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G.R. No.

121824 January 29, 1998


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

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

The material and relevant facts are as follows:
On April 16, 1989, MAHTANI decided to visit his relatives in Bombay, India. In
anticipation of his visit, he obtained the services of a certain Mr. Gumar to prepare his
travel plans. The latter, in turn, purchased a ticket from BA where the following
itinerary was indicated:
3

CARRIER FLIGHT DATE TIME STATUS
MANILA MNL PR 310 Y 16 APR. 1730 OK
HONGKONG HKG BA 20 M 16 APR. 2100 OK
BOMBAY BOM BA 19 M 23 APR. 0840 OK
HONGKONG HKG PR 311 Y
MANILA MNL
Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to
Hongkong via PAL, and upon arrival in Hongkong he had to take a connecting flight to
Bombay on board BA.
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two
pieces of luggage containing his clothings and personal effects, confident that upon
reaching Hongkong, the same would be transferred to the BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was
missing and that upon inquiry from the BA representatives, he was told that the same
might have been diverted to London. After patiently waiting for his luggage for one
week, BA finally advised him to file a claim by accomplishing the "Property Irregularity
Report."
4

Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint
for damages and attorney's fees
5
against BA and Mr. Gumar before the trial court,
docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim
6
to the complaint
raising, as special and affirmative defenses, that Mahtani did not have a cause of
action against it. Likewise, on November 9, 1990, BA filed a third-party
complaint
7
against PAL alleging that the reason for the non-transfer of the luggage
was due to the latter's late arrival in Hongkong, thus leaving hardly any time for the
proper transfer of Mahtani's luggage to the BA aircraft bound for Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it
disclaimed any liability, arguing that there was, in fact, adequate time to transfer the
luggage to BA facilities in Hongkong. Furthermore, the transfer of the luggage to
Hongkong authorities should be considered as transfer to BA.
8

After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its
decision in favor of Mahtani,
9
the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is rendered for the plaintiff and
against the defendant for which defendant is ordered to pay plaintiff the sum of
Seven Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; Four
Hundred U.S. ($400.00) Dollars representing the value of the contents of
plaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual
damages and twenty percent (20%) of the total amount imposed against the
defendant for attorney's fees and costs of this action.
The Third-Party Complaint against third-party defendant Philippine Airlines is
DISMISSED for lack of cause of action.
SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the
trial court's findings. Thus:
WHEREFORE, in view of all the foregoing considerations, finding the Decision
appealed from to be in accordance with law and evidence, the same is hereby
AFFIRMED in toto, with costs against defendant-appellant.
SO ORDERED.
10

BA is now before us seeking the reversal of the Court of Appeals' decision.
In essence, BA assails the award of compensatory damages and attorney's fees,
as well as the dismissal of its third-party complaint against PAL.
11

Regarding the first assigned issue, BA asserts that the award of compensatory
damages in the separate sum of P7,000.00 for the loss of Mahtani's two pieces of
luggage was without basis since Mahtani in his complaint
12
stated the following as the
value of his personal belongings:
8. On the said travel, plaintiff took with him the following items and its
corresponding value, to wit:
1. personal belonging P10,000.00
2. gifts for his parents and relatives $5,000.00
Moreover, he failed to declare a higher valuation with respect to his luggage, a
condition provided for in the ticket, which reads:
13

Liability for loss, delay, or damage to baggage is limited unless a higher value is
declared in advance and additional charges are paid:
1. For most international travel (including domestic corporations of international
journeys) the liability limit is approximately U.S. $9.07 per pound (U.S. $20.000)
per kilo for checked baggage and U.S. $400 per passenger for unchecked
baggage.
Before we resolve the issues raised by BA, it is needful to state that the nature of an
airline's contract of carriage partakes of two types, namely: a contract to deliver a
cargo or merchandise to its destination and a contract to transport passengers to their
destination. A business intended to serve the traveling public primarily, it is imbued with
public interest, hence, the law governing common carriers imposes an exacting
standard.
14
Neglect or malfeasance by the carrier's employees could predictably furnish
bases for an action for damages.
15

In the instant case, it is apparent that the contract of carriage was between
Mahtani and BA. Moreover, it is indubitable that his luggage never arrived in Bombay
on time. Therefore, as in a number of cases
16
we have assessed the airlines' culpability
in the form of damages for breach of contract involving misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is
vital that the claimant satisfactorily prove during the trial the existence of the factual
basis of the damages and its causal connection to defendant's acts.
17

In this regard, the trial court granted the following award as compensatory damages:
Since plaintiff did not declare the value of the contents in his luggage and even
failed to show receipts of the alleged gifts for the members of his family in
Bombay, the most that can be expected for compensation of his lost luggage (2
suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or combined value of Four
Hundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus
Seven Thousand (P7,000.00) Pesos representing the purchase price of the two
(2) suit cases.
However, as earlier stated, it is the position of BA that there should have been no
separate award for the luggage and the contents thereof since Mahtani failed to
declare a separate higher valuation for the luggage,
18
and therefore, its liability is
limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher value
is needed to recover a greater amount. Article 22(1) of the Warsaw
Convention,
19
provides as follows:
xxx xxx xxx
(2) In the transportation of checked baggage and goods, the liability of the carrier
shall be limited to a sum of 250 francs per kilogram, unless the consignor has
made, at time the package was handed over to the carrier, a special declaration
of the value at delivery and has paid a supplementary sum if the case so
requires. In that case the carrier will be liable to pay a sum not exceeding the
declared sum, unless he proves that the sum is greater than the actual value to
the consignor at delivery.
American jurisprudence provides that an air carrier is not liable for the loss of baggage
in an amount in excess of the limits specified in the tariff which was filed with the proper
authorities, such tariff being binding, on the passenger regardless of the passenger's
lack of knowledge thereof or assent thereto.
20
This doctrine is recognized in this
jurisdiction.
21

Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on
adhesion contracts where the facts and circumstances justify that they should be
disregarded.
22

In addition, we have held that benefits of limited liability are subject to waiver such
as when the air carrier failed to raise timely objections during the trial when
questions and answers regarding the actual claims and damages sustained by the
passenger were asked.
23

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

Q How much are you going to ask from this court?
A P100,000.00.
Q What else?
A Exemplary damages.
Q How much?
A P100,000.00.
Q What else?
A The things I lost, $5,000.00 for the gifts I lost and my personal
belongings, P10,000.00.
Q What about the filing of this case?
A The court expenses and attorney's fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers evidence
deemed by counsel of the adverse party to be inadmissible for any reason, the latter
has the right to object. However, such right is a mere privilege which can be waived.
Necessarily, the objection must be made at the earliest opportunity, lest silence when
there is opportunity to speak may operate as a waiver of objections.
25
BA has precisely
failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely objection,
but even conducted his own cross-examination as well.
26
In the early case of Abrenica
v. Gonda,
27
we ruled that:
. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or
objection against the admission of any evidence must be made at the proper
time, and that if not so made it will be understood to have been waived. The
proper time to make a protest or objection is when, from the question addressed
to the witness, or from the answer thereto, or from the presentation of proof, the
inadmissibility of evidence is, or may be inferred.
Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals,
are entitled to great respect.
28
Since the actual value of the luggage involved
appreciation of evidence, a task within the competence of the Court of Appeals, its
ruling regarding the amount is assuredly a question of fact, thus, a finding not
reviewable by this Court.
29

As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of
Appeals justified its ruling in this wise, and we quote:
30

Lastly, we sustain the trial court's ruling dismissing appellant's third-party
complaint against PAL.
The contract of air transportation in this case pursuant to the ticket issued by
appellant to plaintiff-appellee was exclusively between the plaintiff Mahtani and
defendant-appellant BA. When plaintiff boarded the PAL plane from Manila to
Hongkong, PAL was merely acting as a subcontractor or agent of BA. This is
shown by the fact that in the ticket issued by appellant to plaintiff-appellee, it is
specifically provided on the "Conditions of Contract," paragraph 4 thereof that:
4. . . . carriage to be performed hereunder by several successive
carriers is regarded as a single operation.
The rule that carriage by plane although performed by successive carriers is
regarded as a single operation and that the carrier issuing the passenger's ticket
is considered the principal party and the OTHER CARRIER MERELY
SUBCONTRACTORS OR AGENT, is a settled issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko,
31
we
expounded on the nature of a third-party complaint thus:
The third-party complaint is, therefore, a procedural device whereby a "third
party" who is neither a party nor privy to the act or deed complained of by the
plaintiff, may be brought into the case with leave of court, by the defendant, who
acts, as third-party plaintiff to enforce against such third-party defendant a right
for contribution, indemnity, subrogation or any other relief, in respect of the
plaintiff's claim. The third-party complaint is actually independent of and separate
and distinct from the plaintiff's complaint. Were it not for this provision of the
Rules of Court, it would have to be filed independently and separately from the
original complaint by the defendant against the third-party. But the Rules permit
defendant to bring in a third-party defendant or so to speak, to litigate his
separate cause of action in respect of plaintiff's claim against a third-party in the
original and principal case with the object of avoiding circuitry of action and
unnecessary proliferation of law suits and of disposing expeditiously in one
litigation the entire subject matter arising from one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in
view of their contract of carriage. Yet, BA adamantly disclaimed its liability and
instead imputed it to PAL which the latter naturally denies. In other words, BA and
PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was
exclusively between Mahtani and BA, the latter merely endorsing the Manila to
Hongkong leg of the former's journey to PAL, as its subcontractor or agent. In fact,
the fourth paragraph of the "Conditions of Contracts" of the ticket
32
issued by BA to
Mahtani confirms that the contract was one of continuous air transportation from Manila
to Bombay.
4. . . . carriage to be performed hereunder by several successive carriers is
regarded as a single operation.
Prescinding from the above discussion, it is undisputed that PAL, in transporting
Mahtani from Manila to Hongkong ACTED AS THE AGENT of BA.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled
rule that AN AGENT IS ALSO RESPONSIBLE FOR ANY NEGLIGENCE in the
performance of its function.
33
and is liable for damages which the principal may suffer
by reason of its negligent act.
34
Hence, the Court of Appeals erred when it opined that
BA, being the principal, had no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International
Air Transport Association (IATA), wherein member airlines are regarded as agents of
each other in the issuance of the tickets and other matters pertaining to their
relationship.
35
Therefore, in the instant case, the CONTRACTUAL RELATIONSHIP
BETWEEN BA AND PAL IS ONE OF AGENCY, the former being the principal, since it
was the one which issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa
German Airlines v. Court of Appeals.
36
In that case, Lufthansa issued a confirmed ticket
to Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately, Air
Kenya, one of the airlines which was to carry Antiporda to a specific destination
"bumped" him off.
An action for damages was filed against Lufthansa which, however, denied any liability,
contending that its responsibility towards its passenger is limited to the occurrence of a
mishap on its own line. Consequently, when Antiporda transferred to Air Kenya, its
obligation as a principal in the contract of carriage ceased; from there on, it merely
acted as a ticketing agent for Air Kenya.
In rejecting Lufthansa's argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the principal in the
contract of carriage with Antiporda and remains to be so, regardless of those
instances when actual carriage was to be performed by various carriers. The
issuance of confirmed Lufthansa ticket in favor of Antiporda covering his entire
five-leg trip abroad successive carriers concretely attest to this.
Since the instant petition was based on breach of contract of carriage, Mahtani can only
sue BA alone, and not PAL, since the latter was not a party to the contract. However,
this is not to say that PAL is relieved from any liability due to any of its negligent acts.
In China Air Lines, Ltd. v. Court of Appeals,
37
while not exactly in point, the case,
however, illustrates the principle which governs this particular situation. In that case, we
recognized that a carrier (PAL), acting as an agent of another carrier, is also liable for its
own negligent acts or omission in the performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party complaint against
PAL for the purpose of ultimately determining who was primarily at fault as between
them, is without legal basis. After all, such proceeding is in accord with the doctrine
against multiplicity of cases which would entail receiving the same or similar evidence
for both cases and enforcing separate judgments therefor. It must be borne in mind that
the purpose of a third-party complaint is precisely to avoid delay and circuitry of action
and to enable the controversy to be disposed of in one suit.
38
It is but logical, fair and
equitable to allow BA to sue PAL for indemnification, if it is proven that the latter's
negligence was the proximate cause of Mahtani's unfortunate experience, instead of
totally absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R.
CV No. 43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-party
complaint filed by British Airways dated November 9, 1990 against Philippine Airlines.
No costs.
SO ORDERED.

