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[G.R. No. 113074. January 22, 1997.

]
ALFRED HAHN, petitioner, vs. COURT
OF APPEALS and BAYERISCHE
MOTOREN WERKE
AKTIENGESELLSCHAFT (BMW),
respondents.
Siguion Reyna Montecillo & Ongsiako for petitioner.
Castillo Laman Tan & Pantaleon for private respondent.
SYLLABUS
1.REMEDIAL LAW; CIVIL PROCEDURE; MOTION TO
DISMISS; COURT AUTHORIZED TO DEFER RESOLUTION
OF MOTION TO DISMISS UNTIL AFTER TRIAL IF THE
GROUND DOES NOT APPEAR TO BE INDUBITABLE;
CASE AT BAR. It is not true then that the question
whether BMW is doing business could have been
resolved simply by considering the parties' pleadings.
There are genuine issues of facts which can only be
determined on the basis of evidence duly presented.
BMW cannot short circuit the process on the plea that to
compel it to go to trial would be to deny its right not to
submit to the jurisdiction of the trial court which
precisely it denies. Rule 16, 3 authorizes courts to defer
the resolution of a motion to dismiss until after the trial if
the ground on which the motion is based does not
appear to be indubitable. Here the record of the case
bristles with factual issues and it is not at all clear
whether some allegations correspond to the proof.
2.ID.; ID.; SUMMONS; FOR PURPOSES OF HAVING
SUMMONS SERVED ON FOREIGN CORPORATION, IT IS
SUFFICIENT TO ALLEGE THAT THE FOREIGN
CORPORATION IS DOING BUSINESS IN THE
PHILIPPINES. It is now settled that, for purposes of
having summons served on a foreign corporation in
accordance with Rule 14, 14, it is sufficient that it be
alleged in the complaint that the foreign corporation is
doing business in the Philippines. The court need not go
beyond the allegations of the complaint in order to
determine whether it has jurisdiction. A determination
that the foreign corporation is doing business is only
tentative and is made only for the purpose of enabling
the local court to acquire jurisdiction over the foreign
corporation through service of summons pursuant to
Rule 14, 14. Such determination does not foreclose a
contrary finding should evidence later show that it is not
transacting business in the country.
3.COMMERCIAL LAW; FOREIGN INVESTMENT ACT OF
1991 (R.A. 7042); ACTS CONSIDERED "DOING
BUSINESS IN THE PHILIPPINES". What acts are
considered "doing business in the Philippines" are
enumerated in 3(d) of the Foreign Investments Act of
1991 (R.A. No. 7042) as follows: d) the phrase "doing
business" shall include soliciting orders, service
contracts, opening offices, whether called "liaison" offices
or branches, appointing representatives or distributors
domiciled in the Philippines or who in any calendar year
stay in the country for a period or periods totalling one
hundred eighty (180) days or more; participating in the
management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines;
and any other act or acts that imply a continuity of
commercial dealings or arrangements and contemplate
to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization:
Provided, however, that the phrase "doing business"
shall not be deemed to include mere investment as a
shareholder by a foreign entity in domestic corporations
duly registered to do business, and/or the exercise of
rights as such investor; nor having, a nominee director or
officer to represent its interests in such corporation, nor
appointing a representative or distributor domiciled in
the Philippines which transacts business in its own name
and for its own account. Thus, the phrase includes
"appointing representatives or distributors in the
Philippines" but not when the representative or
distributor "transacts business in its name and for its
own account."
4.ID.; RULES AND REGULATIONS IMPLEMENTING THE
OMNIBUS INVESTMENT CODE OF 1987 (E.O. No. 226);
ADDITIONAL ACTS CONSIDERED "DOING BUSINESS IN
THE PHILIPPINES". In addition, Section 1(f)(1) of the
Rules and Regulations Implementing (IRR) the Omnibus
Investment Code of 1987 (E.O. No. 226) provided: (f)
"doing business" shall be any act or combination of acts,
enumerated in Article 44 of the Code. In particular,
"doing business" includes: (1) . . . A foreign firm which
does business through middlemen acting in their own
names, such as indentors, commercial brokers or
commission merchants, shall not be deemed doing
business in the Philippines. But such indentors,
commercial brokers or commission merchants shall be
the ones deemed to be doing business in the Philippines.
5.ID.; ID.; FOREIGN CORPORATION ENTERING INTO A
REPRESENTATIVE AGREEMENT AND LICENSING
AGREEMENT, CONSTITUTES ACTS DOING BUSINESS IN
THE PHILIPPINES. This case fits into the mould of
Communications Materials, Inc. v. Court of Appeals in
which the foreign corporation entered into a
"Representative Agreement" and a "Licensing
Agreement" with a domestic corporation, by virtue of
which the latter was appointed "exclusive representative"
in the Philippines for a stipulated commission. Pursuant
to these contracts, the domestic corporation sold
products exported by the foreign corporation and put up
a service center for the products sold locally. This Court
held that these acts constituted doing business in the
Philippines. The arrangement showed that the foreign
corporation's purpose was to penetrate the Philippine
market and establish its presence in the Philippines.
6.CIVIL LAW; OBLIGATIONS AND CONTRACTS;
AGENCY; AGENT DISTINGUISHED FROM A
BROKER. An agent receives a commission upon
the successful conclusion of a sale. On the other
hand, a broker earns his pay merely by bringing
the buyer and the seller together, even if no sale
is eventually made.
7.ID.; ID.; ID.; INVESTMENT OF MONEY DOES
NOT NECESSARILY DISPROVE ONE IS NOT AN
AGENT; CASE AT BENCH. The fact that Hahn
invested his own money to put up these service
centers and showrooms does not necessarily
prove that he is not an agent of BMW. For as
already noted, there are facts in the record which
suggest that BMW exercised control over Hahn's
activities as a dealer and made regular
inspections of Hahn's premises to enforce
compliance with BMW standards and
specifications . . . In addition, BMW held out
private respondent Hahn as its exclusive
distributor in the Philippines, even as it
announced in the Asian region that Hahn was the
"official BMW agent" in the Philippines.
D E C I S I O N
MENDOZA, J p:
This is a petition for review of the decision 1 of the Court
of Appeals dismissing a complaint for specific
performance which petitioner had filed against private
respondent on the ground that the Regional Trial Court
of Quezon City did not acquire jurisdiction over private
respondent, a nonresident foreign corporation, and of
the appellate court's order denying petitioner's motion
for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business
under the name and style "Hahn-Manila". On the other
hand, private respondent Bayerische Motoren Werke
Aktiengesellschaft (BMW) is a nonresident foreign
corporation existing under the laws of the former Federal
Republic of Germany, with principal office at Munich,
Germany.
On March 7, 1967, petitioner executed in favor of private
respondent a "Deed of Assignment with Special Power of
Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present
owner and holder of the BMW trademark and
device in the Philippines which ASSIGNOR
uses and has been using on the products
manufactured by ASSIGNEE, and for which
ASSIGNOR is the authorized exclusive Dealer
of the ASSIGNEE in the Philippines, the same
being evidenced by certificate of registration
issued by the Director of Patents on 12
December 1963 and is referred to as
Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to
transfer and consequently record said
transfer of the said BMW trademark and
device in favor of the ASSIGNEE herein with
the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing
and in consideration of the stipulations
hereunder stated, the ASSIGNOR hereby
affirms the said assignment and transfer in
favor of the ASSIGNEE under the following
terms and conditions:
1.The ASSIGNEE shall take appropriate steps
against any user other than ASSIGNOR or
infringer of the BMW trademark in the
Philippines, for such purpose, the ASSIGNOR
shall inform the ASSIGNEE immediately of all
such use or infringement of the said
trademark which comes to his knowledge and
upon such information the ASSIGNOR shall
automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power,
authority and responsibility to prosecute
unilaterally or in concert with ASSIGNEE, any
such infringer of the subject mark and for
purposes hereof the ASSIGNOR is hereby
named and constituted as ASSIGNEE's
Attorney-In-Fact, but any such suit without
ASSIGNEE's consent will exclusively be the
responsibility and for the account of the
ASSIGNOR;
2.That the ASSIGNOR and the ASSIGNEE
shall continue business relations as has been
usual in the past without a formal contract,
and for that purpose, the dealership of
ASSIGNOR shall cover the ASSIGNEE s
complete production program with the only
limitation that, for the present. in view of
ASSIGNEE's limited production, the latter
shall not be able to supply automobiles to
ASSIGNOR.
Per the agreement, the parties "continue[d] business
relations as has been usual in the past without a formal
contract." But on February 16, 1993, in a meeting with a
BMW representative and the president of Columbia
Motors Corporation (CMC), Jose Alvarez, petitioner was
informed that BMW was arranging to grant the exclusive
dealership of BMW cars and products to CMC, which had
expressed interest in acquiring the same. On February
24, 1993, petitioner received confirmation of the
information from BMW which, in a letter, expressed
dissatisfaction with various aspects of petitioner's
business, mentioning among other things, decline in
sales, deteriorating services, and inadequate showroom
and warehouse facilities, and petitioner's alleged failure
to comply with the standards for an exclusive BMW
dealer. 2 Nonetheless, BMW expressed willingness to
continue business relations with the petitioner on the
basis of a "standard BMW importer" contract, otherwise,
it said, if this was not acceptable to petitioner, BMW
would have no alternative but to terminate petitioner's
exclusive dealership effective June 30, 1993. cdasia

Petitioner protested, claiming that the termination of his
exclusive dealership would be a breach of the Deed of
Assignment. 3 Hahn insisted that as long as the
assignment of its trademark and device subsisted, he
remained BMW's exclusive dealer in the Philippines
because the assignment was made in consideration of
the exclusive dealership. In the same letter petitioner
explained that the decline in sales was due to lower
prices offered for BMW cars in the United States and the
fact that few customers returned for repairs and
servicing because of the durability of BMW parts and the
efficiency of petitioner's service.
Because of Hahn's insistence on the former business
relations, BMW withdrew on March 26, 1993 its offer of a
"standard importer contract" and terminated the
exclusive dealer relationship effective June 30, 1993. 4 At
a conference of BMW Regional Importers held on April
26, 1993 in Singapore, Hahn was surprised to find
Alvarez among those invited from the Asian region. On
April 29, 1993, BMW proposed that Hahn and CMC jointly
import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14,
1993, he filed a complaint for specific performance and
damages against BMW to compel it to continue the
exclusive dealership. Later he filed an amended
complaint to include an application for temporary
restraining order and for writs of preliminary, mandatory
and prohibitory injunction to enjoin BMW from
terminating his exclusive dealership. Hahn's amended
complaint alleged in pertinent parts:
2.Defendant [BMW] is a foreign corporation
doing business in the Philippines with
principal offices at Munich, Germany. It may
be served with summons and other court
processes through the Secretary of the
Department of Trade and Industry of the
Philippines. . . .
. . . .
5.On March 7, 1967, Plaintiff executed in
favor of defendant BMW a Deed of Assignment
with Special Power of Attorney covering the
trademark and in consideration thereof, under its
first whereas clause, Plaintiff was duly
acknowledged as the "exclusive Dealer of the
Assignee in the Philippines" . . .
. . . .
8.From the time the trademark "BMW &
DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its
firm name "HAHN MANILA" and without any
monetary contribution from defendant BMW,
established BMW's goodwill and market presence
in the Philippines. Pursuant thereto, Plaintiff has
invested a lot of money and resources in order to
single-handedly compete against other motorcycle
and car companies .... Moreover, Plaintiff has built
buildings and other infrastructures such as service
centers and showrooms to maintain and promote
the car and products of defendant BMW.
. . . .
10.In a letter dated February 24, 1993,
defendant BMW advised Plaintiff that it was willing
to maintain with Plaintiff a relationship but only
"on the basis of a standard BMW importer contract
as adjusted to reflect the particular situation in the
Philippines" subject to certain conditions,
otherwise, defendant BMW would terminate
Plaintiff's exclusive dealership and any relationship
for cause effective June 30, 1993. . . .
. . . .
15.The actuations of defendant BMW are in
breach of the assignment agreement between
itself and plaintiff since the consideration for the
assignment of the BMW trademark is the
continuance of the exclusive dealership
agreement. It thus, follows that the exclusive
dealership should continue for so long as
defendant BMW enjoys the use and ownership of
the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and
raffled to Branch 104 of the Quezon City Regional Trial
Court, which on June 14, 1993 issued a temporary
restraining order. Summons and copies of the complaint
and amended complaint were thereafter served on the
private respondent through the Department of Trade and
Industry, pursuant to Rule 14, 14 of the Rules of Court.
The order, summons and copies of the complaint and
amended complaint were later sent by the DTI to BMW
via registered mail on June 15, 1993 5 and received by
the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the
hearing on the application for the writ of preliminary
injunction proceeded ex parte, with petitioner Hahn
testifying. On June 30, 1993, the trial court issued an
order granting the writ of preliminary injunction upon the
filing of a bond of P100,000.00. On July 13, 1993,
following the posting of the required bond, a writ of
preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case,
contending that the trial court did not acquire jurisdiction
over it through the service of summons on the
Department of Trade and Industry, because it (BMW)
was a foreign corporation and it was not doing business
in the Philippines. It contended that the execution of the
Deed of Assignment was an isolated transaction; that
Hahn was not its agent because the latter undertook to
assemble and sell BMW cars and products without the
participation of BMW and sold other products; and that
Hahn was an indentor or middleman transacting business
in his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued
that BMW was doing business in the Philippines through
him as its agent, as shown by the fact that BMW invoices
and order forms were used to document his transactions;
that he gave warranties as exclusive BMW dealer; that
BMW officials periodically inspected standards of service
rendered by him; and that he was described in service
booklets and international publications of BMW as a
"BMW Importer" or "BMW Trading Company" in the
Philippines.
The trial court 6 deferred resolution of the Motion to
dismiss until after trial on the merits for the reason that
the grounds advanced by BMW in its motion did not
seem to be indubitable.
Without seeking reconsideration of the aforementioned
order, BMW filed a petition for certiorari with the Court of
Appeals alleging that:
I.THE RESPONDENT JUDGE ACTED WITH
UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING
TOWARD THE ISSUANCE OF THE WRIT OF
PRELIMINARY INJUNCTION, AND IN
PRESCRIBING THE TERMS FOR THE
ISSUANCE THEREOF.
II.THE RESPONDENT JUDGE PATENTLY
ERRED IN DEFERRING RESOLUTION OF THE
MOTION TO DISMISS ON THE GROUND OF
LACK OF JURISDICTION, AND THEREBY
FAILING TO IMMEDIATELY DISMISS THE
CASE A QUO.
BMW asked for the immediate issuance of a
temporary restraining order and, after hearing, for a
writ of preliminary injunction to enjoin the trial court
from proceeding further in Civil Case No. Q-93-15933.
Private respondent pointed out that, unless the trial
court's order was set aside, it would be forced to
submit to the jurisdiction of the court by filing its
answer or to accept judgment in default, when the
very question was whether the court had jurisdiction
over it.
The Court of Appeals enjoined the trial court from
hearing petitioner's complaint. On December 20, 1993, it
rendered judgment finding the trial court guilty of grave
abuse of discretion in deferring resolution of the motion
to dismiss. It stated:
Going by the pleadings already filed with the
respondent court before it came out with its
questioned order of July 26, 1993, we rule
and so hold that petitioner's (BMW) motion to
dismiss could be resolved then and there,
and that the respondent judge's deferment of
his action thereon until after trial on the merit
constitutes to our mind grave abuse of
discretion.
. . . [T]here is not much appreciable
disagreement as regards the factual matters
relating to the motion to dismiss. What truly
divide (sic) the parties and to which they
greatly differ is the legal conclusions they
respectively draw from such facts, (sic) with
Hahn maintaining that on the basis thereof,
BMW is doing business in the Philippines
while the latter asserts that it is not.
Then, after stating that any ruling which the trial court
might make on the motion to dismiss would anyway be
elevated to it on appeal, the Court of Appeals itself
resolved the motion. It ruled that BMW was not doing
business in the country and, therefore, jurisdiction over it
could not be acquired through service of summons on
the DTI pursuant to Rule 14, Section 14. The court
upheld private respondent's contention that Hahn acted
in his own name and for his own account and
independently of BMW, based on Alfred Hahn's
allegations that he had invested his own money and
resources in establishing BMW's goodwill in the
Philippines and on BMW's claim that Hahn sold products
other than those of BMW. It held that petitioner was a
mere indentor or broker and not an agent through whom
private respondent BMW transacted business in the
Philippines. Consequently, the Court of Appeals
dismissed petitioner's complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of
Appeals erred (1) in finding that the trial court gravely
abused its discretion in deferring action on the motion to
dismiss and (2) in finding that private respondent BMW is
not doing business in the Philippines and, for this reason,
dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14.Service upon foreign corporations. If
the defendant is a foreign corporation, or a
nonresident joint stock company or
association, doing business in the Philippines,
service may be made on its resident agent
designated in accordance with law for that
purpose, or, if there be no such agent, on the
government official designated by law to that
effect, or on any of its officers or agents
within the Philippines. (Emphasis added)
What acts are considered "doing business in the
Philippines" are enumerated in 3(d) of the Foreign
Investments Act of 1991 (R.A. No. 7042) as follows: 7
d)the phrase "doing business" shall include
soliciting orders, service contracts, opening
offices, whether called "liaison" offices or
branches, appointing representatives or
distributors domiciled in the Philippines or
who in any calendar year stay in the country
for a period or periods totalling one hundred
eighty (180) days or more; participating in
the management, supervision or control of
any domestic business. firm, entity or
corporation in the Philippines; and any other
act or acts that imply a continuity of
commercial dealings or arrangements and
contemplate to that extent the performance
of acts or works, or the exercise of some of
the functions normally incident to, and in
progressive prosecution of, commercial gain
or of the purpose and object of the business
organization: Provided, however, That the
phrase "doing business" shall not be deemed
to include mere investment as a shareholder
by a foreign entity in domestic corporations
duly registered to do business, and/or the
exercise of rights as such investor. nor
having, a nominee director or officer to
represent its interests in such corporation.
nor appointing a representative or distributor
domiciled in the Philippines which transacts
business in its own name and for its own
account. (Emphasis supplied)

Thus, the phrase includes "appointing representatives or
distributors in the Philippines" but not when the
representative or distributor "transacts business in its
name and for its own account." In addition, Section
1(f)(1) of the Rules and Regulations implementing (IRR)
the Omnibus Investment Code of 1987 (E.O. No. 226)
provided:
(f)"doing business" shall be any act or
combination of acts, enumerated in Article 44
of the Code. In particular, "doing business"
includes:
(1). . . A foreign firm which does business
through middlemen acting in their own
names, such as indentors, commercial
brokers or commission merchants, shall not
be deemed doing business in the Philippines.
But such indentors, commercial brokers or
commission merchants shall be the ones
deemed to be doing business in the
Philippines.
The question is whether petitioner Alfred Hahn is
the agent or distributor in the Philippines of
private respondent BMW. If he is, BMW may be
considered doing business in the Philippines and the trial
court acquired jurisdiction over it (BMW) by virtue of the
service of summons on the Department of Trade and
Industry. Otherwise, if Hahn is not the agent of BMW but
an independent dealer, albeit of BMW cars and products,
BMW, a foreign corporation, is not considered doing
business in the Philippines within the meaning of the
Foreign Investments Act of 1991 and the IRR, and the
trial court did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn
acted in his own name and for his own account and not
as agent or distributor in the Philippines of BMW on the
ground that "he alone had contacts with individuals or
entities interested in acquiring BMW vehicles.
Independence characterizes Hahn's undertakings for
which reason he is to be considered, under governing
statutes, as doing business." (p. 13) In support of this
conclusion, the appellate court cited the following
allegations in Hahn's amended complaint:
8.From the time the trademark "BMW &
DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff,
through its firm name "HAHN MANILA" and
without any monetary contributions from
defendant BMW, established BMW's goodwill
and market presence in the Philippines.
Pursuant thereto, Plaintiff invested a lot of
money and resources in order to single-
handedly compete against other motorcycle
and car companies . . . Moreover, Plaintiff
has built buildings and other infrastructures
such as service centers and showrooms to
maintain and promote the car and products
of defendant BMW.
As the above quoted allegations of the amended
complaint show, however, there is nothing to support the
appellate court's finding that Hahn solicited orders alone
and for his own account and without "interference from,
let alone direction of, BMW." (p. 13) To the contrary,
Hahn claimed he took orders for BMW cars and
transmitted them to BMW. Upon receipt of the orders,
BMW fixed the down payment and pricing charges,
notified Hahn of the scheduled production month for the
orders, and reconfirmed the orders by signing and
returning to Hahn the acceptance sheets. Payment was
made by the buyer directly to BMW. Title to cars
purchased passed directly to the buyer and Hahn never
paid for the purchase price of BMW cars sold in the
Philippines. Hahn was credited with a commission equal
to 14% of the purchase price upon the invoicing of a
vehicle order by BMW. Upon confirmation in writing that
the vehicles had been registered in the Philippines and
serviced by him, Hahn received an additional 3% of the
full purchase price. Hahn performed after-sale services,
including, warranty services. for which he received
reimbursement from BMW. All orders were on invoices
and forms of BMW. 8
These allegations were substantially admitted by BMW
which, in its petition for certiorari before the Court of
Appeals, stated: 9
9.4.As soon as the vehicles are fully
manufactured and full payment of the
purchase prices are made, the vehicles are
shipped to the Philippines. (The payments
may be made by the purchasers or third-
persons or even by Hahn.) The bills of lading
are made up in the name of the purchasers,
but Hahn-Manila is therein indicated as the
person to be notified.
9.5.It is Hahn who picks up the vehicles from
the Philippine ports, for purposes of
conducting pre-delivery inspections.
Thereafter, he delivers the vehicles to the
purchasers.
9.6.As soon as BMW invoices the vehicle
ordered, Hahn is credited with a commission
of fourteen percent (14%) of the full
purchase price thereof, and as soon as he
confirms in writing, that the vehicles have
been registered in the Philippines and have
been serviced by him, he will receive an
additional three percent (3%) of the full
purchase prices as commission.
Contrary to the appellate court's conclusion, this
arrangement shows an agency. An agent receives
a commission upon the successful conclusion of a
sale. On the other hand, a broker earns his pay
merely by bringing the buyer and the seller
together, even if no sale is eventually made.
As to the service centers and showrooms which he said
he had put up at his own expense, Hahn said that he
had to follow BMW specifications as exclusive dealer of
BMW in the Philippines. According to Hahn, BMW
periodically inspected the service centers to see to it that
BMW standards were maintained. Indeed, it would seem
from BMW's letter to Hahn that it was for Hahn's alleged
failure to maintain BMW standards that BMW was
terminating Hahn's dealership.
The fact that Hahn invested his own money to put up
these service centers and showrooms does not
necessarily prove that he is not an agent of BMW. For as
already noted, there are facts in the record which
suggest that BMW exercised control over Hahn's
activities as a dealer and made regular inspections of
Hahn's premises to enforce compliance with BMW
standards and specifications. 10 For example, in its letter
to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you
in several discussions and letters that we
have to tackle the Philippine market more
professionally and that we are through your
present activities not adequately prepared to
cope with the forthcoming, challenges. 11
In effect, BMW was holding Hahn accountable to it under
the 1967 Agreement.
This case fits into the mould of Communications
Materials, Inc. v. Court of Appeals 12 in which the foreign
corporation entered into a "Representative Agreement"
and a "Licensing Agreement" with a domestic
corporation, by virtue of which the latter was appointed
"exclusive representative" in the Philippines for a
stipulated commission. Pursuant to these contracts, the
domestic corporation sold products exported by the
foreign corporation and put up a service center for the
products sold locally. This Court held that these acts
constituted doing business in the Philippines. The
arrangement showed that the foreign corporation's
purpose was to penetrate the Philippine market and
establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its
exclusive distributor in the Philippines. even as it
announced in the Asian region that Hahn was the
"official BMW agent" in the Philippines. 13
The Court of Appeals also found that petitioner Alfred
Hahn dealt in other products, and not exclusively in BMW
products, and, on this basis, ruled that Hahn was not an
agent of BMW. (p. 14) This finding is based entirely on
allegations of BMW in its motion to dismiss filed in the
trial court and in its petition for certiorari before the
Court of Appeals. 14 But this allegation was denied by
Hahn 15 and therefore the Court of Appeals should not
have cited it as if it were the fact.
Indeed this is not the only factual issue raised, which
should have indicated to the Court of Appeals the
necessity of affirming the trial court's order deferring
resolution of BMW's motion to dismiss. Petitioner alleged
that whether or not he is considered an agent of BMW,
the fact is that BMW did business in the Philippines
because it sold cars directly to Philippine buyers. 16 This
was denied by BMW, which claimed that Hahn was not
its agent and that, while it was true that it had sold cars
to Philippine buyers, this was done without solicitation on
its part. 17
It is not true then that the question whether BMW is
doing business could have been resolved simply by
considering the parties' pleadings. There are genuine
issues of facts which can only be determined on the
basis of evidence duly presented. BMW cannot short
circuit the process on the plea that to compel it to go to
trial would be to deny its right not to submit to the
jurisdiction of the trial court which precisely it denies.
Rule 16, 3 authorizes courts to defer the resolution of a
motion to dismiss until after the trial if the ground on
which the motion is based does not appear to be
indubitable. Here the record of the case bristles with
factual issues and it is not at all clear whether some
allegations correspond to the proof. lexlib
Anyway, private respondent need not apprehend that by
responding to the summons it would be waiving its
objection to the trial court's jurisdiction. It is now settled
that for purposes of having summons served on a foreign
corporation in accordance with Rule 14, 14, it is
sufficient that it be alleged in the complaint that the
foreign corporation is doing business in the Philippines.
The court need not go beyond the allegations of the
complaint in order to determine whether it has
jurisdiction. 18 A determination that the foreign
corporation is doing business is only tentative and is
made only for the purpose of enabling the local court to
acquire jurisdiction over the foreign corporation through
service of summons pursuant to Rule 14, 4. Such
determination does not foreclose a contrary finding
should evidence later show that it is not transacting
business in the country. As this Court has explained:

This is not to say, however, that the
petitioner's right to question the jurisdiction
of the court over its person is now to be
deemed a foreclosed matter. If it is true, as
Signetics claims, that its only involvement in
the Philippines was through a passive
investment in Sigfil, which it even later
disposed of, and that TEAM Pacific is not its
agent, then it cannot really be said to be
doing business in the Philippines. It is a
defense, however, that requires the
contravention of the allegations of the
complaint, as well as a full ventilation, in
effect, of the main merits of the case, which
should not thus be within the province of a
mere motion to dismiss. So, also, the issue
posed by the petitioner as to whether a
foreign corporation which has done business
in the country, but which has ceased to do
business at the time of the filing, of a
complaint, can still be made to answer for a
cause of action which accrued while it was
doing, business, is another matter that would
yet have to await the reception and
admission of evidence. Since these points
have seasonably been raised by the
petitioner, there should be no real cause for
what may understandably be its
apprehension, i.e., that by its participation
during, the trial on the merits, it may, absent
an invocation of separate or independent
reliefs of its own, be considered to have
voluntarily submitted itself to the court's
jurisdiction. 19
Far from committing an abuse of discretion, the trial
court properly deferred resolution of the motion to
dismiss and thus avoided prematurely deciding a
question which requires a factual basis, with the same
result if it had denied the motion and conditionally
assumed jurisdiction. It is the Court of Appeals which, by
ruling that BMW is not doing business on the basis
merely of uncertain allegations in the pleadings, disposed
of the whole case with finality and thereby deprived
petitioner of his right to be heard on his cause of action.
Nor was there justification for nullifying the writ of
preliminary injunction issued by the trial court. Although
the injunction was issued ex parte, the fact is that BMW
was subsequently heard on its defense by filing a motion
to dismiss.
WHEREFORE, the decision of the Court of Appeals is
REVERSED and the case is REMANDED to the trial court
for further proceedings.
SO ORDERED.
[G.R. No. 110668. February 6, 1997.]
SMITH, BELL & CO., INC., petitioner,
vs. COURT OF APPEALS and JOSEPH
BENGZON CHUA, 1 respondents.
Relos Law Office for petitioner.
Rosalinda L. Santos-Garbo for private respondents.
SYLLABUS
1.CIVIL LAW; SPECIAL CONTRACTS; AGENCY; SETTLING
AGENT; CAN NOT BE SUED NOR HELD LIABLE
WHETHER SINGLY OR SOLIDARILY WITH ITS
PRINCIPAL. The doctrine in Salonga vs. Warner
Barnes & Co., Ltd. may have been enunciated by this
Court in 1951, but the passage of time has not eroded its
value or merit. It still applies with equal force and vigor.
Private respondent's contention that Salonga does not
apply simply because only the agent was sued therein
while here both agent and principal were impleaded and
found solidarily liable is without merit. Such distinction is
immaterial. The agent can not be sued nor held liable
whether singly or solidarily with its principal.
2.ID.; ID.; ID.; ID.; NOT A PRIVY TO THE CONTRACT.
Every cause of action ex contractu must be founded
upon a contract, oral or written, either express or
implied. The only "involvement" of petitioner in the
subject contract of insurance was having its name
stamped at the bottom left portion of the policy as
"Claim Agent." Without anything else to back it up, such
stamp cannot even be deemed by the remotest
interpretation to mean that petitioner participated in the
preparation of said contract. Hence, there is no privity of
contract, and correspondingly there can be no obligation
or liability, and thus no cause of action against petitioner
attaches. Under Article 1311 of the Civil Code, contracts
are binding only upon the parties (and their assigns and
heirs) who execute them. The subject cargo insurance
was between the First Insurance Company, Ltd. and the
Chin Gact Co., Ltd., both of Taiwan, and was signed in
Taipei, Taiwan by the president of the First Insurance
Company, Ltd. and the president of the Chin Gact Co.,
Ltd. There is absolutely nothing in the contract which
mentions the personal liability of petitioner.
3.ID.; ID.; ID.; ID.; NOT A REAL PARTY IN INTEREST.
Being a mere agent and representative, petitioner is also
not the real party-in-interest in this case. An action is
brought for a practical purpose, that is, to obtain actual
and positive relief. If the party sued is not the proper
party, any decision that may be rendered against him
would be futile, for the decision cannot be enforced or
executed. Section 2, Rule 3 of the Rules of Court
identifies who the real parties-in-interest are, thus:
"Section 2, Parties in interest. Every action must be
prosecuted and defended in the name of the real party in
interest. All persons having an interest in the subject of
the action and in obtaining the relief demanded shall be
joined as plaintiffs. All persons who claim an interest in
the controversy or the subject thereof adverse to the
plaintiff, or who are necessary to a complete
determination or settlement of the questions involved
therein shall be joined as defendants." The cause of
action of private respondent is based on a contract of
insurance which as already shown was not participated
in by petitioner. It is not a "person who claim(s) an
interest adverse to the plaintiff nor is said respondent
necessary to a complete determination or settlement of
the questions involved'' in the controversy. Petitioner is
improperly impleaded for not being a real-party-interest.
It will not benefit or suffer in case the action prospers.
4.ID.; ID.; ID.; ID.; PURPOSE AND ROLE OF A
RESIDENT AGENT UNDER THE INSURANCE CODE.
The Insurance Code is quite clear as to the purpose and
role of a resident agent. Such agent, as a representative
of the foreign insurance company, is tasked only to
receive legal processes on behalf of its principal and not
to answer personally for any insurance claims.
5.ID.; OBLIGATIONS; SOLIDARY OBLIGATION; CANNOT
LIGHTLY BE INFERRED; MUST BE POSITIVELY AND
CLEARLY EXPRESSED. May then petitioner, in its
capacity as resident agent (as found in the case cited by
the respondent Court) be held solidarily liable with the
foreign insurer? Article 1207 of the Civil Code clearly
provides that "(t)here is a solidary liability only when the
obligation expressly so states, or when the law or the
nature of the obligation requires solidarity." The well-
entrenched rule is that solidary obligation cannot lightly
be inferred. It must be positively and clearly expressed.
The contention that, in the end, it would really be First
Insurance Company, Ltd. which would be held liable is
specious and cannot be accepted. Such a stance would
inflict injustice upon petitioner which would be made to
advance the funds to settle the claim without any
assurance that it can collect from the principal which
disapproved such claim, in the first place. More
importantly, such position would have absolutely no legal
basis.
6.ID.; RESORT TO EQUITY MISPLACED. Respondent
Court also contends that "the interest of justice is better
served by holding the settling agent jointly and severally
liable with its principal." As no law backs up such
pronouncement, the appellate Court is thus resorting to
equity. However, equity which has been aptly described
as "justice outside legality," is availed of only in the
absence of, and never against, statutory law or judicial
pronouncements. Upon the other hand, the liability of
agents is clearly provided for by our laws and existing
jurisprudence.
D E C I S I O N
PANGANIBAN, J p:
The main issue raised in this case is whether a local
claim or settling agent is personally and/or
solidarily liable upon a marine insurance policy
issued by its disclosed foreign principal.
This is a petition for review on certiorari of the Decision
of respondent Court 2 promulgated on January 20, 1993
in CA-G.R. CV No. 31812 affirming the decision 3 of the
trial court 4 which disposed as follows: 5
"Wherefore, the Court renders judgment
condemning the defendants (petitioner and
First Insurance Co. Ltd.) jointly and severally
to pay the plaintiff (private respondent) the
amount of US$7,359.78. plus 24% interest
thereon annually until the claim is fully paid,
10% as and for attorney's fees, and the
cost."
The Facts
The facts are undisputed by the parties, 6 and are
narrated by respondent Court, quoting the trial court, as
follows: 7
"The undisputed facts of the case have been
succintly (sic) summarized by the lower
court(,) as follows:
'. . . in July 1982, the plaintiffs, doing
business under the style of Tic Hin
Chiong, Importer, bought and
imported to the Philippines from the
firm Chin Gact Co., Ltd. of Taipei,
Taiwan, 50 metric tons of Dicalcium
Phosphate, Feed Grade F-15% valued
at US$13,000.00 CIF Manila. These
were contained in 1,250 bags and
shipped from the Port of Kaohsiung,
Taiwan on Board S.S. 'GOLDEN
WEALTH' for the Port on (sic) Manila.
On July 27, 1982, this shipment was
insured by the defendant First
Insurance Co. for US$19,500.00
'against all risks' at port of departure
under Marine Policy No.
1000M82070033219, with the note
'Claim, if any, payable in U.S. currency
at Manila (Exh. '1', 'D' for the plaintiff)
and with defendant Smith, Bell, and
Co. stamped at the lower left side of
the policy as 'Claim Agent.'
The cargo arrived at the
Port of Manila on September 1,
1982 aboard the above-
mentioned carrying vessel and
landed at port on September 2,
1982. Thereafter, the entire
cargo was discharged to the
local arrastre contractor,
Metroport Services Inc. with a
number of the cargo in
apparent bad order condition.
On September 27, 1982, the
plaintiff secured the services of
a cargo surveyor to conduct a
survey of the damaged cargo
which were (sic) delivered by
plaintiff's broker on said date to
the plaintiff's premises at 12th
Avenue, Grace Park, Caloocan
City. The surveyor's report (Exh.
'E') showed that of the 1,250
bags of the imported material,
600 were damaged by tearing
at the sides of the container
bags and the contents partly
empty. Upon weighing, the
contents of the damaged bags
were found to be 18,546.0 kg
short. Accordingly, on October
16 following, the plaintiff filed
with Smith, Bell, and Co., Inc. a
formal statement of claim (Exh.
'G') with proof of loss and a
demand for settlement of the
corresponding value of the
losses, in the sum of
US$7,357.78.00.(sic) After
purportedly conveying the claim
to its principal, Smith, Bell, and
Co., Inc. informed the plaintiff
by letter dated February 15,
1983 (Exh. 'G-2') that its
principal offered only 50% of
the claim or US$3,616.17 as
redress, on the alleged ground
of discrepancy between the
amounts contained in the
shipping agent's reply to the
claimant of only US$90.48 with
that of Metroport's. The offer
not being acceptable to the
plaintiff, the latter wrote Smith,
Bell, & Co. expressing his
refusal to the 'redress' offer,
contending that the discrepancy
was a result of loss from vessel
to arrastre to consignees'
warehouse which losses were
still within the 'all risk' insurance
cover. No settlement of the
claim having been made, the
plaintiff then caused the instant
case to be filed. (p. 2, RTC
Decision; p. 142, Record).'
Denying any liability,
defendant-appellant averred in
its answer that it is merely a
settling or claim agent of
defendant insurance company
and as such agent, it is not
personally liable under the
policy in which it has not even
taken part of. It then alleged
that plaintiff-appellee has no
cause of action against it.
Defendant The First Insurance Co. Ltd. did
not file an Answer, hence it was declared in
default.
After due trial and proceeding, the lower
court rendered a decision favorable to
plaintiff-appellee. It ruled that plaintiff-
appellee has fully established the liability of
the insurance firm on the subject insurance
contract as the former presented concrete
evidence of the amount of losses resulting
from the risks insured against which were
supported by reliable report and assessment
of professional cargo surveyor. As regards
defendant-appellant, the lower court held
that since it is admittedly a claim agent of the
foreign insurance firm doing business in the
Philippines justice is better served if said
agent is made liable without prejudice to its
right of action against its principal, the
insurance firm. . . ."

The Issue
"Whether or not a local settling or claim agent of a
disclosed principal a foreign insurance company
can be held jointly and severally liable with said
principal under the latter's marine cargo
insurance policy, given that the agent is not a
party to the insurance contract" 8 is the sole issue
raised by petitioner.
Petitioner rejects liability under the said insurance
contract, claiming that: (1) it is merely an agent and thus
not personally liable to the party with whom it contracts
on behalf of its principal; (2) it had no participation at all
in the contract of insurance; and (3) the suit is not
brought against the real party-in-interest. 9
On the other hand, respondent Court in ruling against
petitioner disposed of the main issue by citing a case it
decided in 1987, where petitioner was also a party-
litigant. 10 In that case, respondent Court held that
petitioner as resident agent of First Insurance Co. Ltd.
was "authorized to settle claims against its principal. Its
defense that its authority excluded personal liability must
be proven satisfactorily. There is a complete dearth of
evidence supportive of appellant's non-responsibility as
resident agent." The ruling continued with the statement
that "the interest of justice is better served by holding
the settling or claim agent jointly and severally liable
with its principal." 11
Likewise, private respondent disputed the applicability of
the cases of E. Macias & Co. vs. Warner, Barnes & Co. 12
and Salonga vs. Warner, Barnes & Co., Ltd. 13 invoked
by petitioner in its appeal. According to private
respondent, these two cases impleaded only the
"insurance agent" and did not include the principal. While
both the foreign principal which was declared in
default by the trial court and petitioner, as claim
agent, were found to be solidarily liable in this case,
petitioner still had "recourse" against its foreign principal.
Also, being a contract of adhesion, an insurance
agreement must be strictly construed against the insurer.
14
The Court's Ruling
There are three reasons why we find for
petitioner.
First Reason: Existing Jurisprudence
Petitioner, undisputedly a settling agent acting
within the scope of its authority, cannot be held
personally and/or solidarily liable for the
obligations of its disclosed principal merely
because there is allegedly a need for a speedy
settlement of the claim of private respondent. In
the leading case of Salonga vs. Warner, Barnes & Co.,
Ltd. this Court ruled in this wise: 15
"We agree with counsel for the appellee that
the defendant is a settlement and adjustment
agent of the foreign insurance company and
that as such agent it has the authority to
settle all the losses and claims that may arise
under the policies that may be issued by or in
behalf of said company in accordance with
the instructions it may receive from time to
time from its principal, but we disagree with
counsel in his contention that as such
adjustment and settlement agent, the
defendant has assumed personal liability
under said policies, and, therefore, it can be
sued in its own right. An adjustment and
settlement agent is no different from
any other agent from the point of view
of his responsibilty (sic), for he also
acts in a representative capacity.
Whenever he adjusts or settles a claim,
he does it in behalf of his principal, and
his action is binding not upon himself
but upon his principal. And here again,
the ordinary rule of agency applies. The
following authorities bear this out:
'An insurance adjuster is ordinarily a
special agent for the person or
company for whom he acts, and his
authority is prima facie coextensive
with the business intrusted to him. . .'
'An adjuster does not
discharge functions of a quasi-
judicial nature, but represents
his employer, to whom he
owes faithful service, and
for his acts, in the
employer's interest, the
employer is responsible so
long as the acts are done
while the agent is acting
within the scope of his
employment.' (45 C.J.S.,
1338-1340.)
It, therefore, clearly
appears that the scope and
extent of the functions of an
adjustment and settlement
agent do not include
personal liability. His
functions are merely to
settle and adjusts claims in
behalf of his principal if
those claims are proven and
undisputed, and if the claim
is disputed or is disapproved
by the principal, like in the
instant case, the agent does
not assume any personal
liability. The recourse of the
insured is to press his claim
against the principal."
(Emphasis supplied).
The foregoing doctrine may have been enunciated by
this Court in 1951, but the passage of time has not
eroded its value or merit. It still applies with equal force
and vigor.
Private respondent's contention that Salonga does not
apply simply because only the agent was sued therein
while here both agent and principal were impleaded and
found solidarily liable is without merit. Such distinction is
immaterial. The agent can not be sued nor held liable
whether singly or solidarily with its principal.
Every cause of action ex contractu must be founded
upon a contract, oral or written, either express or
implied. 16 The only "involvement" of petitioner in
the subject contract of insurance was having its
name stamped at the bottom left portion of the
policy as "Claim Agent." Without anything else to
back it up, such stamp cannot even be deemed by
the remotest interpretation to mean that
petitioner participated in the preparation of said
contract. Hence, there is no privity of contract,
and correspondingly there can be no obligation or
liability,5 and thus no cause of action against
petitioner attaches. Under Article 1311 17 of the Civil
Code, contracts are binding only upon the parties (and
their assigns and heirs) who execute them. The subject
cargo insurance was between the First Insurance
Company, Ltd. and the Chin Gact Co., Ltd., both of
Taiwan, and was signed in Taipei, Taiwan by the
president of the First Insurance Company, Ltd. and the
president of the Chin Gact Co., Ltd. 18 There is absolutely
nothing in the contract which mentions the personal
liability of petitioner.
Second Reason: Absence of Solidary Liability
May then petitioner, in its capacity as resident agent (as
found in the case cited by the respondent Court 19 be
held solidarily liable with the foreign insurer? Article 1207
of the Civil Code clearly provides that "(t)here is a
solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation
requires solidarity." The well-entrenched rule is that
solidary obligation cannot lightly be inferred. It must be
positively and clearly expressed. The contention that, in
the end, it would really be First Insurance Company, Ltd.
which would be held liable is specious and cannot be
accepted. Such a stance would inflict injustice upon
petitioner which would be made to advance the funds to
settle the claim without any assurance that it can collect
from the principal which disapproved such claim, in the
first place. More importantly, such position would have
absolutely no legal basis.
The Insurance Code is quite clear as to the purpose and
role of a resident agent. Such agent, as a representative
of the foreign insurance company, is tasked only to
receive legal processes on behalf of its principal and not
to answer personally for any insurance claims. We quote:
"SEC. 190.The Commissioner must require as
a condition precedent to the transaction of
insurance business in the Philippines by any
foreign insurance company, that such
company file in his office a written power of
attorney designating some person who shall
be a resident of the Philippines as its general
agent, on whom any notice provided by law
or by any insurance policy, proof of loss,
summons and other legal processes may be
served in all actions or other legal
proceedings against such company, and
consenting that service upon such general
agent shall be admitted and held as valid as
if served upon the foreign company at its
home office. Any such foreign company shall,
as further condition precedent to the
transaction of insurance business in the
Philippines, make and file with the
Commissioner an agreement or stipulation,
executed by the proper authorities of said
company in form and substance as follows:
'The (name of company) does hereby
stipulate and agree in consideration of
the permission granted by the
Insurance Commissioner to transact
business in the Philippines, that if at
any time such company shall leave the
Philippines, or cease to transact
business therein, or shall be without
any agent in the Philippines on whom
any notice, proof of loss, summons, or
legal process may be served, then in
any action or proceeding arising out of
any business or transaction which
occurred in the Philippines, service of
any notice provided by law, or
insurance policy, proof of loss,
summons, or other legal process may
be made upon the Insurance
Commissioner shall have the same
force and effect as if made upon the
company.'
Whenever such service of notice, proof of
loss, summons, or other legal process shall
be made upon the Commissioner he must,
within ten days thereafter, transmit by mail,
postage paid, a copy of such notice, proof of
loss, summons, or other legal process to the
company at its home or principal office. The
sending of such copy of the Commissioner
shall be necessary part of the service of the
notice, proof of loss, or other legal process."
(Emphasis supplied).
Further, we note that in the case cited by respondent
Court, petitioner was found to be a resident agent of
First Insurance Co. Ltd. In the instant case however, the
trial court had to order the service of summons upon
First Insurance Co., Ltd. which would not have been
necessary if petitioner was its resident agent. Indeed,
from our reading of the records of this case, we find no
factual and legal bases for the finding of respondent
Court that petitioner is the resident agent of First
Insurance Co., Ltd. cdt

Third Reason: Not Real Party-In-Interest
Lastly, being a mere agent and representative, petitioner
is also not the real party-in-interest in this case. An
action is brought for a practical purpose, that is, to
obtain actual and positive relief. If the party sued is not
the proper party, any decision that may be rendered
against him would be futile, for the decision cannot be
enforced or executed. Section 2, Rule 3 of the Rules of
Court identifies who the real parties-in-interest are, thus:
"Section 2.Parties in interest. Every action
must be prosecuted and defended in the
name of the real party in interest. All persons
having an interest in the subject of the action
and in obtaining the relief demanded shall be
joined as plaintiffs. All persons who claim an
interest in the controversy or the subject
thereof adverse to the plaintiff, or who are
necessary to a complete determination or
settlement of the questions involved therein
shall be joined as defendants."
The cause of action of private respondent is based on a
contract of insurance which as already shown was not
participated in by petitioner. It is not a "person who
claim(s) an interest adverse to the plaintiff" nor is said
respondent "necessary to a complete determination or
settlement of the questions involved" in the controversy.
Petitioner is improperly impleaded for not being a real-
party-interest. It will not benefit or suffer in case the
action prospers. 20
Resort to Equity Misplaced
Finally, respondent Court also contends that "the interest
of justice is better served by holding the settling agent
jointly and severally liable with its principal." As no law
backs up such pronouncement, the appellate Court is
thus resorting to equity. However, equity which has been
aptly described as "justice outside legality," is availed of
only in the absence of, and never against, statutory law
or judicial pronouncements. 21 Upon the other hand, the
liability of agents is clearly provided for by our laws and
existing jurisprudence.
WHEREFORE, in view of the foregoing considerations,
the Petition is GRANTED and the Decision appealed from
is REVERSED and SET ASIDE.
No costs.
SO ORDERED.
[G.R. No. 15568. November 8, 1919.]
W. G. PHILPOTTS, petitioner, vs.
PHILIPPINE MANUFACTURING.
COMPANY and F. N. BERRY,
respondents.
Lawrence & Ross for petitioner.
Crossfield & O'Brien for defendants.
SYLLABUS
1.CORPORATIONS; EXAMINATION OF
COMPANY'S AFFAIRS BY STOCKHOLDER; RIGHT OF
STOCKHOLDER TO ACT THROUGH REPRESENTATIVE.
The right of examination into corporate affairs
which is conceded to the stockholder by section 51 of
the Corporation Law may be exercised either by the
stockholder in person or by any duly authorized
representative.
D E C I S I O N
STREET, J p:
The petitioner, W. G.' Philpotts, a stockholder
in the Philippine Manufacturing Company, one of the
respondents herein, seeks by this proceeding to
obtain a writ of mandamus to compel the respondents
to permit the plaintiff, in person or by some
authorized agent or attorney, to inspect and examine
the records of the business transacted by said
company since January 1, 1918. The petition is filed
originally in this court under the authority of section
515 of the Code of Civil Procedure, which gives to this
tribunal concurrent jurisdiction with the Court of First
Instance in cases, among others, where any
corporation or person unlawfully excludes the plaintiff
from the use and enjoyment of some right to which
he is entitled. The respondents interposed a
demurrer, and the controversy is now before us for
the determination of the questions thus presented.
The first point made has reference to a
supposed defect of parties, and it is said that the
action can not be maintained jointly against the
corporation and its secretary without the addition of
the allegation that the latter is the custodian of the
business records of the respondent company.
By the plain language of sections 515 and 222
of our Code of Civil Procedure, the right of action in
such a proceeding as this is given against the
corporation; and the respondent corporation in this
case was the only absolutely necessary party. In the
Ohio case of Cincinnati Volksblatt Co. vs. Hoffmister
(61 Ohio St., 432; 48 L. R. A., 735), only the
corporation was named as defendant, while the
complaint, in language almost identical with that in
the case at bar, alleged a demand upon and refusal
by the corporation.
Nevertheless the propriety of naming the
secretary of the corporation as a codefendant cannot
be questioned, since such official is customarily
charged with the custody of all documents,
correspondence, and records of a corporation, and he
is presumably the person against whom the personal
orders of the court would be made effective in case
the relief sought should be granted. Certainly there is
nothing in the complaint to indicate that the secretary
is an improper person to be joined. The petitioner
might have named the president of the corporation as
a respondent also; and this official might be brought
in later, even after judgment rendered, if necessary to
the effectuation of the order of the court.
Section 222 of our Code of Civil Procedure is
taken from the California Code, and a decision of the
California Supreme Court Barber vs. Mulford (117
Cal., 356) is quite clear upon the point that both
the corporation and its officers may be joined as
defendants.
The real controversy which has brought these
litigants into court is upon the question argued in
connection with the second ground of demurrer,
namely, whether the right which the law
concedes to a stockholder to inspect the
records can be exercised by a proper agent or
attorney of the stockholder as well as by the
stockholder in person. There is no pretense that
the respondent corporation or any of its officials has
refused to allow the petitioner himself to examine
anything relating to the affairs of the company, and
the petition prays for a peremptory order
commanding the respondents to place the records of
all business transactions of the company, during a
specified period, at the disposal of the plaintiff or his
duly authorized agent or attorney, it being evident
that the Petitioner desires to exercise said right
through an agent or attorney. In the argument in
support of the demurrer it is conceded by counsel for
the respondents that there is a right of examination in
the stockholder granted under section 51 of the
Corporation Law, but it is insisted that this right must
be exercised in person.
The pertinent provision of our law is found in
the second paragraph of section 51 of Act No. 1459,
which reads as follows: "The record of all business
transactions of the corporation and the minutes of
any meeting shall be open to the inspection of and
director, member, or stockholder of the corporation at
reasonable hours."
This provision is to be read of course in
connection with the related provisions o sections 51
and 52, defining the duty of the corporation in
respect to the keeping of its records.
Now it is our opinion, and we accordingly
hold, that the right of inspection given to a
stockholder in the provision above quoted can
be exercised either by himself or by any proper
representative or attorney in fact, and either
with or without the attendance of the
stockholder. This is in conformity with the general
rule that what a man may do in person he may
do through another; and we find nothing in the
statute that would justify us in qualifying the right in
the manner suggested by the respondents. This
conclusion is supported by the undoubted weight of
authority in the United States, where it is generally
held that the provisions of law conceding the right of
inspection to stockholders of corporations are to be
liberally construed and that said right may be
exercised through any other properly authorized
person. As was said in Foster vs. White (86 Ala., 467),
"The right may be regarded as personal, in the sense
that only a stockholder may enjoy it; but the
inspection and examination may be made by another.
Otherwise it would be unavailing in many instances."
An observation to the same effect is contained in
Martin vs. Bienville Oil Works Co. (28 La., 204), where
it is said: "The possession of the right in question
would be futile if the possessor of it, through lack of
knowledge necessary to exercise it, were debarred
the right of procuring in his behalf the services of one
who could exercise it." In Deadreck vs. Wilson (8
Baxt. [Tenn.], 108), the court said: "That
stockholders have the right to inspect the
books of the corporation, taking minutes from
the same, at all reasonable times, and may be
aided in this-by experts and counsel, so as to
make the inspection valuable to them, is a
principle too well settled to need discussion."
Authorities on this point could be accumulated in
great abundance, but as they may be found cited in
any legal encyclopedia or treaties devoted to the
subject of corporations, it is unnecessary here to refer
to other cases announcing the same rule.
In order that the rule above stated may not be
taken in too sweeping a sense, we deem it advisable
to say that there are some things which a corporation
may undoubtedly keep secret, notwithstanding the
right of inspection given by law to the stockholder;
as, for instance, where a corporation, engaged in the
business of manufacture, has acquired a formula or
process, not generally known, which has proved of
utility to it in the manufacture of its products. It is not
our intention to declare that the authorities of the
corporation, and more particularly the Board of
Directors, might not adopt measures for the
protection of such process from publicity. There is,
however, nothing in the petition which would indicate
that the petitioner in this case is seeking to discover
anything which the corporation is entitled to keep
secret; and if anything of the sort is involved in the
case it may be brought out at a more advanced stage
of the proceedings.
The demurrer is overruled; and it is ordered that the writ
of mandamus shall issue as prayed, unless within 5 days
from notification hereof the respondents answer to the
merits. So ordered.
MENDOZA v. DE GUZMAN
[G.R. No. L-39050. February 24, 1981.]
CARLOS GELANO and GUILLERMINA
MENDOZA DE GELANO, petitioners, vs.
THE HONORABLE COURT OF APPEALS
and INSULAR SAWMILL, INC.,
respondents.
Delia L. Hermano for petitioners.
Eduardo F. Elizalde for private respondent.
D E C I S I O N
DE CASTRO, J p:
Private respondent Insular Sawmill, Inc. is a corporation
organized on September 17, 1945 with a corporate life of
fifty (50) years, or up to September 17, 1995, with the
primary purpose of carrying on a general lumber and
sawmill business. To carry on this business, private
respondent leased the paraphernal property of
petitioner-wife Guillermina M. Gelano at the corner of
Canonigo and Otis, Paco, Manila for P1,200.00 a month.
It was while private respondent was leasing the aforesaid
property that its officers and directors had come to know
petitioner-husband Carlos Gelano who received from the
corporation cash advances on account of rentals to be
paid by the corporation on the land.
Between November 19, 1947 to December 26, 1950
petitioner Carlos Gelano obtained from private
respondent cash advances of P25,950.00. The said sum
was taken and received by petitioner Carlos Gelano on
the agreement that private respondent could deduct the
same from the monthly rentals of the leased premises
until said cash advances are fully paid. Out of the
aforementioned cash advances in the total sum of
P25,950.00, petitioner Carlos Gelano was able to pay
only P5,950.00 thereby leaving an unpaid balance of
P20,000.00 which he refused to pay despite repeated
demands by private respondent. Petitioner Guillermina
M. Gelano refused to pay on the ground that said
amount was for the personal account of her husband
asked for by, and given to him, without her knowledge
and consent and did not benefit the family.
On various occasions from May 4, 1948 to September 11,
1949 petitioners husband and wife also made credit
purchases of lumber materials from private respondent
with a total price of P1,120.46 in connection with the
repair and improvement of petitioners' residence. On
November 9, 1949 partial payment was made by
petitioners in the amount of P91.00 and in view of the
cash discount in favor of petitioners in the amount of
P83.00, the amount due private respondent on account
of credit purchases of lumber materials is P946.46 which
petitioners failed to pay. prLL
On July 14, 1952, in order to accommodate and help
petitioners renew previous loans obtained by them from
the China Banking Corporation, private respondent,
through Joseph Tan Yoc Su, executed a joint and several
promissory note with Carlos Gelano in favor of said bank
in the amount of P8,000.00 payable in sixty (60) days.
For failure of Carlos Gelano to pay the promissory note
upon maturity, the bank collected from the respondent
corporation the amount of P9,106.00 including interests,
by debiting it from the corporation's current account with
the bank. Petitioner Carlos Gelano was able to pay
private respondent the amount of P5,000.00 but the
balance of P4,106.00 remained unsettled. Guillermina M.
Gelano refused to pay on the ground that she had no
knowledge about the accommodation made by the
corporation in favor of her husband.
On May 29, 1959 the corporation, thru Atty. German Lee,
filed a complaint for collection against herein petitioners
before the Court of First Instance of Manila. Trial was
held and when the case was at the stage of submitting
memorandum, Atty. Lee retired from active law practice
and Atty. Eduardo F. Elizalde took over and prepared
memorandum.
In the meantime, private respondent amended its
Articles of Incorporation to shorten its term of existence
up to December 31, 1960 only. The amended Articles of
Incorporation was filed with, and approved by the
Securities and Exchange Commission, but the trial court
was not notified of the amendment shortening the
corporate existence and no substitution of party was
ever made. On November 20, 1964 and almost four (4)
years after the dissolution of the corporation, the trial
court rendered a decision in favor of private respondent
the dispositive portion of which reads as follows:
"WHEREFORE, judgment is rendered,
ordering:
"1.Defendant Carlos Gelano to pay plaintiff
the sum of:
'(a)P19,650.00 with interest
thereon at the legal rate from the date
of the filing of the complaint on May
29, 1959 until said sum is fully paid;
'(b)P4,106.00, with interest
thereon at the legal rate from the date
of the filing of the complaint until said
sum is fully paid;
"2.Defendants Carlos Gelano and Guillermina
Mendoza to pay jointly and severally the sum
of:
'(a)P946.46, with interest
thereon at the agreed rate of 12% per
annum from October 6, 1946, until
said sum is fully paid;
'(b)P550.00, with interest
thereon at the legal rate from the date
of the filing of the complaint until the
said sum is fully paid;
'(c)Costs of the suit'; and
"3.Defendant Carlos Gelano to pay the
plaintiff the sum of P2,000.00 attorney's fees.
"The Counterclaims of defendants are
dismissed.
"SO ORDERED." 1
Both parties appealed to the Court of Appeals, private
respondent also appealing because it insisted that both
Carlos Gelano and Guillermina Gelano should be held
liable for the substantial portion of the claim.
On August 23, 1973, the Court of Appeals rendered a
decision modifying the judgment of the trial court by
holding petitioner spouses jointly and severally liable on
private respondents claim and increasing the award of
P4,106.00. The dispositive portion of the decision reads
as follows:
"WHEREFORE, modified in the sense that the
amount of P4,106.00 under paragraph 1 (b)
is raised to P8,160.00 and the clarification
that the conjugal partnership of the spouses
is jointly and severally liable for the
obligations adjudged against defendant
Carlos Gelano, the judgment appealed from
is affirmed in all other respects." 2
After petitioners received a copy of the decision on
August 24, 1973, they came to know that the Insular
Sawmill Inc. was dissolved way back on December 31,
1960. Hence, petitioners filed a motion to dismiss the
case and or reconsideration of the decision of the Court
of Appeals on grounds that the case was prosecuted
even after dissolution of private respondent as a
corporation and that a defunct corporation cannot
maintain any suit for or against it without first complying
with the requirements of the winding up of the affairs of
the corporation and the assignment of its property rights
within the required period. LLpr
Incidentally, after the receipt of petitioners' motion to
dismiss and/or reconsideration or on October 28, 1973,
private respondent thru its former directors filed a
Petition for Receivership before the Court of First
Instance of Manila, docketed as Special Proceedings No.
92303, 3 which petition is still pending before said court.
On November 5, 1973, private respondent filed a
comment on the motion to dismiss and/or
reconsideration and after the parties have filed reply and
rejoinder, the Court of Appeals on July 5, 1974 issued a
resolution 4 denying the aforesaid motion.
Hence, the present petition for review, petitioners
assigning the following errors:
I
"THE 'RESPONDENT COURT' ERRED IN
DENYING THE PETITIONERS' MOTION TO
DISMISS THIS CASE DESPITE THE CLEAR
FINDING THAT 'RESPONDENT' HAD
ALREADY CEASED TO EXIST AS A
CORPORATION SINCE DECEMBER 31, 1960
YET.
II
"THE 'RESPONDENT COURT' ERRED IN NOT
HOLDING THAT ACTIONS PENDING FOR OR
AGAINST A DEFUNCT CORPORATION ARE
DEEMED ABATED.
III
"THE 'RESPONDENT COURT' ERRED IN
HOLDING INSTEAD THAT EVEN IF THERE
WAS NO COMPLIANCE WITH SECTIONS 77
AND 78 OF THE CORPORATION LAW FOR
THE WINDING UP OF THE AFFAIRS OF THE
CORPORATION BY THE CONVEYANCE OF
CORPORATE PROPERTY AND PROPERTY
RIGHTS TO AN ASSIGNEE, OR TRUSTEE OR
THE APPOINTMENT OF A RECEIVER WITHIN
THREE YEARS FROM THE DISSOLUTION OF
SUCH CORPORATION, ANY LITIGATION
FILED BY OR AGAINST THE DISSOLVED
CORPORATION, INSTITUTED WITHIN THREE
YEARS AFTER SUCH DISSOLUTION BUT
WHICH COULD NOT BE TERMINATED
WITHIN SAID PERIOD, MAY STILL BE
CONTINUED AS IT IS NOT DEEMED ABATED.
IV
"THE 'RESPONDENT COURT' ERRED IN THE
APPLICATION TO THIS CASE OF ITS RULING
IN PASAY CREDIT AND FINANCE
CORPORATION, VERSUS LAZARO, ET AL., 46
O.G. (11) 5528, AND IN OVERLOOKING THE
DISTINCTION LAID DOWN BY THIS
HONORABLE COURT IN NUMEROUS
DECIDED CASES THAT ONLY CASES FILED
IN THE NAME OF ASSIGNEES, TRUSTEES OR
RECEIVERS (FOR A DEFUNCT
CORPORATION), APPOINTED WITHIN THREE
YEARS FROM ITS DISSOLUTION, MAY BE
PROSECUTED BEYOND THE SAID THREE-
YEAR PERIOD, AND THAT, ALL OTHERS ARE
DEEMED ABATED.
V
"THE 'RESPONDENT COURT' ERRED IN
HOLDING THAT WITH THE FILING OF
SPECIAL PROCEEDINGS NO. 92303 IN THE
COURT OF FIRST INSTANCE OF MANILA BY
FORMER DIRECTORS OF 'PRIVATE
RESPONDENT' ON OCTOBER 23, 1973, OR,
THIRTEEN YEARS AFTER ITS DISSOLUTION,
A LEGAL PERSONALITY WILL BE APPOINTED
TO REPRESENT THE CORPORATION.
VI
"THE 'RESPONDENT COURT' ERRED IN
PRACTICALLY RULING THAT THE THREE-
YEAR PERIOD PROVIDED FOR BY THE
CORPORATION LAW WITHIN WHICH
ASSIGNEES, TRUSTEES OR RECEIVERS MAY
BE APPOINTED MAY BE EXTENDED.
VII
"THE 'RESPONDENT COURT' ERRED IN NOT
HOLDING THAT THE FAILURE OF 'PRIVATE
RESPONDENT' OR ITS AUTHORIZED
COUNSEL TO NOTIFY THE TRIAL COURT OF
ITS DISSOLUTION OR OF ITS 'CIVIL DEATH'
MAY BE CONSIDERED AS AN ABANDONMENT
OF ITS CAUSE OF ACTION AMOUNTING TO A
FAILURE TO PROSECUTE AND RESULTING
IN THE ABATEMENT OF THE SUIT.
VIII
"THE 'RESPONDENT COURT' ERRED IN
RECOGNIZING THE PERSONALITY OF
COUNSEL APPEARING FOR 'PRIVATE
RESPONDENT' DESPITE HIS ADMISSION
THAT HE DOES NOT KNOW THE 'PRIVATE
RESPONDENT' NOR HAS HE MET ANY OF ITS
DIRECTORS AND OFFICERS.
IX
"THE 'RESPONDENT COURT' ERRED IN
AFFIRMING THE DECISION OF THE TRIAL
COURT HOLDING IN FAVOR OF THE
'PRIVATE RESPONDENT'.
X
"THE 'RESPONDENT COURT' ERRED IN
MODIFYING THE TRIAL COURT'S DECISION
AND HOLDING EVEN THE CONJUGAL
PARTNERSHIP OF PETITIONERS JOINTLY
AND SEVERALLY LIABLE FOR THE
OBLIGATION ADJUDGED AGAINST
PETITIONER-HUSBAND, CARLOS GELANO."

