 25; Staples v. Bradbury, 23 Id. 494; Gale v.
Tappan 37 Id. 194; Hunt v. Rousmanier, 2 Mason, 244, S.C. 8
Wheat, 174; Boones Executor v. Clarke 3 Cranch C.C. 389;
Hank of 'Washington v. Person, 2 'Rash. C.C. 6.85; Scruggs v.
Driver's Executor, 31 Ala. 274; McGriff v. Porter, 5 Fla. 373;
Lincoln v. Emerson, 108 Mass 87; 'Wilson v. Edmonds, 24 N.H
517; Easton v. Ellis, 1 Handy (Ohio), 70; McDonald v. Black's
Administrators, 20 Ohio, 185; Michigan Ins. Co. v.
Leavenworth, 30 Vt. 11; Huston v. Cantril, 11 Leigh, 136;
Campanari v. 'Woodburn, 15 Com B 400

See also ',Williston on Contracts, 3rd Ed., Vol. 2, p. 289

12 see p. 15, 30-31 64 68-69, Record on Appeal

13 pp. 71-72, Ibid.

14 p. 7 of the Decision at page 14, rollo

15 105 Phil. 79:i, 798

16 p. 6 of Decision, at page 13, rollo

17 pp. 6-7 of Decision at pp, 13-14, Ibid.

18 See Articles 1921 & 1922 of the Civil Code

19 2 C.J.S. 1 174 citing American Jurisprudence in

different States from Alabama to Washington; emphasis
supplied.

20 p. 8, decision at Page 15, rollo

The Lawphil Project - Arellano Law Foundation

==================

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-57339 December 29, 1983
AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased),
CLARA A. GANA, RAMON GANA, MANUEL GANA, MARIA
TERESA GANA, ROBERTO GANA, JAIME JAVIER GANA,
CLOTILDE VDA. DE AREVALO, and EMILY SAN JUAN,
respondents.
Benjamin S. Valte for petitioner.
Napoleon Garcia for private respondents.
MELENCIO-HERRERA, J.:
In this petition for review on certiorari, petitioner AIR FRANCE
assails the Decision of then respondent Court of Appeals 1
promulgated on 15 December 1980 in CA-G.R. No. 58164-R,
entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air
France", which reversed the Trial Court's judgment dismissing
the Complaint of private respondents for damages arising
from breach of contract of carriage, and awarding instead
P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana and his
family, numbering nine (the GANAS), purchased from AIR
FRANCE through Imperial Travels, Incorporated, a duly
authorized travel agent, nine (9) "open-dated" air passage
tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS
paid a total of US$2,528.85 for their economy and first class
fares. Said tickets were bought at the then prevailing
exchange rate of P3.90 per US$1.00. The GANAS also paid
travel taxes of P100.00 for each passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the
aforementioned tickets with other tickets for the same route.
At this time, the GANAS were booked for the Manila/Osaka
segment on AIR FRANCE Flight 184 for 8 May 1970, and for
the Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22
May 1970. The aforesaid tickets were valid until 8 May 1971,
the date written under the printed words "Non valuable
apres de (meaning, "not valid after the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance
of Teresita Manucdoc, a Secretary of the Sta. Clara Lumber
Company where Jose Gana was the Director and Treasurer,
for the extension of the validity of their tickets, which were
due to expire on 8 May 1971. Teresita enlisted the help of Lee
12
Ella Manager of the Philippine Travel Bureau, who used to
handle travel arrangements for the personnel of the Sta.
Clara Lumber Company. Ella sent the tickets to Cesar Rillo,
Office Manager of AIR FRANCE. The tickets were returned to
Ella who was informed that extension was not possible unless
the fare differentials resulting from the increase in fares
triggered by an increase of the exchange rate of the US dollar
to the Philippine peso and the increased travel tax were first
paid. Ella then returned the tickets to Teresita and informed
her of the impossibility of extension.
In the meantime, the GANAS had scheduled their departure
on 7 May 1971 or one day before the expiry date. In the
morning of the very day of their scheduled departure on the
first leg of their trip, Teresita requested travel agent Ella to
arrange the revalidation of the tickets. Ella gave the same
negative answer and warned her that although the tickets
could be used by the GANAS if they left on 7 May 1971, the
tickets would no longer be valid for the rest of their trip
because the tickets would then have expired on 8 May 1971.
Teresita replied that it will be up to the GANAS to make the
arrangements. With that assurance, Ella on his own, attached
to the tickets validating stickers for the Osaka/Tokyo flight,
one a JAL. sticker and the other an SAS (Scandinavian Airways
System) sticker. The SAS sticker indicates thereon that it was
"Reevaluated by: the Philippine Travel Bureau, Branch No. 2"
(as shown by a circular rubber stamp) and signed "Ador", and
the date is handwritten in the center of the circle. Then
appear under printed headings the notations: JL. 108 (Flight),
16 May (Date), 1040 (Time), OK (status). Apparently, Ella
made no more attempt to contact AIR FRANCE as there was
no more time.
Notwithstanding the warnings, the GANAS departed from
Manila in the afternoon of 7 May 1971 on board AIR FRANCE
Flight 184 for Osaka, Japan. There is no question with respect
to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan
Airlines refused to honor the tickets because of their
expiration, and the GANAS had to purchase new tickets. They
encountered the same difficulty with respect to their return
trip to Manila as AIR FRANCE also refused to honor their
tickets. They were able to return only after pre-payment in
Manila, through their relatives, of the readjusted rates. They
finally flew back to Manila on separate Air France Frights on
19 May 1971 for Jose Gana and 26 May 1971 for the rest of
the family.
On 25 August 1971, the GANAS commenced before the then
Court of First Instance of Manila, Branch III, Civil Case No.
84111 for damages arising from breach of contract of
carriage.
AIR FRANCE traversed the material allegations of the
Complaint and alleged that the GANAS brought upon
themselves the predicament they found themselves in and
assumed the consequential risks; that travel agent Ella's
affixing of validating stickers on the tickets without the

knowledge and consent of AIR FRANCE, violated airline tariff
rules and regulations and was beyond the scope of his
authority as a travel agent; and that AIR FRANCE was not
guilty of any fraudulent conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint
based on Partial and Additional Stipulations of Fact as wen as
on the documentary and testimonial evidence.
The GANAS appealed to respondent Appellate Court. During
the pendency of the appeal, Jose Gana, the principal plaintiff,
died.
On 15 December 1980, respondent Appellate Court set aside
and reversed the Trial Court's judgment in a Decision, which
decreed:
WHEREFORE, the decision appealed from is set aside. Air
France is hereby ordered to pay appellants moral damages in
the total sum of NINETY THOUSAND PESOS (P90,000.00) plus
costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied, hence,
petitioner's recourse before this instance, to which we gave
due course.
The crucial issue is whether or not, under the environmental
milieu the GANAS have made out a case for breach of
contract of carriage entitling them to an award of damages.
We are constrained to reverse respondent Appellate Court's
affirmative ruling thereon.
Pursuant to tariff rules and regulations of the International
Air Transportation Association (IATA), included in paragraphs
9, 10, and 11 of the Stipulations of Fact between the parties
in the Trial Court, dated 31 March 1973, an airplane ticket is
valid for one year. "The passenger must undertake the final
portion of his journey by departing from the last point at
which he has made a voluntary stop before the expiry of this
limit (parag. 3.1.2. ) ... That is the time allowed a passenger to
begin and to complete his trip (parags. 3.2 and 3.3.). ... A
ticket can no longer be used for travel if its validity has
expired before the passenger completes his trip (parag.
3.5.1.) ... To complete the trip, the passenger must purchase
a new ticket for the remaining portion of the journey" (ibid.)
3 contracts of adhesion, is inapplicable. To all legal intents and
From the foregoing rules, it is clear that AIR FRANCE cannot
be faulted for breach of contract when it dishonored the
tickets of the GANAS after 8 May 1971 since those tickets
expired on said date; nor when it required the GANAS to buy
new tickets or have their tickets re-issued for the
Tokyo/Manila segment of their trip. Neither can it be said
that, when upon sale of the new tickets, it imposed additional
charges representing fare differentials, it was motivated by
self-interest or unjust enrichment considering that an
13
increase of fares took effect, as authorized by the Civil
Aeronautics Board (CAB) in April, 1971. This procedure is well
in accord with the IATA tariff rules which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in
effect on the date on which transportation commences from
the point of origin. Any ticket sold prior to a change of fare or
charge (increase or decrease) occurring between the date of
commencement of the journey, is subject to the above
general rule and must be adjusted accordingly. A new ticket
must be issued and the difference is to be collected or
refunded as the case may be. No adjustment is necessary if
the increase or decrease in fare (or charge) occurs when the
journey is already commenced. 4
The GANAS cannot defend by contending lack of knowledge
of those rules since the evidence bears out that Teresita, who
handled travel arrangements for the GANAS, was duly
informed by travel agent Ella of the advice of Reno, the Office
Manager of Air France, that the tickets in question could not
be extended beyond the period of their validity without
paying the fare differentials and additional travel taxes
brought about by the increased fare rate and travel taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being
told this by Mr. Rillo?
A I told her, because that is the reason why they
accepted again the tickets when we returned the tickets spin,
that they could not be extended. They could be extended by
paying the additional fare, additional tax and additional
exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court,
therefore, in KLM. vs. Court of Appeals, 65 SCRA 237 (1975),
holding that it would be unfair to charge respondents therein
with automatic knowledge or notice of conditions in
purposes, Teresita was the agent of the GANAS and notice to
her of the rejection of the request for extension of the
validity of the tickets was notice to the GANAS, her principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed
by Era showing reservations for JAL. Flight 108 for 16 May
1971, without clearing the same with AIR FRANCE allegedly
because of the imminent departure of the GANAS on the
same day so that he could not get in touch with Air France 6
was certainly in contravention of IATA rules although as he

had explained, he did so upon Teresita's assurance that for
the onward flight from Osaka and return, the GANAS would
make other arrangements.
Q Referring you to page 33 of the transcript of the last
session, I had this question which reads as follows: 'But did
she say anything to you when you said that the tickets were
about to expire?' Your answer was: 'I am the one who asked
her. At that time I told her if the tickets being used ... I was
telling her what about their bookings on the return. What
about their travel on the return? She told me it is up for the
Ganas to make the arrangement.' May I know from you what
did you mean by this testimony of yours?
A That was on the day when they were asking me on
May 7, 1971 when they were checking the tickets. I told Mrs.
Manucdoc that I was going to get the tickets. I asked her what
about the tickets onward from the return from Tokyo, and
her answer was it is up for the Ganas to make the
arrangement, because I told her that they could leave on the
seventh, but they could take care of that when they arrived in
Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka,
Tokyo and Manila.
Q What arrangement?
A The arrangement for the airline because the tickets
would expire on May 7, and they insisted on leaving. I asked
Mrs. Manucdoc what about the return onward portion
because they would be travelling to Osaka, and her answer
was, it is up to for the Ganas to make the arrangement.
Q Exactly what were the words of Mrs. Manucdoc
when you told her that? If you can remember, what were her
exact words?
A Her words only, it is up for the Ganas to make the
arrangement.
Q This was in Tagalog or in English?
A I think it was in English. ... 7
The circumstances that AIR FRANCE personnel at the ticket
counter in the airport allowed the GANAS to leave is not
tantamount to an implied ratification of travel agent Ella's
irregular actuations. It should be recalled that the GANAS left
in Manila the day before the expiry date of their tickets and
that "other arrangements" were to be made with respect to
the remaining segments. Besides, the validating stickers that
Ella affixed on his own merely reflect the status of
reservations on the specified flight and could not legally serve
to extend the validity of a ticket or revive an expired one.
The conclusion is inevitable that the GANAS brought upon
themselves the predicament they were in for having insisted
on using tickets that were due to expire in an effort, perhaps,
to beat the deadline and in the thought that by commencing
14
the trip the day before the expiry date, they could complete
the trip even thereafter. It should be recalled that AIR
FRANCE was even unaware of the validating SAS and JAL.
stickers that Ella had affixed spuriously. Consequently, Japan
Air Lines and AIR FRANCE merely acted within their
contractual rights when they dishonored the tickets on the
remaining segments of the trip and when AIR FRANCE
demanded payment of the adjusted fare rates and travel
taxes for the Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby reversed
and set aside, and the Amended Complaint filed by private
respondents hereby dismissed.
No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Relova and Gutierrez, Jr., JJ.,
concur.
Footnotes
1 Seventh Division composed of J. Guillermo P. Villasor, ponente
concurred in by JJ. Venicio Escolin and Onofre A. Villaluz.
2 p. 62, Rollo.
3 3.1.2 The time allowed a passenger to complete his journey
calculated from the date of comencement of the journey, but exclusive of
that date. The passenger must undertake the final portion of his journey by
departing from the last point at which he has made a voluntary stop before
the expiry of this limit, regardless of whether this last segment is covered by
a single or several flight coupons.
xxx xxx xxx
3.2 Time allowed a passenger to begin his trip.
As a rule, ONE YEAR. It may be modified by periods during which fares or
reductions granted
3.3 Time allowed a passenger to complete his trip.
In principle, ONE YEAR. It may be modified by periods during which fares or
reductions granted are applicable.
xxx xxx xxx
3.5 Extensions of validity.
3.5.1 A ticket can no longer be used for travel if its validity has expired before
the passenger completes his trip. It can only be refunded in Accordance with
normal refund regulations. To complete the trip, the passenger must
purchase a new ticket for the remaining portion of the journey.
4 p. 195, Folder of Exhibits.
5 T.s.n., Disposition of Lee Ella May 15, 1972, p. 7.
6 T.s.n., Ibid., p. 20.
7 T.s.n., Ibid., pp. 28-29.
The Lawphil Project - Arellano Law Foundation
==============
 15

issued in his name exclusively for said subdivision Lot No.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20136 June 23, 1965
IN RE: PETITION FOR ISSUANCE OF SEPARATE CERTIFICATE OF TITLE.
JOSE A. SANTOS Y Diaz, petitioner-appellant,
vs.
ANATOLIO BUENCONSEJO, ET AL., respondents-appellees.
Segundo C. Mastrili for petitioner-appellant.
Manuel Calleja Rafael S. Lucila and Jose T. Rubio for respondents-appellees.
CONCEPCION, J.:
Petitioner Jose A. Santos y Diaz seeks the reversal of an order of the Court of
First Instance of Albay, denying his petition, filed in Cadastral Case No. M-
2197, LRC Cad. Rec. No. 1035, for the cancellation of original certificate of
title No. RO-3848 (25322), issued in the name of Anatolio Buenconsejo,
Lorenzo Bon and Santiago Bon, and covering Lot No. 1917 of the Cadastral
Survey of Tabaco, Albay, and the issuance in lieu thereof, of a separate
transfer certificate of title in his name, covering part of said Lot No. 1917,
namely Lot No. 1917-A of Subdivision Plan PSD-63379.
1917-A.
As correctly held by the lower court, petitioner's claim is
clearly untenable, for: (1) said special power of attorney
authorized him to act on behalf of the children of Anatolio
Buenconsejo, and, hence, it could not have possibly vested in
him any property right in his own name; (2) the children of
Anatolio Buenconsejo had no authority to execute said power
of attorney, because their father is still alive and, in fact, he
and his wife opposed the petition of Santos; (3) in
consequence of said power of attorney (if valid) and
redemption, Santos could have acquired no more than the
share pro indiviso of Anatolio Buenconsejo in Lot No. 1917, so
that petitioner cannot without the conformity of the other
co-owners (Lorenzo and Santiago Bon), or a judicial decree of
partition issued pursuant to the provisions of Rule 69 of the
new Rules of Court (Rule 71 of the old Rules of Court) which
have not been followed By Santos adjudicate to himself in
fee simple a determinate portion of said Lot No. 1917, as his
share therein, to the exclusion of the other co-owners.

The main facts are not disputed. They are set forth in the order appealed Inasmuch as the appeal is patently devoid of merit, the order
from, from which we quote: appealed from is hereby affirmed, with treble cost against
petitioner-appellant Jose A. Santos y Diaz. It is so ordered.
It appears that the aforementioned Lot No. 1917 covered by Original
Certificate of Title No. RO-3848 (25322) was originally owned in common by
Anatolio Buenconsejo to the extent of undivided portion and Lorenzo Bon Bengzon, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal,
and Santiago Bon to the extent of the other (Exh. B); that Anatolio Bengzon, J.P., and Zaldivar, JJ., concur.
portion
Buenconsejo's rights, interests and participation over the Bautista Angelo, Barrera and Paredes, JJ., took no part.
abovementioned were on January 3, 1961 and by a
Certificate of Sale executed by the Provincial Sheriff of Albay,
transferred and conveyed to Atty. Tecla San Andres Ziga, The Lawphil Project - Arellano Law Foundation
awardee in the corresponding auction sale conducted by said
Sheriff in connection with the execution of the decision of the ================
Juvenile Delinquency and Domestic Relations Court in Civil
Case No. 25267, entitled "Yolanda Buenconsejo, et al. vs.
Anatolio Buenconsejo"; that on December 26, 1961 and by a
certificate of redemption issued by the Provincial Sheriff of
Albay, the rights, interest, claim and/or or participation which
Atty. Tecla San Andres Ziga may have acquired over the
property in question by reason of the aforementioned
auction sale award, were transferred and conveyed to the
herein petitioner in his capacity as Attorney-in-fact of the
children of Anatolio Buenconsejo, namely, Anastacio
Buenconsejo, Elena Buenconsejo and Azucena Buenconsejo
(Exh. C).