G.R. No. L-20567 July 30, 1965
PHILIPPINE NATIONAL BANK, petitioner,
vs.
MANILA SURETY and FIDELITY CO., INC. and THE COURT OF APPEALS (Second
Division), respondents.
Besa, Galang and Medina for petitioner.
De Santos and Delfino for respondents.
REYES, J.B.L., J .:
The Philippine National Bank petitions for the review and reversal of the decision
rendered by the Court of Appeals (Second Division), in its case CA-G.R. No. 24232-R,
dismissing the Bank's complaint against respondent Manila Surety & Fidelity Co., Inc.,
and modifying the judgment of the Court of First Instance of Manila in its Civil Case No.
11263.
The material facts of the case, as found by the appellate Court, are as follows:
The Philippine National Bank had opened a letter of credit and advanced thereon
$120,000.00 to Edgington Oil Refinery for 8,000 tons of hot asphalt. Of this amount,
2,000 tons worth P279,000.00 were released and delivered to Adams & Taguba
Corporation (known as ATACO) under a trust receipt guaranteed by Manila Surety &
Fidelity Co. up to the amount of P75,000.00. To pay for the asphalt, ATACO
CONSTITUTED THE BANK ITS ASSIGNEE AND ATTORNEY-IN-FACT to receive and
collect from the Bureau of Public Works the amount aforesaid out of funds payable to
the assignor under Purchase Order No. 71947. This assignment (Exhibit "A") stipulated
that:
The conditions of this assignment are as follows:
1. The same shall remain irrevocable until the said credit accomodation is fully
liquidated.
2. The PHILIPPINE NATIONAL BANK is hereby appointed as our Attorney-in-
Fact for us and in our name, place and stead, to collect and to receive the
payments to be made by virtue of the aforesaid Purchase Order, with full power
and authority to execute and deliver on our behalf, receipt for all payments made
to it; to endorse for deposit or encashment checks, money order and treasury
warrants which said Bank may receive, and to apply said payments to the
settlement of said credit accommodation.
This power of attorney shall also remain IRREVOCABLE until our total
indebtedness to the said Bank have been fully liquidated. (Exhibit E)
ATACO delivered to the Bureau of Public Works, and the latter accepted, asphalt to
the total value of P431,466.52. Of this amount the Bank regularly collected, from
April 21, 1948 to November 18, 1948, P106,382.01. Thereafter, for unexplained
reasons, the Bank ceased to collect, until in 1952 its investigators found that more
moneys were payable to ATACO from the Public Works office, because the latter
had allowed mother creditor to collect funds due to ATACO under the same
purchase order to a total of P311,230.41.
Its demands on the principal debtor and the Surety having been refused, the Bank
sued both in the Court of First Instance of Manila to recover the balance of
P158,563.18 as of February 15, 1950, plus interests and costs.
On October 4, 1958, the trial court rendered a decision, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendants, Adams & Taguba Corporation and Manila Surety &
Fidelity Co., Inc., to pay plaintiff, Philippines National Bank, the sum of
P174,462.34 as of February 24, 1956, minus the amount of P8,000 which
defendant, Manila Surety Co., Inc. paid from March, 1956 to October, 1956 with
interest at the rate of 5% per annum from February 25, 1956, until fully paid
provided that the total amount that should be paid by defendant Manila Surety
Co., Inc., on account of this case shall not exceed P75,000.00, and to pay the
costs;
2. Orderinq cross-defendant, Adams & Taguba Corporation, and third-party
defendant, Pedro A. Taguba, jointly and severally, to pay cross and third-party
plaintiff, Manila Surety & Fidelity Co., Inc., whatever amount the latter has paid or
shall pay under this judgment;
3. Dismissing the complaint insofar as the claim for 17% special tax is
concerned; and
4. Dismissing the counterclaim of defendants Adams & Taguba Corporation and
Manila Surety & Fidelity Co., Inc.
From said decision, only the defendant Surety Company has duly perfected its
appeal. The Central Bank of the Philippines did not appeal, while defendant
ATACO failed to perfect its appeal.
The Bank recoursed to the Court of Appeals, which rendered an adverse decision
and modified the judgment of the court of origin as to the surety's liability. Its motions
for reconsideration having proved unavailing, the Bank appealed to this Court.
The Court of Appeals found the Bank to have been negligent in having stopped
collecting from the Bureau of Public Works the moneys falling due in favor of the
principal debtor, ATACO, from and after November 18, 1948, before the debt was fully
collected, thereby allowing such funds to be taken and exhausted by other creditors to
the prejudice of the surety, and held that the Bank's negligence resulted in exoneration
of respondent Manila Surety & Fidelity Company.
This holding is now assailed by the Bank. It contends the power of attorney obtained
from ATACO was merely in additional security in its favor, and that it was the duty of
the surety, and not that of the creditor, owed see to it that the obligor fulfills his
obligation, and that the creditor owed the surety no duty of active diligence to collect
any, sum from the principal debtor, citing Judge Advocate General vs. Court of Appeals,
G.R. No. L-10671, October 23, 1958.
This argument of appellant Bank misses the point. The Court of Appeals did not hold
the Bank answerable for negligence in failing to collect from the principal
debtor but for its neglect in collecting the sums due to the debtor from the Bureau
of Public Works, contrary to its duty as holder of an exclusive and irrevocable power of
attorney to make such collections, since an agent is required to act with the care of
a good father of a family (Civ. Code, Art. 1887) and becomes liable for the damages
which the principal may suffer through his non-performance (Civ. Code, Art. 1884).
Certainly, the Bank could not expect that the Bank would diligently perform its duty
under its power of attorney, but because they could not have collected from the Bureau
even if they had attempted to do so. It must not be forgotten that the Bank's power to
collect was expressly made irrevocable, so that the Bureau of Public Works could very
well refuse to make payments to the principal debtor itself, and a fortiori reject any
demands by the surety.
Even if the assignment with power of attorney from the principal debtor were
considered as mere additional security still, by allowing the assigned funds to be
exhausted without notifying the surety, the Bank deprived the former of any
possibility of recoursing against that security. The Bank thereby exonerated the
surety, pursuant to Article 2080 of the Civil Code:
ART. 2080. The guarantors, even though they be solidary, are released from
their obligation whenever by come act of the creditor they cannot be subrogated
to the rights, mortgages and preferences of the latter. (Emphasis supplied.)
The appellant points out to its letter of demand, Exhibit "K", addressed to the Bureau of
Public Works, on May 5, 1949, and its letter to ATACO, Exhibit "G", informing the debtor
that as of its date, October 31, 1949, its outstanding balance was P156,374.83. Said
Exhibit "G" has no bearing on the issue whether the Bank has exercised due diligence
in collecting from the Bureau of Public Works, since the letter was addressed to
ATACO, and the funds were to come from elsewhere. As to the letter of demand on the
Public Works office, it does not appear that any reply thereto was made; nor that the
demand was pressed, nor that the debtor or the surety were ever apprised that payment
was not being made. The fact remains that because of the Bank's inactivity the other
creditors were enabled to collect P173,870.31, when the balance due to appellant
Bank was only P158,563.18. The finding of negligence made by the Court of Appeals is
thus not only conclusive on us but fully supported by the evidence.
Even if the Court of Appeals erred on the second reason it advanced in support of the
decision now under appeal, because the rules on application of payments, giving
preference to secured obligations are only operative in cases where there are several
distinct debts, and not where there is only one that is partially secured, the error is of no
importance, since the principal reason based on the Bank's negligence furnishes
adequate support to the decision of the Court of Appeals that the surety was thereby
released.
WHEREFORE, the appealed decision is affirmed, with costs against appellant
Philippine National Bank.