The main issue raised by petitioner is whether a
corporation, whose corporate life had ceased by
the expiration of its terms of existence, could still
continue prosecuting and defending suits after its
dissolution and beyond the period of three (3)
years provided for under Act No. 1459, otherwise
known as the Corporation Law, to wind up its
affairs, without having undertaken any step to
transfer its assets to a trustee or assignee.
The complaint in this case was filed on May 29, 1959
when private respondent Insular Sawmill, Inc. was still
existing. While the case was being tried, the stockholders
amended its Articles of Incorporation by shortening the
term of its existence from December 31, 1959 to
December 31, 1960, which was approved by the
Securities and Exchange Commission.
In American corporate law, upon which our Corporation
Law was patterned, it is well settled that, unless the
statutes otherwise provide, all pending suits and actions
by and against a corporation are abated by a dissolution
of the corporation. 5 Section 77 of the Corporation Law
provides that the corporation shall "be continued as a
body corporate for three (3) years after the time when it
would have been . . . dissolved, for the purpose of
prosecuting and defending suits by or against it . . .," so
that, thereafter, it shall no longer enjoy corporate
existence for such purpose. For this reason, Section 78
of the same law authorizes the corporation, "at any time
during said three years . . . to convey all of its property
to trustees for the benefit of members, stockholders,
creditors and other interested," evidently for the
purpose, among others, of enabling said trustees to
prosecute and defend suits by or against the corporation
begun before the expiration of said period. 6
Commenting on said sections, Justice Fisher said: Cdpr
"It is to be noted that the time during
which the corporation, through its own
officers, may conduct the liquidation of
its assets and sue and be sued as a
corporation is limited to three years
from the time the period of dissolution
commences; but that there is no time
limited within which the trustees must
complete a liquidation placed in their
hands. It is provided only (Corp. Law,
Sec. 78) that the conveyance in the
trustees must he made within the
three-year period. It may be found
impossible to complete the work of
liquidation within the three-year period or to
reduce disputed claims to judgment. The
authorities are to the effect that suits by or
against a corporation abate where it ceased
to be an entity capable of suing or being
sued (7 R.C.L. Corps., Par. 750); but trustees
to whom the corporate assets have been
conveyed pursuant to the authority of Section
78 may sue and be sued as such in all
matters connected with the liquidation. By
the terms of the statute the effect of the
conveyance is to make the trustees the legal
owners of the property conveyed, subject to
the beneficial interest therein of creditors and
stockholders." 7
When Insular Sawmill, Inc. was dissolved on December
31, 1960, under Section 77 of the Corporation Law, it still
has the right until December 31, 1963 to prosecute in its
name the present case. After the expiration of said
period, the corporation ceased to exist for all purposes
and it can no longer sue or be sued. 8
However, a corporation that has a pending action
and which cannot be terminated within the three-
year period after its dissolution is authorized
under Section 78 to convey all its property to
trustees to enable it to prosecute and defend suits
by or against the corporation beyond the three-
year period. Although private respondent did not
appoint any trustee, yet the counsel who
prosecuted and defended the interest of the
corporation in the instant case and who in fact
appeared in behalf of the corporation may be
considered a trustee of the corporation at least
with respect to the matter in litigation only. Said
counsel had been handling the case when the
same was pending before the trial court until it
was appealed before the Court of Appeals and
finally to this Court. We therefore hold that there
was a substantial compliance with Section 78 of
the Corporation Law and as such, private
respondent Insular Sawmill, Inc. could still
continue prosecuting the present case even
beyond the period of three (3) years from the
time of its dissolution.
From the above quoted commentary of Justice Fisher,
the trustee may commence a suit which can
proceed to final judgment even beyond the three-
year period. No reason can be conceived why a
suit already commenced by the corporation itself
during its existence, not by a mere trustee who,
by fiction, merely continues the legal personality
of the dissolved corporation should not be
accorded similar treatment allowed to proceed
to final judgment and execution thereof.
The word "trustee" as used in the corporation
statute must be understood in its general concept
which could include the counsel to whom was
entrusted in the instant case, the prosecution of
the suit filed by the corporation. The purpose in
the transfer of the assets of the corporation to a
trustee upon its dissolution is more for the
protection of its creditor and stockholders. Debtors
like the petitioners herein may not take advantage of the
failure of the corporation to transfer its assets to a
trustee, assuming it has any to transfer which petitioner
has failed to show, in the first place. To sustain
petitioners' contention would be to allow them to enrich
themselves at the expense of another, which all
enlightened legal systems condemn.
The observation of the Court of Appeals on the issue
now before Us that:
"Under Section 77 of the Corporation Law,
when the corporate existence is terminated in
any legal manner, the corporation shall
nevertheless continue as a body corporate for
three (3) years after the time when it would
have been dissolved, for the purpose of
prosecuting and defending suits by or against
it. According to authorities, the corporation
'becomes incapable of making contracts or
receiving a grant. It does not, however,
cease to be a body corporate for all
purposes.' In the case of Pasay Credit and
Finance Corp. vs. Isidro Lazaro and others,
46 OG (11) 5528, this Court held that 'a
corporation may continue a pending litigation
even after the lapse of the 3-year period
granted by Section 77 of Act 1459 to
corporation subsequent to their dissolution to
continue its corporate existence for the
purpose of winding up their affairs and
settling all the claims by and against same.'
We note that the plaintiff Insular Sawmill,
Inc. ceased as a corporation on December
30, 1960 but the case at bar was instituted
on May 29, 1959, during the time when the
corporation was still very much alive.
Accordingly, it is our view that 'any litigation
filed by or against it instituted within the
period, but which could not be terminated,
must necessarily prolong that period until the
final termination of said litigation as
otherwise corporations in liquidation would
lose what should justly belong to them or
would be exempt from the payment of just
obligations through a mere technicality,
something that courts should prevent'
(Philippine Commercial Laws by Martin, 1962
Ed., Vol. 2, p. 1716)."
merits the approval of this Court.
The last two assigned errors refer to the disposition of
the main case. Petitioners contend that the obligations
contracted by petitioner Carlos Gelano from November
19, 1947 until August 18, 1950 (before the effectivity of
the New Civil Code) and from December 26, 1950 until
July 14, 1952 (during the effectivity of the New Civil
Code) were his personal obligations, hence, petitioners
should not be held jointly and severally liable. As regards
the said issues, suffice it to say that with the findings of
the Court of Appeals that the obligation contracted by
petitioner-husband Carlos Gelano redounded to the
benefit of the family, the inevitable conclusion is that the
conjugal property is liable for his debt, pursuant to
paragraph 1, Article 1408, Civil Code of 1889 9 which
provision incidentally can still be found in paragraph 1,
Article 161 of the New Civil Code. 10 Only the conjugal
partnership is liable, not joint and several as erroneously
described by the Court of Appeals, the conjugal
partnership being only a single entity. LLjur
WHEREFORE, with the modification that only the
conjugal partnership is liable, the appealed decision is
hereby affirmed in all other respects. Without
pronouncement as to costs.
SO ORDERED.
[G.R. No. L-8169. January 29, 1957.]
THE SHELL COMPANY OF THE
PHILIPPINES, LTD., petitioner, vs.
FIREMEN'S INSURANCE COMPANY OF
NEWARK, NEW JERSEY COMMERCIAL
CASUALTY INSURANCE CO.,
SALVADOR SISON, PORFIRIO DE LA
FUENTE and THE COURT OF APPEALS
(First Division), respondents.
Ross, Selph, Carrascoso & Janda for petitioner.
J. A. Wolfson and Manuel Y. Macias for
respondents.
SYLLABUS
1.PRINCIPAL AND AGENT; WHEN AGENCY
EXISTS AND NOT AN INDEPENDENT CONTRACTOR.
Where the operator of a gasoline and service
station owed his position to the company and the
latter could remove him or terminate his services at
will; that the service station belonged to the company
and bore its tradename and the operator sold only
the products of the company; that the equipment
used by the operator belonged to the company and
were just loaned to the operator and the company
took charge of their repair and maintenance; that an
employee of the company supervised the operator
and conducted periodic inspection of the company's
gasoline and service station; that the price of the
products sold by the operator was fixed by the
company and not by the operator; and that the
receipts signed by the operator indicated that he was
a mere agent. Held: that the operator is an agent of
the company and not an independent contractor.
2.CONTRACTS; NATURE OF CONTRACT;
COURTS NOT BOUND UPON THE NAME GIVEN BY
PARTIES. To determine the nature of a contracts
courts do not have or are not bound to rely upon the
name or title given it by the contracting parties,
should there be a controversy as to what they really
had intended to enter into, but the way the
contracting parties do or perform their respective
obligations stipulated or agreed upon may be shown
and inquired into, and should such performance
conflict with the name or title given the contract by
the parties, the former must prevail over the later.
D E C I S I O N
PADILLA, J p:
Appeal by certiorari under Rule 46 to review a
judgment of the Court of Appeals which reversed that
of the Court of First Instance of Manila and sentenced
". . . the defendants-appellees to pay, jointly and
severally, the plaintiff-appellants the sum of
P1,651.38, with the legal interest from December 6,
1947 (Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and
the costs in both instances."
The Court of Appeals found the following:
Inasmuch as both the Plaintiffs-
Appellants and the Defendant- Appellee, the
Shell Company of the Philippine Islands, Ltd.
accept the statement of facts made by the
trial court in its decision and appearing on
pages 23 to 37 of that Record on Appeal, we
quote thereunder such statement:
""This is an action for recovery of sum
of money, based on alleged negligence of the
defendants.
"It is a fact that a Plymouth car owned
by Salvador P. Sison was brought, on
September 3, 1947 to the Shell Gasoline and
Service Station, located at the corner of
Marqus de Comillas and Isaac Peral Streets,
Manila, for washing, greasing and spraying.
The operator of the station, having agreed to
do service upon payment of P8.00, the car
was placed on the hydraualic lifter under the
direction of the personnel of the station.
"What happened to the car is recounted by
Perlito Sison, as follows:
'Q.Will you please describe how they
proceeded to do the work?
A.Yes, sir. The first thing that was done, as I
saw, was to drive the car over the
lifter. Then by the aid of the two
greasemen they raised up my car up
to six feet high, and then washing was
done. After washing the next step was
greasing. Before greasing was
finished, there is a part near the shelf
of the right fender, right front fender,
of my car to be greased, but the
greasemen cannot reach that part, so
the next thing to be done was to
loosen the lifter just a few feet lower.
Then upon releasing the value to
make the car lower, a little bit lower . .
.
Q.Who released the valve?
A.The greaseman, for the escape of the air.
As the escape of the air is too strong
for my ear I faced backward. I faced
toward Isaac Peral Street, and covered
my ear. After the escape of the air has
been finished, the air coming out from
the valve, I turned to face the car and
I saw the ear swaying at that time,
and just for a few second the car fell.
(t.s.n., pp. 22-23.)
The case was immediately reported to the
Manila Adjustor Company, the adjustor for the
Firemen's Insurance Company and the Commercial
Casualty Insurance, Company, as the car was insured
with these insurance companies. After having been
inspected by one Mr. Baylon, representative of the
Manila Adjustors Company, the damaged car was
taken to the shops of the Philippine Motors,
Incorporated, for repair upon order of the Firemen's
Insurance Company and the Commercial Casualty
Company, with the consent of Salvador R. Sison. The
car was restored to running condition after repairs
amounting to P1,651.38, and was delivered to
Salvador R. Sison, who, in turn made assignment of
his rights to recover damage in favor of the Firemen's
Insurance Company and the Commercial Casualty
Insurance Company.
"On the other hand, the fall of the car
from the hydraulic lifter has been explained
by Alfonse M. Adriano, a greaseman in the
Shell Gasoline and Service Station, as follows:
'Q.Were you able to lift the car on the
hydraulic lifter on the occasion,
September 3, 1947?
A.Yes, sir.
Q.To what height did you raise more
or less?
A.More or less five feet, sir.
Q.After lifting that car that height,
what did you do to the car?
A.I also washed it, sir.
Q.And after washing?
A.I greased it.
Q.On that occasion, have you been
able to finish greasing and
washing the car?
A.There is one point which I could not
reach.
Q.And what did you do then?
A.I lowered the lifter in order to reach
that point.
Q.After lowering it a little, what did
you do then?
A.I pushed and pressed the valve in its
gradual pressure.
Q.Were you able to reach the portion
which you were not able to
reach while it was lower?
A.No more, sir.
Q.Why?
A.Because when I was lowering the
lifter I saw that the car was
swinging and it fell.
THE COURT.
Why did the car swing and fall?
WITNESS:
'That is what I do not know, sir.'
(t.s.n., p. 67.)"
The position of Defendant Porfirio de la Fuente
is stated in his counter-statement of facts which is
hereunder also reproduced:
"In the afternoon of September 3,
1947, an automobile belonging to the plaintiff
Salvador Sison was brought by his son,
Perlito Sison, to the gasoline and service
station at the corner of Marqus de Comillas
and Isaac Peral Streets, City of Manila,
Philippines owned by the defendant The Shell
Company of the Philippine Islands, Limited,
but operated by the defendant Porfirio de la
Fuente, for the purpose of having said car
washed and greased for a consideration of
P8.00. (t.s.n., pp. 19-20.) Said car was
insured against loss or damage by Firemen's
Insurance Company of Newark, New Jersey,
and Commercial Casualty Insurance Company
jointly for the sum of P10,000 (Exhibits "A",
"B", and "D").
"The job of washing and greasing
was undertaken by defendant Porfirio
de la Fuente through his two
employees, Alfonso M. Adriano, as
treaseman and one surnamed de los
Reyes, a helper and washer (t.s.n., pp.
65-67). To perform the job the car was
carefully and centrally placed on the platform
of the lifter in the gasoline and service station
aforementioned before raising up said
platform to a height of about 5 feet and then
the servicing job was started. After more
than one hour of washing and greasing, the
job was about to be completed except for an
ungreased portion underneath the vehicle
which could not be reached by the
greasemen. So, the lifter was lowered a little
by Alfonso M. Adriano and while doing so,
the car for unknown reason accidentally fell
and suffered damage to the value of
P1,651.88 (t.s.n., pp. 65-67).
"The insurance companies after paying
the sum of P1,651.38 for the damage and
charging the balance of P100.00 to Salvador
Sison in accordance with the terms of the
insurance contracts, have filed this action
together with said Salvador Sison for the
recovery of the total amount of the damage
from the defendants on the ground of
negligence (Record on Appeal, pp. 1-6).
"The defendant Porfirio de la Fuente
denied negligence in the operation of the
lifter in his separate answer and contended
further that the accidental fall of the car was
caused by unforseen event (Record on
Appeal, pp. 17-19)."
The owner of the car forth with notified the insurers
who ordered their adjustor, the Manila Adjustors
Company, to investigate the incident and after such
investigation the damaged car, upon order of the
insurers and with the consent of the owner, was
brought to the shop of the Philippine Motors, Inc. The
car was restored to running condition after repairs
thereon which amounted to P1,651.38 and returned
to the owner who assigned his right to collect the
aforesaid amount to the Firemen's Insurance
Company and the Commercial Casualty Insurance
Company.
On 6 December 1947 the insurers and the
owner of the car brought an action in the Court
of First Instance of Manila against the Shell
Company of the Philippines, Ltd. and Porfirio de
la Fuente to recover from them, jointly and
severally, the sum of P1,651.38, interest thereon at
the legal rate from the filing of the complaint until
fully paid, and costs. After trial the Court dismissed
the complaint. The plaintiffs appealed. The Court of
Appeals reversed the judgment and sentenced the
defendant to pay the amount sought to recovered,
legal interest and costs, as stated at the beginning of
this opinion.
In arriving at the conclusion that on 3
September 1947 when the car was bought to
the station for servicing Porfirio de la Fuente,
the operator of the gasoline and service
station, was an agent of the Shell Company of
the Philippines, Ltd., the Court of Appeals found
that
. . . De la Fuente owed his position to
the Shell Company which could remove him
or terminate his services at any time from the
said Company, and he undertook to sell the
Shell Company's products exclusively at the
said Station. For this purpose, De la Fuente
was placed in possession of the gasoline and
service station under consideration, and was
provided with all the equipments needed to
operate it, by the said Company, such as to
tools and articles listed on Exhibit 2 which
included the hydraulic lifter (hoist) and
accessories, from which Sison's automobile
fell on the date in question (Exhibits 1 and
2). These equipments were delivered to De la
Fuente on a so-called loan basis. The Shell
Company took charge of its care and
maintenance and rendered to the public or its
customers at that station for the proper
functioning of the equipment. Witness
Antonio Tiongson, who was sales
superintendent of the Shell Company, and
witness Augusto Sawyer, foreman of the
same Company, supervised the operators
and conducted periodic inspections of the
Company's gasoline and service stations, the
service station in question inclusive.
Explaining his duties and responsibilities and
the reason for the loan, Tiongson said:
"mainly on the supervision of sales or (of)
our dealers and routinary inspection of the
equipment loaned by the company" (t.s.n.,
107); "we merely inquire about how the
equipments are, whether they have
complaint, and whether if said equipments
are in proper order . . .", (t.s.n., 110); station
equipments are "loaned for the exclusive use
of the dealer on condition that all supplies to
be sold by said dealer should be exclusively
Shell, so as a concession we loan equipments
for their use . . .," "for the proper functioning
of the equipments, we answer and see to it
that the equipments are in good running
order and usable condition . . .," "with
respect to the public." (t.s.n., 111-112). De la
Fuente, as operator, was given special prices
by the Company for the gasoline products
sold therein. Exhibit 1 Shell, which was a
receipt by Antonio Tiongson and signed by
De la Fuente, acknowledging the delivery of
equipments of the gasoline and service
station in question was subsequently
replaced by Exhibit 2 Shell, an official form
of the inventory of the equipment which De
la Fuente signed above the words: "Agent's
signature". And the service station in
question had been marked "SHELL, and all
advertisements therein bore the same sign. .
. .

. . . De la Fuente was the operator of
the station "by grace" of the Defendant
Company which could and did remove him as
it pleased; that all the equipments needed to
operate the station was owned by the
Defendant Company which took charge of
their proper care and maintenance, despite
the fact that they were loaned to him; that
the Defendant company did not leave the
fixing of price for gasoline to De la Fuente;
on the other hand, the Defendant company
had complete control thereof; and that
Tiongson, the sales representative of the
Defendant Company, had supervision over
De ka Fuente in the operation of the station,
and in the sale of Defendant Company's
products therein. . . .
Taking into consideration the facts that the
operator owed his position to the company and
the latter could remove him or terminate his
services at will; that the service station
belonged to the company and bore its
tradename and the operator sold only the
products of the company; that the equipment
used by the operator belonged to the company
and were just loaned to the operator and the
company took charge of their repair and
maintenance; that an employee of the company
supervised the operator and conducted
periodic inspection of the company's gasoline
and service station; that the price of the
products sold by the operator was fixed by the
company and not by the operator; and that he
was a mere agent, the finding of the Court of
Appeals that the operator was an agent of the
company and not an independent contractor
should be disturbed.
To determine the nature of a contract courts do
not have or are not bound to rely upon the name or
title give it by the contracting parties, should there be
a controversy as to what they really had intended to
enter into, but the way the contracting parties do or
perform their respective obligations stipulated or
agreed upon may be shown and inquired into, and
should such performance conflict with the name or
title given the contract by the parties, the former
must prevail over the latter.
It was admitted by the operator of the gasoline
and service station that "the car was carefully and
centrally placed on the platform of the lifter . . ." and
the Court of Appeals found that
. . . the fall of Appellant Sison's car
from the hydraulic lift and the damage
caused therefor, were the result of the
jerking and swaying of the lift when the valve
was released, and that the jerking was due to
some accident and unforeseen shortcoming
of the mechanism itself, which caused its
faulty or defective operation or functioning,
and that
. . . the servicing job on Appellant
Sison's automobile was accepted by De la
Fuente in the normal and ordinary conduct of
his business as operator of his co-appellees's
service station, and that the jerking and
swaying of the hydraulic lift which caused the
fall of the subject car were due to its
defective condition, resulting in its faulty
operation.
As the act of the agent or his employees
acting within the scope of his authority is the
act of the principal, the breach of the
undertaking by the agent is one for which the
principal is answerable. Moreover, the company
undertook to "answer and see to it that the
equipments are in good running order and usable
condition;" and the Court of Appeals found that the
Company's mechanic failed to make a thorough check
up of the hydraulic lifter and the check up made by its
mechanic was "merely routine" by raising "the lifter
once or twice and after observing that the operation
was satisfactory, he (the mechanic) left the place."
The latter was negligent and the company must
answer for the negligent act of its mechanic which
was the cause of the fall of the car from the hydraulic
lifter.
The judgment under review is affirmed, with costs
against the petitioner.
[G.R. No. 11491. August 23, 1918.]
ANDRES QUIROGA, plaintiff-appellant,
vs. PARSONS HARDWARE CO.,
defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B.
Azanza, for appellant.
Crossfield & O'Brien, for appellee.
SYLLABUS
1.SALES; INTERPRETATION OF CONTRACT.
For the classification of contracts, due regard must be
paid to their essential clauses. In the contract in the
instant case, what was essential, constituting its
cause and subject matter, was that the plaintiff was
to furnish the defendant with the beds which the
latter might order, at the stipulated price, and that
the defendant was to pay this price in the manner
agreed upon. These are precisely the essential
features of a contract of purchase and sale. There
was the obligation on the part of the plaintiff to
supply the beds, and, on that of the defendant, to
pay their price. These features exclude the legal
conception of an agency or older to sell whereby the
mandatary or agent receives the thing to sell it, and
does not pay its price, but delivers to the principal the
price he obtains from the sale of the thing to a third
person, and if he does not succeed in selling it, he
returns it, Held: That this contract is one of purchase
and sale, and not of commercial agency.
2.ID., ID. The testimony of the person who
drafted this contract, to the effect that his purpose
was to be an agent for the beds and to collect a
commission on the sales, is of no importance to prove
that the contract was one of agency, inasmuch as the
agreements contained in the contract constitute,
according to law, covenants of purchase and sale,
and not of commercial agency. It must be understood
that a contract is what the law defines it to be, and
not what it is called by the contracting parties.
3.ID.; ID. The fact that the contracting
parties did not perform the contract in accordance
with its terms, only shows mutual tolerance and gives
no right to have the contract considered, not as the
parties stipulated it, but as they performed it.
4.ID.; ID. Only the acts of the contracting
parties, subsequent to and in connection with, the
performance of the contract must be considered in
the interpretation of the contract when such
interpretation is necessary, but not when, as in the
instant case its essential agreements are clearly set
forth and plainly show that the contract belongs to a
certain kind and not to another
5.ID.; ID. The defendant obligated itself to
order the beds from the plaintiff by the dozen. Held:
That the effect of a breach of this clause by the
defendant would only entitle the plaintiff to disregard
the orders which the defendant might place under
other conditions, but if the plaintiff consents to fill
them, he waives his right and cannot complain for
having acted thus at his own free will.
D E C I S I O N
AVANCEA, J p:
On January 24, 1911, in this city of Manila, a
contract in the following tenor was entered into by
and between the plaintiff, as party of the first part,
and J. Parsons (to whose rights and obligations the
present defendant later subrogated itself), as party of
the second part:
CONTRACT EXECUTED BY AND
BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS ESTABLISHED
IN MANILA FOR THE EXCLUSIVE SALE OF
QUIROGA BEDS IN THE VISAYAN ISLANDS.
"ARTICLE 1.Don Andres Quiroga
grants the exclusive right to sell his beds in
the Visayan Islands to J. Parsons under the
following conditions:
"(A)Mr. Quiroga shall furnish beds of
his manufacture to Mr. Parsons for the
latter's establishment in Iloilo, and shall
invoice them at the same price he has fixed
for sales, in Manila, and, in the invoices, shall
make an allowance of a discount of 25 per
cent of the invoiced prices, as commission on
the sales; and Mr. Parsons shall order the
beds by the dozen, whether of the same or
of different styles.
"(B)Mr. Parsons binds himself to pay
Mr. Quiroga for the beds received, within a
period of sixty days from the date of their
shipment.
"(C)The expenses for transportation
and shipment shall be borne by M. Quiroga,
and the freight, insurance, and cost of
unloading from the vessel at the point where
the beds are received, shall be paid by Mr.
Parsons.
"(D)If, before an invoice falls due, Mr.
Quiroga should request its payment, said
payment when made shall be considered as a
prompt payment, and as such a deduction of
2 per cent shall be made from the amount of
the invoice.
"The same discount shall be made on
the amount of any invoice which Mr. Parsons
may deem convenient to pay in cash.
"(E)Mr. Quiroga binds himself to give
notice at least fifteen days before hand of
any alteration in price which he may plan to
make in respect to his beds, and agrees that
if on the date when such alteration takes
effect he should have any order pending to
be served to Mr. Parsons, such order shall
enjoy the advantage of the alteration if the
price thereby be lowered, but shall not be
affected by said alteration if the price thereby
be increased, for, in this latter case, Mr.
Quiroga assumed the obligation to invoice
the beds at the price at which the order was
given.
"(F)Mr. Parsons binds himself not to
sell any other kind except the 'Quiroga' beds.
"ART. 2.In compensation for the
expenses of advertisement which, for the
benefit of both contracting parties, Mr.
Parsons may find himself obliged to make,
Mr. Quiroga assumes the obligation to offer
and give the preference to Mr. Parsons in
case anyone should apply for the exclusive
agency for any island not comprised within
the Visayan group.
"ART. 3.Mr. Parsons may sell, or
establish branches of his agency for the sale
of 'Quiroga' beds in all the towns of the
Archipelago where there are no exclusive
agents, and shall immediately report such
action to Mr. Quiroga for his approval.
"ART. 4.This contract is made for an
unlimited period, and may be terminated by
either of the contracting parties on a previous
notice of ninety days to the other party "
Of the three causes of action alleged by the
plaintiff in his complaint, only two of them constitute
the subject matter of this appeal and both
substantially amount to the averment that the
defendant violated the following obligations: not to
sell the beds at higher prices than those of the
invoices; to have an open establishment in Iloilo;
itself to conduct the agency; to keep the beds on
public exhibition, and to pay for the advertisement
expenses for the same; and to order the beds by the
dozen and in no other manner. As may be seen, with
the exception of the obligation on the part of the
defendant to order the beds by the dozen and in no
other manner, none of the obligations imputed to the
defendant in the two causes of action are expressly
set forth in the contract. But the plaintiff alleged that
the defendant was his agent for the sale of his beds
in Iloilo, and that said obligations are implied in a
contract of commercial agency. The whole question,
therefore, reduces itself to a determination as to
whether the defendant, by reason of the
contract hereinbefore transcribed, was a
purchaser or an agent of the plaintiff for the
sale of his beds.
In order to classify a contract, due regard must
be given to its essential clauses. In the contract in
question, what was essential, as constituting its cause
and subject matter, is that the plaintiff was to furnish
the defendant with the beds which the latter might
order, at the price stipulated) and that the defendant
was to pay the price in the manner stipulated. The
price agreed upon was the one determined by the
plaintiff for the sale of these beds in Manila, with a
discount of from 20 to 25 per cent, according to their
class. Payment was to be made at the end of sixty
days, or before, at the plaintiff's request, or in cash, if
the defendant so preferred, and in these last two
cases an additional discount was to be allowed for
prompt payment. These are precisely the essential
features of a contract of purchase and sale.
There was the obligation on the part of the
plaintiff to supply the beds, and, on the part of
the defendant, to pay their price. These
features exclude the legal conception of an
agency or order to sell whereby the mandatory
or agent received the thing to sell it, and does
not pay its price, but delivers to the principal
the price he obtains from the sale of the thing
to a third person, and if he does not succeed in
selling it, he returns it. By virtue of the contract
between the plaintiff and the defendant, the
latter, on receiving the beds, was necessarily
obliged to pay their price within the term fixed,
without any other consideration and regardless
as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the
contract by and between the defendant and the
plaintiff is one of purchase and sale, in order to show
that it was not one made on the basis of a
commission on sales, as the plaintiff claims it was, for
these contracts are incompatible with each other. But,
besides, examining the clauses of this contract, none
of them is found that substantially supports the
plaintiff's contention. Not a single one of these
clauses necessarily conveys the idea of an agency.
The words commission on sales used in clause (A) of
article 1 mean nothing else, as stated in the contract
itself, than a mere discount on the invoice price. The
word agency, also used in articles 2 and 3, only
expresses that the defendant was the only one that
could sell the plaintiff's beds in the Visayan Islands.
With regard to the remaining clauses, the least that
can be said is that they are not incompatible with the
contract of purchase and sale.
The plaintiff calls attention to the testimony of
Ernesto Vidal, a former vice-president of the
defendant corporation and who established and
managed the latter's business in Iloilo. It appears that
this witness, prior to the time of his testimony, had
serious trouble with the defendant, had maintained a
civil suit against it, and had even accused one of its
partners, Guillermo Parsons, of falsification. He
testified that it was he who drafted the contract
Exhibit A, and when questioned as to what was his
purpose in contracting with the plaintiff, replied that it
was to be an agent for his beds and to collect a
commission on sales. However, according to the
defendant's evidence, it was Mariano Lopez Santos, a
director of the corporation, who prepared Exhibit A.
But, even supposing that Ernesto Vidal has stated the
truth, his statement as to what was his idea in
contracting with the plaintiff is of no importance,
inasmuch as the agreements contained in Exhibit A
which he claims to have drafted, constitute, as we
have said, a contract of purchase and sale, and not
one of commercial agency. This only means that
Ernesto Vidal was mistaken in his classification of the
contract. But it must be understood that a contract is
what the law defines it to be, and not what it is called
by the contracting parties.

The plaintiff also endeavored to prove that the
defendant had returned beds that it could not sell;
that, without previous notice, it forwarded to the
defendant the beds that it wanted; and that the
defendant received its commission for the beds sold
by the plaintiff directly to persons in Iloilo. But all this,
at the most only shows that, on the part of both of
them, there was mutual tolerance in the performance
of the contract in disregard of its terms; and it gives
no right to have the contract considered, not as the
parties stipulated it, but as they performed it. Only
the acts of the contracting parties, subsequent to,
and in connection with, the execution of the contract,
must be considered for the purpose interpreting the
contract, when such interpretation is necessary, but
not when, as in the instant case, its essential
agreements are clearly set forth and plainly show that
the contract belongs to a certain kind and not to
another. Furthermore, the return made was of certain
brass beds, and was not effected in exchange for the
price paid for them, but was for other beds of another
kind; and for the purpose of making this return, the
defendant, in its letter Exhibit L-1, requested the
plaintiff's prior consent with respect to said beds,
which shows that it was not considered that the
defendant had a right, by virtue of the contract, to
make this return. As regards the shipment of beds
without previous notice, it is insinuated in the record
that these brass beds were precisely the ones so
shipped, and that, for this very reason, the plaintiff
agreed to their return. And with respect to the so-
called commissions, we have said that they merely
constituted a discount on the invoice price, and the
reason for applying this benefit to the beds sold
directly by the plaintiff to persons in Iloilo was
because, as the defendant obligated itself in the
contract to incur the expenses of advertisement of
the plaintiff's beds, such sales were to be considered
as a result of that advertisement.
In respect to the defendant's obligation to
order by the dozen, the only one expressly imposed
by the contract, the effect of its breach would only
entitle the plaintiff to disregard the orders which the
defendant might place under other conditions; but if
the plaintiff consents to fill them, he waives his right
and cannot complain for having acted thus at his own
free will.
For the foregoing reasons, we are of opinion that the
contract by and between the plaintiff and the defendant
was one of purchase and sale, and that the obligations
the breach of which is alleged as a cause of action are
not imposed upon the defendant, either by agreement or
by law. The judgment appealed from is affirmed, with
costs against the appellant. So ordered.
[G.R. No. 47538. June 20, 1941.]
GONZALO PUYAT & SONS, INC.,
petitioner, vs. ARCO AMUSEMENT
COMPANY (formerly known as Teatro
Arco), respondent.
Feria & La O for petitioner.
J. W. Ferrier and Daniel Me. Gomez for
respondent.
SYLLABUS
CONTRACTS; PURCHASE AND SALE;
INTERPRETATION. The contract is the law
between the parties and should include all the things
they are supposed to have been agreed upon. What
does not appear on the face of the contract should be
regarded merely as "dealers" or "traders talk", which
can not bind either party. (Nolbrook v. Conner, 56
So., 576; 11 Am. Rep., 212; Bank v. Brosscell, 120
Ill., 161; Bank v. Palmer, 47 Ill., 92; Hosser v.
Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass.,
411.) The letters, Exhibits 1 and 2, by which the
respondent accepted the prices of $1,700 and $1,600,
respectively, for the sound reproducing equipment
subject of its contract with the petitioner, are clear in
their terms and admint of no other interpretation than
that the respondent agreed to purchase from the
petitioner the equipment in question at the prices
indicated which are fixed and determinate. The
respondent admitted in its complaint filed with the
Court of First Instance of Manila that the petitioner
agreed to sell to it the first sound reproducing
equipment and machinery.
D E C I S I O N
LAUREL, J p:
This is a petition for the issuance of a writ of
certiorari to the Court of Appeals for the purpose of
reviewing its decision in civil case G. R. No. 1023,
entitled "Arco Amusement Company (formerly known
as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat
and Sons, Inc., defendant-appellee."
It appears that the respondent herein brought
an action against the herein petitioner in the Court of
First Instance of Manila to secure a reimbursement of
certain amounts allegedly overpaid by its on account
of the purchase price of sound reproducing
equipment and machinery ordered by the petitioner
from the Starr Piano Company of Richmond, Indiana,
U. S. A. The facts are the case as found by the trial
court and confirmed by the appellate court, which are
admitted by the respondent, are as follows:
"In the year 1929, the 'Teatro Arco', a
corporation duly organized under the laws of
the Philippine Islands, with its office in
Manila, was engaged in the business of
operating cinematographs. In 1930, its name
was changed to Arco Amusement Company.
C. S. Salmon was the president, while A. B.
Coulette was the business manager. About
the same time, Gonzalo Puyat & Sons, Inc.,
another corporation doing business in the
Philippine Islands, with office in Manila, in
addition to its other business, was acting as
exclusive agents in the Philippines for the
Starr Piano Company of Richmond, Indiana,
U. S. A. It would seem that this last company
dealt in cinematograph equipment and
machinery, and the Arco Amusement
Company desiring to equip its cinematograph
with sound reproducing devices, approached
Gonzalo Puyat & Sons, Inc., thru its then
president and acting manager, Gil Puyat, and
an employee named Santos. After some
negotiations, it was agreed between the
parties, that is to say, Salmon and Coulette
on one side, representing the plaintiff, and
Gil Puyat on the other, representing the
defendant, that the latter would, on behalf of
the plaintiff, order sound reproducing
equipment from the Star Piano Company and
that the plaintiff would pay the defendant, in
addition to the price of the equipment, a 10
per cent commission, plus all expenses, such
as, freight, insurance, banking charges,
cables, etc. At the expense of the plaintiff,
the defendant sent a cable, Exhibit '3', to the
Starr Piano Company, inquiring about the
equipment desired and making the said
company to quote its price of $1,700 f. o. b.
factory Richmond, Indiana. The defendant
did not show the plaintiff the cable of inquiry
nor the reply but merely informed the
plaintiff of the price of $1,700. Being
agreeable to this price, the plaintiff, by
means of Exhibit '1', which is a letter signed
by C. S. Salmon dated November 19, 1929,
formally authorized the order. The equipment
arrived about the end of the year 1929, and
upon delivery of the same to the plaintiff and
the presentation of necessary papers, the
price of $1,700, plus the 10 per cent
commission agreed upon the plus all the
expenses and charges, was duly paid by the
plaintiff to the defendant.
"Sometime the following year, and
after some negotiations between the same
parties, plaintiff and defendant, another
order for sound reproducing equipment was
placed by the plaintiff with the defendant, on
the same terms as the first order. This
agreement or order was confirmed by the
plaintiff by its letter Exhibit '2', without date,
that is to say, that the plaintiff would pay for
the equipment the amount of $1,600, which
was supposed to be the price quoted by the
Starr Piano Company, plus 10 per cent
commission, plus all expenses incurred. The
equipment under the second order arrived in
due time, and the defendant was duly paid
the price of $1,600 with its 10 per cent
commission, and $160, for all expenses and
charges. This amount of $160 does not
represent actual out-of-pocket expenses paid
by the defendant, but a mere flat charge and
rough estimate made by the defendant
equivalent to 10 per cent of the price of
$1,600 of the equipment.
"About three years later, in connection
with a civil case in Vigan, filed by one Fidel
Reyes against the defendant herein Gonzalo
Puyat & Sons, Inc., the officials of the Arco
Amusement Company discovered that the
price quoted to them by the defendant with
regard to their two order above mentioned
was not the net price but rather the list price,
and that the defendant had obtained a
discount from the Starr Piano Company.
Moreover, by reading reviews and literature
on prices of machinery and cinematograph
equipment, said officials of the plaintiff were
convinced that the prices charged them by
the defendant were much too high including
the charges for out-of-pocket expenses. For
these reasons, they sought to obtain a
reduction from the defendant or rather a
reimbursement, and failing in this they
brought the present action."
The trial court held that the contract between
the petitioner and the respondent was one of the
outright purchase and sale, and absolved that
petitioner from the complaint. The appellate court,
however, by a division of four, with one justice
dissenting held that the relation between petitioner
and respondent was that of agent and principal, the
petitioner acting as agent of the respondent in the
purchase of the equipment in question, and
sentenced the petitioner to pay the respondent
alleged overpayments in the total sum of $1,335.52
or P2,671.04, together with legal interest thereon
from the date of the filing of the complaint until said
amount is fully paid, as well as to pay the costs of the
suit in both instances. The appellate court further
argued that even if the contract between the
petitioner and the respondent was one of the
purchase and sale, the petitioner was guilty of fraud
in concealing the true price and hence would still be
liable to reimburse the respondent for the
overpayments made by the latter.
The petitioner now claims that the following
errors have been incurred by the appellate court:
"I.El Tribunal de Apelaciones incurrio
en error de derecho al declarer que, segun
hechos, entre la recurrente y la recurrida
existia una relacion implicita de mandataria a
mandante en la transaccion de que se trata,
en vez de la de vendedora a compradora
como ha declarado el Juzgado de Primera
Instancia de Manila, presidido entonces por
el hoy Magistrado Honorable Marceliano
Montemayor.
"II.El Tribunal de Apelaciones incurrio
en error de derecho al declarar que,
suponiendo que dicha relacion fuera de
vendedora a compradora, la recurrente
obtuvo, mediante dolo, el consentimiento de
la recurrida en cuanto al precio de $1,700 y
$1,600 de las maquinarias y equipos en
cuestion, y condenar a la recurrente a
devolver ala recurrida la diferencia o
descuento de 25 por ciento que la recurrente
la diferencia o descuento de 25 por ciento
que la recurrente ha obtenido de la Starr
Piano Company of Richmond, Indiana."
We sustain the theory of the trial court
that the contract between the petitioner and
the respondent was one of purchase and sale,
and not one of agency, for the reasons now to
be stated.
In the first place, the contract is the law
between the parties and should include all the things
they are supposed to have been agreed upon. What
does not appear on the face of the contract should be
regarded merely as "dealer's" or "trader's talk", which
can not bind either party. (Nolbrook v. Conner, 56
So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120
Ill., 161; Bank v. Palmer, 47 Ill., 92; Hosser v.
Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass.,
411.) The letters, Exhibits 1 and 2, which the
respondent accepted the prices of $1,700 and $1,600,
respectively, for the sound reproducing equipment
subject of its contract with the petitioner, are clear in
their terms and admit of no other interpretation than
that the respondent agreed to purchase from the
petitioner the equipment in question at the prices
indicated which are fixed and determinate. The
respondent admitted in its complaint filed with the
Court of First Instance of Manila that the petitioner
agreed to sell to it the first sound reproducing
equipment and machinery. The third paragraph of the
respondent's cause of action states:
"3.That on or about November 19,
1929, the herein plaintiff (respondent) and
defendant (petitioner) entered into an
agreement, under and by virtue of which the
herein defendant was to secure from the
United States, and sell and deliver to the
herein plaintiff, certain sound reproducing
equipment and machinery, for which the said
defendant, under and by virtue of said
agreement, was to receive the actual cost
price plus ten per cent (10%), and was also
to be reimbursed for all out of pocket
expenses in connection with the purchase
and delivery of such equipment, such as
costs of telegrams, freight, and similar
expenses." (Italics ours.)

We agree with the trial judge that "whatever
unforseen events might have taken place unfavorable
to the defendant (petitioner), such as change in
prices, mistake in their quotation, loss of the goods
not covered by insurance or failure of the Starr Piano
Company to properly fill the orders as per
specifications, the plaintiff (respondent) might still
legally hold the defendant (petitioner) to the prices
fixed of $1,700 and $1,600." This is incompatible with
the pretended relation of agency between the
petitioner and the respondent, because in agency, the
agent is exempted from all liability in the discharge of
his commission provided he acts in accordance with
the instructions received from his principal (section
254, Code of Commerce), and the principal must
indemnify the agent for all damages which the latter
may incur in carrying out the agency without fault or
imprudence on his part (article 1729, Civil Code).
While the letters, Exhibits 1 and 2, state that
the petitioner was to receive ten per cent (10%)
commission, this does not necessarily make the
petitioner an agent of the respondent, as this
provision is only an additional price which the
respondent bound itself to pay, and which stipulation
is not incompatible with the contract of purchase and
sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil.,
501.)
In the second place, to hold the petitioner an
agent of the respondent in the purchase of equipment
and machinery from the Starr Piano Company of
Richmond, Indiana, is incompatible with the admitted
fact that the petitioner is the exclusive agent of the
same company in the Philippines. It is out of the
ordinary for one to be the agent of both the vendor
and the purchaser. The facts and circumstances
indicated to not point to anything but plain ordinary
transaction where the respondent enters into a
contract transaction where the respondent enters into
a contract of purchase and sale with the petitioner,
the latter as exclusive agent of the Starr Piano
Company in the United States.
It follows that the petitioner as vendor is
not bound to reimburse the respondent as
vendee for any difference between the cost
price and the sales price which represents the
profit realized by the vendor out of the
transaction. This is the very essence of
commerce without which merchants or
middleman would not exist.
The respondent contends that it merely agreed
to pay the cost price as distinguished from the list
price, plus ten per cent (10%) commission and all
out-of-pocket expenses incurred by the petitioner.
The distinction which the respondent seeks to draw
between the cost price and the list price we consider
to be spacious. It is to be observed that the twenty-
five per cent (25%) discount granted by the Starr
Piano Company to the petitioner is available only to
the latter as the former's exclusive agent in the
Philippines. The respondent could not have secured
this discount from the Starr Piano Company and
neither was the petitioner willing to waive that
discount in favor of the respondent. As a matter of
fact, no reason is advanced by the respondent why
the petitioner should waive the 25 per cent discount
granted it by the Starr Piano Company is exchange
for the 10 per cent commission offered by the
respondent. Moreover, the petitioner was not duty
bound to reveal the private arrangement it had with
the Starr Piano Company relative to such discount to
its prospective customers, and the respondent was
not even aware of such an arrangement. The
respondent, therefore, could not have offered to pay
a 10 per cent commission to the petitioner provided it
was given the benefit of the 25 per cent discount
enjoyed by the petitioner. It is well known that local
dealers acting as agents of foreign manufacturers,
aside from obtaining a discount from the home office,
sometimes add to the list price when they resell to
local purchasers. It was apparently to guard against
an exhorbitant additional price that the respondent
sought to limit it to 10 per cent, and the respondent
is estopped from questioning that additional price. If
the respondent later on discovers itself at the short
end of a bad bargain. it alone must bear the blame,
and it cannot rescind the contract, much less compel
a reimbursement of the excess price, on that ground
alone. The respondent could not secure equipment
and machinery manufactured by the Starr Piano
Company except from the petitioner alone; it willingly
paid the price quoted; it received the equipment and
machinery as represented; and that was the end of
the matter as far as the respondent was concerned.
The fact that the petitioner obtained more or less
profit than the respondent calculated before entering
into the contract of purchase and sale, is no ground
for rescinding the contract of purchase and sale, is no
ground for rescinding the contract or reducing the
price agreed upon between the petitioner and the
respondent. Not every concealment is fraud; and
short of fraud, it were better that, within certain
limits, business acumen permit of the loosening of the
sleeves and of the sharpening of the intellect of men
and women in the business world.
The writ of certiorari should be, as it is hereby, granted.
The decision of the appellate court is accordingly
reversed and the petitioner is absolved from the
respondent's complaint in G. R. No. 1023, entitled "Arco
Amusement Company (formerly known as Teatro Arco),
plaintiff-appellant, vs. Gonzalo Puyat and Sons, Inc.,
defendant-appellee," without pronouncement regarding
costs. So ordered.
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.



[G.R. No. 5486. August 17, 1910.]
JOSE DE LA PEA Y DE RAMON,
plaintiff-appellant, vs. FEDERICO
HIDALGO, defendant-appellant.
O'Brien & DeWitt, for plaintiff and appellant.
E. Gutierrez Repide, for defendant and appellant.
SYLLABUS
1.AGENCY; ADMINISTRATION OF PROPERTY;
IMPLIED AGENCY. When the agent and
administrator of property informs his principal
by letter that for reasons of health and medical
treatment he is about to depart from the place
where he is executing his trust and wherein the
said property is situated, and abandons the
property, turns it over to a third party, renders
accounts of its revenues up to the date on
which he ceases to hold his position and
transmits to his principal a general statement
which summarizes and embraces all the
balances of his accounts since he began the
administration to the date of the termination of
his trust, and, without stating when he may
return to take charge of the administration of
the said property, asks his principal to execute
a power of attorney in due form in favor of and
transmit the same to another person who took
charge of the administration of the said
property, it is but reasonable and just to
conclude that the said agent had expressly and
definitely renounced his agency and that such
agency was duly terminated, in accordance
with the provisions of article 1732 of the Civil
Code, and, although the agent in his
aforementioned letter did not use the word
"renouncing the agency," yet such words were
undoubty so understood and accepted by the
principal, because of the lapse of nearly nine
years up to the time of the latter's death,
without his having interrogated either the
renouncing agent, disapproving what he had
done, or the person who substituted the latter.
2.ID.; ID.; ID. The person who took
charge of the administration of property
without express authorization and without a
power of attorney executed by the owner
thereof, and performed the duties of his office
without opposition or absolute prohibition on
the owner's part, expressly communicated to
the said person, is concluded to have
administered the said property by virtue of an
implied agency, in accordance with the
provision of article 1710 of the Civil Code, since
the said owner of the property, knowing
perfectly well that the said person took charge
of the administration of the same, through
designation by such owner's former agent who
had to absent himself from the place for well-
founded reasons, remained silent for nearly
nine years. Although he did not sent a new
power of attorney to the said person who took
charge of his property, the fact remains that,
during the period stated, he neither opposed
nor prohibited the new agent with respect to
the administration, nor did he appoint another
person in his confidence; wherefore it must be
concluded that this new agent acted by virtue
of an implied agency, equivalent to a legitimate
agency, tacitly conferred by the owner of the
property administered.
3.ID.; ID.; ID. It is improper to compare the
case where the owner of the property is unaware of
the officious management of a third party in the
former's interest, with the case where, having perfect
knowledge that his interests and property were so
being managed and administered, he did not object,
but in fact consented to such management and
administration for many years; for the reason that an
administration by virtue of a implied agency derives
its origin from a contract, and the management of
another's business without the knowledge of the
owner thereof, is based solely on a quasi-contract a
distinction sanctioned by the jurisprudence
established by the supreme court of Spain in its
decision of July 7, 1881.
4.ID.; ID.; ID. The agent and
administrator who was obliged to leave his
charge for a legitimate cause and who duly
informed his principal, is thenceforward
released and freed from the results and
consequences of the management of the
person who substituted him with the consent,
even tacit though it be, of his principal. For this
reason, the latter has no right to claim damages
against his former agent whose conduct was in
accordance with the provisions of article 1736 of the
Civil Code, for the care of the property and interests
of another can not require that the agent make the
sacrifice of his health, of his life, and of his own
interests, it having been shown that it was impossible
for the latter to continue in the discharge of his
duties.
5.ID.; ID.; ID.; LIABILITY OF
ADMINISTRATOR. The administrator is only
responsible for the result and consequences of his
administration during the period when he had
charged of his principal's property. His responsibility
can not held to extend beyond the period of his
administration, especially as the representative of the
estate succession of the deceased owner of the
property administered, after an examination of the
accounts already rendered, issued in his favor an
instrument whereby he acknowledges that the said
administration was satisfactorily terminated.
6.ID.; ID.; ID.; ACCOUNTING; PAYMENT. It
is not sufficient that the agent shall have rendered a
satisfactory accounting; in addition thereto it is
indispensable that he pay to his principal, or to the
owner of the property administered, any balance
shown by such accounts.
7.DEBTS AND DEBTORS; INTEREST.
According to the provision of article 1755 of the Civil
Code, interest shall be owed only when it has been
expressly stipulated, and article 1108 of the same
code provides that should the debtor, who is obliged
to pay a certain sum of money, be in default and fail
to fulfill the agreement made with his creditor, he
must pay, as indemnity for losses and damages,
should there be no stipulation to the contrary, the
interest agreed upon, and should there be no express
stipulation, the legal interest; but, in order that the
debtor may be considered to be in default and obliged
to pay such indemnity it is necessary, as a general
rule, and his creditor demand of him fulfillment of his
obligation, judicially or extrajudicially, except in such
cases as are limitedly specified in article 1100 of the
aforesaid code.
D E C I S I O N
TORRES, J p:
On May 23, 1906, Jose de la Pea y de Ramon,
and Vicenta de Ramon, in her own behalf and as the
legal guardina of her son Roberto de la Pea, filed in
the Court of First Instance of Manila a written
complaint against Federico Hidalgo, Antonio Hidalgo,
and Francisco Hidalgo, and, after the said complaint,
already amended, had been answered by the
defendants Antonio and Francisco Hidalgo, and the
other defendant, Federico Hidalgo, had moved for the
dismissal of this complaint, the plaintiff, Jose de la
Pea y de Ramon, as the judicial administrator of the
estate of the deceased Jose de la Pea Gomiz, with
the consent of the court filed a second amended
complaint prosecuting his action solely against
Fedirico Hidalgo, who answered the same in writing
on the 21st of May and at the same time filed a
counterclaim, which was also answered by the
defendant.
On October 22, 1907, the case was brought up
for hearing and oral testimony was adduced by both
parties, the exhibits introduced being attached to the
record. In view of such testimony and of documentary
evidence, the court, on March 24, 1908, rendered
judgment in favor of the plaintiff-administrator for the
sum of P13,606.19 and legal interest from the date of
the filing of the complaint on May 24, 1906, and the
costs of the trial.
Both the plaintiff and the defendant filed notice
of appeal from this judgment and also asked for the
annulment of the same and for a new trial, on the
ground that the evidence did not justify the said
judgment and that the latter was contrary to law. The
defendant, on April 1, 1908, presented a written
motion for a new hearing, alleging the discovery of
new evidence favorable to him and which would
necessarily influence the decision of this litigation,
and that he was unable to discover such evidence or
to introduce it at the trial of the case, notwithstanding
the fact that he had used all due diligence. His
petition was accompanied by affidavits from Attorney
Eduardo Gutierrez Repide and Federico Hidalgo, and
was granted by order of the court of the 4th of April.
At this stage of the proceedings and on August
10, 1908, the plaintiff Pea y De Ramon filed a third
amended complaint, with the permission of the court,
alleging, among other things, as a first cause of
action, that during the period of time from
November 12, 1887, to January 7, 1904, when
Federico Hidalgo has possession of and administered
the following properties; to wit; one house and lot at
No. 48 Calle, San Luis; another house and lot at No. 6
Calle Cortoda; another house and lot at No. 56 Calle
San Luis, and a fenced lot on the same street, all of
the district of Ermita, and another house and lot at
No. 81 Calle Looban de Paco, belonging to his
principal, Jose de la Pea y Gomiz, according to the
power of attorney executed in his favor and exhibited
with the complaint under letter A, the defendant, as
such agent, amounting to P50,244, which sum,
collected in partial amounts and on different dates, he
should have deposited, in accordance with the verbal
agreement between the deceased and himself, the
defendant, in the general treasure of the Spanish
Government at an interest of 5 per cent per annum,
which interest on accrual was likewise to be deposited
in order that it also might bear interest; that the
defendant did not remit or pay to Jose de la Pea y
Gomiz, during the latter's lifetime, nor to any
representative of the said De la Pea Gomiz, the sum
aforestated nor any part thereof, with the sole
exception of P1,289.03, nor has he deposited the
unpaid balance of the said sum in the treasury,
according to agreement, wherefore he has become
liable to his principal and to the defendant-
administrator for the said sum, together with its
interest, which amounts to P72,548.24 and that,
whereas the defendant has not paid over all nor any
part for the last-mentioned sum, he is liable for the
same, as well as for the interest thereon at 6 per cent
per annum from the time of the filing of the
complaint, and for the costs of the suit.

In the said amended complaint, the plaintiff
alleged as a second cause of action: that on
December 9, 1887, Gonzalo Tuason deposited in the
general treasury of the Spanish Government, to the
credit of Pea y Gomiz, the sum of 6,360 pesos, at 5
per cent interest per annum, and on December 20,
1888, the defendant, as the agent of Pea y Gomiz,
withdrew the said amount with its interest, that is,
6,751.60 pesos, and disposed of the same for his own
use and benefit, without having paid all or any part of
the said sum to Pea y Gomiz, or to the plaintiff after
the latter's death, notwithstanding the demands made
upon him: wherefore the defendant now owes the
said sum of 6,751.60 pesos, with interest at the rate
of 5 per cent per annum, compounded annually, from
the 20th of December, 1888, to the time of the filing
of this complaint, and from the latter date at 6 per
cent, in accordance with law.
The complaint recites as a third cause of
action; that, on or about November 25, 1887,
defendant's principal, Pea y Gomiz, on his voyage to
Spain, remitted from Singapore, one of the ports of
call, to Father Ramon Caviedas, a Franciscan friar
residing in this city, the sum of 6,000 pesos with the
request to deliver the same, which he did, to
defendant, who, on receiving this money,
appropriated it to himself and converted it to his own
use and benefit, since he only remitted to Pea y
Gomiz in Spain, by draft, 737.24 pesos, on December
20, 1888; and, later, on December 21, 1889, he
likewise remitted by another draft 860 pesos, without
having returned or paid the balance of the said sum,
notwithstanding the demands made upon him so to
do: wherefore the defendant owes to the plaintiff, for
the third cause of action, the sum of P4,402.76, with
interest at the rate of 5 per cent per annum,
compounded yearly, to the time of the filing of the
complaint and with interest at 6 per cent from that
date, as provided by law.
As a fourth cause of action the plaintiff
alleges that, on or about January 23, 1904, on his
arrival from Spain and without having any knowledge
or information of the true condition of affairs relative
to the property of the deceased Pea y Gomiz and its
administration, he delivered and paid to the
defendant at his request the sum of P2,000, derived
from the property of the deceased, which sum the
defendant has not returned notwithstanding the
demands made upon him so to do.
Wherefore the plaintiff petitions the court to
render judgment sentencing the defendant to pay, as
the first cause of action, the sum of P72,548.24, with
interest thereon at the rate of 6 per cent per annum
from May 24, 1906, the date of the filing of the
complaint, and the costs; as as second cause of
action, the sum of P15,774.19, with interest at the
rate of 6 per cent per annum from the said date of
the filing of the complaint, and cost; as a third cause
of action, P9,811.13, with interest from the aforesaid
date, and costs; and, finally, as a forth cause of
action, he prays that the defendant be sentenced to
refund to sum of P2,000, with interest thereon at the
rate of 6 per cent annum from the 23d of January,
1904, and to pay the costs of trial.
The defendant, Federico Hidalgo, in his answer
to the third amended complaint, sets forth: That he
admits the second, third, and fourth allegations
contained in the first, second, third, and fourth causes
of actions, and denies generally and specifically each
one and all of the allegations contained in the
complaint, with the exception of those expressly
admitted in his answer; that, as a special defense
against the first cause of action, he, the defendant,
alleges that on November 18, 1887, by virtue of the
power conferred upon him by Pea y Gomiz, he took
charge of the administration of the latter's property
and administered the same until December 31, 1893,
when for reasons of health he ceased to discharge
the duties of said position; that during the years
1889, 1890, 1892, and 1892, the defendant
continually by letter requested Pea y Gomiz, his
principal, to appoint a person to substitute him in the
administration of the latter's property, inasmuch as
the defendant, for reasons of health, was unable to
continue in his trust; that, on March 22, 1894, the
defendant Federico Hidalgo, because of serious
illness, was absolutely obliged to leave these Islands
and embarked on the steamer Isla de Luzon for
Spain, on which date the defendant notified his
principal that, for the reason aforestated, he had
renounced his powers and turned over the
administration of his property to Antonio Hidalgo, to
whom he should transmit a power of attorney for the
fulfillment, in due form, of the trust that the
defendant had been discharging since January 1,
1894, or else execute a power of attorney in favor of
such other person as he might deem proper;
That prior to the said date of March 22, the
defendant came, rendered accounts to his principals,
and on the date when he embarked for Spain
rendered the accounts pertaining to the years 1892
and 1893, which were those that yet remained to be
forwarded, and transmitted to him a general
statement of accounts embracing the period from
November 18, 1887, to December 31, 1893, with a
balance of 6,774.50 pesos in favor of Pea y Gomiz,
which remained in the control of the acting
administrator, Antonio Hidalgo; that from the 22d of
March, 1894, when the defendant left these Islands,
to the date of his answer to the said complaint, he
has not again intervened nor taken any part directly
or indirectly in the administration of the property of
Pea y Gomiz, the latter's administrator by express
authorization having been Antonio Hidalgo, from
January 1, 1894, to October, 1902, who, on this latter
date, delegated his powers to Francisco Hidalgo, who
in turn administered the said property until January 7,
1904; that the defendant, notwithstanding his having
rendered, in 1894, all his accounts to Jose Pea y
Gomiz, again rendered to the plaintiff in 1904 those
pertaining to the period from 1887 to December 31,
1893, which accounts the plaintiff approved without
any protest whatever and received to his entire
satisfaction the balance due and the vouchers and
documents relating to the defendant the proper
acquittances therefor.
As a special defense to the second cause of
action, the defendant alleged that, on December 9,
1886, Jose de la Pea y Gomiz himself deposited in
the caja general de depositos (General Deposit Bank)
the sum of 6,000 pesos, at 6 per cent interest for the
term of one year, in two deposit receipts of 3,000
pesos each, which two deposit receipts, with the
interest accrued thereon, amounted to 6,360 pesos,
and were collected by Gonzalo Tuason, through
indorsement by Pea y Gomiz, on December 9, 1887,
and on deposited the said sum of 6,360 pesos in the
General Deposits Bank, at the same rate of interest,
for the term of one year and in two deposit receipts
of 3,180 pesos each, registered under Nos. 1336 and
1337; that, on December 20, 1888, Father Ramon
Caviedas, a Franciscan friar, delivered to the
defendant, Federico Hidalgo, by order of De la Pea y
Gomiz, the said two deposit receipts with the request
to collect the interest due thereon viz., 741.60 pesos
and to remit it by draft on London, drawn in favor of
De la Pea y Gomiz, to deposit again the 6,000 pesos
in the said General Deposit Banks, for one year, in a
single deposit, and in the latters, name, and to deliver
to him, the said Father Caviedas, the corresponding
deposit receipt and the draft on London for their
transmittal to Pea y Gomiz: all of which was
performed by the defendant who acquired the said
draft in favor of De la Pea y Gomiz from the
Chartered Bank of India, Australia and China, on
December 20, 1888, and delivered the draft, together
with the receipt from the General Deposit Bank, to
Father Caviedas, and on the same date, by letter,
notified Pea y Gomiz of the transactions executed;
that on December 20, 1889, the said Father Ramon
Caviedas delivered to the defendant, Federico
Hidalgo, by order of Pea y Gomiz, the aforesaid
deposit receipt from the General Deposit Bank, with
the request to remit, in favor of his constituent, the
interest thereon, amounting to 360 pesos, besides
500 pesos of the capital, that is 860 pesos in all, and
to again deposit the rest, 5,500 pesos, in the General
Deposit Bank for another year in Pea y Gomiz's own
name, and to deliver to Father Cavieda the deposit
receipt and the draft on London, for their transmittal
to his constituent; all of which the defendant did; he
against deposited the rest of the capital, 5,500 pesos,
in the General Deposit Bank, in the name of Pea y
Gomiz, for one year at 5 per cent interest, under
registry number 3,320, and obtained from the house
of J. M. Tuason & Co. a draft on London for 860
pesos in favor of Pea y Gomiz, on December 21,
1889, and thereupon delivered the said receipt and
draft to Father Caviedas, of which acts, when
performed, the defendant advised Pea y Gomiz by
letter of December 24, 1889; and that, on December
20, 1890, the said Father Ramon Caviedas delivered
to the defendant, by order of Pea y Gomiz, the said
deposit receipt for 5,500 pesos with the request that
he withdraw from the General Deposit Bank the
capital and accrued interest, which amounted all
together to 5,775 pesos, and that he deliver this
amount to Father Caviedas, which he did, in order
that it might be remitted to Pea y Gomiz.
The defendant denies each of the allegations
contained in the third cause of action, and avers that
they are all false and calumnious.
He likewise makes a general and specific denial
of all the allegations of the fourth cause of action.
As a counterclaim the defendant alleges that
Jose Pea y Gomiz owed and had not paid the
defendant, up to the date of his death, the sum of
4,000 pesos, with interest at 6 per cent per annum,
and 3,600, without interest, the said capital and
interest amounting all together on January 15, 1904,
to 11,000 pesos, and on the plaintiff's being
presented with the receipt subscribed by his father,
Pea y Gomiz, on the said date of January 15th, and
evidencing his debt, plaintiff freely and voluntarily
offered to exchange for the said receipt another
document executed by him, and transcribed in the
complaint. Defendant further alleges that, up to the
date of his counterclaim, the plaintiff has not paid him
the said sum, with the exception of 2,000 pesos.
Wherefore the defendant prays the court to render
judgment absolving him from the complaint with the
costs against the plaintiff, and to adjudge that the
latter shall pay t o the defendant the sum of 9,000
pesos, which he still owes to defendant, with legal
interest thereon from the date of the counterclaim, to
wit, May 21, 1907, and to grant such other and
further relief as may be just and equitable.