It would appear, also, that petitioner Santos had redeemed

the aforementioned share of Anatolio Buenconsejo, upon the
authority of a special power of attorney executed in his favor
by the children of Anatolio Buenconsejo; that relying upon
this power of attorney and redemption made by him, Santos
now claims to have acquired the share of Anatolio
Buenconsejo in the aforementioned Lot No. 1917; that as the
alleged present owner of said share, Santos caused a
subdivision plan of said Lot No. 1917 to be made, in which the
portion he claims as his share thereof has been marked as Lot
No. 1917-A; and that he wants said subdivision at No. 1917-A
to be segregated from Lot No. 1917 and a certificate of title

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20726 December 20, 1923
ALBALADEJO Y CIA., S. en C., plaintiff-appellant,
vs.
The PHILIPPINE REFINING CO., as successor to The Visayan
Refining Co., defendant-appellant.
Eduardo Gutierrez Repide and Felix Socias for plaintiff.
Manly, Goddard and Lockwood for defendant-appellant.
Fisher, DeWitt, Perkins and Brady of counsel.
STREET, J.:
This action was instituted in the Court of First Instance of the
Province of Albay by Albaladejo y Cia., S. en C., to recover a
sum of money from the Philippine Refining Co., as successor
to the Visayan Refining Co., two causes of action being stated
in the complaint. Upon hearing the cause the trial judge
absolved the defendant from the first cause of action but
gave judgment for the plaintiff to recover the sum of
P49,626.68, with costs, upon the second cause of action.
From this judgment the plaintiff appealed with respect to the
action taken upon the first cause of action, and the defendant
appealed with respect to the action taken upon the second
cause of action. It results that, by the appeal of the two
parties, the decision of the lower court is here under review
as regards the action taken upon both grounds of action set
forth in the complaint.
It appears that Albaladejo y Cia. is a limited partnership,
organized in conformity with the laws of these Islands, and
having its principal place of business at Legaspi, in the
Province of Albay; and during the transactions which gave
origin to this litigation said firm was engaged in the buying
and selling of the products of the country, especially copra,
and in the conduct of a general mercantile business in Legaspi
and in other places where it maintained agencies, or sub-
agencies, for the prosecution of its commercial enterprises.
The Visayan Refining Co. is a corporation organized under the
laws of the Philippine Islands; and prior to July 9, 1920, it was
engaged in operating its extensive plant at Opon, Cebu, for
the manufacture of coconut oil.
On August 28, 1918, the plaintiff made a contract with the
Visayan Refining Co., the material parts of which are as
follows:
Memorandum of Agreement Re Purchase of Copra. This
memorandum of agreement, made and entered into by and
between Albaladejo y Compania, S. en C., of Legaspi, Province
of Albay, Philippine Islands, party of the first part, and the
16
Visayan Refining Company, Inc., of Opon, Province of Cebu,
Philippine Islands, party of the second part,
Witnesseth That. Whereas, the party of the first part is
engaged in the purchase of copra in the Province of Albay;
and Whereas, the party of the second part is engaged in the
business of the manufacture of coconut oil, or which purpose
it must continually purchase large quantities of copra; Now,
Therefore, in consideration of the premises and covenants
hereinafter set forth, the said parties have agreed and do
hereby contract and agree as follows, to wit:
1. The party of the first part agrees and binds itself to
sell to the party of the second part, and the party of the
second part agrees and binds itself to buy from the party of
the first part, for a period of one (1) year from the date of
these presents, all the copra purchased by the party of the
first part in Province of Albay.
2. The party of the second part agrees to pay the party
of the first part for the said copra the market price thereof in
Cebu at date (of) purchase, deducting, however, from such
price the cost of transportation by sea to the factory of the
party of second part at Opon, Cebu, the amount deducted to
be ascertained from the rates established, from time to time,
by the public utility commission, or such entity as shall
succeed to its functions, and also a further deduction for the
shrinkage of the copra from the time of its delivery to the
party of the second part to its arrival at Opon, Cebu, plus one-
half of a real per picul in the event the copra is delivered to
boats which will unload it on the pier of the party of the
second part at Opon, Cebu, plus one real per picul in the
event that the party of the first part shall employ its own
capital exclusively in its purchase.
3. During the continuance of this contract the party of
the second part will not appoint any other agent for the
purchase of copra in Legaspi, nor buy copra from any vendor
in Legaspi.
4. The party of the second part will, so far as
practicable, keep the party of the first part advised of the
prevailing prices paid for copra in the Cebu market.
5. The party of the second part will provide
transportation by sea to Opon, Cebu, for the copra delivered
to it by the party of the first part, but the party of the first
part must deliver such copra to the party of the second part
free on board the boats of the latter's ships or on the pier
alongside the latter's ships, as the case may be.
Pursuant to this agreement the plaintiff, during the year
therein contemplated, bought copra extensively for the
Visayan Refining Co. At the end of said year both parties
found themselves satisfied with the existing arrangement,
and they therefore continued by tacit consent to govern their
future relations by the same agreement. In this situation
affairs remained until July 9, 1920, when the Visayan Refining

Co. closed down its factory at Opon and withdrew from the
copra market.
When the contract above referred to was originally made,
Albaladejo y Cia. apparently had only one commercial
establishment, i.e., that at Legaspi; but the large
requirements of the Visayan Refining Co. for copra appeared
so far to justify the extension of the plaintiff's business that
during the course of the next two or three years it established
some twenty agencies, or subagencies, in various ports and
places of the Province of Albay and neighboring provinces.
After the Visayan Refining Co. had ceased to buy copra, as
above stated, of which fact the plaintiff was duly notified, the
supplies of copra already purchased by the plaintiff were
gradually shipped out and accepted by the Visayan Refining
Co., and in the course of the next eight or ten months the
accounts between the two parties were liquidated. The last
account rendered by the Visayan Refining Co. to the plaintiff
was for the month of April, 1921, and it showed a balance of
P288 in favor of the defendant. Under date of June 25, 1921,
the plaintiff company addressed a letter from Legaspi to the
Philippine Refining Co. (which had now succeeded to the
rights and liabilities of the Visayan Refining Co.), expressing
its approval of said account. In this letter no dissatisfaction
was expressed by the plaintiff as to the state of affairs
between the parties; but about six weeks thereafter the
present action was begun.
Upon reference to paragraph five of the contract reproduced
above it will be seen that the Visayan Refining Co. obligated
itself to provide transportation by sea to Opon, Cebu, for the
copra which should be delivered to it by the plaintiff; and the
first cause of action set forth in the complaint is planted upon
the alleged negligent failure of the Visayan Refining Co. to
provide opportune transportation for the copra collected by
the plaintiff and deposited for shipment at various places. In
this connection we reproduce the following allegations from
the complaint:
6. That, from the month of September, 1918, until the
month of June, 1920, the plaintiff opportunely advised the
Visayan of the stocks that the former had for shipment, and,
from time to time, requested the Visayan to send vessels to
take up said stocks; but that the Visayan culpably and
negligently allowed a great number of days to elapse before
sending the boats for the transportation of the copra to
Opon, Cebu, and that due to the fault and negligence of the
Visayan, the stocks of copra prepared for shipment by the
plaintiff had to remain an unnecessary length of time in
warehouses and could not be delivered to the Visayan, nor
could they be transmitted to this latter because of the lack of
boats, and that for this reason the copra gathered by the
plaintiff and prepared for delivery to the Visayan suffered the
diminishment of weight herein below specified, through
shrinkage or excessive drying, and, in consequence thereof,
an important diminishment in its value.
xxx xxx xxx
17
8. That the diminishment in weight suffered as
shrinkage through excessive drying by all the lots of copra
sold by the plaintiff to the Visayan, due to the fault and
negligence of the Visayan in the sending of boats to take up
said copra, represents a total of 9,695 piculs and 56 cates, the
just and reasonable value of which, at the rates fixed by the
purchaser as the price in its liquidation, is a total of two
hundred and one thousand, five hundred and ninety-nine
pesos and fifty-three centavos (P201,599.53), Philippine
currency, in which amount the plaintiff has been damaged
and injured by the negligent and culpable acts and omissions
of the Visayan, as herein above stated and alleged.
In the course of the appealed decision the trial judge makes a
careful examination of the proof relative to the movements
of the fleet of boats maintained by the Visayan Refining Co.
for the purpose of collecting copra from the various ports
where it was gathered for said company, as well as of the
movements of other boats chartered or hired by said
company for the same purpose; and upon consideration of all
the facts revealed in evidence, his Honor found that the
Visayan Refining Co. had used reasonable promptitude in its
efforts to get out the copra from the places where it had
been deposited for shipment, notwithstanding occasional
irregularities due at times to the condition of the weather as
related to transportation by sea and at other times to the
inability of the Visayan Refining Co. to dispatch boats to the
more remote ports. This finding of the trial judge, that no
negligence of the kind alleged can properly be imputed to the
Visayan Refining Co., is in our opinion supported by the proof.
Upon the point of the loss of weight of the copra by
shrinkage, the trial judge found that this is a product which
necessarily undergoes considerable shrinkage in the process
of drying, and intelligent witnesses who are conversant with
the matter testified at the trial that shrinkage of cobra varies
from twenty to thirty per centum of the original gross weight.
It is agreed that the shrinkage shown in all of the copra which
the plaintiff delivered to the Visayan Refining Co. amounted
to only 8.187 per centum of the whole, an amount which is
notably below the normal. This showing was undoubtedly
due in part, as the trial judge suggests, to the fact that in
purchasing the copra directly from the producers the
plaintiff's buyers sometimes estimated the picul at sixty-eight
kilos, or somewhat less, but in no case at the true weight of
63.25 kilos. The plaintiff was therefore protected in a great
measure from loss by shrinkage by purchasing upon a
different basis of weight from that upon which he sold,
otherwise the shrinkage shown in the result must have been
much greater than that which actually appeared. But even
considering this fact, it is quite evident that the demonstrated
shrinkage of 8.187 per centum was extremely moderate
average; and this fact goes to show that there was no undue
delay on the part of the Visayan Refining Co. in supplying
transportation for the copra collected by the plaintiff.
In the course of his well-reasoned opinion upon this branch of
the case, the trial judge calls attention to the fact that it is
expressly provided in paragraph two of the contract that the

shrinkage of copra from the time of its delivery to the party of
the second part till its arrival at Opon should fall upon the
plaintiff, from whence it is to be interfered that the parties
intended that the copra should be paid for according to its
weight upon arrival at Opon regardless of its weight when
first purchased; and such appears to have been the uniform
practice of the parties in settling their accounts for the copra
delivered over a period of nearly two years.
From what has been said it follows that the first cause of
action set forth in the complaint is not well founded, and the
trial judge committed no error in absolving the plaintiff
therefrom.
It appears that in the first six months of the year 1919, the
plaintiff found that its transactions with the Visayan Refining
Co. had not been productive of reasonable profit, a
circumstance which the plaintiff attributed to loss of weight
or shrinkage in the copra from the time of purchase to its
arrival at Opon; and the matter was taken up with the
officials of said company, with the result that a bounty
amounting to P15,610.41 was paid to the plaintiff by the
Visayan Refining Co. In the ninth paragraph of the complaint
the plaintiff alleges that this payment was made upon
account of shrinkage, for which the Visayan Refining Co.
admitted itself to be liable; and it is suggested that the
making of this payment operated as a recognition on the part
of the Visayan refining Co. of the justice of the plaintiff's
claim with respect to the shrinkage in all subsequent
transactions. With this proposition we cannot agree. At most
the payment appears to have been made in recognition of an
existing claim, without involving any commitment as to
liability on the part of the defendant in the future; and
furthermore it appears to have been in the nature of a mere
gratuity given by the company in order to encourage the
plaintiff and to assure that the plaintiff's organization would
be kept in an efficient state for future activities. It is certain
that no general liability for plaintiff's losses was assumed for
the future; and the defendant on more than one occasion
thereafter expressly disclaimed liability for such losses.
As already stated purchases of copra by the defendant were
suspended in the month of July, 1920. At this time the
plaintiff had an expensive organization which had been built
up chiefly, we suppose, with a view to the buying of copra;
and this organization was maintained practically intact for
nearly a year after the suspension of purchases by the
Visayan Refining Co. Indeed in October, 1920, the plaintiff
added an additional agency at Gubat to the twenty or more
already in existence. As a second cause of action the plaintiff
seeks to recover the sum of P110,000, the alleged amount
expended by the plaintiff in maintaining and extending its
organization as above stated. As a basis for the defendant's
liability in this respect it is alleged that said organization was
maintained and extended at the express request, or
requirement, of the defendant, in conjunction with repeated
assurances that the defendant would soon resume activity as
a purchaser of copra.
18
With reference to this cause of action the trial judge found
that the plaintiff, as claimed, had incurred expenses at the
request of the defendant and upon its representation that
the plaintiff would be fully compensated therefor in the
future. Instead, however, of allowing the plaintiff the entire
amount claimed, his Honor gave judgment for only thirty per
centum of said amount, in view of the fact that the plaintiff's
transactions in copra had amounted in the past only to about
thirty per centum of the total business transacted by it.
Estimated upon this basis, the amount recognized as
constituting a just claim was found to be P49,626.68, and for
this amount judgment was rendered against the defendant.
The discussion of this branch of the appeal involves the sole
question whether the plaintiff's expense in maintaining and
extending its organization for the purchase of copra in the
period between July, 1920, to July, 1921, were incurred at the
instance and request of the defendant, or upon any promise
of the defendant to make the expenditure good. A careful
examination of the evidence, mostly of a documentary
character, is, in our opinion, convincing that the supposed
liability does not exist.
By recurring to paragraph four of the contract between the
plaintiff and the Visayan Refining Co. it will be seen that the
latter agreed to keep the plaintiff advised of the prevailing
prices paid for the copra in the Cebu market. In compliance
with this obligation the Visayan Refining Co. was accustomed
to send out "trade letters" from time to time its various
clients in the southern provinces of whom the plaintiff was
one. In these letters the manager of the company was
accustomed to make comment upon the state of the market
and to give such information as might be of interest or value
to the recipients of the letters. From the series of letters thus
sent to Albaladejo y Cia. during the latter half of 1920, we
here reproduce the following excerpts:
(Letter of July 2, 1920, from K.B. Day, General Manager of the
Visayan Refining Co., to Albaladejo y Cia.)
The copra market is still very weak. I have spent the past two
weeks in Manila studying conditions and find that practically
no business at all is being done. A few of the mills having
provincial agents are accepting small deliveries, but I do not
suppose that 500 piculs of copra are changing hands a day.
Buyers are offering from P13 to P15, depending on quality,
and sellers are offering to sell at anywhere from P16 to P18,
but no business can be done for the simple reason that the
banks will not lend the mills any money to buy copra with at
this time.
Reports from the United States are to the effect that the oil
market is in a very serious and depressed condition and that
large quantities of oil cannot be disposed of at any price.
xxx xxx xxx
Under this conditions it is imperative that this mill buy no
more copra than it can possibly help at the present time. We

are not anxious to compete, nor do we wish to purchase
same in competition with others. We do, however, desire to
keep our agents doing business and trust that they will
continue to hold their parroquianos (customers), buying only
minimum quantities at present.
The local market has not changed since last week, and our
liquidating price is P14.
(Letter of July 9, 1920, from Visayan Refining Co. to
Albaladejo y Cia.)
Notify your subagents to drop out of the market temporarily.
We do not desire to purchase at present.
(Letter of July 10, 1920, from K. B. Day, General Manager, to
Albaladejo y Cia.)
The market continues to grow weaker. Conditions are so
uncertain that this company desires to drop out of the copra
market until conditions have a chance to readjust themselves.
We request therefore that our agents drop out of active
competition for copra temporarily. Stocks that are at present
on hand will, of course, be liquidated, but no new stocks
should be acquired. Agents should do their best to keep their
organizations together temporarily, for we expect to be in the
market again soon stronger than ever. We expect the
cooperation of agents in making this effective; and if they
give us this cooperation, we will endeavor to see that they do
not lose by the transaction in the long run. This company has
been receiving copra from its agents for a long time at prices
which have netted it a loss. The company has been
supporting its agents during this period. It now expects the
same support from its agents. Agents having stocks actually
on hand in their bodegas should telegraph us the quantity
immediately and we will protect same. But stocks not actually
in bodegas cannot be considered.
(Letter of July 17, 1920, from K.B. Day to Albaladejo y Cia.)
Conditions have changed very little in the copra market since
last reports. . . . We are in the same position as last week and
are out of the market.
For the benefit of our agents, we wish to explain in a few
words just why we are have been forced to close down our
mill until the arrival of a boat to load some of our stocks on
hand. We have large stocks of copra. The market for oil is so
uncertain that we do not care to increase these stocks until
such time as we know that the market has touched the
bottom. As soon as this period of uncertainty is over, we
expect to be in the market again stronger than ever, but it is
only the part of business wisdom to play safe at such times as
these.
Owing to the very small amounts of copra now in the
provinces, we do not think that our agents will lose anything
by our being out of the market. On the contrary, the
producers of copra will have a chance to allow their nuts to
19
mature on the trees so that the quality of copra which you
will receive when we again are in the market should be much
better than what you have been receiving in the past. Due to
the high prices and scarcity of copra a large proportion of the
copra we have received has been made from unripe coconuts
and in order to keep revenue coming in the producers have
kept harvesting these coconuts without giving them a chance
to reach maturity. This period now should give them the
chance to let their nuts ripen and should give you a better
copra in the future which will shrink less and be more
satisfactory both from your standpoint and ours. Please do all
you can to assist us at this time. We shall greatly appreciate
your cooperation.lawphi1.net
(Letter of August 7, 1920, from H.U. Umstead, Assistant
General Manager, to Albaladejo y Cia.)
The copra situation in Manila remains unchanged and the
outlook is still uncertain. Arrivals continue small.
We are still out of the market and are not yet in a position to
give you buying orders. We trust, however, that within the
next few days weeks we may be able to reenter the market
and resume our former activity.
xxx xxx xxx
While we are not of the market we have no objection
whatever to our agents selling copra to other purchasers, if
by doing so they are able to keep themselves in the market
and retain their parroquianos (customers). We do not,
however, wish you to use our money, for this purpose, nor do
we want you to buy copra on speculation with the idea in
mind that we will take it off of your hands at high prices when
we reenter the market. We wish to warn you against this now
so that you will not be working under any misapprehension.
In this same mail, we are sending you a notice of change of
organization. In your dealings with us hereafter, will you
kindly address all communications to the Philippine Refining
Corporation, Cebu, which you will understand will be
delivered to us.
(Letter of August 21, 1920, from Philippine Refining
Corporation, by K.B. Day, to Albaladejo y Cia.)
We are not yet in the market, but, as we have indicated
before, are hopeful of renewing our activities soon. We shall
advise all our agents seasonably of our return to the market. .
..
We are preparing new form of agreement between ourselves
and our agents and hope to have them completed in time to
refer them to our agents in the course of the next week or
ten days.
All agents should endeavor to liquidate outstanding advances
at this time because this is a particularly good time to clean
out old accounts and be on a business basis when we return