G.R. No. L-21237 March 22, 1924
JAMES D. BARTON, plaintiff-appellee,
vs.
LEYTE ASPHALT & MINERAL OIL CO., LTD., defendant-appellant.
Block, Johnston & Greenbaum and Ross, Lawrence & Selph for appellant.
Frank B. Ingersoll for appellee.
STREET, J .:
This action was instituted in the Court of First Instance of the City of Manila by James D.
Barton, to recover of the Leyte Asphalt & Mineral Oil Co., Ltd., as damages for
breach of contract, the sum of $318,563.30, United States currency, and further to
secure a judicial pronouncement to the effect that the plaintiff is entitled to an extension
of the terms of the sales agencies specified in the contract Exhibit A. The defendant
answered with a general denial, and the cause was heard upon the proof, both
documentary and oral, after which the trial judge entered a judgment absolving the
defendant corporation from four of the six causes of action set forth in the complaint and
giving judgment for the plaintiff to recover of said defendant, upon the first and fourth
causes of action, the sum of $202,500, United States currency, equivalent to $405,000,
Philippine currency, with legal interest from June 2, 1921, and with costs. From this
judgment the defendant company appealed.
The PLAINTIFF is a citizen of the United States, resident in the City of Manila, while
the DEFENDANT is a corporation organized under the law of the Philippine Islands
with its principal office in the City of Cebu, Province of Cebu, Philippine Islands. Said
company appears to be the owner by a valuable deposit of bituminous limestone
and other asphalt products, located on the Island of Leyte and known as the Lucio mine.
On April 21, 1920, one William Anderson, as president and general manager of the
defendant company, addressed a letter Exhibit B, to the plaintiff Barton, authorizing
the latter to sell the products of the Lucio mine in the Commonwealth of Australia
and New Zealand upon a scale of prices indicated in said letter.
In the third cause of action stated in the complaint the PLAINTIFF ALLEGES that
during the life of the agency indicated in Exhibit B, he rendered services to the
defendant company in the way of advertising and demonstrating the products of the
defendant and expended large sums of money in visiting various parts of the world for
the purpose of carrying on said advertising and demonstrations, in shipping to various
parts of the world samples of the products of the defendant, and in otherwise carrying
on advertising work. For these services and expenditures the plaintiff sought, in
said third cause of action, to recover the sum of $16,563.80, United States currency.
The court, however, absolved the defendant from all liability on this cause of action
and the plaintiff did not appeal, with the result that we are not now concerned with this
phase of the case. Besides, the authority contained in said Exhibit B was admittedly
superseded by the authority expressed in a later letter, Exhibit A, dated October 1,
1920. This document bears the approval of the board of directors of the defendant
company and was formally accepted by the plaintiff. As it supplies the principal
basis of the action, it will be quoted in its entirety.
(Exhibit A)
CEBU, CEBU, P. I.
October 1, 1920.
JAMES D. BARTON, Esq.,
Cebu Hotel City.
DEAR SIR: You are hereby given the sole and exclusive sales agency for our
bituminous limestone and other asphalt products of the Leyte Asphalt and Mineral Oil
Company, Ltd., May first, 1922, in the following territory:
Australia Saigon Java
New Zealand India China
Tasmania Sumatra Hongkong
Siam and the Straits Settlements, also in the United States of America until May 1,
1921.
As regard bituminous limestone mined from the Lucio property. No orders for less than
one thousand (1,000) tons will be accepted except under special agreement with us. All
orders for said products are to be billed to you as follows:
Per ton
In 1,000 ton lots ........................................... P15
In 2,000 ton lots ........................................... 14
In 5,000 ton lots ........................................... 12
In 10,000 ton lots .......................................... 10
with the understanding, however that, should the sales in the above territory equal or
exceed ten thousand (10,000) tons in the year ending October 1, 1921, then in that
event the price of all shipments made during the above period shall be ten pesos (P10)
per ton, and any sum charged to any of your customers or buyers in the aforesaid
territory in excess of ten pesos (P10) per ton, shall be rebated to you. Said rebate to
be due and payable when the gross sales have equalled or exceeded ten thousand
(10,000) tons in the twelve months period as hereinbefore described. Rebates on lesser
sales to apply as per above price list.
You are to have full authority to sell said product of the Lucio mine for any sum
see fit in excess of the prices quoted above and such excess in price shall be
your extra and additional profit and commission. Should we make any collection in
excess of the prices quoted, we agree to remit same to your within ten (10) days of the
date of such collections or payments.
All contracts taken with municipal governments will be subject to inspector before
shipping, by any authorized representative of such governments at whatever price may
be contracted for by you and we agree to accept such contracts subject to draft
attached to bill of lading in full payment of such shipment.
It is understood that the purchasers of the products of the Lucio mine are to pay freight
from the mine carriers to destination and are to be responsible for all freight, insurance
and other charges, providing said shipment has been accepted by their inspectors.
All contracts taken with responsible firms are to be under the same conditions as with
municipal governments.
All contracts will be subject to delays caused by the acts of God, over which the parties
hereto have no control.
It is understood and agreed that we agree to load all ships, steamers, boats or other
carriers prompty and without delay and load not less than 1,000 tons each twenty-four
hours after March 1, 1921, unless we so notify you specifically prior to that date we are
prepared to load at that rate, and it is also stipulated that we shall not be required to
ship orders of 5,000 tons except on 30 days notice and 10,000 tons except on 60 days
notice.
If your sales in the United States reach five thousand tons on or before May 1, 1921,