On the 25th of September, 1908, and
subsequent dates, the new trial was held; oral
testimony was adduced by both parties, and the
documentary evidence was attached to the record of
the proceedings, which show that the defendant
objected and took exception to the introduction of
certain oral and documentary evidence produced by
the plaintiff. On February 26, 1909, the court in
deciding the case found that the defendant, Federico
Hidalgo, as administrator of the estate of the
deceased Pea y Gomiz, actually owed the plaintiff,
on the date of the filing of the complaint, the sum of
P37,084.93; that the plaintiff was not entitled to
recover any sum whatever from the defendant for the
alleged second, third, and fourth causes of action;
that the plaintiff actually owed the defendant, on the
filing of the complaint, the sum of P10,155, which the
defendant was entitled to deduct from the sum owing
by him to the plaintiff. Judgment was therefore
entered against the defendant, Federico Hidalgo, for
the payment of P26,629.93, with interest thereon at
the rate of 6 per cent annum from May 23, 1906, and
the costs of the trial.
Both parties filed written exceptions to this
judgment and asked, separately, for its annulment
and that a new trial be ordered, on the grounds that
the findings of fact contained in the judgment were
not supported nor justified by the evidence produced,
and because the said judgment was contrary to law,
the defendant stating in writing that his exception and
motion for a new trial referred exclusively to that part
of the judgment that was condemnatory to him. By
order of the 10th of April, 1909, the motions made by
both parties were denied, to which they excepted and
announced their intention to file their respective bills
of exceptions.
By a written motion of the 24th of March, 1909,
the plaintiff prayed for the execution of the said
judgment, and the defendant being informed thereof
solicited a suspension of the issuance of the
corresponding writ of execution until his motion for a
new trial should be decided or his bill of exceptions
for the appeal be approved, binding himself to give
such bond as the court might fix. The court,
therefore, by order of the 25th of the same month,
granted the suspension asked for, conditioned upon
the defendants giving a bond, fixed at P34,000 by
another order of the same date, to guarantee
compliance with the judgment rendered should it be
affirmed, or with any other decision that might be
rendered in the case by the Supreme Court. This
bond was furnished by the defendant on the 26th of
the same month.
On April 16 and May 4, 1909, the defendant
and the plaintiff filed their respective bills of
exceptions, which were certified to and approved by
order of May 8th and forwarded to the clerk of this
court.
Before proceedings to examine the disputed
facts and to make such legal findings as follow from a
consideration of the same and of the questions of law
to which such facts give rise, and for the purpose of
avoiding confusion and obtaining the greased
clearness and an easy comprehension of this decision,
it is indispensable to premise: First, that, as before
related, the original and first complaint filed by the
plaintiff was drawn against Federico Hidalgo, Antonio
Hidalgo, and Francisco Hidalgo, the three persons
who had successively administered the property of
Jose de la Pea y Gomiz, now deceased; but
afterwards the action was directed solely against
Federico Hidalgo, to the exclusion of the other
defendants, Antonio and Francisco Hidalgo, in the
second and third amended complaints, the latter of
the date of August 10, 1908, after the issuance by the
court of the order of April 4th of the same year,
granting the new trial solicited by the defendant on
his being notified of the ruling of the 24th of the
previous month of March; second, that the
administration of the property mentioned, from the
time its owner left these Islands and returned to
Spain, lasted from November 18, 1887, to January 7,
1904; and third, that, the administration of the said
Federico, Antonio, and Francisco Hidalgo, having
lasted so long, it is necessary to divide it into three
periods in order to fix the time during which they
respectively administered De la Pea's property:
During the first period, from November 18, 1887, to
December 31, 1893, the property of the absent Jose
de la Pea y Gomiz was administered by his agent,
Federico Hidalgo, under power of attorney; during the
second period, from January 1, 1894, to September,
1902, Antonio Hidalgo administered the said property,
and during the third period, from October, 1902, to
January 7, 1904, Francisco Hidalgo was its
administrator.
Before Jose de la Pea y Gomiz embarked for
Spain, on November 12, 1887, he executed before a
notary a power of attorney in favor of Federico
Hidalgo, Antonio L. Rocha, Francisco Roxas and Isidro
Llado, so that, as his agents, they might represent
him and administer, in the order in which they were
appointee, various properties he owned and
possessed in Manila. The first agent, Federico
Hidalgo, took charge of the administration of the said
property on the 18th of November, 1887.
After Federico Hidalgo had occupied the
position of agent and administrator of De la Pea's
property for several years, the former wrote to the
latter requisition him to designate a person who might
substitute him in his said position in the event of his
being obliged to absent himself from these Islands, as
one of those appointed in the said power of attorney
had died and the others did not wish to take charge
of the administration of their principal's property. The
defendant, Hidalgo, stated that his constituent, Pea
y Gomiz, did not even answer his letters, to approve
or object to the former's accounts, and did not
appoint or designate another person who might
substitute the defendant in his administration of his
constituent's property. These statements were neither
denied nor proven to be untrue by the plaintiff, Pea
y de Ramon, nor does the record show any evidence
tending to disapprove them, while it does show,
attached to the record and exhibited by the defendant
himself, several letters written by Hidalgo and
addresses to Pea y Gomiz, which prove the said
statements, and also a letter from the priest Pedro
Gomiz, a relative of the deceased Jose de la Pea y
Gomiz, addressed to Federico Hidalgo, telling the
latter that the writer had seen among the papers of
the deceased several letters from the agent, Federico
Hidalgo, in which the latter requested the designation
of a substitute, because he had to leave this country
for Spain, and also asked for the approval or
disapproval of the accounts of his administration
which had been transmitted to his constituent, Pea y
Gomiz.
For reasons of health and by order of his
physician, Federico Hidalgo was obliged, on March 22,
1894, to embark for Spain, and, on preparing for his
departure, he rendered the accounts of his
administration corresponding to the last quarters, up
to December 31, 1893, not a as yet transmitted, and
forwarded them to his constituent with a general
statement of all the partial balances, which amounted
to the sum total of 6,774.50 pesos, by letter of the
date of March 22, 1894, addressed to his principal,
Pea y Gomiz. In this letter the defendant informed
the latter of the writer's intended departure from this
country and of the and of this having provisionally
turned over the administration of the said property to
his cousin, Antonio Hidalgo, upon whom the writer
had conferred a general power of attorney, but
asking, in case that this was not sufficient, that Pea
send to Antonio Hidalgo a new power of attorney.
This notification is of the greatest importance in
the decision of this case. The plaintiff avers that he
found no such letter among his father's papers after
the latter's death, for which reason he did not have it
in his possession, but on introduction of a copy
thereof by the defendant at the trial, it was admitted
without objection by the plaintiff (p. 81 of the
record); wherefore, in spite of the denial of the
plaintiff and of his averment of his not having found
the said original among his father's papers, justice
demands that it be concluded that this letter of the
22d of March, 1894, was sent to, and was received by
Jose de la Pea y Gomiz, during his lifetime, for its
transmittal, with inclosure of the last partial accounts
of Federico Hidalgo's administration and of the
general resume of balances, being affirmed by the
defendant, the fact of the plaintiff's having found
among his deceased father's papers the said resume
which he exhibited at the trial, shows conclusively
that it was received by the deceased, as well as the
letter of transmittal of the 22d of March, 1894, one of
the several letters written by Hidalgo, which the said
priest, Father Gomiz, affirms that he saw among the
papers of the deceased Pea, the dates of which ran
from 1890 to 1894; and it is also shown by the record
that the defendant Hidalgo positively asserted that
the said letter of March was the only one that he
wrote to Pea during the year 1894: From all of which
it is deduced that the constituent, Pea y Gomiz, was
informed of the departure of his agent from these
Islands for reasons of health and because of the
physician's advice, of the latter's having turned over
the administration of the property to Antonio Hidalgo,
and of his agent's, the defendant's petition that he
send a new power of attorney to the substitute.
The existence, among the papers of the
deceased, of the aforementioned statement of all
accounts rendered, which comprise the whole period
of the administration of the property of the
constituent by the defendant, Federico Hidalgo, from
November 18, 1887, to December 31, 1893 a
statement transmitted with the last partial accounts
which were a continuation of those already previously
received and the said letter of March 22, 1894, fully
prove that Jose de la Pena y Gomiz also received the
said letter, informed himself of its contents, and had
full knowledge that Antoine Hidalgo commence to
administer his property from January of that year.
They likewise prove that he did not see fit to execute
a new power of attorney in the latter's favor, nor to
appoint or designate a new agent to take charge of
the administration of his property that had been
abandoned by the defendant, Federico Hidalgo.

From the procedure followed by the agent,
Federico Hidalgo, it is logically inferred that he had
definitely renounced his agency and that the agency
was duly terminated, according to the provisions of
article 1732 of the Civil Code, because, although in
the said letter of March 22, 1894, the word
"renounce" was not employed in connection with the
agency or power of attorney executed in h is favor,
yet when the agent informs his principal that for
reasons of health and by medical advice he is about
to depart from the place where he is exercising his
trust and where the property subject to his
administration is situated, abandons the property,
turns it over to a third party, without stating when he
may return to take charge of the administration,
renders accounts of its revenues up to a certain date,
December 31, 1893, and transmits to his principal a
general statement which summarizes and embraces
all the balances of his accounts since he began to
exercise his agency to the date when he ceased to
hold his trust, and asks that a power of attorney who
substituted him and took charge of the administration
of the principal's property, it is then reasonable and
just to conclude that the said agent expressly and
definitedly renounced his agency, and it may not be
alleged that the designation of Antonio Hidalgo to
take charge of the said administration was that of a
mere provisional substitution during said agent's
absence, which indeed lasted for more than fifteen
years, for such a allegation would be in conflict with
the nature of the agency.
This renouncement was confirmed by the
subsequent procedure, as well of the agent as of the
principal, until the latter died, on August 2, 1902,
since the principal Pea did not disapprove the
designation of Antonio Hidalgo, nor did he appoint
another, nor send a new power of attorney to the
same, as he was requested to do by the previous
administrator who abandoned his charge; and the
trial record certainly contains no proof that the
defendant, since he left these Islands in March, 1894,
until January, 1904, when he returned to this city,
took any part whatever, directly or even indirectly, in
the said administration of the principal's property,
while Antonio Hidalgo was the only person who was
in charge of the aforementioned administration of De
la Pea y Gomiz's property and the one who was to
represent the latter in his business affairs, with his
tacit consent. From all of which it is perfectly
concluded, (unless there be proof to the contrary, and
none appears in the record), that Antonio Hidalgo
acted in the matter of the administration of the
property of Jose de la Pea y Gomiz by virtue of an
implied agency derived from the latter, in accordance
with the provisions of article 1710 of the Civil Code.
The proof of the tacit consent of the principal,
Jose de la Pea y Gomiz, the owner of the property
administrated a consent embracing the essential
element of a legitimate agency, article 1710 before
cited consists in that Pea, knowing that on account
of the departure of Federico Hidalgo from the
Philippines for reasons, of health, Antonio Hidalgo
took charge of the administration of his property, for
which Federico, his agent, who was giving up his
trust, requested him to send a new power of attorney
in favor of the said Antonio Hidalgo, nevertheless he,
Jose de la Pea y Gomiz, saw fit not to execute nor
transmit any power of attorney whatever to the new
administrator of his property and remained silent for
nearly nine years; and, in that the said principal,
being able to prohibit the party designated, Antonio
Hidalgo, from continuing in the exercise of his
position as administrator, and being able to appoint
another agent, did neither the one nor the other.
Wherefore, in this city during such a number of years,
it is inferred, from the procedure and silence of the
owner thereof, that he consented to have Antonio
Hidalgo administer his property, and in fact created in
his favor an implied agency, as the true and
legitimate administrator.
Antonio Hidalgo administered the
aforementioned property of De la Pea y Gomiz, not
in the character of business manager, but as agent by
virtue of an implied agency vested in him by its owner
who was not unaware of the fact, who knew perfectly
well that the said Antonio Hidalgo took charge of the
administration of that property on account of the
obligatory absence of his previous agent for whom it
was an impossibility to continue in the discharge of
his duties.
It is improper to compare the case where the
owner of the property is ignorant of the officious
management of the third party, with the case where
he had perfect knowledge of the management and
administration of the same, which administration and
management, far from being opposed by him was
indeed consented to by him for nearly nine years, as
was done by Pea y Gomiz. The administration and
management, by virtue of an implied agency, is
essentially distinguished from the management of
another's business, in this respect, that while the
former originates from a contract, the latter is derived
only from a quasi-contract.
The implied agency is founded on the lack of
contradiction or opposition, which constitutes
simultaneous agreement on the part of the presumed
principal to the execution of the contract, while in the
management of another's business there is no
simultaneous consent, either express or implied, but a
fiction or presumption of consent because of the
benefit received.
The distinction between an agency and a
business management has been established by the
jurisprudence of the supreme court (of Spain) in its
noteworthy decision of the 7th of July, 1881, setting
up the following doctrine:
"That laws 28 and 32, title 12, Partida
3, refer to the expenses incurred in things
not one's own and without power of attorney
from these to whom they belong, and
therefore the said laws are not applicable to
this suit where the petition of the plaintiff in
founded on the verbal request made to him
by the defendant or the latter's employees to
do some hauling, and where, consequently,
questions that arise from a contract that
produces reciprocal rights and duties can not
be governed by the said laws."
It being absolutely necessary for Federico
Hidalgo to leave this city and abandon the
administration of the property of his principal, Pea y
Gomiz, for reasons of health, he made delivery of the
property and of his administration to Antonio Hidalgo
and gave notice of what he had done to his
constituent, Pea, in order that the latter might send
a new power of attorney to Antonio Hidalgo, the
person charged with the administration of the
property. Pea y Gomiz did not send the power of
attorney requested, did not oppose or prohibit
Antonio Hidalgo's continuing to administer his
property, and consented to his doing so for nearly
nine years. Consequently the second administrator
must be considered as a legitimate agent of the said
principal, as a result of the tact agreement on the
latter's part, and the previous agent, who necessarily
abandoned and ceased to hold his position, as
completely free and clear from the consequences and
results of the second administration, continued by a
third party and accepted by his principal; for it is a
fact, undenied nor even doubted, that the said first
administrator had to abandon the country and the
administration of Pea's property for reasons of
health, which made it impossible for him to continue
in the discharge of his duties without serious
detriment to himself, his conduct being in accordance
with the provisions of article 1736 of the Civil Code.
In the power of attorney executed by Pea y
Gomiz in this city on November 12, 1887, favor of,
among others, Federico Hidalgo, no authority was
conferred upon the latter by his principal to substitute
the power or agency in favor of another person;
wherefore the agent could not, by virtue of the said
power of attorney, appoint any person to substitute
or relieve him in the administration of the principal's
property, for the lack of a clause of substitution in the
said instrument authorizing him so to do.
The designation of Antonio Hidalgo was not
made was a result of a substitution of the power of
attorney executed by Pea in favor of the defendant,
but in order that the principal's property should not
be abandoned, inasmuch as, for the purpose of the
discharge of the duties of administrator of the same,
the agent, who was about to absent himself from this
city, requested his principal to sent to the party,
provisionally designated by the former, a new power
of attorney, for the reason that the general power of
attorney which Federico Hidalgo had left, executed in
favor of his cousin Antonio Hidalgo, was so executed
in his own name and for his own affairs, and not in
the name of Pea y Gomiz, as the latter had not
authorized him to take such action.
If the owner of the property provisionally
administered at the time by Antonio Hidalgo, saw fit
to keep silent, even after having received the
aforesaid letter of March 22, 1894, and during the
lapse of nearly ten years, without countermanding or
disapproving the designation of his property, knowing
perfectly well that his previous agent was obliged, by
sickness and medical advice to leave this city where
such property was situated, he is not entitled
afterwards to hold amenable the agent who had to
abandon this country for good and valid reasons,
inasmuch as the latter immediately reported to his
principal the action taken by himself and informed
him of his property, which otherwise would have been
left abandoned. From the time of that notification the
agent who, for legitimate cause, ceased to exercise
his trust, was free and clear from the results and
consequences of the management of the person who
substituted him with the consent, even only a tacit
one, of the principal, inasmuch as the said owner of
the property could have objected to, could have
prohibited the continuance in the administration
thereof, of the party designated by his agent, and
could have opportunely appointed another agent or
mandatory of his own confidence to look after his
property and if he did not do so, he is obliged to
abide by the consequences of his negligence and
abandonment and has no right to claim damages
against his previous agent, who complied with his
duty and did all that he could and ought to have
done, in accordance with the law.

The defendant Federico Hidalgo, having ceased
in his administration of the property belonging to
Pea y Gomiz, on account of physical impossibility,
which cessation he duly reported to his principal and
also informed him of the person who relieved him
was such administrator, and for whom he had
requested a new power of attorney, is only liable for
the results and consequences of his administrator
during the period when the said property was in his
charge, and therefore his liability can not extend
beyond the period of his management, as his agency
terminated by the tacit or implied approval of his
principal, judging from the latter's silence in neither
objecting to nor in anywise prohibiting Antonio
Hidalgo's continuing to administer his property,
notwithstanding the lapse of the many years since he
learned by letter of the action taken by his previous
agent, Federico Hidalgo.
Moreover, this letter, in announcing the
termination of his agency, transmitted the last partial
accounts that he had not rendered, up to December
31, 1893, together with a general statement of all the
resulting balances covering the period of his
administration, and Jose de la Pea y Gomiz remained
silent and offered no objection whatever to the said
accounts and did not manifest his disapproval of the
same nor of the general statements, which he must
have received in April or May, 1894, up to the time he
died, in August, 1902; and when his son, the plaintiff,
came to this city in company with the defendant,
Federico Hidalgo, they traveled together from Spain
and arrived in Manila during one of the early days of
January, 1904, the former, for the purpose of taking
charge of the estate left by his father, and after the
plaintiff had examined the accounts kept by Federico
Hidalgo, his deceased father's first agent, he
approved them and therefore issued in favor of the
defendant the document, Exhibit 5, found on page
936 of the second record of trial, dated January 15,
1904, in which Jose de la Pea y de Ramon
acknowledged having received from his deceased
father's old agent the accounts, balances, and
vouchers to his entire satisfaction, and gave an
acquittance in full settlement of the administration
that had been commended to the defendant Hidalgo.
This document, written in the handwriting of
the plaintiff, Pea y de Ramon, appears to be
executed in a form considered to be sufficient by its
author, and, notwithstanding the allegations of the
said plaintiff, the record contains no proof of any kind
of Federico Hidalgo's having obtained it by coercion,
intimidation, deceit, or fraud; neither is it shown to
have been duly impugned as false, criminally or
civilly, for the statements therein made by the plaintiff
are too explicit and definite to allow, without proof of
some vice or defect leading to nullification, of its
being considered as void and without value or legal
effect.
With respect to the responsibility contracted by
the defendant, as regards the payment of the balance
shown by the accounts rendered by him, it is not
enough that the agent should have satisfactorily
rendered the accounts pertaining to his trust, but it is
also indispensable that it be proved that he paid to
his principal, or to the owner of the property
administered, the balance resulting from his accounts.
This balance, which was allowed in the judgment
appealed from, notwithstanding the allegations of the
plaintiff, which were not deemed as established,
amounts to P6,774.50, according to the proofs
adduced at the trial. It was the imperative duty of the
administrator, Federico Hidalgo, to transmit this sum
to his principal Jose de la Pea y Gomiz, as the final
balance of the accounts of his administration, struck
on December 31, 1893, and by his failure so to do
and his delivery of the said sum to his successor,
Antonio Hidalgo, he acted improperly, and must pay
the same to the plaintiff.
Antonio Hidalgo took charge of the
administration of Pea y Gomiz property from
January, 1894, to September, 1902, that is, during
the second period of administration of the several
properties that belonged to the deceased Pea.
Although the plaintiff, in his original complaint,
had included the said Antonio Hidalgo as one of the
responsible defendants, yet he afterwards excluded
him, as well from the second as from the third
amended complaint, and consequently the liability
that might attach to Antonio Hidalgo was not
discussed, nor was it considered in the judgment of
the lower court; neither can it be in this decision, for
the reason that the latter might be adjudged to pay
the amounts which constitute the balance owing from
him who might be responsible, Antonio Hidalgo,
during the period of this latter's administration.
Federico Hidalgo, in our opinion, could not and
can not be responsible for the administration of the
property that belonged to the deceased Pea y
Gomiz, which was administered by Antonio Hidalgo
during eight years and some months, that is, during
the second period, because of the sole fact of his
having turned over to the departure from this city of
Spain. Neither law nor reason obliged Federico
Hidalgo to remain in this country at the cost of his
health and perhaps of his life, even though he were
the administrator of certain property and interests of
another does not require sacrifice on the part of the
agent of his own life and interests. Federico Hidalgo
was obliged to deliver the said property belonging to
Pea y Gomiz, to Antonio Hidalgo, for good and valid
reasons, and in proceeding in the manner aforesaid
he complied with the duty required of him by law and
justice and acted as diligent agent. If the principal,
Jose de la Pea y Gomiz, the owner of the property
mentioned, although informed opportunely of what
had occured was fit to keep silent, not to object to
the arrangements made, not to send the power of
attorney requested by Federico Hidalgo in favor of
Antonio Hidalgo, and took no action nor made any
inquiry whatever to ascertain how his property was
being administered by the second agent, although to
the time of his death more than eight years had
elapsed, the previous agent, who ceased in the
discharged of this duties, can in nowise be held liable
for the consequences of such abandonment, nor for
the results of the administration of property by
Antonio Hidalgo, for the reason that, since his
departure from this country, he has not had the least
intervention nor even indirect participation in the
aforementioned administration of the said Antonio
Hidalgo who, under the law, was the agent or
administrator by virtue of an implied agency, which is
equivalent in its results to an express agency,
executed by the owner of the property. Consequently,
Federico Hidalgo is not required to render accounts of
the administration corresponding to the second period
mentioned, nor to pay the balance that such accounts
may show to be owing.
At the first trial of this cause, Federico, Hidalgo,
it appears, testified under oath that his principal, Jose
Pea y Gomiz, chosen by the witness, nor to such
appointees' taking charge of the administration of his
property. Aside from the fact that the trial record
does not show how nor on what date Pea expressed
such disagreement, it is certain that, in view of the
theory of defense maintained by the defendant in this
suit and his own denial of his having given such a
negative answer, we fail to understand how the
defendant Hidalgo could have said, by means of a no,
that his principal did not agree to the appointment of
the said Antonio Hidalgo, and the intercalation of the
word no in the statement quoted is the more that the
said answer be stricken from the record, as he
objected to its appearing therein.
Were it true that the principal, Jose de la Pea
y Gomiz, had neither agreed to the designation of
Antonio Hidalgo, nor to the latter's administering his
property, he would immediately have appointed
another agent and administrator, since he knew that
Federico Hidalgo had left the place where his property
was situated and that it would be abandoned, had he
not wished that Antonio Hidalgo should continue to
administer it. If the latter continued in the
administration of the property for so long a time,
nearly nine years, it was because the said Pea
agreed and gave his consent to the acts performed by
his outgoing agent, and for this reason the answer
given by Federico Hidalgo, mistakenly, or not, that his
principal, Pea, did not agree to the appointment of
Antonio Hidalgo, is immaterial and does not affect the
terms of this decision.
If the defendant is not responsible for the
results of the administration of the said property
administered by Antonio Hidalgo during the second
period before referred to, neither is he responsible for
that performed during the third person by Francisco
Hidalgo, inasmuch as the latter was not even chosen
by the defendant who, on October 1, 1902, when
Francisco Hildalgo took charge of Pea's property that
had been turned over to him by Antonio Hidalgo, was
in Spain and had no knowledge of nor intervention in
such delivery: wherefore the defendant can in no
manner be obliged to pay to the plaintiff any sum that
may be found owing by Francisco Hidalgo.
The trial judge taking into consideration that,
by the evidence adduced at the hearing, it was
proved that Francisco Hidalgo rendered accounts to
the plaintiff of the administration of the property in
question during the said third period, that is, for a
one year, three months, and some days, and that he
delivered to the plaintiff the balance of 1,280.03
pesos, for which the latter issued to the said third
administrator the document Exhibit 2, written in his
own handwriting under date of January 7, 1904, and
the signature which, affixed by himself, he admitted
in his testimony was authentic, on its being exhibited
to him found that the plaintiff, Pea y de Ramon,
was not entitled to recover any sum whatever for the
rents pertaining to the administration of his property
by the said Francisco Hidalgo.

All the reasons hereinbefore given relate to the
first cause of action, whereby claim is made against
Federico Hidalgo for the payment of the sum of
P72,548.24 and interest at the rate of 6 per cent per
annum, and they have decided some of the errors
assigned by the appellants in their briefs to the
judgment appealed from.
Two amounts are claimed which have one and
the same origin, yet are based on two causes of
action, the second and the third alleged by the
plaintiff; and although the latter, afterwards
convinced by the truth and of the impropriety of his
claim, had to waive the said third cause of action
during the second hearing of his cause (pp. 57 and 42
of the record of the evidence), the trial judge, on the
grounds that the said second and third causes of
action refer to the same certificates of deposit of the
treasury of the Spanish Government, found, in the
judgment appealed from, that the plaintiff was not
entitled to recover anything for the aforesaid second
and third causes of action a finding that is proper
and just, although qualified as erroneous by the
plaintiff in his brief.
It appears, from the evidence take in this
cause, that Jose de la Pea y Gomiz, according to the
certificate issued by the chief of the division of
archives (p. 982 of the record), did not again during
his lifetime, after having hi 1882 withdrawn from the
General Deposit Bank of the Spanish Government a
deposit of 17,000 pesos and its interest, deposit any
sum therein until December 9, 1886, when he
deposited two amounts of 3,000 pesos each, that is,
6,000 pesos in all, the two deposit receipts for the
same being afterwards endorsed in favor of Gonzalo
Tuason. The latter, on December 9, 1887, withdrew
the deposit and took out the said two amounts,
together with the interest due thereon, and on the
same date redeposited them in the sum of 6,360
pesos at 5 per cent annum in the name of Jose de la
Pea y Gomiz. On the 20th of December of the
following year, 1888, the defendant Hidalgo received
from his principal, Pea y Gomiz, through Father
Ramon Caviedas, the two said letters, of credit, in
order that he might withdraw from the General
Deposit Bank the two amounts deposited, together
with the interest due thereon, amounting to 741
pesos, and with this interest purchase a draft on
London in favor of its owner and then redeposit the
original capital of 6,000 pesos. This, the defendant
Hidalgo did and then delivered the draft the the
deposit receipt to Father Cavieda, of all the which
transactions he informed his principal by letter of the
same date, transcribed on page 947 of the second
trial record.
In the following year, 1889, Father Ramon
Cavieda again delivered to the defendant Hidalgo the
aforementioned deposit receipt with the request to
withdraw from the General Deposit Bank the sum
deposited and to purchase a draft of 860 pesos on
London in favor of their owner, Jose de la Pea y
Gomiz, and, after deduction the cost of the said draft
from the capital and interest withdrawn from deposit,
amounting to 8,360 pesos, to redeposit the
remainder, 5,500 pesos, in the bank mentioned, in
accordance with the instructions from Pea y Gomiz:
All of which was done by the defendant Hidalgo, who
delivered to Father Caivedas the receipt for the new
deposit of 5,500 pesos as accredited by the reply-
letter, transcribed on page 1609 of the record, and by
the letter addressed by Hidalgo to Pea, of the date
of December 20 of that year and shown as an original
exhibit by the plaintiff himself on page 29 of the
record of the evidence.
Lastly, in December, 1890, Father Caviedas,
aforementioned, delivered to the defendant Hidalgo
the said deposit receipt for 5,500 pesos in order that
he might withdraw this amount from deposit and
deliver it with the interest thereon to the former for
the purpose of remitting it by draft to Jose de la
Pea; this Hidalgo did, according to a reply-letter
from Father Caviedas, the original of which appears
on page 979 of the file of exhibits and is copied on
page 171 of the trial record, and is apparently
confirmed by the latter in his sworn testimony.
So that the two amounts of 3,000 pesos each,
expresses in two deposit receipts received from De la
Pea y Gomiz Francisco Hidalgo for the successive
operations of remittance and redeposit in the bank
before mentioned, are the same and only ones that
were on deposit in the said bank in the name of their
owner, Pea y Gomiz. The defendant Hidalgo made
two remittances by drafts on London, one in 1888 for
741.60 pesos, through a draft purchased from the
Chartered Bank, and another in 1889 for 860 pesos,
through a draft purchased from the house of Tuason
& Co., and both in favor of Pea y Gomiz, who
received through Father Ramon Caviedas the
remainder, 5,500 pesos, of the sums deposited. For
these reasons, the trial judge was of the opinion that
the certificates of deposit sent by Pea y Gomiz to
Father Ramon Caviedas and those received from the
latter by the defendant Hidalgo were identical, as
were likewise the total amounts remitted expressed
by the said receipts or certificates of deposit, from the
sum of which were deducted the amounts remitted to
Pea y Gomiz and the remainder deposited after each
annual operation until, finally, the sum of 5,500 pesos
was remitted to its owner, Pea y Gomiz, according to
his instructions, through the said Father Caviedas.
The lower court, in concluding its judgment, found
that the plaintiff was not entitled to recover any sum
whatever for the said second and third causes of
action, notwithstanding that, as hereinbefore stated,
the said plaintiff withdrew the third cause of action.
This finding of the court, with respect to the collection
of the amounts of the aforementioned deposit
receipts, is perfectly legal and in accordance with
justice, inasmuch as it is sustained by abundant and
conclusive documentary evidence, which proves in an
incontrovertible manner the unrighteousness of the
claim made by the plaintiff in twice seeking payment,
by means of the said second and third causes of
action, of the same sum which, after various
operations of deposit and remittance during three
years, was finally returned with its interest to the
possession of its owner, Pea y Gomiz.
From the trial had in this case, it also appears
conclusively proved that Jose de la Pea y Gomiz
owed, during his lifetime, to Federico Hidalgo, 7,600
pesos, 4,000 pesos of which were to bear interest at
the rate of 6 per cent per annum, and the remainder
without any interest, and that, notwithstanding the
lapse of the period of three years, from November,
1887, within which he bound himself to repay the
amount borrowed, and in spite of his creditor's
demand of payment, made by registered letter, the
original copy of which is on page 38 of the file of
exhibits and a transcription thereof on page 930 of
the first and second record of the evidence, the debt
was not paid up to the time of the debtor's death. For
such reasons, the trial court, in the judgment
appealed from, found that there was preponderance
of evidence to prove that this loan had been made
and that the plaintiff actually owed the defendant the
sum loaned, as well as the interest thereon, after
deducting therefrom the 2,000 pesos which the
defendant received from the plaintiff on account of
the credit, and that the former was entitled to
recover.
It appears from the pleadings and evidence at
the trial that in January, 1904, on the arrival in this
city of Federico Hidalgo and the plaintiff, Jose de la
Pea y de Ramon, and on the occasion of the latter's
proceeding to examine the accounts previously
rendered, up to December 31, 1893, by the
defendant Hidalgo to the plaintiff's father, then
deceased, Hidalgo made demand upon the plaintiff,
Pea y de Ramon, for the payment of the said debt of
his father, although the creditor Hidalgo acceded to
the requests of the plaintiff to grant the latter an
extension of time until he should be able to sell one
of the properties of the estate. It was at that time,
according to the defendant, that the plaintiff Pea
took up the instrument of indebtedness, executed by
his deceased father during his lifetime, and delivered
to the defendant in exchange therefore the document
of the date of January 15, 1904, found on page 924
of the second record of evidence, whereby the
plaintiff, Jose de la Pea, bound himself to pay his
father's debt of 11,000 pesos, owing to the defendant
Hidalgo, out of the proceeds of the sale of some one
of the properties specified in the said document,
which was written and signed by the plaintiff in his
own handwriting.
The plaintiff not only executed the said
document acknowledging his father's debt and
binding himself to settle it, but also, several days
after the sale of a lot belonging to the estate, paid to
the creditor on account the sum of 2,000 pesos,
according to the receipt issued by the latter and
exhibited on page 108 of the first record of evidence.
The said document, expressive of the obligation
contracted by the plaintiff, Pea y de Ramon, that he
would pay to the defendant the debt of plaintiff's
deceased father, amounting to 11,000 pesos, out of
the proceeds from some of the properties of the
estate, has not been denied nor impugment as false;
and notwithstanding the averment made by the
plaintiff that when he signed he lacked information
and knowledge of the true condition of the affairs
concerning Hidalgo's connection with the property
that belonged to De la Pea's father; it can not be
denied that absolutely no proof whatever is shown in
the trial record of the creditor's having obtained the
said document through deceit or fraud
circumstances in a certain manner incompatible with
the explicit statements contained therein. For these
reasons, the trial court, weighing the whole of the
evidence furnished by the record, found that the loan
of the said 7,600 pesos was truly and positively
made, and that the plaintiff must pay that he was not
entitled to recover the 2,000 pesos, as an undue
payment made by him to the defendant creditor. For
the foregoing reason the other errors assigned by the
plaintiff to the judgment appealed from are
dismissed.

With respect to the obligation to pay the
interest due on the amounts concerned in this
decision, it must be borne in mind that, as provided
by article 1755 of the Civil Code, interest shall only be
owed when it has been expressly stipulated, and that
should the debtor, who is obligated to pay a certain
sum of money, be in default and fail to fulfill the
agreement made with his creditor, he must pay, as
indemnity for losses and damages, should there not
be a stipulation to the express stipulation, the legal
interest (art. 1108 of the Civil Code); but, in order
that the debtor may be considered to be in default
and obliged to pay the indemnity, it is required, as a
general rule, that his creditor shall demand of such
debtor the fulfillment of his obligation, judicially or
extrajudicially, except in such cases as are limitedly
specified in article 1100 of the Civil Code.
It was not expressly stipulated that either the
balance of the last account rendered by the
defendant Federico Hidalgo in 1893, or the sum which
the plaintiff bound himself to pay to the defendant, in
the instrument of the 15th of January, 1904, should
bear interest; nor is there proof that a judicial or
extrajudicial demand was made, on the part of the
respective creditors concerned, until the date of the
complaint, on the part of the defendant. Therefore no
legal interest is owing for the time prior to the
respective dates of the complaint and counterclaim.
By virtue, then, of the reasons hereinbefore set
forth, it is proper, in our opinion, in our opinion, to
adjudge, as we do hereby adjudge, that the
defendant, Federico Hidalgo, shall pay to the plaintiff,
Jose de la Pea y de Ramon, as administrator of the
estate of the deceased Jose de la Pea y Gomiz, the
sum of P6,774.50, and the legal interest thereon at
the rate of 6 per cent per annum from the 23d of
May, 1906, the date of the filing of the original
complaint in this case; that we should and hereby do
declare that the said defendant, Federico Hidalgo, is
not bound to give nor render accounts of the
administrator of the property of the said deceased
Jose de la Pea y Gomiz, administered, respectively,
by Antonio Hidalgo, from January, 1894, to
September 30, 1902, and by Francisco Hidalgo, from
October 1, 1902, to January 7, 1904, and therefore
the defendant, Federico Hidalgo, not being
responsible for the results of the administration of the
said property administered by the said Antonio and
Francisco Hidalgo, we do absolve the said defendant
from the complaint filed by the plaintiff, in so far as it
concerns the accounts pertaining to the aforesaid two
periods of administration and relates to the payment
of the balances resulting from such accounts; and
that we should and hereby do absolve the defendant
Hidalgo from the complaint with respect to the
demand for the payment of the sums of P15,774.19
and P2,000, with their respective interest, on account
of the second and the fourth cause of action,
respectively, and, because the plaintiff renounced and
withdrew his complaint, with respect to the third
cause of action; and that we should and do likewise
adjudge, that the plaintiff, Jose de la Pea y de
Ramon, shall pay to Federico Hidalgo, by reason of
the counterclaim, the sum of P9,000 with legal
interest thereon at the rate of 6 per cent per annum
from the 21st of May, 1907, the date of the
counterclaim.
The judgment appealed from, together with that part
thereof relative to the statement it contains concerning
the equivalence between the Philippine peso and the
Mexican peso, is affirmed in so far as it is in agreement
with the findings of this decision, and the said judgment
is reversed in so far as it is not in accordance herewith.
No special finding is made as to costs assessed in either
instance, and to the plaintiff is reserved any right that he
may be entitled to enforce against Antonio Hidalgo.
[G.R. No. L-34338. November 21, 1984.]
LOURDES VALERIO LIM, petitioner, vs.
PEOPLE OF THE PHILIPPINES,
respondent.
The Solicitor General for public respondent.
SYLLABUS
1.CIVIL LAW; OBLIGATIONS AND CONTRACTS: PERIOD
OF OBLIGATION; MAY NOT BE FIXED BY COURT WHERE
AGREEMENT IN CASE AT BAR CLEARLY FIXES A PERIOD.
It is clear in the agreement, Exhibit "A", that the
proceeds of the sale of the tobacco should be turned
over to the complainant as soon as the same was sold,
or, that the obligation was immediately demandable as
soon as the tobacco was disposed of Hence, Article 1197
of the New Civil Code, which provides that the courts
may fix the duration of the obligation if it does not fix a
period, does not apply.
2.ID.; ID.; AGENCY; SUBJECT AGREEMENT IS A
CONTRACT OF AGENCY TO SELL NOT A CONTRACT OF
SALE. The fact that appellant received the tobacco to
be sold at P1.30 per kilo and the proceeds to be given to
complainant as soon as it was sold, strongly negates
transfer of ownership of the goods to the petitioner. The
agreement (Exhibit "A") constituted her as an agent with
the obligation to return the tobacco if the same was not
sold.
D E C I S I O N
RELOVA, J p:
Petitioner Lourdes Valerio Lim was found guilty of the
crime of estafa and was sentenced "to suffer an
imprisonment of four (4) months and one (1) day as
minimum to two (2) years and four (4) months as
maximum, to indemnify the offended party in the
amount of P559.50, with subsidiary imprisonment in case
of insolvency, and to pay the costs." (p. 14, Rollo)
From this judgment, appeal was taken to the then Court
of Appeals which affirmed the decision of the lower court
but modified the penalty imposed by sentencing her "to
suffer an indeterminate penalty of one (1) month and
one (1) day of arresto mayor as minimum to one (1)
year and one (1) day of prision correccional as
maximum, to indemnify the complainant in the amount
of P550.50 without subsidiary imprisonment, and to pay
the costs of suit." (p. 24, Rollo)
The question involved in this case is whether the
receipt, Exhibit "A", is a contract of agency to sell
or a contract of sale of the subject tobacco
between petitioner and the complainant, Maria de
Guzman Vda. de Ayroso, thereby precluding
criminal liability of petitioner for the crime
charged.
The findings of facts of the appellate court are as
follows:
" . . . The appellant is a businesswoman. on
January 10, 1966, the appellant went to the
house of Maria Ayroso and proposed to sell
Ayroso's tobacco. Ayroso agreed to the
proposition of the appellant to sell her
tobacco consisting of 615 kilos at P1.30 a
kilo. The appellant was to receive the
overprice for which she could sell the
tobacco. This agreement was made in the
presence of plaintiff's sister, Salud G. Bantug.
Salvador Bantug drew the document, Exh. A,
dated January 10, 1966, which reads: LibLex
'To Whom It May Concern:
This is to certify that I have received from
Mrs. Maria de Guzman Vda. de Ayroso, of
Gapan, Nueva Ecija, six hundred fifteen kilos
of leaf tobacco to be sold at P1.30 per kilo.
The proceed in the amount of Seven Hundred
Ninety Nine Pesos and 50/100 (P799.50) will
be given to her as soon as it was sold.'
This was signed by the appellant and
witnessed by the complainant's sister, Salud
Bantug, and the latter's maid, Genoveva
Ruiz. The appellant at that time was bringing
a jeep, and the tobacco was loaded in the
jeep and brought by the appellant. Of the
total value of P799.50, the appellant had paid
to Ayroso only P240.00, and this was paid on
three different times. Demands for the
payment of the balance of the value of the
tobacco were made upon the appellant by
Ayroso, and particularly by her sister, Salud
Bantug. Salud Bantug further testified that
she had gone to the house of the appellant
several times, but the appellant often eluded
her; and that the 'camarin' of the appellant
was empty. Although the appellant denied
that demands for payment were made upon
her, it is a fact that on October 19, 1966, she
wrote a letter to Salud Bantug which reads as
follows:
'Dear Salud,
'Hindi ako nakapunta dian noon a 17 nitong
nakaraan, dahil kokonte pa ang nasisingil
kong pera, magintay ka hanggang dito sa
linggo ito at tiak na ako ay magdadala sa iyo.
Gosto ko Salud ay makapagbigay man lang
ako ng marami para hindi masiadong
kahiyahiya sa iyo. Ngayon kung gosto mo ay
kahit konte muna ay bibigyan kita. Pupunta
lang kami ni Mina sa Maynila ngayon. Salud
kuug talagang kailangan mo ay bukas ay
dadalhan kita ng pera.
'Medio mahirap ang maningil sa palengke ng
Cabanatuan dahil nagsisilipat ang mga suki
ko ng puesto. Huwag kang mabahala at tiyak
na babayaran kita.
'Patnubayan tayo ng mahal na panginoon
Dios. (Exh. B).
Ludy'
"Pursuant to this letter, the appellant sent a
money order for P100.00 on October 24,
1967, Exh. 4, and another for P50.00 on
March 8, 1967; and she paid P90.00 on April
18, 1967 as evidenced by the receipt Exh. 2,
dated April 18, 1967, or a total of P240.00.
As no further amount was paid, the
complainant filed a complaint against the
appellant for estafa." (pp. 14, 15, 16, Rollo)
In this petition for review by certiorari, Lourdes Valerio
Lim poses the following questions of law, to wit:
1.Whether or not the Honorable Court of
Appeals was legally right in holding that the
foregoing document (Exhibit "A") "fixed a
period" and "the obligation was therefore,
immediately demandable as soon as the
tobacco was sold" (Decision, p. 6) as against
the theory of the petitioner that the
obligation does not fix a period, but from its
nature and the circumstances it can be
inferred that a period was intended in which
case the only action that can be maintained
is a petition to ask the court to fix the
duration thereof;
2.Whether or not the Honorable Court of
Appeals was legally right in holding that "Art.
1197 of the New Civil Code does not apply"
as against the alternative theory of the
petitioner that the foregoing receipt (Exhibit
"A") gives rise to an obligation wherein the
duration of the period depends upon the will
of the debtor in which case the only action
that can be maintained is a petition to ask
the court to fix the duration of the period;
and
3.Whether or not the Honorable Court of
Appeals was legally right in holding that the
foregoing receipt is a contract of agency to
sell as against the theory of the petitioner
that it is a contract of sale. (pp. 3-4, Rollo)
It is clear in the agreement, Exhibit "A", that the
proceeds of the sale of the tobacco should be turned
over to the complainant as soon as the same was sold,
or, that the obligation was immediately demandable as
soon as the tobacco was disposed of. Hence, Article 1197
of the New Civil Code, which provides that the courts
may fix the duration of the obligation if it does not fix a
period, does not apply.
Anent the argument that petitioner was not an agent
because Exhibit "A" does not say that she would be paid
the commission if the goods were sold, the Court of
Appeals correctly resolved the matter as follows: LLpr
" . . . Aside from the fact that Maria Ayroso
testified that the appellant asked her to be
her agent in selling Ayroso's tobacco, the
appellant herself admitted that there was an
agreement that upon the sale of the tobacco
she would be given something. The appellant
is a businesswoman, and it is unbelievable
that she would go to the extent of going to
Ayroso's house and take the tobacco with a
jeep which she had brought if she did not
intend to make a profit out of the
transaction. Certainly, if she was doing a
favor to Maria Ayroso and it was Ayroso who
had requested her to sell her tobacco, it
would not have been the appellant who
would have gone to the house of Ayroso, but
it would have been Ayroso who would have
gone to the house of the appellant and
deliver the tobacco to the appellant." (p. 19,
Rollo)
The fact that appellant received the tobacco to be sold at
P1.30 per kilo and the proceeds to be given to
complainant as soon as it was sold, strongly negates
transfer of ownership of the goods to the petitioner. The
agreement (Exhibit "A") constituted her as an agent
with the obligation to return the tobacco if the same was
not sold.
ACCORDINGLY, the petition for review on certiorari is
dismissed for lack of merit. With costs.
SO ORDERED.
[G.R. No. 12579. July 27, 1918.]
GREGORIO JIMENEZ, plaintiff-appellee,
vs. PEDRO RABOT, NICOLASA
JIMENEZ and her husband, EMILIO
RODRIGUEZ, defendants. PEDRO
RABOT, appellant.
Antonio Bengson, for appellant.
Jose Rivera, for appellee.
SYLLABUS
1.SALE OF LAND; POWER OF ATTORNEY;
SPECIFIC DESCRIPTION OF PROPERTY
UNNECESSARY. Where the owner of real
property desires to confer upon an attorney in
fact authority to sell the same, it is necessary
that the authority should be expressed in
writing; but it is not necessary that the
property to be sold should be precisely
described. It is sufficient if the authority is so
expressed as to determine without doubt the
limits of the agent's authority.
2.ID.; ID.; ID.; CASE AT BAR. The plaintiff,
being the owner of three parcels of land, left the
same in the care of his sister as his agent and went to
live in another province. While so absent, he wrote
her to sell one of his parcels and to send him the
money. The sister found a purchaser and sold one of
the parcels but failed to forward the proceeds to her
brother. Afterwards the plaintiff returned and
instituted an action to recover the parcel which had
been sold. Held: That the authority to sell was
sufficient and that the plaintiff could not
recover.
D E C I S I O N
STREET, J p:
This action was instituted by the plaintiff,
Gregorio Jimenez, to recover from the defendant,
Pedro Rabot, a parcel of land situated in the
municipality of Alaminos, in the Province of
Pangasinan, and described in the complaint as
follows:
"Approximate area of three hectares;
bounded on the north and west with land of
Pedro Reynoso; on the south with land of
Nicolasa Jimenez; and on the east with land
of Calixta Apostol before, at present with that
of Juan Montemayor and Simon del Barrio. It
is situated in Dinmayat Tancaran, barrio of
Alos of this same municipality of Alaminos,
Pangasinan."
From a judgment rendered in favor of the
plaintiff, Pedro Rabot has appealed; but his
codefendants, Nicolasa Jimenez and her husband,
who were cited by the defendant for the purpose of
holding her liable upon her warranty in case of his
eviction, have not appealed.
It is admitted that the parcel of land in
question, together with two other parcels in the same
locality originally belonged to the plaintiff, having
been assigned to him as one of the heirs in the
division of the estate of his father. It further appears
that while Gregorio was staying at Vigan, in the
Province of Ilocos Sur, during the year 1911, his
property in Alaminos was confided by him to the care
of his elder sister Nicolasa Jimenez. On February 7 of
that year he wrote this sister a letter from Vigan in
which he informed her that he was pressed for money
and requested her to sell one of his parcels of land
and send him the money in order that he might pay
his debts. This letter contains no description of the
land to be sold other than is indicated in the words
"one of my parcels of land" ("uno de mis terrenos").
Acting upon this letter Nicolasa approached the
defendant Pedro Rabot, and the latter agreed to buy
the parcel in question for the sum of P500. Two
hundred and fifty pesos were paid at once, with the
understanding that a deed of conveyance would be
executed when the balance should be paid. Nicolasa
admits having received this payment of P250 at the
time stated; but there is no evidence that she sent
any of it to her brother.
About one year later Gregorio came down to
Alaminos and demanded that his sister should
surrender this piece of land to him, it being then in
her possession. She refused upon some pretext or
other to do so; and as a result Gregorio, in
conjunction with others of his brothers and sisters,
whose properties were also in the hands of Nicolasa,
instituted an action in the Court of First Instance for
the purpose of recovering their land from her control.
This action was decided favorably to the plaintiffs
upon August 12, 1913; and no appeal was taken from
the judgment.
Meanwhile, upon May 31, 1912, Nicolasa
Jimenez executed and delivered to Pedro Rabot a
deed purporting to convey to him the parcel of land
which is the subject of this controversy. The deed
recites that the sale was made in consideration of the
sum of P500, the payment of which is acknowledged.
Pedro Rabot went into possession, and the property
was found in his hands at the time when final
judgment was entered in favor of the plaintiffs in the
action above mentioned. It will thus be seen that
Pedro Rabot acquired possession under the deed from
Nicolasa during the pendency of the litigation in which
she was defendant; but it does not positively appear
that he was at the time cognizant of that
circumstance.
In considering the questions presented by this
appeal one or two preliminary observations may be
made. The first is that, as a matter of formality, a
power of attorney to convey real property ought to
appear in a public document, just as any other
instrument intended to transmit or convey an interest
in such property ought to appear in a public
document. (Art. 1280, Civil Code.) But inasmuch as it
is an established doctrine that a private document is
competent to create, transmit, modify, or extinguish a
right in real property (Thunga Chui vs. Que Bentec, 2
Phil. Rep., 561; Couto Soriano vs. Cortes, 8 Phil. Rep.,
459), it follows that a power of attorney to convey
such property, even though in the form of a private
document, will operate with effect. Again, supposing
that the letter contained adequate authority for
Nicolasa to sell the property in question, her action in
conveying the property in her own name, without
showing the capacity in which she acted, was
doubtless irregular. Nevertheless, such deed would in
any event operate to bind her brother, the plaintiff, in
its character as a contract (Lyon vs. Pollock, 99 U. S.,
668; 25 L. ed.,-265), and supposing that the authority
was sufficient, he could be compelled by a proper
judicial proceeding to execute a document to carry
such contract into effect. (Art. 1279, Civil Code.)
The principal question for consideration
therefore in the end resolves itself into this, whether
the authority conferred on Nicolasa by the
letter of February 7, 1911, was sufficient to
enable her to bind her brother. The only
provisions of law bearing on this point are contained
in article 1713 of the Civil Code and in section 335 of
the Code of Civil Procedure. Article 1713 of the Civil
Code requires that the authority to alienate land shall
be contained in an express mandate; while subsection
5 of section 335 of the Code of Civil Procedure says
that the authority of the agent must be in writing and
subscribed by the party to be charged. We are of the
opinion that the authority expressed in the letter is a
sufficient compliance with both requirements.
It has been urged here that in order for the
authority to be sufficient under section 335 of the
Code of Civil Procedure the authorization must
contain a particular description of the property which
the agent is to be permitted to sell. There is no such
requirement in subsection 5 of section 335; and we
do not believe that it would be legitimate to read such
a requirement into it. The purpose in giving a
power of attorney is to substitute the mind and
hand of the agent for the mind and hand of the
principal; and if the character and extent of the
power is so far defined as to leave no doubt as
to the limits within which the agent is
authorized to act, and he acts within those
limits, the principal cannot question the
validity of his act. It is not necessary that the
particular act to be accomplished should be
predestinated by the language of the power. The
question to be answered always, after the power has
been exercised, is rather this: Was the act which the
agent performed within the scope of his authority? In
the case before us, if the question is asked whether
the act performed by Nicolasa Jimenez was within the
scope of the authority which had been conferred
upon her, the answer must be obviously in the
affirmative.
It should not escape observation that the
problem with which we are here concerned relates to
the sufficiency of the power of attorney under
subsection 5 of section 335 of the Code of Civil
Procedure and not to the sufficiency of the note or
memorandum of the contract, or agreement of sale,
required by the same subsection, in connection with
the first paragraph of the same section. It is well
settled in the jurisprudence of England and the United
States that when the owner, or his agent, comes to
make a contract to sell, or a conveyance to effect a
transfer, there must be a description of the property
which is the subject of the sale or conveyance. This is
necessary of course to define the object of the
contract. (Brockway vs. Frost, 40 Minn., 155; Carr vs.
Passaic Land etc. Co., 19 N. J. Eq., 424; Lippincott vs.
Bridgewater, 55 N. J. Eq., 208; Craig vs. Zelian, 137
Cal., 105; 20 Cyc., 271.)
The general rule here applicable is that the
description must be sufficiently definite to identify the
land either from the recitals of the contract or deed or
from external facts referred to in the document,
thereby enabling one to determine the identity of the
land and if the description is uncertain on its face or is
shown to be applicable with equal plausibility to more
than one tract, it is insufficient. The principle
embodied in these decisions is not, in our opinion,
applicable to the present case, which relates to the
sufficiency of the authorization, not to the sufficiency
of the contract or conveyance. It is unquestionable
that the deed which Nicolasa executed contains a
proper description of the property which she
purported to convey.
There is ample authority to the effect that a
person may by a general power of attorney authorize
an agent to sell "all" the land possessed by the
principal, or all that he possesses in a particular city,
county, or state. (Roper vs. McFadden, 48 Cal., 346;
Rownd vs. Davidson, 113 La., 1047; Carson vs. Ray,
52 N. C., 609; 78 Am. Dec., 267; 31 Cyc., 1229.) It is
also held that where a person authorizes an agent to
sell a farm ("my farm") in a certain county, this is
sufficient, if it be shown that such party has only one
farm in that county. (Marriner vs. Dennison, 78 Cal.,
202.) In Linton vs. Moorhead (209 Pa. St., 646), the
power authorized the agent to sell or convey "any or
all tracts, lots, or parcels" of land belonging to the
plaintiff. It was held that this was adequate. In Lyon
vs. Pollock (99 U. S., 668), the owner in effect
authorized an agent to sell everything he had in San
Antonio, Texas. The authority was held sufficient. In
Linan vs. Puno (31 Phil. Rep., 259), the authority
granted was to the effect that the agent might
administer "the interests" possessed by the principal
in the municipality of Tarlac and to that end he was
authorized to purchase, sell, collect, and pay, etc. It
was held that this was a sufficient power.

In the present case the agent was given
the power to sell either of the parcels of land
belonging to the plaintiff. We can see no
reason why the performance of an act within
the scope of this authority should not bind the
plaintiff to the same extent as if he had given
the agent authority to sell "any or all" and she
had conveyed only one.
From what has been said it is evident that the lower
court should have absolved the defendant Pedro Rabot
from the complaint. Judgment will accordingly be
reversed, without any express adjudication of costs of
this instance. So ordered.
[G.R. No. L-8669. May 25, 1956.]
VICENTA REYES, ET AL., petitioners, vs.
GUARDALINO C. MOSQUEDA and THE
COURT OF APPEALS, respondents.
Fulgencio Vega and Felix D. Bacabac for
petitioners.
Leon P. Gellada for respondent Guardalino C.
Mosqueda.
SYLLABUS
1.BROKER; DUTY TO PERFORM TO BE
ENTITLED TO COMMISSION. In order that a broker
could earn a commission it is not sufficient for him to
find a prospective buyer but to find one who will
actually buy the property on the terms and conditions
imposed by the owner and until that is done his right
to commission does not accrue.
D E C I S I O N
MONTEMAYOR, J p:
On February 18, 1949, Guardalino C. Mosqueda
sold to Jose Marquez Lim his parcel of land in the City
of Iloilo, containing 9,460 square meters, covered by
Transfer Certificate of Title No. T-2794 issued by the
Register of Deeds of the province of Iloilo, for the
sum of P65,605. Claiming that Mosqueda had
previously contracted her services to sell the same
land with a commission of 5 per cent on the sales
price, and that thru her efforts she could bring
together Mosqueda and Lim who finally agreed upon
and consummated the sale of the land, and because
Mosqueda refused to pay her commission of 5 per
cent she commenced this action in the Court of First
Instance of Iloilo to recover from Mosqueda the sum
of P3,280.25 representing 5 per cent of the sales
price with interest from the date of the filing of the
complaint. After hearing, the trial court rendered
judgment in her favor ordering defendant Mosqueda
to pay to her P3,280.25 with interest of 6 per cent
from March 7, 1949, with costs. On appeal to the
Court of Appeals, said Tribunal reversed the appealed
decision and dismissed the complaint without costs.
Plaintiff Reyes is now petitioning for the revision of
said decision of the Court of Appeals.
The Court of Appeals thru Justice Dionisio de
Leon states the position taken and the evidence
presented by both parties in support of their
respective claims as follows:
"Plaintiff Vicenta Reyes alleges that on
February 16, 1949, she was contracted by
defendant Guardalino Mosqueda to sell the
land of the latter, with an area of 9,460
square meters, situated in Iloilo City, and
covered by transfer certificate of title No.
2794, for the sum of P7.50 per square meter,
at a commission of 5 per cent on the total
purchase price (Exhibits A and D). She
offered the sale of the land to Jose Marquez
Lim who, after an ocular inspection of the
premises, said that the price of P7.50 per
square meter was high as the land was
covered with water, but he was willing to buy
the land for a lower price. Reyes went back
to Mosqueda and informed him about what
her buyer had told her about the land.
Mosqueda reduced the price to P7.30 per
square meter. On this occasion, Reyes told
Mosqueda that inasmuch as the purchase
price has already been settled, she was now
free to disclose, as she did that her buyer
was Jose Marquez Lim who would see
Mosqueda personally about the
consummation of the sale.
"Appellant Mosqueda said that on
February 16, 1949, he went to see Jose
Marquez Lim, Manager of the Philippine-
American Insurance Co. in Iloilo City, about a
loan offering his land covered by transfer
certificate of title 2794 as security, as he was
in urgent need of money to pay his debt with
a bank which was due on February 18, 1949.
Lim informed Mosqueda that only the Manila
office of the Company could grant loans. Lim,
however, offered to buy Mosqueda's land as
it adjoined his own land. Mosqueda replied
that he was willing to sell his land to him at
P8 per square meter. Lim asked for time to
think it over as Mosqueda's price was high.
Anxious to buy the land, Lim requested
Vicente Reyes, who, together with her
husband, were employees in his office, to
approach Mosqueda on his behalf and exact
from him the last price he could offer for his
land. Reyes went to see Dr. Mosqueda and
told him that she had a buyer for his land
without divulging the identity of her said
buyer, resulting in the execution of Exhibits A
and D. Also on that same day, Vicenta Reyes
informed Lim that the price on Mosqueda
was now P7.50 per square meter. Lim still
considered this as high, so that he again sent
Vicenta Reyes to ask for a lower price from
Mosqueda. Mosqueda reduced it to P7.30.
Reyes told Lim about Mosqueda's last
quotation. Apparently, Lim was still not
agreeable to the price of P7.30 per square
meter, so that he told Vicenta Reyes to desist
from further contracting Mosqueda on his
behalf as he, himself, would deal directly with
Mosqueda as he had initially done earlier on
the same day. Lim offered to pay P500 to
Reyes for her efforts, but the latter
demanded P1,000, after which she left Lim's
office evidently in an angry mood. Reyes
went back to Mosqueda and told him that her
buyer was not willing to buy his land at P7.30
per square meter, and that she would not sell
any more the land because of the
disagreement between her and her buyer,
whom she disclosed for the first time to be
Jose Marquez Lim. Mosqueda wanted to
withdraw the authority which he had given
Vicenta Reyes, but the latter pleaded that
she be given until the afternoon of the
following days, February 17, within which to
find another buyer. The following day, due to
the failure of Reyes to find another buyer for
his land, Mosqueda informed Reyes that he
was definitely canceling her authority to find
a buyer for his land. The following day,
February 18, Lim went personally to the clinic
of Dr. Mosqueda, resulting in the execution
of the deed of sale (Exhibit 1 or F)."
Then said Court makes the following findings or
observations:
"We have gone carefully over the
evidence of record, and we have arrived at
the conclusion that the same fairly
preponderates in favor of the appellant. Jose
Marquez Lim and Alejandro Santiago
companion of the appellant when the latter
went to see Lim about a loan, corroborated
the claim of the appellant that Lim had
offered to buy the appellant's land. Vicenta
Reyes did not testify how she came to learn
that Mosqueda was looking for a buyer of his
land. Perhaps, when she was requested by
him to intercede in his behalf with respect to
the sale of Mosqueda's land, Vicenta Reyes
grabbed this opportunity to make spare
money as a sideline. It must also be noted
that while Reyes said Lim was willing to buy
the land for a price less than P7.50 per
square meter, she did not testify that Lim
was willing to buy the property for P7.30, or
that Lim authorized her to close the deal with
Mosqueda at any price lower than P7.50 per
square meter.
"There is no dispute that the appellee
was contracted by the appellant to find a
buyer for his land, with a commission of 5
per cent. Mosqueda reduced his original price
of P8 to P7.80 per square meter through the
intervention of Vicenta Reyes. The question,
however, is whether it was also through the
efforts of the appellee that the sale (Exhibit 1
or F) was finally effected at the price of
P65,605, or less than P7 per square meter,
on February 18, 1949.
"Vicente Reyes was hired as a broker,
not as commercial agent. . . . At the time the
contract of sale (Exhibit 1 or F) was signed
by the parties on February 18, 1949, the
authority of Reyes as a broker for Mosqueda
has already been withdrawn by the latter. . .
At the time the authority of the appellee was
withdrawn, there was still no meeting of the
minds between Mosqueda and Lim with
respect to the price and terms of the sale.
Again, the land was sold at price and terms
arrived at by the contracting parties without
the appellee's intervention and Lim bought
the property independently of the efforts of
Reyes. Vicenta Reyes was told by Lim to
leave him alone in the transaction. We have
every reason to believe Lim's testimony as
this action for recovery of a sum of money is
not directed against him, and he has nothing
to lose or gain by telling the truth."
Accepting, as we have to, the findings of the
Court of Appeals, we find its judgment of reversal to
be supported by the facts and the law. If as found by
the Court of Appeals plaintiff Reyes was engaged
only as a broker, then in order to earn her
commission, it was not sufficient for her to find
a prospective buyer but to find one who will
actually buy the property on the terms and
conditions imposed by the owner. In the case of
Danon vs. Brimo & Co., 42 Phil., 133, we said:
"The broker must be the efficient
agent or the procuring cause of the sale. The
means employed by him and his efforts must
result in the sale. He must find the
purchaser, and the sale must proceed from
his efforts acting as a broker. (Cases cited.)
Besides, according to the findings of the Court
of Appeals, the actual sale was perfected and
consummated without the intervention of plaintiff
Reyes, and what is more, before that, her authority to
sell the property had been withdrawn, at a time when
there was still no meeting of the minds of buyer and
seller.
We realize that there are times when the owner
of a property for sale may not legally cancel or revoke
the authority given by him to a broker when the
negotiations through the broker's efforts have
reached such a stage that it would be unfair to deny
the commission earned, especially when the property
owner acts in bad faith and cancels the authority only
to evade the payment of said commission. Such was
our holding in the same case of Danon vs. Brimo &
Co., supra:
". . . the right of the principal to
terminate his authority is absolute and
unrestricted, except only that he may not do
it in bad faith, and as a mere device to
escape the payment of the broker's
commissions. Thus, if in the midst of
negotiations instituted by the broker, and
which were plainly and evidently approaching
success, the seller should revoke the
authority of the broker, with the view of
concluding the bargain without his aid, and
avoiding the payment of commission about to
be earned, it might be well said that the due
performance of his obligation by the broker
was purposely prevented by the principal. But
if the latter acts in good faith, not seeking to
escape the payment of commissions, but
moved fairly by a view of his own interest, he
has the absolute right before a bargain is
made while negotiations remain
unsuccessful, before commissions are
earned, to revoke the broker's authority, and
the latter cannot thereafter claim
compensation for a sale made by the
principal even though it be to a customer
with whom the broker unsuccessfully
negotiated, and even though, to some
extent, the seller might justly be said to have
availed himself of the fruits of the broker's
labor." (Danon vs. Brimo, 42 Phil., 133, 141-
142, citing Sibbald vs. Bethlehem Iron Co.,
83 N.Y. 378, 38 Am. Rep. 441, 444-446.)

In the present case, there is nothing to show
that bad faith was involved in the cancellation of the
authority of plaintiff Reyes before the consummation
of the sale. Not only this, but the actuations of
plaintiff Reyes are not entirely above suspicion. As
observed by the Court of Appeals she did not explain
how she came to know that defendant Mosqueda was
interested in selling his land and was looking for a
buyer thereof. It is highly possible that after Reyes
was commissioned by her employer Lim to
approached Mosqueda with a view to reducing the
price of P8 per square meter, it was then and only
then that Reyes came to know about the desire of
Mosqueda to sell his land to cover his obligations with
the bank inasmuch as he failed to secure a loan from
the Insurance Company, and as said by the Court of
Appeals
". . . Perhaps, when she was
requested by Lim to intercede in his behalf
with respect to the sale of Mosqueda's land,
Vicenta Reyes grabbed this opportunity to
make spare money as a sideline."
In view of the foregoing, the decision of the Court of
Appeals appealed from is hereby affirmed, with costs in
both instances.