to the market. We request that our agents concentrate their
attention on this point during the coming week.lawphi1.net
(Letter of October 16, 1920, from K.B. Day, Manager, to
Albaladejo y Cia.)
Copra in Manila and coconut oil in the United States have
taken a severe drop during the past week. The Cebu price
seems to have remained unchanged, but we look for an early
drop in the local market.
We have received orders from our president in New York to
buy no more copra until the situation becomes more
favorable. We had hoped and expected to be in the market
actively before this time, but this most unexpected reaction
in the market makes the date of our entry in it more doubtful.
With this in view, we hereby notify our agents that we can
accept no more copra and advance no more money until we
have permission from our president to do so. We request,
therefore, that you go entirely out of the market, so far as we
are concerned, with the exception of receiving copra against
outstanding accounts.
In case any agent be compelled to take in copra and desire to
send same to us, we will be glad to sell same for him to the
highest bidder in Cebu. We will make no charge for our
services in this connection, but the copra must be forwarded
to us on consignment only so that we will not appear as
buyers and be required to pay the internal-revenue tax.
We are extremely sorry to be compelled to make the present
announcement to you, but the market is such that our
president does not deem it wise for us to purchase copra at
present, and, with this in view, we have no alternative other
than to comply with his orders. We hope that our agents will
realize the spirit in which these orders are given, and will do
all they can to remain faithful to us until such time as we can
reenter the market, which we hope and believe will be within
a comparatively short time.
(Special Letter of October 16, 1920, from Philippine Refining
Corporation, by K.B. Day, to Albaladejo y Cia.)
We have received very strict instructions from New York
temporarily to suspend the purchase of copra, and of course
we must comply therewith. However, should you find
yourselves obliged to buy copra in connection with your
business activities, and cannot dispose of it advantageously in
Cebu, we shall be glad to receive your copra under the
condition that we shall sell it in the market on your account
to the highest bidder, or, in other words, we offer you our
services free, to sell your copra to the best possible
advantages that the local market may offer, provided that, in
doing so, we be not obliged to accept your copra as a
purchase when there be no market for this product.
20
Whenever you find yourselves obliged to buy copra in order
to liquidate pending advances, we can accept it provided
that, so long as present conditions prevail, we be not
required to make further cash advances.
We shall quote no further from letters written by the
management of the Philippine Refining Corporation to the
plaintiff, as we find nothing in the correspondence which
reflects an attitude different from that reflected in the matter
above quoted. It is only necessary to add that the hope so
frequently expressed in the letters, to the effect that the
Philippine Refining Corporation would soon enter the market
as a buyer of copra on a more extensive scale than its
predecessor, was not destined to be realized, and the factory
at Opon remained closed.
But it is quite obvious that there is nothing in these letters on
which to hold the defendant liable for the expenses incurred
by the plaintiff in keeping its organization intact during the
period now under consideration. Nor does the oral testimony
submitted by the plaintiff materially change the situation in
any respect. Furthermore, the allegation in the complaint
that one agency in particular (Gubat) had been opened on
October 1, 1920, at the special instance and request of the
defendant, is not at all sustained by the evidence.
We note that in his letter of July 10, 1920, Mr. Day suggested
that if the various purchasing agents of the Visayan Refining
Co. would keep their organization intact, the company would
endeavor to see that they should not lose by the transaction
in the long run. These words afford no sufficient basis for the
conclusion, which the trial judge deduced therefrom, that the
defendant is bound to compensate the plaintiff for the
expenses incurred in maintaining its organization. The
correspondence sufficiently shows on its face that there was
no intention on the part of the company to lay a basis for
contractual liability of any sort; and the plaintiff must have
understood the letters in that light. The parties could
undoubtedly have contracted about it, but there was clearly
no intention to enter into contractual relation; and the law
will not raise a contract by implication against the intention
of the parties. The inducement held forth was that, when
purchasing should be resumed, the plaintiff would be
compensated by the profits then to be earned for any
expense that would be incurred in keeping its organization
intact. It is needless to say that there is no proof showing that
the officials of the defendant acted in bad faith in holding out
this hope.
In the appellant's brief the contention is advanced that the
contract between the plaintiff and the Visayan Refining Co.
created the relation of principal and agent between the
parties, and the reliance is placed upon article 1729 of the
Civil Code which requires the principal to indemnify the agent
for damages incurred in carrying out the agency. Attentive
perusal of the contract is, however, convincing to the effect
that the relation between the parties was not that of
principal and agent in so far as relates to the purchase of
copra by the plaintiff. It is true that the Visayan Refining Co.
 21

made the plaintiff one of its instruments for the collection of

copra; but it is clear that in making its purchases from the
producers the plaintiff was buying upon its own account and
that when it turned over the copra to the Visayan Refining
Co., pursuant to that agreement, a second sale was effected.
In paragraph three of the contract it is declared that during
the continuance of this contract the Visayan Refining Co.
would not appoint any other agent for the purchase of copra
in Legaspi; and this gives rise indirectly to the inference that
the plaintiff was considered its buying agent. But the use of
this term in one clause of the contract cannot dominate the
real nature of the agreement as revealed in other clauses, no
less than in the caption of the agreement itself. In some of
the trade letters also the various instrumentalities used by
the Visayan Refining Co. for the collection of copra are
spoken of as agents. But this designation was evidently used
for convenience; and it is very clear that in its activities as a
buyer the plaintiff was acting upon its own account and not
as agents, in the legal sense, of the Visayan Refining Co. The
title to all of the copra purchased by the plaintiff undoubtedly
remained in it until it was delivered by way of subsequent
sale to said company.

For the reasons stated we are of the opinion that no liability

on the part of the defendant is shown upon the plaintiff's
second cause of action, and the judgment of the trial court on
this part of the case is erroneous.

The appealed judgment will therefore be affirmed in so far as

it absolves the defendant from the first cause of action and
will be reversed in so far as it gives judgment against the
defendant upon the second cause of action; and the
defendant will be completely absolved from the complaint.
So ordered, without express findings as to costs of either
instance.

Johnson, Malcolm, Avancea, Villamor, Johns and Romualdez,

JJ., concur.

The Lawphil Project - Arellano Law Foundation

=======================

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-2411 June 28, 1951
DAVID (DAVE) THOMAS, plaintiff-appellant,
vs.
HERMOGENES S. PINEDA, defendant-appellant.
Matias E. Vergara and Perkins, Ponce Enrile, Contreras and
Gomez for plaintiff-appellant.
Laurel, Sabido, Almario and Laurel for defendant-appellant.
TUASON, J.:
For a first cause of action the plaintiff sought to compel an
accounting of the defendant's operation of a saloon and
restaurant of which the plaintiff claims to have been the sole
owner. For a second cause of action the court was asked to
enjoin the defendant from using the name of that business,
Silver Dollar Cafe. The court below found for the defendant
on the suit for accounting and for the plaintiff on the suit for
injunction.
On the first cause of action it is alleged that the defendant
managed the business as plaintiff's employee or trustee
during the Japanese occupation of the City of Manila and on a
share of the profits basis after liberation. Grounded on
different relationships between the parties before and after
the occupation, this cause of action evolves two different acts
of evidence, which it may be well to take up separately for
the sake of clarity. We will set out the material facts in so far
as they are uncontroverted, leaving for later discussion those
about which the parties are in disagreement.
It appears that in 1931, the plaintiff bought the bar and
restaurant known as Silver Dollar Cafe located at Plaza Santa
Cruz, Manila, from one Dell Clark, paying P20,000 for its
physical assets and good will. Thereafter he employed the
defendant, Clark's former employee, as a bartender with a
salary of P60. In the course of time, the defendant became
successively cashier and manager of the business. The
outbreak of war found him holding the latter position with a
monthly compensation of P250.
To prevent the business and its property from falling into
enemy hands, the plaintiff being a citizen of the United
States, David Thomas on or about December 28, 1941, made
a fictitious sale thereof to the defendant; and to clothe the
sale with a semblance of reality, the bill of sale was antedated
November 29, 1941.
Though this document was said to have been destroyed and
no copy thereof was available, the fictitiousness and lack of
consideration of the conveyance was expressly admitted in
the answer. Besides this admission, it is agreed that
simultaneously with or soon after the execution of the
simulated sale, the plaintiff and the defendant signed a
22
private or secret document, identified as Exhibit "F", which
was kept by the plaintiff. Because of its important bearing on
the case, it is convenient to copy this instrument in full.
PRIVATE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS THAT:
On November 29, 1941, a document which purported to be a
deed of sale of the bar and restaurant business known as the
SILVER DOLLAR CAFE entered into by and between David
(Dave) Thomas and Hermogenes Pineda and acknowledged
before Julian Lim, a notary public for and in the City of Manila
and entered in his notarial register as Document No. 127,
Page No. 27, Book I and Series of 1941, witnessed by the
Misses Florence Thomas and Esther Thomas.
The said document was prepared and executed only for the
purpose of avoiding the seizure of the said establishment if
and when the enemy forces entered the City of Manila.
Upon the restoration of peace and order and the absence of
the danger abovementioned, the said document
automatically becomes null and void and of no effect, the
consideration of Ten Thousand Pesos (P10,000), Philippine
Currency, mentioned therein, being fictitious and not paid to
the Vendor.
In witness whereof, we have hereunto set our hands in the
City of Manila, Philippines, this 29th day of November, 1941.
(Sgd.) DAVID THOMAS
Vendor
(Sgd.) H. PINEDA
Vendee
In the presence of:
(Sgd.) ESTHER THOMAS
(Sgd.) FLORENCE THOMAS
Thomas was interred at Santo Tomas during the greater part
of the war, and his business was operated by the defendant
exclusively throughout that period in accordance with the
aforequoted stipulation. On February 3, 1945, the building
was destroyed by fire but the defendant had been able to
remove some of its furniture, the cash register, the piano, the
safe, and a considerable quantity of stocks to a place of
safety. According to the defendant, all of these goods were
accounted for and turned over to the plaintiff after the City of
Manila had been retaken by the American Forces.
On May 8, 1945, a bar was opened on Calle Bambang, district
of Sta. Cruz, under the old name of Silver Dollar Cafe. Housed
in a makeshift structure, which was erected on a lot
belonging to the defendant, the Bambang shop was
conducted for about four months, i.e., until September of the
same year, when it was transferred to the original location of
the Silver Dollar Cafe at No. 15 Plaza Sta. Cruz.

It is asserted and denied that the plaintiff as well as the
defendant took a more or less active part in the management
of the post-liberation business until about the middle of
September of the following year, when, it is also alleged, the
plaintiff brought a certified public accountant to the
establishment in Sta. Cruz for the purpose of examining the
books of the business and the defendant threatened the
plaintiff and his companion with a gun if they persisted in
their purpose. As a result of that incident, the plaintiff
forthwith filed the present action, and set up a separate
business under the same trade-name, Silver Dollar Cafe, on
Echague Street. The defendant remained with the Silver
Dollar Cafe at Plaza Sta. Cruz, which was burn down on
December 15, 1946. In the face of Exhibit "F" before
transcribed, there is no denying that throughout the Japanese
military regime the Silver Dollar Cafe belonged exclusively to
the plaintiff and that the defendant had charge of it merely as
plaintiff's employee, trustee, or manager. There is no
pretense that the defendant invested in the business within
that period any capital of his own in the form of cash or
merchandise.
The controversy lies in nature and scope of the defendant's
obligation toward the plaintiff in relation to the business. It
will be noticed that Exhibit "F" is silent on this point. The
defendant endeavored to prove that there was a third,
verbal, agreement, the import of which was that he was to
operate the business with no liability other than to turn it
over to the plaintiff as the plaintiff would find it after the war.
Little or no weight can be attached to this assertion if by it
the defendant means, as he apparently does, that he was
relieved of any duty to make an accounting. Such
understanding as the defendant says existed would be at war
with the care and precaution which the plaintiff took to
insure his rights in the business and its assets, which had an
inventory value of P60,000, according to the plaintiff. As the
property consisted mostly of perishable and expendable
goods to be constantly disposed of and replenished as long as
the business lasted, the plaintiff could not, by any stretch of
the imagination, have agreed to be content with what the
defendant would deign to give him when normalcy was
restored. For that was what the defendant's version of the
alleged verbal agreement would amount to and what the
court below found. As sole manager with full power to do as
his fancies dictated, the defendant could strip the business
naked of all its stocks, leaving the plaintiff holding the bag, as
it were, when the defendant's management was terminated.
Unless Thomas was willing to give away his property and its
profits, no man in his right senses would have given his
manager an outright license such as the defendant claims to
have gotten from his employer. Not only did the plaintiff see
to the execution of a counter agreement but he stated that
his elder daughter "had it (Exhibit "F") kept in her
possession;" that "there were many efforts by Mr. Pineda to
get hold of this document during the first two weeks of the
Japanese occupation," and he was "surprised;" that he "did
not know what was in the future" and he "wanted my
children to have something more than an empty possession."
23
Referring to the defendant's attempts to take Exhibit "F"
away from him, Thomas said that the defendant sent to the
hospital where he (plaintiff) was confined, defendant's friend,
an attorney by the name of Swartzcoff of whom he had heard
"things", "to recover that document", and he, plaintiff,
became more determined not to part with it; that as
Swartzcoff kept on coming, he gave the document to his
children to keep up to the end of the war. This testimony has
all the stamps of veracity and vehemence and refutes the
defendant's allegation. The conclusion thus seems clear that
the defendant owes the plaintiff an accounting of his
management of the plaintiff's business during the occupation.
The exact legal character of the defendant's relation to the
plaintiff matters not a bit. It was enough to show, and it had
been shown, that he had been entrusted with the possession
and management of the plaintiff's business and property for
the owner's benefit and had not made an accounting.
Neither did the defendant's sweeping statement at the trial
that all the proceeds from the business had been used to
support the plaintiff and his daughters an to entertain or
bribe Japanese officers and civilians dispense with
defendant's duty to account. It was a clear error for the court
below to declare at this stage of the proceeding, on the basis
of defendant's incomplete and indefinite evidence, that there
were no surplus profits, and to call matters even. Under the
pleadings and the evidence the court's inquiry ought to have
been confined to the determination of the plaintiff's right to
secure an accounting; and that right having been established,
the appropriate judgment should have been a preliminary or
interlocutory one that the defendant do account. The
court was not called upon to decide, and should not have
decided, anything beyond that.
Monies and foodstuffs which the defendant said he had
supplied the plaintiff and his daughters during the war are
appropriate items to be considered on taking account.
Receipts and expenses involving thousands of pesos, covering
a great length of time, and consisting of complicated items
are, on their face, so complex and in as to necessitate being
threshed out in an appropriations by the defendants
substantiated. By the defendant's admission, the business
made good profits during the war, and there are charges that
he amassed a fortune out of the trusteeship. True or false,
those allegations and many others which it was the plaintiff's
right to prove, if he could, should not have been dismissed
summarily. Not technicalities but substantial rights, equity,
and justice clearly demanded adherence to the normal course
of practice and procedure. The employment of auditors might
be necessary.
The defendant denied that the plaintiff had any proprietary
interest in the saloon in Bambang and at Plaza Sta. Cruz after
liberation. Thomas' evidence on this phase of the litigation is
to the effect that, upon his release from the internment
camp, he immediately took steps to rehabilitate his business.
He declared that he borrowed P2.000 from a friend by the
name of Bill Drummond, and with that amount he
constructed a temporary building in Bambang and with the