you are to have sole rights for this territory also for one year additional and should your
sales in the second year reach or exceed ten thousand tons you are to have the option
to renew the agreement for this territory on the same terms for an additional two years.
Should your sales equal exceed ten thousand (10,000) tons in the year ending October
1, 1921, or twenty thousand (20,000) tons by May 1, 1922, then this contract is to be
continued automatically for an additional three years ending April 30, 1925, under the
same terms and conditions as above stipulated.
The products of the other mines can be sold by you in the aforesaid territories under
the same terms and conditions as the products of the Lucio mine; scale of prices to be
mutually agreed upon between us.
LEYTE ASPHALT & MINERAL OIL CO., LTD.
By (Sgd.) WM. ANDERSON
President
(Sgd.) W. C. A. PALMER
Secretary
Approved by Board of Directors,
October 1, 1920.
(Sgd.) WM. ANDERSON
President
Accepted.
(Sgd.) JAMES D. BARTON
Witness D. G. MCVEAN
Upon careful perusal of the fourth paragraph from the end of this letter it is apparent that
some negative word has been inadvertently omitted before "prepared," so that the full
expression should be "unless we should notify you specifically prior to that date that we
are unprepared to load at that rate," or "not prepared to load at that rate."
Very soon after the aforesaid contract became effective, the PLAINTIFF requested
the defendant company to give him a similar selling agency for Japan. To this
request the defendant company, through its president, Wm. Anderson, replied, under
date of November 27, 1920, as follows:
In re your request for Japanese agency, will say, that we are willing to give you,
the same commission on all sales made by you in Japan, on the same basis as
your Australian sales, but we do not feel like giving you a regular agency for
Japan until you can make some large sized sales there, because some other
people have given us assurances that they can handle our Japanese sales,
therefore we have decided to leave this agency open for a time.
Meanwhile the plaintiff had embarked for San Francisco and upon arriving at that
port he entered into an agreement with LUDVIGSEN & MCCURDY, of that city,
whereby said firm was constituted A SUBAGENT and given the sole selling rights
for the bituminous limestone products of the defendant company for the period of one
year from November 11, 1920, on terms stated in the letter Exhibit K. The territory
assigned to Ludvigsen & McCurdy included San Francisco and all territory in
California north of said city. Upon an earlier voyage during the same year to
Australia, the plaintiff had already made an agreement with Frank B. Smith, of
Sydney, whereby the latter was to act as the plaintiff's sales agent for bituminous
limestone mined at the defendant's quarry in Leyte, until February 12, 1921. Later the
same agreement was extended for the period of one year from January 1, 1921.
(Exhibit Q.)
On February 5, 1921, Ludvigsen & McCurdy, of San Francisco, addressed a letter to
the plaintiff, then in San Francisco, advising him that he might enter an order for six
thousand tons of bituminous limestone to be loaded at Leyte not later than May 5,
1921, upon terms stated in the letter Exhibit G. Upon this letter the plaintiff immediately
indorsed his acceptance.
The plaintiff then returned to Manila; and on March 2, 1921, Anderson wrote to him
from Cebu, to the effect that the company was behind with construction and was not
then able to handle big contracts. (Exhibit FF.) On March 12, Anderson was in Manila
and the two had an interview in the Manila Hotel, in the course of which the plaintiff
informed Anderson of the San Francisco order. Anderson thereupon said that, owing
to lack of capital, adequate facilities had not been provided by the company for
filling large orders and suggested that the plaintiff had better hold up in the matter of
taking orders. The plaintiff expressed surprise at this and told Anderson that he had
not only the San Francisco order (which he says he exhibited to Anderson) but other
orders for large quantities of bituminous limestone to be shipped to Australia and
Shanghai. In another interview on the same Anderson definitely informed the plaintiff
that the contracts which be claimed to have procured would not be filled.
Three days later the plaintiff addressed a letter (Exhibit Y) to the defendant
company in Cebu, in which he notified the company to be prepared to ship five
thousand tons of bituminous limestone to John Chapman Co., San Francisco, loading
to commence on May 1, and to proceed at the rate of one thousand tons per day of
each twenty-four hours, weather permitting.
On March 5, 1921, Frank B. Smith, of Sydney, had cabled the plaintiff an order for
five thousand tons of bituminous limestone; and in his letter of March 15 to the
defendant, the plaintiff advised the defendant company to be prepared to ship
another five thousand tons of bituminous limestone, on or about May 6, 1921, in
addition to the intended consignment for San Francisco. The name Henry E. White
was indicated as the name of the person through whom this contract had been
made, and it was stated that the consignee would be named later, no destination for the
shipment being given. The plaintiff explains that the name White, as used in this letter,
was based on an inference which he had erroneously drawn from the cable sent by
Frank B. Smith, and his intention was to have the second shipment consigned to
Australia in response to Smith's order.
It will be noted in connection with this letter of the plaintiff, of March 15, 1921, that no
mention was made of the names of the person, or firm, for whom the shipments were
really intended. The obvious explanation that occurs in connection with this is that the
plaintiff did not then care to reveal the fact that the two orders had originated from his
own subagents in San Francisco and Sydney.
To the plaintiff's letter of March 15, the assistant manager of the defendant company
replied on March, 25, 1921, acknowledging the receipt of an order for five thousand tons
of bituminous limestone to be consigned to John Chapman Co., of San Francisco, and
the further amount of five thousand tons of the same material to be consigned to Henry
E. White, and it was stated that "no orders can be entertained unless cash has been
actually deposited with either the International Banking Corporation or the Chartered