[G.R. No. 129919. February 6, 2002.]
DOMINION INSURANCE
CORPORATION, petitioner, vs. COURT
OF APPEALS, RODOLFO S.
GUEVARRA, and FERNANDO
AUSTRIA, respondents.
SYNOPSIS
Acting as agent for petitioner Dominion, Guevarra paid
P156,473.90 in settling the claims of several insured
clients of petitioner out of his personal money. Guevarra
thereafter filed a civil case for sum of money to recover
said amount. The RTC and the CA rendered judgment in
favor of Guevarra.
On appeal, Dominion claimed Guevarra is not entitled to
reimbursement because he did not act within his
authority as agent for Dominion.
The Supreme Court denied the petition with
modification, and held: that Art. 1918 of the Civil Code
makes Dominion not liable for expenses incurred by
Guevarra who acted in contravention of his principal's
(Dominion's) instructions. Based on their agreement,
Guevarra was instructed to pay for the claims of the
insured from the revolving fund, not from Guevarra's
personal money. However, while the law on agency
prohibits Guevarra from obtaining reimbursement, his
right to recover may still be justified under Art. 1236,
par. 2 of the Civil Code. In this case, when the risk
insured against occurred, Dominion's liability as insurer
arose. This obligation was extinguished when Guevarra
paid the claims of the insured. Thus, to the extent the
payment has been beneficial to Dominion, Guevarra may
demand reimbursement from the latter. To rule
otherwise would result in unjust enrichment of Dominion.
SYLLABUS
1.CIVIL LAW; CIVIL CODE; AGENCY; WHEN PRINCIPAL
IS NOT LIABLE FOR EXPENSES INCURRED BY AGENT;
CASE AT BAR. Respondent Guevarra's authority to
settle claims is embodied in the Memorandum of
Management Agreement dated February 18, 1987 which
enumerates the scope of respondent Guevarra's duties
and responsibilities as agency manager for San
Fernando, Pampanga. . . . In settling the claims
mentioned above, respondent Guevarra's authority
is further limited by the written standard
authority to pay, which states that the payment
shall come from respondent Guevarra's revolving
fund or collection. . . . The instruction of petitioner
as the principal could not be any clearer.
Respondent Guevarra was authorized to pay the
claim of the insured, but the payment shall come
from the revolving fund or collection in his
possession. Having deviated from the instructions
of the principal, the expenses that respondent
Guevarra incurred in the settlement of the claims
of the insured may not be reimbursed from
petitioner Dominion. This conclusion is in accord
with Article 1918, Civil Code.
2.ID.; ID.; OBLIGATIONS AND CONTRACTS; EFFECT OF
PAYMENT MADE BY A THIRD PERSON FOR DEBTOR
WITHOUT THE LATTER'S KNOWLEDGE OR CONSENT;
CASE AT BAR. However, while the law on agency
prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be
justified under the general law on obligations and
contracts (Article 1236, second paragraph, Civil
Code.) In this case, when the risk insured against
occurred, petitioner's liability as insurer arose.
This obligation was extinguished when
respondent Guevarra paid the claims and obtained
Release of Claim Loss and Subrogation Receipts
from the insured who were paid. Thus, to the
extent that the obligation of the petitioner has
been extinguished, respondent Guevarra may
demand for reimbursement from his principal. To
rule otherwise would result in unjust enrichment
of petitioner.
D E C I S I O N
PARDO, J p:
The Case
This is an appeal via certiorari 1 from the decision of the
Court of Appeals 2 affirming the decision 3 of the
Regional Trial Court, Branch 44, San Fernando,
Pampanga, which ordered petitioner Dominion Insurance
Corporation (Dominion) to pay Rodolfo S. Guevarra
(Guevarra) the sum of P156,473.90 representing the
total amount advanced by Guevarra in the payment of
the claims of Dominion's clients.
The Facts
The facts, as found by the Court of Appeals, are as
follows:
"On January 25, 1991, plaintiff Rodolfo S.
Guevarra instituted Civil Case No. 8855 for
sum of money against defendant Dominion
Insurance Corporation. Plaintiff sought to
recover thereunder the sum of P156,473.90
which he claimed to have advanced in his
capacity as manager of defendant to satisfy
certain claims filed by defendant's clients.
"In its traverse, defendant denied any liability
to plaintiff and asserted a counterclaim for
P249,672.53, representing premiums that
plaintiff allegedly failed to remit.
"On August 8, 1991, defendant filed a third-
party complaint against Fernando Austria,
who, at the time relevant to the case, was its
Regional Manager for Central Luzon area.
"In due time, third-party defendant Austria
filed his answer.
"Thereafter the pre-trial conference was set
on the following dates: October 18, 1991,
November 12, 1991, March 29, 1991,
December 12, 1991, January 17, 1992,
January 29, 1992, February 28, 1992, March
17, 1992 and April 6, 1992, in all of which
dates no pre-trial conference was held. The
record shows that except for the settings on
October 18, 1991, January 17, 1992 and
March 17, 1992 which were cancelled at the
instance of defendant, third-party defendant
and plaintiff, respectively, the rest were
postponed upon joint request of the parties.
"On May 22, 1992 the case was again called
for pre-trial conference. Only plaintiff and
counsel were present. Despite due notice,
defendant and counsel did not appear,
although a messenger, Roy Gamboa,
submitted to the trial court a handwritten
note sent to him by defendant's counsel
which instructed him to request for
postponement. Plaintiff's counsel objected to
the desired postponement and moved to
have defendant declared as in default. This
was granted by the trial court in the following
order:
"ORDER
"When this case was called for pre-
trial this afternoon only plaintiff and
his counsel Atty. Romeo Maglalang
appeared. When shown a note dated
May 21, 1992 addressed to a certain
Roy who was requested to ask for
postponement, Atty. Maglalang
vigorously objected to any
postponement on the ground that the
note is but a mere scrap of paper and
moved that the defendant corporation
be declared as in default for its failure
to appear in court despite due notice.
"Finding the verbal motion of plaintiff's
counsel to be meritorious and
considering that the pre-trial
conference has been repeatedly
postponed on motion of the defendant
Corporation, the defendant Dominion
Insurance Corporation is hereby
declared (as) in default and plaintiff is
allowed to present his evidence on
June 16, 1992 at 9:00 o'clock in the
morning.
"The plaintiff and his counsel are
notified of this order in open court.
"SO ORDERED.
"Plaintiff presented his evidence on June 16,
1992. This was followed by a written offer of
documentary exhibits on July 8 and a
supplemental offer of additional exhibits on
July 13, 1992. The exhibits were admitted in
evidence in an order dated July 17, 1992.
"On August 7, 1992 defendant corporation
filed a MOTION TO LIFT ORDER OF
DEFAULT. It alleged therein that the failure
of counsel to attend the pre-trial conference
was due to an unavoidable circumstance
and that counsel had sent his representative
on that date to inform the trial court of his
inability to appear. The Motion was
vehemently opposed by plaintiff.
"On August 25, 1992 the trial court denied
defendant's motion for reasons, among
others, that it was neither verified nor
supported by an affidavit of merit and that it
further failed to allege or specify the facts
constituting his meritorious defense.
"On September 28, 1992 defendant moved
for reconsideration of the aforesaid order. For
the first time counsel revealed to the trial
court that the reason for his nonappearance
at the pre-trial conference was his illness. An
Affidavit of Merit executed by its Executive
Vice-President purporting to explain its
meritorious defense was attached to the said
Motion. Just the same, in an Order dated
November 13, 1992, the trial court denied
said Motion.
"On November 18, 1992, the court a quo
rendered judgment as follows:
"WHEREFORE, premises considered,
judgment is hereby rendered ordering:
"1.The defendant Dominion Insurance
Corporation to pay plaintiff the sum of
P156,473.90 representing the total
amount advanced by plaintiff in the
payment of the claims of defendant's
clients;
"2.The defendant to pay plaintiff
P10,000.00 as and by way of
attorney's fees;
"3.The dismissal of the counter-claim
of the defendant and the third-party
complaint;
"4.The defendant to pay the costs of
suit." 4
On December 14, 1992, Dominion appealed the decision
to the Court of Appeals. 5
On July 19, 1996, the Court of Appeals promulgated a
decision affirming that of the trial court. 6 On September
3, 1996, Dominion filed with the Court of Appeals a
motion for reconsideration. 7 On July 16, 1997, the Court
of Appeals denied the motion. 8
Hence, this appeal. 9
The Issues
The issues raised are: (1) whether respondent Guevarra
acted within his authority as agent for petitioner, and (2)
whether respondent Guevarra is entitled to
reimbursement of amounts he paid out of his personal
money in settling the claims of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself
to render some service or to do something in
representation or on behalf of another, with the
consent or authority of the latter. 10 The basis for
agency is representation. 11 On the part of the
principal, there must be an actual intention to
appoint 12 or an intention naturally inferrable from
his words or actions; 13 and on the part of the
agent, there must be an intention to accept the
appointment and act on it, 14 and in the absence
of such intent, there is generally no agency. 15
A perusal of the Special Power of Attorney 16 would show
that petitioner (represented by third-party defendant
Austria) and respondent Guevarra intended to enter into
a principal-agent relationship. Despite the word "special"
in the title of the document, the contents reveal that
what was constituted was actually a general agency. The
terms of the agreement read:

"That we, FIRST CONTINENTAL ASSURANCE
COMPANY, INC., 17 a corporation duly
organized and existing under and by virtue of
the laws of the Republic of the Philippines, . .
. represented by the undersigned as Regional
Manager, . . . do hereby appoint RSG
Guevarra Insurance Services represented by
Mr. Rodolfo Guevarra . . . to be our Agency
Manager in San Fdo., for our place and
instead, to do and perform the following acts
and things:
"1.To conduct, sign, manager (sic),
carry on and transact Bonding
and Insurance business as
usually pertain to a Agency
Office, or FIRE, MARINE,
MOTOR CAR, PERSONAL
ACCIDENT, and BONDING with
the right, upon our prior written
consent, to appoint agents and
sub-agents.
"2.To accept, underwrite and
subscribed (sic) cover notes or
Policies of Insurance and Bonds
for and on our behalf.
"3.To demand, sue, for (sic) collect,
deposit, enforce payment,
deliver and transfer for and
receive and give effectual
receipts and discharge for all
money to which the FIRST
CONTINENTAL ASSURANCE
COMPANY, INC., 18 may
hereafter become due, owing
payable or transferable to said
Corporation by reason of or in
connection with the above-
mentioned appointment.
"4.To receive notices, summons, and
legal processes for and in
behalf of the FIRST
CONTINENTAL ASSURANCE
COMPANY, INC., in connection
with actions and all legal
proceedings against the said
Corporation." 19 [Italics
supplied]
The agency comprises all the business of the principal, 20
but, couched in general terms, it is limited only to acts of
administration. 21
A general power permits the agent to do all acts for
which the law does not require a special power. 22 Thus,
the acts enumerated in or similar to those enumerated in
the Special Power of Attorney do not require a special
power of attorney.
Article 1878, Civil Code, enumerates the instances when
a special power of attorney is required. The pertinent
portion that applies to this case provides that:
"Article 1878. Special powers of attorney are
necessary in the following cases:
"(1)To make such payments as are not
usually considered as acts of administration;
xxx xxx xxx
"(15)Any other act of strict dominion."
The payment of claims is not an act of administration.
The settlement of claims is not included among the acts
enumerated in the Special Power of Attorney, neither is it
of a character similar to the acts enumerated therein. A
special power of attorney is required before respondent
Guevarra could settle the insurance claims of the
insured.
Respondent Guevarra's authority to settle claims is
embodied in the Memorandum of Management
Agreement 23 dated February 18, 1987 which
enumerates the scope of respondent Guevarra's duties
and responsibilities as agency manager for San
Fernando, Pampanga, as follows:
"xxx xxx xxx
"1.You are hereby given authority to settle
and dispose of all motor car claims in the
amount of P5,000.00 with prior approval of
the Regional Office.
"2.Full authority is given you on TPPI claims
settlement.
"xxx xxx xxx" 24
In settling the claims mentioned above, respondent
Guevarra's authority is further limited by the written
standard authority to pay, 25 which states that the
payment shall come from respondent Guevarra's
revolving fund or collection. The authority to pay is
worded as follows:
"This is to authorize you to withdraw from
your revolving fund/collection the amount of
PESOS __________________(P _______)
representing the payment on the
_______________ claim of assured
________________ under Policy No.
________ in that accident of __________ at
__________________________.
"It is further expected, release papers will be
signed and authorized by the concerned and
attached to the corresponding claim folder
after effecting payment of the claim.
"(sgd.) FERNANDO C.
AUSTRIA
Regional
Manager" 26
[Italics supplied]
The instruction of petitioner as the principal could not be
any clearer. Respondent Guevarra was authorized to pay
the claim of the insured, but the payment shall come
from the revolving fund or collection in his possession.
Having deviated from the instructions of the principal,
the expenses that respondent Guevarra incurred in the
settlement of the claims of the insured may not be
reimbursed from petitioner Dominion. This conclusion is
in accord with Article 1918, Civil Code, which states that:
"The principal is not liable for the expenses
incurred by the agent in the following cases:
"(1)If the agent acted in contravention of the
principal's instructions, unless the latter
should wish to avail himself of the benefits
derived from the contract;
"xxx xxx xxx"
However, while the law on agency prohibits respondent
Guevarra from obtaining reimbursement, his right to
recover may still be justified under the general law on
obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
"Whoever pays for another may demand
from the debtor what he has paid, except
that if he paid without the knowledge or
against the will of the debtor, he can recover
only insofar as the payment has been
beneficial to the debtor."
In this case, when the risk insured against occurred,
petitioner's liability as insurer arose. This obligation was
extinguished when respondent Guevarra paid the claims
and obtained Release of Claim Loss and Subrogation
Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner
has been extinguished, respondent Guevarra may
demand for reimbursement from his principal. To rule
otherwise would result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the
settlement of the insurance claims could best be proven
by the Release of Claim Loss and Subrogation Receipts
27 which were attached to the original complaint as
Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-1, in the
total amount of P116,276.95.
However, the amount of the revolving fund/collection
that was then in the possession of respondent Guevarra
as reflected in the statement of account dated July 11,
1990 would be deducted from the above amount.
The outstanding balance and the production/remittance
for the period corresponding to the claims was
P3,604.84. Deducting this from P116,276.95, we get
P112,672.11. This is the amount that may be reimbursed
to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the petition. However,
we MODIFY the decision of the Court of Appeals 28
and that of the Regional Trial Court, Branch 44, San
Fernando, Pampanga, 29 in that petitioner is ordered
to pay respondent Guevarra the amount of
P112,672.11 representing the total amount advanced
by the latter in the payment of the claims of
petitioner's clients. EATcHD
No costs in this instance.
SO ORDERED.
[G.R. No. 137471. January 16, 2002.]
GUILLERMO ADRIANO, petitioner, vs.
ROMULO PANGILINAN, respondent.
Editha Arciaga-Santos for petitioner.
Sebastian Liganor & Galinato for private respondent.
SYNOPSIS
Petitioner is the registered owner of a land which title he
entrusted to Salvador for securing a mortgage loan.
However, without petitioner's knowledge and consent,
Salvador mortgaged the land to respondent.
Not only was it proven in the trial court that the
signature of the mortgagor had been forged, but also
that somebody else, an impostor, had pretended to be
the former when the mortgagee made an ocular
inspection of the subject property. It is, therefore, clear
that it is not petitioner-owner of the land who mortgaged
the property to respondent. Petitioner may have asked
Salvador to look for possible money lenders but the
former did not execute a power of attorney nor authorize
Salvador as his agent in procuring the mortgage.
Whether respondent was an innocent mortgagee
for value, the Court ruled in the negative. He failed
to observe due diligence in the grant of loan and in the
execution of the real estate mortgage. Respondent
testified that he had been engaged in the real estate
business, including the grant of loans secured by real
property mortgages, for seven years, yet he failed to
verify whether the individual executing the mortgage was
really the owner of the property. Respondent knew that
the property was being leased, but he failed to verify
from the lessees whether the claimed owner was indeed
the lessor. Thus, respondent must bear the
consequences of his negligence. As between petitioner
and respondent, the failure of the latter to verify
essential facts was the immediate cause of his
predicament.
SYLLABUS
1.CIVIL LAW; SPECIAL CONTRACTS; MORTGAGE;
REQUISITES. Article 2085 of the Civil Code
enumerates the essential requisites of a mortgage, as
follows "Art. 2085. The following requisites are essential
to the contracts of pledge and mortgage: "(1) That they
be constituted to secure the fulfillment of a principal
obligation; "(2) That the pledgor or mortgagor be the
absolute owner of the thing pledged or mortgaged; "(3)
That the persons constituting the pledge or mortgage
have the free disposal of their property, and in the
absence thereof, that they be legally authorized for that
purpose. "Third persons who are not parties to the
principal obligation may secure the latter by pledging or
mortgaging their own property. (1857)" In the case at
bar, not only was it proven in the trial court that the
signature of the mortgagor had been forged, but also
that somebody else an impostor had pretended to
be the former when the mortgagee made an ocular
inspection of the subject property. CDTHSI
2.ID.; ID; ID.; NOT VALID IF THE MORTGAGOR WAS
NOT THE OWNER OF THE PROPERTY. In Parqui v.
Philippine National Bank, this Court affirmed the trial
court's ruling that a mortgage was invalid if the
mortgagor was not the property owner.
3.ID.; TORRENS CERTIFICATE AND SYSTEM;
ELUCIDATED. It must be noted that a Torrens
certificate "serves as evidence of an indefeasible title to
the property in favor of the person whose name appears
therein." Moreover, the Torrens system "does not create
or vest title. It only confirms and records title already
existing and vested. It does not protect a usurper from
the true owner. It cannot be a shield for the commission
of fraud. It does not permit one to enrich himself at the
expense of another.
4.ID.; SPECIAL CONTRACTS; MORTGAGE; ONE IS NOT
AN INNOCENT MORTGAGEE FOR VALUE IF THERE IS
FAILURE TO OBSERVE DILIGENCE. Whether herein
respondent was an "innocent mortgagee for value," we
hold that he is not, because he failed to observe due
diligence in the grant of the loan and in the execution of
the real estate mortgage. Respondent testified that he
was engaged in the real estate business, including the
grant of loans secured by real property mortgages. Thus,
he is expected to ascertain the status and condition of
the properties offered to him as collaterals, as well as to
verify the identities of the persons he transacts business
with. Specifically, he cannot simply rely on a hasty
examination of the property offered to him as security
and the documents backing them up. He should also
verify the identity of the person who claims to be the
registered property owner. As between petitioner and
respondent, we hold that the failure of the latter to verify
essential facts was the immediate cause of his
predicament. If he were an ordinary individual without
any expertise or experience in mortgages and real estate
dealings, we would probably understand his failure to
verify essential facts. However, he has been in the
mortgage business for seven years. Thus, assuming that
both parties were negligent, the Court opines that
respondent should bear the loss. His superior knowledge
of the matter should have made him more cautious
before releasing the loan and accepting the identity of
the mortgagor.
5.ID.; ID.; ID.; NON-OWNER MORTGAGOR NEEDS
POWER OF ATTORNEY. Petitioner's act of
entrusting and delivering his TCT and Residence
Certificate to Salvador was only for the purpose of
helping him find a money lender. Not having
executed a power of attorney in her favor, he
clearly did not authorize her to be his agent in
procuring the mortgage. He only asked her to look for
possible money lenders. Article 1878 of the Civil Code
provides: "Art. 1878. Special powers of attorney are
necessary in the following cases: . . . . . . . . .(7) To loan
or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which
are under administration; . . . . . . . . . (12) To create or
convey real rights over immovable property; . . . . . . . .
.."
D E C I S I O N
PANGANIBAN, J p:
Loss brought about by the concurrent negligence of two
persons shall be borne by the one who was in the
immediate, primary and overriding position to prevent it.
In the present case, the mortgagee who is engaged in
the business of lending money secured by real estate
mortgages could have easily avoided the loss by
simply exercising due diligence in ascertaining the
identity of the impostor who claimed to be the registered
owner of the property mortgaged.
The Case
Before us in Petition for Review under Rule 45 of the
Rules of Court, assailing the November 11, 1998 Decision
1 of the Court of Appeals (CA) in CA-G.R. CV No. 44558.
The dispositive portion of the CA Decision reads as
follows:
"WHEREFORE, premises considered, the
judgment appealed from is hereby
REVERSED and SET ASIDE, and another
entered dismissing the complaint instituted in
the court below. Without costs in this
instance." 2
Also questioned is the February 5, 1999 CA Resolution 3
denying petitioner's Motion for Reconsideration.
The CA reversed the Regional Trial Court (RTC) of San
Mateo, Rizal (Branch 76) in Civil Case No. 845, which
disposed as follows:
"WHEREFORE, premises considered,
judgment is hereby rendered declaring the
real estate mortgage constituted on the
property described in and covered by TCT
No. 337942 of the Registry of Deeds for the
Province or Rizal, in the name of Guillermo
Adriano, to be null and void and of no force
and effect, and directing defendant Romulo
Pangilinan to reconvey or deliver to herein
plaintiff Guillermo Adriano the aforesaid title
after causing and effecting a discharge and
cancellation of the real estate mortgage
annotated on the said title. No
pronouncement as to costs.
"Defendant's counterclaim is dismissed for
want of basis." 4
The Facts
The undisputed facts of the case are summarized by the
Court of Appeals as follows:
"[Petitioner] Guillermo Adriano is the
registered owner of a parcel of land with an
area of three hundred four (304) square
meters, more or less, situated at Col. S. Cruz,
Geronimo, Montalban, Rizal and covered by
Transfer Certificate of Title No. 337942.
"Sometime on November 23, 1990,
[petitioner] entrusted the original owner's
copy of the aforesaid Transfer Certificate of
Title to Angelina Salvador, a distant relative,
for the purpose of securing a mortgage loan.
"Without the knowledge and consent of
[petitioner], Angelina Salvador mortgaged
the subject property to the [Respondent]
Romulo Pangilinan. After a time, [petitioner]
verified the status of his title with the
Registry of Deeds of Marikina, Metro Manila,
and was surprised to discover that upon the
said TCT No. 337942 was already annotated
or inscribed a first Real Estate Mortgage
purportedly executed by one Guillermo
Adriano over the aforesaid parcel of land,
together with the improvements thereon, in
favor of the [Respondent] Romulo Pangilinan,
in consideration of the sum of Sixty
Thousand Pesos (P60,000.00). [Petitioner]
denied that he ever executed the deed of
mortgage, and denounced his signature
thereon as a forgery; he also denied having
received the consideration of P60,000.00
stated therein.
"[Petitioner] thereafter repeatedly demanded
that [respondent] return or reconvey to him
his title to the said property and when these
demands were ignored or disregarded, he
instituted the present suit.
"[Petitioner] likewise filed a criminal case for
estafa thru falsification of public document
against [Respondent] Romulo Pangilinan, as
well as against Angelina Salvador, Romy de
Castro and Marilen Macanaya, in connection
with the execution of the allegedly falsified
deed of real estate mortgage: this was
docketed as Criminal Case No. 1533-91 of
the Regional Trial Court of San Mateo, Rizal,
Branch 76.
"[Respondent] in his defense testified that he
[was] a businessman engaged in the buying
and selling as well as in the mortgage of real
estate properties; that sometime in the first
week of December, 1990 Angelina Salvador,
together with Marilou Macanaya and a person
who introduced himself as Guillermo Adriano,
came to his house inquiring on how they
could secure a loan over a parcel of land;
that he asked them to submit the necessary
documents, such as the owner's duplicate of
the transfer certificate of title to the property,
the real estate tax declaration, its vicinity
location plan, a photograph of the property
to be mortgaged, and the owner's residence
certificate; that when he conducted an ocular
inspection of the property to be mortgaged,
he was there met by a person who had
earlier introduced himself as Guillermo
Adriano, and the latter gave him all the
original copies of the required documents to
be submitted; that after he (defendant) had
verified from the Registry of Deeds of
Marikina that the title to the property to be
mortgaged was indeed genuine, he and that
person Guillermo Adriano executed the
subject real estate mortgage, and then had it
notarized and registered with the Registry of
Deeds. After that, the alleged owner,
Guillermo Adriano, together with Marilou
Macanaya and another person signed the
promissory note in the amount of Sixty
Thousand Pesos (P60,000.00) representing
the appraised value of the mortgaged
property. This done, he (defendant) gave
them the aforesaid amount in cash.

"[Respondent] claimed that [petitioner]
voluntarily entrusted his title to the subject
property to Angelina Salvador for the purpose
of securing a loan, thereby creating a
principal-agent relationship between the
plaintiff and Angelina Salvador for the
aforesaid purpose. Thus, according to
[respondent], the execution of the real estate
mortgage was within the scope of the
authority granted to Angelina Salvador; that
in any event TCT No. 337942 and the other
relevant documents came into his possession
in the regular course of business; and that
since the said transfer certificate of title has
remained with [petitioner], the latter has no
cause of action for reconveyance against
him." 5
In his appeal before the CA, 6 respondent contended that
the RTC had erred (1) in holding that petitioner's
signature on the Real Estate Mortgage was a forgery and
(2) in setting aside and nullifying the Mortgage.
Ruling of the Court of Appeals
The CA ruled that "when a mortgagee relies upon a
Torrens title and lends money in all good faith on the
basis of the title standing in the name of the mortgagor,
only to discover one defendant to be an alleged forger
and the other defendant to have by his negligence or
acquiescence made it possible for fraud to transpire, as
between two innocent persons, the mortgagee and one
of the mortgagors, the latter who made the fraud
possible by his act of confidence must bear the loss." 7
It further explained that "even conceding for the sake of
argument that the appellant's signature on the Deed of
First Real Estate Mortgage was a forgery, and even
granting that the appellee did not participate in the
execution of the said deed of mortgage, and was not as
well aware of the alleged fraud committed by other
persons relative to its execution, the undeniable and
irrefutable fact remains that the appellee did entrust and
did deliver his Transfer Certificate of Title No. 337942
covering the subject property, to a distant relative, one
Angelina Salvador, for the avowed purpose of using the
said property as a security or collateral for a real estate
mortgage debt of loan." 8
Hence, this present recourse. 9
The Issues
In his Memorandum, 10 petitioner raises the following
issues for our consideration:
I
"Whether or not consent is an issue in
determining who must bear the loss if a
mortgage contract is sought to be declared a
nullity[;]
and
II
"Whether or not the Motion for
Reconsideration filed by the petitioner before
the Court of Appeals should have been
dismissed[.]" 11
This Court's Ruling
The Petition is meritorious.
First Issue:
Effect of Mortgage by Non-Owner
Petitioner contends that because he did not give his
consent to the real estate mortgage (his signature
having been forged), then the mortgage is void and
produces no force and effect.
Article 2085 of the Civil Code enumerates the essential
requisites of a mortgage, as follows:
"Art. 2085.The following requisites are
essential to the contracts of pledge and
mortgage:
"(1)That they be constituted to secure the
fulfillment of a principal obligation;
"(2)That the pledgor or mortgagor be the
absolute owner of the thing pledged or
mortgaged;
"(3)That the persons constituting the pledge
or mortgage have the free disposal of their
property, and in the absence thereof, that
they be legally authorized for that purpose.
"Third persons who are not parties to the
principal obligation may secure the latter by
pledging or mortgaging their own property.
(1857)" (Italics supplied)
In the case at bar, not only was it proven in the trial
court that the signature of the mortgagor had been
forged, but also that somebody else and impostor
had pretended to be the former when the mortgagee
made an ocular inspection of the subject property. On
this point, the RTC held as follows:
"The falsity attendant to the subject real
estate mortgage is evidenced not only by
herein plaintiff's vehement denial of having
into the contract with defendant, but also by
a comparison between the signature of the
debtor-mortgagor appearing in the said
mortgage contract, and plaintiff's signatures
appearing in the records of this case. Even to
the naked eye, the difference is glaring, and
there can be no denying the fact that both
signatures were not written or affixed by one
and the same person. The falsity is further
infe[r]able from defendant's admission that
the plaintiff in this case who appeared in
court [was] not the same person who
represented himself as the owner of the
property (TSN, pp. 7, 11, June 21, 1993
hearing) and who therefore was the one who
signed the contract as the debtor-
mortgagor." 12
The CA did not dispute the foregoing finding, but faulted
petitioner for entrusting to Angelina Salvador the TCT
covering the property. Without his knowledge or
consent, however, she caused or abetted an impostor's
execution of the real estate mortgage.
"Even conceding for the sake of argument
that the appellee's signature on the Deed of
First Real Estate Mortgage (Exh. B; Original
Record, pp. 56-58) was a forgery, and even
granting that the appellee did not participate
in the execution of the said deed of
mortgage, and was not as well aware of the
alleged fraud committed by other persons
relative to its execution, the undeniable and
irrefutable fact remains that the appellee did
entrust and did deliver his Transfer Certificate
of Title No. 337942 (Exh. A; Original Record,
pp. 53-55) covering the subject property, to
a distant relative, one Angelina Salvador, for
the avowed purpose of using the said
property as a security or collateral for a real
estate mortgage debt of loan. . . ." 13
Be that as it may, it is clear that petitioner who is
undisputedly the property owner did not mortgage the
property himself. Neither did he authorize Salvador or
anyone else to do so.
In Parqui v. Philippine National Bank, 14 this Court
affirmed the trial court's ruling that a mortgage was
invalid if the mortgagor was not the property owner:
"After carefully considering the issue, we
reach the conclusion that His Honor's
decision was correct. One of the essential
requisites of a valid mortgage, under the Civil
Code is 'that the thing pledged or mortgaged
be owned by the person who pledges or
mortgages it' (Art. 1857, par. 2); and there is
no question that Roman Oliver who pledged
the property to the Philippine National Bank
did not own it. The mortgage was
consequently void." 15
Second Issue:
Concurrent Negligence of the Parties
The CA reversed the lower court, because petitioner had
been negligent in entrusting and delivering his TCT No.
337942 to his "distant relative" Angelina Salvador, who
undertook to find a money lender. Citing Blondeau v.
Nano 16 and Philippine National Bank v. CA, 17 it then
applied the "bona fide purchaser for value" principle.
Both cases cited involved individuals who, by their
negligence, enabled other persons to cause the
cancellation of the original TCT of the disputed property
and the issuance of a new one in their favor. Having
obtained TCTs in their names, they conveyed the subject
property to third persons, who in Blondeau was a bona
fide purchaser while in Philippine National Bank was an
innocent mortgagee for value. It should be stressed that
in both these cases, the seller and the mortgagor were
the registered owners of the subject property; whereas
in the present case, the mortgagor was an impostor, not
the registered owner.
It must be noted that a Torrens certificate "serves as
evidence of an indefeasible title to the property in favor
of the person whose name appears therein." 18
Moreover, the Torrens system "does not create or vest
title. It only confirms and records title already existing
and vested. It does not protect a usurper from the true
owner. It cannot be a shield for the commission of fraud.
It does not permit one to enrich himself at the expense
of another." 19
Thus, we ask these questions: Was petitioner negligent
in entrusting and delivering his TCT to a relative who
was supposed to help him find a money lender? And if
so, was such negligence sufficient to deprive him of his
property?
To be able to answer these questions and apply the
holding in Philippine National Bank, it is crucial to
determine whether herein respondent was an "innocent
mortgagee for value." After a careful review of the
records and pleadings of the case, we hold that he is
not, because he failed to observe due diligence in the
grant of the loan and in the execution of the real estate
mortgage. 20
Respondent testified that he was engaged in the real
estate business, including the grant of loans secured by
real property mortgages. Thus, he is expected to
ascertain the status and condition of the properties
offered to him as collaterals, as well as to verify the
identities of the persons he transacts business with.
Specifically, he cannot simply rely on a hasty
examination of the property offered to him as security
and the documents backing them up. 21 He should also
verify the identity of the person who claims to be the
registered property owner.
Respondent stated in his testimony that he had been
engaged in the real estate business for almost seven
years. 22 Before the trial court, he testified on how he
had approved the loan sought and the property
mortgaged:
"QMr. witness, you stated earlier that your
are a businessman. Will you please
inform the Hon. Court what kind of
business you are engaged in?
AFirst, as a businessman, I buy and sell real
estate properties, sir, and engaged in
real estate mortgage, sir.
QIn relation to your buy and sell business,
Mr. witness, how many clients have
you had since you started?
ASince I started in 1985, I have [had] almost
30 to 50 clients, sir.
xxx xxx xxx
QWill your inform the Court, Mr. [W]itness,
how are you found by your clients?
AI advertise it in the newspapers, sir.
QAnd what is the frequency of this
advertisement in the newspapers?
AOne whole week in every month, sir.
QLet us go specifically [to] the real estate
mortgage, Mr. [W]itness, which has
relation to this case. Will you inform
the Court how you go about this
business, meaning, if you have any
procedure that you follow?

AAs soon as my client go[es] to our house, I
usually give them the requirements,
sir.
QAnd what are these requirements?
AI usually require them to submit to me at
least a machine copy of the title, the
location plan with vicinity, the real
estate tax, the tax declaration, the
picture of the property and the Res.
Cert. of the owner, sir.
QAnd when these documents are given to
you, what else do you do, if any?
AWhen they present to me the machine
copy, I require them to visit the place
for the ocular inspection for the
appraisal of the property, sir.
QWhat other steps, if any?
AAfter that ocular inspection, sir, appraising
the property, I usually tell them to
come back after one week for
verification of the title in the Register
of Deeds, sir.
QWill you inform the Court how you verif[ied]
the title with the Register of Deeds?
AI got a certified true copy from the Register
of Deeds, sir.
QCertified true copy of what, Mr. witness?
AThe owner's duplicate title [to] the property,
sir.
QWill you inform the Court why you asked for
these documents?
ATo see to it that the title [was] genuine, sir.
xxx xxx xxx
QYou mentioned Residence Certificate. Why
did you ask for a Residence
Certificate?
ATo fully identify the alleged owner, sir.
QSo, when the machine copies of these
documents . . . were given to you [as
you said], what did you do next, if
any?
A. . . [O]cular inspection, sir, that is my
standard procedure. After they gave
me all the requirements, we usually go
there for the ocular inspection for the
appraisal of the property, sir.
QSo, you went to the house itself?
AYes, sir.
QDid you go there alone or were you with
somebody else?
AWith the[ir] group . . ., sir, the one [which]
came to our house. The two of them
were Marilou Macanaya and Angelina
Salvador.
QAnd when you went to the house, what did
you see?
AI saw a man there . . . who posed as
Guillermo Adriano and gave me all the
original copies of the requirements,
sir.
QDid you get to enter the house?
AAs an architect, as soon as I [saw] the
house, I already knew what [was] the
appraisal, sir, and I knew already the
surroundings of the property.
QSo, you did not need to go inside the
house?
AInside the house, not anymore, sir, we
talked only inside the property.
QAnd this person who gave you the original
documents is the owner of the house?
AI assumed it, sir, [that] he [was] the
owner." 23 (Italics supplied)
On cross[-]examination, he made a clarification:
"QMr. Pangilinan, will you state again what
business are you engaged [in]?
AFirst, as an Architect, I do design and build
and as a businessman, I do the buy
and sell of real properties and
engag[e] in mortgage contract, sir.
QActually, it is in the mortgage business that
you practically have the big bulk of
your business. Isn't it?
AYes, sir." 24
It is quite clear from the testimony of respondent that he
dismally failed to verify whether the individual executing
the mortgage was really the owner of the property.
The ocular inspection respondent conducted was
primarily intended to appraise the value of the property
in order to determine how much loan he would grant. He
did not verify whether the mortgagor was really the
owner of the property sought to be mortgaged. Because
of this, he must bear the consequences of his
negligence.
In Uy v. CA, 25 the Court through Mr. Justice Jose A. R.
Melo made the following significant observations:
"Thus, while it is true, as asserted by
petitioners, that a person dealing with
registered lands need not go beyond the
certificate of title, it is likewise a well-settled
rule that a purchaser or mortgagee cannot
close his eyes to facts which should put a
reasonable man on his guard, and then claim
that he acted in good faith under the belief
that there was no defect in the title of the
vendor or mortgagor. His mere refusal to
face up to the fact that such defect exists, or
his willful closing of his eyes to the possibility
of the existence of a defect in the vendor's or
mortgagor's title, will not make him an
innocent purchaser for value, if it afterwards
develops that the title was in fact defective,
and it appears that he had such notice of the
defect as would have led to its discovery had
he acted with the measure of precaution
which may be required of a prudent man in a
like situation." 26
Indeed, there are circumstances that should put a party
on guard and prompt an investigation of the property
being mortgaged. Citing Torres v. CA, 27 the Court
continued as follows:
". . . [The] value of the property, its principal
value being its income potential in the form
of monthly rentals being located at the
corner of Quezon Boulevard and Raon Street,
Manila, and the registered title not yielding
any information as to the amount of rentals
due from the building, much less on who is
collecting them, or who is recognized by the
tenants as their landlord it was held that
any prospective buyer or mortgagee of such
a valuable building and land at the center of
Manila, if prudent and in good faith, is
normally expected to inquire into all these
and related facts and circumstances. For
failing to conduct such an investigation, a
party would be negligent in protecting his
interests and cannot be held as an innocent
purchaser for value." 28
We are not impressed by the claim of respondent that he
exercised due diligence in ascertaining the identity of the
alleged mortgagor when he made an ocular inspection 29
of the mortgaged property. Respondent's testimony
negated this assertion.
"QNow you told me also that you conducted
an ocular inspection o[f] the premises.
How many times did you do it?
AOnce, sir.
QWho were with you when you went there?
AThe same group of them, sir.
QHow long did you stay in the premises?
AI think 5 to 10 minutes, sir.
QAnd did you see any people inside the
premises where you visited?
AYes, sir.
QDid you ask these persons?
AThey told me that. . .
QDid you ask these persons whom you saw
in the premises?
ANo, sir.
QAnd what . . . did you [just] do when you
inspected the premises?
xxx xxx xxx
AWhen I arrived in the property, the house,
the alleged owner told me that the
one staying at his house were just
renting from him, sir.
xxx xxx xxx
QAgain, Mr. Pangilinan, my question to you
is, what did you do when you arrived
in the premises in the course of your
ocular inspection?
Atty. Garcia:
Already answered.
Court:
You may answer.
AWhen I arrived at that place, I just looked
around and as an Architect, I [saw]
that I [could] appraise it just [by] one
look at it, sir.
Atty. Amado:
QAnd after that, where did you go? Where
did you and this group go?
AJust inside the property, sir. We talked
[about] how much [would] be given to
them and I told them this [was] only
the amount I [could] give them, sir."
30 (Italics supplied)
Since he knew that the property was being leased,
respondent should have made inquiries about the rights
of the actual possessors. He could have easily verified
from the lessees whether the claimed owner was,
indeed, their lessor.
Petitioner's act of entrusting and delivering his TCT and
Residence Certificate to Salvador was only for the
purpose of helping him find a money lender. Not having
executed a power of attorney in her favor, he clearly did
not authorize her to be his agent in procuring the
mortgage. He only asked her to look for possible money
lenders. Article 1878 of the Civil Code provides:
"Art. 1878.Special powers of attorney are
necessary in the following cases:
xxx xxx xxx
(7)To loan or borrow money, unless the latter
act be urgent and indispensable for the
preservation of the things which are under
administration;
xxx xxx xxx
(12)To create or convey real rights over
immovable property;
xxx xxx xxx."
As between petitioner and respondent, we hold that the
failure of the latter to verify essential facts was the
immediate cause of his predicament. If he were an
ordinary individual without any expertise or experience in
mortgages and real estate dealings, we would probably
understand his failure to verify essential facts. However,
he has been in the mortgage business for seven years.
Thus, assuming that both parties were negligent, the
Court opines that respondent should bear the loss. His
superior knowledge of the matter should have made him
more cautious before releasing the loan and accepting
the identity of the mortgagor. 31
Given the particular circumstances of this case, we
believe that the negligence of petitioner is not enough to
offset the fault of respondent himself in granting the
loan. The former should not be made to suffer for
respondent's failure to verify the identity of the
mortgagor and the actual status of the subject property
before agreeing to the real estate mortgage. While we
commiserate with respondent who in the end appears
to have been the victim of scoundrels his own
negligence was the primary, immediate and overriding
reason that put him in his present predicament.
To summarize, we hold that both law and equity favor
petitioner. First, the relevant legal provision, Article 2085
of the Civil Code, requires that the "mortgagor be the
absolute owner of the thing . . . mortgaged." Here, the
mortgagor was an impostor who executed the contract
without the knowledge and consent of the owner.
Second, equity dictates that a loss brought about by the
concurrent negligence of two persons shall be borne by
one who was in the immediate, primary and overriding
position to prevent it. Herein respondent who, we
repeat, is engaged in the business of lending money
secured by real estate mortgages could have easily
avoided the loss by simply exercising due diligence in
ascertaining the identity of the impostor who claimed to
be the owner of the property being mortgaged. Finally,
equity merely supplements, not supplants, the law. The
former cannot contravene or take the place of the latter.

In any event, respondent is not precluded from availing
himself of proper remedies against Angelina Salvador
and her cohorts.
WHEREFORE, the Petition is GRANTED and the assailed
Decision SET ASIDE. The November 25, 1993 Decision of
the RTC of San Mateo, Rizal (Branch 76) is hereby
REINSTATED. No costs.
SO ORDERED.
[G.R. No. 128573. January 13, 2003.]
NAAWAN COMMUNITY RURAL BANK
INC., petitioner, vs. THE COURT OF
APPEALS and SPOUSES ALFREDO
AND ANNABELLE LUMO, respondents.
Ike L. Roa for petitioner.
Teogenes X. Velez for private respondents.
SYNOPSIS
In 1988, after inquiries from the Office of the Register of
Deeds of Cagayan de Oro City and the Bureau of Lands
on the legal status of the vendor's title, spouses Alfredo
and Annabelle Lumo purchased a house and lot covered
by TCT No. 41499 from Guillermo Comayas. The deed of
absolute sale was registered and TCT No. T-50134 was
issued in their names. However, when they requested for
the issuance of new tax declaration in their names, they
learned from the City Assessor's Office that the said
property was also declared for tax purposes in the name
of Naawan Community Rural Bank, Inc. It appeared then
that in 1983 Comayas mortgaged the said property to
the Naawan Community Rural Bank and for failure to pay
the said loan, it was foreclosed and sold at a public
auction to the latter as a highest bidder. And in 1986,
after the redemption period had lapsed, the deed of final
conveyance was registered under Act 3344 and recorded
in the registration book of the Register of Deeds of
Cagayan de Oro City. By reason thereof, spouses Lumo
filed an action for quieting of title. After trial, the
Regional Trial Court rendered a decision declaring
spouses Lumo to be a purchaser for value and in good
faith. On appeal, the Court of Appeals affirmed the trial
court's decision. Hence, Naawan Community Rural Bank
Inc. filed this petition.
The Court ruled that the "priority in time"
principle being invoked by petitioner bank is
misplaced because its registration referred to land
not within the Torrens System but under Act
3344. On the other hand, when private respondents
bought the subject property, the same was already
registered under the Torrens System. It is a well-known
rule in this jurisdiction that persons dealing with
registered land have the legal right to rely on the face of
the Torrens Certificate of Title and to dispense with the
need to inquire further, except when the party concerned
has actual knowledge of facts and circumstances that
would impel a reasonably cautious man to make such
inquiry.
Considering, therefore, that private respondents
exercised the diligence required by law in ascertaining
the legal status of the Torrens title of Guillermo Comayas
over the subject property and found no flaws therein,
they should be considered as innocent purchasers for
value and in good faith.
SYLLABUS
1.CIVIL LAW; SALES; DOUBLE SALE OF IMMOVABLE
PROPERTY; APPLICABLE ONLY IF EXECUTION SALE OF
REAL ESTATE IS REGISTERED UNDER ACT 496; NOT
PRESENT IN CASE AT BAR. It has been held that,
where a person claims to have superior proprietary rights
over another on the ground that he derived his title from
a sheriff's sale registered in the Registry of Property,
Article 1473 (now Article 1544) of the Civil Code will
apply only if said execution sale of real estate is
registered under Act 496. Unfortunately, the subject
property was still untitled when it was acquired by
petitioner bank by virtue of a final deed of conveyance.
On the other hand, when private respondents purchased
the same property, it was already covered by the Torrens
System.
2.ID.; LAND TITLES AND DEEDS; TORRENS SYSTEM;
REGISTRATION IS THE OPERATIVE ACT THAT GIVES
VALIDITY TO THE TRANSFER OR CREATES A LIEN UPON
THE LAND; NOT COMPLIED WITH IN CASE AT BAR.
[A] close scrutiny of the records reveals that, at the time
of the execution and delivery of the sheriff's deed of final
conveyance on September 5, 1986, the disputed
property was already covered by the Land Registration
Act and Original Certificate of Title No. 0-820 pursuant to
Decree No. N189413 was likewise already entered in the
registration book of the Register of Deeds of Cagayan de
Oro City as of April 17, 1984. Thus, from April 17, 1984,
the subject property was already under the operation of
the Torrens System. Under the said system, registration
is the operative act that gives validity to the transfer or
creates a lien upon the land. acIHDA
3.ID.; ID.; ID.; ISSUANCE OF CERTIFICATE OF TITLE
HAD THE EFFECT OF RELIEVING THE LAND OF ALL
CLAIMS EXCEPT THOSE NOTED THEREON. [T]he
issuance of a certificate of title had the effect of relieving
the land of all claims except those noted thereon.
Accordingly, private respondents, in dealing with the
subject registered land, were not required by law to go
beyond the register to determine the legal condition of
the property. They were only charged with notice of such
burdens on the property as were noted on the register or
the certificate of title. To have required them to do more
would have been to defeat the primary object of the
Torrens System which is to make the Torrens Title
indefeasible and valid against the whole world.
4.CIVIL LAW; SALES; DOUBLE SALE; MERE
REGISTRATION IS NOT ENOUGH, GOOD FAITH MUST
CONCUR. The rights created by the [Property
Registration Decree] of course do not and cannot accrue
under an inscription in bad faith. Mere registration of title
in case of double sale is not enough; good faith must
concur with the registration.
5.ID.; ID.; ID.; ID.; ESTABLISHED IN CASE AT BAR.
Before private respondents bought the subject property
from Guillermo Comayas, inquiries were made with the
Registry of Deeds and the Bureau of Lands regarding the
status of the vendor's title. No liens or encumbrances
were found to have been annotated on the certificate of
title. Neither were private respondents aware of any
adverse claim or lien on the property other than the
adverse claim of a certain Geneva Galupo to whom
Guillermo Comayas had mortgaged the subject property.
But, as already mentioned, the claim of Galupo was
eventually settled and the adverse claim previously
annotated on the title cancelled. Thus, having made the
necessary inquiries, private respondents did not have to
go beyond the certificate of title. Otherwise, the efficacy
and conclusiveness of the Torrens Certificate of Title
would be rendered futile and nugatory. Considering
therefore that private respondents exercised the
diligence required by law in ascertaining the legal status
of the Torrens title of Guillermo Comayas over the
subject property and found no flaws therein, they should
be considered as innocent purchasers for value and in
good faith.
6.CIVIL LAW; LAND TITLES AND DEEDS; PERSONS
DEALING WITH REGISTERED LAND HAVE THE LEGAL
RIGHT TO RELY ON THE FACE OF THE TORRENS
CERTIFICATE OF TITLE. The "priority in time"
principle being invoked by petitioner bank is misplaced
because its registration referred to land not within the
Torrens System but under Act 3344. On the other hand,
when private respondents bought the subject property,
the same was already registered under the Torrens
System. It is a well-known rule in this jurisdiction that
persons dealing with registered land have the legal right
to rely on the face of the Torrens Certificate of Title and
to dispense with the need to inquire further, except
when the party concerned has actual knowledge of facts
and circumstances that would impel a reasonably
cautious man to make such inquiry.
D E C I S I O N
CORONA, J p:
Under the established principles of land registration, a
person dealing with registered land may generally rely on
the correctness of a certificate of title and the law will in
no way oblige him to go beyond it to determine the legal
status of the property. STADIH
Before us is a Petition for Review on Certiorari
challenging the February 7, 1997 Decision 1 of the Court
of Appeals in CA-G.R. CV No. 55149, which in turn
affirmed the decision 2 of the Regional Trial Court of
Misamis Oriental, Branch 18 as follows:
"WHEREFORE, the plaintiffs-spouses are
adjudged the absolute owners and
possessors of the properties in question (Lot
18583, under TCT No. T-50134, and all
improvements thereon) and quieting title
thereto as against any and all adverse claims
of the defendant. Further, the sheriff's
certificate of sale, Exhibit 4; 4-A; Sheriff's
deed of final conveyance, Exhibit 5, 5-A; Tax
Declarations No. 71211, Exhibit 7, and any
and all instrument, record, claim,
encumbrance or proceeding in favor of the
defendant, as against the plaintiffs, and their
predecessor-in-interest, which may be extant
in the office of the Register of Deeds of
Province of Misamis Oriental, and of Cagayan
de Oro City, and in the City Assessor's Office
of Cagayan de Oro City, are declared as
invalid and ineffective as against the
plaintiffs' title.
"The counterclaim is dismissed for lack of
merit.
"SO ORDERED." 3
The facts of the case, as culled from the records, are as
follows:
On April 30, 1988, a certain Guillermo Comayas offered
to sell to private respondent-spouses Alfredo and
Annabelle Lumo, a house and lot measuring 340 square
meters located at Pinikitan, Camaman-an, Cagayan de
Oro City.
Wanting to buy said house and lot, private respondents
made inquiries at the Office of the Register of Deeds of
Cagayan de Oro City where the property is located and
the Bureau of Lands on the legal status of the vendor's
title. They found out that the property was mortgaged
for P8,000 to a certain Mrs. Galupo and that the owner's
copy of the Certificate of Title to said property was in her
possession.
Private respondents directed Guillermo Comayas to
redeem the property from Galupo at their expense,
giving the amount of P10,000 to Comayas for that
purpose.
On May 30, 1988, a release of the adverse claim of
Galupo was annotated on TCT No. T-41499 which
covered the subject property.
In the meantime, on May 17, 1988, even before the
release of Galupo's adverse claim, private respondents
and Guillermo Comayas, executed a deed of absolute
sale. The subject property was allegedly sold for
P125,000 but the deed of sale reflected the amount of
only P30,000 which was the amount private respondents
were ready to pay at the time of the execution of said
deed, the balance payable by installment.

On June 9, 1988, the deed of absolute sale was
registered and inscribed on TCT No. T-41499 and, on
even date, TCT No. T-50134 was issued in favor of
private respondents.
After obtaining their TCT, private respondents requested
the issuance of a new tax declaration certificate in their
names. However, they were surprised to learn from the
City Assessor's Office that the property was also declared
for tax purposes in the name of petitioner Naawan
Community Rural Bank Inc. Records in the City
Assessor's Office revealed that, for the lot covered by
TCT No. T-50134, Alfredo Lumo's T/D # 83324 bore the
note: "This lot is also declared in the name of Naawan
Community Rural Bank Inc. under T/D # 71210".
Apparently, on February 7, 1983, Guillermo Comayas
obtained a P15,000 loan from petitioner Bank using the
subject property as security. At the time said contract of
mortgage was entered into, the subject property was
then an unregistered parcel of residential land, tax-
declared in the name of a certain Sergio A. Balibay while
the residential one-storey house was tax-declared in the
name of Comayas.
Balibay executed a special power of attorney
authorizing Comayas to borrow money and use
the subject lot as security. But the Deed of Real
Estate Mortgage and the Special Power of
Attorney were recorded in the registration book of
the Province of Misamis Oriental, not in the
registration book of Cagayan de Oro City. It
appears that, when the registration was made, there was
only one Register of Deeds for the entire province of
Misamis Oriental, including Cagayan de Oro City. It was
only in 1985 when the Office of the Register of Deeds for
Cagayan de Oro City was established separately from the
Office of the Register of Deeds for the Province of
Misamis Oriental.
For failure of Comayas to pay, the real estate mortgage
was foreclosed and the subject property sold at a public
auction to the mortgagee Naawan Community Rural
Bank as the highest bidder in the amount of P16,031.35.
Thereafter, the sheriff's certificate of sale was issued and
registered under Act 3344 in the Register of Deeds of the
Province of Misamis Oriental.
On April 17, 1984, the subject property was registered in
original proceedings under the Land Registration Act.
Title was entered in the registration book of the Register
of Deeds of Cagayan de Oro City as Original Certificate of
Title No. 0-820, pursuant to Decree No. N-189413.
On July 23, 1984, Transfer Certificate of Title No. T-
41499 in the name of Guillermo P. Comayas was entered
in the Register of Deeds of Cagayan de Oro City.
Meanwhile, on September 5, 1986, the period for
redemption of the foreclosed subject property lapsed and
the MTCC Deputy Sheriff of Cagayan de Oro City issued
and delivered to petitioner bank the sheriff's deed of final
conveyance. This time, the deed was registered under
Act 3344 and recorded in the registration book of the
Register of Deeds of Cagayan de Oro City.
By virtue of said deed, petitioner Bank obtained a tax
declaration for the subject house and lot.
Thereafter, petitioner Bank instituted an action for
ejectment against Comayas before the MTCC which
decided in its favor. On appeal, the Regional Trial Court
affirmed the decision of the MTCC in a decision dated
April 13, 1988.
On January 27, 1989, the Regional Trial Court issued an
order for the issuance of a writ of execution of its
judgment. The MTCC, being the court of origin, promptly
issued said writ.
However, when the writ was served, the property was no
longer occupied by Comayas but herein private
respondents, the spouses Lumo who had, as earlier
mentioned, bought it from Comayas on May 17, 1988.
Alarmed by the prospect of being ejected from their
home, private respondents filed an action for quieting of
title which was docketed as Civil Case No. 89-138. After
trial, the Regional Trial Court rendered a decision
declaring private respondents as purchasers for value
and in good faith, and consequently declaring them as
the absolute owners and possessors of the subject house
and lot. Petitioner appealed to the Court of Appeals
which in turn affirmed the trial court's decision.
Hence, this petition.
Petitioner raises the following issues:
I.WHETHER OR NOT THE SHERIFF'S DEED
OF FINAL CONVEYANCE WAS DULY
EXECUTED AND REGISTERED IN
THE REGISTER OF DEEDS OF
CAGAYAN DE ORO CITY ON
DECEMBER 2, 1986;
II.WHETHER OR NOT REGISTRATION OF
SHERIFF'S DEED OF FINAL
CONVEYANCE IN THE PROPER
REGISTRY OF DEEDS COULD BE
EFFECTIVE AS AGAINST SPOUSES
LUMO.
Both parties cite Article 1544 of the Civil Code which
governs the double sale of immovable property.
Article 1544 provides:
". . . . Should it be immovable property, the
ownership shall belong to the person
acquiring it who in good faith first recorded it
in the Registry of Property."
Petitioner bank contends that the earlier registration of
the sheriff's deed of final conveyance in the day book
under Act 3344 should prevail over the later registration
of private respondents' deed of absolute sale under Act
496, 4 as amended by the Property Registration Decree,
PD 1529.
This contention has no leg to stand on. It has been held
that, where a person claims to have superior proprietary
rights over another on the ground that he derived his
title from a sheriff's sale registered in the Registry of
Property, Article 1473 (now Article 1544) of the Civil
Code will apply only if said execution sale of real estate is
registered under Act 496. 5
Unfortunately, the subject property was still untitled
when it was already acquired by petitioner bank by virtue
of a final deed of conveyance. On the other hand, when
private respondents purchased the same property, it was
covered by the Torrens System.
Petitioner also relies on the case of Bautista vs. Fule 6
where the Court ruled that the registration of an
instrument involving unregistered land in the Registry of
Deeds creates constructive notice and binds third person
who may subsequently deal with the same property.
However, a close scrutiny of the records reveals that, at
the time of the execution and delivery of the sheriff's
deed of final conveyance on September 5, 1986, the
disputed property was already covered by the Land
Registration Act and Original Certificate of Title No. 0-
820 pursuant to Decree No. N189413 was likewise
already entered in the registration book of the Register
of Deeds of Cagayan De Oro City as of April 17, 1984.
Thus, from April 17, 1984, the subject property was
already under the operation of the Torrens System.
Under the said system, registration is the operative act
that gives validity to the transfer or creates a lien upon
the land.
Moreover, the issuance of a certificate of title had the
effect of relieving the land of all claims except those
noted thereon. Accordingly, private respondents, in
dealing with the subject registered land, were not
required by law to go beyond the register to determine
the legal condition of the property. They were only
charged with notice of such burdens on the property as
were noted on the register or the certificate of title. To
have required them to do more would have been to
defeat the primary object of the Torrens System which is
to make the Torrens Title indefeasible and valid against
the whole world.
Private respondents posit that, even assuming that the
sheriff's deed of final conveyance in favor of petitioner
bank was duly recorded in the day book of the Register
of Deeds under Act 3344, ownership of the subject real
property would still be theirs as purchasers in good faith
because they registered the sale first under the Property
Registration Decree.
The rights created by the above-stated statute of course
do not and cannot accrue under an inscription in bad
faith. Mere registration of title in case of double sale is
not enough; good faith must concur with the
registration. 7
Petitioner contends that the due and proper registration
of the sheriff's deed of final conveyance on December 2,
1986 amounted to constructive notice to private
respondents. Thus, when private respondents bought the
subject property on May 17, 1988, they were deemed to
have purchased the said property with the knowledge
that it was already registered in the name of petitioner
bank.
Thus, the only issue left to be resolved is whether or
not private respondents could be considered as
buyers in good faith.
The "priority in time" principle being invoked by
petitioner bank is misplaced because its registration
referred to land not within the Torrens System but under
Act 3344. On the other hand, when private respondents
bought the subject property, the same was already
registered under the Torrens System. It is a well-known
rule in this jurisdiction that persons dealing with
registered land have the legal right to rely on the face of
the Torrens Certificate of Title and to dispense with the
need to inquire further, except when the party concerned
has actual knowledge of facts and circumstances that
would impel a reasonably cautious man to make such
inquiry. 8
Did private respondents exercise the required
diligence in ascertaining the legal condition of the
title to the subject property so as to be considered
as innocent purchasers for value and in good
faith?
We answer in the affirmative.
Before private respondents bought the subject property
from Guillermo Comayas, inquiries were made with the
Registry of Deeds and the Bureau of Lands regarding the
status of the vendor's title. No liens or encumbrances
were found to have been annotated on the certificate of
title. Neither were private respondents aware of any
adverse claim or lien on the property other than the
adverse claim of a certain Geneva Galupo to whom
Guillermo Comayas had mortgaged the subject property.
But, as already mentioned, the claim of Galupo was
eventually settled and the adverse claim previously
annotated on the title cancelled. Thus, having made the
necessary inquiries, private respondents did not have to
go beyond the certificate of title. Otherwise, the efficacy
and conclusiveness of the Torrens Certificate of Title
would be rendered futile and nugatory.