stocks saved by the defendant opened the business there. He
said that, as before, the defendant now worked as manager,
with the difference that under the new arrangement he was
to get one-half the net profits.
The defendant, on the other hand, undertook to show that he
himself put up the Bambang business, furnishing the
construction materials, paying for the labor, and purchasing
the needed merchandise. And when the business was to be
moved to Plaza Sta. Cruz, he said, he called on Mrs. Angela
Butte, was able to rent the Plaza Sta. Cruz premises from her
for Pl,200, and told the lessor when he handed her the rent,
"This is my money." He went on to say that Thomas told him
to do whatever he pleased with the premises, only requesting
him to negotiate the sale of or a loan on plaintiff's mining
shares so that the plaintiff could join him as partner or "buy
him out" by December. But, according to the defendant, the
plaintiff was not able to raise funds, so his desire to acquire
interest in or buy the business did not materialize. The
plaintiff did not invest a centavo in the new business because
he had no money to invest, the defendant concluded. Leaving
aside the evidence which depends entirely on the credibility
of the Witnesses, the following undisputed or well-
established circumstances are, in our judgment, decisive:
1. The defendant corroborated the plaintiff when he
practically declared that upon the plaintiff's release from the
internment camp, Thomas lost no time in looking a site to
open a saloon. That the plaintiff then had the means to do
that, was a fact brought out by the defendant's own evidence
as well as by the plaintiff's testimony. There were several
cases of whiskey, rum, gin and other kinds of liquor which the
defendant admitted he had carted away and delivered to the
plaintiff after liberation. What the latter did or could have
done with those goods, if not to start a business with, there
was no plausible explanation. Granting that ten cases of the
liquor were confiscated by the MP the plaintiff said they
were soon returned the confiscation could not have
stopped the plaintiff from continuing with the business,
which was riding in the crest of a boom. Significantly, the
defendant said that the day following the alleged confiscation
he handed the plaintiff P2,000 in cash. If he had nothing else,
this was an amount which ought to have been enough to
enable the plaintiff to keep the business going, which needed
no large capital. That this payment was "in full and complete
liquidation of the Silver Dollar Cafe," as the defendant
asserted, was, under the circumstances, highly improbable, to
put it mildly.
2. It is also an admitted fact that the bar in Bambang was
called Silver Dollar Cafe, Branch No. 1. The use of the old
name suggested that the business was in fact an extension
and continuation of the Silver Dollar Cafe which the
defendant had operated for the plaintiff during the enemy
occupation, and precluded any thought of the business
having been established by the defendants as his own. It
should be remembered that the defendant had not yet
appropriated the trade-name Silver Dollar Cafe for himself.
24
This the subject of the second cause of action he did on
September 27, 1945.
3. Despite statements to the contrary, it was the plaintiff
who, in September, 1945, before the reopening of the bar at
Plaza Sta. Cruz, entered into a written contract of lease
(Exhibit A) with Mrs. Angela Butte for the Sta. Cruz location;
Thomas was named in the contract as the lessee. The
contract also reveals that it was the plaintiff who personally
paid Mrs. Butte the advanced rent (P1,200) for the period
August 31-September 30, 1945, the first month of the lease.
And thereafter, all the rental receipts were made out in
Thomas' name, except those for the months of October,
November and December, which were put in the name of the
defendant. A propose of this temporary substitution, Jose V.
Ramirez, owner of the land and administrator of the building,
testified that the Bureau of Internal Revenue had licensed
and taxed the business in the name of Hermogenes Pineda
and so thought it necessary that for those three months the
defendant's name should be put in the receipts. Ramirez
added that Mrs. Butte agreed to the Internal Revenue
Bureau's requirement on the assurance that beginning
January, 1946, the receipts would be issued again in favor of
Thomas. Mrs. Butte testified to the same effect.
At any rate, the issuance of three of the receipts in
defendant's name was far from implying that he was the
proprietor or part owner of the Silver Dollar Cafe.
Appropriately, as manager he could make disbursement and
get receipts therefor in his name. What would have been
strange was the issuance of receipts, let alone the execution
of the lease contract, in the name of David Thomas if Thomas
had nothing to do with the business, as the defendant would
have the court believe.
The defendant testified, and the lower court believed, that he
consented to the issuance of the three receipts and the
execution of the contract of lease in the plaintiff's name
because it was expected that the plaintiff would buy the
business or "chip in" as partner. How the mere possibility, by
no means certain, of the plaintiff becoming the owner of the
saloon or defendant's partner on some future date could
have induced the defendant to let the plaintiff figure
unqualifiedly as owner of the business in receipts and leases
that had nothing to do with the contemplated deal, and why
the plaintiff would want to pose as owner while he was yet a
complete stranger to the enterprise, is utterly beyond
comprehension.
For the rest, the plaintiff's testimony is as convincing and as
well supported by the natural course of things as the
defendant's explanation is unreasonable. It can not be
disputed that Thomas had accumulated money from the
business in Bambang which, it has also been proved to the
point of certainty, he operated with the goods retrieved by
the defendant from the pre-war Silver Dollar Cafe.
Conducting saloons having been the plaintiffs only means of
support before the war, and the calling in which he had
acquired plenty of experience, it is inconceivable that he

would have remained idle at a time when the trade was most
lucrative and he had been impoverished by the war. That the
plaintiff, established a bar behind the Great Eastern Hotel on
Echague Street, a hidden place, immediately or very soon
after he and the defendant had a falling out, is mute
testimony to his eagerness to take advantage of the current
boom.
4. That the defendant was only a manager is also made
evident by two sets of business cards of the Silver Dollar Cafe
which he himself caused to be printed. On the first set, of
which 500 prints were made, David Thomas was held out as
the proprietor and Hermogenes Pineda, the defendant, as
manager. On the second set, which were ordered later, the
defendant was not even mentioned as manager, but one Bill
Magner, while David Thomas' name was retained as the
proprietor.
Customers of the place testified that copies of these cards
were handed to them for distribution to their friends by the
defendant himself. The defendant swore that he put away
the cards in a small drawer under some books and denied
they had been distributed. He gave to understand that he
was at a loss to know how the plaintiff and his witnesses got
hold of some of said cards, though, he said, he suspected that
Thomas went upstairs and grabbed some copies while the
witnesses found other copies scattered after the fire which
burned the establishment for the second time in 1946.
However the case may be, whether the defendant distributed
the cards or not, the important point is why he, in the first
place, ordered the cards in the form in which they were
printed. He did not give cogent reasons. His explanation was
that Hugo Santiago, the printer's agent, "gave me a hint that
Mr. Thomas was going to open the Silver Dollar Cafe in Plaza
Sta. Cruz." This explanation fails to forge any sensible link
between the printing of Thomas' name in the cards and
Thomas' plan to join him in the business. Incidentally, the
defendant did not tell the truth when he declared that the
cards were ordered when the shop was still in Bambang; the
cards gave the location of the Silver Dollar Cafe as No. 15
Plaza Sta. Cruz, and, besides, Santiago, who testified for both
sides, was positive that the cards were delivered to the
defendant in September, 1945.
5. At different times from May 8 to December 15, 1945, the
defendant handed the plaintiff averse amounts totalling
P24,100 without so much as asking Thomas to sign a receipts
for any of them.
The defendant testified that these amounts were simple
loans secured by plaintiff's mining shares of stock. The
plaintiff countered that they were advances chargeable to his
share of the net profits. While he admitted that he owned
some Baguio Consolidated and Baguio Gold shares, he denied
that he had given them to the defendant as collateral or in
any other concept. He swore that he kept those securities in
his own safe and removed them in plain sight of Pineda when
he became suspicious of the latter.
25
It is difficult to understand how the payment of the amounts
in question to the plaintiff could have been for any purpose
other than that affirmed by him. The lack of any receipt is
incompatible with the hypothesis of loans. The defendant's
possession of the plaintiff's mining shares, granting that the
defendant held them, was no reason for dispensing with the
necessity of getting from the plaintiff some form of
acknowledgment that the said amounts were personal debts,
if that was the case. Without such acknowledgment, which
could have been made in a matter of minutes and required
no expert to make, the shares of stock did not afford the
creditor much if any protection, as an experienced and
intelligent man that the defendant is must have realized.
These amounts were the subject of a counterclaim and the
court sustained the defendant's theory and gave him
judgment for them. In the light of the what has just been said
and of the evidence previously discussed, there is no escaping
the conclusion that the plaintiff was the sole owner of the
post-war Silver Dollar bar and restaurant, that the defendant
was only an industrial partner, and that the said amounts
were withdrawals on account of the profits, which appear
from portions of the defendant's entries in the books to have
been considerable.
On the second cause of action, which relates to the
ownership of the Silver Dollar Cafe trade-name, it appears
that the defendant on September 27, 1945, registered the
business and its name as his own.
The defendant contends that in 1940, the plaintiff's right to
use this trade-name expired and by abandonment or non-use
the plaintiff ceased to have any title thereto. The alleged
abandonment or non-use is predicated on the testimony that
the plaintiff expressly allowed the defendant to appropriate
the trade-name in dispute.
The parties' actions negative all motions of abandonment by
the plaintiff. In the fictitious bill of sale executed on
December 29, 1941, the plaintiff asserted and the defendant
acknowledged Thomas' ownership of the business. It is
manifest from Exhibit "C" and "D, samples of the business
cards which were printed at the instance of the defendant
himself, that the plaintiff continued to display the name Silver
Dollar Cafe after liberation. And when the plaintiff set up a
new saloon on Echague Street after he broke with the
defendant, he gave the establishment the same appellation
Silver Dollar Cafe.
The most that can be said in favor of the defendant, which is
the view taken by the trial Judge, is that the plaintiff
instructed Pineda to renew the registration of the trade-
name and the defendant understood the instruction as
permission to make the registration in his favor. It is to be
doubted to whether even honest mistakes were possible
under the circumstance of the case. It is an understatement
to say that indications pointed to bad faith in the registration.
The application for registration contained brazen untruths.

The plaintiff non-use of his trade name in 1945, granting that
to have been the case, did not work as a forfeiture of his
exclusive right to the name, name which he and the man
from whom he bought the business had used for over forty
years without interruption. Under the provision of Commerce
Administrative Order No. 1, issued on January 11, 1946, by
the Secretary of Commerce and Agriculture, the rights
registrant of business names, the records of which had been
destroyed or lost during the war, were expressly protected.
This administrative Order No. 1-1, dated October 29, 1946,
but the amendment referred only to the procedure for
authentication of the documents to be submitted. On the
other hand, the amendatory order extended the filing of
application for reconstitution up to as late as December 31,
1946, that is ninety days after plaintiff commenced the
present action.
As legal proposition and in good conscience, the defendants
registration of the trade name Silver Dollar Cafe must be
deemed to have been affected for the benefit of its owner of
whom he was a mere trustee or employee. "The relations of
an agent to his principal are fiduciary and it is an elementary
and very old rule that in regard to property forming the
subject matter of the agency, he is estopped from acquiring
or asserting a title adverse to that of principal. His position is
analogous to that of a trustee and he cannot consistently,
with the principles of good faith, be allowed to create in
himself an interest in opposition to that of his principal or
cestui que trust. A receiver, trustee, attorney, agent or any
other person occupying fiduciary relations respecting
property or persons utterly disabled from acquiring for his
own benefit the property committed to his custody for
management. This rule is entirely independent of the fact
whether any fraud has intervened. No fraud in fact need be
shown, and no excuse will be heard from any such inquiry
that the rule takes so general form. The rule stands on the
moral obligation to refrain from placing one's self in position
which ordinarily excite conflicts between self-interest at the
expense of one's integrity and duty to another, by making it
possible to profit by yielding to temptation". (Barreto vs.
Tuason, 50 Phil. 888; Severino vs. Severino, 44 Phil., 343.)
To recapitulate, we find from what we believed is conclusive
evidence, both direct and circumstance, that the plaintiff was
the owner of the Silver Dollar Cafe at Plaza Sta. Cruz during
the enemy occupation and is of right entitled to have an
accounting of its administration by the defendant. Exhibit "F"
does not state the remuneration the defendant was to be
paid for managing the plaintiff's business. The natural
presumption under normal circumstances would be that his
prewar compensation was to continue. But conditions during
the occupation being different from what they were before
the war, the defendants remuneration may and should be
increased if so warranted by the changed circumstances. This
matter should be left for consideration in the accounting,
having in mind the nature and extent of the services
rendered, the volumes of business transacted, the profits
obtained and the losses incurred, the personal risk run by the
26
defendant, and other factors related to the success or failure
of the defendant's management.
We have it from the plaintiff that he promised to give the
defendant one-half of the net profits of the business
established in Bambang and later at Plaza Sta. Cruz after
liberation. This offer was reasonable, even liberal, and no
unforeseen circumstances having supervened to warrants its
alteration, the same will not be disturbed and will serve as
basis of liquidation. The other basis of liquidation of the post-
war business are that the plaintiff was the exclusive owner of
its stocks and other assets from May 8, 1945, when it was
reestablished in Bambang, to December 15 1946, when the
business was levelled to the ground at Plaza Sta. Cruz.
For the reasons hereinbefore stated, the various sums of
money aggregating P24,100 and received or taken by the
plaintiff were, and they hereby are declared to be, accounting
from the defendants share of said profits if there be any.
We also find that the trade-name Silver Dollar Cafe belongs to
the plaintiff and that the defendant should be and he is
perpetually enjoined from using it or any essential part
thereof.
In all other respects, especially in connection with the
demand for accounting, this case is remanded to the court of
origin for further proceedings in accordance with law and the
tenor of this decision and for a final judgment on the balance
that may be found due from either party.
The defendant will pay the costs of this appeal.
Feria, Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo and
Bautista Angelo, JJ., concur.
Separate Opinions
PARAS, C. J. concurring and dissenting:
I concur in the majority opinion except in so far as it requires
the defendant to render an accounting of the business Silver
Dollar Cafe during the Japanese occupation. The proof shows
that the defendant was told the enterprise and pretend to be
its owner during the war in order to save it for being surely
seized by the Japanese as American property, and that the
defendant not only succeeded in doing so but, with all
honesty, used the proceeds of the business for the support of
the defendant and his daughters. The arrangement cannot be
said to have been a regular business proposition undertaken
by the parties under normal conditions in virtue of which the
defendant was made a mere manager; and even if the
defendant had in fact derived personal advantages, its
justification necessarily follows from the accomplishment of
the mission entrusted by the plaintiff. Moreover, the business
during the occupation was carried on in Japanese currency
which is now worthless.
The Lawphil Project - Arellano Law Foundation
=============

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-49219 December 11, 1946
PABLO D. PALMA, petitioner,
vs.
EDUARDO REYES CRISTOBAL, respondent.
Vicente J. Francisco and Guillermo B. Guevara for petitioner.
Antonio Gonzales for respondent.
PERFECTO, J.:
A parcel of a land located in Quesada Street, Tondo, Manila,
covered by transfer certificate of title No. 31073 of the
Register of Deeds of Manila, issued in favor of petitioner
Pablo D. Palma, is the subject of contention between the
parties.
Petitioner sought, at first, to eject respondent Eduardo
Cristobal Reyes from the land in question in a complaint filed
with the Municipal Court of Manila. As respondent raised the
question of ownership, the complaint was dismissed, and
petitioner filed with the Court of First Instance of Manila the
complaint which initiated this case, petitioner praying that he
be declared the owner of the land and that respondent be
ordered to restore its possession and to remove his house
therefrom.
The complaint was dismissed and petitioner brought the case
to the Court of Appeals, where he again failed, the appealed
judgment having been affirmed by a decision penned by Mr.
Justice Padilla, concurred in by Mr. Justice Jose G. Generoso
and Mr. Justice Pedro Tuason.
The case is now before us on appeal by certiorari.
In 1909, after registration proceedings under the provisions
of Act No. 496, original certificate of title No. 1627 was issued
in the names of petitioner and his wife Luisa Cristobal. In
1923, said certificate was cancelled and substituted by
certificate of title No. 20968 by virtue of a decree issued by
the Court of First Instance of Manila in connection with
Manila cadastre. It was later substituted by certificate of title
No. 26704, also in the name of petitioner and his wife. After
the latter's death in 1922,a new certificate of title was issued
in 1923 only in the name of the name of the petitioner,
substituted in 1928 by certificate of title No. 31073.
The Court of Appeals, upon the evidence, concluded with the
Court of First Instance of Manila that the parcel of land in
question is a community property held by petitioner in trust
for the real owners (the respondent being an heir of one of
them), the registration having been made in accordance with
an understanding between the co-owners, by reason of the
27
confidence they had in petitioner and his wife. This
confidence, close relationship, and the fact that the co-
owners were receiving their shares in the rentals, were the
reasons why no step had been taken to partition the
property.
The Court of Appeals explains that it was only after the death
of Luisa Cristobal and petitioner had taken a second wife that
trouble on religious matters arose between petitioner and
respondent, and it gives credence to the testimony of
Apolonia Reyes and respondent to the effect that Luisa,
before her death, called her husband, the petitioner, and
enjoined him to give her co-owners their shares in the parcel
of land; but respondent told her then not to worry about it,
for it was more important to them to have her cured of the
malady that affected her. Petitioner answered his wife that
she should not worry because he would take care of the
matter by giving the co-owners their respective shares.
Petitioner assigns as first error of the Court of Appeals the
fact that it considered the oral testimony adduced in behalf
of respondent sufficient to rebut the legal presumption that
petitioner is the owner of the land in controversy. .
In Severino vs. Severino (43 Phil., 343), this court declared
that "the relations of an agent to his principal are fiduciary
and it is an elementary and very old rule that in regard to
property forming the subject-matter of the agency, he is
estopped from acquiring or asserting a title adverse to that of
the principal. His position is analogous to that of a trustee
and he cannot consistently, with the principles of good faith,
be allowed to create in himself an interest in opposition to
that of his principal or cestui que trust." Affirming the said
doctrine in Barretto vs. Tuason (50 Phil., 888), the Supreme
Court declared that the registration of the property in the
name of the trustees in possession thereof, must be deemed
to have been effected for the benefit of the cestui que trust.
In Palet vs. Tejedor (55 Phil., 790), it was declared that
whether or not there is bad faith or fraud in obtaining a
decree with respect to a registered property, the same does
not belong to the person in whose favor it was issued, and
the real owners be entitled to recover the ownership of the
property so long as the same has not been transferred to a
third person who has acquired it in good faith and for a
valuable consideration. This right to recover is sanctioned by
section 55 of Act No. 496, as amended by Act No. 3322.
There is no showing why the conclusions of facts of the Court
of Appeals should be disturbed, and upon said facts
petitioner's first assignment of errors appears to be
untenable in the light of law and of the decision of this court.
Petitioner alleged that the Court of Appeals erred in not
holding the respondent estopped from claiming that
petitioner is not the absolute owner of the property in
question because, after Luisa Cristobal, petitioner's wife, died
in 1922, instead of moving for the partition of the property,
considering specially that petitioner had promised such a
partition at the deathbed of the deceased, respondent
 28