Bank of India, Australia and China, Cebu." (Exhibit Z.)
To this letter the plaintiff in turn replied from Manila, under date of March, 1921,
questioning the right of the defendant to insist upon a cash deposit in Cebu prior to the
filling of the orders. In conclusion the plaintiff gave orders for shipment to Australia of
five thousand tons, or more, about May 22, 1921, and ten thousand tons, or more,
about June 1, 1921. In conclusion the plaintiff said "I have arranged for deposits to be
made on these additional shipments if you will signify your ability to fulfill these orders
on the dates mentioned." No name was mentioned as the purchaser, or purchases, of
these intended Australian consignments.
Soon after writing the letter last above-mentioned, the plaintiff embarked for China and
Japan. With his activities in China we are not here concerned, but we note that in Tokio,
Japan, he came in contact with one H. Hiwatari, who appears to have been a suitable
person for handling bituminous limestone for construction work in Japan. In the letter
Exhibit X, Hiwatari speaks of himself as if he had been appointed exclusive sales agent
for the plaintiff in Japan, but no document expressly appointing him such is in evidence.
While the plaintiff was in Tokio he procured the letter Exhibit W, addressed to
himself, to be signed by Hiwatari. This letter, endited by the plaintiff himself, contains an
order for one thousand tons of bituminous limestone from the quarries of the defendant
company, to be delivered as soon after July 1, 1921, as possible. In this letter Hiwatari
states, "on receipt of the cable from you, notifying me of date you will be ready to ship,
and also tonnage rate, I will agree to transfer through the Bank of Taiwan, of Tokio, to
the Asia Banking Corporation, of Manila, P. I., the entire payment of $16,000 gold, to be
subject to our order on delivery of documents covering bill of lading of shipments, the
customs report of weight, and prepaid export tax receipt. I will arrange in advance a
confirmed or irrevocable letter of credit for the above amounts so that payment can be
ordered by cable, in reply to your cable advising shipping date."
In a letter, Exhibit X, of May 16, 1921, Hiwatari informs the plaintiff that he had shown
the contract, signed by himself, to the submanager of the Taiwan Bank who had given it
as his opinion that he would be able to issue, upon request of Hiwatari, a credit note for
the contracted amount, but he added that the submanager was not personally able to
place his approval on the contract as that was a matter beyond his authority.
Accordingly Hiwatari advised that he was intending to make further arrangements when
the manager of the bank should return from Formosa.
In the letter of May 5, 1921, containing Hiwatari's order for one thousand tons of
bituminous limestone, it was stated that if the material should prove satisfactory after
being thoroughly tested by the Paving Department of the City of Tokio, he would
contract with the plaintiff for a minimum quantity of ten thousand additional tons, to be
used within a year from September 1, 1921, and that in this event the contract was to be
automatically extended for an additional four years. The contents of the letter of May 5
seems to have been conveyed, though imperfectly, by the plaintiff to his attorney, Mr.
Frank B. Ingersoll, of Manila; and on May 17, 1921, Ingersoll addressed a note to the
defendant company in Cebu in which he stated that he had been requested by the
plaintiff to notify the defendant that the plaintiff had accepted an order from Hiwatari, of
Tokio, approved by the Bank of Taiwan, for a minimum order of ten thousand tons of the
stone annually for a period of five years, the first shipment of one thousand tons to be
made as early after July 1 as possible. It will be noted that this communication did not
truly reflect the contents of Hiwatari's letter, which called unconditionally for only one
thousand tons, the taking of the remainder being contingent upon future eventualities.
It will be noted that the only written communications between the plaintiff and the
defendant company in which the former gave notice of having any orders for the sale of
bituminous limestone are the four letters Exhibit Y, AA, BB, and II. In the first of these
letters, dated March 15, 1921, the plaintiff advises the defendant company to be
prepared to ship five thousand tons of bituminous limestone, to be consigned to John
Chapman, Co., of San Francisco, to be loaded by March 5, and a further consignment
of five thousand tons, through a contract with Henry E. White, consignees to be named
later. In the letter Exhibit BB dated May 17, 1921, the plaintiff's attorney gives notice
of the acceptance by plaintiff of an order from Hiwatari, of Tokio, approved by the
Bank of Taiwan, for a minimum of ten thousand annually for a period of five years, first
shipment of a thousand tons to be as early after July 1 as possible. In the letter Exhibit
H the plaintiff gives notice of an "additional" (?) order from H. E. White, Sydney, for two
lots of bituminous limestone of five thousand tons each, one for shipment not later than
June 30, 1921, and the other by July 20, 1921. In the same letter thousand tons from F.
B. Smith, to be shipped to Brisbane, Australia, by June 30, and a similar amount within
thirty days later.
After the suit was brought, the plaintiff filed an amendment to his complaint in which he
set out, in tabulated form, the orders which he claims to have received and upon which
his letters of notification to the defendant company were based. In this amended answer
the name of Ludvigsen & McCurdy appears for the first time; and the name of Frank B.
Smith, of Sydney, is used for the first time as the source of the intended consignments
of the letters, Exhibits G, L, M, and W, containing the orders from Ludvigen & McCurdy,
Frank B. Smith and H. Hiwatari were at no time submitted for inspection to any officer of
the defendant company, except possibly the Exhibit G, which the plaintiff claims to have
shown to Anderson in Manila on March, 12, 1921.
The different items conspiring the award which the trial judge gave in favor of the
plaintiff are all based upon the orders given by Ludvigsen & McCurdy (Exhibit G), by
Frank B. Smith (Exhibit L and M), and by Hiwatari in Exhibit W; and the appealed does
not involve an order which came from Shanghai, China. We therefore now address