Considering therefore that private respondents exercised
the diligence required by law in ascertaining the legal
status of the Torrens title of Guillermo Comayas over the
subject property and found no flaws therein, they should
be considered as innocent purchasers for value and in
good faith.
Accordingly, the appealed judgment of the appellate
court upholding private respondents Alfredo and
Annabelle Lumo as the true and rightful owners of the
disputed property is affirmed.
WHEREFORE, petition is hereby DENIED.
SO ORDERED.
[G.R. No. 85302. March 31, 1989.]
BICOL SAVINGS AND LOAN
ASSOCIATION, petitioner, vs. HON.
COURT OF APPEALS, CORAZON DE
JESUS, LYDIA DE JESUS, NELIA DE
JESUS, JOSE DE JESUS, AND PABLO
DE JESUS, respondents.
Contreras & Associates for petitioner.
Reynaldo A. Feliciano for private respondents.
SYLLABUS
1.CIVIL LAW; AGENCY; SALE PROSCRIBED BY A
SPECIAL POWER TO MORTGAGE UNDER ARTICLE 1879
OF CIVIL CODE, A VOLUNTARY AND INDEPENDENT
CONTRACT AND NOT AN AUCTION SALE RESULTING
FROM EXTRAJUDICIAL FORECLOSURE. The sale
proscribed by a special power to mortgage under Article
1879 is a voluntary and independent contract, and not
an auction sale resulting from extrajudicial foreclosure,
which is precipitated by the default of a mortgagor.
Absent that default, no foreclosure results.
2.ID.; ID.; STIPULATION GRANTING AUTHORITY TO
EXTRAJUDICIALLY FORECLOSE A MORTGAGE, AN
ANCILLARY STIPULATION. The stipulation granting an
authority to extrajudicially foreclose a mortgage is an
ancillary stipulation supported by the same cause or
consideration for the mortgage and forms an essential or
inseparable part of that bilateral agreement (Perez v.
Philippine National Bank, No. L-21813, July 30, 1966, 17
SCRA 833, 839).
3.ID.; ID.; POWER TO FORECLOSURE; NOT AN
ORDINARY AGENCY BUR PRIMARILY AN AUTHORITY
CONFERRED UPON MORTGAGEE FOR LATTER'S OWN
PROTECTION; SUCH POWER SURVIVES DEATH OF
MORTGAGOR. The power to foreclose is not an
ordinary agency that contemplates exclusively the
representation of the principal by the agent but is
primarily an authority conferred upon the mortgagee for
the latter's own protection. That power survives the
death of the mortgagor (Perez vs. PNB, supra).
4.REMEDIAL LAW; SPECIAL PROCEEDINGS;
SETTLEMENT OF ESTATE OF DECEASED PERSONS;
CLAIMS AGAINST ESTATE; REMEDIES GRANTED TO A
MORTGAGEE ALTERNATIVELY PURSUED IN CASE
MORTGAGOR DIES, CITED. Section 7, Rule 86 of the
Rules of Court, which grants to a mortgagee three
remedies that can be alternatively pursued in case the
mortgagor dies, to wit: (1) to waive the mortgage and
claim the entire debt from the estate of the mortgagor as
an ordinary claim; (2) to foreclose the mortgage
judicially and prove any deficiency as an ordinary claim;
and (3) to rely on the mortgage exclusively, foreclosing
the same at any time before it is barred by prescription,
without right to file a claim for any deficiency.
D E C I S I O N
MELENCIO-HERRERA, J p:
This Petition for Review on Certiorari was filed by Bicol
Savings and Loan Association, seeking the reversal of the
Decision
*
of the respondent Court of Appeals in CA-G.R.
CV No. 02213, dated 11 August 1988, which ruled
adversely against it. The pleadings disclose the following
factual milieu:
Juan de Jesus was the owner of a parcel of land,
containing an area of 6,870 sq. ms., more or less,
situated in Naga City. On 31 March 1976, he executed a
Special Power of Attorney in favor of his son, Jose de
Jesus, "To negotiate, mortgage my real property in any
bank either private or public entity preferably in the Bicol
Savings Bank, Naga City, in any amount that may be
agreed upon between the bank and my attorney-in-fact."
(CA Decision, p. 44, Rollo)
By virtue thereof, Jose de Jesus obtained a loan of
twenty thousand pesos (P20,000.00) from petitioner
bank on 13 April 1976. To secure payment, Jose de
Jesus executed a deed of mortgage on the real property
referred to in the Special Power of Attorney, which
mortgage contract carried, inter alia, the following
stipulation:
"b)If at any time the Mortgagor shall refuse
to pay the obligations herein secured, or any
of the amortizations of such indebtedness
when due, or to comply with any of the
conditions and stipulations herein agreed . . .
. then all the obligations of the Mortgagor
secured by this Mortgage, all the
amortizations thereof shall immediately
become due, payable and defaulted and
the Mortgagee may immediately
foreclose this mortgage in accordance
with the Rules of Court, or
extrajudicially in accordance with Act
No. 3135, as amended, or Act No. 1508. For
the purpose of extrajudicial foreclosure, the
Mortgagor hereby appoints the Mortgagee his
attorney-in-fact to sell the property
mortgaged . . . ." (CA Decision, pp. 47-48,
Rollo)
Juan de Jesus died in the meantime on a date that does
not appear of record.
By reason of his failure to pay the loan obligation even
during his lifetime, petitioner bank caused the mortgage
to be extrajudicially foreclosed on 16 November 1978. In
the subsequent public auction, the mortgaged property
was sold to the bank as the highest bidder to whom a
Provisional Certificate of Sale was issued. LexLib
Private respondents herein, including Jose de Jesus, who
are all the heirs of the late Juan de Jesus, failed to
redeem the property within one year from the date of
the registration of the Provisional Certificate of Sale on
21 November 1980. Hence, a Definite Certificate of Sale
was issued in favor of the bank on 7 September 1982.
Notwithstanding, private respondents still negotiated
with the bank for the repurchase of the property. Offers
and counter-offers were made, but no agreement was
reached, as a consequence of which, the bank sold the
property instead to other parties in installments.
Conditional deeds of sale were executed between the
bank and these parties. A Writ of Possession prayed for
by the bank was granted by the Regional Trial Court.
On 31 January 1983 private respondents herein filed a
Complaint with the then Court of First Instance of Naga
City for the annulment of the foreclosure sale or for the
repurchase by them of the property. That Court, noting
that the action was principally for the annulment of the
Definite Deed of Sale issued to petitioner bank, dismissed
the case, ruling that the title of the bank over the
mortgaged property had become absolute upon the
issuance and registration of the said deed in its favor in
September 1982. The Trial Court also held that herein
private respondents were guilty of laches by failing to act
until 31 January 1983 when they filed the instant
Complaint.
On appeal, the Trial Court was reversed by respondent
Court of Appeals. In so ruling, the Appellate Court
applied Article 1879 of the Civil Code and stated that
since the special power to mortgage granted to
Jose de Jesus did not include the power to sell, it
was error for the lower Court not to have declared the
foreclosure proceedings and auction sale held in 1978
null and void because the Special Power of
Attorney given by Juan de Jesus to Jose de Jesus
was merely to mortgage his property, and not to
extrajudicially foreclose the mortgage and sell the
mortgaged property in the said extrajudicial
foreclosure. The Appellate Court was also of the
opinion that petitioner bank should have resorted to
judicial foreclosure. A Decision was thus handed down
annulling the extrajudicial foreclosure sale; the
Provisional and Definite Deeds of Sale, the registration
thereof, and the Writ of Possession issued to petitioner
bank.
From this ruling, the bank filed this petition to which the
Court gave due course.
The pivotal issue is the validity of the extrajudicial
foreclosure sale of the mortgaged property instituted by
petitioner bank which, in turn, hinges on whether or
not the agent-son exceeded the scope of his
authority in agreeing to a stipulation in the
mortgage deed that petitioner bank could
extrajudicially foreclose the mortgaged property.
Article 1879 of the Civil Code, relied on by the Appellate
Court in ruling against the validity of the extrajudicial
foreclosure sale, reads:
"Art. 1879.A special power to sell excludes
the power to mortgage; and a special power
to mortgage does not include the power to
sell."
We find the foregoing provision inapplicable herein.
The sale proscribed by a special power to mortgage
under Article 1879 is a voluntary and independent
contract, and not an auction sale resulting from
extrajudicial foreclosure, which is precipitated by the
default of a mortgagor. Absent that default, no
foreclosure results. The stipulation granting an authority
to extrajudicially foreclose a mortgage is an ancillary
stipulation supported by the same cause or consideration
for the mortgage and forms an essential or inseparable
part of that bilateral agreement (Perez v. Philippine
National Bank, No. L-21813, July 30, 1966, 17 SCRA 833,
839).
The power to foreclose is not an ordinary agency that
contemplates exclusively the representation of the
principal by the agent but is primarily an authority
conferred upon the mortgagee for the latter's own
protection. That power survives the death of the
mortgagor (Perez vs. PNB, supra). In fact, the right of
the mortgagee bank to extrajudicially foreclose the
mortgage after the death of the mortgagor Juan de
Jesus, acting through his attorney-in-fact, Jose de Jesus,
did not depend on the authorization in the deed of
mortgage executed by the latter. That right existed
independently of said stipulation and is clearly
recognized in Section 7, Rule 86 of the Rules of Court,
which grants to a mortgagee three remedies that can be
alternatively pursued in case the mortgagor dies, to wit:
(1) to waive the mortgage and claim the entire debt from
the estate of the mortgagor as an ordinary claim; (2) to
foreclose the mortgage judicially and prove any
deficiency as an ordinary claim; and (3) to rely on the
mortgage exclusively, foreclosing the same at any time
before it is barred by prescription, without right to file a
claim for any deficiency. It is this right of extrajudicial
foreclosure that petitioner bank had availed of, a right
that was expressly upheld in the same case of Perez v.
Philippine National Bank (supra), which explicitly
reversed the decision in Pasno v. Ravina (54 Phil. 382)
requiring a judicial foreclosure in the same factual
situation. The Court in the aforesaid PNB case pointed
out that the ruling in the Pasno case virtually wiped out
the third alternative, which precisely includes
extrajudicial foreclosure, a result not warranted by the
text of the Rule. LibLex

It matters not that the authority to extrajudicially
foreclose was granted by an attorney-in-fact and not by
the mortgagor personally. The stipulation in that regard,
although ancillary, forms an essential part of the
mortgage contract and is inseparable therefrom. No
creditor will agree to enter into a mortgage contract
without that stipulation intended for its protection.
Petitioner bank, therefore, in effecting the
extrajudicial foreclosure of the mortgaged
property, merely availed of a right conferred by
law. The auction sale that followed in the wake of
that foreclosure was but a consequence thereof.
WHEREFORE, the Decision of respondent Court of
Appeals in CA-G.R. CV No. 02213 is SET ASIDE, and the
extrajudicial foreclosure of the subject mortgaged
property, as well as the Deeds of Sale, the registration
thereof, and the Writ of Possession in petitioner bank's
favor, are hereby declared VALID and EFFECTIVE. LexLib
SO ORDERED.
[G.R. No. L-28740. February 24, 1981.]
FERMIN Z. CARAM, JR., petitioner, vs.
CLARO L. LAURETA, respondent.
Paredes, Poblador and Nazareno, Azada and
Tomacruz for petitioner.
Andres Law Office for respondent.
D E C I S I O N
FERNANDEZ, J p:
This is a petition for certiorari to review the decision of
the Court of Appeals promulgated on January 29, 1968 in
CA-G.R. NO. 35721-R entitled "Claro L. Laureta, plaintiff-
appellee versus Marcos Mata, Codidi Mata and Fermin
Caram, Jr., defendants-appellant; Tampino (Mansaca), et
al. Intervenors-appellants," affirming the decision of the
Court of First Instance of Davao in Civil Case No. 3083. 1
On June 25, 1959, Claro L. Laureta filed in the Court of
First Instance of Davao an action for nullity, recovery of
ownership and/or reconveyance with damages and
attorney's fees against Marcos Mata, Codidi Mata, Fermin
Z. Caram Jr. and the Register of Deeds of Davao City. 2
On June 10, 1945, Marcos Mata conveyed a large tract of
agricultural land covered by Original Certificate of Title
No. 3019 in favor of Claro Laureta, plaintiff, the
respondent herein. The deed of absolute sale in favor of
the plaintiff was not registered because it was not
acknowledged before a notary public or any other
authorized officer. At the time the sale was executed,
there was no authorized officer before whom the sale
could be acknowledged inasmuch as the civil government
in Tagum, Davao was not as yet organized. However, the
defendant Marcos Mata delivered to Laureta the peaceful
and lawful possession of the premises of the land
together with the pertinent papers thereof such as the
Owner's Duplicate Original Certificate of Title No. 3019,
sketch plan, tax declaration, tax receipts and other
papers related thereto. 3 Since June 10, 1945, the
plaintiff Laureta had been and is still in continuous,
adverse and notorious occupation of said land, without
being molested, disturbed or stopped by any of the
defendants or their representatives. In fact, Laureta had
been paying realty taxes due thereon and had introduced
improvements worth not less than P20,000.00 at the
time of the filing of the complaint. 4
On May 5, 1947, the same land covered by Original
Certificate of Title No. 3019 was sold by Marcos Mata to
defendant Fermin Z. Caram Jr., petitioner herein. The
deed of sale in favor of Caram was acknowledged before
Atty. Abelardo Aportadera. On May 22, 1947, Marcos
Mata, through Attys. Abelardo Aportadera and
Gumercindo Arcilla, filed with the Court of First Instance
of Davao a petition for the issuance of a new Owner's
Duplicate of Original Certificate of Title No. 3019,
alleging as ground therefor the loss of said title in the
evacuation place of defendant Marcos Mata in Magugpo,
Tagum, Davao. On June 5, 1947, the Court of First
Instance of Davao issued an order directing the Register
of Deeds of Davao to issue a new Owner's Duplicate
Certificate of Title No. 3019 in favor of Marcos Mata and
declaring the lost title as null and void. On December 9,
1947, the second sale between Marcos Mata and Fermin
Caram Jr. was registered with the Register of Deeds. On
the same date, Transfer Certificate of Title No. 140 was
issued in favor of Fermin Caram Jr. 5
On August 29, 1959, the defendants Marcos Mata and
Codidi Mata filed their answer with counterclaim
admitting the existence of a private absolute deed of sale
of his only property in favor of Claro L. Laureta but
alleging that he signed the same as he was subjected to
duress, threat and intimidation for the plaintiff was the
commanding officer of the 10th division USFIP, operating
in the unoccupied areas of Northern Davao with its
headquarters at Project No. 7 (Km. 60 Davao-Agusan
Highways), in the Municipality of Tagum, Province of
Davao; that Laureta's words and requests were laws;
that although the defendant Mata did not like to sell his
property or sign the document without even
understanding the same, he was ordered to accept
P650.00 Mindanao Emergency Notes; and that due to his
fear of harm or danger that will happen to him or to his
family, if he refused, he had no other alternative but to
sign the document. 6
The defendants Marcos Mata and Codidi Mata also admit
the existence of a record in the Registry of Deeds
regarding a document allegedly signed by him in favor of
his co-defendant Fermin Caram Jr. but denies that he
ever signed the document for he knew before hand that
he had signed a deed of sale in favor of the plaintiff and
that the plaintiff was in possession of the certificate of
title; that if ever his thumb mark appeared in the
document purportedly alienating the property to Fermin
Caram Jr., his consent was obtained through fraud and
misrepresentation for the defendant Mata is illiterate and
ignorant and did not know what he was signing; and that
he did not receive a consideration for the said sale. 7
The defendant Fermin Caram Jr. filed his answer on
October 23, 1959 alleging that he has no knowledge or
information about the previous encumbrances,
transactions, and alienations in favor of plaintiff until the
filing of the complaints. 8
The trial court rendered a decision dated February 29,
1964, the dispositive portion of which reads: 9
"1.Declaring that the deed of sale, Exhibit A,
executed by Marcos Mata in favor of Claro L.
Laureta stands and prevails over the deed of
sale, Exhibit F, in favor of Fermin Caram Jr.;
"2.Declaring as null and void the deed of sale
Exhibit F, in favor of Fermin Caram Jr.;
"3.Directing Marcos Mata to acknowledge the
deed of sale, Exhibit A, in favor of Claro L.
Laureta;.
"4.Directing Claro L. Laureta to secure the
approval of the Secretary of Agriculture and
Natural Resources on the deed, Exhibit A,
after Marcos Mata shall have acknowledged
the same before a notary public;.
"5.Directing Claro L. Laureta to surrender to
the Register of Deeds for the City and
Province of Davao the Owner's Duplicate of
Original Certificate of Title No. 3019 and the
latter to cancel the same;.
"6.Ordering the Register of Deeds for the City
and Province of Davao to cancel Transfer
Certificate of Title No. T-140 in the name of
Fermin Caram Jr.;
"7.Directing the Register of Deeds for the
City and Province of Davao to issue a title in
favor of Claro L. Laureta, Filipino, resident of
Quezon City, upon presentation of the deed
executed by Marcos Mata in his favor, Exhibit
A, duly acknowledged by him and approved
by the Secretary of Agriculture and Natural
Resources, and.
"8.Dismissing the counterclaim and cross
claim of Marcos Mata and Codidi Mata, the
counterclaim of Caram, Jr., the answer in
intervention, counterclaim and cross-claim of
the Mansacas.
"The Court makes no pronouncement as to
costs.
"SO ORDERED."
The defendants appealed from the judgment to the
Court of Appeals. 10 The appeal was docketed as CA-
G.R. NO. 35721-R.
The Court of Appeals promulgated its decision on
January 29, 1968 affirming the judgment of the trial
court. LexLib
In his brief, the petitioner assigns the following errors. 11
"I
"THE RESPONDENT COURT OF APPEALS
ERRED IN CONCLUDING THAT IRESPE AND
APORTADERA WERE ATTORNEYS-IN-FACT
OF PETITIONER CARAM FOR THE PURPOSE
OF BUYING THE PROPERTY IN QUESTION.
"II
"THE RESPONDENT COURT OF APPEALS
ERRED IN CONCLUDING THAT THE
EVIDENCE ADDUCED IN THE TRIAL COURT
CONSTITUTE LEGAL EVIDENCE OF FRAUD
ON THE PART OF IRESPE AND APORTADERA
ATTRIBUTABLE TO PETITIONER.
"III
"THE RESPONDENT COURT OF APPEALS
COMMITTED GRAVE ERROR OF LAW IN
HOLDING THAT KNOWLEDGE OF IRESPE
AND APORTADERA OF A PRIOR
UNREGISTERED SALE OF A TITLED
PROPERTY ATTRIBUTABLE TO PETITIONER
AND EQUIVALENT IN LAW OF
REGISTRATION OF SAID SALE.
"IV
"THE RESPONDENT COURT OF APPEALS
ERRED IN NOT HOLDING THAT AN ACTION
FOR RECONVEYANCE ON THE GROUND OF
FRAUD PRESCRIBES WITHIN FOUR (4)
YEARS."
The petitioner assails the finding of the trial court that
the second sale of the property was made through his
representatives, Pedro Irespe and Atty. Abelardo
Aportadera. He argues that Pedro Irespe was acting
merely as broker or intermediary with the specific task
and duty to pay Marcos Mata the sum of P1,000.00 for
the latter's property and to see to it that the requisite
deed of sale covering the purchase was properly
executed by Marcos Mata; that the identity of the
property to be bought and the price of the purchase had
already been agreed upon by the parties; and that the
other alleged representative, Atty. Aportadera, merely
acted as a notary public in the execution of the deed of
sale.
The contention of the petitioner has no merit. The
facts of record show that Mata, the vendor, and Caram,
the second vendee had never met. During the trial,
Marcos Mata testified that he knows Atty. Aportadera but
did not know Caram. 12 Thus, the sale of the property
could have only been through Caram's representatives,
Irespe and Aportadera. The petitioner, in his answer,
admitted that Atty. Aportadera acted as his notary public
and attorney-in-fact at the same time in the purchase of
the property. 13
The petitioner contends that he cannot be considered to
have acted in bad faith because there is no direct proof
showing that Irespe and Aportadera, his alleged agents,
had knowledge of the first sale to Laureta. This
contention is also without merit.
The Court of Appeals, in affirming the decision of the
trial court, said: 14
"The trial court, in holding that appellant
Caram, Jr. was not a purchaser in good faith,
at the time he bought the same property
from appellant Mata, on May 5, 1947, entirely
discredited the testimony of Aportadera. Thus
it stated in its decision:
'The testimony of Atty. Aportadera quoted
elsewhere in this decision is hollow. There is
every reason to believe that Irespe and he
had known of the sale of the property in
question to Laureta on the day Mata and
Irespe, accompanied by Leoning Mansaca,
went to the office of Atty. Aportadera for the
sale of the same property to Caram, Jr.,
represented by Irespe as attorney-in-fact.
Leoning Mansaca was with the two Irespe
and Mata to engage the services of Atty.
Aportadera in the annulment of the sale of
his land to Laureta. When Leoning Mansaca
narrated to Atty. Aportadera the
circumstances under which his property had
been sold to Laureta, he must have included
in the narration the sale of the land of Mata,
for the two properties had been sold on the
same occasion and under the same
circumstances. Even as early as immediately
after liberation, Irespe, who was the witness
in most of the cases filed by Atty. Aportadera
in his capacity as Provincial Fiscal of Davao
against Laureta, must have known on the
purchases of lands made by Laureta when he
was regimental commander, one of which
was the sale made by Mata. It was not a
mere coincidence that Irespe was made
guardian ad litem of Leoning Mansaca, at the
suggestion of Atty. Aportadera and attorney-
in-fact of Caram, Jr.

'The Court cannot help being convinced that
Irespe, attorney-in-fact of Caram, Jr., had
knowledge of the prior existing transaction,
Exhibit A, between Mata and Laureta over
the land, subject matter of this litigation,
when the deed, Exhibit F, was executed by
Mata in favor of Caram, Jr. And this
knowledge has the effect of registration as to
Caram, Jr.' (R.A. pp. 123-124).
"We agree with His Honor's conclusion on
this particular point, on two grounds the
first, the same concerns matters affecting the
credibility of a witness of which the findings
of the trial court command great weight, and
second, the same is borne out by the
testimony of Atty. Aportadera himself. (t.s.n.
pp. 187-190, 213-215, Restauro)."
Even if Irespe and Aportadera did not have
actual knowledge of the first sale, still, their actions
have not satisfied the requirement of good faith. Bad
faith is not based solely on the fact that a vendee had
knowledge of the defect or lack of title of his vendor.
In the case of Leung Yee vs. F.L. Strong Machinery
Co. and Williamson, this Court held: 15
"One who purchases real estate with
knowledge of a defect or lack of title in his
vendor can not claim that he has acquired
title thereto in good faith, as against the true
owner of the land or of an interest therein,
and the same rule must be applied to one
who has knowledge of facts which should
have put him upon such inquiry and
investigation as might be necessary to
acquaint him with the defects in the title of
his vendor."
In the instant case, Irespe and Aportadera had
knowledge of circumstances which ought to have put
them on inquiry. Both of them knew that Mata's
certificate of title together with other papers pertaining
to the land was taken by soldiers under the command of
Col. Claro L. Laureta. 16 Added to this is the fact that at
the time of the second sale Laureta was already in
possession of the land. Irespe and Aportadera should
have investigated the nature of Laureta's possession. If
they failed to exercise the ordinary care expected of a
buyer of real estate they must suffer the consequences.
The rule of caveat emptor requires the purchaser to be
aware of the supposed title of the vendor and one who
buys without checking the vendor's title takes all the
risks and losses consequent to such failure. 17
The principle that a person dealing with the owner of the
registered land is not bound to go behind the certificate
and inquire into transactions the existence of which is
not there intimated 18 should not apply in this case. It
was of common knowledge that at the time the soldiers
of Laureta took the documents from Mata, the civil
government of Tagum was not yet established and that
there were no officials to ratify contracts of sale and
make them registrable. Obviously, Aportadera and Irespe
knew that even if Mata previously had sold the disputed
property such sale could not have been registered. cdrep
There is no doubt then that Irespe and
Aportadera, acting as agents of Caram, purchased
the property of Mata in bad faith. Applying the
principle of agency, Caram, as principal, should
also be deemed to have acted in bad faith.
Article 1544 of the New Civil Code provides that:
"Art. 1544.If the same thing should have
been sold to different vendees, the
ownership shall be transferred to the person
who may have first taken possession thereof
in good faith, if it should be movable
property.
"Should it be immovable property, the
ownership shall belong to the person
acquiring it who in good faith first recorded it
in the Registry of Property.
"Should there be no inscription, the
ownership shall pertain to the person who in
good faith was first in the possession; and, in
the absence thereof, to the person who
presents the oldest title, provided there is
good faith. (1973)".
Since Caram was a registrant in bad faith, the
situation is as if there was no registration at all. 19
The question to be determined now is, who was first in
possession in good faith? A possessor in good faith is
one who is not aware that there exists in his title or
mode of acquisition any flaw which invalidates it. 20
Laureta was first in possession of the property. He is also
a possessor in good faith. It is true that Mata had alleged
that the deed of sale in favor of Laureta was procured by
force. 21 Such defect, however, was cured when, after
the lapse of four years from the time the intimidation
ceased, Marcos Mata lost both his rights to file an action
for annulment or to set up nullity of the contract as a
defense in an action to enforce the same.
Anent the fourth error assigned, the petitioner contends
that the second deed of sale, Exhibit "F" is a voidable
contract. Being a voidable contract, the action for
annulment of the same on the ground of fraud must be
brought within four (4) years from the discovery of the
fraud. In the case at bar, Laureta is deemed to have
discovered that the land in question has been sold to
Caram to his prejudice on December 9, 1947, when the
Deed of Sale, Exhibit "F" was recorded and entered in
the Original Certificate of Title by the Register of Deeds
and a new Certificate of Title No. 140 was issued in the
name of Caram. Therefore, when the present case was
filed on June 29, 1959, plaintiff's cause of action had
long prescribed.
The petitioner's conclusion that the second deed of sale,
"Exhibit F", is a voidable contract is not correct. In order
that fraud can be a ground for the annulment of a
contract, it must be employed prior to or simultaneous to
the consent or creation of the contract. The fraud or dolo
causante must be that which determines or is the
essential cause of the contract. Dolo causante as a
ground for the annulment of contract is specifically
described in Article 1338 of the New Civil Code of the
Philippines as "insidious words or machinations of one of
the contracting parties" which induced the other to enter
into a contract, and "without them, he would not have
agreed to."
The second deed of sale in favor of Caram is not a
voidable contract. No evidence whatsoever was shown
that through insidious words or machinations, the
representatives of Caram, Irespe and Aportadera had
induced Mata to enter into the contract.
Since the second deed of sale is not a voidable contract,
Article 1391, Civil Code of the Philippines which provides
that the action for annulment shall be brought within
four (4) years from the time of the discovery of fraud
does not apply.
Moreover, Laureta has been in continuous possession of
the land since he bought it in June 1945.
A more important reason why Laureta's action could not
have prescribed is that the second contract of sale,
having been registered in bad faith, is null and void.
Article 1410 of the Civil Code of the Philippines provides
that any action or defense for the declaration of the
inexistence of a contract does not prescribe.
In a memorandum of Authorities 22 submitted to this
Court on March 13, 1978, the petitioner insists that the
action of Laureta against Caram has prescribed because
the second contract of sale is not void under Article 1409
23 of the Civil Code of the Philippines which enumerates
the kinds of contracts which are considered void.
Moreover, Article 1544 of the New Civil Code of the
Philippines does not declare void a second sale of
immovable registered in bad faith.
The fact that the second contract is not considered void
under Article 1409 and that Article 1544 does not declare
void a deed of sale registered in bad faith does not mean
that said contract is not void. Article 1544 specifically
provides who shall be the owner in case of a double sale
of an immovable property. To give full effect to this
provision, the status of the two contracts must be
determined and clarified. One contract must be declared
valid so that one vendee may exercise all the rights of an
owner, while the other contract must be declared void to
cut off all rights which may arise from said contract.
Otherwise, Article 1544 will be meaningless. llcd
The first sale in favor of Laureta prevails over the sale in
favor of Caram.
WHEREFORE, the petition is hereby denied and the
decision of the Court of Appeals sought to be reviewed is
affirmed, without pronouncement as to costs.
SO ORDERED.
[G.R. Nos. L-25836-37. January 31, 1981.]
THE PHILIPPINE BANK OF
COMMERCE, plaintiff-appellee, vs. JOSE
M. ARUEGO, defendant-appellant.
Sumulong, Sumulong and Libongco for plaintiff-appellee.
Aruego, Benitez-Mamaril for defendant-appellant.
SYNOPSIS
Plaintiff bank instituted an action against defendant Jose
M. Aruego for recovery of money it had paid on various
drafts drawn against it and signed by defendant as
follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE
ARUEGO". The complaint was dismissed upon motion of
defendant filed on the last day for filing his answer. The
court, however, reconsidered its dismissal order and
defendant received the order setting it aside at 5:00
o'clock in the afternoon on March 11, 1960, he filed his
answer on March 12, 1960 interposing as defenses that
he signed the drafts in a representative capacity, that he
signed only as accommodation party, and that the drafts
were really no bills of exchange. Declared in default for
having filed his answer one day late, defendant moved to
set the order aside alleging that it could not have been
possible for him to file his answer on March 11, 1960,
and that he had good and substantial defenses. The
court denied the motion and rendered judgment by
default. Defendant appealed from both the orders
denying his motions to set aside the default order and
the judgment by default, which appeals were
consolidated and certified to the Supreme Court by the
Court of Appeals.
The Supreme Court affirmed the appealed judgment
holding that although it has been shown that defendant's
failure to answer on time is excusable, his defenses are
nil and ineffective.
SYLLABUS
1.REMEDIAL LAW; JUDGMENTS RELIEF THEREFROM;
REQUISITES. To entitle a party to relief from
judgment taken against him, through his mistake,
inadvertence, supervise or excusable neglect, he must
show to the court that he has a meritorious defense. In
other words, in order to set aside the order of default,
the defendant must not only show that his failure to
answer was due to fraud, accident, mistake or excusable
negligence but also that he has a meritorious defense.
2.ID.; ID.; ID.; ID.; FAILURE TO FILE ANSWER
EXCUSABLE IN CASE AT BAR. The failure of the
defendant to file his answer on the last day for pleading
is excusable where the order setting aside the dismissal
of the complaint was received at 5:00 o'clock in the
afternoon of such last day for pleading, and it was
therefore impossible for him to have filed his answer on
that same day because the courts then held office only
up to 5:00 o'clock in the afternoon; and where the
defendant immediately filed his answer on the following
day.
3.ID.; ID.; ID.; ID.; CASE AT BAR FAILS TO SHOW
MERITORIOUS DEFENSE. Where the defense
interposed by the defendant who has been declared in
default is not meritorious, his petition for relief from
judgment should be denied; for, to grant the defendant's
prayer will result in a new trial which will serve no
purpose and will just waste the time of the courts as well
as the parties because the defense is nil or ineffective.
4.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW;
BILLS OF EXCHANGE; PERSONS SIGNING IN
REPRESENTATIVE CAPACITY SHOULD DISCLOSE
PRINCIPAL. Where an inspection of the drafts
accepted by the defendant shows that nowhere has he
disclosed that he was signing as a representative of the
Philippine Education Foundation Company, and he
merely signed as follows: "JOSE ARUEGO (Acceptor)
(SGD) JOSE ARUEGO", he is personally liable for the
drafts accepted by him and he may not interpose as a
defense that he signed the drafts merely as an agent of
the Philippines Education Foundation Company of which
he is president.
5.ID.; ID.; ID.; ACCOMMODATION PARTY
DIFFERENTIATED FROM DRAWEE/ACCEPTOR; CASE AT
BAR. An accommodation party is one who has signed
the instrument as maker, drawer, acceptor, indorser,
without receiving value thereof and for the purpose of
lending his name to some other person. Such person is
liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of
the instrument knew him to be only an accommodation
party. In lending his name to the party accommodated,
the accommodation party is in effect a surety for the
latter. He lends his name to enable the accommodated
party to obtain credit or to raise money. He receives no
part of the consideration for the instrument but assumes
liability to the other parties thereto because he wants to
accommodate another. In the instant case, the
defendant signed as a drawee/acceptor. Under the
Negotiable Instruments Law, a drawee is primarily liable.
Thus, if the defendant who is a lawyer, really intended to
be secondarily liable only, he should not have signed as
an acceptor/drawee. In doing so, he became primarily
and personally liable for the drafts.
6.ID.; ID.; ID.; NATURE OF ACCEPTANCE NOT
DETERMINATE AS TO WHETHER COMMERCIAL PAPER IS
BILL OF EXCHANGE OR NOT. Under the Negotiable
Instruments Law, a bill of exchange is an unconditional
order in writing addressed by one person to another,
signed by the person giving it, requiring the person to
whom it is addressed to party on demand or at a fixed or
determinable future time a sum certain in money to
order or to bearer. As long as a commercial paper
conforms with the definition of a bill of exchange, that
paper is considered a bill of exchange. The nature of
acceptance is important only in determination of whether
a commercial paper is a bill of exchange or not. Thus, in
the case at bar, defendant's contentions that the drafts
signed by him were not really bills of exchange but mere
pieces of evidence of indebtedness because payments
were made before acceptance, is not meritorious.
D E C I S I O N
FERNANDEZ, J p:
The defendant, Jose M. Aruego, appealed to the Court of
Appeals from the order of the Court of First Instance of
Manila, Branch XIII, in Civil Case No. 42066 denying his
motion to set aside the order declaring him in default, 1
and from the order of said court in the same case
denying his motion to set aside the judgment rendered
after he was declared in default. 2 These two appeals of
the defendant were docketed as CA-G.R. No. 27734-R
and CA-G.R. No. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he
was allowed by the Court of Appeals to file one
consolidated record on appeal of CA-G.R. No. 27734-R
and CA-G.R. No. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court
of Appeals, First Division, certified the consolidated
appeal to the Supreme Court on the ground that only
questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce
instituted against Jose M. Aruego Civil Case No. 42066
for the recovery of the total sum of about P35,000.00
with daily interest thereon from November 17, 1959 until
fully paid and commission equivalent to 3/8% for every
thirty (30) days or fraction thereof plus attorney's fees
equivalent to 10% of the total amount due and costs. 6
The complaint filed by the Philippine Bank of Commerce
contains twenty-two (22) causes of action referring to
twenty-two (22) transactions entered into by the said
Bank and Aruego on different dates covering the period
from August 28, 1950 to March 14, 1951. 7 The sum
sought to be recovered represents the cost of the
printing of "World Current Events," a periodical published
by the defendant. To facilitate the payment of the
printing the defendant obtained a credit accommodation
from the plaintiff. Thus, for every printing of the "World
Current Events," the printer, Encal Press and Photo-
Engraving, collected the cost of printing by drawing a
draft against the plaintiff, said draft being sent later to
the defendant for acceptance. As an added security for
the payment of the amounts advanced to Encal Press
and Photo-Engraving, the plaintiff bank also required
defendant Aruego to execute a trust receipt in favor of
said bank wherein said defendant undertook to hold in
trust for plaintiff the periodicals and to sell the same with
the promise to turn over to the plaintiff the proceeds of
the sale of said publication to answer for the payment of
all obligations arising from the draft. 8
Aruego received a copy of the complaint together with
the summons on December 2, 1959. 9 On December 14,
1959 the defendant filed an urgent motion for extension
of time to plead, and set the hearing on December 16,
1959. 10 At the hearing, the court denied defendant's
motion for extension. Whereupon, the defendant filed a
motion to dismiss the complaint on December 17, 1959
on the ground that the complaint states no cause of
action because: LibLex
a)When the various bills of exchange were
presented to the defendant as drawee for
acceptance, the amounts thereof had already
been paid by the plaintiff in the drawer
(Encal Press and Photo-Engraving), without
knowledge or consent of the defendant
drawee.
b)In the case of a bill of exchange, like those
involved in the case at bar, the defendant
drawee is an accommodating party only for
the drawer (Encal Press and Photo-
Engraving) and will be liable in the event that
the accommodating party (drawer) fails to
pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated
December 22, 1959, copy of which was received by the
defendant on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for
reconsideration. 13 On March 7, 1960, acting upon the
motion for reconsideration filed by the plaintiff, the trial
court set aside its order dismissing the complaint and set
the case for hearing on March 15, 1960 at 8:00 in the
morning. 14 A copy of the order setting aside the order
of dismissal was received by the defendant on March 11,
1960 at 5:00 o'clock in the afternoon according to the
affidavit of the deputy sheriff of Manila, Mamerto de la
Cruz. On the following day, March 12, 1960, the
defendant filed a motion to postpone the trial of the case
on the ground that there having been no answer as yet,
the issues had not yet been joined. 15 On the same date,
the defendant filed his answer to the complaint
interposing the following defenses; That he signed the
document upon which the plaintiff sues in his capacity as
President of the Philippine Education Foundation; that his
liability is only secondary; and that he believed that he
was signing only as an accommodation party. 16

On March 15, 1960, the plaintiff filed an ex parte motion
to declare the defendant in default on the ground that
the defendant should have filed his answer on March 11,
1960. He contends that by filing his answer on March 12,
1960, defendant was one day late. 17 On March 19, 1960
the trial court declared the defendant in default. 18 The
defendant learned of the order declaring him in default
on March 21, 1960. On March 22, 1960 the defendant
filed a motion to set aside the order of default alleging
that although the order of the court dated March 7, 1960
was received on March 11, 1960 at 5:00 in the
afternoon, it could not have been reasonably expected of
the defendant to file his answer on the last day of the
reglementary period, March 11, 1960, within office
hours, especially because the order of the court dated
March 7, 1960 was brought to the attention of counsel
only in the early hours of March 12, 1960. The defendant
also alleged that he has a good and substantial defense.
Attached to the motion are the affidavits of deputy
sheriff Mamerto de la Cruz that he served the order of
the court dated March 7, 1960 on March 11, 1960, at
5:00 o'clock in the afternoon and the affidavit of the
defendant Aruego that he has a good and substantial
defense. 19 The trial court denied the defendant's motion
on March 25, 1960. 20 On May 6, 1960, the trial court
rendered judgment sentencing the defendant to pay to
the plaintiff the sum of P35,444.35 representing the total
amount of his obligation to the said plaintiff under the
twenty-two (22) causes of action alleged in the
complaint as of November 15, 1957 and the sum of
P10,000.00 as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal
from the order dated March 25, 1961 denying his motion
to set aside the order declaring him in default, an appeal
bond in the amount of P60.00, and his record on appeal.
The plaintiff filed his opposition to the approval of
defendant's record on appeal on May 13, 1960. The
following day, May 14, 1960, the lower court dismissed
defendant's appeal from the order dated March 25, 1960
denying his motion to set aside the order of default. 22
On May 19, 1960, the defendant filed a motion for
reconsideration of the trial court's order dismissing his
appeal. 23 The plaintiff, on May 20, 1960, opposed the
defendant's motion for reconsideration of the order
dismissing appeal. 24 On May 21, 1960, the trial court
reconsidered its previous order dismissing the appeal and
approved the defendant's record on appeal. 25 On May
30, 1960, the defendant received a copy of a notice from
the Clerk of Court dated May 26, 1960, informing the
defendant that the record on appeal filed by the
defendant was forwarded to the Clerk of the Court of
Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the
judgment rendered after he was declared in default
reiterating the same ground previously advanced by him
in his motion for relief from the order of default. 27 Upon
opposition of the plaintiff filed on June 3, 1960, 28 the
trial court denied the defendant's motion to set aside the
judgment by default in an order of June 11, 1960. 29 On
June 20, 1960, the defendant filed his notice of appeal
from the order of the court denying his motion to set
aside the judgment by default, his appeal bond, and his
record on appeal. The defendant's record on appeal was
approved by the trial court on June 25, 1960. 30 Thus,
the defendant had two appeals with the Court of
Appeals; (1) Appeal from the order of the lower court
denying his motion to set aside the order of default
docketed as CA-G.R. No. 27734-R; (2) Appeal from the
order denying his motion to set aside the judgment by
default docketed as CA-G.R. No. 27940-R.
In his brief, the defendant-appellant assigned the
following errors:
"I
THE LOWER COURT ERRED IN HOLDING
THAT THE DEFENDANT WAS IN DEFAULT.
"II
THE LOWER COURT ERRED IN
ENTERTAINING THE MOTION TO DECLARE
DEFENDANT IN DEFAULT ALTHOUGH AT
THE TIME THERE WAS ALREADY ON FILE AN
ANSWER BY HIM WITHOUT FIRST
DISPOSING OF SAID ANSWER IN AN
APPROPRIATE ACTION.
"III
THE LOWER COURT ERRED IN DENYING
DEFENDANT'S PETITION FOR RELIEF OF
ORDER OF DEFAULT AND FROM JUDGMENT
BY DEFAULT AGAINST DEFENDANT." 31
It has been held that to entitle a party to relief from a
judgment taken against him through his mistake,
inadvertence, surprise or excusable neglect, he must
show to the court that he has a meritorious defense. 32
In other words, in order to set aside the order of default,
the defendant must not only show that his failure to
answer was due to fraud, accident, mistake or excusable
negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the
complaint together with the summons on December 2,
1960; that on December 17, 1960, the last day for filing
his answer, Aruego filed a motion to dismiss; that on
December 22, 1960 the lower court dismissed the
complaint; that on January 23, 1960, the plaintiff filed a
motion for reconsideration and on March 7, 1960, acting
upon the motion for reconsideration, the trial court
issued an order setting aside the order of dismissal; that
a copy of the order was received by the defendant on
March 11, 1960 at 5:00 o'clock in the afternoon as
shown in the affidavit of the deputy sheriff; and that on
the following day, March 12, 1960, the defendant filed
his answer to the complaint. LexLib
The failure then of the defendant to file his answer on
the last day for pleading is excusable. The order setting
aside the dismissal of the complaint was received at 5:00
o'clock in the afternoon. It was therefore impossible for
him to have filed his answer on that same day because
the courts then held office only up to 5:00 o'clock in the
afternoon. Moreover, the defendant immediately filed his
answer on the following day.
However, while the defendant successfully proved that
his failure to answer was due to excusable negligence,
he has failed to show that he has a meritorious defense.
The defendant does not have a good and substantial
defense. Defendant Aruego's defenses consist of
the following:
a)The defendant signed the bills of exchange referred to
in the plaintiff's complaint in a representative capacity, as
the then President of the Philippine Education Foundation
Company, publisher of "World Current Events and
Decision Law Journal," printed by Encal Press and Photo-
Engraving, drawer of the said bills of exchange in favor
of the plaintiff bank;
b)The defendant signed these bills of exchange not as
principal obligor, but as accommodation or additional
party obligor, to add to the security of said plaintiff bank.
The reason for this statement is that unlike real bills of
exchange, where payment of the face value is advanced
to the drawer only upon acceptance of the same by the
drawee, in the case in question, payment for the
supposed bills of exchange were made before
acceptance; so that in effect, although these documents
are labelled bills of exchange, legally they are not bills of
exchange but mere instruments evidencing indebtedness
of the drawee who received the face value thereof, with
the defendant as only additional security of the same. 33
The first defense of the defendant is that he signed the
supposed bills of exchange as an agent of the Philippine
Education Foundation Company where he is president.
Section 20 of the Negotiable Instruments Law provides
that "Where the instrument contains or a person adds to
his signature words indicating that he signs for or on
behalf of a principal or in a representative capacity, he is
not liable on the instrument if he was duly authorized;
but the mere addition of words describing him as an
agent or as filling a representative character, without
disclosing his principal, does not exempt him from
personal liability."
An inspection of the drafts accepted by the defendant
shows that nowhere has he disclosed that he was
signing as representative of the Philippine
Education Foundation Company. 34 He merely
signed as follows: "JOSE ARUEGO (Acceptor)
(SGD) JOSE ARUEGO." For failure to disclose his
principal, Aruego is personally liable for the drafts
he accepted.
The defendant also contends that he signed the drafts
only as an accommodation party and as such, should be
made liable only after a showing that the drawer is
incapable of paying. This contention is also without
merit.
An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, indorser, without
receiving value therefor and for the purpose of lending
his name to some other person. Such person is liable on
the instrument to a holder for value, notwithstanding
such holder, at the time of the taking of the instrument
knew him to be only an accommodation party. 35 In
lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter.
He lends his name to enable the accommodated party to
obtain credit or to raise money. He receives no part of
the consideration for the instrument but assumes liability
to the other parties thereto because he wants to
accommodate another. In the instant case, the
defendant signed as a drawee/acceptor. Under the
Negotiable Instruments Law, a drawee is primarily liable.
Thus, if the defendant who is a lawyer, really intended to
be secondarily liable only, he should not have signed as
an acceptor/drawee. In doing so, he became primarily
and personally liable for the drafts.
The defendant also contends that the drafts signed by
him were not really bills of exchange but mere pieces of
evidence of indebtedness because payments were made
before acceptance. This is also without merit. Under the
Negotiable Instruments Law, a bill of exchange is an
unconditional order in writing addressed by one person
to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at
a fixed or determinable future time a sum certain in
money to order or to bearer. 36 As long as a commercial
paper conforms with the definition of a bill of exchange,
that paper is considered a bill of exchange. The nature of
acceptance is important only in the determination of the
kind of liabilities of the parties involved, but not in the
determination of whether a commercial paper is a bill of
exchange or not. cdll

It is evident then that the defendant's appeal can not
prosper. To grant the defendant's prayer will result in a
new trial which will serve no purpose and will just waste
the time of the courts as well as of the parties because
the defense is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No.
42066 of the Court of First Instance of Manila denying
the petition for relief from the judgment rendered in said
case is hereby affirmed, without pronouncement as to
costs.
SO ORDERED.
[G.R. No. L-30573. October 29, 1971.]
VICENTE M. DOMINGO, represented
by his heirs, ANTONIA RAYMUNDO
VDA. DE DOMINGO, RICARDO,
CESAR, AMELIA, VICENTE JR.,
SALVADOR, IRENE and JOSELITO, all
surnamed DOMINGO, petitioners-
appellants, vs. GREGORIO M.
DOMINGO, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as
intervenor-respondent.
SYLLABUS
1.CIVIL LAW; AGENCY; ARTICLES 1891 AND 1909
OF THE NEW CIVIL CODE; DUTY OF AGENT TO
PRINCIPAL. The duties and liabilities of a
broker to his employer are essentially those which
an agent owes to his principal. Consequently, the
decisive legal provisions are found in Articles
1891 and 1909 of the New Civil Code. The
aforecited provisions demand the utmost good
faith, fidelity, honesty, candor and fairness on the
part of the agent, the real estate broker in this
case, to his principal, the vendor. The law imposes
upon the agent the absolute obligation to make a
full disclosure or complete account to his principal
of all his transactions and other material facts
relevant to the agency, so much so that the law as
amended does not countenance any stipulation
exempting the agent from such an obligation and
considers such an exemption as void. The duly of
an agent is likened to that of a trustee. This is not
a technical or arbitrary rule but a rule founded on
the highest and truest principle of morality as well
as of the strictest justice.
2.ID.; ID.; ID.; ID.; EFFECT OF BREACH OF
LOYALTY. An agent who takes a secret profit in
the nature of a bonus, gratuity or personal benefit
from the vendee, without revealing the same to
his principal, the vendor, is guilty of a breach of
his loyalty to the principal and forfeits his right to
collect the commission from his principal, even if
the principal does not suffer any injury by reason
of such breach of fidelity, or that he obtained
better results or that the agency is a gratuitous
one, or that usage or custom allows it, because
the rule is to prevent the possibility of any wrong,
not to remedy or repair an actual damage.
3.ID.; ID.; ID.; ID.; ID.; TAKING OF SECRET
PROFIT, TANTAMOUNT TO BREACH. By taking
such profit or bonus or gift or propina from the
vendee, the agent thereby assumes a position
wholly inconsistent with that of being an agent
for his principal, who has a right to treat him,
insofar as his commission is concerned, as if no
agency had existed. The fact that the principal
may have been benefited by the valuable services
of the said agent does not exculpate the agent
who has only himself to blame for such a result by
reason of his treachery or perfidy.
4.ID.; ID.; ID.; ID.; ID.; LIABILITY FOR ESTAFA.
Because of his responsibility under the aforecited
Article 1720, an agent is likewise liable for estafa
for failure to deliver to his principal the total
amount collected by him in behalf of his principal
and cannot retain the commission pertaining to
him by subtracting the same from his collections.
5.ID.; ID.; ID.; ID.; ID.; ID.; PRINCIPAL ENTITLED
TO RECOVERY OF COMMISSIONS PAID. Where
a principal has paid an agent or broker a
commission while ignorant of the fact that the
latter has been unfaithful, the principal may
recover back the commission paid, since an agent
or broker who has been unfaithful is not entitled
to any compensation. If the agent does not
conduct himself with entire fidelity towards his
principal, but is guilty of taking a secret profit or
commission in regard the matter in which he is
employed, he loses his right to compensation on
the ground that he has taken a position wholly
inconsistent with that of agent for his employer,
and which gives his employer, upon discovering it,
the right to treat him so far as compensation, at
least, is concerned as if no agency had existed.
This may operate to give to the principal the
benefit of valuable services rendered by the
agent, but the agent has only himself to blame for
that result.
6.ID.; ID.; ID.; ID.; ID.; ACCOUNTABILITY OF
AGENT FOR ALL PROFITS RECEIVED. As a
general rule, it is a breach of good faith and
loyalty to his principal for an agent, while the
agency exists, so to deal with the subject matter
thereof, or with information acquired during the
course of the agency, as to make a profit out of it
for himself in excess of his lawful compensation;
and if he does so he may be held as a trustee and
may be compelled to account to his principal for
all profits, advantages, rights, or privileges
acquired by him in such dealings, whether in
performance or in violation of his duties, and be
required to transfer them to his principal upon
being reimbursed for his expenditures for the
same, unless the principal has consented to or
ratified the transaction knowing that benefit or
profit would accrue, or had accrued, to the agent,
or unless with such knowledge he has allowed the
agent so as to change his condition that he cannot
be put in status quo. The application of this rule is
not affected by the fact that the principal did not
suffer any injury by reason of the agent's
dealings, or that he in fact obtained better results;
nor is it affected by the fact that there is a usage
or custom to the contrary, or that the agency is a
gratuitous one.
7.ID.; ID.; ID.; ID.; WHEN INAPPLICABLE. The
duty embodied in Article 1891 of the New Civil
Code will not apply if the agent or broker acted
only as a middleman with the task of merely
bringing together the vendor and vendee, who
themselves thereafter will negotiate on the terms
and conditions of the transaction. Neither would
the rule apply if the agent or broker had informed
the principal of the gift or bonus or profit he
received from the purchaser and his principal did
not object thereto. Herein defendant-appellee
Gregorio Domingo was not merely a middleman of
the petitioner-appellant Vicente Domingo and the
buyer Oscar de Leon. He was the broker and agent
of said petitioner-appellant only. And herein
petitioner-appellant was not aware of the gift of
One Thousand Pesos (P1,000.00) received by
Gregorio Domingo form the prospective buyer;
much less did he consent to his agent's accepting
such a gift.
D E C I S I O N
MAKASIAR, J p:
Petitioner-appellant Vicente M. Domingo, now deceased
and represented by his heirs, Antonina Raymundo vda.
de Domingo, Ricardo, Cesar, Amelia, Vicente Jr.,
Salvacion, Irene and Joselito, all surnamed Domingo,
sought the reversal of the majority decision dated March
12, 1969 of the Special Division of Five of the Court of
Appeals affirming the judgment of the trial court, which
sentenced the said Vicente M. Domingo to pay Gregorio
M. Domingo P2,307.50 and the intervenor Teofilo P.
Purisima P2,607.50 with legal interest on both amounts
from the date of the filing of the complaint, to pay
Gregorio Domingo P1,000.00 as moral and exemplary
damages and P500.00 as attorney's fees plus costs.
The following facts were found to be established by the
majority of the Special Division of Five of the Court of
Appeals:
In a document Exhibit "A" executed on June 2, 1956,
Vicente M. Domingo granted Gregorio Domingo, a real
estate broker, the exclusive agency to sell his lot No. 883
of Piedad Estate with an area of about 88,477 square
meters at the rate of P2.00 per square meter (or for
P176,954.00) with a commission of 5% on the total
price, if the property is sold by Vicente or by anyone else
during the 30-day duration of the agency or if the
property is sold by Vicente within three months from the
termination of the agency to a purchaser to whom it was
submitted by Gregorio during the continuance of the
agency with notice to Vicente. The said agency contract
was in triplicate, one copy was given to Vicente, while
the original and another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor
Teofilo P. Purisima to look for a buyer, promising him
one-half of the 5% commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to
Gregorio as a prospective buyer.
Oscar de Leon submitted a written offer which was very
much lower than the price of P2.00 per square meter
(Exhibit "B"). Vicente directed Gregorio to tell Oscar de
Leon to raise his offer. After several conferences
between Gregorio and Oscar de Leon, the latter raised
his offer to P109,000.00 on June 20, 1956 as evidenced
by Exhibit "C", to which Vicente agreed by signing Exhibit
"C". Upon demand of Vicente, Oscar de Leon issued to
him a check in the amount of P1,000.00 as earnest
money, after which Vicente advanced to Gregorio the
sum of P300.00. Oscar de Leon confirmed his former
offer to pay for the property at P1.20 per square meter
in another letter, Exhibit "D". Subsequently, Vicente
asked for an additional amount of P1,000.00 as earnest
money, which Oscar de Leon promised to deliver to him.
Thereafter, Exhibit "C" was amended to the effect that
Oscar de Leon will vacate on or about September 15,
1956 his house and lot at Denver Street, Quezon City
which is part of the purchase price. It was again
amended to the effect that Oscar will vacate his house
and lot on December 1, 1956, because his wife was on
the family way and Vicente could stay in lot No. 883 of
Piedad Estate until June 1, 1957, in a document dated
June 30, 1956 (the year 1957 therein is a mere
typographical error) and marked Exhibit "D". Pursuant
to his promise to Gregorio, Oscar gave him as a
gift or propina the sum of One Thousand Pesos
(P1,000.00) for succeeding in persuading Vicente
to sell his lot at P1.20 per square meter or a total
in round figure of One Hundred Nine Thousand
Pesos (P109,000.00). This gift of One Thousand
Pesos (P1,000.00) was not disclosed by Gregorio
to Vicente. Neither did Oscar pay Vicente the
additional amount of One Thousand Pesos
(P1,000.00) by way of earnest money. When the
deed of sale was not executed on August 1, 1956 as
stipulated in Exhibit "C" nor on August 16, 1956 as
extended by Vicente, Oscar told Gregorio that he did not
receive his money from his brother in the United States,
for which reason he was giving up the negotiation
including the amount of One Thousand Pesos
(P1,000.00) given as earnest money to Vicente and the
One Thousand Pesos (P1,000.00) given to Gregorio as
propina or gift. When Oscar did not see him after several
weeks, Gregorio sensed something fishy. So, he went to
Vicente and read a portion of Exhibit "A" marked Exhibit
"A-1" to the effect that Vicente was still committed to
pay him 5% commission, if the sale is consummated
within three months after the expiration of the 30-day
period of the exclusive agency in his favor from the
execution of the agency contract on June 2, 1956 to a
purchaser brought by Gregorio to Vicente during the said
30-day period. Vicente grabbed the original of Exhibit "A"
and tore it to pieces. Gregorio held his peace, not
wanting to antagonize Vicente further, because he had
still the duplicate of Exhibit "A". From his meeting with
Vicente, Gregorio proceeded to the office of the Register
of Deeds of Quezon City, where he discovered Exhibit
"G", a deed of sale executed on September 17, 1956 by
Amparo Diaz, wife of Oscar de Leon, over their house
and lot at No. 40 Denver Street, Cubao, Quezon City, in
favor of Vicente as down payment by Oscar de Leon on
the purchase price of Vicente's lot No. 883 of Piedad
Estate. Upon thus learning that Vicente sold his property
to the same buyer, Oscar de Leon and his wife, he
demanded in writing payment of his commission on the
sale price of One Hundred Nine Thousand Pesos
(P109,000.00), Exhibit "H". He also conferred with Oscar
de Leon, who told him that Vicente went to him and
asked him to eliminate Gregorio in the transaction and
that he would sell his property to him for One Hundred
Four Thousand Pesos (P104,000.00). In Vicente's reply
to Gregorio's letter, Exhibit "H", Vicente stated that
Gregorio is not entitled to the 5 % commission because
he sold the property not to Gregorio's buyer, Oscar de
Leon, but to another buyer, Amparo Diaz, wife of Oscar
de Leon.

The Court of Appeals found from the evidence that
Exhibit "A", the exclusive agency contract, is genuine;
that Amparo Diaz, the vendee, being the wife of Oscar
de Leon, the sale by Vicente of his property is practically
a sale to Oscar de Leon since husband and wife have
common or identical interests; that Gregorio and
intervenor Teofilo Purisima were the efficient cause in
the consummation of the sale in favor of the spouses
Oscar de Leon and Amparo Diaz; that Oscar de Leon
paid Gregorio the sum of One Thousand Pesos
(P1,000.00) as "propina" or gift and not as additional
earnest money to be given to the plaintiff, because
Exhibit "66", Vicente's letter addressed to Oscar de Leon
with respect to the additional earnest money, does not
appear to have been answered by Oscar de Leon and
therefore there is no writing or document supporting
Oscar de Leon's testimony that he paid an additional
earnest money of One Thousand Pesos (P1,000.00) to
Gregorio for delivery to Vicente, unlike the first amount
of One Thousand Pesos (P1,000.00) paid by Oscar de
Leon to Vicente as earnest money, evidenced by the
letter Exhibit "4"; and that Vicente did not even mention
such additional earnest money in his two replies Exhibits
"I" and "J" to Gregorio's letter of demand of the 5%
commission.
The three issues in this appeal are (1) whether the
failure on the part of Gregorio to disclose to
Vicente the payment to him by Oscar de Leon of
the amount of One Thousand Pesos (P1,000.00)
as gift or "propina" for having persuaded Vicente
to reduce the purchase price from P2.00 to P1.20
per square meter, so constitutes fraud as to cause
a forfeiture of his 5% commission on the sale
price; (2) whether Vicente or Gregorio should be liable
directly to the intervenor Teofilo Purisima for the latter's
share in the expected commission of Gregorio by reason
of the sale; and (3) whether the award of legal interest,
moral and exemplary damages, attorney's fees and
costs, was proper.
Unfortunately, the majority opinion penned by Justice
Edilberto Soriano and concurred in by Justice Juan
Enriquez did not touch on these issues which were
extensively discussed by Justice Magno Gatmaitan in his
dissenting opinion. However, Justice Esguerra, in his
concurring opinion, affirmed that it does not constitute
breach of trust or fraud on the part of the broker and
regarded the same as merely part of the whole process
of bringing about the meeting of the minds of the seller
and the purchaser and that the commitment from the
prospective buyer that he would give a reward to
Gregorio if he could effect better terms for him from the
seller, independent of his legitimate commission, is not
fraudulent, because the principal can reject the terms
offered by the prospective buyer if he believes that such
terms are onerous or disadvantageous to him. On the
other hand, Justice Gatmaitan, with whom Justice
Antonio Caizares concurred, held the view that such an
act on the part of Gregorio was fraudulent and
constituted a breach of trust, which should deprive him
of his right to the commission.
The duties and liabilities of a broker to his
employer are essentially those which an agent
owes to his principal. 1
Consequently, the decisive legal provisions are found in
Articles 1891 and 1909 of the New Civil Code.
"Art. 1891.Every agent is bound to render an
account of his transactions and to deliver to
the principal whatever he may have received
by virtue of the agency, even though it may
not be owing to the principal.
"Every stipulation exempting the agent from
the obligation to render an account shall be
void."
xxx xxx xxx
"Art. 1909.The agent is responsible not only
for fraud, but also for negligence, which shall
be judged with more or less rigor by the
courts, according to whether the agency was
or was not for a compensation."
Article 1891 of the New Civil Code amends Article 1720
of the old Spanish Civil Code which provides that:
"Art. 1720.Every agent is bound to give an
account of his transaction and to pay to the
principal whatever he may have received by
virtue of the agency, even though what he
has received is not due to the principal."
The modification contained in the first paragraph of
Article 1891 consists in changing the phrase "to pay" to
"to deliver", which latter term is more comprehensive
than the former.
Paragraph 2 of Article 1891 is a new addition designed to
stress the highest loyalty that is required to an agent
condemning as void any stipulation exempting the agent
from the duty and liability imposed on him in paragraph
one thereof.
Article 1909 of the New Civil Code is essentially a
reinstatement of Article 1726 of the old Spanish Civil
Code which reads thus:
"Art. 1726.The agent is liable not only for
fraud, but also for negligence, which shall be
judged with more or less severity by the
courts, according to whether the agency was
gratuitous or for a price or reward."
The aforecited provisions demand the utmost good faith,
fidelity, honesty, candor and fairness on the part of the
agent, the real estate broker in this case, to his principal,
the vendor. The law imposes upon the agent the
absolute obligation to make a full disclosure or
complete account to his principal of all his
transactions and other material facts relevant to
the agency, so much so that the law as amended
does not countenance any stipulation exempting
the agent from such an obligation and considers
such an exemption as void. The duty of an agent is
likened to that of a trustee. This is not a technical or
arbitrary rule but a rule founded on the highest and
truest principle of morality as well as of the strictest
justice. 2
Hence, an agent who takes a secret profit in the
nature of a bonus, gratuity or personal benefit
from the vendee, without revealing the same to
his principal, the vendor, is guilty of a breach of
his loyalty to the principal and forfeits his right to
collect the commission from his principal, even if
the principal does not suffer any injury by reason
of such breach of fidelity, or that he obtained
better results or that the agency is a gratuitous
one, or that usage or custom allows it; because the
rule is to prevent the possibility of any wrong, not to
remedy or repair an actual damage. 3 By taking such
profit or bonus or gift or propina from the vendee, the
agent thereby assumes a position wholly inconsistent
with that of being an agent for his principal, who has a
right to treat him, insofar as his Commission is
concerned, as if no agency had existed. The fact that the
principal may have been benefited by the valuable
services of the said agent does not exculpate the agent
who has only himself to blame for such a result by
reason of his treachery or perfidy.
This Court has been consistent in the rigorous application
of Article 1720 of the old Spanish Civil Code. Thus, for
failure to deliver sums of money paid to him as an
insurance agent for the account of his employer as
required by said Article 1720, said insurance agent was
convicted of estafa. 4 An administrator of an estate was
likewise liable under the same Article 1720 for failure to
render an account of his administration to the heirs
unless the heirs consented thereto or are estopped by
having accepted the correctness of his account
previously rendered. 5
Because of his responsibility under the aforecited Article
1720, an agent is likewise liable for estafa for failure to
deliver to his principal the total amount collected by him
in behalf of his principal and cannot retain the
commission pertaining to him by subtracting the same
from his collections. 6
A lawyer is equally liable under said Article 1720 if he
fails to deliver to his client all the money and property
received by him for his client despite his attorney's lien. 7
The duty of a commission agent to render a full account
of his operations to his principal was reiterated in
Duhart, etc. vs. Macias. 8
The American jurisprudence on this score is well-nigh
unanimous.
"Where a principal has paid an agent or
broker a commission while ignorant of the
fact that the latter has been unfaithful, the
principal may recover back the commission
paid, since an agent or broker who has been
unfaithful is not entitled to any
compensation.
xxx xxx xxx
"In discussing the right of the principal to
recover commissions retained by an
unfaithful agent, the court in Little vs. Phipps
(1911) 208 Mass. 331, 94 NE 260, 34 LRA
(NS) 1046, said: 'It is well settled that the
agent is bound to exercise the utmost good
faith in his dealings with his principal. As Lord
Cairns said, this rule "is not a technical or
arbitrary rule. It is a rule founded on the
highest and truest principles of morality."
Parker vs. McKenna (1874) LR 10 Ch (Eng)
96, 118.. If the agent does not conduct
himself with entire fidelity towards his
principal, but is guilty of taking a secret profit
or commission in regard the matter in which
he is employed, he loses his right to
compensation on the ground that he has
taken a position wholly inconsistent with that
of agent for his employer, and which gives
his employer, upon discovering it, the right to
treat him so far as compensation, at least, is
concerned as if no agency had existed. This
may operate to give to the principal the
benefit of valuable services rendered by the
agent, but the agent has only himself to
blame for that result.'
xxx xxx xxx
"The intent with which the agent took a
secret profit has been held immaterial where
the agent has in fact entered into a
relationship inconsistent with his agency,
since the law condemns the corrupting
tendency of the inconsistent relationship.
Little vs. Phipps (1911) 94 NE 260." 9
"As a general rule, it is a breach of good faith
and loyalty to his principal for an agent, while
the agency exists, so to deal with the subject
matter thereof, or with information acquired
during the course of the agency, as to make
a profit out of it for himself in excess of his
lawful compensation: and if he does so he
may be held as a trustee and may be
compelled to account to his principal for all
profits, advantages, rights, or privileges
acquired, by him in such dealings, whether in
performance or in violation of his duties, and
be required to transfer them to his principal
upon being reimbursed for his expenditures
for the same, unless the principal has
consented to or ratified the transaction
knowing that benefit or profit would accrue,
or had accrued, to the agent, or unless with
such knowledge he has allowed the agent so
as to change his condition that he cannot be
put in status quo. The application of this rule
is not affected by the fact that the principal
did not suffer any injury by reason of the
agent's dealings, or that he in fact obtained
better results; nor is it affected by the fact
that there is a usage or custom to the
contrary, or that the agency is a gratuitous
one." (Emphasis supplied.) 10

In the case at bar, defendant-appellee Gregorio Domingo
as the broker, received a gift or propina in the amount of
One Thousand Pesos (P1,000.00) from the prospective
buyer Oscar de Leon, without the knowledge and
consent of his principal, herein petitioner-appellant
Vicente Domingo. His acceptance of said substantial
monetary gift corrupted his duty to serve the interests
only of his principal and undermined his loyalty to his
principal, who gave him a partial advance of Three
Hundred Pesos (P300.00) on his commission. As a
consequence, instead of exerting his best to persuade his
prospective buyer to purchase the property on the most
advantageous terms desired by his principal, the broker,
herein defendant-appellee Gregorio Domingo, succeeded
in persuading his principal to accept the counter-offer of
the prospective buyer to purchase the property at P1.20
per square meter or One Hundred Nine Thousand Pesos
(P109,000.00) in round figure for the lot of 88,477
square meters, which is very much lower than the price
of P2.00 per square meter or One Hundred Seventy-Six
Thousand Nine Hundred Fifty-Four Pesos (P176,954.00)
for said lot originally offered by his principal.
The duty embodied in Article 1891 of the New
Civil Code will not apply if the agent or broker
acted only as a middleman with the task of merely
bringing together the vendor and vendee, who
themselves thereafter will negotiate on the terms
and conditions of the transaction. Neither would the
rule apply if the agent or broker had informed the
principal of the gift or bonus or profit he received from
the purchaser and his principal did not object thereto 11
Herein defendant appellee Gregorio Domingo was not
merely a middleman of the petitioner-appellant Vicente
Domingo and the buyer Oscar de Leon. He was the
broker and agent of said petitioner-appellant only. And
therein petitioner-appellant was not aware of the gift of
One Thousand Pesos (P1,000.00) received by Gregorio
Domingo from the prospective buyer; much less did he
consent to his agent's accepting such a gift.
The fact that the buyer appearing in the deed of sale is
Amparo Diaz, the wife of Oscar de Leon, does not
materially alter the situation; because the transaction, to
be valid, must necessarily be with the consent of the
husband Oscar de Leon, who is the administrator of their
conjugal assets including their house and lot at No. 40
Denver Street, Cubao, Quezon City, which were given as
part of and constituted the down payment on, the
purchase price of herein petitioner-appellant's lot No.
883 of Piedad Estate. Hence, both in law and in fact, it
was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust,
defendant-appellee Gregorio Domingo must forfeit his
right to the commission and must return the part of the
commission he received from his principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo,
can only recover from Gregorio Domingo his one-half
share of whatever amounts Gregorio Domingo received
by virtue of the transaction as his sub-agency contract
was with Gregorio Domingo alone and not with Vicente
Domingo, who was not even aware of such sub-agency.
Since Gregorio Domingo received from Vicente Domingo
and Oscar de Leon respectively the amounts of Three
Hundred Pesos (P300.00) and One Thousand Pesos
(P1,000.00) or a total of One Thousand Three Hundred
Pesos (P1,300.00), one-half of the same, which is Six
Hundred Fifty Pesos (P650.00), should be paid by
Gregorio Domingo to Teofilo Purisima.
Because Gregorio Domingo's clearly unfounded complaint
caused Vicente Domingo mental anguish and serious
anxiety as well as wounded feelings, petitioner-appellant
Vicente Domingo should be awarded moral damages in
the reasonable amount of One Thousand Pesos
(P1,000.00) and attorney's fees in the reasonable
amount of One Thousand Pesos (P1,000.00), considering
that this case has been pending for the last fifteen (15)
years from its filing on October 3, 1956.
WHEREFORE, the judgment is hereby rendered,
reversing the decision of the Court of Appeals and
directing the defendant-appellee Gregorio Domingo: (1)
to pay to the heirs of Vicente Domingo the sum of One
Thousand Pesos (P1,000.00) as moral damages and One
Thousand Pesos (P1,000.00) as attorney's fees; (2) to
pay Teofilo Purisima the sum of Six Hundred Fifty Pesos
(P650.00); and (3) to pay the costs.
[G.R. No. L-2246. January 31, 1951.]
JOVITO R. SALONGA, plaintiff-appellee,
vs. WARNER BARNES & CO., LTD.,
defendant-appellant.
Perkins, Ponce Enrile, Contreras & Gomez, for
appellant.
Pedro L. Yap, for appellee.
SYLLABUS
1.PLEADING AND PRACTICE; ACTIONS;
ACTIONS FOUNDED UPON CONTRACT;
OBLIGATIONS AND CONTRACTS. It is a well
known rule that a contractual obligation or liability, or
an action ex-contract, must be founded upon a
contract, oral or written, either express or implied. If
there is no contract there is no corresponding liability,
and no cause of action may arise therefrom.
2.ID.; PARTIES; INSURANCE; PRINCIPAL AND
AGENT; CONTRACT OF INSURANCE ENTERED INTO
BY PRINCIPAL NOT BINDING UPON AGENT. The
contract of marine insurance was made and executed
only by and between an insurance company of New
York and the consignor. The contract was entered
into in New York. According to the contract of
insurance, the insurance company undertook to pay
to the sender or her consignee the damages that may
be caused to the goods shipped. The consignee
instituted an action against the agent of the insurance
company in the Philippines for the loss or damage to
the goods shipped. Held: The defendant has not
taken part, directly or indirectly, in the contract in
question. The defendant did not enter into any
contract either with the plaintiff or his consignor.
There is nothing in the contract which may effect the
defendant favorably or adversely, the fulfillment of
which may be demanded by or against it. That
contract is purely bilateral, binding only upon the
consignor and the insurance company.
3.ID.; ID.; PARTIES; REAL PARTY IN
INTEREST. Section 2, Rule 3 of the Rules of Court
requires that "every action must be prosecuted in the
name of the real party in interest." A corollary
proposition to this rule is that an action must be
brought against the real party in interest, or against a
party which may be bound by the judgment to be
rendered therein. The real party in interest is the
party who would be benefit or injured by the
judgment, or the party entitled to the avail of the suit.
4.PRINCIPAL AND AGENT; SETTLEMENT AND
ADJUSTMENT AGENT; INSURANCE; AUTHORITY OF
SETTLEMENT AND ADJUSTMENT AGENT. The
agent in the Philippines of an insurance company in
New York is a settlement and adjustment agent and
as such agent it has the authority to settle all the
losses and claims that may arise under the policies
that may be issued by or in behalf of said company in
accordance with the instructions it may receive from
time to time its principal.
5.ID.; ID.; ID.; SETTLEMENT AND
ADJUSTMENT AGENT COMPARED WITH OTHER
AGENTS. An adjustment and settlement agent is
no different from any other agent the point of view of
his responsibility. Whenever he adjust or settles a
claim, he does it in behalf of his principal, and his
action is binding not upon himself but upon his
principal.
6.ID.; ID.; ID.; ACTIONS; PARTIES; SCOPE OF
THE FUNCTIONS OF ADJUSTMENT AND SETTLEMENT
AGENT. The scope and extent of the functions of
an adjustment and settlement agent do not include
personal liability. His functions are merely to settle
and adjust claims in behalf of his principal. If those
claims are proved and undisputed, or is disproved by
the principal, the agent does not assume any personal
liability. The agent cannot be sued in its own right.
The recourse of the insured is to press his claim
against the principal.
7.ID.; INSURANCE; ACTION; PARTY SUED
UPON NOT PROPER PARTY. An action is brought
for a practical purpose, may not obtain actual and
positive relief. If the party sued upon is the proper
party, any decision that may be rendered against him
would be futile, for it cannot be enforced or executed.
The effort that may be employed will be wasted. Such
would be the result of this case if it will be allowed to
proceed against the agent, for even if a favorable
judgment is obtained against it, it cannot be enforced
because the principal which is the real party is not
involved. The agent cannot be made to pay
something it is not responsible.
8.ID.; CORPORATION; ACTION; SETTLING
AGENT; INSURANCE; SERVICE OF PROCESS ON
SETTLING AGENT OF FOREIGN CORPORATION.
Section 14, Rule 17 of the Rules of Court says that if
the defendant is a foreign corporation and it has not
designated an agent in the Philippines on whom
service may be made on any agent it may have in the
Philippines. The Westchester Fire Insurance Company
of New York comes within the import of this rule for
even if it has not designated an agent as required by
law, it has however a settling agent who may serve
the purpose. In other words, an action may be
brought against said insurance company in the
Philippines and the process may be served on the
settling agent to give our courts the necessary
jurisdiction.
D E C I S I O N
BAUTISTA ANGELO, J p:
This is an appeal from a decision of the Court
of First Instance of Manila ordering the defendant, as
agent of Westchester Fire Insurance Company of New
York, to pay to the plaintiff the sum of P727.82 with
legal interest thereon from the filing of the complaint
until paid, and the costs. The case was taken to this
court because it involves only questions of law.
On August 28, 1946, Westchester Fire
Insurance Company of New York entered into a
contract with Tina J. Gamboa whereby said company
insured one case of rayon yardage which said Tina J.
Gamboa shipped from San Francisco, California, on
steamer Clovis Victory, to Manila, Philippines and
consigned to Jovito Salonga, plaintiff herein.
According to the contract of insurance, the insurance
company undertook to pay to the sender or her
consignee the damages that may be caused to the
goods shipped subject to the condition that the
liability of the company will be limited to the actual
loss which the insured may suffer not to exceed the
sum of P2,000. The ship arrived in Manila on
September 10, 1946. On October 7, the shipment was
examined by C. B. Nelson and Co., marine surveyors,
at the request of the plaintiff, and in their
examination the surveyors found a shortage in the
shipment in the amount of P1,723.12. On October 9,
plaintiff filed a claim for damages in the amount of
P1,723.12 against the American President Lines,
agents of the ship Clovis Victory, demanding
settlement, and when apparently no action was taken
on this claim, plaintiff demanded payment thereof
from Warner, Barnes & Co., Ltd., as agent of the
insurance company in the Philippines, and this agent
having refused to pay the claim, on April 17, 1947,
plaintiff instituted the present action.
In the meantime, the American President Lines,
in a letter dated November 25, 1946, agreed to pay
to the plaintiff the amount of P476.17 under its
liability in the bill of lading, and when this offer was
rejected, the claim was finally settled in the amount
of P1,021.25. As a result, the amount claimed in the
complaint as the ultimate liability of the defendant
under the insurance contract was reduced to P717.82
only.
After trial, at which both parties presented their
respective evidence, the court rendered judgment as
stated in the early part of this decision. The motion
for reconsideration filed by the defendant having
been denied, the case was appealed to this court.
Appellant now assigns the following errors:
I
"The trial court erred in finding that
the loss or damage of the case of rayon
yardage (Pilferage, as found by the marine
surveyors) is included in the risks insured
against as enunciated in the insurance policy.
II
"The trial court erred in holding
that defendant, as agent of Westchester
Fire Insurance Company of New York,
United States of America, is responsible
upon the insurance claim subject to the
suit.
III
"The trial court erred in denying
defendant's motion for new trial and to set
aside the decision." (Appellant's assignments
of error).
We will begin by discussing the second error
assigned by appellant for the reason that if our view
on the question raised is in favor of the claim of
appellant there would be no need to proceed with the
discussion of the other errors assigned, for that would
put an end to the controversy.
As regards the second assignment of error,
counsel claims that the defendant cannot be made
responsible to pay the amount in litigation because
(1) said defendant has no contractual relation with
either the plaintiff or his consignor; (2) the defendant
is not the real party in interest against whom the suit
should be brought; and (3) a judgment for or against
an agent in no way binds the real party in interest.
1.We are of the opinion that the first point is
well taken. It is a well known rule that a contractual
obligation or liability, or an action ex-contractu, must
be founded upon a contract, oral or written, either
express or implied. This is axiomatic. If there is no
contract, there is no corresponding liability, and no
cause of action may arise therefrom. This is what is
provided for in article 1257 of the Civil Code. This
article provides that contracts are binding only upon
the parties who make them and their heirs, excepting,
with respect to the latter, where the rights and
obligations are not transmissible, and when the
contract contains a stipulation in favor of a third
person, he may demand its fulfillment if he gives
notice of his acceptance before it is revoked. This is
also the ruling laid down by this court in the case of
E. Macias & Co. vs. Warner, Barnes & Co. (43 Phil.
155) wherein, among others, the court said:
". . . There is no contract of any kind,
either oral or written, between the plaintiff
and Warner, Barnes & Company. Plaintiff's
contracts are with the insurance companies,
and are in writing, and the premiums were
paid to the insurance companies and the
policies were issued by, and in the name of,
the insurance companies, and on the face of
the policy itself, the plaintiff knew that the
defendant was acting as agent, for, and was
representing, the respective insurance
companies in the issuance and delivery of the
policies. The defendant company did not
contract or agree to do anything or to pay
the plaintiff any money at any time or on any
condition, either as agent or principal.