appeared as attorney for petitioner and prayed that a new
certificate of title be issued in the name of said petitioner as
the sole owner of the property.
Petitioner insisted with energy that respondent himself was a
party to the fraud upon the court, as guilty as petitioner
himself, and that estops him from asserting that he is the co-
owner of the land involved herein.lawphil.net
There is no merit in petitioner's contention. The fact that
respondent has been a party to the deception which resulted
in petitioner's securing in his name the title to a property not
belonging to him, is not valid reason for changing the legal
relationship between the latter and its true owners to such
an extent as to let them lose their ownership to a person
trying to usurp it.
Whether petitioner and respondent are or are not jointly
responsible for any fraud upon a court of justice, cannot
affect the substantial rights of the real owners of the title of a
real property.
name in a fiduciary capacity, and it is elementary that a
trustee cannot acquire by prescription the ownership of the
property entrusted to him. The position of a trustee is of
representative nature. His position is the position of a cestui
que trust. It is logical that all benefits derived by the
possession and acts of the agent, as such agent, should
accrue to the benefit of his principal.
Petitioner's pretension of building his right to claim
ownership by prescription upon his own breach of a trust
cannot be countenanced by any court, being subversive of
generally accepted ethical principles.
The decision of the Court of Appeals is affirmed. No costs.
Moran, Bengzon, C.J., Paras, Feria, Pablo, Hilado and Briones,
JJ., concur.
The Lawphil Project - Arellano Law Foundation

Respondent is not barred because his appearance as attorney

for petitioner was not a misrepresentation which would ===============
induce petitioner to believe that respondent recognized the
former as the sole owner of the property in controversy. The
misrepresentation could deceive the court and outsiders,
because they were not aware of the understanding between
the co-owners that the property be registered in the name of
petitioner. The Court of Appeals found, and the finding is not
now in issue, that petitioner was a party to the understanding
and assumed the role of an instrument to make it effective.
Respondent's appearance, as attorney for petitioner in 1923,
was a consequence of the understanding, and petitioner
could not legitimately assume that it had the effect of
breaking or reversing said understanding.

Lastly, it is contended by petitioner that, even conceding that

the controverted property was owned in common by several
co-owners, yet the Court of Appeals erred in not holding that,
as against respondent, petitioner had acquired absolute
ownership of the same through prescription.

Upon the premise that the registration in 1909 in the name of

petitioner and his wife, Luisa Cristobal, was in accordance
with an agreement among the co-owners, petitioner
advances the theory that when he, upon the death of his wife
in 1922, caused the trust property to be registered in his sole
name in 1923, and subsequently partitioned between himself
and his daughter, Ildefonsa Cristobal Ditangco, as heirs of the
decedent, "he openly breached the agreement of 1909 as
well as the promise made to his dying wife of giving the co-
owners their respective shares," concluding that "that breach
was an assumption of ownership, and could be the basis of
title by prescription."

This theory holds no water because, according to the

pronouncement of the Court of Appeals, upon the evidence,
petitioner held the property and secured its registration in his

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-28050 March 13, 1928
FEDERICO VALERA, plaintiff-appellant,
vs.
MIGUEL VELASCO, defendant-appellee.
Jose Martinez San Agustin for appellant.
Vicente O. Romualdez, Crispulo T. Manubay and Placido P.
Reyes for appellee.
VILLA-REAL, J.:
This is an appeal taken by Federico Valera from the judgment
of the Court of First Instance of Manila dismissing his
complaint against Miguel Velasco, on the ground that he has
not satisfactorily proven his right of action.
In support of his appeal, the appellant assigns the following
alleged as committed by the trial court in its judgment, to wit:
(1) The lower court erred in holding that one of the ways of
terminating an agency is by the express or tacit renunciation
of the agent; (2) the lower court erred in holding that the
institution of a civil action and the execution of the judgment
obtained by the agent against his principal is but renunciation
of the powers conferred on the agent; (3) the lower erred in
holding that, even if the sale by Eduardo Hernandez to the
plaintiff Federico Valera be declared void, such a declaration
could not prevail over the rights of the defendant Miguel
Velasco inasmuch as the right redemption was exercised by
neither Eduardo Hernandez nor the plaintiff Federico Valera;
(4) the lower court erred in not finding that the defendant
Miguel Velasco was, and at present is, an authorized
representative of the plaintiff Federico Valera; (5) the lower
court erred in not annulling the sale made by the sheriff at
public auction to defendant Miguel Velasco, Exhibit K; (6) the
lower court erred in failing to annul the sale executed by
Eduardo Hernandez to the plaintiff Federico Valera, Exhibit C;
(7) the lower court erred in not annulling Exhibit L, that is, the
sale at public auction of the right to repurchase the land in
question to Salvador Vallejo; (8) the lower court erred in not
declaring Exhibit M null and void, which is the sale by
Salvador Vallejo to defendant Miguel Velasco; (9) the lower
court erred in not ordering the defendant Miguel Velasco to
liquidate his accounts as agent of the plaintiff Federico
Valera; (10) the lower court erred in not awarding plaintiff
the P5,000 damages prayed for.
The pertinent facts necessary for the solution of the
questions raised by the above quoted assignments of error
are contained in the decision appealed from and are as
follows:
By virtue of the powers of attorney, Exhibits X and Z,
executed by the plaintiff on April 11, 1919, and on August 8,
29
1922, the defendant was appointed attorney-in-fact of the
said plaintiff with authority to manage his property in the
Philippines, consisting of the usufruct of a real property
located of Echague Street, City of Manila.
The defendant accepted both powers of attorney, managed
plaintiff's property, reported his operations, and rendered
accounts of his administration; and on March 31, 1923
presented exhibit F to plaintiff, which is the final account of
his administration for said month, wherein it appears that
there is a balance of P3,058.33 in favor of the plaintiff.
The liquidation of accounts revealed that the plaintiff owed
the defendant P1,100, and as misunderstanding arose
between them, the defendant brought suit against the
plaintiff, civil case No. 23447 of this court. Judgment was
rendered in his favor on March 28, 1923, and after the writ of
execution was issued, the sheriff levied upon the plaintiff's
right of usufruct, sold it at public auction and adjudicated it to
the defendant in payment of all of his claim.
Subsequently, on May 11, 1923, the plaintiff sold his right of
redemption to one Eduardo Hernandez, for the sum of P200
(Exhibit A). On September 4, 1923, this purchaser conveyed
the same right of redemption, for the sum of P200, to the
plaintiff himself, Federico Valera (Exhibit C).
After the plaintiff had recovered his right of redemption, one
Salvador Vallejo, who had an execution upon a judgment
against the plaintiff rendered in a civil case against the latter,
levied upon said right of redemption, which was sold by the
sheriff at public auction to Salvador Vallejo for P250 and was
definitely adjudicated to him. Later, he transferred said right
of redemption to the defendant Velasco. This is how the title
to the right of usufruct to the aforementioned property later
came to vest the said defendant.
As the first two assignments of error are very closely related
to each other, we will consider them jointly.
Article 1732 of the Civil Code reads as follows:
Art. 1732. Agency is terminated:
1. By revocation;
2. By the withdrawal of the agent;
3. By the death, interdiction, bankruptcy, or insolvency of the
principal or of the agent.
And article 1736 of the same Code provides that:
Art. 1736. An agent may withdraw from the agency by giving
notice to the principal. Should the latter suffer any damage
through the withdrawal, the agent must indemnify him
therefore, unless the agent's reason for his withdrawal should
be the impossibility of continuing to act as such without
serious detriment to himself.

In the case of De la Pea vs. Hidalgo (16 Phil., 450), this court
said laid down the following rule:
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 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 a 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 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.
The misunderstanding between the plaintiff and the
defendant over the payment of the balance of P1,000 due the
latter, as a result of the liquidation of the accounts between
them arising from the collections by virtue of the former's
usufructuary right, who was the principal, made by the latter
as his agent, and the fact that the said defendant brought suit
against the said principal on March 28, 1928 for the payment
of said balance, more than prove the breach of the juridical
relation between them; for, although the agent has not
expressly told his principal that he renounced the agency, yet
neither dignity nor decorum permits the latter to continue
representing a person who has adopted such an antagonistic
attitude towards him. When the agent filed a complaint
against his principal for recovery of a sum of money arising
from the liquidation of the accounts between them in
connection with the agency, Federico Valera could not have
understood otherwise than that Miguel Velasco renounced
the agency; because his act was more expressive than words
and could not have caused any doubt. (2 C. J., 543.) In order
to terminate their relations by virtue of the agency the
defendant, as agent, rendered his final account on March 31,
1923 to the plaintiff, as principal.
Briefly, then, the fact that an agent institutes an action
against his principal for the recovery of the balance in his
favor resulting from the liquidation of the accounts between
them arising from the agency, and renders and final account
of his operations, is equivalent to an express renunciation of
30
the agency, and terminates the juridical relation between
them.
If, as we have found, the defendant-appellee Miguel Velasco,
in adopting a hostile attitude towards his principal, suing him
for the collection of the balance in his favor, resulting from
the liquidation of the agency accounts, ceased ipso facto to
be the agent of the plaintiff-appellant, said agent's purchase
of the aforesaid principal's right of usufruct at public auction
held by virtue of an execution issued upon the judgment
rendered in favor of the former and against the latter, is valid
and legal, and the lower court did not commit the fourth and
fifth assignments of error attributed to it by the plaintiff-
appellant.
In regard to the third assignment of error, it is deemed
unnecessary to discuss the validity of the sale made by
Federico Valera to Eduardo Hernandez of his right of
redemption in the sale of his usufructuary right made by the
sheriff by virtue of the execution of the judgment in favor of
Miguel Velasco and against the said Federico Valera; and the
same thing is true as to the validity of the resale of the same
right of redemption made by Eduardo Hernandez to Federico
Valera; inasmuch as Miguel Velasco's purchase at public
auction held by virtue of an execution of Federico Valera's
usufructuary right is valid and legal, and as neither the latter
nor Eduardo Hernandez exercised his right of redemption
within the legal period, the purchaser's title became absolute.
Moreover, the defendant-appellee, Miguel Velasco, having
acquired Federico Valera's right of redemption from Salvador
Vallejo, who had acquired it at public auction by virtue of a
writ of execution issued upon the judgment obtained by the
said Vallejo against the said Valera, the latter lost all right to
said usufruct.
And even supposing that Eduardo Hernandez had been
tricked by Miguel Velasco into selling Federico Valera's right
of repurchase to the latter so that Salvador Vallejo might levy
an execution on it, and even supposing that said resale was
null for lack of consideration, yet, inasmuch as Eduardo
Hernandez did not present a third party claim when the right
was levied upon for the execution of the judgment obtained
by Vallejo against Federico Vallera, nor did he file a complaint
to recover said right before the period of redemption expired,
said Eduardo Hernandez, and much less Federico Valera,
cannot now contest the validity of said resale, for the reason
that the one-year period of redemption has already elapsed.
Neither did the trial court err in not ordering Miguel Velasco
to render a liquidation of accounts from March 31, 1923,
inasmuch as he had acquired the rights of the plaintiff by
purchase at the execution sale, and as purchaser, he was
entitled to receive the rents from the date of the sale until
the date of the repurchase, considering them as part of the
redemption price; but not having exercised the right
repurchase during the legal period, and the title of the
repurchaser having become absolute, the latter did not have
to account for said rents.
 31

Summarizing, the conclusion is reached that the

disagreements between an agent and his principal with
respect to the agency, and the filing of a civil action by the
former against the latter for the collection of the balance in
favor of the agent, resulting from a liquidation of the agency
accounts, are facts showing a rupture of relations, and the
complaint is equivalent to an express renunciation of the
agency, and is more expressive than if the agent had merely
said, "I renounce the agency."

By virtue of the foregoing, and finding no error in the

judgment appealed from, the same is hereby affirmed in all
its parts, with costs against the appellant. So ordered.

Johnson, Malcolm, Villamor, Ostrand and Johns, JJ., concur.

The Lawphil Project - Arellano Law Foundation

===========================

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18727 August 31, 1964
JESUS MA. CUI, plaintiff-appellee,
vs.
ANTONIO MA. CUI, defendant-appellant,
ROMULO CUI, Intervenor-appellant.
Jose W. Diokno for plaintiff-appellee.
Jaime R. Nuevas and Hector L. Hofilea for defendant-
appellant.
Romulo Cui in his own behalf as intervenor-appellants.
MAKALINTAL, J.:
This is a proving in quo warranto originally filed in the Court
of First Instance of Cebu. The office in contention is that of
Administrator of the Hospicio de San Jose de Barili. Judgment
was rendered on 27 April 1961 in favor of the plaintiff, Jesus
Ma. Cui, and appealed to us by the defendant, Antonio Ma.
Cui, and by the intervenor, Romulo Cui.
The Hospicio is a charitable institution established by the
spouses Don Pedro Cui and Doa Benigna Cui, now deceased,
"for the care and support, free of charge, of indigent invalids,
and incapacitated and helpless persons." It acquired
corporate existence by legislation (Act No. 3239 of the
Philippine Legislature passed 27 November 1925) and
endowed with extensive properties by the said spouses
through a series of donations, principally the deed of
donation executed on 2 January 1926.
Section 2 of Act No. 3239 gave the initial management to the
founders jointly and, in case of their incapacity or death, to
"such persons as they may nominate or designate, in the
order prescribed to them." Section 2 of the deed of donation
provides as follows:
Que en caso de nuestro fallecimiento o incapacidad para
administrar, nos sustituyan nuestro legitime sobrino Mariano
Cui, si al tiempo de nuestra muerte o incapacidad se hallare
residiendo en la caudad de Cebu, y nuestro sobrino politico
Dionisio Jakosalem. Si nuestro dicho sobrino Mariano Cui no
estuviese residiendo entonces en la caudad de Cebu,
designamos en su lugar a nuestro otro sobrino legitime
Mauricio Cui. Ambos sobrinos administraran conjuntamente
el HOSPICIO DE SAN JOSE DE BARILI. A la muerte o
incapacidad de estos dos administradores, la administracion
del HOSPICIO DE SAN JOSE DE BARILI pasara a una sola
persona que sera el varon, mayor de edad, que descienda
legitimainente de cualquiera de nuestros sobrinos legitimos
Mariano Cui, Mauricio Cui, Vicente Cui y Victor Cui, y que
posea titulo de abogado, o medico, o ingeniero civil, o
farmaceutico, o a falta de estos titulos, el que pague al Estado
mayor impuesto o contribution. En igualdad de
32
circumstancias, sera preferida el varon de mas edad
descendiente de quien tenia ultimamente la administracion.
Cuando absolutamente faltare persona de estas
cualificaciones, la administracion del HOSPICIO DE SAN JOSE
DE BARILI pasara al senor Obispo de Cebu o quien sea el
mayor dignatario de la Iglesia Catolica, apostolica, Romana,
que tuviere asiento en la cabecera de esta Provincia de Cebu,
y en su defecto, al Gobierno Provincial de Cebu.
Don Pedro Cui died in 1926, and his widow continued to
administer the Hospicio until her death in 1929. Thereupon
the administration passed to Mauricio Cui and Dionisio
Jakosalem. The first died on 8 May 1931 and the second on 1
July 1931. On 2 July 1931 Dr. Teodoro Cui, only son of
Mauricio Cui, became the administrator. Thereafter,
beginning in 1932, a series of controversies and court
litigations ensued concerning the position of administrator, to
which, in so far as they are pertinent to the present case,
reference will be made later in this decision.
Plaintiff Jesus Ma. Cui and defendant Antonio Ma. Cui are
brothers, being the sons of Mariano Cui, one of the nephews
of the spouses Don Pedro Cui and Doa Benigna Cui. On 27
February 1960 the then incumbent administrator, Dr.
Teodoro Cui, resigned in favor of Antonio Ma. Cui pursuant to
a "convenio" entered into between them and embodied in a
notarial document. The next day, 28 February, Antonio Ma.
Cui took his oath of office. Jesus Ma. Cui, however, had no
prior notice of either the "convenio" or of his brother's
assumption of the position.
Dr. Teodoro Cui died on 27 August 1960; on 5 September
1960 the plaintiff wrote a letter to the defendant demanding
that the office be turned over to him; and on 13 September
1960, the demand not having been complied with the
plaintiff filed the complaint in this case. Romulo Cui later on
intervened, claiming a right to the same office, being a
grandson of Vicente Cui, another one of the nephews
mentioned by the founders of the Hospicio in their deed of
donation.
As between Jesus and Antonio the main issue turns upon
their respective qualifications to the position of
administrator. Jesus is the older of the two and therefore
under equal circumstances would be preferred pursuant to
section 2 of the deed of donation. However, before the test
of age may be, applied the deed gives preference to the one,
among the legitimate descendants of the nephews therein
named, "que posea titulo de abogado, o medico, o ingeniero
civil, o farmaceutico, o a falta de estos titulos el que pague al
estado mayor impuesto o contribucion."
The specific point in dispute is the mealing of the term "titulo
de abogado." Jesus Ma. Cui holds the degree of Bachelor of
Laws from the University of Santo Tomas (Class 1926) but is
not a member of the Bar, not having passed the examinations
to qualify him as one. Antonio Ma. Cui, on the other hand, is a
member of the Bar and although disbarred by this Court on
29 March 1957 (administrative case No. 141), was reinstated