ourselves to the question whether or not the orders contained in Exhibit G, L, M, and W,
in connection with the subsequent notification thereof given by the plaintiff to the
defendant, are sufficient to support the judgment rendered by the trial court.
The transaction indicated in the orders from Ludvigsen, & McCurdy and from Frank B.
Smith must, in our opinion, be at once excluded from consideration as emanating from
persons who had been constituted mere agents of the plaintiff. The San Francisco
order and the Australian orders are the same in legal effect as if they were orders
signed by the plaintiff and drawn upon himself; and it cannot be pretended that those
orders represent sales to bona fide purchasers found by the plaintiff. The original
contract by which the plaintiff was appointed sales agent for a limited period of time
in Australia and the United States contemplated that he should find reliable and
solvent buyers who should be prepared to obligate themselves to take the quantity of
bituminous limestone contracted for upon terms consistent with the contract. These
conditions were not met by the taking of these orders from the plaintiff's own
subagents, which was as if the plaintiff had bought for himself the commodity
which he was authorized to sell to others. Article 267 of the Code of Commerce
declares that no agent shall purchase for himself or for another that which he has
been ordered to sell. The law has placed its ban upon a broker's purchasing from his
principal unless the latter with full knowledge of all the facts and circumstances
acquiesces in such course; and even then the broker's action must be characterized by
the utmost good faith. A sale made by a broker to himself without the consent of the
principal is ineffectual whether the broker has been guilty of fraudulent conduct or not.
(4 R. C. L., 276-277.) We think, therefore, that the position of the defendant company is
indubitably sound in so far as it rest upon the contention that the plaintiff has not in fact
found any bona fide purchasers ready and able to take the commodity contracted for
upon terms compatible with the contract which is the basis of the action.
It will be observed that the contract set out at the beginning of this opinion contains
provisions under which the period of the contract might be extended. That privilege was
probably considered a highly important incident of the contract and it will be seen that
the sale of five thousand tons which the plaintiff reported for shipment to San Francisco
was precisely adjusted to the purpose of the extension of the contract for the United
States for the period of an additional year; and the sales reported for shipment to
Australia were likewise adjusted to the requirements for the extention of the contract in
that territory. Given the circumstances surrounding these contracts as they were
reported to the defendant company and the concealment by the plaintiff of the
names of the authors of the orders, -- who after all were merely the plaintiff's
subagents, the officers of the defendant company might justly have entertained the
suspicion that the real and only person behind those contracts was the plaintiff himself.
Such at least turns out to have been the case.
Much energy has been expended in the briefs upon his appeal over the contention
whether the defendant was justified in laying down the condition mentioned in the letter
of March 26, 1921, to the effect that no order would be entertained unless cash should
be deposited with either the International Banking Corporation of the Chartered Bank of
India, Australia and China, in Cebu. In this connection the plaintiff points to the
stipulation of the contract which provides that contracts with responsible parties are to
be accepted "subject to draft attached to bill of lading in full payment of such shipment."
What passed between the parties upon this point appears to have the character of mere
diplomatic parrying, as the plaintiff had no contract from any responsible purchaser
other than his own subagents and the defendant company could no probably have filled
the contracts even if they had been backed by the Bank of England.
Upon inspection of the plaintiff's letters (Exhibit Y and AA), there will be found ample
assurance that deposits for the amount of each shipment would be made with a bank in
Manila provided the defendant would indicated its ability to fill the orders; but these
assurance rested upon no other basis than the financial responsibility of the plaintiff
himself, and this circumstance doubtless did not escape the discernment of the
defendant's officers.
With respect to the order from H. Hiwatari, we observe that while he intimates that he
had been promised the exclusive agency under the plaintiff for Japan, nevertheless it
does not affirmatively appear that he had been in fact appointed to be such at the time
he signed to order Exhibit W at the request of the plaintiff. It may be assumed,
therefore, that he was at that time a stranger to the contract of agency. It clearly
appears, however, that he did not expect to purchase the thousand tons of bituminous
limestone referred to in his order without banking assistance; and although the
submanager of the Bank of Taiwan had said something encouraging in respect to the
matter, nevertheless that official had refrained from giving his approval to the order
Exhibit W. It is therefore not shown affirmatively that this order proceeds from a
responsible source.
The first assignment of error in the appellant's brief is directed to the action of the trial
judge in refusing to admit Exhibit 2, 7, 8, 9 and 10, offered by the defendant, and in
admitting Exhibit E, offered by the plaintiff. The Exhibit 2 is a letter dated June 25, 1921,
or more than three weeks after the action was instituted, in which the defendant's
assistant general manager undertakes to reply to the plaintiff's letter of March 29
proceeding. It was evidently intended as an argumentative presentation of the plaintiff's
point of view in the litigation then pending, and its probative value is so slight, even if
admissible at all, that there was no error on the part of the trial court in excluding it.
Exhibit 7, 8, 9 and 10 comprise correspondence which passed between the parties by
mail or telegraph during the first part of the year 1921. The subject-matter of this
correspondence relates to efforts that were being made by Anderson to dispose of the