xxx xxx xxx
"Every cause of action ex-contractu
must be founded upon a contract, oral or
written, either express or implied.
"Warner, Barnes & Co., as principal or
agent, did not make any contract, either oral
or written, with the plaintiff. The contracts
were made between the respective insurance
companies and the insured, and were made
by the insurance companies, through Warner,
Barnes & Co., as their agent.
"As in the case of a bank draft, it is
not the cashier of the bank who makes the
contract to pay the money evidenced by the
draft, it is the bank, acting through its
cashier, that makes the contract. So, in the
instant case, it was the insurance companies,
acting through Warner, Barnes & Co., as
their agent, that made the written contracts
with the insured." (E. Macias & Co. vs.
Warner, Barnes & Co., 43 Phil., 155, 161,
162.)
Bearing in mind the above rule, we find that
the defendant has not taken part, directly or
indirectly, in the contract in question. The evidence
shows that the defendant did not enter into any
contract either with the plaintiff or his consignor
Tina J. Gamboa. The contract of marine insurance,
Exhibit C, was made and executed only by and
between the Westchester Fire Insurance Company of
New York and Tina J. Gamboa. The contract was
entered into in New York. There is nothing therein
which may affect, in favor or adversely, the
defendant, the fulfillment of which may be demanded
by or against it. That contract is purely bilateral,
binding only upon Gamboa and the insurance
company. When the lower court, therefore, imposed
upon the defendant an obligation which it has never
assumed, either expressly or impliedly, or when it
extended to the defendant the effects of a contract
which was entered into exclusively by and between
the Westchester Fire Insurance Company of New York
and Tina J. Gamboa, the error it has committed is
evident. This is contrary to law.
We do not find any material variance between
this case and the case of E. Macias & Co. vs. Warner,
Barnes & Co., supra, as pointed out by counsel for
appellee, in so far as the principle we are considering
is concerned. Both cases involve similar facts which
call for the application of a similar ruling. In both
cases the issue is whether an agent, who acts within
the scope of his authority, can assume personal
liability for a contract entered into by him in behalf of
his principal. And in the Macias case we said that the
agent did not assume personal liability because the
only party bound was the principal. And in this case
this principle acquires added force and effect when
we consider the fact that the defendant did not sign
the contract as agent of the foreign insurance
company as the defendant did in the Macias case.
The Macias case, therefore, is on all fours with this
case and is decisive of the question under
consideration.
2.Counsel next contends that Warner,
Barnes and Co., Ltd., is not the real party in
interest against whom the suit should be
brought. It is claimed that this action should
have been filed against its principal, the
Westchester Fire Insurance Company of New
York. This point is also well taken. Section 2,
Rule 3 of the Rules of Court requires that "every
action must be prosecuted in the name of the real
party in interest." A corollary proposition to this rule is
that an action must be brought against the real party
in interest, or against a party which may be bound by
the judgment to be rendered therein (Salmon &
Pacific Commercial Co. vs. Tan Cueco, 36 Phil., 556).
The real party in interest is the party who would be
benefited or injured by the judgment, or the "party
entitled to the avails of the suit" (1 Sutherland, Court
Pleading Practice & Forms, p. 11). And in the case at
bar, the defendant issued upon in its capacity as
agent of Westchester Fire Insurance Company of New
York in spite of the fact that the insurance contract
has not been signed by it. As we have said, the
defendant did not assume any obligation thereunder
either as agent or as a principal. It cannot, therefore,
be made liable under said contract, and hence it can
be said that this case was filed against one who is not
the real party in interest.
We agree with counsel for the appellee that the
defendant is a settlement and adjustment agent of
the foreign insurance company and that as such
agent it has the authority to settle all the losses and
claims that may arise under the policies that may be
issued by or in behalf of said company in accordance
with the instructions it may receive from time to time
from its principal, but we disagree with counsel in
his contention that as such adjustment and
settlement agent, the defendant has assumed
personal liability under said policies, and, therefore, it
can be sued in its own right. An adjustment and
settlement agent is no different from any other agent
from the point of view of his responsibility, for he also
acts in a representative capacity. Whenever he
adjusts or settles a claim, he does it in behalf of his
principal, and his action is binding not upon himself
but upon his principal. And here again, the ordinary
rule of agency applies. The following authorities bear
this out:
"An insurance adjuster is ordinarily a
special agent for the person or company for
whom he acts, and his authority is prima
facie coextensive with the business intrusted
to him. . . .".
"An adjuster does not discharge
functions of a quasi-judicial nature, but
represents his employer, to whom he owes
faithful service, and for his acts, in the
employer's interest, the employer is
responsible so long as the acts are done
while the agent is acting within the scope of
his employment." (45 C. J. S., 1338-1340.)
It, therefore, clearly appears that the scope
and extent of the functions of an adjustment and
settlement agent do not include personal liability. His
functions are merely to settle and adjusts claims in
behalf of his principal if those claims are proven and
undisputed, and if the claim is disputed or is
disapproved by the principal, like in the instant case,
the agent does not assume any personal liability. The
recourse of the insured is to press his claim against
the principal.
3.This brings us to the consideration of the
third point. It is claimed that a judgment, for or
against an agent, in no way binds the real party in
interest. In our opinion this point is also well taken,
for it is but a sequel to the principle we have pointed
out above. The reason is obvious. An action is
brought for a practical purpose, nay to obtain actual
and positive relief. If the party sued upon is not the
proper party, any decision that may be rendered
against him would be futile, for it cannot be enforced
or executed. The effort that may be employed will be
wasted. Such would be the result of this case if it will
be allowed to proceed against the defendant, for even
if a favorable judgment is obtained against it, it
cannot be enforced because the real party is not
involved. The defendant cannot be made to pay for
something it is not responsible. Thus, in the following
authorities it was held:
". . . Section 114 of the Code of Civil
Procedure requires an action to be brought in
the name of the real party in interest; and a
corollary proposition requires that an action
shall be brought against the persons or
entities which are to be bound by the
judgment obtained therein. An action upon a
cause of action pertaining to his principal
cannot be brought by an attorney-in-fact in
his name (Arroyo vs. Granada and Gentero,
18 Phil., 484); nor can an action based upon
a right of action belonging to a principal be
brought in the name of his representative
(Lichauco vs. Limjuco and Gonzalo, 19 Phil.,
12). Actions must be brought by the real
parties in interest and against the persons
who are to be bound by the judgment
obtained therein." (Salmon & Pacific
Commercial Co. vs. Tan Cueco, 36 Phil., 557-
558.)
xxx xxx xxx
"An action to set aside an instrument
of transfer of land should be brought in the
name of the real party in interest. An
apoderado or attorney in fact is not a real
party. He has no interest in the litigation and
has absolutely no right to bring the
defendant into court or to put him to the
expense of a suit, and there is no provision of
law permitting action to be brought in such
manner. A judgment for or against the
apoderado in no way binds or affects the real
party, and a decision in the suit would be
utterly futile. It would touch no interest,
adjust no question, bind no one, and settle
no litigation. Courts should not be required to
spend their time solemnly considering and
deciding cases where no one could be bound
and no interest affected by such deliberation
and decision." (Arroyo vs. Granada and
Gentero, 18 Phil., 484.)
If the case cannot be filed against the
defendant as we have pointed out, what then is the
remedy of the plaintiff under the circumstances? Is
the case of the plaintiff beyond remedy? We believe
that the only way by which the plaintiff can bring the
principal into this case or make it come under the
courts in this jurisdiction is to follow the procedure
indicated in section 14, Rule 7, of the Rules of Court
concerning litigations involving foreign corporations.
This rule says that if the defendant is a foreign
corporation and it has not designated an agent in the
Philippines on whom service may be made in case of
litigation, such service may be made on any agent it
may have in the Philippines. And in our opinion the
Westchester Fire Insurance Company of New York
comes within the import of this rule for even if it has
not designated an agent as required by law, it has
however a settling agent who may serve the purpose.
In other words, an action may be brought against
said insurance company in the Philippines and the
process may be served on the defendant to give our
courts the necessary jurisdiction. This is the way we
have pointed out in the case of General Corporation
of the Philippines & Mayon Investment Co. vs. Union
Insurance Society of Canton Ltd. et al., (87 Phil.,
313).

In view of the foregoing, we are of the opinion
and so hold that the lower court erred in holding the
defendant responsible for the loss or damage claimed
in the complaint. And having arrived at this
conclusion, we do not deem it necessary to pass upon
the other errors assigned by the appellant.
Wherefore, the decision appealed from is hereby
reversed. The complaint is hereby dismissed, with costs
against the appellee.
[G.R. No. 85685. September 11, 1991.]
LAURO CRUZ, petitioner, vs. THE
HONORABLE COURT OF APPEALS and
PUREFOODS CORP., respondents.
Alfonso G. Salvador for petitioner.
Hilario, Go & De la Cruz for private respondent.
SYLLABUS
1.REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF
THE COURT OF APPEALS; RULE AND EXCEPTION. We
have held in a long line of cases that findings of facts of
the Court of Appeals are conclusive upon this Court.
There are, however, recognized exceptions to this rule,
as where the findings are totally devoid of support in the
record, or are glaringly erroneous as to constitute serious
abuse of discretion, or when the findings are grounded
entirely on speculation, surmise or conjecture.
2.ID.; CIVIL PROCEDURE; DISMISSAL OF ACTION;
PROPER IN CASE AT BAR. Private respondent did not
amend the complaint within the period aforesaid. So,
when the case was called for hearing on 16 May 1984,
pursuant to the Order of 27 March 1984, and the parties
did not appear, the trial court should have dismissed the
case for failure on the part of private respondent to file
the amended complaint. Such dismissal is authorized
under Section 3 of Rule 17 of the Rules of Court. The
respondent Court, however, brushed aside this point by
holding that the non-compliance by private respondent
"was muted by the subsequent order dated May 16,
1984 which submitted the case for decision;" and that by
said order "the trial court appears to have given its
assent to resolving the case on the basis of the
unamended complaint," which is authorized by Section
11 of Rule 3 of the Rules of Court. Although this
justification is flimsy and begs the question, the
foregoing resolution on the issue of petitioner's liability to
the private respondent renders unnecessary further
discussion on the remaining assigned errors.
3.CIVIL LAW; SPECIAL CONTRACTS; AGENCY; A
PERSON DEALING WITH AN AGENT IS PUT UPON
INQUIRY AND MUST DISCOVER UPON HIS PERIL
THE AUTHORITY OF THE AGENT. A person
dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the
agent. It is for this reason that under Article No.
1902 of the Civil Code, a third person with whom
agent wishes to contract on behalf of the principal
may require the presentation of the power of
attorney, or the instructions as regards the
agency, and that private or secret orders and
instructions of the principal do not prejudice third
persons who have relied upon the power of
attorney or instructions shown them.
4.ID.; ESTOPPEL; ESSENTIAL ELEMENTS. In Kalalo
vs. Luz, 34 SCRA 337, We held that the essential
elements of estoppel in respect to the party claiming it
are: (a) lack of knowledge and of the means of
knowledge of the truth as the facts in question; (b)
reliance, in good faith, upon the conduct or statements
of the party to be estopped; and (c) action or inaction
based thereon of such character as to change the
position or status of the party claiming the estoppel, to
his injury, detriment, or prejudice.
D E C I S I O N
DAVIDE, JR., J p:
In C.A.-G.R. CV No. 07859 (entitled Pure Foods
Corporation versus Lauro Cruz, doing business under the
name and style Mang Uro Store), a decision was
promulgated on 9 August 1988 by respondent Court of
Appeals 1 affirming in toto the decision promulgated on
28 February 1985 of the Regional Trial Court of Pasig
(Branch 151) of the National Capital Judicial Region in
Civil Case No. 49672 2 which, by reason of its unusual
brevity, is fully reproduced as follows:
"DECISION
This is an action for sum of money.
From the record, the following facts are
gathered: The plaintiff is a domestic
corporation engaged in the manufacture,
processing and selling of various meat
products while the defendant is the
owner/manager of Mang Uro Store in Dela
Paz Street, Marikina, Metro Manila. Sometime
in November 1977, the defendant was
granted by the plaintiff a credit line on which
the defendant, on several occasions, bought
on credit several Purefoods products. The
defendant had an unpaid balance with the
plaintiff in the amount of P57,897.63, from
which the former was credited the amount of
P2,651.42 representing the amount of
returned goods, thereby leaving the balance
of P55,246.21. Demands were made upon
the defendant for him to settle his account
with the plaintiff. A demand letter dated
January 17, 1983 was sent to and was
received by the defendant who failed to heed
the same. The plaintiff, to protect its interest,
was constrained to hire the services of
counsel. LLjur
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the
defendant, ordering the latter to pay the
former the following:
1.The sum of P55,246.21,
representing his outstanding unpaid
account plus interest of 12% percent
per annum to be counted from the
date of the filing of this case on April
15, 1983 until fully paid; and
2.The sum equivalent to 15%
of the total amount due as and for
attorney's fees and litigation expenses.
Costs against the defendant.
SO ORDERED."
His motion for reconsideration having been denied in the
resolution of respondent Court on 27 October 1988, 3
petitioner filed the instant appeal by certiorari under Rule
45 of the Rules of Court urging Us to annul and set aside
the aforesaid decision and resolution because respondent
Court committed the following errors which are the
very errors he ascribed to the trial court: (a) in not
holding that petitioner is not a signatory to the credit
application card attached as Annex "A" of private
respondent's complaint as clearly evidenced by the fact
that only the signatures of Me Cruz and Marilou Cruz,
who are not impleaded as party defendants, appear
therein; (b) in not holding that his signature does not
appear in the invoices submitted by private respondent;
(c) in not holding that he did not receive the letters of
demand; (d) in not finding and concluding that private
respondent failed to comply with the Order of the trial
court to amend the complaint; and (e) in denying his
motion for reconsideration.
The antecedent facts are not disputed.
On 15 April 1983, private respondent Pure Foods
Corporation filed with the trial court a complaint 4 for
sum of money against petitioner alleging therein that
sometime in November 1977, petitioner applied for a
credit line with the plaintiff which was consequently
approved by the latter subject to the conditions therein
stated; pursuant to said approved credit arrangement,
defendant (petitioner herein) made various purchases
from plaintiff until the early part of 1982, when he
accumulated a total unpaid account of P57,897.63 as
evidenced by short payment notices and invoices;
against this obligation, defendant was credited with the
amount of P2,651.42 representing the value of returned
goods, thereby leaving a balance of P55,246.21, which
remained unpaid despite numerous demands made upon
him.
The parties who signed the Credit Application card as
applicants are Me Cruz, who signed over the printed
words name of signatory, and Marilou L. Cruz, who
signed over the printed words Authorized Signature. The
opening paragraph thereof reads:
"I/We hereby apply for a charge account in
the amount stated above, and herewith are
the information for your consideration as a
basis for the extension of credit to us:
TRADE NAME: MANG URO STORE.
Owner/Manager: Lauro Cruz"
xxx xxx xxx
Petitioner did not sign any of the invoices attached to
the complaint.
For failure to file an answer within the reglementary
period, and upon motion of private respondent, the trial
court issued an Order on 29 September 1983 declaring
the petitioner in default and authorizing the private
respondent to present its evidence ex parte on 4 October
1983. 5
On 19 October 1983, petitioner filed a motion to set
aside the order of default 6 alleging therein that he did
not file an answer anymore because upon examination of
the records of the case, he discovered that it was his son
Rodolfo who received the summons and copy of the
complaint; he never entered into any transaction with
private respondent and that although the store referred
to is still licensed in his name, it has, since 1977, been
owned and operated by his son Rodolfo Cruz for the
reason that he "is getting old already and moreover,
because of deteriorating physical condition;" and
according to his son Rodolfo, he had already settled the
matter with the private respondent under an agreement
whereby Rodolfo would make partial payments and the
private respondent would dismiss the case. prLL
In its Order of 9 November 1983, 7 the trial court
granted the aforesaid motion, required petitioner to file
his responsive pleading within five (5) days, and to
present his evidence on 6 January 1984.
Petitioner filed an Answer With Counterclaim on 28
March 1983. 8 He reiterates therein his allegations in the
motion to lift the default order and further avers that his
signature does not even appear on the credit application
card. On the counterclaim, he prays for judgment
awarding him moral damages in an amount to be proved
at the trial, and attorney's fees in the amount of
P15,000.00.
Pre-trial was set on 2 January 1984. It was reset by the
trial court for 19 January 1984, and further reset for 21
February 1984 at 1:00 P.M. upon motion of private
respondent. On the last mentioned date, however,
petitioner arrived late and by then, the court had already
issued an order declaring him in default for failure to
appear at the pre-trial. Forthwith, he filed a motion for
reconsideration which the trial court granted in its order
of 22 February 1984. Pre-trial was reset to 27 March
1984. 9
Pre-trial was held as above scheduled and was concluded
with the issuance of the following order:
"As prayed for, the plaintiff is given ten (10)
days from today to file amended complaint.
By agreement, the presentation of
defendant's evidence is set for May 16, 1984,
at 8:30 a.m., without prejudice to the filing of
a compromise agreement." 10

As stated by petitioner, 11 which is not denied by private
respondent, the purpose of the amendment was to
implead Me Cruz and Marilou Cruz as parties defendants
since they are the applicants in the credit application
card.
Both parties did not appear on 16 May 1984. Thereupon,
the trial court issued an order declaring the case as
submitted for decision on the basis of the evidence on
record. 12
As adverted to earlier, on 28 February 1985, the trial
court rendered its decision against petitioner who, on 21
March 1985, filed a motion to reconsider 13 the decision,
which the trial court denied for lack of merit in its order
of 16 May 1985. 14
Petitioner appealed from the decision to the then
Intermediate Appellate Court, now Court of Appeals.
The appeal was docketed as C.A.-G.R. CV No. 07859.
In his Brief in said case, petitioner attributes to the trial
court the errors 15 which, as earlier mentioned, are the
very same errors submitted before Us as having been
committed by the respondent court.
According to the respondent Court, these errors bring
into focus one crucial issue: the liability of
petitioner for the amounts adjudged by the trial
court in favor of private respondent. It held that
petitioner is liable because in his motion to set aside the
order of default, he admitted that the Mang Uro Store is
still licensed under his name and the credit application
card indicates that he is the owner/manager thereof
Hence, even on the assumption that there had been a
transfer of ownership and management of the store to
Rodolfo Cruz, previous to the transactions made with
appellee, petitioner permitted the business to be carried
on in his name as its ostensible owner. Private
respondent should not be expected to be aware of such
a transfer, and whatever agreement or understanding
appellant had with petitioner's son Rodolfo regarding the
store cannot bind or affect private respondent, for
matters accomplished between two parties ought not to
operate to the prejudice of a third person. 16
Accordingly, it also finds as superfluous the amendment
of the complaint for the purpose of impleading Rodolfo
Cruz, Marilou Cruz and Me Cruz; moreover, it contends
that failure to amend the complaint is no cause for
reversal because these persons were known to private
respondent as petitioner's "progeny"; besides, the
transfer of business, if indeed there was such, is a
matter of defense which need not be "negatived" in the
complaint. A complaint should not, by the averments,
anticipate a defense thereto.
In respect to the failure of private respondent to comply
with the order of 27 March 1984 directing it to amend
the complaint, respondent Court held that the non-
compliance was "muted by the subsequent order of 16
May 1984 which considered the case submitted for
decision." By such order, the trial court gave its assent to
resolving the case on the basis of the unamended
complaint. Section 11 of Rule 3 (erroneously stated as
Section 3 of Rule 11) of the Rules of Court provides that
parties may be dropped or added by order of the court
on motion of any party or on its own initiative at any
stage of the action and on such terms as are just; in the
instant case, it may be inferred that the trial court opted
to resolve the case without the proposed change in
parties defendants.
Finally, it ruled that both oral and documentary evidence
presented at the hearing on 3 October 1983 proved
petitioner's unsatisfied obligation to the private
respondent.
To bring this petition within Our authority, petitioner
asserts, in effect, that at the bottom of the assigned
errors is the issue of whether the respondent Court has
made conclusions of fact which are not substantiated by
the evidence on record. Petitioner asserts that it did.
We have held in a long line of cases that findings of facts
of the Court of Appeals are conclusive upon this Court. 17
There are, however, recognized exceptions to this rule,
18 as where the findings are totally devoid of support in
the record, or are glaringly erroneous as to constitute
serious abuse of discretion, 19 or when the findings are
grounded entirely on speculation, surmise or conjecture.
20
Deliberating on this case, We hold that the findings and
conclusions of both the trial court and the respondent
Court are not supported by the evidence and that such
conclusions are glaringly erroneous. This petition is
impressed with merit.
In its very brief decision, the trial court, without even
laying the factual premises, made a sweeping conclusion
that it was the petitioner who applied for a credit line
with private respondent and which the latter approved
for him; on the basis of such approval, he subsequently
bought Purefoods products on credit from private
respondent. Evidently, the trial court may have in mind
the Credit Application Card 21 and the several invoices
for the delivery of the goods. 22 But as correctly pointed
out by the petitioner, and as the documents themselves
show, he did not sign any of them. LibLex
It is the respondent Court which endeavored to supply
the arguments in support of the foregoing conclusion.
According to the respondent court:
In his Motion to Set Aside Order of Default
filed on October 19, 1983, appellant 23
admitted that subject store is still licensed
under his name . . . . Also, the credit
application card accomplished in behalf of the
store clearly indicates appellant as
owner/manager thereof . . . . Hence, even on
the assumption that there really had been a
transfer of ownership and management of
the 'Mang Uro Store' to Rodolfo Cruz previous
to the transactions made with appellee, 24
the fact is that appellant permitted the
carrying of the business of said store with
him as ostensible owner. Appellee should not
be expected to be aware of such transfer.
Whatever private agreement or
understanding appellant made with his son
Rodolfo regarding the store cannot bind or
affect appellee. Insofar as the latter is
concerned, the store is business property of
appellant. The maxim res inter alios acta
alteri nocere non debet is square. Matters
accomplished between two parties ought not
to operate to the prejudice of a third person
(Blansa vs. Arcangel, 21 SCRA 4; Perez vs.
Mendoza, 65 SCRA 493; Tinitigan vs.
Tinitigan, 100 SCRA 636)." 25
Unfortunately, however, this conclusion is bereft of
substantial factual basis and disregards fundamental
principles concerning the primary duty of persons dealing
with parties who act for others, and of estoppel.
Indisputably, the credit application card is a form
prepared and supplied by private respondent. There is no
evidence, much less an allegation by private respondent,
that it was petitioner who filled up the entries in said
form. It is logical to presume then that the parties who
signed it (Me Cruz and Marilou L. Cruz), or anyone of
them, made or accomplished the entries. Needless to
state, since on the face of the document, the
"owner/manager" of the "Mang Uro Store", which
is written on the column Trade Name, is Lauro
Cruz, and not the parties signing the same, it was
incumbent upon the private respondent to inquire
into the relationship of the signatories to the
petitioner or to satisfy itself as to their authority
to act for or represent the petitioner. Under the
circumstances, it is apparent that petitioner had no direct
participation and that the two applicants could have
acted without authority from him or as his duly
authorized representatives. In either case, for the
protection of its interest, private respondent should have
made the necessary inquiry verification as to the
authority of the applicants and to find out from them
whether Lauro Cruz is both the owner and manager or
merely the owner or the manager, for that is what
"owner/manager" in its form could signify.
A person dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the agent.
26 It is for this reason that under Article No. 1902 of the
Civil Code, a third person with whom the agent wishes to
contract on behalf of the principal may require the
presentation of the power of attorney, or the instructions
as regards the agency, and that private or secret orders
and instructions of the principal do not prejudice third
persons who have relied upon the power of attorney or
instructions shown them.
In short, petitioner is not under estoppel, as against the
claim of private respondent, which seems to be at the
bottom of the respondent Court's rationalization.
In Kalalo vs. Luz, 27 We held that the essential elements
of estoppel in respect to the party claiming it are: (a)
lack of knowledge and of the means of knowledge of the
truth as the facts in question; (b) reliance, in good faith,
upon the conduct or statements of the party to be
estopped; and (c) action or inaction based thereon of
such character as to change the position or status of the
party claiming the estoppel, to his injury, detriment, or
prejudice.
The above disquisition's ineluctably show the absence of
said elements in this case.
In the instant case, there is no showing at all that private
respondent tried to ascertain the ownership of Mang Uro
Store and the extent of the authority of the applicants to
represent Lauro Cruz at any time before it approved the
credit application card.
There is as well no evidence, much less any claim by
private respondent, that before Me Cruz and Marilou
Cruz signed the credit application card, it had been
dealing with petitioner or the Mang Uro Store, or that for
sometime prior thereto, petitioner ever represented to it
as the owner of the store that he has authorized the
above signatories to represent him in any transaction.
Clearly, it was error for the respondent Court to conclude
that petitioner should be held liable to private
respondent on account of the credit application card on
the theory that he permitted the carrying of the business
of the store. This theory further erroneously assumes
that the business of the store before the filing of the
credit application card included the sale of products of
private respondent. There is no evidence on this point.

Moreover, it is apparent that the purpose of the request
of private respondent to file an amended complaint
within ten (10) days from 27 March 1984, the date when
the pre-trial was held, which the trial court granted, 28
was precisely to implead the signatories to the credit
application card. This was precisely prompted by the
insistence of petitioner that he is not liable for the claims
in the complaint because he did not sign the credit card
application and the invoices. In short, he is erroneously
impleaded as defendant. Since among the matters to be
considered at pre-trial is the necessity or desirability of
amendments to pleadings, 29 the request was
seasonably and properly made.
Private respondent did not amend the complaint within
the period aforesaid. So, when the case was called for
hearing on 16 May 1984, pursuant to the Order of 27
March 1984, and the parties did not appear, the trial
court should have dismissed the case for failure on the
part of private respondent to file the amended complaint.
Such dismissal is authorized under Section 3 of Rule 17
of the Rules of Court. The respondent Court, however,
brushed aside this point by holding that the non-
compliance by private respondent "was muted by the
subsequent order dated May 16, 1984 which submitted
the case for decision;" and that by said order "the trial
court appears to have given its assent to resolving the
case on the basis of the unamended complaint," which is
authorized by Section 11 of Rule 3 of the Rules of Court.
Although this justification is flimsy and begs the
question, the foregoing resolution on the issue of
petitioner's liability to the private respondent renders
unnecessary further discussion on the remaining
assigned errors. LLphil
WHEREFORE, the instant petition is GRANTED, and the
decision of the respondent Court of Appeals of 9 August
1988 and its resolution of 27 October 1988 in C.A.-G.R.
CV No. 07859, as well as the decision of the trial court of
28 February 1985 in Civil Case No. 49672, are hereby
REVERSED and SET ASIDE.
With costs against private respondent.
SO ORDERED.
[G.R. No. L-49395. December 26, 1984.]
GREEN VALLEY POULTRY & ALLIED
PRODUCTS, INC., petitioner, vs. THE
INTEMEDIATE APPELLATE COURT
and E.R. SQUIBB & SONS PHILIPPINE
CORPORATION, respondents.
R.L. Guttierrez and Associates for petitioner.
Leon Osa for private respondent.
SYLLABUS
CIVIL LAW; SPECIAL CONTRACTS; AGENCY; SALE ON
CREDIT OF GOODS BY AGENT MUST BE AUTHORIZED
BY THE PRINCIPAL UNDER THE CIVIL CODE; CASE AT
BAR. Whether viewed as an agency to sell or as
a contract of sale, the liability of Green Valley is
indubitable. Adopting Green Valley's theory that
the contract is an agency to sell, it is liable
because it sold on credit without authority from
its principal. The Civil Code has a provision exactly
in point. It reads: "Art. 1905. The commission
agent cannot, without the express or implied
consent of the principal, sell on credit. Should he
do so, the principal may demand from him
payment in cash, but the commission agent shall
be entitled to any interest or benefit, which may
result from such sale."
D E C I S I O N
ABAD SANTOS, J p:
This is a petition to review a decision of the defunct
Court of Appeals which affirmed the judgment of the trial
court whereby:
" . . . , judgment is hereby rendered in favor
of the plaintiff [E.R., Squibb & Sons Philippine
Corporation], ordering the defendant [Green
Valley Poultry & Allied Products, Inc.] to pay
the sum of P48,374.74 plus P96.00 with
interest at 6% per annum from the filing of
this action; plus attorney's fees in the
amount of P5,000.00 and to pay the costs."
On November 3, 1969, Squibb and Green Valley entered
into a letter agreement the text of which reads as
follows:
"E.R. Squibb & Sons Philippine Corporation is
pleased to appoint Green Valley Poultry &
Allied Products, Inc. as a non-exclusive
distributor for Squibb Veterinary Products, as
recommended by Dr. Leoncio D. Rebong, Jr.
and Dr. J.G. Cruz, Animal Health Division
Sales Supervisor.
"As a distributor; Green Valley Poultry &
Allied Products, Inc. will be entitled to a
discount as follows:
Feed Store Price (Catalogue) Less 10%
Wholesale
Price Less10%
Distributor Price
"There are exceptions to the above price
structure. At present, these are:
1.Afsillin Improved 40 lbs. bag.
The distributor commission for this product
size is 8% off P120.00.
2.Narrow-Spectrum Injectible Antibiotics
These products are subject to price
fluctuations. Therefore, they are invoiced at
net price per vial.
3.Deals and Special Offers are not subject to
the above distributor price structure. A 5%
distributor commission is allowed when the
distributor furnishes copies for each sale of a
complete deal or special offer to a feedstore,
drugstore or other type of account.
"Deals and Special Offers purchased for
resale at regular price invoiced at net deal or
special offer price.
"Prices are subject to change without notice,
Squibb will endeavor to advise you promptly
of any price changes. However, prices in
effect at the time orders are received by
Squibb Order Department will apply in all
instances.
"Green Valley Poultry & Allied Products, Inc.
will distribute only for the Central Luzon and
Northern Luzon including Cagayan Valley
areas. We will not allow any transfer or
stocks from Central Luzon and Northern
Luzon including Cagayan Valley to other parts
of Luzon, Visayas or Mindanao which are
covered by our other appointed Distributors.
In line with this, you will follow strictly our
stipulations that the maximum discount you
can give to your direct and turnover accounts
will not go beyond 10%.
"It is understood that Green Valley Poultry
and Allied Products, Inc. will accept turn-over
orders from Squibb representatives for
delivery to customers in your area. If for
credit or other valid reasons a turn-over
order is not served, the Squibb
representative will be notified within 48 hours
and hold why the order will not be served.
"It is understood that Green Valley Poultry &
Allied Products, Inc. will put up a bond of
P20,000.00 from a mutually acceptable
bonding company.
"Payment for Purchases of Squibb Products
will be due 60 days from date of invoice or
the nearest business day thereto. No
payment will be accepted in the form of post-
dated checks. Payment by check must be on
current dating.
"It is mutually agreed that this non-exclusive
distribution agreement can be terminated by
either Green Valley Poultry & Allied Products,
Inc. or Squibb Philippines on 30 days notice.
"I trust that the above terms and conditions
will be met with your approval and that the
distributor arrangement will be one of mutual
satisfaction.
"If you are agreeable, please sign the
enclosed three (3) extra copies of this letter
and return them to this Office at your earliest
convenience.
"Thank you for your interest and support of
the products of E.R. Squibb & Sons
Philippines Corporation." (Rollo, pp. 12-13.)
For goods delivered to Green Valley but unpaid, Squibb
filed suit to collect. The trial court as aforesaid gave
judgment in favor of Squibb which was affirmed by the
Court of Appeals.
In both the trial court and the Court of Appeals, the
parties advanced their respective theories. prLL
Green Valley claimed that the contract with Squibb was a
mere agency to sell; that it never purchased goods from
Squibb; that the goods received were on consignment
only with the obligation to turn over the proceeds, less
its commission, or to return the goods if not sold, and
since it had sold the goods but had not been able to
collect from the purchasers thereof, the action was
premature.
Upon the other hand. Squibb claimed that the contract
was one of sale so that Green Valley was obligated to
pay for the goods received upon the expiration of the 60-
day credit period.
Both courts below upheld the claim of Squibb that
the agreement between the parties was a sales
contract.
We do not have to categorize the contract. Whether
viewed as an agency to sell or as a contract of sale, the
liability of Green Valley is indubitable. Adopting Green
Valley's theory that the contract is an agency to
sell, it is liable because it sold on credit without
authority from its principal. The Civil Code has a
provision exactly in point. It reads:
"Art. 1905.The commission agent
cannot, without the express or implied
consent of the principal, sell on credit.
Should he do so, the principal may
demand from him payment in cash, but
the commission agent shall be entitled
to any interest or benefit, which may
result from such sale."
WHEREFORE, the petition is hereby dismissed; the
judgment of the defunct Court of Appeals is affirmed
with costs against the petitioner.
SO ORDERED.
[G.R. No. 42465. November 19, 1936.]
INTERNATIONAL FILMS (CHINA),
LTD., plaintiff-appellant, vs. THE LYRIC
FILM EXCHANGE, INC., defendant-
appellee.
J.W. Ferrier for appellant.
Juan T. Santos and Arsenio Solidum for
appellee.
SYLLABUS
1.ALLEGATIONS; AMENDMENTS TO
PLEADINGS; LACK OF PERSONALITY OF PLAINTIFF.
The court a quo acted within its discretionary
power in allowing the defendant company to amend
its answer by pleading the special defense of the
plaintiff company's lack of personality to bring the
action, after both parties had already rested their
respective cases.
2.MANDATE; LIABILITY OF SUBAGENT. The
defendant company, as subagent of the
plaintiff in the exhibition of the film "Monte
Carlo Madness", was not obliged to insure it
against fire, not having received any express
mandate to that effect, and it is not liable for
the accidental destruction thereof by fire.
D E C I S I O N
VILLA-REAL, J p:
This is an appeal taken by the plaintiff company
International Films (China), Ltd. from the judgment of
the Court of First Instance of Manila dismissing the
complaint filed by it against the defendant company
the Lyric Film Exchange, Inc., with costs to said
plaintiff.
In support of its appeal, the appellant assigns
six alleged errors as committed by the court a quo in
its said judgment, which will be discussed in the
course of this decision.
The record shows that Bernard Gabelman was
the Philippine agent of the plaintiff company
International Films (China), Ltd. by virtue of a power
of attorney executed in his favor on April 5, 1933
(Exhibit 1). On June 2, 1933, the International Films
(China), Ltd., through its said agent, leased the film
entitled "Monte Carlo Madness" to the defendant
company, the Lyric Film Exchange, Inc., to be shown
in Cavite for two consecutive days, that is, on June 1
and 2, 1933, for 30 per cent of the receipts; in the
Cuartel de Espaa for one day, or on June 6, 1933,
for P45; in the University Theater for two consecutive
days, or on June 8 and 9, 1933, for 30 per cent of the
receipts; in Stotsenburg for two consecutive days, or
on June 18 and 19, 1933, for 30 per cent of the
receipts; and in the Paz Theater for two consecutive
days, or on June 21 and 22, 1933, for 30 per cent of
the receipts (Exhibit C). One of the conditions of the
contract was that the defendant company would
answer for the loss of the film in question whatever
the cause. On June 23, 1933, following the last
showing of the film in question in the Paz Theater,
Vicente Albo, then chief of the film department of the
Lyric Film Exchange, Inc., telephoned said agent of
the plaintiff company informing him that the showing
of said film had already been finished and asked, at
the same time, where he wished to have the film
returned to him. In answer, Bernard Gabelman
informed Albo that he wished to see him personally in
the latter's office. At about 11 o'clock the next
morning, Gabelman went to Vicente Albo's office and
asked whether he could deposit the film in question in
the vault of the Lyric Film Exchange, Inc., as the
International Films (China) Ltd. did not yet have a
safety vault, as required by the regulations of the fire
department. After the case had been referred to
O'Malley, Vicente Albo's chief, the former answered
that the deposit could not be made inasmuch as the
film in question would not be covered by the
insurance carried by the Lyric Film Exchange, Inc.
Bernard Gabelman then requested Vicente Albo to
permit him to deposit said film in the vault of the
Lyric Film Exchange, Inc., under Gabelman's own
responsibility. As there was a verbal contract between
Gabelman and the Lyric Film Exchange, Inc., whereby
the film "Monte Carlo Madness" would be shown
elsewhere, O'Malley agreed and the film was
deposited in the vault of the defendant company
under Bernard Gabelman's responsibility.
About July 27, 1933, Bernard Gabelman served
his connection with the plaintiff company, being
succeeded by Lazarus Joseph. Bernard Gabelman,
upon turning over the agency to the new agent,
informed the latter of the deposit of the film "Monte
Carlo Madness" in the vault of the defendant
company as well as of the verbal contract entered
into between him and the Lyric Film Exchange, Inc.,
whereby the latter would act as a subagent of
the plaintiff company, International Films
(China) Ltd., with authority to show the film
"Monte Carlo Madness" in any theater where
said defendant company, the Lyric Film
Exchange, Inc., might wish to show it after the
expiration of the contract Exhibit C. As soon as
Lazarus Joseph had taken possession of the Philippine
agency of the International Films (China) Ltd., he
went to the office of the Lyric Film Exchange, Inc., to
ask for the return not only of the film "Monte Carlo
Madness" but also of the films "White Devils" and
"Congress Dances". On August 13 and 19, 1933, the
Lyric Film Exchange, Inc., returned the films entitled
"Congress Dances" and "White Devils" to Lazarus
Joseph, but not the film "Monte Carlo Madness"
because it was to be shown in Cebu on August 29
and 30, 1933. Inasmuch as the plaintiff would profit
by the showing of the film "Monte Carlo Madness",
Lazarus Joseph agreed to said exhibition. It
happened, however, that the bodega of the Lyric Film
Exchange, Inc., was burned on August 19, 1933,
together with the film "Monte Carlo Madness" which
was not insured.
The first question to be decided in this appeal,
which is raised in the first assignment of alleged
error, is whether or not the court a quo erred in
allowing the defendant company to amend its answer
after both parties had already rested their respective
cases.
In Torres Viuda de Nery vs. Tomacruz (49 Phil.,
913, 915), this court, through Justice Malcolm, said:
"Sections 109 and 110 of the
Philippine Code of Civil Procedure, relating to
the subjects of Variance and Amendments in
General, should be equitably applied to the
end that cases may be favorably and fairly
presented upon their merits, and that equal
and exact justice may be done between the
parties. Under code practice, amendments to
pleadings are favored, and should be liberally
allowed in furtherance of justice. this
liberality, it has been said, is greatest in the
early stages of a lawsuit, decreases as it
progresses, and changes at times to a
strictness amounting to a prohibition. The
granting of leave to file amended pleadings is
a matter peculiarly within the sound
discretion of the trial court. This discretion
will not be disturbed on appeal, except in
case of an evident abuse thereof. But the
rule allowing amendments to pleadings is
subject to the general but not inflexible
limitation that the cause of action or defense
shall not be substantially changed, or that
the theory of the case shall not be altered.
(21 R.C.L., pp. 572 et seq.; 3 Kerr's Cyc.
Codes of California, sections 469, 470, and
473; Ramirez vs. Murray [1855], 5 Cal., 222;
Hayden vs. Hayden [1873], 46 Cal., 332;
Hackett vs. Bank of California [1881], 57 Cal.,
335; Hancock vs. Board of Education of City
of Santa Barbara [1903], 140 Cal., 554;
Dunphy vs. Dunphy [1911], 161 Cal., 87; 38
L.R.A. [N.S.], 818.)"
In the case of Gould vs. Stafford (101 Cal., 32,
34), the Supreme Court of California, interpreting
section 473 of the Code of Civil Procedure of said
State, from which section 110 of our Code was taken,
stated as follows:
"The rule is that courts will be liberal
in allowing an amendment to a pleading
when it does not seriously impair the rights
of the opposite party and particularly an
amendment to an answer. A defendant can
generally set up as many defenses as he may
have. Appellant contends that the affidavits
upon which the motion to amend was made
shwo that it was based mainly on a mistake
of law made by respondent's attorney; but,
assuming that to be so, still the power of a
court to allow an amendment is not limited
by the character of the mistake which calls
forth its exercise. The general rule that a
party cannot be relieved from an ordinary
contract which is in its nature final, on
account of a mistake of law, does not apply
to proceedings in an action at law while it is
pending and undetermined. Pleadings are not
necessarily final until after judgment. Section
473 of the Code of Civil Procedure provides
that the court may allow an amendment to a
pleading to correct certain enumerated
mistakes or 'a mistake in any other respect,'
and 'in other particulars.' The true rule is well
stated in Ward vs. Clay (82 Cal., 502). In the
case at bar evidence of the lease was given
at the first trial; and we cannot see that the
amendment before the second trial put
plaintiff in a position any different from that
which he would have occupied if the
amendment had been made before the first
trial."
In the case of Ward vs. Clay (82 Cal., 502,
510), the Supreme Court of said State stated:
"The principal purpose of vesting the
court with this discretionary power is to
enable it 'to mold and direct its proceedings
so as to dispose of cases upon their
substantial merits,' when it can be done
without injustice to either party, whether the
obstruction to such a disposition of cases be
a mistake of fact or a mistake as to the law;
although it may be that the court should
require a stronger showing to justify relief
from the effect of a mistake in law than in
case of a mistake as to matter of fact. The
exercise of the power conferred by section
473 of the code, however, should appear to
have been 'in furtherance of justice,' and the
relief, if any, should be granted upon just
terms."
Lastly, in the case of Simpson vs. Miller (94
Pac., 253), the said Supreme Court of California said:
"In an action to recover property
which had vested in plaintiff's trustee in
bankruptcy prior to the suit, an amendment
to the answer, made after both parties had
rested, but before the cause was submitted,
pleading plaintiff's bankruptcy in bar to the
action, was properly allowed in the discretion
of the court."

Under the above-cited doctrines, it is
discretionary in the court which has cognizance of a
case to allow or not the amendment of an answer for
the purpose of questioning the personality of the
plaintiff to bring the action, even after the parties had
rested their cases, as it causes no injustice to any of
the parties, and this court will not interfere in the
exercise of said discretion unless there is an evident
abuse thereof, which does not exist in this case.
The second question to be decided is whether
or not the defendant company, the Lyric Film
Exchange, Inc., is responsible to the plaintiff,
International Films (China) Ltd., for the
destruction by fire of the film in question,
entitled "Monte Carlo Madness".
The plaintiff company claims that the
defendant's failure to return the film "Monte Carlo
Madness" to the former was due to the fact that the
period for the delivery thereof, which expired on June
22, 1933, had been extended in order that it might be
shown in Cebu on August 29 and 30, 1933, in
accordance with an understanding had between
Lazarus Joseph, the new agent of the plaintiff
company, and the defendant. The defendant
company, on the other hand, claims that when it
wanted to return the film "Monte Carlo Madness" to
Bernard Gabelman, the former agent of the plaintiff
company, because of the arrival of the date of the
return thereof, under the contract Exhibit C, said
agent, not having a safety vault, requested Vicente
Albo, chief of the film department of the defendant
company, to keep said film in the latter's vault under
Gabelman's own responsibility, verbally stipulating at
the same time that the defendant company, as
subagent of the International Films (China) Ltd.,
might show the film in question in its theaters.
It does not appear sufficiently proven that the
understanding had between Lazarus Joseph, second
agent of the plaintiff company, and Vicente Albo,
chief of the film department of the defendant
company, was that the defendant company would
continue showing said film under the same contract
Exhibit C. The preponderance of evidence shows that
the verbal agreement had between Bernard
Gabelman, the former agent of the plaintiff company,
and Vicente Albo, chief of the film department of the
defendant company, was that the said film "Monte
Carlo Madness" would remain deposited in the safety
vault of the defendant company under the
responsibility of said former agent and that the
defendant company, as his subagent, could show it in
its theaters, the plaintiff company receiving 5 per cent
of the receipts up to a certain amount, and 15 per
cent thereof in excess of said amount.
If, as it has been sufficiently proven in our
opinion, the verbal contract had between Bernard
Gabelman, the former agent of the plaintiff company,
and Vicente Albo, chief of the film department of the
defendant company, was a subagency or a
submandate, the defendant company is not
civilly liable for the destruction by fire of the
film in question because, as a mere
submandatary or subagent, it was not obliged
to fulfill more than the contents of the mandate
and to answer for the damages caused to the
principal by his failure to do so (art. 1718, Civil
Code). The fact that the film was not insured
against fire does not constitute fraud or
negligence on the part of the defendant
company, the Lyric Film Exchange, Inc.,
because as a subagent, it received no
instruction to that effect from its principal and
the insurance of the film does not form a part
of the obligation imposed upon it by law.
As to the question whether or not the
defendant company having collected the entire
proceeds of the fire insurance policy of its films
deposited in its vault, should pay the part
corresponding to the film in question which was
deposited therein, the evidence shows that the film
"Monte Carlo Madness" under consideration was not
included in the insurance of the defendant company's
films, as this was one of the reasons why O'Malley at
first refused to receive said film for deposit and he
consented thereto only when Bernard Gabelman, the
former agent of the plaintiff company, insisted upon
his request, assuming all responsibility. Furthermore,
the defendant company did not collect from the
insurance company an amount greater than that for
which its films were insured, notwithstanding the fact
that the film in question was included in its vault, and
it would have collected the same amount even if said
film had not been deposited in its safety vault.
Inasmuch as the defendant company, The Lyric Film
Exchange, Inc., had not been enriched by the
destruction by fire for the plaintiff company's film, it is
not liable to the latter.
For the foregoing consideration, we are of the
opinion and so hold: (1) That the court a quo acted
within its discretionary power in allowing the
defendant company to amend its answer by pleading
the special defense of the plaintiff company's lack of
personality to bring the action, after both parties had
already rested their respective cases; (2) that the
defendant company, as subagent of the plaintiff in
the exhibition of the film "Monte Carlo Madness", was
not obliged to insure it against fire, not having
received any express mandate to that effect, and it is
not liable for the accidental destruction thereof by
fire.
Wherefore, and although on a different ground, the
appealed judgment is affirmed, with the costs to the
appellant. So ordered.
[G.R. No. 46472. Enero 23, 1940.]
TAN TIONG TECK, recurrente, contra
LA COMISION DE VALORES Y
BOLSAS, Y CUA OH & CO., recurridas.
D. Jose B. Laurel en representacion del recurrente.
D. Emerito M. Ramos en representacion de las recurridas.
SYLLABUS
1. COMISION DE VALORES Y BOLSAS; CONCLUSIONES DE HECHO; FUNDAMENTOS PARA REVISAR
SU DECISION. Sin hacer caso omiso de las disposiciones del articulo 35 de la Ley No. 83 del Commonwealth,
que dicen que las conclusiones de hecho de la Comision de Valores y Bolsas en asuntos de la naturaleza del
presente deben tenerse por concluyentes en caso de apelacion, nos vemos precisados a declarar que la decision
apelada no esta arreglada a derecho, por las siguientes razones: hubo error de parte de la Comision al considerar
los escritos de alegaciones de las partes; al considerar los hechos probados en el acto de la vista; y al interpretar el
alcance y significado de los documentos Exhibits A y B que constituyen principalmente la base de su decision,
considerandolos como un hecho absolutamente cierto.
2. ID.; VENTA DE ACCIONES; OBLIGACION DE UN CORREDOR DE ACCIONES. No hay razon para
no declarar que la recurrida debio haber realizado la venta en el mas alto precio en que se cotizaron las acciones
en el dia de autos; en ortos terminos, teniendo como tenia la autorizacion necesaria para vender las acciones del
recurrente a un precio mayor de P0.15 cada una, no es mas que justo que se le haga responder de la diferencia
entre el precio en que admitio haber vendido dichas acciones y dicho precio mayor en que, segun las pruebas, o
presuncion prima facie como lo califico la Comision de Valores y Bolsas, las vendio. Y no hay razon para que no
adoptemos y apliquemos en esta jurisdiccion la regla de "Highest Intermediate Value", adoptada en los Estados
Unidos, que es una regla justa que esta universalmente aceptada (8 Am. Jur., Brokers, Damages in Stock
Transactions, sec. 217), y no esta ademas en pugna con ningun principio ni disposicion de ley vigente en nuestro
pais.
3. ID.; ID.; ID.; ARTICULO 255 DEL CODIGO DE COMERCIO. El articulo 255 del Codigo de
Comercio prescribe que un comisionista debe obrar con la prudencia y tacto que son de esperar de un buen padre
de familia, cuidando del negocio que se le encomienda como si fuese suyo propio. Teniendo presente esta
disposicion de ley, cotizandose como se cotizaban en el mercado las acciones de Gold Shares, en la fecha de
autos, a mucho mas de P0.15 la accion, era de esperar que la recurrida vendiese las acciones del recurrente al
precio mas alto posible, y no al precio de P0.15 que por cierto no se registro en dicha ocasion. Seria absurdo
suponer siquiera que la recurrida obrase de distinto modo.
4. ID.; ID.; ID.; ARTICULOS 1714 Y 1715 DEL CODIGO CIVIL. Una regla igual tenemos en 108
articulos 1714 y 1715 del Codigo Civil. Dice el primero de dichos articulos que el mandatario no debe traspasar 108
limites del mandato; y dice el liltimo que no se consideran traspasados 108 limites del mandato, si fuese cumplido
de una manera mas ventajosa para el mandante que la sealada por este. Lo que las reglas prohiben es que el
comisionista o agente o corredor de comercio venda las cosas que recibe de su comitente a un precio menor del
fijado por este; no impiden que venda aquellas a un precio mayor, si tal precio puede obtenerse.
D E C I S I O N
DIAZ, M p:
La cuestion de que aqui se trata es, si la recurrida Cua Oh & Co. esta obligada a pagar al recurrente
la diferencia que existe entre el valor de ciertas 10,000 acciones de Gold Shares de su propiedad, que le habia
entregado para que las vendiese, computado al precio de P0.15 cada una, y el precio real en que se vendieron las
mismas. Era entonces la recurrida una corredora de acciones, inscrita como tal en los registros de la Comision de
Valores y Bolsas.
En el expediente administrativo No. 31 de la mencionada Comision de Valores y Bolsas, que el
recurrente hubo de promover contra la recurrida para quejarse contra ella y para obligarla a pagarle dicha
diferencia, por haberse negado a hacerlo voluntariamente, la ultima admitio haber recibido en efecto las
mencionadas acciones para venderlas no a un precio fijo sino a un precio no menor de P0.15 cada una.
Recibida a prueba la queja del recurrente, la Comision dicto su decision de 25 de junio de 1938 en la
que, despues de declarar que la reclamacion del recurrente no se fundaba mas que en una presuncion prima facie
de que no se vendieron sus acciones, sobresyo el expediente, sin ulterior tramite, porque, no obstante haberse
pedido la reconsideracion de su decision, no la reconsidero.
Contra la decision de la Comision de Valores y Bolsas, el recurrente interpuso apelacion, con el fin de
que la misma pueda ser revisada.
Sin hacer caso omiso de las disposiciones del articulo 35 la Ley No. 83 del Commonwealth, que dicen
que las conclusiones de hecho de la Comision de Valores y Bolsas en asuntos de la naturaleza del presente deben
tenerse por concluyentes en caso de apelacion, nos vemos precisados a declarar que la decision apelada no esta
arreglada a derecho por las siguientes razones: hubo error de parte de la Comision al considerar los escritos de
alegaciones de las partes; al considerar los hechos probados en el acto de la vista; y al interpretar el alcance y
significado de los documentos Exhibitos A y B que constituyen principalmente la base de se decision,
considerandolos como un hecho absolutamente cierto.
Debe decirse ante todo que en el escrito de queja del recurrente, en el citado expediente
administrativo No. 31, constan las siguientes alegaciones:
"1. That the complainant is of legal age, married, and a resident of the City of
Manila, Philippines, with mailing address at 142 Rosario, Manila;
"2. That the respondent is a stock broker duly registered in the Register of
Brokers of this Commission and a member of the International Stock Exchange with mailing
ad- dress at 119 Crystal Arcade, Manila;
"3. That on June 15, 1937, the complainant gave an order to sell 10,000 Gold
Shares at a minimum price of P0.15 to the respondent thru his salesman Mr. And Eng Ho;
and that said respondent delivered to him (complainant) a copy of its confirmation slip
showing that 10,000 Gold Shares of the complainant have been sold at P0.15 each:
"4. That said sale of said 10,000 Gold Shares at P0.15 also appeared in the
Statement of Account of the complainant sent to him on or about June 30, 1937;
"5. That the complainant subsequently discovered that there was no such
transaction appearing in the Quotation issued by the International Stock Exchange on June
15, 1937, nor were any Gold Shares sold at P0.15 each."
Y consta asimismo en la contestacion de la recurrida, de un modo que no da lugar a dudas, la
siguiente inequivoca admision:
"That he admits paragraphs 1, 2, 3, 4 and the first part of paragraph 5."
Los hechos que constan y se desprenden de los mencionados escritos son cosa de que no podemos
prescindir al proceder a la revision de la decision apelada, porque la misma alude a dichos escritos y constituyen
por si mismos la mejor prueba o el mejor relato que puede darse de los verdaderos hechos.
La recurrida, pretendiendo cumplir con la regla No. 3 de los Reglamentos Provisionales de la
Comision de Valores y Bolsas, que en virtud de las disposiciones del articulo 33 de la Ley No. 83 del
Commonwealth tienen fuerza de ley, envio al recurrente su informe o report Exhibit A, el dia 15 de junio de 1937,
diciendole alli haber vendido sus 10,000 acciones al precio de P0.15 una, en la mariana de dicho dia, con sujecion
a las reglas de la International Stock Exchange. Consta sin embargo en el Exhibit B que es el informe que la
International Stock Exchange presento a la Comision de Valores y Bolsas para demostrar las transacciones que
tuvo en el mencionado dia, 15 de junio de 1937, en cumplimiento de lo mandado en la regla 22 de 103 referidos
Reglamentos, que si se vendieron entonces, 1,195,000 acciones de Gold Shares, ninguna fue vendida al precio de
P0.15. Todas las ventas fueron a los siguientes precios: 25,000 acciones a P0.16 una; 45,000 acciones a P0.163
una; 420,000 acciones a P0.17 una; 275,000 acciones a P0.175 una; 310,000 acciones a P0.18 ua; 55,000
acciones a P0.185 una; 25,000 acciones a P0.19 una; y 40,000 acciones a P0.195 una. Debe rechazarse por
consiguiente, la pretension de la recurrida de que vendio las 10,000 acciones delrecurrente al precio de P0.15 una,
porque, de haberlo hecho, constaria semejante transaccion en el Exhibit B, y lo cierto es que nada de esto consta
alli. Debe rechazarse tambien la idea de que las referidas 10,000 acciones del recurrente se vendieron mediante la
intervencion de otra oficina de Valores, porque siendo la recurrida miembro de la International Stock Exchange,
era alli donde tenia que efectuar la venta; ademas, la inteligencia que hubo entre ella y el recurrente, segun el
Exhibit A, fue la de que la venta se haria con sujecion a las reglas de la International Stock Exchange. Por otra
parte, no hay nada que indique que la venta se haya efectuado con intervencion de otra oficina de Valores.
Si hemos de aceptar, como no podemos menos de hacerlo, las cifras expresadas en el Exhibit B,
hemos de llegar necesariamente a la conclusion de que en la manana del mecionado dia hubo 20 ventas de
acciones de la Gold Shares y que en virtud de ellas cambiaron de dueiio 725,000 acciones, a precios que oscilaron
entre P0.16 y P0.195, haciendo predominado el precio de P0.175 porque casi la mitad de dichas ventas se hizo a
dicho precio, siguiendo muy de cerca las que se hicieron a P0.17 porque fue a dicho precio como se vendieron
215,000 acciones. En las transacciones de la tarde del mismo dia, no hubo mas que 7 ventas, y todas juntas
fueran de 470,000 acciones, a un precio que ha oscilado entre P0.17 y P0.185.
Esta justificada, por consiguiente, la conclusion de que la recurrida vendio las acciones del recurrente
a un precio no menor de P0.16, o por lo menos a P0.175, una.

Teniendo presente los hechos admitidos por la recurrida en su contestacion, se ve claro lo erroneo
que es sentar la conclusion de que al dar el recurrente a la recurrida el encargo de vender sus 10,000 acciones, lo
hizo fijandole el precio inalterable de P0.15 cada accion. No es esto, como se ve, lo que las partes convinieron,
sino precisamente lo que queda dicho. No hay por consiguiente razon para no declarar qe la recurrida debio haber
realizado la venta en el mas alto precio en que se cotizaron las acciones en el dia de autos; en otros terminos,
teniendo como tenia la autorizacion necesaria para vender las acciones del recurrente a un precio mayor de P0.15
cada una, no es mas que justo que se le haga responder de la diferencia entre el precio en que admitio haber
vendido dichas acciones y dicho precio mayor en que, segun las pruebas, o presuncion prima facie como lo califico
la Comision de Valores y Bolsas, las vendio. Y no hay razon para que no adoptemos y apliquemos en esta
jurisdiccion la regla de "Highest Intermediate Value", adoptada en los Estados Unidos, que es una regla justa que
esta universalmente aceptada (8 Am. Jur., Brokers, Damages in Stock Transactions, sec. 217; Galigher v. Jones,
129 U. S. 193, 9 Sup. Ct. 335, 32 Law. ed. 658; Ling v. Malcom, 77 Conn. 51", 59 A. 598; Wiggin v. Federal Stock,
etc. Co., 77 Conn. 507, 59 A. 627; Shaefer v. Dickinson, 141 Ill. A. 234; Rickerts v. Crittenden, 2 Ky. Op. 499;
Dancy v. Hayward, 4 L. A. tOrleans] 111; Mullen v. Quinlan, 195 N. Y. 109, 87 N. E. 1078, 23 L. R. A. N. S. 511;
Gruman v. Smith, 81 N. Y. 25; Baker v. Drake, 53 N. Y. 211, 13 Am. Rep. 507; Barber v. Ellingwood, 144 App. Div.
512, 129 N. Y. S. 414; Rosenbaum v. Stiebel, 137 App. Div. 912 mem., 122 N. Y. S. 131; Keller v. Halsey, 130 App.
Div. 389, 103 N. Y. Super. 430; Peschke v. Wright, 93 Misc. 145, 156 N. Y. S. 773; Burridge v. Anthony, 1 N. Y.
City Ct. 244; Miller v. Lynns, 113 Va. 275, 74 S. E. 194; Wahl v. Tracy, 139 Misc. 668, 121 N. W. 660; Carnegie v.
Federal Bank, 5 Ont. 418), y no esta ademas en pugna con ningun principio ni disposicion de ley vigente en
nuestro pais.
Pero, aunque prescindiesemos de la mencionada regla, llegariamos de todas maneras a la misma
conclusion porque aqui tenemos leyes que nos obligan a resolver la cuestion en dicho sentido.
El articulo 255 del Codigo de Comercio prescribe que un comisionista debe obrar con la prudencia y
tacto que son de esperar de un buen padre de familia, cuidando del negocio que se le encomienda como si fuese
suyo propio. Tenienndo presente esta disposicion de ley, cotizandose como se cotizaban en el mercado las
acciones de Gold ill Shares, en la fecha de autos, a mucho mas de P0.16 la accion, era de esperar que la recurrida
vendiese las acciones del recurrente al precio mas alto posible, y no al precio de P0.15 que por cierto no se
registro en dicha ocasion. Seria absurdo suponer siquiera que la recurrida obrase de distinto modo. En la indicada
fecha (15 de junio de 1937), las ventas hechas de las acciones de la Gold Shares montaron a 1,195,000 acciones,
segun las cifras que muestra en su faz el Exhibit B, cuya autenticidad no ha sido negada por las partes.
Dice el mencionado articulo 256 del Codigo de Comercio, lo siguiente:
"En lo no previsto y prescrito expresamente por el comitente, debera el
comisionista consultarle, siempre que lo permita la naturaleza del negocio.
Mas si estuviere autorizado para obrar a su arbitrio, o no fuere posible la
consulta, hara lo que dicte la prudencia y sea mas conforme al uso del comercio, cuidando
del negocio como propio . . . "
Una regla igual tenemos en los articulos 1714 y 1716 del Codigo Civil. Dice el primero de dichos
articulos que el mandatario no debe transpasar los limites del mandato; y dice el ultimo que no se consideran
traspasados los limites del mandato, si fuese cumplido de una manera mas ventajosa para el mandante que la
senalada por este. Lo que las reglas prohiben es que el comisionista o agente o corredor de comercio venda las
cosas que recibe de su comitente a un precio menor del fijado por este; no impiden que venda aquellas a un
precio mayor, si tal precio puede obtenerse.
A todo lo dicho debe anadirse esta otra consideracion: de haber vendido la recurrida las acciones del
recurrente a un precio menor de P0.16, pues habia entonces compradores por mayor precio, tendriamos el caso
insolito de haber la recurrida trabajado u obrado en contra de sus pro- pios intereses, porque tenienndo derecho,
por ley, a cobrar del recurrente la comision correspondiente segun el resultado de su trabajo, comision que hubiera
sido mayor si su venta hubiese sido tambien a mayor precio, ha renunciado dicho derecho.
Los hechos en que se basan las observaciones y consideraciones hechas no son contrarios ni distintos
de los que se expresan y de los que claramente se desprenden de la decision del Comisionado de Valores y Bolsas,
objeto de revision. Habiendo hecho mencion el Comisionado, en su decision, de la demanda del recurrente, de la
contestacion de la recurrida y de los Exhibitos A y B, los cuatro deben ser considerados necesariamente no solo
como complemento de la referida decision, en cuanto a los hechos que cada uno de ellos contiene y muestra en su
faz, sino tambien como relato o parte del relato de los verdaderos hechos, hecho por el Comisionado. Por eso, la
posible objecion de que no se pueden tener en cuenta mas hechos que los declarados probados por el
Comisionado, en virtud del ya citado articulo 35 de la ley No. 83, no tiene razon de ser.
En conclusion, modificamos la sentencia del Comisionado de Valores y Bolsas, ordenando a la
recurrida a pagar al recurrente, ademas de la suma de P1,500 a cuenta del importe de las 10,000 acciones de Gold
Shares, de su propiedad, a base de P0.15 cada accion, la diferencia que hay entre dicha suma y la de P1,750
importe total este ultimo de las referidas 10,000 acciones a razon de P0.175 cada una, o sea la cantidad de P250.
Tasense las costas contra la recurrida Cua Oh & Co. Asi se ordena.
Avancea, Pres., Villa-Real, Imperial, Concepcion, y Moran, MM., estan conformes.
[G.R. No. 46472. January 23, 1940.]