by resolution promulgated on 10 February 1960, about two
weeks before he assumed the position of administrator of the
Hospicio de Barili.
The Court a quo, in deciding this point in favor of the plaintiff,
said that the phrase "titulo de abogado," taken alone, means
that of a full-fledged lawyer, but that has used in the deed of
donation and considering the function or purpose of the
administrator, it should not be given a strict interpretation
but a liberal one," and therefore means a law degree or
diploma of Bachelor of Laws. This ruling is assailed as
erroneous both by the defendant and by the intervenor.
We are of the opinion, that whether taken alone or in context
the term "titulo de abogado" means not mere possession of
the academic degree of Bachelor of Laws but membership in
the Bar after due admission thereto, qualifying one for the
practice of law. In Spanish the word "titulo" is defined as
"testimonies o instrumento dado para ejercer un empleo,
dignidad o profesion" (Diccionario de la Lengua Espaola,
Real Academia Espanola, 1947 ed., p. 1224) and the word
"abogado," as follows: "Perito en el derecho positivo que se
dedica a defender en juicio, por escrito o de palabra, los
derechos o intereses de los litigantes, y tambien a dar
dictmen sobre las cuestiones o puntos legales que se le
consultan (Id., p.5) A Bachelor's degree alone, conferred by a
law school upon completion of certain academic
requirements, does not entitle its holder to exercise the legal
profession. The English equivalent of "abogado" is lawyer or
attorney-at-law. This term has a fixed and general
signification, and has reference to that class of persons who
are by license officers of the courts, empowered to appear,
prosecute and defend, and upon whom peculiar duties,
responsibilities and liabilities are devolved by law as a
consequence.
In this jurisdiction admission to the Bar and to the practice of
law is under the authority of the Supreme Court. According to
Rule 138 such admission requires passing the Bar
examinations, taking the lawyer's oath and receiving a
certificate from the Clerk of Court, this certificate being his
license to practice the profession. The academic degree of
Bachelor of Laws in itself has little to do with admission to the
Bar, except as evidence of compliance with the requirements
that an applicant to the examinations has "successfully
completed all the prescribed courses, in a law school or
university, officially approved by the Secretary of Education."
For this purpose, however, possession of the degree itself is
not indispensable: completion of the prescribed courses may
be shown in some other way. Indeed there are instances,
particularly under the former Code of Civil Procedure, where
persons who had not gone through any formal legal
education in college were allowed to take the Bar
examinations and to qualify as lawyers. (Section 14 of that
code required possession of "the necessary qualifications of
learning ability.") Yet certainly it would be incorrect to say
that such persons do not possess the "titulo de abogado"
because they lack the academic degree of Bachelor of Laws
from some law school or university.
33
The founders of the Hospicio de San Jose de Barili must have
established the foregoing test advisely, and provided in the
deed of donation that if not a lawyer, the administrator
should be a doctor or a civil engineer or a pharmacist, in that
order; or failing all these, should be the one who pays the
highest taxes among those otherwise qualified. A lawyer, first
of all, because under Act No. 3239 the managers or trustees
of the Hospicio shall "make regulations for the government of
said institution (Sec. 3, b); shall "prescribe the conditions
subject to which invalids and incapacitated and destitute
persons may be admitted to the institute" (Sec. 3, d); shall
see to it that the rules and conditions promulgated for
admission are not in conflict with the provisions of the Act;
and shall administer properties of considerable value for
all of which work, it is to be presumed, a working knowledge
of the law and a license to practice the profession would be a
distinct asset.
Under this particular criterion we hold that the plaintiff is not
entitled, as against the defendant, to the office of
administrator. But it is argued that although the latter is a
member of the Bar he is nevertheless disqualified by virtue of
paragraph 3 of the deed of donation, which provides that the
administrator may be removed on the ground, among others,
of ineptitude in the discharge of his office or lack of evident
sound moral character. Reference is made to the fact that the
defendant was disbarred by this Court on 29 March 1957 for
immorality and unprofessional conduct. It is also a fact,
however, that he was reinstated on 10 February 1960, before
he assumed the office of administrator. His reinstatement is a
recognition of his moral rehabilitation, upon proof no less
than that required for his admission to the Bar in the first
place.
Wherefore, the parties respectfully pray that the foregoing
stipulation of facts be admitted and approved by this
Honorable Court, without prejudice to the parties adducing
other evidence to prove their case not covered by this
stipulation of facts. 1wph1.t
Whether or not the applicant shall be reinstated rests to a
great extent in the sound discretion of the court. The court
action will depend, generally speaking, on whether or not it
decides that the public interest in the orderly and impartial
administration of justice will be conserved by the applicant's
participation therein in the capacity of an attorney and
counselor at law. The applicant must, like a candidate for
admission to the bar, satisfy the court that he is a person of
good moral character a fit and proper person to practice
law. The court will take into consideration the applicant's
character and standing prior to the disbarment, the nature
and character of the charge for which he was disbarred, his
conduct subsequent to the disbarment, and the time that has
elapsed between the disbarment and the application for
reinstatement. (5 Am. Jur., Sec. 301, p. 443)
Evidence of reformation is required before applicant is
entitled to reinstatement, notwithstanding the attorney has
received a pardon following his conviction, and the

requirements for reinstatement have been held to be the
same as for original admission to the bar, except that the
court may require a greater degree of proof than in an
original admission. (7 C.J.S., Attorney & Client, Sec. 41, p.
815.)
The decisive questions on an application for reinstatement
are whether applicant is "of good moral character" in the
sense in which that phrase is used when applied to attorneys-
at-law and is a fit and proper person to be entrusted with the
privileges of the office of an attorney, and whether his mental
qualifications are such as to enable him to discharge
efficiently his duty to the public, and the moral attributes are
to be regarded as a separate and distinct from his mental
qualifications. (7 C.J.S., Attorney & Client, Sec. 41, p. 816).
As far as moral character is concerned, the standard required
of one seeking reinstatement to the office of attorney cannot
be less exacting than that implied in paragraph 3 of the deed
of donation as a requisite for the office which is disputed in
this case. When the defendant was restored to the roll of
lawyers the restrictions and disabilities resulting from his
previous disbarment were wiped out.
This action must fail on one other ground: it is already barred
by lapse of time amounting the prescription or laches. Under
Section 16 of Rule 66 (formerly sec. 16, Rule 68, taken from
section 216 of Act 190), this kind of action must be filed
within one (1) year after the right of plaintiff to hold the
office arose.
Plaintiff Jesus Ma. Cui believed himself entitled to the office
in question as long ago as 1932. On January 26 of that year he
filed a complaint in quo warranto against Dr. Teodoro Cui,
who assumed the administration of the Hospicio on 2 July
1931. Mariano Cui, the plaintiff's father and Antonio Ma. Cui
came in as intervenors. The case was dismissed by the Court
of First Instance upon a demurrer by the defendant there to
the complaint and complaint in intervention. Upon appeal to
the Supreme Court from the order of dismissal, the case was
remanded for further proceedings (Cui v. Cui, 60 Phil. 37, 48).
The plaintiff, however, did not prosecute the case as
indicated in the decision of this Court, but acceded to an
arrangement whereby Teodoro Cui continued as
administrator, Mariano Cui was named "legal adviser" and
plaintiff Jesus Ma. Cui accepted a position as assistant
administrator.
Subsequently the plaintiff tried to get the position by a series
of extra-judicial maneuvers. First he informed the Social
Welfare Commissioner, by letter dated 1 February 1950, that
as of the previous 1 January he had "made clear" his intention
of occupying the office of administrator of the Hospicio." He
followed that up with another letter dated 4 February,
announcing that he had taken over the administration as of 1
January 1950. Actually, however, he took his oath of office
before a notary public only on 4 March 1950, after receiving a
reply of acknowledgment, dated 2 March, from the Social
Welfare Commissioner, who thought that he had already
34
assumed the position as stated in his communication of 4
February 1950. The rather muddled situation was referred by
the Commissioner to the Secretary of Justice, who, in an
opinion dated 3 April 1950 (op. No. 45, S. 1950), correcting
another opinion previously given, in effect ruled that the
plaintiff, not beings lawyer, was not entitled to the
administration of the Hospicio.
Meanwhile, the question again became the subject of a court
controversy. On 4 March 1950, the Hospicio commenced an
action against the Philippine National Bank in the Court of
First Instance of Cebu (Civ. No. R-1216) because the Bank had
frozen the Hospicio's deposits therein. The Bank then filed a
third-party complaint against herein plaintiff-appellee, Jesus
Ma. Cui, who had, as stated above, taken oath as
administrator. On 19 October 1950, having been deprived of
recognition by the opinion of the Secretary of Justice he
moved to dismiss the third-party complaint on the ground
that he was relinquishing "temporarily" his claim to the
administration of the Hospicio. The motion was denied in an
order dated 2 October 1953. On 6 February 1954 he was able
to take another oath of office as administrator before
President Magsaysay, and soon afterward filed a second
motion to dismiss in Civil case No. R-1216. President
Magsaysay, be it said, upon learning that a case was pending
in Court, stated in a telegram to his Executive Secretary that
"as far as (he) was concerned the court may disregard the
oath" thus taken. The motion to dismiss was granted
nevertheless and the other parties in the case filed their
notice of appeal from the order of dismissal. The plaintiff
then filed an ex-parte motion to be excluded as party in the
appeal and the trial Court again granted the motion. This was
on 24 November 1954. Appellants thereupon instituted a
mandamus proceeding in the Supreme Court (G.R. No. L-
8540), which was decided on 28 May 1956, to the effect that
Jesus Ma. Cui should be included in the appeal. That appeal,
however, after it reached this Court was dismiss upon motion
of the parties, who agreed that "the office of administrator
and trustee of the Hospicio ... should be ventilated in quo
warranto proceedings to be initiated against the incumbent
by whomsoever is not occupying the office but believes he
has a right to it" (G.R. No. L-9103). The resolution of dismissal
was issued 31 July 1956. At that time the incumbent
administrator was Dr. Teodoro Cui, but no action in quo
warranto was filed against him by plaintiff Jesus Ma. Cui as
indicated in the aforesaid motion for dismissal.
On 10 February 1960, defendant Antonio Ma. Cui was
reinstated by this Court as member of the Bar, and on the
following 27 February Dr. Teodoro Cui resigned as
administrator in his favor, pursuant to the "convenio"
between them executed on the same date. The next day
Antonio Ma. Cui took his oath of office.
The failure of the plaintiff to prosecute his claim judicially
after this Court decided the first case of Cui v. Cui in 1934 (60
Phil. 3769), remanding it to the trial court for further
proceedings; his acceptance instead of the position of
assistant administrator, allowing Dr. Teodoro Cui to continue
 35

as administrator and his failure to file an action in quo

warranto against said Dr. Cui after 31 July 1956, when the ======================
appeal in Civil Case No. R-1216 of the Cebu Court was
dismissed upon motion of the parties precisely so that the
conflicting claims of the parties could be ventilated in such an
action all these circumstances militate against the
plaintiff's present claim in view of the rule that an action in
quo warranto must be filed within one year after the right of
the plaintiff to hold the office arose. The excuse that the
plaintiff did not file an action against Dr. Teodoro Cui after 31
July 1956 because of the latter's illness did not interrupt the
running of the statutory period. And the fact that this action
was filed within one year of the defendant's assumption of
office in September 1960 does not make the plaintiff's
position any better, for the basis of the action is his own right
to the office and it is from the time such right arose that the
one-year limitation must be counted, not from the date the
incumbent began to discharge the duties of said office.
Bautista v. Fajardo, 38 Phil. 624; Lim vs. Yulo, 62 Phil. 161.

Now for the claim of intervenor and appellant Romulo Cui.

This party is also a lawyer, grandson of Vicente Cui, one of the
nephews of the founders of the Hospicio mentioned by them
in the deed of donation. He is further, in the line of
succession, than defendant Antonio Ma. Cui, who is a son of
Mariano Cui, another one of the said nephews. The deed of
donation provides: "a la muerte o incapacidad de estos
administradores (those appointed in the deed itself) pasara a
una sola persona que sera el varon, mayor de edad, que
descienda legitimamente de cualquiera de nuestros sobrinos
legitimos Mariano Cui, Mauricio Cui, Vicente Cui, Victor Cui, y
que posea titulo de abogado ... En igualdad de
circumstancias, sera preferido el varon de mas edad
descendiente de quien tenia ultimamente la administration."
Besides being a nearer descendant than Romulo Cui, Antonio
Ma. Cui is older than he and therefore is preferred when the
circumstances are otherwise equal. The intervenor contends
that the intention of the founders was to confer the
administration by line and successively to the descendants of
the nephews named in the deed, in the order they are
named. Thus, he argues, since the last administrator was Dr.
Teodoro Cui, who belonged to the Mauricio Cui line, the next
administrator must come from the line of Vicente Cui, to
whom the intervenor belongs. This interpretation, however,
is not justified by the terms of the deed of donation.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment

appealed from is reversed and set aside, and the complaint as
well as the complaint in intervention are dismissed, with
costs equally against plaintiff-appellee and intervenor-
appellant.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L.,

Paredes and Regala, JJ., concur.

The Lawphil Project - Arellano Law Foundation


Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-22951 and L-22952 January 31, 1967
ALLIED FREE WORKERS' UNION (PLUM), petitioner,
vs.
COMPAIA MARITIMA, Manager JOSE C. TEVES, and COURT
OF INDUSTRIAL RELATIONS, respondents.
-----------------------------
G.R. No. L-22971 January 31, 1967
COMPAIA MARITIMA and Manager JOSE C. TEVES,
petitioners,
vs.
ALLIED FREEWORKERS' (PLUM) and COURT OF INDUSTRIAL
RELATIONS, respondents.
L-22951 and 22952:
Vicente A. Rafael and Associates for petitioner.
Rafael Dinglasan for respondents.
Mariano B. Tuason for respondent Court of Industrial
Relations.
L-22971:
Rafael Dinglasan for petitioner.
Vicente A. Rafael and Associates for respondents.
Mariano B. Tuason for respondent Court of Industrial
Relations.
BENGZON, J.P., J.:
The three cases before this Court are the respective appeals
separately taken by the parties hereto from an order1 of the
Court of Industrial Relations en banc affirming its trial judge's
decision, rendered on November 4, 1963, in CIR Case 175-MC
and CIR Case 426-ULP. Thus L-22971 is the appeal of
MARITIMA2 in CIR Case 175-MC; L-22952 is AFWU's appeal in
the same case; and L-22951 refers to AFWU's3 appeal in CIR
Case 426-ULP. Since these cases were jointly tried and
decided in the court a quo and they involve the same
fundamental issue the presence or absence of employer-
employee relationship they are jointly considered herein.
MARITIMA is a local corporation engaged in the shipping
business. Teves is its branch manager in the port of Iligan
City. And AFWU is duly registered legitimate labor
organization with 225 members.
On August 11, 1952, MARITIMA, through Teves, entered into
a CONTRACT 4 with AFWU the terms of which We reproduce:
ARRASTRE AND STEVEDORING CONTRACT
KNOW ALL MEN BY THESE PRESENTS:
36
This CONTRACT made and executed this 11th day of August,
1952, in the City of Iligan, Philippines, by and between the
COMPAIA MARITIMA Iligan Branch, represented by its
Branch Manager in Iligan City, and the ALLIED FREE
WORKERS' UNION, a duly authorized labor union,
represented by its President:
WITNESSETH.
1. That the Compaia MARITIMA hereby engage the services
of the Allied Free Workers' Union to do and perform all the
work of stevedoring and arrastre services of all its vessels or
boats calling in the port of Iligan City, beginning August 12,
1952.
2. That the Compaia MARITIMA shall not be liable for the
payment of the services rendered by the Allied Free Workers'
Union, for the loading, unloading and deliveries of cargoes as
same is payable by the owners and consignees of cargoes, as
it has been the practice in the port of Iligan City.
3. That the Allied Free Workers' Union shall be responsible for
the damages that may be caused to the cargoes in the course
of their handling.
4. That this CONTRACT is good and valid for a period of one
(1) month from August 12, 1952, but same may be renewed
by agreement of the parties; however Compaia MARITIMA
reserves the right to revoke this CONTRACT even before the
expiration of the term, if and when the Allied Free Workers'
Unionfails to render good service.
IN WITNESS WHEREOF, we hereunto sign this presents in the
City of Iligan, Philippines, this 11th day of August, 1952.
(SGD) SALVADOR T. LLUCH
President
Allied Free Workers' Union
Iligan City (SGD) JOSE C. TEVES
Branch Manager
Compaia Maritima
Iligan City
SIGNED IN THE PRESENCE OF:
1. (SGD) JOSE CUETO
2. (SGD) SERGIO OBACH.
During the first month of the existence of the CONTRACT ,
AFWU rendered satisfactory service. So, MARITIMA, through
Teves, verbally renewed the same. This harmonious relations
between MARITIMA and AFWU lasted up to the latter part of
1953 when the former complained to the latter of
unsatisfactory and inefficient service by the laborers doing
the arrastre and stevedoring work. This deteriorating
situation was admitted as a fact by AFWU's president. To
remedy the situation since MARITIMA's business was being
adversely affected Teves was forced to hire extra laborers
from among "stand-by" workers not affiliated to any union to