TIONG TAN TECK, appellant, against the SEC and
bags, and CUA OH & CO., Appealed.

D. Jose B. Laurel in representation of the appellant.

D. Emeritus M. Representing Ramos appealed.

SYLLABUS

1. SECURITIES AND EXCHANGE COMMISSION,
FINDINGS OF FACT, FOUNDATIONS to revise its
decision. - Without ignoring the provisions of Article 35
of Law No. 83 of the Commonwealth, who say that the
findings of fact of the Securities and Exchange
Commission in matters of this nature should be taken as
conclusive on appeal, we are obliged to declare that the
decision is not appealed, according to law, for the
following reasons: there was error on the part of the
Commission to consider the pleadings of the parties to
consider the facts in the act of sight, and to interpret the
scope and meaning of the documents Exhibits A and B
which are mainly based on its decision, considering like
an absolutely true.

2. ID.; SALE OF SHARES; obligation of a stockbroker. -
There is no reason not to declare that the respondent
should have made the sale at the highest price at which
the shares were quoted on the day in question, in terms
ortho, taking as had the necessary authorization to sell
the shares of the appellant to a higher price of P0.15
each, is but fair to make him answer for the difference
between the price at which such shares admitted selling
the higher price and that, on the evidence, prima facie or
qualify as the Securities and Exchange Commission, the
sold. And there is no reason not to adopt and apply in
this jurisdiction rule "Highest Intermediate Value"
adopted in the United States, which is a fair rule that is
universally accepted (8 Am Jur, Brokers, Damages in
Stock Transactions , sec. 217), and also not in conflict
with any principle or provision of law in force in our
country.

3. ID., ID., ID.; Article 255 of the Commercial Code. -
Article 255 of the Commercial Code provides that
a broker must act with prudence and tact to be
expected of a good father of a family, taking care
of business entrusted to him as if it were your
own. With this provision of law, trading as the
market was trading in the shares of Gold Shares,
at the material time, a lot more than P0.15 action
was expected to sell shares contested by the
appellant at the lowest high as possible, and not
at the price of P0.15 which certainly did not
register on that occasion. It would be absurd to
suppose that the appeal even obrase differently.

4. ID., ID., ID., Articles 1714 and 1715 of the Civil Code.
- A rule we like 108 items 1714 and 1715 of the Civil
Code. Says the first of these articles that the president
should not pass 108 term limits, and says liltimo not
considered transferred 108 term limits, if fulfilled in a
more advantageous for the client that specified by him.
What is the rules prohibit the commission agent or
broker sells the things you get from your client to set a
lower price of this, do not prevent those sold at a higher
price if such a price can be obtained.

D E C I S I O N

DIAZ, M p:

The point of issue here is whether the respondent
Cua Oh & Co. is obligated to pay to the plaintiff
the difference between the value of 10,000 shares
of certain property Gold Shares, which had
betrayed him to the sell, computed at the price of
P0.15 each, and the actual price at which sold
them. It was then a runner contested action, registered
as such in the records of the Securities and Exchange
Commission.

In the administrative record No. 31 of the Securities and
Exchange Commission, which was to promote the
appellant appealed against to complain against her and
force her to pay the difference, for refusing to do so
voluntarily, the last admitted receiving in effect to sell
these shares at a price not fixed but at a price not less
than P0.15 each.
Received test the appellant's complaint, the Commission
issued its decision on June 25, 1938 in which, after
declaring that the appellant's complaint was not based
on more than a prima facie case that did not sell their
shares, sobresyo the record, no action, because, despite
having asked for reconsideration of its decision, not
reconsidered.
Against the decision of the Securities and Exchange
Commission, the appellant filed an appeal, so that it can
be reviewed.
Without ignoring the provisions of Article 35 of Law No.
83 of the Commonwealth, who say that the findings of
fact of the Securities and Exchange Commission in
matters of this nature should be taken as conclusive on
appeal, we are compelled to declare that the decision is
not appealed according to law for the following reasons:
there was error on the part of the Commission to
consider the pleadings of the parties to consider the facts
in the act of sight, and to interpret the scope and
meaning of the documents exhibits about A and B which
are mainly the decision is based, considering like an
absolutely true.

It must be said at the outset that in the written
complaint of the appellant, in that administrative record
No. 31, comprised the following allegations:
"1. That the complainant is of legal age, married, and a
resident of the City of Manila, Philippines, with mailing
address at 142 Rosario, Manila;
"2. That the respondent is a stock broker duly registered
in the Register of Brokers of this Commission and a
member of the International Stock Exchange with
mailing ad-dress at 119 Crystal Arcade, Manila;
"3. That on June 15, 1937, the complainant Gave an
order to sell 10.000 Gold Shares at a minimum price of
P0.15 to the respondent thru And his salesman Mr. Eng
Ho, and That said respondent delivered to him
(complainant) a copy of its confirmation slip showing
That 10.000 Gold Shares of the complainant Have Been
sold at P0.15 each:
"4. That said sale of said 10.000 Gold Shares at P0.15
Also Appeared in the Statement of Account of the
complainant sent to him on or About June 30, 1937;
"5. That the complainant subsequently discovered That
there was no such transaction appearing in the
Quotation issued by the International Stock Exchange on
June 15, 1937, nor any Gold Shares Were sold at P0.15
each."
And also consists in the response to the appeal, in a way
that gives no doubt, the following unequivocal
admission:
"That I admits Paragraphs 1, 2, 3, 4 and the first part of
paragraph 5."

The facts stated and detach from those pleadings are
things that we can not do without when conducting the
review of the decision appealed, because it refers to
those papers and make for themselves the best evidence
and the best story that can be of the true facts.

The appeal, claiming to comply with rule # 3 of the
Provisional Regulations of the Securities and Exchange
Commission, pursuant to the provisions of Article 33 of
Law No. 83 of the Commonwealth have the force of law,
the appellant sent its report or report Exhibit A, the day
June 15, 1937, saying there have sold their 10,000
shares at a price of P0.15 a time, in the Marian said day,
subject to the rules of the International Stock Exchange.
However consists in Exhibit B which is the report that the
International Stock Exchange presented to the Securities
and Exchange Commission to show the transactions that
took in that day, June 15, 1937, pursuant to the
mandate in Rule 22 of 103 those regulations, which if
sold then, 1,195,000 shares of Gold Shares, none was
sold at the price of P0.15. All sales were at the following
prices: 25,000 shares at P0.16 one; 45.000 shares at
P0.163 one; 420.000 shares at P0.17 one; 275.000
shares at P0.175 one; ua 310.000 shares at P0.18;
55.000 P0.185 shares to one, 25,000 shares at P0.19
one, and 40,000 shares at P0.195 one. Therefore should
be rejected, the claim that the contested sold the 10,000
shares at a price of P0.15 delrecurrente one, because if
they had, such a transaction would consist in Exhibit B,
and the truth is that none of it has there. Must also
rejected the idea that those 10,000 shares were sold by
the appellant's intervention Securities another office,
because the appeal being member of the International
Stock Exchange, was where I had to make the sale, in
addition, there was intelligence between her and the
appellant, according to Exhibit A, was that the sale would
be subject to the rules of the International Stock
Exchange. Moreover, there is nothing to indicate that the
sale was made with another office intervention
Securities.

If we accept, as we can not do so, the figures stated in
Exhibit B, we necessarily come to the conclusion that day
that referred morning there were 20 sales of shares of
the Gold Shares and pursuant thereto dueiio changed
725.000 shares at prices ranging from P0.16 and P0.195,
dominated by the price of P0.175 because nearly half of
these sales were made at that price, closely following
those made to P0 17 because it was at that price as sold
215.000 shares. In afternoon trading the same day,
there was only 7 sales, and together were of 470,000
shares, at a price that has ranged from P0.17 and
P0.185.

This justified, therefore, the conclusion that the appeal of
the appellant sold the shares at a price not less than
P0.16, or P0.175 at least one.

Bearing in mind the facts admitted by the respondent in
its defense, it is clear that it is wrong to lay the
conclusion that to give the appellant to appeal the order
to sell 10,000 shares, by attaching the price did
unalterable P0.15 each action. Is not this, as seen, which
the parties agreed, but precisely what has been said.
There is therefore no reason to declare the contested qe
should have made the sale at the highest price at which
the shares were quoted on the day in question, in other
words, as having had the necessary authority to sell the
shares of the appellant to a higher price of P0.15 each, is
but fair to make him answer for the difference between
the price at which such shares admitted selling the
higher price and that, on the evidence, or as prima facie
qualify the Securities and Exchange Commission, the
sold. And there is no reason not to adopt and apply in
this jurisdiction rule "Highest Intermediate Value"
adopted in the United States, which is a fair rule that is
universally accepted (8 Am Jur, Brokers, Damages in
Stock Transactions , sec. 217; Galigher v. Jones, 129
U.S. 193, 9 Sup Ct. 335, 32 Law. ed. 658; Ling v.
Malcom, 77 Conn. 51 ", 59 A. 598; Wiggin v. Federal
Stock, etc.. Co., 77 Conn. 507, 59 A. 627; Shaefer v.
Dickinson, 141 Ill.. A. 234; Rickerts v. Crittenden, 2 Ky.
Op. 499; Dancy v. Hayward, 4 THE tOrleans] 111; Mullen
v. Quinlan, 195 NY 109, 87 NE 1078, 23 LRANS 511;
Gruman v. Smith, 81 NY 25; Baker v. Drake, 53 NY 211,
13 Am Rep. 507; Barber v. Ellingwood, 144 App Div 512,
129 NYS 414; Rosenbaum v. Stiebel, 137 App Div 912
mem., 122 NYS 131; Keller v. Halsey, 130 App Div 389,
103 NY Super. 430; Peschke v. Wright, 93 Misc. 145, 156
NYS 773; Burridge v. Anthony, 1 NY City Ct. 244; Miller
v. Lynns, 113 Va. 275, 74 SE 194; Wahl v. Tracy, 139
Misc. 668, 121 NW 660, Carnegie v . Federal Bank, 5
Ont. 418), and also not in conflict with any principle or
provision of law in force in our country.

But while prescindiesemos of that rule, anyway arrive at
the same conclusion because here we have laws that
require us to resolve the matter in that sense.
Article 255 of the Commercial Code provides that
a broker must act with prudence and tact to be
expected of a good father of a family, taking care
of business entrusted to him as if it were your
own. Tenienndo present this provision of law, trading as
the market was trading in the shares of Gold Shares ill,
at the material time, a lot more than P0.16 action was
expected to appeal the appellant sell shares at a price
high as possible, and not at the price of P0.15 which
certainly did not register on that occasion. It would be
absurd to suppose that the appeal even obrase
differently. At the indicated date (June 15, 1937), sales
made of Gold Shares shares to 1,195,000 shares
mounted, according to figures showing its face in the
Exhibit B, whose authenticity has not been disputed by
the parties.
He says that Article 256 of the Commercial Code, the
following:
"In matters not covered and expressly prescribed
by the principal, the commission shall consult, if
permitted by the nature of business.
But if person was authorized to act at will, or not
possible consultation, will do what prudence
dictates and use it but after the trade, taking care
of business as their own. . . '
As a rule we have in Articles 1714 and 1716 of the Civil
Code. Says the first of these articles that the president
should not transpasar term limits, and says the last
transferred not considered term limits, if fulfilled in a
more advantageous for the client that specified by him.
What is the rules prohibit the commission agent or
broker sells the things you get from your client to set a
lower price of this, do not prevent those sold at a higher
price if such a price can be obtained.
To all this must be added that another consideration:
having sold the shares of the appellant appealed to a
lower price of P0.16, then had buyers for wholesale
price, we would have the unusual case of the respondent
worked or worked against their own interests, because
tenienndo entitled by law to charge the appellant for the
commission according to the result of their work,
commission would have been greater if the sale had
been also at a higher price, has waived that right.
The facts underlying the observations and considerations
made are not contrary or different from those expressed
and clearly follow from the decision of the Securities and
Exchange Commissioner, subject to review. Having made
mention the Commissioner, in his decision, the demand
of the appellant in its answer to the appeal and exhibits
about A and B, the four must necessarily be regarded
not only as a complement to that decision, as to the
facts that each of them contains and shows on its face,
but also as part of the story or narrative of the true facts,
made by the Commissioner. Therefore, the possible
objection that can not be taken into account more facts
declared proven that the Commissioner, pursuant to the
aforementioned Article 35 of Act No. 83, has no reason
to exist.
In conclusion, we modify the judgment of the Securities
and Exchange Commissioner, ordering the respondent to
pay to the plaintiff, in addition to the sum of P1, 500 to
the sum of 10,000 shares of Gold Shares, property,
based on P0 15 each share, the difference between that
amount and the P1, 750 the latter total of 10,000 shares
at the rate referred to P0.175 each, or the amount of
P250.

Tasense coasts from Cua contested Oh & Co. so ordered.
Avancea, Pres, Villa-Real, Imperial, Concepcion, and
Moran, MM., Concur.
[G.R. No. L-3298. February 27, 1907.]
FELISA NEPOMUCENO AND
MARCIANA CANON, plaintiffs-appellees,
vs. GENARO HEREDIA, defendant-
appellant.
Ramon Salinas, for appellant.
Hartigan, Rohde & Gutierrez, for appellees.
SYLLABUS
REALTY; SALE; TITLE; GUARANTY. Plaintiffs
bought a piece of land, and defendant, at their
request and by their direction, examined the title and
prepared the necessary documents evidencing the
transfer. An alleged defect in the title developed
about a year later. It does not appear that defendant
undertook to guarantee the title, or that he failed to
exercise reasonable care and diligence in the
performance of his duty as agent for the plaintiffs.
Held, That he can not be held responsible for hidden
defects in the title to the land purchased.
D E C I S I O N
CARSON, J p:
The complaint alleges that on the 24th of
September, 1904, the defendant had in his
possession for administration 500 pesos, the property
of Felisa Nepomuceno, and 1,500 pesos, the property
of Marciana Canon; that on that day he entered into
an agreement with them, in accordance with which
he was to invest this money in a mortgage, or
conditional purchase of good real estate, the
investment to bring in 1 per centum per month, and
the principal to be payable in one year; and that the
defendant has failed to make the investment in
accordance with his agreement and has refused, and
continues to refuse, to return the money.
The following facts are fully established by the
evidence of record, and are substantially
uncontroverted: That the defendant is the business
adviser of the plaintiff, Marciana Canon, and as such
had in his hands 1,500 pesos paid to him on her
account on the 22d of September, 1904; that about
the same time Felisa Nepomuceno, the other plaintiff,
had an unsecured debt due her of 500 pesos from
one Marcelo Leao; that on demand for security her
debtor proposed to give her a deed of conditional sale
(venta con pacto de retro) to a certain tract of land,
together with the buildings and improvements
thereon, in consideration of 2,000 pesos, she to be
credited with 500 pesos on the purchase price and
that to advance the balance of 1,500 pesos; that
knowing that the defendant had in his hands that
amount of money, the property of her coplaintiff,
Marciana Canon, she proposed to the said Marciana
Canon that they make a joint investment in the land;
that together they discussed the proposition with the
defendant and later directed him to draw up the
necessary documents; that a deed of conditional sale
of the land was executed on the 24th of September,
1904, the vendor reserving the privilege of
repurchasing the land at the end of one year and
obligating himself to make monthly payments in
considerations of the right to retain the land in
possession in sufficient amount to bring the plaintiffs'
interest on their money at the rate of 17 per centum
per annum, and the vendees, the plaintiffs in this
action, paying to the vendor the sum of 1,500 pesos,
cash, and discharging the above mentioned credit of
500 pesos due the plaintiff, Felisa Nepomuceno; that
the title to the land under the deed was placed in the
name of the defendant, Genaro Heredia; and that a
few days thereafter the defendant, at the request of
the plaintiffs, executed before a notary public a
formal memorandum of the fact that the plaintiff had
furnished the money with which the land had been
purchased, said memorandum setting forth the
amount furnished by each and their proportionate
interest in the investment.
The plaintiffs insists that the defendant took
the deed to the land in his own name without their
knowledge or consent, but we think that the weight
of the evidence sustains the defendant's claim that he
did so by their express direction as their agent, and
for their convenience, and that in any event his action
in this regard was ratified and approved by their
request for and acceptance of the memorandum
setting out the facts and by their continuance in the
enjoyment of the profits of the transaction after the
purchase and without making any effort to have the
title transferred in their own names.
The plaintiffs also allege that the defendant,
without express authority from them, undertook to
extend, and did extend, the period within which the
vendor had the privilege or repurchase, but we think
that this action in this contention was also ratified,
approved, and acquiesced in by the plaintiffs and that
in any event it can have no bearing on the merits of
the question submitted on appeal.
More than a year after the transactions above
set out, during which time the vendor of the land
continued to pay, and the plaintiff to receive, the
stipulated payments in consideration of the right to
retain possession, a cloud was cast on the title to the
land by the institution of proceedings for the recovery
of possession by third parties, which proceedings are
still pending on appeal from the judgment of the
Court of First Instance, and the plaintiffs thereupon
brought this action in which they are seeking to
recover from the defendant the whole of the amount
of money invested, with interest from the date of the
investment, alleging with that purchase of the land
was not made in accordance with their instructions, or
on their account.
The trial court gave judgment in favor of the
plaintiffs for the full amount claimed on the ground
that while acting as their agent the defendant
invested their money in land to which the vendor had
not a good and sufficient title, contrary to the tenor of
his instructions. On appeal the plaintiffs ask that this
judgment be affirmed, not on the grounds assigned
by the trial judge, but because, as they insists, their
money was invested by the defendant in his own
name and on his account, and not as their agent, or
on behalf. The judgment can not be sustained on
either ground.
It was clearly established at the trial that the
defendant was acting merely as the agent for
the plaintiffs throughout the entire transaction;
that the purchase of the land was made not
only with their full knowledge and consent, but
at their suggestion; and that after the purchase
had been effected, the plaintiffs, with full
knowledge of the facts, approved and ratified
the actions of their agent in the premises.
There is nothing in the record which would
indicate that the defendant failed to exercise
reasonable care and diligence in the
performance of his duty as such agent, or that
he undertook to guarantee the vendors title to
the land purchased by direction of the
plaintiffs.
The judgment of the lower court should be, and is
hereby, reversed, with the costs against the plaintiffs in
the first instance and without special condemnation of
costs in this instance. After the expiration of twenty days
let judgment be entered in accordance herewith, and ten
days thereafter let the record be returned to the court
wherein it originated for execution. So ordered.
[G.R. No. 8346. March 30, 1915.]
GUTIERREZ HERMANOS, plaintiff-
appellant, vs. ORIA HERMANOS & CO.,
defendant-appellant.
Rafael de la Sierra for plaintiff.
Chicote & Miranda for defendant.
SYLLABUS
1.ACCOUNTS; SET-OFF AND COUNTERCLAIM.
If a creditor is under obligation to render an
account of the result of certain commercial operations
carried on between him and his debtor, even though
the latter may unquestionably appear to owe him a
certain sum, it is impossible to determine whether
said plaintiff creditor is or is not entitled to collect the
whole amount claimed in the complaint until it is
demonstrated by the account rendered at the request
of said debtor whether or not his creditor owes him
anything which, although it may not entirely offset
the sum claimed by the creditor, may at least reduce
his indebtedness by that amount.
2.ID.; RECONSIDERATION OF APPROVAL.
After an account has been submitted by the party
obligated to render it and it has been approved by the
one whom it affects, it cannot be again revised at the
latter's request, unless it be demonstrated that in the
approval thereof intervened deceit, fraud, or error
gravely prejudicial to the party who gave said
approval. (Civil Code, arts. 1265, 1266; Pastor vs.
Nicasio, 6 Phil. Rep., 152.)
3.PRINCIPAL AND AGENT;
RESPONSIBILITY OF AGENT FOR ACTS OF
PRINCIPAL. When an agent in executing the
orders and commissions of his principal carries
out the instructions he has received from his
principal, and does not appear to have
exceeded his authority or to have acted with
negligence, deceit, or fraud, he cannot be held
responsible for the failure of his principal to
accomplish the object of the agency.
4.CONTRACTS; EFFECT OF FAILURE OF
PERFORMANCE. When one party to a mutual
obligation fails duly to carry out his agreement, he
thereby releases the other, who does not thus
become delinguent. Delinquency commences when
one of the contracting parties fulfills his obligation
and becomes invested with power to terminate the
contract because of failure on the other's part to carry
out the agreement.
5.INTEREST; STIPULATION AS TO TIME OF
PAYMENT. In the absence of a written contract
regarding the date when mutual interest verbally
stipulated at the rate of 8 per cent a year, should be
paid, the approval given by one of the interested
parties to seventeen accounts submitted semiannually
by the other for a period of more than nine years,
during which the interest was paid semiannually,
gives rise to the presumption that the interested
parties had verbally contracted to that effect,
especially when this verbal contract is sustained and
continually corroborated without protest or objection
on the part of the one who now claims that such
payment ought to be made annually instead of
semiannually; and the assent and acquiescence given
seventeen times cannot later be changed in order to
set aside said semi-annual payments, repeatedly
made in accord with the other party, once the
accumulation of interest on the principal has been
authorized by article 317 of the Code of Commerce.
D E C I S I O N
TORRES, J p:
On August 12, 1909, counsel for the mercantile
firm of Gutierrez Hermanos of this city filed a written
complaint in the Court of First Instance of Manila
against the commercial concern of Oria Hermanos &
Co. of Laoang, Province of Samar, alleging therein as
a cause of action that between plaintiff and defendant
there have existed commercial relations which gave
rise to the opening of a mutual current account, at 8
per cent interest, under the name of Oria Hermanos
& Co., on the books of the plaintiff Gutierrez
Hermanos; that, on January 11, 1909, plaintiff
transmitted to defendant an abstract of the latter's
current account on December 31, 1908, which
showed a balance in plaintiff's favor of P144,473.78
and which was approved by defendant, Oria
Hermanos & Co., by a letter of March 9, 1909, which
was copied literally in the complaint; that, on May 25,
1909, plaintiff notified defendant that the current
account existing between them would be closed at
the end of thirty days counting from that date, at the
expiration of which period defendant should pay any
debit balance that might be owing; that, on June 30
of the same year, Gutierrez Hermanos transmitted to
the defendant, Oria Hermanos & Co., the statement
of the latter's current account up to that date and,
confirming its previous letter to the defendant of May
25, 1909, called attention to the necessity of paying
the balance, which then amounted to P147,204.28;
that the defendant firm, notwithstanding the said
demands and others subsequently made, and without
having made any objection whatever to the said
statement of account, refused to pay the principal
and interest owing on the said account. Plaintiff's
counsel therefore prayed that Oria Hermanos & Co.
be sentenced to pay the sum of P147,204.28, besides
the interest thereon at the rate of 8 per cent per
annum from June 30, 1909, and the costs.
Defendant filed its answer on November 9,
1909, setting up four cross complaints and six
counterclaims against the plaintiff, Gutierrez
Hermanos, and specifically denied such of the
allegations of the complaint as were not in agreement
with its answer. Plaintiff demurred to certain
paragraphs of the answer and as to the others
thereof prayed the court to order defendant to make
its allegations more specific. The court overruled this
demurrer, but granted the petition that defendant
should make its allegations more specific in the
second, third, and fourth cross complaints and first
counterclaim
In compliance with the said order, defendant,
on May 4 1910, filed an amended answer in which it
specifically admitted paragraphs 1 and 2 of the
complaint, and, as the first cross complaint, alleged
that, by reason of mercantile relations and the
opening of a mutual current account from May 1,
1900, the plaintiff had obligated itself periodically to
send to the defendant firm a memorandum or
statement of the current account, and further
obligated itself, in case the said mercantile relations
should be finally terminated, to present a general and
complete account, duly supported by vouchers and
other proofs; that plaintiff, Gutierrez Hermanos, had
contented itself by sending to Oria Hermanos & Co.
some memoranda or abstracts of account, accepted
by defendant as such "abstracts of account," without
the latter's having waived its right to demand the
presentation, as agreed upon, of the vouchers and
other proofs upon the closing of the current account,
a stipulation which Gutierrez Hermanos had failed to
comply with. Defendant therefore prayed that the
plaintiff, Gutierrez Hermanos, be sentenced to render
and present the said final account, duly accompanied
by vouchers, in conformity with the agreement made.
In the second cross complaint defendant
alleged that, by virtue of a commission contract, Oria
Hermanos & Co. had from the 1st of May, 1900, to
the 7th of September, 1909, forwarded 65,119.66
piculs of copra, 70,420 bales of hemp, and 5,176.03
piculs of loose hemp to Gutierrez Hermanos for sale
on commission; that the latter firm informed the
defendant that it, the plaintiff, had sold the said
products to third persons for the account of the
defendant, Oria Hermanos & Co.; that by reason of
said sale or sales Gutierrez Hermanos collected large
and important sums for commission and brokerage
and had turned in for the goods sold amounts less
than what they were actually worth in Manila; that
defendant, Oria Hermanos & Co., had recently
received information that these lots of hemp and
copra were purchased by the firm of Gutierrez
Hermanos for itself, notwithstanding that the latter
had stated to its principals, Oria Hermanos & Co., that
they had been sold to third persons; that it
collected by reason of such sale, commission
and brokerage; acts which redound to the
fraud, injury, and prejudice of the defendant,
Oria Hermanos & Co. Therefore the latter prayed
that Gutierrez Hermanos be sentenced to render a
general and complete account of the amounts of
hemp and copra received by it for sale on commission
from the year 1900 to 1909, setting out the dates of
the receipt of the said merchandise, dates of the
sales, names of the purchasers, prices stipulated,
discounts obtained, and commissions collected by
Gutierrez Hermanos, etc.
Defendant alleged as the third cross complaint
that, by virtue of the said commission contract,
Gutierrez Hermanos sent to the firm of Oria
Hermanos & Co., at different times according to the
latter's request, from May 1, 1900, up to the date of
the closing of the current account, 193,310 sacks of
rice alleged to have been purchased from third
persons, wherefore Oria Hermanos & Co. paid a
certain stipulated percentage as commission or
brokerage for the sales; but that now Oria Hermanos
& Co. have received information which it believes to
be true, and so alleges, that the rice so forwarded
had not been purchased from third persons, but
belonged to Gutierrez Hermanos who sold it directly
to defendant, collecting from the latter excessive
prices, advance payments, commission and interest,
all to the fraud and injury of the defendant firm. Oria
Hermanos & Co., therefore, prayed that Gutierrez
Hermanos be sentenced to render an account, duly
supported by vouchers, of all the lots of rice
forwarded to Oria Hermanos, with a statement of the
dates of the orders, amounts, dates of the purchases,
names of purchasers, amounts charged to Oria
Hermanos & Co., etc.
In the fourth cross complaint defendant related
that, by reason of the same commission contract
existing between the two firms, Gutierrez Hermanos
had sent to Oria Hermanos & Co., from the 1st of
May, 1900, up to the closing of the current account,
various quantities of salt, petroleum, tobacco
groceries and beverages, and had collected a
commission for the purchase thereof, that afterwards
Oria Hermanos & Co. learned that the forwarding
firm, the plaintiff, had set larger prices on the said
goods than it had actually paid for them and had
unduly charged such prices, before it had paid them,
to the defendant's account, collecting for itself
commission and interest thereon, to the fraud and
prejudice of the defendant firm. Therefore the latter
prayed that Gutierrez Hermanos be sentenced to
render a complete account, accompanied by
vouchers, of the shipments aforementioned.

In the first counterclaim filed by the defendant,
Oria Hermanos & Co., petition was made that
Gutierrez Hermanos be sentenced to pay it the sum of
P13,894.60, as the amount of an overcharge of 3 per
cent in interest collected from defendant, in a charge
of 8 per cent interest per annum on a private debt of
P47,649 drawing 5 per cent interest per annum,
which latter amount Juan T. Molleda owed the firm of
Gutierrez Hermanos and payment for which was
assumed by Oria Hermanos & Co. upon its
organization into a mercantile firm in May, 1900.
In the second counterclaim the defendant firm,
Oria Hermanos & Co. set forth: That, on April 18,
1900, its predecessor had ordered its consignee in
Manila, Gutierrez Hermanos, to insure against all war
risks the stocks of hemp and merchandise which the
said firm possessed in the pueblo of Laoang, for
P35,000, and likewise those it had in Catubig, for
P32,000; that Gutierrez Hermanos did not comply
with the said order, only insuring the stocks in Laoang
for P67,000, leaving those of Catubig totally
unprotected; that when, on May 10, 1900, this latter
pueblo was destroyed by fire Oria Hermanos & Co.
lost all its stocks there and could not collect the
insurance of P32,000 on the said property, which,
through the fault, negligence, and omission of
Gutierrez Hermanos had not been insured. This
amount last mentioned, added to the premiums,
expenses, and interest paid by Oria Hermanos & Co.
aggregates the sum of P63,700, payment of which
defendant demanded of plaintiff.
As a third counterclaim it is alleged that, on
May 18, 1900, the firm of Gutierrez Hermanos,
complying with orders from Oria Hermanos, & Co.,
insured against all war risks, in a certain insurance
company of London, England, whose agent in the
Philippine Islands was Stevenson & Co., the stock of
hemp which the defendant company had in the
pueblo of Catarman, Samar, for 3,000 pounds
sterling, and paid the premiums thereon at the rate of
10 per cent per quarter; that, during the first quarter
for which the premiums had been so paid, all the
insured tobacco belonging to Oria Hermanos & Co., in
Catarman, was stolen by the insurgent forces; that
then the underwriter refused to pay the amount of
the insurance on the ground that Gutierrez Hermanos
had made out the said insurance defectively,
wherefore Oria Hermanos & Co. ordered its agent
Gutierrez Hermanos to institute proceedings before
the courts of these Islands for the collection of the
amount of the said insurance; but that plaintiff
instead brought suit for the purpose before the courts
of England and by its negligence, indolence, and
carelessness had, during a period of eight years,
obliged the defendant firm to incur costly
expenditures which, added to the amount of the
insurance premiums paid, attorney's fees, costs,
interest, etc., aggregated P67,000; that for this sum,
together with legal interests thereon, it prayed that it
be reimbursed by Gutierrez Hermanos.
With respect to the fourth counterclaim, the
defendant firm set forth that, under the commission
contract and the current account contract existing
between both companies, Gutierrez Hermanos bound
itself to acquire for and forward to Oria Hermanos &
Co. such rice and other effects, including cash, as
defendant might order from plaintiff; but that, since
the beginning of 1904, the firm of Gutierrez
Hermanos maliciously failed to make the
consignments of rice and other effects, under the
false pretext that there were no such articles in the
market, thereby preventing the said firm of Oria
Hermanos & Co. from obtaining a profit of not less
than P25,000 and, besides, injuring its fame, credit,
and mercantile reputation in the Island of Samar to
the extent of approximately P50,000. Therefore
defendant prayed that Gutierrez Hermanos be
sentenced to pay ;t the sum of P75,000 as the
amount of such losses and damages occasioned it.
As the fifth counterclaim defendant alleged
that, for a period of twenty-two months, from the
month of May, 1900, it chartered several of its boats
to the American military government; that the charter
parties aggregated a value of P400,000; that these
contracts were executed and the amounts thereof
collected by Messrs. Oria & Fuster, members of the
defendant company, who turned the said amounts
into the current account they had with the firm of
Gutierrez Hermanos; but that plaintiff charged in the
current account, appropriated to itself, and collected
from the funds of Oria Hermanos & Co. which it had
in its possession, 2 per cent of the amount
collected by reason of the said charter parties for
commission and brokerage there being no stipulation
whatever relative to the collection of this commission;
that Gutierrez Hermanos, moreover, charged against
the said amount collected by it 8 per cent compound
interest; and that the sum in such wise improperly
charged and appropriated amounted, together with
the accumulated interest, to P15,000, which
defendant prayed be returned to it by Gutierrez
Hermanos.
The object of the sixth counterclaim is the
recovery of P31,000, in which amount defendant, Oria
Hermanos & Co., alleged it was injured by Gutierrez
Hermanos having arbitrarily charged in the current
account compound interest at the rate of 8 per cent
per semester from the year 1900 up to the time of
the closing of the said current account, while the
agreement made between both firms upon opening
the said account was that the latter should bear a
mutual interest of 8 per cent per annum only.
On May 14, 1910, counsel for Gutierrez
Hermanos filed a written answer to the foregoing
countercomplaints and counterclaims, and prayed
that plaintiff be absolved therefrom.
On August 1, 1910, this case came up for
hearing and was continued on the following days until
on April 24, 1912, the Honorable S. del Rosario,
judge, rendering judgment therein, the dispositive
part of which is as follows: "Messrs. Oria Hermanos &
Co. are sentenced to pay to Messrs. Gutierrez
Hermanos the sum of P147,204.28, with interest
thereon at the rate of 8 per cent per annum from the
30th of June, 1909, after deduction of all the sums
that result as balances, in favor of the former, from
the accounts that shall be rendered by the latter, in
conformity with the cross complaints and
counterclaims that have been admitted.
"Messrs. Gutierrez Hermanos are
sentenced:
"(a)With respect to the first cross
complaint, to render to Messrs. Oria
Hermanos & Co. accounts, supported by
vouchers, only of those articles in the
acquisiton of which fraud, deceit, or error has
been proven and to which the following
pronouncements refer.
"(b)As regards the second cross
complaint, to return to Messrs. Oria
Hermanos & Co., after due settlement of the
accounts, all the sums collected as internal-
revenue tax and referred to in the invoices of
rice, salt, petroleum, lime, rattan, flour,
aniseed spirit, cigarettes, and other articles
mentioned in their respective places in the
record, unless plaintiff shows in a satisfactory
manner that it did actually pay to the Bureau
of Internal Revenue, the contents of Exhibit
178 notwithstanding, the sums which, for the
reason aforestated, were debited to
defendant, in which case the latter may bring
an action against the said Bureau of Internal
Revenue.
"(c)With respect to the third cross
complaint, plaintiff must render to defendant
an account, supported by vouchers, of the
shipments of rice concerned in the invoices
examined in which fraud or error was
discovered, and said account shall embrace
the 153 invoices referred to by the litigants in
this suit (page 324 of the transcript of the
stenographic notes, session of November 29,
1910).
"(d)With regard to the fourth cross
complaint, plaintiff shall render an account,
supported by vouchers, of all the purchases it
made of petroleum for Messrs. Oria
Hermanos & Co., and in connection with the
invoices held in the latter's possession and
referred to on page 391 of the transcript of
the stenographic notes of the session of
November 29, 1910.
"(e)In the matter of the second
counterclaim, plaintiff shall return to Messrs.
Oria Hermanos & Co. the sum of P1,812 with
interest thereon at the rate of 8 per cent per
annum from the 5th of May, 1910, to the
date of payment. The interest due shall be
compounded after each semester, reckoning
from June 1, 1900, and both the principal
and the interest so compounded shall bear
the same interest of 8 per cent per annum.
"Messrs. Gutierrez Hermanos are
absolved, in the first place, from the second
cross complaint in so far as concerns the
demand therein made for a rendition of
accounts in connection with the hemp and
copra; and in the second place, from the
first, third, fourth, fifth, and sixth counter-
claims.
"Without special finding as to costs."
The parties, upon their notification of this
judgment, duly excepted thereto and by written
motion prayed for a reopening of the case and a new
trial. These motions were overruled, with exception
by the appellants, and the proper bills of exceptions
having been filed, the same were approved and
forwarded to the clerk of this court.
This action was brought to recover the sum of
P147,204.28, the balance of a current account
opened on May 1, 1900, between Gutierrez Hermanos
and the commercial firm of Oria Hermanos & Co., at
the rate 8 per cent mutual interest up to June 30,
1909, which sum was found to be owing by Oria
Hermanos & Co. to the commercial firm of Gutierrez
Hermanos.
Other subject matters of the present suit are
the rendition of accounts by Gutierrez Hermanos, as
commission agent, to Oria Hermanos & Co., as
principal, and the collection of various sums
demanded by the latter in the cross complaints and
counterclaims filed, during the trial, by its counsel
against the claim made by Gutierrez Hermanos for the
payment of the amount specified in the preceding
paragraph.
To prove the propriety and justice of its
complaint, Gutierrez Hermanos, the plaintiff, alleged:
That, in accordance with the agreement made, it sent
semiannually a general account that comprised a
statement of the business transacted during the
preceding six months, to Oria Hermanos & Co. who,
after examining the account with its specification and
vouchers, sometimes approved the same without
comment of any kind, and at others, after some
objections, but that, in the latter cases, upon
explanations being subsequently given by Gutierrez
Hermanos, the defendant firm used at last to accept
the account rendered; that such was the procedure
followed during the nine years approximately that
both firms maintained commercial relations, and that
the record showed that during the said nine years
Oria Hermanos & Co. had given in favor of Gutierrez
Hermanos 17 agreements or approvals of account,
the last of which, transcribed in the complaint, is of
the following tenor:

"LAOANG, March 9, 1909.
"Messrs. GUTIERREZ HERMANOS, Manila.
"DEAR SIRS:In our possession, your
very esteemed letter dated December 31 last,
from which we have withdrawn the extract of
our current account with your firm, closed
the same day, showing a balance in your
favor of P144,473.78, which extract meets
with our approval.
"We remain,"Yours, very respectfully,
"OBIA HERMANOS & Co.
That, on May 25, 1909, the plaintiff firm
notified the defendant firm that it could not continue
to do business with the latter and therefore the
current account stipulated between both parties
would be closed within a period of thirty days;
plaintiff therefore transmitted to defendant a general
detailed account that comprised the period from
January, 1909, to June 30 of the same year, with the
warning that after that date (May 25, 1909)
defendant would have to pay the debit balance,
inasmuch as, although the said last account had not
been approved, no objection whatever had been
made thereto by Oria Hermanos & Co. Therefore, in
the said letter of May 25, plaintiff demanded of
defendant the payment of the sum mentioned of
P147,204.28 which the latter had not paid in spite of
plaintiff's demands and notwithstanding the fact that
defendant had made no objection whatever to the
last account rendered.
Counsel for defendant, Oria Hermanos & Co.,
after a denial of the facts that had not been admitted
prayed in special defense and in four cross complaints
that the plaintiff, Gutierrez Hermanos, be compelled
to present a general account, duly verified and
supported by vouchers, of all the shipments of hemp,
copra, rice and other effects specifically mentioned,
and to render a final account in conformity with the
agreement made between both parties and convering
the details mentioned in the said cross complaints.
Notwithstanding the proof shown in the record
of the certainty and reality of the debt as a balance
resulting from the current account kept between the
parties, it is of course impossible to determine the net
amount, the object of the claim presented by plaintiff,
until there shall have first been decided whether there
should or not be rendered a general account,
accompanied by vouchers, comprehensive of the
business transacted in connection with the different
commercial articles dealt in, and of the mercantile
relations between both firms from May 1, 1900, to
June 30, 1909, and also whether Gutierrez Hermanos
is indebted to Oria Hermanos & Co. and what is the
amount of the debt.
Even upon the supposition that the plaintiff,
Gutierrez Hermanos, is obliged to make a general
rendition of accounts comprehensive of the business
transacted between both firms within the dates
mentioned, it is evident that, until it be known
whether plaintiff is or is not indebted to Oria
Hermanos & Co. and what is the amount owing as
disclosed by the account rendered, it cannot be
decided whether plaintiff is or is not entitled to collect
the whole amount claimed in the complaint, for only
in view of the result of the rendition of accounts
requested by plaintiff can it be lawfully established
whether Gutierrez Hermanos is a creditor of Oria
Hermanos & Co. and what amount is owing to it by
the latter. All this is referred to in the first error
alleged by defendant.
In case it should be held that the law does not
allow the rendition of accounts requested by the
defendant, Oria Hermanos & Co., and that this latter
is not a creditor of Gutierrez Hermanos, it is evident
of course that plaintiff would be unquestionably
entitled to collect the amount specified in the
complaint, or some other amount duly proved at trial
to be owing it by defendant. It is therefore incumbent
upon us to elucidate hereinafter the propriety or
impropriety of the contentions made by defendant in
its four cross complaints.
Defendant's counsel in his first cross-complaint
and special defense prayed that the plaintiff,
Gutierrez Hermanos, be compelled to render and
present a general, final, complete and verified
account, pursuant to the agreement made between
both parties, inasmuch as plaintiff bound itself to
send periodically to defendant a note or numerical
extract of the current account, and in case the
mercantile relations between both firms should come
to an end or be finally closed, Gutierrez Hermanos
bound itself to present a general and complete
account, duly supported by vouchers, and defendant,
in accepting and approving the semiannual accounts
rendered by plaintiff, did not waive its right to
demand the general account agreed upon, at the time
of the final closing of the said current account, the
obligation to furnish which was not complied with by
the plaintiff, Gutierrez Hermanos.
The latter denied in its answer the allegations
made by Oria Hermanos & Co. in its cross-complaint,
and set forth that, in consequence of the mutual
current account opened between the parties from the
year 1900, plaintiff transmitted weekly or fortnightly,
according to circumstances, a specific statement of
the transactions effected, as well as, semiannually, a
general account of the business done during the six
months last elapsed, and that defendant, after an
examination of such semiannual account together
with its details and vouchers, and after some
objections thereto had been explained, was
accustomed to approve the same. This was the
procedure carried on for more than nine years during
which Oria Hermanos & Co. from time to time
approved each one of the 17 accounts that were
presented to it, and upon Gutierrez Hermanos closing
the current account from January to June, 1909, it
also presented to defendant a general detailed
account, which, notwithstanding that no objection
whatever was made to it, was not approved.
Therefore the complaint was filed that initiated this
litigation.
Had the agreement between the parties been
recorded with all its conditions in some instrument, it
would have appeared whether Gutierrez Hermanos
actually bound itself to present to Oria Hermanos &
Co., besides the semiannual accounts rendered, a
general account comprising all the business
undertaken between 1900 and June, 1909, on which
latter date it was considered by Gutierrez Hermanos
as terminated. The allegation made by defendant
relative to this point has not been substantiated by
any evidence whatever, and therefore there is no
reason nor legal ground whereby plaintiff could be
compelled to present that general account requested
in the first cross-complaint.
It is, in our opinion, appropriate to insert
hereinafter what the trial court, in the judgment
rendered, says with respect to this matter: "If
commission agents be obliged to render to their
principals itemized accounts, supported by vouchers,
of the sums they collect as commission and of the
transactions effected by them in relation with their
principals, as often as the latter may desire, in cases
where there arises some trouble, some difference of
opinion or a conflict of interests, or where the
commission agents close the account, as occurs in the
case at bar, because the principals did not pay what
they were owing or because, instead of the debt
being diminished, it was increased, the commission
contract would become an inexhaustible and never-
ending source of litigation and of claims without
number, a formidable arm for spiteful principals
against which it would be insufficient to oppose an
arsenal of vouchers such as might be treasured by
the most prescient commission agent, because there
could be avoided neither the bother resulting from
their necessary examination, nor the heavy expenses
and loss of time that are the inevitable
accompaniment of this class of work."
When an account has been presented or
rendered and has been approved by the party
whom it concerns or interests, it is not proper
to revise it, unless it should be proved that in
its approval there was deceit, fraud, or error
seriously prejudicial to the party who gave
such approval. (Arts. 1265 and 1266, Civil Code.)
In the decision rendered in the case of Pastor
vs. Nicasio, (6 Phil. Rep., 152), the following doctrine
was laid down:
"When accounts of the agent to the
principal are once approved by the principal,
the latter has no right to ask afterwards for a
revision of the same or for a detailed account
of the business, unless he can show that
there was fraud, deceit, error or mistake in
the approval of the accounts facts not
proven in this case."
The record does not show it to have been duly
proven that upon Oria Hermanos & Co. giving its
approval to the 17 accounts presented by Gutierrez
Hermanos there was deceit, fraud, or mistake
prejudicial to the former's interests. For the sole
reason that Gutierrez Hermanos, upon closing the
current account with Oria Hermanos & Co. was
obliged, certainly an unwarranted obligation, to
render a general account comprehensive of all the
business transacted between both parties during
more than nine years, and there being no proof of the
alleged agreement between them, it would be
improper to hold that plaintiff is obliged to render and
present a general account in the sense requested by
Oria Hermanos & Co. in its first cross-complaint.
With respect to the second cross-complaint,
relative to the sale on commission of lots of hemp and
copra by defendant to plaintiff during the period from
May, 1900, until the close of the mercantile relations
between both firms, it was alleged that for such sale
or sales on commission Gutierrez Hermanos collected
a large and important commission of many thousands
of pesos and credited defendant in the current
account with lesser prices than those obtained, and
that defendant received information that these lots of
hemp and copra which were said to have been sold to
third persons were afterwards found to have been
purchased by the firm of Gutierrez Hermanos itself, to
the fraud, injury, and prejudice of the defendant, Oria
Hermanos & Co.; wherefore the latter prayed that
plaintiff should present a general and complete
account, duly verified by vouchers and with the
details specified, of each and all of the shipments of
hemp and copra forwarded to plaintiff from May,
1900, to 1909. These facts were denied by plaintiff,
and the court, in view of the evidence adduced by
both parties, held that the record showed absolutely
no proof that plaintiff, Gutierrez Hermanos, had
committed any fraud or error prejudicial to defendant.

In fact it was not proved that Gutierrez
Hermanos credited in the current account a lesser
price than that obtained from the sale on commission
of the lots of hemp and copra sent to it by Oria
Hermanos & Co., for from the documentary evidence
consisting of accounts transmitted by plaintiff to the
commercial firms of Stevenson & Co. and Warner,
Barnes & Co. (Limited), in collection of the price of
hemp and copra acquired by these houses, it appears
that the prices fixed at sale to the latter are the same
and agree with those specified in the statements
transmitted by plaintiff to defendant, Oria Hermanos
& Co., and that the hemp and copra shipped by the
defendant were sold on commission to third persons
that is, to the aforesaid commercial firms.
The charge laid against plaintiff, that it did not
disclose the name of the commercial firm or concern
from whom the hemp that it sold had come, does not,
although it may have concealed this fact. constitute a
fraudulent act, nor one originating civil liability,
inasmuch as plaintiff realized on the lots of hemp
under the marks of Oria Hermanos & Co. which they
bore from their point of origin and by which they
were known both in Manila and abroad (Exhibit DD)
and not only in the invoices, but also in the accounts
presented by Gutierrez Hermanos upon its collecting
the price of such hemp sold on commission, there
appeared the marks stamped by Oria Hermanos & Co.
on their lots of hemp, and therefore it cannot be
affirmed that Gutierrez Hermanos superseded Oria
Hermanos & Co. as the owner of the hemp that
plaintiff sold on commission and that came from
defendant during the more than nine years in which
the former was a commission agent of the latter.
With respect to the fact of Gutierrez Hermanos
not having disclosed the name of the concern to
which the hemp belonged, in the cases where plaintiff
sold it in its own name, plaintiff's procedure cannot be
qualified as deceitful or fraudulent, inasmuch as
article 245 of the Code of Commerce authorized it to
act as it did, to contract on its own account without
need of disclosing the name of its principal, in which
case Gutierrez Hermanos was liable to the person or
concern with whom it contracted, as if the business
were its own. So, then, the purchaser has no right of
action against the principal, nor the latter against the
former, without prejudice to the actions which lie
respectively in behalf of the principal and the
commission agent, pursuant to the provisions of
article 246 of the Civil Code.
With regard to the lots of copra,
notwithstanding the allegations made in this cross-
complaint, defendant has not produced any proof
whatever of the facts charged, in face of plaintiff's
denial in its answer. Therefore, in consideration of the
reasons set forth with respect to the lots of hemp, the
judgment of the lower court disallowing defendant's
petition that plaintiff render accounts relative to the
sales of hemp and copra is held to be in accordance
with law.
In this part of the judgment of the trial court
consideration was also given to the fact of plaintiff's
having debited against defendant in the account
rendered it the payment of the internal-revenue tax
of one-third of 1 per cent.
With respect to the tax paid on the price of the
hemp and copra sold by the plaintiff in the name and
for the account of the defendant, the procedure of
the plaintiff is perfectly legal, in accordance with the
provisions of section 139 of the Internal Revenue
Law, in laying upon Oria Hermanos & Co. the
obligation to pay the said tax as the owner of the
hemp and copra sold, and, therefore, the claim made
by defendant against the account drawn up by
Gutierrez Hermanos is unreasonable and unfounded.
As regards the tax of one-third of 1 per cent
which, according to accounts presented by Gutierrez
Hermanos to Oria Hermanos & Co., plaintiff had paid
on the price of the rice, salt, kerosene, lime, mats,
rattan, flour, anise-seed spirits, and cigarettes,
inasmuch as the said section of the above cited Act
obliges the vendors and not the purchasers of these
articles to pay the said tax, it is undeniable that the
firm of Gutierrez Hermanos that had acquired the said
articles which were forwarded to Oria Hermanos &
Co. should neither have paid the tax in question, nor
should have charged it for payment against
defendant, since it had already been paid to the
Government by the owners of the articles sold to
plaintiff.
In view of the provisions of law contained in
the aforesaid section 139, it is not understood how
Gutierrez Hermanos could have been compelled to
pay the said tax on the rice, salt, petroleum, lime,
mats, rattan, flour, anise-seed spirit, and cigarettes,
nor on the price of the beer, on the supposition that
plaintiff acquired these articles from third persons in
this city. In the case of the rice imported from
abroad, the payment of the tax thereon pertains to
the importer who sells it to third persons.
If Gutierrez Hermanos made a mistake,
notwithstanding the clear phraseology of the said
section, said mistake should not prejudice defendant
who, in July, 1905, had already stated that it did not
agree with plaintiff's action in the matter for, in the
letter Exhibit FF, defendant demanded that plaintiff
investigate the case in order to avoid a double
payment of the tax.
For the foregoing reasons the plaintiff,
Gutierrez Hermanos, after liquidation of the sums paid
as a tax of one-third of 1 per cent on the price of the
rice acquired in this city and of the salt, kerosene,
lime, mats, flour, anise-seed spirit, cigarettes, and
beer, referred to in the second counter-complaint,
must pay to Oria Hermanos & Co. the amount shown
by said liquidation to be owing.
As regards the third cross-complaint, wherein it
is alleged that fraud, deceit, or error was committed
or incurred by Gutierrez Hermanos in connection with
the accounts for the rice forwarded to Oria Hermanos
& Co., a fact denied by plaintiff, the trial judge, in
view of the evidence introduced at the hearing of the
case, established the following conclusion:
"Justice, therefore, demands that
Messrs. Gutierrez Hermanos render a new
account of the lots of rice which they shipped
to Messrs. Oria Hermanos & Co., inasmuch as
they, as proved in the verification of some of
the lots, committed the fraud of having
collected a commission of 2 per cent for the
purchase of the rice, as commission agents,
in addition to a profit in reference to the said
lots, in their capacity of merchants, on the
price of the rice imported by them from
Saigon.
"If they acted as commission agents,
they should have contented themselves with
the 2 per cent commission and should not
have charged any extra price. If, as
commission agents, it was more
advantageous for them to reap the profits
from the rice they imported from Saigon,
they should neither have charged nor
collected the 2 per cent commission. The
commission agent is obliged to acquire the
articles or effects for which he has received
an order from his principal in the most
advantageous and less onerous conditions for
the latter. Such an obligation, prescribed by
article 258 of the Code of Commerce, was
not fulfilled by the procedure observed by
plaintiff in the matter of the verified invoices
of rice, in some of which, as has been
proved, there appears to have been charged
a larger amount than the cost price."
This court reserves its opinion, until at such
proper time it shall have seen the result, shown by
the nesw accounts to be presented by plaintiff, as to
whether, in the rice accounts rendered by it to
defendant, there was fraud or only error susceptible
of correction, for plaintiff alleges in turn, as shown in
the letter Exhibit NN, that Oria Hermanos & Co.
required plaintiff to increase the price in the invoices
of rice, anise-seed spirit, petroleum, etc., by 25 per
cent of the cost of these articles. Therefore plaintiff
shall render an account, verified by vouchers, to Oria
Hermanos of all the shipments of rice concerned, not
only in the invoices examined, but also in those that
have not been examined, up to No. 153, which
invoices are those mentioned on page 324 of the
transcript of the stenographic notes of the session of
November 29, 1910.
The approval and agreement given by
defendant to the 17 semiannual accounts presented
by plaintiff is no impediment to a revision of the
same, once it shall have been shown that there was
fraud, error, or serious incorrection prejudicial to the
party who accepted the said accounts. The law which
protects him who acts in good faith cannot permit any
considerable prejudice to be caused to the rights and
interests of a third party who had neither the
occasion nor the opportunity to acquaint himself with
the truth of the facts which he had admitted as true
in such manner as they were presented to him.
Oria Hermanos & Co., upon its accepting and
approving the accounts which were presented to it by
Gutierrez Hermanos, as transcripts or copies from the
latter's books, did not have an opportunity to make
the required verification of the entries of rice
contained in the said accounts or of the invoices of
this article in all their details, and whenever it has
discovered that Gutierrez Hermanos, as commission
agent, has made overcharges or placed extra prices in
addition to the 2 per cent commission, it has a right
to demand reimbursement of the excess in price
which it had erroneously paid as principal. The
judgment of the lower court must, therefore, be
affirmed with respect to the entries of rice made in
the 170 invoices referred to in the accounts presented
by plaintiff, by means of a revision of the accounts
presented in connection with the said article of the
Code of Commerce.
With respect to the fourth cross-complaint
relative to Gutierrez Hermanos having entered in the
invoices transmitted to Oria Hermanos & Co. higher
prices than those paid for the salt, beverages,
tobacco, wine, beer, and groceries, in spite of the
allegations made by plaintiff the record of the
proceedings shows no proof of the truth of the act
charged to plaintiff. The fact of not having recorded
in the invoices of the said effects shipped to
defendant the names of the persons who had
acquired them does not constitute proof nor even a
presumption of illegal procedure on the part of
Gutierrez Hermanos. Neither is plaintiff obliged by any
law to state the names of the owners of such articles,
nor does the omission thereof show bad faith on the
part of the commission agents.

As regards the petroleum, it is undeniable that
in the invoices to which the fourth cross-complaint
refers higher prices were given than those it actually
cost. Moreover, Oria Hermanos & Co. is entitled to
the discount obtained by the commission house from
the commercial firm which sold the petroleum.
The trial judge, as grounds for his finding, says
the following: "It is therefore evident that, according
to the proofs submitted, Messrs. Gutierrez Hermanos
committed fraud in the purchase and shipments of
the said article, not only because they kept the
discount allowed by the selling firm by which their
principals, for whom they purchased the petroleum
should have profited, and not the commission agents
who acted for them simply in the capacity of agents;
but also because in one of the invoices they charged,
besides, a greater price than they paid to the
vendors, and then collected a commission of 2 per
cent on all the invoices. It is the obligation of
commission agents to make the purchases for their
principals on the most advantageous terms. For this
they are paid the rate of commission stipulated. They
have no right to keep the discount allowed by the
vendors on the price of the articles they purchase for
their principals, even less to increase, to their benefit,
the price charged them."
In consideration, then, of the evidence
introduced relative to the purchase of the petroleum
shipped to defendant, referred to in the fourth cross-
complaint, plaintiff must render an account, verified
by vouchers, of the price of all the petroleum that it
acquired for Oria Hermanos & Co. and which is
covered by the invoices mentioned on page 391 of
the transcript of the stenographic notes taken of the
session of December 28, 1910.
The judgment of the lower court treats of the
fact that Gutierrez Hermanos charged interest on the
value of the articles which it had purchased for Oria
Hermanos & Co., before even having paid the
vendors the price of the articles acquired. Defendant
has complained against this procedure on the part of
plaintiff and qualifies as improper and illegal the
collection of the 8 per cent interest on the price of the
effects forwarded to Oria Hermanos & Co. from the
date of their shipment, when actual payment of such
purchases was made many days afterwards.
The accounts presented by Gutierrez
Hermanos, wherein note was made of the collection
of interest at the rate of 8 per cent on the price of the
effects acquired by plaintiff for Oria Hermanos & Co.
and shipped to defendant for its disposal,
notwithstanding that they were not paid for until
many days afterwards, were approved and accepted
by plaintiff without any objection thereto whatever
and with no protest against the notation of the
interest on the price of the articles purchased.
Therefore, aside from the reasons given by the lower
court in his judgment and relative to this point, it can
not be held that there was either fraud or error in the
procedure observed by Gutierrez Hermanos in
charging in its account the stipulated interest from
the date when it acquired the effects, afterwards
shipped to the defendant, Oria Hermanos & Co.,
because Gutierrez Hermanos could have paid cash for
the articles purchased. Even though payment might
have been delayed for a few days more it is certain
that Gutierrez Hermanos as commission agent was
obliged to pay the price of the articles acquired and,
consequently, said price began to draw interest
chargeable to the consignee who, as owner of such
articles, could dispose of them freely. For these
reasons defendant's claim can not be sustained.
We now take up the fifth special defense, or
the first counterclaim presented by defendant against
plaintiff, wherein it is prayed that the latter be
sentenced to pay to the former the sum of
P13,894.60, together with the legal interest thereon,
which sum is the difference between the 5 per cent
which was all Oria Hermanos & Co. should have paid
and the 8 per cent which was unduly charged them
on the sum of P47,649, the debt contracted by Juan
T. Molleda in favor of Gutierrez Hermanos and
transferred to Oria Hermanos & Co. who assumed its
payment instead of Molleda.
The reasons, set forth in the judgment
appealed from and based on documentary evidence,
are so clear and conclusive that they could not be
rejected by defendant, nor invalidated at trial by
other evidence in rebuttal. Consequently, we are
constrained to admit them as decisive of the point in
controversy and as duly showing that the interest
stipulated on the amount which Juan T. Molleda owed
Gutierrez Hermanos and which was transferred to
Oria Hermanos & Co. is 8 per cent and not 5 per cent
as defendant claims. Therefore the sum of
P13,894.60 claimed cannot be recovered, and it is
held that the finding made by the trial judge in
respect to the first counterclaim filed by defendant is
in accord with the law and the evidence. This finding
is based on the following grounds: "If the firm of
Molleda & Oria as well as that of Oria Hermanos &
Co., of which latter Mr. Tomas Oria is manager, both
consented to Messrs. Gutierrez Hermanos charging in
all the extracts of current account sent to them an
interest of 8 per cent on the sum of P47,649.56; and
if they willingly and constantly acquiesced in the
payment of a particular rate of interest instead of that
of 5 per cent, during nine years without raising any
objection whatever, they are not en- titled to obtain
restitution for the difference paid of 3 per cent, nor
have they any right to consider as unlawfully collected
the 8 per cent interest on the sum above mentioned.
The record shows no proof of the existence of any of
the vices which, according to law, might invalidate the
consent given by defendant to the collection from it of
the interest of 8 per cent, which must be that
stipulated, nor was such a vice alleged by Oria
Hermanos & Co." Moreover, against this finding in
plaintiff's favor no error whatever has been alleged by
defendant.
In the second counterclaim, the sixth special
defense, defendant prays that Gutierrez Hermanos be
sentenced to the payment of P63,700, with legal
interest thereon from the date of the presentation of
this counterclaim, and alleges- that the firm of
Gutierrez Hermanos, disregarding the instructions of
Molleda & Oria, the predecessor of Oria Hermanos &
Co., merely insured the stocks of hemp and
merchandise which the latter had in Laoang, for an
imaginary value of P67,000, leaving totally
unprotected the stocks of hemp and merchandise in
Catubig, valued at P32,000; that such failure to
comply with the said instructions caused Oria
Hermanos & Co., by reason of the fire that occurred
in Catubig, to lose the sum of P63,700, including the
premiums, expenses, and interest paid, and that
defendant, immediately upon discovery of the loss by
plaintiff's fault and negligence, filed claim therefor
and protested against the same.
In answer Gutierrez Hermanos alleged that in
the letter from Oria Hermanos & Co., of the date of
April 28, 1900, the latter stated that it recommended
to plaintiff the question of the insurance of the
warehouses in Laoang and of the houses in Catubig,
and advised that if the stocks of hemp and
merchandise therein were insured, as defendant
believed they were, plaintiff should endeavor to
increase the insurance thereon; and that in another
letter of the same date Don Tomas Oria, after relating
the fact that the insurgents had attacked the pueblo
of Catubig and killed the troops there garrisoned,
stated that he earnestly recommended to Gutierrez
the matter of the insurance in order that it might be
made as soon as possible in the manner explained in
the official letter of the same date.
Gutierrez Hermanos, supposing that Catubig
might already have been burned and destroyed as a
result of the occurrences related by Oria in his letter,
judging by the news published in the newspapers of
this city on May 2, 1900, deemed that it would be a
useless expense to increase the insurance of the
merchandise held in stock in the said pueblo under
ordinary fire insurance which was that taken out by
the firm of Molleda & Oria, for the reason that the
insurance companies would refuse to pay the amount
of the insurance in case the damage was caused by
war, invasion, riot, military force, etc. As Gutierrez
Hermanos then had no means whereby it might
communicate with Molleda & Oria to request specific
instructions from this latter firm is regard to the
insurance ordered, which was ordinary and not war
insurance, it had to consult Don Casimiro Oria, a
partner of Oria Hermanos & Co., and this gentleman,
with a full knowledge of the state of affairs in
Catubig, advised that no further attempt be made to
increase the ordinary fire insurance on the goods in
Catubig, because it would be a useless expense and
because there were well-founded reasons for
supposing that at that date the pueblo had already
been completely destroyed, together with the
buildings and stocks of merchandise which it was
proposed to insure. But after taking into account the
importance of the buildings and the large stocks of
goods stored in Laoang, which pueblo, according to a
letter from Oria to Gutierrez Hermanos, was also in
danger of being attacked by the insurgents, plaintiff
proceeded to insure them against war risks for three
months for P7,000 sterling, a transaction which was
communicated by plaintiff to Molleda & Oria by a
letter of May 5, 1900, and which this latter firm
acknowledged without making any objection
whatever to the war insurance placed; that, since the
2d of June of the same year, neither was any claim or
protest made by the firm of Oria Hermanos & Co.
against the insurance taken out by Gutierrez
Hermanos, but, on the contrary, Oria Hermanos & Co.
applied to the Government of the United States
claiming an indemnity of P90,000 Philippine currency
for the burning of the buildings and goods in the
pueblo of Catubig a claim still pending decision by
the Government.

The judge of the Court of First Instance,
deciding the question raised in this counterclaim, set
forth among others the following considerations: 'If
Messrs. Gutierrez Hermanos had taken steps to insure
the stocks of merchandise in Catubig and had
declared to any officer of the insuring company the
truth about the terrible slaughter which had just
taken place, it would have been impossible to obtain
a war insurance on the said merchandise; and if,
instead of declaring the truth, plaintiff had omitted it,
the insurance if obtained could not have been
collected. The insurance company would have learned
of the circumstances which had not been stated and
had been omitted in the application and would have
refused to pay the insurance, as it did in the case of
the Catarman insurance, as will be seen further on.
And if plaintiff had applied to the English courts, as it
did in the case referred to, the result would have
been the same."
Even though Gutierrez Hermanos had increased
the value of the insurance on the hemp and
merchandise in Catubig through means of ordinary
fire insurance, pursuant to the instructions given by
Molleda & Oria, the predecessors of Oria Hermanos &
Co. and whose rights this latter firm represents, the
same result would have followed, inasmuch as in this
class of insurance the insuring company does not
assume risks for fires and damages caused by war,
riot, and military force; and as in the official letter
aforementioned plaintiff was not authorized to
increase the insurance through means of a war
insurance policy, it is unquestionable that plaintiff, in
not increasing the ordinary insurance. proceeded in a
prudent and reasonable manner and for the benefit of
the defendant by saving the latter from uselessly
paying an important premium for an insurance which
it afterwards could not have collected. Furthermore,
the news was already disseminated in Manila that the
pueblo of Catubig had been completely burned to the
ground. Not only, therefore, would it have been
impossible to obtain the increase of an ordinary
insurance, but even a war insurance, though offering
to pay a large and excessive premium.
In the letter of the date o May 24, 1900,
Exhibit 5, page 190 of the first file of the record,
Gutierrez Hermanos informed Oria Hermanos & Co.
that the insurance firm refused to pay the amount of
the insurance on the merchandise in Catubig, for the
reason that the cases of fire caused through military
force, etc., were excluded from the policy. So that
even though Gutierrez Hermanos had, in compliance
with orders from Oria Hermanos & Co., increased the
amount of the insurance on the stock of merchandise
stored in Catubig, Oria Hermanos & Co. would not
have been benefited thereby, because the insurance
company would have refused to pay the increase, just
as it did not pay the amount of the original insurance
for the reason aforementioned. Furthermore, as we
have already stated, the order to increase the
insurance only refers to ordinary insurance against
fire, and not to extraordinay insurance against war
risks.
With respect to the war insurance placed on
the stocks of goods in Laoang, the trial court could
not in accordance with law hold plaintiff to be liable
for the payment of the sum of P1,812, with interest at
8 per cent for the reason that Oria Hermanos & Co.
did not protest nor object in any wise against the
placing of the said war insurance on the merchandise
in Laoang, and also because in the second
counterclaim no petition or demand whatever was
made in connection with this transaction. For these
reasons therefore, Gutierrez Hermanos must be
absolved of the second counterclaim.
We now come to the third counterclaim, the
seventh special defense presented by defendant,
wherein petition was made that the firm of Gutierrez
Hermanos be compelled to pay to Oria Hermanos the
sum of P67,000, besides the legal interest thereon
since the filing of this claim, which sum was the
amount of the insurance, premiums paid, fees, costs,
interest, and charges for telegrams, etc., alleged to
have been expended and lost through the inattention,
negligence, improvidence, and carelessness of the
plaintiff, Gutierrez Hermanos, without defendant's
being able to collect the amount of the insurance on
the stock of hemp in Catarman, Samar.
In a letter of May 10, 1900, addressed by Oria
Hermanos & Co. to Gutierrez Hermanos, the former
commissioned the latter to try to insure against war
risks some 1,400 piculs of hemp that Oria Hermanos
& Co. had in the pueblo of Catarman which had been
evacuated by the American troops; and in another
letter of the same date Tomas Oria said to Gutierrez
Hermanos that Catarman had been evacuated by the
troops three days after the departure of the steamer
Santander which was unable to load about 3,000
piculs of hemp that his firm had there, and, as he
knew that the said pueblo had not been burned, he
wished to have insurance taken out on the value of
about 1,400 piculs of hemp stored in the Delgado
warehouse. Gutierrez Hermanos had Stevenson &
Co., of Manila, cable to the latter's head office in
London for the desired insurance, and as soon as it
was obtained Gutierrez Hermanos wrote to Oria
Hermanos & Co. informing defendant that plaintiff
had insured against war risks 1,400 piculs of hemp
deposited in the Delgado warehouse in Catarman, for
three months from the 18th of May, 1900.
A few days subsequent to the placing of this
insurance, Oria Hermanos & Co. ordered Gutierrez
Hermanos to collect the amount of the insurance, for
the reason that all the stock of hemp in Catarman had
been stolen by the insurgents. The representative of
the underwriter refused, however, to pay the amount
of the insurance because Oria Hermanos & Co. had
concealed certain facts which, had they been known
to the underwriter, would have deterred the company
from issuing a policy for the hemp, and all the steps
taken for the purpose of obtaining the collection of
the 3,000 sterling for which the hemp had been
insured, resulted in failure.
Therefore, on petition of the firm of Oria
Hermanos & Co. through the firm of Stevenson & Co.,
suit was duly brought before the English courts in
London. The prosecution of this suit was commended
to English attorneys to whom Oria Hermanos & Co.
furnished, through Gutierrez Hermanos, all the
documents and data conducive to a successful issue.
Notwithstanding, the claim of Oria Hermanos & Co.
was rejected by the London courts. No liability
attached to Gutierrez Hermanos for the failure of the
suit in London.
The firm of Gutierrez Hermanos merely
complied with the orders of Oria Hermanos & Co. to
insure the stock of hemp in Catarman, with an
insurance company established in London, through
Stevenson & Co. of Manila, in view of the fact that
there was no insurance company in this city which
would issue policies against war risks. For this
purpose, by a letter of October 17, 1905, Exhibit F-2,
Oria Hermanos & Co. transmitted to Gutierrez
Hermanos the power of attorney and the letter for
Messrs. Horsley, Kibble & Co. for the purpose of the
latter's negotiating with the underwriters for some
honorable settlement of the matter, during the time
required for the receipt of all the documents that had
been requested. In another letter of January 25,
1906, Oria Hermanos & Co. stated to Stevenson & Co.
that it took pleasure in replying to the latter's favor of
the 19th instant, addressed to Mr. Oria; that
Delgado's letter to Oria of the date of October 19,
1901, was forwarded in the original to London,
through Messrs. Gutierrez Hermanos, to Stevenson &
Co., on July 16, 1904; that defendant inclosed a copy
of Delgado's declaration before the municipal judge of
Catarman, transmitted to Stevenson & Co. on
November 21, 1903; and that the two letters to
Gutierrez Hermanos, of May 28, 1903, and October 2,
1901, as well as the memorandum of the values of
the goods, had been transmitted to Gutierrez
Hermanos with a telegraphic order to said firm to
deliver them to Stevenson & Co. If the amount of the
insurance could not afterwards be collected, it was
not through fault of Gutierrez Hermanos, who acted
in the matter in accordance with instructions from
Oria Hermanos & Co.
So that the firm of Gutierrez Hermanos was a
mere conductor through which the stock of hemp in
Catarman was insured by a firm in London through
mediation of Messrs. Stevenson & Co., for the firm of
Oria Hermanos & Co. had to grant a power of
attorney in behalf of the said Messrs. Horsley, Kibble
& Co. in order that the latter might represent the
former before the courts in England. If afterwards the
representatives of Oria Hermanos & Co. did not
obtain a favorable decision in those courts, the loss of
the suit cannot be ascribed to either the fault or the
negligence of Gutierrez Hermanos, inasmuch as this
plain- tiff merely complied with the orders of the
defendant, Oria Hermanos & Co., to bring suit in the
English courts, not against Stevenson & Co. of these
Islands, but against the insurance company of
London.
The firm of Gutierrez Hermanos, in executing
orders and charges of Oria Hermanos & Co., became,
by virtue of an implied agency, an agent of the latter
and, in the fulfillment of the orders of the principal,
adjusted its action to the instructions of Oria
Hermanos & Co. The record does not show that in so
doing it proceeded with negligence or with deceit.
Therefore there is no reason nor legal ground
whereby plaintiff should be compelled to pay the sum
demanded in the third counterclaim for the causes
therein stated. (Arts. 1710, 1719 and 1726 of the Civil
Code.) Consequently Gutierrez Hermanos should be
absolved from the third counterclaim filed by
defendant.
In the fourth counterclaim, the eighth special
defense, defendant, Oria Hermanos & Co., prays that
plaintiff, Gutierrez Hermanos, be sentenced to pay
P75,000 for losses and damages, with interest,
inasmuch as by reason of a contract executed
between both parties, plaintiff bound itself to acquire
for and to transmit to defendant rice and other
articles, including coin, which Oria Hermanos & Co.
might request at Laoang, Samar, and so plaintiff did;
but since 1904, the fifth year of their mercantile
relations, plaintiff failed repeatedly to comply with its
obligation to send the rice and other articles
requested by defendant, totally sometimes and at
other times partially limiting the shipment of the
effects ordered and excusing itself from remitting
money on the pretext that it could not obtain
insurance for the shipment of cash; that defendant
afterwards discovered that there were in this city
large stocks of rice and other effects which plaintiff
[defendant] had requested, and could surely have
been sold in Laoang and the pueblos of the coast of
Samar, as Oria Hermanos & Co. was the only
importing firm in that island; and had defendant
received from plaintiff the rice and the other effects
the former had requested to be shipped to it,
defendant would have obtained a profit of not less
than P25,000 whereupon it could have bought large
quantities of hemp which would have brought it great
profit. Defendant further alleged that such failure on
the part of plaintiff to comply with the agreement
made caused injury to the reputation and mercantile
credit of Oria Hermanos & Co., in Samar, and losses
and damages of the value of about P50,000, the total
of the losses and damages suffered on both accounts
amounting to a sum of not less than P75,000; and
that the motive of such procedure on the part of
Gutierrez Hermanos was to injure and destroy
defendant's credit in Laoang and on the entire coast
of Samar, because plaintiff planned to establish there
a business of its own like that of Oria Hermanos & Co.

Plaintiff, Gutierrez Hermanos, specifically
denied the facts alleged by defendant in its
counterclaim and set forth that the evidence
introduced relative to such facts showed that since
1904 plaintiff had been reducing the shipments of
rice, wine, and other effects to such extent that in
1906 and 1907 cases occured where the order
shipped was reduced to one-third, and in 1908 also
where the steamer Serantes was sent without any
cargo whatever, for the reason that the debit balance
in defendant's current account amounted, in 1905, to
P321,000 and because Oria Hermanos & Co. did not
send a quantity of hemp and copra sufficient in value
to cover the value of the remittances of money and of
the shipments of the effects requested; that
defendant, instead of sending hemp to plaintiff for the
gradual payment of its debt, sent it to Cebu; that
therefore Oria Hermanos & Co. had no well-founded
grounds whereupon to claim indemnity for losses and
damages, especially since, according to the
stipulations of the agreement and as shown by the
evidence, the part of the credit utilized by defendant
was to be covered and paid for with the price of the
hemp, copra and other effects which Oria Hermanos
& Co. should have to send to Gutierrez Hermanos;
and that, if the debtor balance of the current account
continued to increase instead of decreasing, it must
be concluded that the procedure of Gutierrez
Hermanos in reducing the amount of the shipments of
the orders was due to the conduct of Oria Hermanos
& Co. who did not endeavor by the shipment of
copra, hemp, and other effects gradually to pay even
a part of the credit opened, notwithstanding that the
rights and obligations established in the contract
should have been mutual.
If defendant, without concerning itself with
diminishing its debtor balance, did no more than
order goods for sale and remit drafts to be paid by
Gutierrez Hermanos, not sending in exchange to
plaintiff hemp, copra, and other effects, plaintiff,
Gutierrez Hermanos, in refusing discretionally to
furnish certain effects to defendant and to pay drafts
drawn by the latter, did not violate the obligations it
assumed in the contract.
The fact that the debtor balance accepted by
Oria Hermanos & Co. on March 9, 1909, Exhibit A,
was raised to P144,473.78, is the best proof of the
good conduct observed by plaintiff during the nine
years of mercantile relations between both parties,
and is at the same time the most graphical
demonstration that defendant's contention made in its
fourth counterclaim is not based on any just or legal
grounds.
Article 1100, last paragraph of subarticle 2, of
the Civil Code prescribes: "In mutual obligations none
of the persons bound shall incur default if the other
does not fulfill or does not submit to properly fulfill
what is incumbent upon him. From the time one of
the persons obligated fulfills his obligation the default
begins for the other party." Article 1124 of the same
Code provides as follows: "The right to rescind the
obligations is considered as implied in mutual ones, in
case one of the obligated persons does not comply
with what is incumbent upon him.
"The person prejudiced may choose
between exacting the fulfillment of the
obligation or its rescission, with indemnity for
damages and payment of interest in either
case. He may also demand the rescission,
even after having requested its fulfillment,
should the latter appear impossible." Under
these grounds we hold that the absolutory
finding contained in the judgment appealed
from is in accordance with the law and the
evidence.
In the fifth counterclaim, the ninth special
defense, defendant, Oria Hermanos & Co., prayed
that Gutierrez Hermanos be sentenced to pay the
sum of P15,000, together with the legal interest-
thereon, inasmuch as plaintiff, Gutierrez Hermanos,
charged in the current account, collected and
appropriated to itself the funds which Oria Hermanos
& Co. had in plaintiff's possession and assessed
against the same compound interest at 8 per cent
and 2 per cent on the net amount of the collection
made as charterage for the steamers Serantes and
Laoang, the launches Comillas and Golondrina, and
the cutter Remedios, as commission for said
charterage, when all the steps for the collection of the
same were taken personally by Messrs. Oria & Fuster,
defendant's partners and there was no contract
whatever between the parties whereby Gutierrez
Hermanos might collect, enter into the current
account and appropriate to itself the said amount as
commission through the collection of the aforesaid
charterage.
Plaintiff's counsel merely denied the facts
alleged, which certainly were not proved at the trial.
It was, on the contrary, fully proven that Don Tomas
Oria and the managers of Oria Hermanos & Co. knew,
by reason of the accounts Gutierrez Hermanos had
been sending them, that the plaintiff firm charged the
2 per cent commission on the amount of the
charterages, for it is so recorded in the letter from
Oria addressed to Gutierrez Hermanos under date of
June 12, 1901, in which P690 appears annotated as
the amount of plaintiff's 2 per cent commission for
the charterage of the Laoang and the Serantes, and
in another letter from Oria Hermanos & Co. of
October 18, 1900, (Exhibit A-2, page 476 of the
record) wherein demand was made for vouchers and
a memorandum of the collections effected for the
charterage of these steamers, the Laoang, and the
Serantes. Furthermore, it appears in this same letter
for it is stated that credit has been given in Gutierrez
Hermanos' account for P272.50, as being the amount
this firm was entitled to receive as 2 per cent
commission on the P15,625 collected by it from the
quartermaster for the charterage of the Serantes and
for the transportation of eight passengers on the
steamer Laoang; and it is also therein stated that
Gutierrez Hermanos' account has been credited with
the sum of P24, as the amount of 2 per cent
commission on P1,200 collected for four days'
charterage of the Laoang. These documents show
that Gutierrez Hermanos has taken part in the
collection of the said charterages and, therefore, was
entitled to receive the amount agreed upon as
commission for such collection. Oria's assertion that
Gutierrez Hermanos did nothing for the collection of
the P400,000, the amount of the charterage for the
boats of Oria Hermanos & Co., is contradicted by
several letters written by Oria himself to Gutierrez
Hermanos relative to the collection of the charterages
due for the launches Golondrina and Adela, and for
this purpose he sent the proper vouchers for such
collection. Consequently there is neither reason nor
legal ground to prevent our holding as proper the
finding established by the trial court that Oria
Hermanos & Co. did, with due knowledge of the
matter, approve the amount of the commissions
collected by Gutierrez Hermanos on the sums it had
collected as charterage for the defendant's boats, in
accordance with the agreement made between the
parties, which defendant can not repudiate, nor can
its regret for the part it took therein avail it for the
reimbursement sought in its fifth counterclaim. The
finding of the trial judge in regard to the latter is,
therefore, in conformity with the law.
The object of the sixth counterclaim is to obtain
reimbursement of the sum of P31,000, the amount of
the interest charged and compounded semiannually,
instead of annually, at the rate of 8 per cent net
interest. Oria Hermanos & Co. demands this sum
from Gutierrez Hermanos, alleging that there was an
agreement between the parties to the effect that a
settlement of the interest should be made at the end
of each year, and also that the interest due and
unpaid should be capitalized annually.
The firm of Oria Hermanos & Co., Tomas Oria,
one of the partners of the same, and the defendant's
bookkeeper, a relative of the said Oria and also a
partner of the firm, had been receiving extracts or
copies of the semiannual accounts rendered by
Gutierrez Hermanos, and, after a careful examination
of the same, after offering objections thereto which
sometimes delayed Oria Hermanos & Co.'s approval
thereof for more than six months, after receiving the
explanations requested and vouchers demanded of
plaintiff, they concluded by admitting and agreeing to
the accounts rendered and the amounts involved, and
made neither objection nor protest whatever against
the system or method employed by Gutierrez
Hermanos in capitalizing at the end of each year the
interest of the semiannual accounts rendered, nor
against the interest charged on the capitalized
interest, not only in defendant's debit, but also by
reciprocation in the credit given it in the account of
the receipts obtained from the price of the hemp,
copra and other products shipped to Gutierrez
Hermanos. All the foregoing facts appear on page 18
of the transcript of the stenographic notes taken of
the hearing on July 14, 1914.
The transaction effected by Gutierrez
Hermanos in the accounts it presented to defendant,
Oria Hermanos & Co., is confirmed by some twenty
letters signed, some of them, by Oria Hermanos &
Co., others, the greater part of them, by Tomas Oria,
and still others by Mr. Fuster, a partner of the latter
firm. Therefore the semiannual capitalization made by
plaintiff, Gutierrez Hermanos, was sanctioned and
approved by defendant on the seventeen occasions
that it approved the accounts presented by plaintiff,
expressive of such capitalizations of the reciprocal
interest stipulated between the contracting parties.
Article 1109 of the Civil Code prescribes as
follows: "Interest due shall earn legal interest from
the time it is judicially demanded, even if the
obligation should have been silent on this point.
"In commercial transactions the
provisions of the Code of Commerce shall be
observed."
Article 317 of the Code of Commerce provides:
"Interest which has fallen due and has not been paid
shall not earn interest. The contracting parties may,
however, capitalize the net interest which has not
been paid, which, as new principal, shall earn
interest."

Upon the execution of the contract which was
the origin of the mercantile relations between
Gutierrez Hermanos and Oria Hermanos & Co., the
stipulations made between both parties were not set
forth in any document, they being content with a
verbal agreement in which it was stipulated that the
rate of interest of the reciprocal current account to be
kept between them should be 8 per cent, without
determining whether such interest was to fall due
annually, as affirmed by Tomas Oria, the manager of
Oria Hermanos & Co., or semiannually, as contended
by Gutierrez Hermanos. However, it is certain that in
the seventeen accounts presented by plaintiff to
defendant, at the end of each period of six months
from 1900 to December 31, 1908, embracing nearly
nine years, the interest due was liquidated every six
months in the reciprocal current account between
both firms, without opposition or protest on the part
of Oria Hermanos & Co. In the absence of a written
agreement defendant's procedure raises the
presumption that such were the stipulations verbally
made between the interested parties, and the verbal
agreement was constantly maintained and confirmed
without protest or objection whatever on the part of
the managers of Oria Hermanos & Co. If Tomas Oria,
changing his opinion, after the firm of which he is a
principal member had approved the said seventeen
accounts, believed that he was authorized to
contradict his own acts and to allege another manner
of computing and liquidating the 8 per cent interests
stipulated by stating that it should have been
collected annually, and not semiannually as was done
and approved in the seventeen accounts rendered
during a period of more than nine years, the
rectification afterwards made of an assent and
agreement repeatedly given has come too late to
undo by his repentance what he himself did in
agreement with defendant, since they were
authorized to take such action by article 317 of the
Code of Commerce. Therefore the ruling of the trial
judge absolving plaintiff of the sixth counterclaim filed
by defendant is in accordance with the law and with
the evidence as disclosed by the record.
For all the reasons hereinabove set forth as
grounds for the findings rendered in respect to the
complaint and to each one of the cross-complaints
and counterclaims presented by defendant, the errors
assigned to the judgment appealed from and not
admitted in this decision have been duly refuted.
Therefore, for the reasons assigned in this
decision, we sentence the commercial firm of Oria
Hermanos & Co. to the payment of the sum of
P147,204.28 and of the stipulated interest at the rate
of 8 per cent per annum from June 30, 1909, after
deduction of all the sums which as balances in favor
of defendant may result from the accounts to be
rendered by Gutierrez Hermanos, in conformity with
the findings made, especially in reference to the
second, third, and fourth cross-complaints.
Gutierrez Hermanos is absolved from the first
cross-complaint, and also from the second, in which
latter defendant prayed for an accounting of the
hemp and copra business. Plaintiff is likewise
absolved from the fourth cross-complaint, excepting
the part thereof relative to the petroleum, and also
from the first, second, third, fourth, fifth, and sixth
counterclaims filed by defendant.
Held:(1) That Gutierrez Hermanos, after
liquidation of the sums paid as a one-third per cent
tax on the price of the rice acquired in this city, of
that of the salt, kerosene, lime, mats, rattan, flour,
anisette, cigarettes, beer, and other articles, for which
plaintiff paid said sums and charged them to
defendant's account, must pay to Oria Hermanos &
Co. the sum disclosed by the said liquidation, in
conformity with the second cross-complaint.
(2)That Gutierrez Hermanos shall render to
defendant an account, supported by vouchers, of the
price, expenses, and all amounts paid for the
shipments of rice covered by the invoices examined
during the trial of this case, as well as the 153
invoices mentioned by the parties in the hearing of
November 29, 1910.
(3)That plaintiff shall render an account,
supported by vouchers, of all the petroleum it
acquired for Oria Hermanos & Co., the invoices of
which are mentioned in the transcript of the
stenographic notes taken at the hearing of December
28, 1910.
The judgment appealed from is affirmed in so far as it is
in accord with this decision and is reversed in so far as it
is not, without special finding as to costs.
[G.R. No. L-29640. June 10, 1971.]
GUILLERMO AUSTRIA, petitioner, vs.
THE COURT OF APPEALS (Second
Division), PACIFICO ABAD and
MARIA G. ABAD, respondents.
Antonio Enrile Inton for petitioner.
Jose A. Buendia for respondents.
SYLLABUS
1.CIVIL LAW; OBLIGATIONS; REQUISITES OF
FORTUITOUS EVENT. It is recognized in this
jurisdiction that to constitute a caso fortuito that would
exempt a person from responsibility, it is necessary that
(1) the event must be independent of the human will (or
rather, of the debtor's or obligor's); (2) the occurrence
must render it impossible for the debtor to fulfill the
obligation in a normal manner; and that (3) the obligor
must be free of participation in, or aggravation of, the
injury to the creditor. A fortuitous event, therefore, can
be produced by nature, e.g., earthquakes, storms,
floods, etc., or by the act of man, such as war, attack by
bandits, robbery, etc., provided that the event has all the
characteristics enumerated above.
2.ID.; ID.; ID.; FOR ROBBERY TO CONSTITUTE A
FORTUITOUS EVENT, IT IS NOT REQUIRED THAT THE
ACCUSED IN THE ROBBERY CASE BE FIRST
CONVICTED; REASON. The point at issue in this
proceeding is how the fact of robbery is to be established
in order that a person may avail of the exempting
provision of Article 1174 of the new Civil Code, which
reads as follows: . . It may be noted therefrom that the
emphasis of the provision is on the events, not on the
agents or factors responsible for them. To avail of the
exemption granted in the law, it is not necessary that the
persons responsible for the occurrence should be found
or punished; it would only be sufficient to establish that
the unforeseeable event, the robbery in this case, did
take place without any concurrent fault on the debtor's
part, and this can be done by preponderant evidence. To
require in the present action for recovery the prior
conviction of the culprits in the criminal case, in order to
establish the robbery as a fact, would be to demand
proof beyond reasonable doubt to prove a fact in a civil
case.
3.ID.; ID.; ID.; ID.; THE COMMISSION AGENT WHO
TRAVELED ALONE AT NIGHT 1961 IS NOT NEGLIGENT
AND NOT RESPONSIBLE FOR THE LOSS DUE TO
ROBBERY OF JEWELRY RECEIVED ON CONSIGNMENT;
IT IS OTHER WISE IN 1971; CASE AT BAR. It is
undeniable that in order to completely exonerate the
debtor for reason of a fortuitous event, such debtor
must, in addition to the casus itself, be free of any
concurrent or contributory fault or negligence. This is
apparent from Article 1170 of the Civil Code of the
Philippines, providing that: . . It is clear that under the
circumstances prevailing at present in the City of Manila
and its suburbs, with their high incidence of crimes
against persons and property, that renders travel after
nightfall a matter to be sedulously avoided without
suitable precaution and protection, the conduct of
respondent Maria G. Abad, in returning alone to her
house in the evening, carrying jewelry of considerable
value, would be negligent per se, and would not exempt
her from responsibility in the case of a robbery. We are
not persuaded, however, that the same rule should
obtain ten years previously, in 1961, when the robbery in
question did take place, for at that time criminality had
not by far reached the levels attained in the present day.
4.REMEDIAL LAW; EVIDENCE; THE RECOGNITION IN
THE CIVIL CASE FOR RECOVERY AGAINST THE
COMMISSION AGENT OF THE FACT OF ROBBERY
BEFORE CONVICTION IN THE CRIMINAL CASE FOR
ROBBERY WILL NOT PREJUDICE THE LATTER CASE,
NEITHER WILL IT RESULT IN INCONSISTENCY SHOULD
THE ACCUSED OBTAIN AN ACQUITTAL OR SHOULD THE
CRIMINAL CASE BE DISMISSED; REASON. There is
likewise no merit in petitioner's argument that to allow
the fact of robbery to be recognized in the civil case
before conviction is secured in the criminal action, would
prejudice the latter case, or would result in inconsistency
should the accused obtain an acquittal or should the
criminal case be dismissed. It must be realized that a
court finding that a robbery has happened would not
necessarily mean that those accused in the criminal
action should be found guilty of the crime; nor would a
ruling that those actually accused did not commit the
robbery be inconsistent with a finding that a robbery did
take place. The evidence to establish these facts would
not necessarily be the same.
D E C I S I O N
REYES, J.B.L., J p:
Guillermo Austria petitions for the review of the decision
rendered by the Court of Appeals (in CA-G.R. No. 33572-
R), on the sole issue of whether in a contract of
agency (consignment of goods for sale) it is
necessary that there be prior conviction for
robbery before the loss of the article shall exempt
the consignee from liability for such loss.
In a receipt dated 30 January 1961, Maria G. Abad
acknowledged having received from Guillermo Austria
one (1) pendant with diamonds valued at P4,500.00, to
be sold on commission basis or to be returned on
demand. On 1 February 1961, however while walking
home to her residence in Mandaluyong, Rizal, Abad was
said to have been accosted by two men, one of whom hit
her on the face, while the other snatched her purse
containing jewelry and cash, and ran away. Among the
pieces of jewelry allegedly taken by the robbers was the
consigned pendant. The incident became the subject of a
criminal case filed in the Court of First Instance of Rizal
against certain persons (Criminal Case No. 10649, People
vs. Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value
notwithstanding demands, Austria brought in the Court
of First Instance of Manila an action against her and her
husband for recovery of the pendant or of its value, and
damages. Answering the allegations of the complaint,
defendants spouses set up the defense that the alleged
robbery had extinguished their obligation.
After due hearing, the trial court rendered judgment for
the plaintiff, and ordered defendants spouses, jointly and
severally, to pay to the former the sum of P4,500.00,
with legal interest thereon, plus the amount of P450.00
as reasonable attorneys' fees, and the costs. It was held
that defendants failed to prove the fact of robbery, or, if
indeed it was committed, that defendant Maria Abad was
guilty of negligence when she went home without any
companion, although it was already getting dark and she
was carrying a large amount of cash and valuables on
the day in question, and such negligence did not free her
from liability for damages for the loss of the jewelry.
Not satisfied with his decision, the defendants went to
the Court of Appeals, and there secured a reversal of the
judgment. The appellate court, overruling the finding of
the trial court on the lack of credibility of the two
defense witnesses who testified on the occurrence of the
robbery, and holding that the facts of robbery and
defendant Maria Abad's possession of the pendant on
that unfortunate day have been duly established,
declared respondents not responsible for the loss of the
jewelry on account of a fortuitous event, and relieved
them from liability for damages to the owner. Plaintiff
thereupon instituted the present proceeding.
It is now contended by herein petitioner that the Court of
Appeals erred in finding that there was robbery in the
case, although nobody has been found guilty of the
supposed crime. It is petitioner's theory that for robbery
to fall under the category of a fortuitous event and
relieve the obligor from is obligation under a contract,
pursuant to Article 1174 of the new Civil Code, there
ought to be prior finding on the guilt of the persons
responsible there for. In short, that the occurrence of the
robbery should be proved by a final judgment of
conviction in the criminal case. To adopt a different view,
petitioner argues, would be to encourage persons
accountable for goods or properties received in trust or
consignment to connive with others, who would be
willing to be accused in court for the robbery, in order to
be absolved from civil liability for the lass or
disappearance of the entrusted articles.
We find no merit in the contention of petitioner.
It is recognized in this jurisdiction that to constitute a
caso fortuito that would exempt a person from
responsibility, it is necessary that (1) the event must be
independent of the human will (or rather, of the debtor's
or obligor's); (2) the occurrence must render it
impossible for the debtor to fulfill the obligation, in a
normal manner; and that (3) the obligor must be free of
participation in, or aggravation of, the injury to the
creditor. 1 A fortuitous event, therefore, can be produced
by nature, e.g., earthquakes, storms, floods, etc., or by
the act of man, such as war, attack by bandits, robbery,
2 etc., provided that the event has all the characteristics
enumerated above.
It is not here disputed that if respondent Maria Abad
were indeed the victim of robbery, and if it were really
true that the pendant, which she was obliged either to
sell on commission or to return to petitioner, were taken
during the robbery, then the occurrence of that
fortuitous event would have extinguished her liability.
The point at issue in this proceeding is how the fact of
robbery is to be established in order that a person may
avail of the exempting provision of Article 1174 of the
new Civil Code, which reads as follows:
"ART. 1174.Except in cases expressly
specified by law, or when it is otherwise
declared by stipulation, or when the nature of
the obligation requires the assumption of
risk, no person shall be responsible for those
events which could not be foreseen, or
which, though foreseen, were inevitable."
It may be noted the reform that the emphasis of the
provision is on the events, not on the agents or factors
responsible for them. To avail of the exemption granted
in the law, it is not necessary that the persons
responsible for the occurrence should be found or
punished; it would only be sufficient to establish
that the enforceable event, the robbery in this
case, did take place without any concurrent fault
on the debtor's part, and this can be done by
preponderant evidence. To require in the present
action for recovery the prior conviction of the
culprits in the criminal case, in order to establish
the robbery as a fact, would be to demand proof
beyond reasonable doubt to prove a fact in a civil
case.

It is undeniable that in order to completely exonerate the
debtor for reason of a fortuitous event, such debtor
must, in addition to the casus itself, be free of any
concurrent or contributory fault or negligence, 3 This is
apparent from Article 1170 of the Civil Code of the
Philippines, providing that:
"ART. 1170.Those who in the performance of
their obligations are guilty of fraud,
negligence, or delay, and those who in any
manner contravene the tenor thereof, are
liable for damages."
It is clear that under the circumstances prevailing at
present in the City of Manila and its suburbs, with their
high incidence of crimes against persons and property,
that renders travel after nightfall a matter to be
sedulously avoided without suitable precaution and
protection, the conduct of respondent Maria G. Abad, in
returning alone to her house in the evening, carrying
jewelry of considerable value, would be negligent per se,
and would not exempt her from responsibility in the case
of a robbery. We are not persuaded, however, that
the same rule should obtain ten years previously, in
1961, when the robbery in question did take place, for at
that time criminality had not by far reached the levels
attained in the present day.
There is likewise no merit in petitioner's argument that to
allow the fact of robbery to be recognized in the civil
case before conviction is secured in the criminal action,
would prejudice the latter case, or would result in
inconsistency should the accused obtain an acquittal or
should the criminal case be dismissed. It must be
realized that a court finding that a robbery has happened
would not necessarily mean that those accused in the
criminal action should be found guilty of the crime; nor
would a ruling that those actually accused did not
commit the robbery be inconsistent with a finding that a
robbery did take place. The evidence to establish these
facts would not necessarily be the same.
WHEREFORE, finding no error in the decision of the
Court of Appeals under review, the petition in this case is
hereby dismissed, with costs against the petitioner.
[G.R. No. 106929. September 21, 1993.]
ANITA CAOILE and ERLINDA
GATCHALIAN, petitioners, vs. THE
COURT OF APPEALS and SOLEDAD F.
DE JESUS, respondents.
Roberto Sanggalang for petitioner.
Eufracio T. Layag for private respondent.
SYLLABUS
1.REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF
THE TRIAL COURT; EXCEPTION TO THE RULE; CASE AT
BAR. Both the Court of Appeals and the private
respondents placed undue emphasis and reliance upon
the word "agent" typed below the signature of the
petitioner in the receipt in question. The trial court,
however, observed and concluded that: "It was the
defendant Caoile who prepared the receipt for
P61,000.00. According to defendant Gatchalian, she was
asked by the defendant Caoile to sign the said receipt for
P61,000.00 as a witness thereof. Defendant Gatchalian
did not sign any other receipts." There is as well no
evidence to show that it was Gatchalian who received
the P61,000.00. That Soledad did not include Gatchalian
as a co-respondent of Anita in the estafa case and did
not demand reimbursement from Gatchalian before filing
Civil Case No. 86-36543 are strong indications that the
latter never received anything on account of the subject
transaction. More importantly, it was established that on
21 March 1986, Anita Caoile executed and issued to
Soledad de Jesus a sworn consolidated receipt. Said
receipt includes the P61,000.00 indicated in Exhibit "A-
1." This is an admission by Anita that the total purchase
price of P120,000.00 was in fact received by her alone.
As correctly found by the trial court, no conspiracy
among Caoile, Domingo and Gatchalian was proven by
Soledad de Jesus. We are thus unable to find any valid
basis for holding Gatchalian solidarily liable with Anita
Caoile in the amount of P61,000.00. The public
respondent's ruling in this regard is unsupported by the
evidence. It either overlooked or misapprehended some
material facts established in evidence or drew incorrect
inferences therefrom. Hence, there is every reason for us
to depart from the general rule that the findings of fact
of the Court of Appeals are binding upon us. (Remalante
vs. Tibe, 158 SCRA 138 [1988]; Cruz vs. Court of
Appeals, 201 SCRA 495 [1991]; Borillo vs. Court of
Appeals, 209 SCRA 130 [1992].
D E C I S I O N
DAVIDE, JR., J p:
Petitioner Erlinda Gatchalian ** seeks to set aside the
Decision of the Court of Appeals in CA-G.R. CV No.
26439 1 which modified the Decision of Branch 53 of the
Regional Trial Court of Manila in Civil Case No. 86-36543
2 by holding her "jointly and severally liable with Anita
Caoile to the appellants in the sum of P61,000.00 with its
interest of 12% per annum from the date of the filing of
the complaint until full payment."
The facts of the case as found by the trial court and
adopted by the public respondent are as follows:
Sometime in January 1986, Soledad de Jesus met Erlinda
Domingo (hereinafter Domingo), a resident of Sterling
Life Homes, Las Pias, Metro Manila. Soledad de Jesus
intimated to Domingo that she was interested in buying a
residential lot. Upon reaching home, Domingo got in
touch with her "kumadre," Erlinda Gatchalian
(hereinafter Gatchalian), also a resident of Sterling Life
Homes, and informed her of Soledad de Jesus' desire to
buy a residential lot. Gatchalian told Domingo that she
knew of a lot for sale in the subdivision. A Caridad
Tameta also informed Soledad about the said lot.
Soledad, together with Tess Tameta (sister of Caridad),
Domingo and Gatchalian, inspected the lot, which was
identified as Lot No. 5, Block 8 of the subdivision. She
decided to buy it.
Thereafter, accompanied by Domingo and Gatchalian,
Soledad went to the office of Sterling Life Assurance
Corporation, the developer of Sterling Life Homes
Subdivision, at the Sterling Life Condominium, Legaspi
Village, Makati, Metro Manila. Soledad was introduced to
Anita Caoile, Chief Accountant and Assistant Vice-
President of Sterling Life Assurance Corporation. Anita
assured Soledad that the lot was for sale and gave the
latter a photocopy of the certificate of title over the lot
(TCT No. S-16655) in the name of the corporation. The
lot has an area of two hundred forty (240) square
meters. Anita required Soledad to pay P10,000.00 as a
deposit for the lot on 3 February 1986, which the latter
paid as evidenced by a receipt signed by Anita Caoile as
"agent." 3 The total agreed price for the lot was
P120,000.00 or P500.00 per square meter. 4 Soledad
verified the status of the property from the Register of
Deeds of Makati and was informed that the lot was not
mortgaged and was still in the name of the Sterling Life
Assurance Corporation. On 5 February 1986, Soledad
paid a second installment in the amount of P61,000.00 to
Anita Caoile at the office, a receipt for which was signed
by Anita as "agent" and by Gatchalian, also as "agent." 5
On 18 March 1986, Soledad paid another installment in
the amount of P39,000.00 to Anita Caoile when the latter
went alone to the former's house. Anita issued a receipt
therefor. 6 Soledad paid the balance of P10,000.00 to
Anita Caoile on 21 March 1986 and the latter issued a
consolidated receipt, under oath, in the total sum of
P120,000.00 "as full payment of Lot 5, Block 8, Sterling
Life Homes Subdivision, Pamplona, Las Pias." 7
After she had fully paid the price of the lot, Soledad de
Jesus demanded from Anita Caoile the delivery of the
corresponding Deed of Sale and the Transfer Certificate
of Title but the latter could not comply. Soledad then
discovered upon inquiry from Alberto N. Villareal, Vice-
President of Sterling Life Assurance Corporation, that
Anita was not authorized to sell the lot, that Lot No. 5
was sold to one Ruben Rodis under a Memorandum of
Agreement dated 29 December 1977 and a Contract to
Sell, that Anita was forced to resign from Sterling Life
Assurance Corporation because of the anomalies she
committed in the corporation, and that she had not been
reporting for work since May 1986. Soledad thus filed a
complaint for a sum of money against Caoile, Domingo,
Gatchalian and Sterling Life Assurance Corporation with
the Regional Trial Court of Manila, which was docketed
as Civil Case No. 86-36543 and raffled off to Branch 53
of the said court. 8
In due course, the trial court rendered a judgment on 12
January 1990 against defendant Anita Caoile only. The
dispositive portion thereof reads:
"WHEREFORE, judgment is hereby rendered
in favor of the plaintiff and against defendant
Anita Caoile, ordering the latter to pay the
plaintiff the amount of P120,000.00, plus
interest thereon at the rate of twelve (12%)
percent per annum from the date of the filing
of the complaint until the same is fully paid;
attorney's fees equivalent to twenty percent
(20%) of the amount due, plus costs of suit.
Plaintiffs' complaint with respect to the other
defendants Erlinda Gatchalian, Erlinda
Domingo and Sterling Life Assurance
Corporation are hereby dismissed for lack of
sufficient evidence.
The respective counterclaims filed by the
defendants Erlinda Gatchalian and Erlinda
Domingo, and the defendant Sterling Life
Assurance Corporation, are likewise
dismissed." 9
In dismissing the complaint against Domingo and
Gatchalian, the trial court made the following findings:
"The Court does not also find sufficient
evidence to hold defendants Erlinda Domingo
and Erlinda Gatchalian liable to the plaintiff
for the transaction involved herein. It does
not appear that Domingo and Gatchalian
knew that the said lot was no longer
available for sale . . . at the time they tried to
help the plaintiff buy the lot from the
defendant Sterling Life Assurance
Corporation. While it is true that defendant
Gatchalian co-signed with defendant Caoile
the receipt, dated February 5, 1986, for
P61,000.00 (Exh. A-1; Exh. 2-A), there is no
evidence to show that she received a
commission and how much, if any, from the
defendant Caoile who acknowledged having
received the total amount of P120,000.00
from the plaintiff shows that she actually
received the said amount, and must take full
responsibility therefore. As a matter of fact,
when the plaintiff testified on cross-
examination on August 6, 1987, in answer to
questions prop[o]unded by counsel for
defendants Domingo and Gatchalian, she
stated that defendant Domingo did not
receive any amount from her, and that she
does not know if defendants Domingo and
Gatchalian had any commission from
defendant Caoile. The defendants Domingo
and Gatchalian are actually lot owners in the
Sterling Life Homes Subdivision and were
trying to help the plaintiff purchase the lot in
question from the defendant Sterling Life
Assurance Corporation.
The defendant Gatchalian is a mere third
grader. It was the defendant Caoile who
prepared the receipt for P61,000.00.
According to defendant Gatchalian, she was
asked by the defendant Caoile to sign the
said receipt for P61,000.00 as a witness
thereof. Defendant Gatchalian did not sign
any other receipts (See: Exhs. A, A-2, A-3,
and B). It would not also be amiss to state
that while the plaintiff filed a complaint for
Estafa against the defendant Anita Caoile y
Sison, she did not include the two (2) other
defendants Domingo and Gatchalian, and
that an Information for Estafa, dated June
16, 1986, was filed only against the
defendant Caoile in Criminal Case No. 86-
45988 of the Regional Trial Court of Manila
(Exh. E). Why? Evidently, the plaintiff herself
was not convinced that defendants Domingo
and Gatchalian conspired with the defendant
Caoile.
The evidence also shows that the plaintiff
never asked for reimbursement of any
amount from the defendants Domingo and
Gatchalian before filing this case, unlike in
the case of defendant Caoile whom [s]he
asked to reimburse the said amount of
P120,000.00 when the latter could not deliver
the corresponding Deed of Sale in her favor,
as well as the aforementioned Transfer
Certificate of Title No. S-16655." 10

Not satisfied with the decision of the trial court, Soledad
de Jesus appealed to the Court of Appeals on the lone
issue of whether or not defendants Domingo,
Gatchalian and Sterling Life Assurance
Corporation are jointly and severally liable with
Anita Caoile for the sum of P120,000.00. The
appeal was docketed as CA-G.R. CV No. 26439. As
adverted to in the beginning, the Court of Appeals, in its
Decision of 10 June 1992, 11 modified the appealed
decision by holding Gatchalian jointly and severally liable
with Anita Caoile in the amount of P61,000.00. The
dispositive portion of the decision reads:
"PREMISES CONSIDERED, the appealed
decision is AFFIRMED but with the
modification consisting of declaring Erlinda
[sic] Gatchalian jointly and severally liable
with Anita Caoile to the appellants in the sum
of P61,000.00 with its interest of 12% per
annum from the date of the filing of the
complaint until full payment."
The reason for the said modification is stated by the
Court of Appeals thus:
"We note that Erlinda Gatchalian must be
held accountable for at least a part of the
money paid by appellants. A receipt, Exh. A,
A-1; Exh. 4, 4-A, and dated February 5,
1986, reads:
'Received from Mrs. Soledad F.
de Jesus of 1811 G. Rivera St.,
Kahilom, Pandacan, Manila, the sum of
SIXTY ONE THOUSAND PESOS only as
partial payment on Block 8, Lot 5 of
Sterling Life Homes Subdivision in
Pamplona, Las Pias.
Received
by:(Sgd.)
Anita S.
Caoile
Agentand
(Sgd.)
Erlinda
Gatchalian Ag
ent'" 12
In her motion for reconsideration, Gatchalian alleged that
there was a misapprehension of facts on the part of the
Court of Appeals because there is no evidence that she
received a commission or any amount from Soledad de
Jesus or from Anita Caoile, for which reason the trial
court did not hold her liable.
On 3 September 1992, the Court of Appeals denied the
motion for reconsideration in this wise:
"The premise for the finding of liability was
not that Gatchalian 'actually received a
commission . . .' The receipt, EXH. A dated
February 5, 1986 clearly indicates that
Gatchalian received jointly with Caoile, the
sum of P61,000.00 from appellant (Decision,
p. 10). Regardless of whether a commission
was paid, there is no escaping the conclusion
derived from the receipt, and admitted by
Gatchalian, that she received the amount of
P61,000.00. With this as premise, it was
incumbent on Gatchalian to explain the
disposition of the money, a burden which she
failed to discharge." 13
Gatchalian then filed this petition on 24 October 1992
after obtaining an extension of time within which to do
so. We resolved to give due course to the petition after
the private respondents had filed the required comment.
The only issue of importance in this case is whether on
the sole basis of the receipt for P61,000.00, which
she signed as "agent" with Anita Caoile, the
petitioner became solidarily liable with Anita. The
petitioner maintains that she could not be liable
thereon for the reasons explicitly stated by the trial
court. Private respondents, on the other hand, urge us to
uphold the judgment of the Court of Appeals.
We find the petition to be meritorious.
Both the Court of Appeals and the private respondents
placed undue emphasis and reliance upon the word
"agent" typed below the signature of the petitioner in the
receipt in question. The trial court, however, observed
and concluded that:
"It was the defendant Caoile who prepared
the receipt for P61,000.00. According to
defendant Gatchalian, she was asked by the
defendant Caoile to sign the said receipt for
P61,000.00 as a witness thereof. Defendant
Gatchalian did not sign any other receipts."
14
There is as well no evidence to show that it was
Gatchalian who received the P61,000.00. That Soledad
did not include Gatchalian as a co-respondent of Anita in
the estafa case and did not demand reimbursement from
Gatchalian before filing Civil Case No. 86-36543 are
strong indications that the latter never received anything
on account of the subject transaction.
More importantly, it was established that on 21 March
1986, Anita Caoile executed and issued to Soledad de
Jesus a sworn consolidated receipt. 15 Said receipt
includes the P61,000.00 indicated in Exhibit "A-1." This is
an admission by Anita that the total purchase price of
P120,000.00 was in fact received by her alone. As
correctly found by the trial court, no conspiracy among
Caoile, Domingo and Gatchalian was proven by Soledad
de Jesus. We are thus unable to find any valid basis for
holding Gatchalian solidarily liable with Anita Caoile in
the amount of P61,000.00. The public respondent's
ruling in this regard is unsupported by the evidence. It
either overlooked or misapprehended some material
facts established in evidence or drew incorrect inferences
therefrom. Hence, there is every reason for us to depart
from the general rule that the findings of fact of the
Court of Appeals are binding upon us. 16
WHEREFORE, the instant petition is GRANTED. The
decision appealed from is SET ASIDE and the decision of
Branch 53 of the Regional Trial Court of Manila in Civil
Case No. 86-36543 is REINSTATED.
Costs against the private respondents.
SO ORDERED.
[G.R. No. 143978. December 3, 2002.]
MANUEL B. TAN, GREGG M. TECSON
and ALEXANDER SALDAA, petitioners,
vs. EDUARDO R. GULLAS and NORMA
S. GULLAS, respondents.
Yulando L. Ursal for petitioners.
Francisco M. Malilong, Jr. for private respondents.
SYNOPSIS
Private respondents spouses Eduardo R. Gullas and
Norma S. Gullas executed a special power of attorney
authorizing petitioners Manuel B. Tan and his associates
Gregg M. Tecson and Alexandra Saldea to negotiate for
the sale of their land located in Minglanilla, Cebu.
Subsequently, Tan introduced to Eduardo Gullas the
representatives of the Sisters of Mary of Banneaux, Inc.,
a religious organization interested in acquiring the said
property at a reduced selling price of P530.00 per square
meter. On July 3, 1992, spouses Gullas agreed to sell the
property to the Sisters of Mary. In the afternoon of the
said date, petitioners went to see Eduardo Gullas to
claim their commission, however, he told them that he
and his wife agreed to sell the property to the Sisters of
Mary, hence, refused to pay their broker's fee. On July
17, 1992, the sale was consummated. Accordingly,
petitioners filed a complaint against private respondents
for recovery of their broker's fee. In their answer, private
respondents countered that another broker, Roberto
Pacana, introduced the property to the Sisters of Mary
ahead of the petitioners. After trial, the court a quo
rendered judgment in favor of petitioner. Both parties
appealed. The Court of Appeals reversed and set aside
the lower court's decision. Hence, this petition. AcHSEa
The petition was granted. It is readily apparent that
private respondents were trying to evade payment of the
commission which rightfully belong to petitioners as
brokers with respect to the sale. There was no dispute as
to the role that petitioners played in the transaction. At
the very least, petitioners set the sale in motion. They
were not able to participate in its consummation only
because they were prevented from doing so by the acts
of the private respondents. Clearly, therefore,
petitioners, as brokers, should be entitled to the
commission whether or not the sale of the property
subject matter of the contract was concluded through
their efforts. However, the actual purchase price for
which the land was sold was only P200.00 per square
meter. Therefore, equity considerations dictate that
petitioners' commission must be based on this price. To
rule otherwise would constitute unjust enrichment on the
part of petitioners as brokers.
SYLLABUS
1.CIVIL LAW; CONTRACTS; AGENCY; BROKER;
DEFINED. In Schmid and Oberly v. RJL Martinez
Fishing Corporation, we defined a "broker" as "one who
is engaged, for others, on a commission, negotiating
contracts relative to property with the custody of which
he has no concern; the negotiator between other parties,
never acting in his own name but in the name of those
who employed him. . . . a broker is one whose
occupation is to bring the parties together, in matters of
trade, commerce or navigation."
2.ID.; ID.; ID.; NON-EXCLUSIVITY OF THE AUTHORITY
TO SELL IS NOT ILLEGAL PER SE. During the trial, it
was established that petitioners, as brokers, were
authorized by private respondents to negotiate for the
sale of their land within a period of one month reckoned
from June 29, 1992. The authority given to petitioners
was non-exclusive, which meant that private respondents
were not precluded from granting the same authority to
other agents with respect to the sale of the same
property. In fact, private respondent authorized another
agent in the person of Mr. Bobby Pacana to sell the same
property. There was nothing illegal or amiss in this
arrangement, per se, considering the non-exclusivity of
petitioners' authority to sell. The problem arose when it
eventually turned out that these agents were
entertaining one and the same buyer, the Sisters of
Mary.
3.ID.; ID.; ID.; AGENT RECEIVES COMMISSION UPON
THE SUCCESSFUL CONCLUSION OF SALE. It is readily
apparent that private respondents are trying to evade
payment of the commission which rightfully belong to
petitioners as brokers with respect to the sale. There was
no dispute as to the role that petitioners played in the
transaction. At the very least, petitioners set the sale in
motion. They were not able to participate in its
consummation only because they were prevented from
doing so by the acts of the private respondents. In the
case of Alfred Hahn v. Court of Appeals and Bayerische
Motoren Werke Aktiengesellschaft (BMW) we ruled that,
"An agent receives a commission upon the successful
conclusion of a sale. On the other hand, a broker earns
his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made." Clearly,
therefore, petitioners, as brokers, should be entitled to
the commission whether or not the sale of the property
subject matter of the contract was concluded through
their efforts.
4.ID.; ID.; ID.; ID.; APPLIED IN CASE AT BAR. As
correctly observed by the trial court, the argument of the
private respondents that Pacana was the one entitled to
the stipulated 3% commission is untenable, considering
that it was the petitioners who were responsible for the
introduction of the representatives of the Sisters of Mary
to private respondent Eduardo Gullas. Private
respondents, however, maintain that they were not
aware that their respective agents were negotiating to
sell said property to the same buyer. Private respondents
failed to prove their contention that Pacana began
negotiations with private respondent Norma Gullas way
ahead of petitioners. They failed to present witnesses to
substantiate this claim. It is curious that Mrs. Gullas
herself was not presented in court to testify about her
dealings with Pacana. Neither was Atty. Nachura who
was supposedly the one actively negotiating on behalf of
the Sisters of Mary, ever presented in court.
5.ID.; ID.; ID.; INCONSISTENT WITH SOUND BUSINESS
PRACTICE THAT THE AUTHORITY TO SELL IS
CONTAINED IN AN UNDATED AND UNNOTARIZED
SPECIAL POWER OF ATTORNEY. Private respondents'
contention that Pacana was the one responsible for the
sale of the land is also unsubstantiated. There was
nothing on record which established the existence of a
previous negotiation among Pacana, Mrs. Gullas and the
Sisters of Mary. The only piece of evidence that the
private respondents were able to present is an undated
and unnotarized Special Power of Attorney in favor of
Pacana. While the lack of a date and an oath do not
necessarily render said Special Power of Attorney invalid,
it should be borne in mind that the contract involves a
considerable amount of money. Hence, it is inconsistent
with sound business practice that the authority to sell is
contained in an undated and unnotarized Special Power
of Attorney. Petitioners, on the other hand, were given
the written authority to sell by the private respondents.
6.ID.; ID.; ID.; ACTUAL PURCHASE PRICE MUST BE THE
BASIS OF THE PETITIONER'S COMMISSION. Following
the stipulation in the Special Power of Attorney,
petitioners are entitled to 3% commission for the sale of
the land in question. Petitioners maintain that their
commission should be based on the price at which the
land was offered for sale, i.e., P530.00 per square meter.
However, the actual purchase price for which the land
was sold was only P200.00 per square meter. Therefore,
equity considerations dictate that petitioners' commission
must be based on this price. To rule otherwise would
constitute unjust enrichment on the part of petitioners as
brokers.
7.REMEDIAL LAW; EVIDENCE; CREDIBILITY OF
WITNESSES; TRIAL COURT'S EVALUATION IS
ACCORDED GREAT RESPECT AND FINALITY ON APPEAL.
The trial court's evaluation of the witnesses is
accorded great respect and finality in the absence of any
indication that it overlooked certain facts or
circumstances of weight and influence, which if
reconsidered, would alter the result of the case. EHaCID
D E C I S I O N
YNARES-SANTIAGO, J p:
This is a petition for review seeking to set aside the
decision 1 of the Court of Appeals 2 in CA-G.R. CV No.
46539, which reversed and set aside the decision 3 of the
Regional Trial Court of Cebu City, Branch 22 in Civil Case
No. CEB-12740. HaSEcA
The records show that private respondents, Spouses
Eduardo R. Gullas and Norma S. Gullas, were the
registered owners of a parcel of land in the Municipality
of Minglanilla, Province of Cebu, measuring 104,114 sq.
m., with Transfer Certificate of Title No. 31465. 4 On
June 29, 1992, they executed a special power of attorney
5 authorizing petitioners Manuel B. Tan, a licensed real
estate broker, 6 and his associates Gregg M. Tecson and
Alexander Saldaa, to negotiate for the sale of the land
at Five Hundred Fifty Pesos (P550.00) per square meter,
at a commission of 3% of the gross price. The power of
attorney was non-exclusive and effective for one
month from June 29, 1992. 7
On the same date, petitioner Tan contacted Engineer
Edsel Ledesma, construction manager of the Sisters of
Mary of Banneaux, Inc. (hereafter, Sisters of Mary), a
religious organization interested in acquiring a property
in the Minglanilla area.
In the morning of July 1, 1992, petitioner Tan visited the
property with Engineer Ledesma. Thereafter, the two
men accompanied Sisters Michaela Kim and Azucena
Gaviola, representing the Sisters of Mary, to see private
respondent Eduardo Gullas in his office at the University
of Visayas. The Sisters, who had already seen and
inspected the land, found the same suitable for their
purpose and expressed their desire to buy it. 8 However,
they requested that the selling price be reduced to Five
Hundred Thirty Pesos (P530.00) per square meter
instead of Five Hundred Fifty Pesos (P550.00) per square
meter. Private respondent Eduardo Gullas referred the
prospective buyers to his wife.
It was the first time that the buyers came to know that
private respondent Eduardo Gullas was the owner of the
property. On July 3, 1992, private respondents agreed to
sell the property to the Sisters of Mary, and subsequently
executed a special power of attorney 9 in favor of
Eufemia Caete, giving her the special authority to sell,
transfer and convey the land at a fixed price of Two
Hundred Pesos (P200.00) per square meter.

On July 17, 1992, attorney-in-fact Eufemia Caete
executed a deed of sale in favor of the Sisters of Mary
for the price of Twenty Million Eight Hundred Twenty
Two Thousand Eight Hundred Pesos (P20,822.800.00),
or at the rate of Two Hundred Pesos (P200.00) per
square meter. 10 The buyers subsequently paid the
corresponding taxes. 11 Thereafter, the Register of Deeds
of Cebu Province issued TCT No. 75981 in the name of
the Sisters of Mary of Banneaux, Inc. 12
Earlier, on July 3, 1992, in the afternoon, petitioners
went to see private respondent Eduardo Gullas to claim
their commission, but the latter told them that he and his
wife have already agreed to sell the property to the
Sisters of Mary. Private respondents refused to pay the
broker's fee and alleged that another group of agents
was responsible for the sale of land to the Sisters of
Mary.
On August 28, 1992, petitioners filed a complaint 13
against the defendants for recovery of their broker's fee
in the sum of One Million Six Hundred Fifty Five
Thousand Four Hundred Twelve and 60/100 Pesos
(P1,655,412.60), as well as moral and exemplary
damages and attorney's fees. They alleged that they
were the efficient procuring cause in bringing about the
sale of the property to the Sisters of Mary, but that their
efforts in consummating the sale were frustrated by the
private respondents who, in evident bad faith, malice
and in order to evade payment of broker's fee, dealt
directly with the buyer whom petitioners introduced to
them. They further pointed out that the deed of sale was
undervalued; obviously to evade payment of the correct
amount of capital gains tax, documentary stamps and
other internal revenue taxes.
In their answer, private respondents countered that,
contrary to petitioners' claim, they were not the efficient
procuring cause in bringing about the consummation of
the sale because another broker, Roberto Pacana,
introduced the property to the Sisters of Mary ahead of
the petitioners. 14 Private respondents maintained that
when petitioners introduced the buyers to private
respondent Eduardo Gullas, the former were already
decided in buying the property through Pacana, who had
been paid his commission. Private respondent Eduardo
Gullas admitted that petitioners were in his office on July
3, 1992, but only to ask for the reimbursement of their
cellular phone expenses.
In their reply and answer to counterclaim, 15 petitioners
alleged that although the Sisters of Mary knew that the
subject land was for sale through various agents, it was
petitioners who introduced them to the owners thereof.
After trial, the lower court rendered judgment in favor of
petitioners, the dispositive portion of which reads:
WHEREFORE, UPON THE AEGIS OF THE
FOREGOING, judgment is hereby rendered
for the plaintiffs and against the defendants.
By virtue hereof, defendants Eduardo and
Norma Gullas are hereby ordered to pay
jointly and severally plaintiffs Manuel Tan,
Gregg Tecson and Alexander Saldaa;
1)The sum of SIX HUNDRED TWENTY
FOUR THOUSAND AND SIX HUNDRED
EIGHTY FOUR PESOS (P624,684.00)
as broker's fee with legal interest at
the rate of 6% per annum from the
date of filing of the complaint; and
2)The sum of FIFTY THOUSAND
PESOS (P50,000.00) as attorney's fees
and costs of litigation.
For lack of merit, defendants' counterclaim is
hereby DISMISSED.
IT IS SO ORDERED. 16
Both parties appealed to the Court of Appeals. Private
respondents argued that the lower court committed
errors of fact and law in holding that it was petitioners'
efforts which brought about the sale of the property and
disregarding the previous negotiations between private
respondent Norma Gullas and the Sisters of Mary and
Pacana. They further alleged that the lower court had no
basis for awarding broker's fee, attorney's fees and the
costs of litigation to petitioners. 17
Petitioners, for their part, assailed the lower court's basis
of the award of broker's fee given to them. They
contended that their 3% commission for the sale of the
property should be based on the price of
P55,180,420.00, or at P530.00 per square meter as
agreed upon and not on the alleged actual selling price
of P20,822,800.00 or at P200.00 per square meter, since
the actual purchase price was undervalued for taxation
purposes. They also claimed that the lower court erred in
not awarding moral and exemplary damages in spite of
its finding of bad faith; and that the amount of
P50,000.00 as attorney's fees awarded to them is
insufficient. Finally, petitioners argued that the legal
interest imposed on their claim should have been pegged
at 12% per annum instead of the 6% fixed by the court.
18
The Court of Appeals reversed and set aside the lower
court's decision and rendered another judgment
dismissing the complaint. 19
Hence, this appeal.
Petitioners raise following issues for resolution:
I.
THE APPELLATE COURT GROSSLY ERRED IN
THEIR FINDING THAT THE PETITIONERS
ARE NOT ENTITLED TO THE BROKERAGE
COMMISSION.
II.
IN DISMISSING THE COMPLAINT, THE
APPELLATE COURT HAS DEPRIVED THE
PETITIONERS OF MORAL AND EXEMPLARY
DAMAGES, ATTORNEYS' FEES AND
INTEREST IN THE FORBEARANCE OF
MONEY.
The petition is impressed with merit.
The records show that petitioner Manuel B. Tan is a
licensed real estate broker, and petitioners Gregg M.
Tecson and Alexander Saldaa are his associates. In
Schmid and Oberly v. RJL Martinez Fishing Corporation,
20 we defined a "broker" as "one who is engaged, for
others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern;
the negotiator between other parties, never acting in his
own name but in the name of those who employed him.
. . . a broker is one whose occupation is to bring the
parties together, in matters of trade, commerce or
navigation." (Italics supplied)
During the trial, it was established that petitioners, as
brokers, were authorized by private respondents to
negotiate for the sale of their land within a period of one
month reckoned from June 29, 1992. The authority given
to petitioners was non-exclusive, which meant that
private respondents were not precluded from granting
the same authority to other agents with respect to the
sale of the same property. In fact, private respondent
authorized another agent in the person of Mr. Bobby
Pacana to sell the same property. There was nothing
illegal or amiss in this arrangement, per se, considering
the non-exclusivity of petitioners' authority to sell. The
problem arose when it eventually turned out that these
agents were entertaining one and the same buyer, the
Sisters of Mary.
As correctly observed by the trial court, the argument of
the private respondents that Pacana was the one entitled
to the stipulated 3% commission is untenable,
considering that it was the petitioners who were
responsible for the introduction of the representatives of
the Sisters of Mary to private respondent Eduardo Gullas.
Private respondents, however, maintain that they were
not aware that their respective agents were negotiating
to sell said property to the same buyer.
Private respondents failed to prove their contention that
Pacana began negotiations with private respondent
Norma Gullas way ahead of petitioners. They failed to
present witnesses to substantiate this claim. It is curious
that Mrs. Gullas herself was not presented in court to
testify about her dealings with Pacana. Neither was Atty.
Nachura who was supposedly the one actively
negotiating on behalf of the Sisters of Mary, ever
presented in court.
Private respondents' contention that Pacana was the one
responsible for the sale of the land is also
unsubstantiated. There was nothing on record which
established the existence of a previous negotiation
among Pacana, Mrs. Gullas and the Sisters of Mary. The
only piece of evidence that the private respondents were
able to present is an undated and unnotarized
Special Power of Attorney in favor of Pacana.
While the lack of a date and an oath do not
necessarily render said Special Power of Attorney
invalid, it should be borne in mind that the
contract involves a considerable amount of
money. Hence, it is inconsistent with sound
business practice that the authority to sell is
contained in an undated and unnotarized Special
Power of Attorney. Petitioners, on the other hand,
were given the written authority to sell by the
private respondents.
The trial court's evaluation of the witnesses is accorded
great respect and finality in the absence of any indication
that it overlooked certain facts or circumstances of
weight and influence, which if reconsidered, would alter
the result of the case. 21
Indeed, it is readily apparent that private respondents
are trying to evade payment of the commission which
rightfully belong to petitioners as brokers with respect to
the sale. There was no dispute as to the role that
petitioners played in the transaction. At the very least,
petitioners set the sale in motion. They were not able to
participate in its consummation only because they were
prevented from doing so by the acts of the private
respondents. In the case of Alfred Hahn v. Court of
Appeals and Bayerische Motoren Werke
Aktiengesellschaft (BMW) 22 we ruled that, "An agent
receives a commission upon the successful conclusion of
a sale. On the other hand, a broker earns his pay merely
by bringing the buyer and the seller together, even if no
sale is eventually made." (Italics supplied). Clearly,
therefore, petitioners, as brokers, should be entitled to
the commission whether or not the sale of the property
subject matter of the contract was concluded through
their efforts.
Having ruled that petitioners are entitled to the brokers'
commission, we should now resolve how much
commission are petitioners entitled to?
Following the stipulation in the Special Power of
Attorney, petitioners are entitled to 3% commission for
the sale of the land in question. Petitioners maintain that
their commission should be based on the price at which
the land was offered for sale, i.e., P530.00 per square
meter. However, the actual purchase price for which the
land was sold was only P200.00 per square meter.
Therefore, equity considerations dictate that petitioners'
commission must be based on this price. To rule
otherwise would constitute unjust enrichment on the part
of petitioners as brokers.

In the matter of attorney's fees and expenses of
litigation, we affirm the amount of P50,000.00 awarded
by the trial court to the petitioners.
WHEREFORE, in view of the foregoing, the petition is
GRANTED. The May 29, 2000 decision of the Court of
Appeals is REVERSED and SET ASIDE. The decision of
the Regional Trial Court of Cebu City, Branch 22, in Civil
Case No. CEB-12740 ordering private respondents
Eduardo Gullas and Norma S. Gullas to pay jointly and
severally petitioners Manuel B. Tan, Gregg Tecson and
Alexander Saldaa the sum of Six Hundred Twenty-Four
Thousand and Six Hundred Eighty-Four Pesos
(P624,684.00) as broker's fee with legal interest at the
rate of 6% per annum from the filing of the complaint;
and the sum of Fifty Thousand Pesos (P50,000.00) as
attorney's fees and costs of litigation, is REINSTATED.
SO ORDERED.