help in the stevedoring and arrastre work. The wages of these
extra laborers were paid by MARITIMA through separate
vouchers and not by AFWU. Moreover, said wages were not
charged to the consignees or owners of the cargoes.
On July 23, 1954, AFWU presented to MARITIMA a written
proposal5 for a collective bargaining agreement.
This demand embodied certain terms and conditions of
employment different from the provisions of the CONTRACT .
No reply was made by MARITIMA.
On August 6, 1954, AFWU instituted proceedings in the
Industrial Court6 praying that it be certified as the sole and
exclusive bargaining agent in the bargaining unit composed of
all the laborers doing the arrastre and stevedoring work in
connection with MARITIMA's vessels in Iligan City. MARITIMA
answered, alleging lack of employer-employee relationship
between the parties.
On August 24, 1954, MARITIMA informed AFWU of the
termination of the CONTRACT because of the inefficient
service rendered by the latter which had adversely affected
its business. The termination was to take effect as of
September 1, 1954. MARITIMA then contracted with the
Iligan Stevedoring Union for the arrastre and stevedoring
work. The latter agreed to perform the work subject to the
same terms and conditions of the CONTRACT . The new
agreement was to be carried out on September 1, 1954.
On August 26, 1954, upon the instance of AFWU, MARITIMA
found itself charged before the Industrial Court7 of unfair
labor practices under Sec. 4(a), (1), (3), (4) and (6) of Rep. Act
No. 875. MARITIMA answered, again denying the employer-
employee relationship between the parties.
On September 1, 1954, members of AFWU, together with
those of the Mindanao Workers Alliance a sister union
formed a picket line at the wharf of Iligan City, thus
preventing the Iligan Stevedoring Union from carrying out the
arrastre and stevedoring work it contracted for.8 This picket
lasted for nine days.
On September 9, 1954, MARITIMA filed an action9 to rescind
the CONTRACT , enjoin AFWU members from doing arrastre
and stevedoring work in connection with its, vessels, and for
recovery of damages against AFWU and its officers.
Incidentally, this civil case has been the subject of three
proceedings already which have reached this Court. The first
10 involved a preliminary injunction issued therein on
September 9, 1954, by the trial court prohibiting AFWU from
interfering in any manner with the loading and unloading of
cargoes from MARITIMA's vessels. This injunction was lifted
that very evening upon the filing of a counter bond by AFWU.
Subsequently, a motion to dissolve said counterbond was
filed by MARITIMA but the hearing on this incident was
enjoined by Us on March 15, 1955, upon the institution of the
petition for prohibition and injunction in said L-8876. 11
Meanwhile, AFWU members-laborers were able to continue
37
the arrastre and stevedoring work in connection with
MARITIMA's vessels.
On December 5, 1960, the CFI decision in the civil case was
promulgated. It ordered the rescission of the CONTRACT and
permanently enjoined AFWU members from performing work
in connection with MARITIMA's vessels. AFWU then filed its
notice of appeal, appeal bond and record on appeal. 12 The
subsequent incidents thereto gave rise to the two other
proceedings which have previously reached Us here.
On January 6, 1961, upon motion of MARITIMA ,an order of
execution pending appeal and a writ of injunction against
AFWU was issued by the trial court in the civil case. This
enabled MARITIMA to engage the services of the Mindanao
Arrastre Service to do the arrastre and stevedoring work on
January 8, 1961. However, AFWU filed a petition for
certiorari, injunction and prohibition 13 here and on January
18, 1961, was able to secure a writ of preliminary injunction
ordering the maintenance of the status quo prior to January
6, 1961. Thus, after January 18, 1961, AFWU laborers were
again back doing the same work as before.
The third incident that reached US 14 involved an order of
the same trial court in the same civil case, dated January 11,
1961, which amended some clerical errors in the original
decision of December 5, 1960. Upon motion of MARITIMA,
the trial court, on March 24, 1962, issued an order for the
execution of the decision of January 11, 1961, since AFWU
did not appeal therefrom, and on March 31, 1962, a writ of
execution ousting the 225 AFWU members-laborers from
their work in connection with the loading and unloading of
cargoes was issued and a levy on execution upon the
properties of AFWU was effected. Accordingly, on April 1,
1962, MARITIMA was again able to engage the services of the
Mindanao Arrastre Service.
On April 16, 1962, upon the institution of the petition for
certiorari, injunction, prohibition and mandamus, a
preliminary injunction was issued by Us against the orders of
March 24 and 31, 1962. But then, on May 16, 1962, upon
motion of MARITIMA this preliminary injunction was lifted by
Us insofar as it related to the execution of the order ousting
the AFWU laborers from the stevedoring and arrastre work in
connection with the MARITIMA vessels. 15 Such then was the
status of things.
On November 4, 1963, after almost 10 years of hearing the
two cases jointly, the Industrial Court finally rendered its
decision. The dispositive part provided:
IN VIEW OF ALL THE FOREGOING CIRCUMSTANCES, the
complaint of the union for unfair labor practices against the
Compaia MARITIMA and/or its agent Jose C. Teves and the
Iligan Stevedoring Union and/or Sergio Obach is hereby
dismissed for lack of substantial evidence and merit.
In pursuance of the provisions of Section 12 of Republic Act
875 and the Rules of this court on certification election, the

Honorable, the Secretary of Labor or any of his authorized
representative is hereby requested to conduct certification
election among all the workers and/or stevedores working in
the wharf of Iligan City who are performing stevedoring and
arrastre service aboard Compaia MARITIMA vessels docking
at Iligan City port in order to determine their representative
for collective bargaining with the employer, whether their
desire to be represented by the petitioner Allied Free
Workers Union or neither [sic]; and upon termination of the
said election, the result thereof shall forthwith be submitted
to this court for further consideration. The union present
payroll may be utilized in determining the qualified voters,
with the exclusion of all supervisors.
SO ORDERED.
As already indicated, the fundamental issue involved in these
cases before Us consists in whether there is an employer-
employee relationship between MARITIMA, on the one hand,
and AFWU and/or its members-laborers who do the actual
stevedoring and arrastre work on the other hand.
THE UNFAIR LABOR PRACTICE CASE
(L-22951 * [CIR Case 426-ULP])
Petitioner AFWU's proposition is that the court a quo erred
(1) in concluding that MARITIMA had not refused to bargain
collectively with it, as the majority union; (2) in not finding
that MARITIMA had committed acts of discrimination,
interferences and coercions upon its members-laborers, and
(3) in concluding that the CONTRACT may not be interferred
with even if contrary to law or public policy.
It is true that MARITIMA admits that it did not answer
AFWU's proposal for a collective bargaining agreement. From
this it does not necessarily follow that it is guilty of unfair
labor practice. Under the law 16 the duty to bargain
collectively arises only between the "employer" and its
"employees". Where neither party is an "employer" nor an
"employee" of the other, no such duty would exist. Needless
to add, where there is no duty to bargain collectively the
refusal to bargain violates no right. So, the question is: Under
the CONTRACT , was MARITIMA the "employer" and AFWU
and/or its members the "employees" with respect to one
another?
The court a quo held that under the CONTRACT , AFWU was
an independent contractor of MARITIMA. This conclusion was
based on the following findings of fact, which We can no
longer disturb, stated in the CIR decision:
7. ... The petitioner union operated as a labor contractor
under the so-called "cabo" system; and as such it has a
complete set of officers and office personnel (Exhs. "F" and
"F-1") and its organizational structure includes the following:
General President, with the following under him one vice-
president, legal counsel, general treasurer, general manager
and the board of directors. Under the general manager is the
secretary, the auditor, and the office staff composing of the
38
general foreman, general checker, general timekeeper, and
the respective subordinates like assistant foreman, capataz,
assistant general checker, field checker, office timekeeper,
and field timekeeper all appointed by the general manager of
the union and are paid in accordance with the union payroll
exclusively prepared by the union in the office. (See t.s.n. pp.
32-36, June 9, 1960; pp. 78-80, February 16, 1961; pp. 26-28,
August 9, 1960). The payrolls where laborers are listed and
paid were prepared by the union itself without the
intervention or control of the respondent company and/or its
agent at Iligan City. The respondent never had any knowledge
of the individual names of laborers and/or workers listed in
the union payroll or in their roster of membership.
8. The union engaged the services of their members in
undertaking the work of arrastre and stevedoring either to
haul shippers' goods from their warehouses in Iligan City to
the MARITIMA boat or from the boat to the different
consignees. The charges for such service were known by the
union and collected by them through their bill collector. This
is shown by the preparation of the union forms known as
"conduci" or delivery receipts. These "conduci" or receipts
contain informations as to the number and/or volume of
cargoes handled by the union, the invoice number, the name
of the vessel and the number of bills of lading covering the
cargoes to be delivered. Those delivery receipts are different
and separate from the bills of lading and delivery receipts
issued by the company to the consignees or shippers. Cargoes
carried from the warehouses to the boat or from the boat to
the consignees were always accompanied by the union
checker who hand-carry the "conduci". Once goods are
delivered to their destination the union through its bill
collectors prepare the bills of collection and the charges
thereon are collected by the union bill collectors who are
employees of the union and not of the respondent. The
respondent had no intervention whatsoever in the collection
of those charges as the same are clearly indicated and
described in the labor CONTRACT , Exhibit "A". There were,
however, instances when the respondents were requested to
help the union in the collection of charges for services
rendered by members of the union when fertilizers and
gasoline drums were loaded aboard the Compaia MARITIMA
boats. This was necessary in order to facilitate the collection
of freight and handling charges from the government for
auditing purposes. When cargoes are to be loaded, the
shipper usually notifies the petitioner union when to load
their cargoes aboard Compaia MARITIMA boats calling in
the port of Iligan City; and when a boat docks in said port, the
union undertakes to haul the said shipper's goods to the
boat. In doing this work, the union employs their own trucks
or other vehicles or conveyance from shipper's warehouse to
the boat or vice-versa. The respondent has no truck of any
kind for the service of hauling cargoes because such service is
included in the CONTRACT executed between the parties.
(See Exh. "A").
9. The union members who were hired by the union to
perform arrastre and stevedoring work on respondents'
vessels at Iligan port were being supervised and controlled by

the general foreman of the petitioner union or by any union
assistant or capataz responsible for the execution of the labor
CONTRACT when performing arrastre and/or stevedoring
work aboard vessels of the Compaia MARITIMA docking at
Iligan City. The foreman assigned their laborers to perform
the required work aboard vessels of the respondent. For
instance, when a boat arrives, the general foreman requests
the cargo report from the chief mate of the vessel in order to
determine where the cargoes are located in the hold of the
boat and to know the destination of these cargoes. All the
laborers and/or workers hired for said work are union
members and are only responsible to their immediate chief
who are officers and/or employees of the union. The
respondent firm have their own separate representatives like
checkers who extend aid to the union officers and members
in checking the different cargoes unloaded or loaded aboard
vessels of the Compaia MARITIMA. There were no instances
where offices and employees of the respondent Compaia
MARITIMA and/or its agent had interferred in the giving of
instructions to the laborers performing the arrastre and/or
stevedoring work either aboard vessels or at the wharf of
Iligan City. As contractor, the union does not receive
instructions as to what to do, how to do, and works without
specific instructions. They have no fixed hours of work
required by the MARITIMA.
10. While cargoes were in transit either from the warehouse
to the boat or from the boat to the different consignees, any
losses or damages caused with the said cargoes were charged
to the account of the union; and the union likewise imposed
the penalty or fine to any employee who caused or
committed the damages to cargoes in transit. Other
disciplinary measures imposed on laborers performing the
said work were exercised by the general foreman of the
union who has blanket authority from the union general
manager to exercise disciplinary control over their members
who were assigned to perform the work in a group of
laborers assigned by the union to perform loading or
unloading cargoes when a Compaia MARITIMA boat docked
at Iligan City. The respondents have not at any time
interferred in the imposition of disciplinary action upon the
laborers who are members of the union. In one instance,
under this situation, the president of the union himself
dismissed one inefficient laborer found to have been
performing inefficient service at the time (t.s.n. pp. 17-18,
February 15, 1961).
xxx xxx xxx
13. Erring laborers and/or workers who are affiliates of the
union were directly responsible to the union and never to the
respondent. Respondent cannot, therefore, discipline and/or
dismiss these erring workers of the union. (Emphasis
supplied)
And in absolving MARITIMA of the unfair labor charge on this
point, the court a quo concluded:
39
From the foregoing circumstances and findings, the Court is
of the opinion that no substantial evidence has been
presented to sustain the charge of unfair labor practice acts
as alleged to have been committed by herein respondent.
The Court finds no interference in the union activities, if any,
of the members of the Allied Free Workers Union as these
persons engaged in the stevedoring and arrastre service were
employed by the Allied Free Workers Union as independent
contractor subject to the terms and conditions of their then
existing labor CONTRACT Exhibit "A". To construe the
CONTRACT otherwise would tend to disregard the rights and
privileges of the parties intended by them in their CONTRACT
. (Exhibit "A"). This Court believes that it may not interfere in
the implementation of the said labor CONTRACT in the
absence of abuse by one party to the prejudice of the other.
...
Further, the Court finds that the petitioner, aside from its
labor CONTRACT (See Exhibit "A") with the respondent
Compaia MARITIMA also has other labor contracts with
other shipping firms on the stevedoring and arrastre work;
and that this CONTRACT obligated the petitioner as an
independent labor contractor to undertake the arrastre and
stevedoring service on Compaia MARITIMA boats docking at
Iligan City Port. The petitioner is an independent contractor
as defined in the CONTRACT Exhibit "A" and in the evidence
submitted by the parties. "An independent contractor is one
who, in rendering services, exercises an independent
employment or occupation and represents the will of his
employer only as to the results of his work and not as to the
means whereby it is accomplished; one who exercising an
independent employment, contracts to do a piece of work
according to his own methods, without being subject to the
control of his employer except as to the result of his work;
and who engaged to perform a certain service for another,
according to his own manner and methods, free from the
control and direction of his employer in all matters connected
with the performance of the service except as to the result of
the work." (see 56 C.J.S. pp. 41-43; Cruz, et al. vs. Manila
Hotel et al., G.R. No. L-9110, April 30, 1957). These factors
were present in the relation of the parties as described in
their CONTRACT Exhibit "A".
xxx xxx xxx
In Viaa vs. Al Lagadan et al., G.R. No. L-8967, May 31, 1956,
the Supreme Court states the rule as follows.
'In determining the existence of employer-employee
relationship, the following elements are generally considered,
namely: (1) the selection and engagement of the employees;
(2) the payment of wages; (3) the power of dismissal; and (4)
the power to control the employee's conduct although the
latter is the most important element (35 Am. Jur. 445).
Assuming that the share received by the deceased could
partake of the nature of wages on which we need not and
do not express our view and that the second element,
therefore, exists in the case at bar, the record does not

contain any specific data regarding the third and fourth
elements.'
The clear implication of the decision of the Supreme Court is
that if the defendant has no power of control which,
according to the Supreme Court, is the "most important
element" there is no employer-employee relationship.
(Emphasis supplied)
The conclusion thus reached by the court a quo is in full
accord with the facts and the applicable jurisprudence. We
totally agree with the court a quo that AFWU was an
independent contractor. And an independent contractor is
not an "employee".17
Neither is there any direct employment relationship between
MARITIMA and the laborers. The latter have no separate
individual contracts with MARITIMA. In fact, the court a quo
found that it was AFWU that hired them. Their only possible
connection with MARITIMA is through AFWU which
contracted with the latter. Hence, they could not possibly be
in a better class than AFWU which dealt with MARITIMA.18
In this connection, it is interesting to note that the facts as
found by the court a quo strongly indicate that it is AFWU
itself who is the "employer" of those laborers. The facts very
succinctly show that it was AFWU, through its officers, which
(1) selected and hired the laborers, (2) paid their wages, (3)
exercised control and supervision over them, and (4) had the
power to discipline and dismiss them. These are the very
elements constituting an employer-employee relationship.19
Of course there is no legal impediment for a union to be an
"employer". 20 Under the particular facts of this case,
however, AFWU appears to be more of a distinct and
completely autonomous business group or association. Its
organizational structure and operational system is no
different from other commercial entities on the same line. It
even has its own bill collectors and trucking facilities. And
that it really is engaged in business is shown by the fact that it
had arrastre and stevedoring contracts with other shipping
firms in Iligan City.
Now, in its all-out endeavor to make an "employer" out of
MARITIMA, AFWU citing an impressive array of jurisprudence,
even goes to the extent of insisting that it be considered a
mere "agent" of MARITIMA. Suffice it to say on this point that
an agent can not represent two conflicting interests that are
diametrically opposed. And that the cases sought to be relied
upon did not involve representatives of opposing interests.
Anent the second point raised: AFWU claims that the court a
quo found that acts of interferences and discriminations were
committed by MARITIMA against the former's members
simply for their union affiliation. 21 However, nowhere in the
32-page decision of the court a quo can any such finding be
found. On the contrary, said court made the following
finding:
40
18. There is no showing that this new union, the Iligan
Stevedoring Union, was organized with the help of the branch
manager Jose C. Teves. The organizer of the union like
Messrs. Sergio Obach, Labayos and Atty. Obach and their
colleagues have never sought the intervention, help or aid of
the respondent Compaia MARITIMA or its branch manager
Teves in the formation and/or organization of the said Iligan
Stevedoring Union. It appears that these people have had
previous knowledge and experience in handling stevedoring
and in the arrastre service prior to the employment of the
Allied Free Workers Union in the Iligan port. The charge of
union interference and domination finds no support from the
evidence. (Emphasis supplied)
More worthy of consideration is the suggestion that the
termination of the CONTRACT was in bad faith. First of all,
contrary to AFWU's sweeping statement, the court a quo did
not find that the termination of the CONTRACT was "in
retaliation to AFWU's demand for collective bargaining. On
the contrary, the court a quo held that MARITIMA's authority
to terminate the CONTRACT was rightfully exercised:
21. The evidence does not show substantially any act of
interference in the union membership or activities of the
petitioner union. The rescission of their CONTRACT is not a
union interference contemplated in the law.
xxx xxx xxx
x x x Further, the Court is satisfied that there is no act or acts
of discrimination as claimed by herein petitioner to have
been committed by the respondent firm or its branch
manager Teves. Evidence is clear that Teves, in
representation of the principal, the respondent Compaia
MARITIMA, has also acted, in good faith in implementing the
provisions of their existent CONTRACT (Exhibit "A"), and
when he advised the union of the rescission of the said
CONTRACT effective August 31, 1954, he did so in the
concept that the employer firm may so terminate their
contract pursuant to paragraph 4 of Exhibit "A" which at the
time was the law controlling between them. ... (Emphasis
supplied)
We are equally satisfied that the real reason for the
termination of the CONTRACT was AFWU's inefficient service.
The court a quo drew its conclusion from the following
findings:
11. During the first month of the existence of the labor
CONTRACT Exhibit 'A', the petitioner union rendered
satisfactory service. Under this situation, the Compaia
MARITIMA's representative at Iligan City was authorized to
renew verbally with the extension of the CONTRACT Exhibit
"A" from month to month basis after the first month of its
expiration. This situation of harmony lasted up to the latter
part of 1953 when the Compaia MARITIMA and its branch
manager agent complained to the union of the unsatisfactory
service of the union laborers hired to load and unload cargoes
aboard Compaia MARITIMA boats. This deteriorating

situation was admitted as a fact by the union president (See
Exhs. "3", "3-A" and "3-B"; See also t.s.n. pp. 65-66, August 9,
1960).
12. There was a showing that the laborers employed by the
union were inefficient in performing their jobs, and the
business of the respondent company in Iligan City suffered
adversely during the year 1954; and this was due to the fact
that respondents' vessels were forced to leave cargoes
behind in order not to disrupt the schedule of departures.
The Union laborers were slow in loading and/or unloading
freight from which the respondent Compaia MARITIMA
secured its income and/or profits. At times, cargoes were left
behind because of the union's failure to load them before
vessel's departure. In order to solve this inefficiency of the
complaining union, the branch manager of the Compaia
MARITIMA was forced to hire extra laborers from among
'stand-by' workers not affiliated to any union for the purpose
of helping in the stevedoring and arrastre work on their
vessels because, at that time, the union was not performing
and/or rendering efficient service in the loading and
unloading of cargoes. ...
xxx xxx xxx
14. Because of the deterioration of the Service rendered to
the respondent, the branch manager of the respondent
Compaia MARITIMA informed the union of its intention to
rescind the CONTRACT Exhibit "A" because the company had
been suffering losses for such inefficient service. (See Exhibit
"N").
Respondent Teves reported to the MARITIMA's head office
on the financial losses of the company in its operations. (See
Exhibits 'Y', 'Y-1' to 'X-5').
15. On August 24, 1954, branch manager Jose C. Teves of the
Iligan City MARITIMA Branch, wrote the petitioner union
informing them of the termination of their CONTRACT ,
Exhibit "A". (See Exhibit "N"). This step was taken after the
company found the union lagging behind their work under
the CONTRACT , so much so that MARITIMA boats have to
leave on schedule without loading cargoes already contacted
to be transported. (Emphasis supplied)
Perhaps, AFWU might say that this right to terminate
appearing in paragraph 4 of the CONTRACT is contrary to law,
morals, good customs, public order, or public policy. 22
However, it has not adduced any argument to demonstrate
such point. Moreover, there is authority to the effect that the
insertion in a CONTRACT for personal services of a resolutory
condition permitting the cancellation of the CONTRACT by
one of the contracting parties is valid. 23 Neither would the
termination constitute "union-busting". Oceanic Air Products
vs. CIR, 24 cited by AFWU is not in point. That case
presupposes an employer-employee relationship between
the parties disputants a basis absolutely wanting in this
case.
41
AFWU's third point is again that MARITIMA's act of
terminating the CONTRACT constituted union interference. As
stated, the court a quo found as a fact that there is no
sufficient evidence of union interference. And no reason or
argument has been advanced to show that the fact of said
termination alone constituted union interference.
THE CERTIFICATION ELECTION CASE
(L-22952 ** & L-22971 [CIR Case No. 175-MC]).
In the certification ejection case, the court a quo directed the
holding of a certification election among the laborers then
doing arrastre and stevedoring work. Both MARITIMA and
AFWU have appealed from that ruling. The latter maintains
that the lower court should have directly certified it as the
majority union, entitled to represent all the workers in the
arrastre and stevedoring work unit, whereas MARITIMA
contends that said court could not even have correctly
ordered a certification election considering that there was an
absence of employer-employee relationship between it and
said laborers.
There is no question that certification election could not have
been proper during the existence of the CONTRACT in view of
the court a quo's finding that there was no employment
relationship thereunder between the parties. But after the
termination of the CONTRACT on August 31, 1954, what was
the nature of the relationship between MARITIMA and the
laborers-members of AFWU?
From the finding that after the rescission of the CONTRACT ,
MARITIMA continued to avail of the services of AFWU the
court a quo concluded that there came about an implied
employer-employee relationship between the parties. This
conclusion cannot be sustained.
First of all, it is contradicted by the established facts. In its
findings of fact, the court a quo observed that after the
rescission, the AFWU laborers continued working in
accordance with the "cabo" system, which was the prevailing
custom in the place. Said the court:
20. After the rescission of the CONTRACT Exhibit "A" on
August 31, 1954, the Allied Free Workers Union and its
members were working or performing the work of arrastre
and stevedoring service aboard 'vessels of the Compaia
MARITIMA docking at Iligan City port under the 'cabo system'
then prevailing in that teritory; and the customs and
conditions then prevailing were observed by the parties
without resorting to the conditions of the former labor
contract Exhibit "A". (Emphasis supplied)
Under the "Cabo" system, the union was an independent
contractor. This is shown by the court a quo's own finding
that prior to the CONTRACT between MARITIMA and AFWU,
the former had an oral arrastre and stevedoring agreement
with another union. This agreement was also based on the
"cabo" system. As found by the court a quo:

4. That prior to the execution of Exhibit "A", the arrastre and
stevedoring work was performed by the Iligan Wharf
Laborers Union headed by one Raymundo Labayos under a
verbal agreement similar to the nature and contents of
Exhibit "A"; and this work continued from 1949 to 1952.
5. Under the oral CONTRACT , the Iligan Laborers Union
acting as an independent labor contractor engaged [in] the
services of its members as laborers to perform the contract
work of arrastre and stevedoring service aboard vessels of
the Compaia MARITIMA calling and docking at Iligan City;
and for the services therein rendered the union charged
shippers and/or consignees in accordance with the
consignment or place, and the proceeds thereof shall be
shared by the union members in accordance with the union's
internal rules and regulations. This system of work is locally
known as the 'cabo system'. The laborers who are members
of the union and hired for the arrastre and stevedoring work
were paid on union payrolls and the Compaia MARITIMA
has had nothing to do with the preparation of the same.
6. Because of unsatisfactory service rendered by the Iligan
Wharf Labor Union headed by Labayos, the Compaia
MARITIMA through its agent in Iligan City cancelled their oral
contractor and entered into a new contractor, Exhibit "A"
with the Allied Free Workers Union (PLUM) now petitioner in
this case. The terms and conditions of the same continued
and was similar to the oral contractor entered into with the
union headed by Labayos. ...
7. The cancellation of the oral contract with the Iligan Wharf
Labor Union headed by Labayos was due to the inefficient
service rendered by the said union. The labor contract
entered into by the petitioner herein (Exh. "A") was
negotiated through the intervention of Messrs. Salvador
Lluch, Mariano Ll Badelles, Laurentino Ll. Badelles, Nicanor T.
Halivas and Raymundo Labayos. The contract was prepared
by their legal panel and after several negotiations,
respondent Teves reluctantly signed the said written contract
with the union with the assurance however that the same
arrange previously had with the former union regarding the
performance and execution of the arrastre and stevedoring
contract be followed in accordance with the custom of such
kind of work at Iligan City. The petitioner union, operated as a
labor contractor under the so-called "cabor" system; ...
(Emphasis supplied)
From the above findings, it is evident that, insofar as the
working arrangement was concerned, there was no real
difference between the CONTRACT and the prior oral
agreement. Both were based on the "cabo" system. Under
both, (1) the union was an independent contractor which
engaged the services of its members as laborers; (2) the
charges against the consignees and owners of cargoes were
made directly by the union; and (3) the laborers were paid on
union payrolls and MARITIMA had nothing to do with the
preparation of the same. These are the principal
characteristics of the "cabo" system on which the parties
42
based their relationship after the termination of the
CONTRACT.
Hence, since the parties observed the "cabo" system after the
rescission of the CONTRACT, and since the characteristics of
said system show that the contracting union was an
independent contractor, it is reasonable to assume that
AFWU continued being an independent contractor of
MARITIMA. And, being an independent contractor, it could
not qualify as an "employee". With more reason would be
true with respect to the laborers.
Moreover, there is no evidence at all regarding the
characteristics of the working arrangement between AFWU
and MARITIMA after the termination of the CONTRACT. All
we have to go on is the court a quo's finding that the "cabo"
system was observed a system that negatives employment
relationship. The four elements generally regarded as
indicating the employer-employee relationship or at the
very least, the element of "control" must be shown to
sustain the conclusion that there came about such
relationship. The lack of such a showing in the case at bar is
fatal to AFWU's contention.
Lastly, to uphold the court a quo's conclusion would be
tantamount to the imposition of an employer-employee
relationship against the will of MARITIMA. This cannot be
done, since it would violate MARITIMA's exclusive
prerogative to determine whether it should enter into an
employment CONTRACT or not, i.e, whether it should hire
others or not. 25 In Pampanga Bus Co. vs. Pambusco
Employees' Union, 26 We said:
x x x The general right to make a contract in relation to one's
business is an essential part of the liberty of the citizens
protected by the due process clause of the constitution. The
right of a laborer to sell his labor to such person as he may
choose is, in its essence, the same as the right of an employer
to purchase labor from any person whom it chooses. The
employer and the employee have thus an equality of right
guaranteed by the constitution. 'If the employer can compel
the employee to work against the latter's will, this is
servitude. If the employee can compel the employer to give
him work against the employer's will, this is oppression
(Emphasis supplied) .
Therefore, even if the AFWU laborers continued to perform
arrastre and stevedoring work after August 31, 1954, it
cannot be correctly concluded as did the court a quo
that an employer-employee relationship even impliedly at
that arose when before there never had been any. Indeed,
it would appeal unreasonable and unjust to force such a
relationship upon MARITIMA when it had clearly and
continuously manifested its intention not to have any more
business relationship whatsoever with AFWU because of its
inefficient service. It was only to comply with injunctions and
other judicial mandates that MARITIMA continued to abide
by the status quo, extending in fact and in effect the
operation of the MARITIMA contract.

The only remaining question now is whether, in the particular
context of what We have said, the lower court's ruling
ordering a certification election can be sustained. As already
stated, the duty to bargain collectively exists only between
the "employer" and its "employees". However, the actual
negotiations which may possibly culminate in a concrete
collective bargaining contract are carried on between the
"employer" itself and the official representative of the
"employees" 27 in most cases, the majority labor union.
Since the only function of a certification election is to
determine, with judicial sanction, who this official
representative or spokesman of the "employees" will be, 28
the order for certification election in question cannot be
sustained. There being no employer-employee relationship
between the parties disputants, there is neither a "duty to
bargain collectively" to speak of. And there being no such
duty, to hold certification elections would be pointless. There
is no reason to select a representative to negotiate when
there can be no negotiations in the first place. We therefore
hold that where as in this case there is no duty to
bargain collectively, it is not proper to hold certification
elections in connection therewith.
The court a quo's objective in imposing the employer-
employee relationship may have been to do away with the
"cabo" system which, although not illegal, is in its operation
regarded as disadvantageous to the laborers and stevedores.
The rule however remains that the end cannot justify the
means. For an action to be sanctioned by the courts, the
purpose must not only be good but the means undertaken
must also be lawful.
A true and sincere concern for the welfare of AFWU
members-laborers would call for reforms within AFWU itself,
if the evil of the so-called "cabo" system is to be eliminated.
As We suggested in Bermiso vs. Hijos de Escao, 29 the
remedy against the "cabo" system need not be sought in the
courts but in the laborers themselves who should organize
into a closely-knit union "which would secure the privileges
that the members desire thru the election of officers among
themselves who would not exploit them."
Wherefore, the appealed decision of the Court of Industrial
Relations is hereby affirmed insofar as it dismissed the charge
of unfair labor practice in CIR Case 426-ULP, but reversed and
set aside insofar as it ordered the holding of a certification
election in CIR Case No. 175-MC, and the petition for
certification in said case should be, as it is hereby, dismissed.
No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal,
Zaldivar, Sanchez and Castro, JJ., concur.
Footnotes
1Dated February 4, 1964.
2Short for Compaia MARITIMA and Manager Jose C. Teves.
43
3Short for Allied Free Workers' Union (PLUM).
4Short for the arrastre and stevedoring contract.
5See Annex "B" of Petition in L-22951-52.
6CIR Case No. 175-MC.
7CIR Case No. 426-ULP.
8Subsequently, this union was dissolved and its registration
cancelled because of its failure to carry out its agreement
with MARITIMA.
9Civil Case No. 577 in the Court of First Instance of Lanao del
Norte.
10Allied Free Workers' Union (PLUM) vs. Judge Apostol, G.R.
No L- 8876, Oct. 31, 1957.
11We finally declared the preliminary injunction issued by the
Court of First Instance as invalid. (Decision of Supreme Court
in L-8876, Oct. 31, 1957).
12CFI of Lanao del Norte has since been ordered by this Court
in L-19651 to proceed considering these steps taken to
appeal its decision. See infra, Note 15.
13Allied Free Workers' Union (PLUM) vs. Hon. Estipona, G.R.
No. L-17934. Our decision was promulgated on Dec. 28, 1961,
where We set aside the said order of January 6, 1961.
14Allied Free Workers' Union (PLUM) vs. Hon. Estipona, G.R.
No. L-19651, June 30, 1966.
15In L-19651, We held the orders of March 24 and 31, 1962
as invalid because the decisions of January 11, 1961 and
December 5, 1960 were the same, and We also ordered the
Court of First Instance to proceed to the hearing for the
approval of the AFWU appeal.
*Same rollo as L-22952.
16Sec. 13, Rep. Act No. 875.
17Cruz vs. Manila Hotel, G.R. No. L-9110, April 30, 1957.
18Cruz vs. Manila Hotel, supra, see also Chuan & Sons vs. CIR,
85 Phil. 365.
19Viaa vs. Al Lagadan G.R. No. L-8967, May 31, 1956; 99
Phil. 408.
20See. 2(c), Rep. Act No. 875.
21Petition in L-22951-52, p. 14.
22Art. 1306, Civil Code of the Philippines.
 44

23Taylor vs. Uy Tieng, 43 Phil. 873.

24G.R. Nos. L-18704-05, January 31, 1963..

**Same rollo as L-22951.

25Fernandez & Quiason, Law of Labor Relations, 1963 ed., pp.

43-48.

2668 Phil. 541, 543.

27Secs 12(2) and 13, Rep. Act No. 875.

28Sec 12(b), Rep. Act No. 875.

29G.R. No L-11606, February 28, 1959.

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