controlling in the defendant corporation, and Exhibit 9 in particular contains an offer
from the plaintiff, representing certain associates, to but out Anderson's interest for a
fixed sum. While these exhibits perhaps shed some light upon the relations of the
parties during the time this controversy was brewing, the bearing of the matter upon the
litigation before us is too remote to exert any definitive influence on the case. The trial
court was not in error in our opinion in excluding these documents.
Exhibit E is a letter from Anderson to the plaintiff, dated April 21, 1920, in which
information is given concerning the property of the defendant company. It is stated in
this letter that the output of the Lucio (quarry) during the coming year would probably be
at the rate of about five tons for twenty-four hours, with the equipment then on hand, but
that with the installation of a model cableway which was under contemplation, the
company would be able to handle two thousand tons in twenty-four hours. We see no
legitimate reason for rejecting this document, although of slight probative value; and her
error imputed to the court in admitting the same was not committed.
Exhibit 14, which was offered in evidence by the defendant, consists of a carbon copy of
a letter dated June 13, 1921, written by the plaintiff to his attorney, Frank B. Ingersoll,
Esq., of Manila, and in which plaintiff states, among other things, that his profit from the
San Francisco contract would have been at the rate of eigthy-five cents (gold) per ton.
The authenticity of this city document is admitted, and when it was offered in evidence
by the attorney for the defendant the counsel for the plaintiff announced that he had no
objection to the introduction of this carbon copy in evidence if counsel for the defendant
would explain where this copy was secured. Upon this the attorney for the defendant
informed the court that he received the letter from the former attorneys of the defendant
without explanation of the manner in which the document had come into their
possession. Upon this the attorney for the plaintiff made this announcement: "We
hereby give notice at this time that unless such an explanation is made, explaining fully
how this carbon copy came into the possession of the defendant company, or any one
representing it, we propose to object to its admission on the ground that it is a
confidential communication between client and lawyer." No further information was then
given by the attorney for the defendant as to the manner in which the letter had come to
his hands and the trial judge thereupon excluded the document, on the ground that it
was a privileged communication between client and attorney.
We are of the opinion that this ruling was erroneous; for even supposing that the letter
was within the privilege which protects communications between attorney and client,
this privilege was lost when the letter came to the hands of the adverse party. And it
makes no difference how the adversary acquired possession. The law protects the
client from the effect of disclosures made by him to his attorney in the confidence of the
legal relation, but when such a document, containing admissions of the client, comes to
the hand of a third party, and reaches the adversary, it is admissible in evidence. In this
connection Mr. Wigmore says:
The law provides subjective freedom for the client by assuring him of exemption
from its processes of disclosure against himself or the attorney or their agents of
communication. This much, but not a whit more, is necessary for the
maintenance of the privilege. Since the means of preserving secrecy of
communication are entirely in the client's hands, and since the privilege is a
derogation from the general testimonial duty and should be strictly construed, it
would be improper to extend its prohibition to third persons who obtain
knowledge of the communications. One who overhears the communication,
whether with or without the client's knowledge, is not within the protection of the
privilege. The same rule ought to apply to one who surreptitiously reads or
obtains possession of a document in original or copy. (5 Wigmore on Evidence,
2d ed., sec. 2326.)
Although the precedents are somewhat confusing, the better doctrine is to the effect
that when papers are offered in evidence a court will take no notice of how they were
obtained, whether legally or illegally, properly or improperly; nor will it form a collateral
issue to try that question. (10 R. C. L., 931; 1 Greenl. Evid., sec. 254a;
State vs. Mathers, 15 L. R. A., 268; Gross vs. State, 33 L. R. A., [N. S.], 477, note.)
Our conclusion upon the entire record is that the judgment appealed from must be
reversed; and the defendant will be absolved from the complaint. It is so ordered,
without special pronouncement as to costs of either instance.
Araullo, C.J., Johnson, Avancea, Ostrand, Johns and Romualdez, JJ., concur.


Separate Opinions
MALCOLM, J ., dissenting:
An intensive scrutiny of every phase of this case leads me to the conclusion that the trial
judge was correct in his findings of fact and in his decision. Without encumbering the
case with a long and tedious dissent, I shall endeavor to explain my point of view as
briefly and clearly as possible.
A decision must be reached on the record as it is and not on a record as we would like
to have it. The plaintiff and the defendant deliberately entered into a contract, the basis
of this action. The plaintiff, proceeding pursuant to this contract, spent considerable
effort and used considerable money to advance the interests of the defendant and to
secure orders for its products. These orders were submitted to the president of the
defendant company personally and later formally by writing. Prior to the institution of the
suit, the only objection of the defendant was that the money should be deposited with
either the International Banking Corporation or the Chartered Bank of India, Australia
and China at Cebu, a stipulation not found in the contract.
A reasonable deduction, therefore, is that the plaintiff presented orders under
circumstances which were a substantial compliance with the terms of the contract with
the defendant, and which insured to the defendant payment for its deliveries according
to the price agreed upon, and that as the defendant has breached its contract, it must
respond in damages.
The current running through the majority opinion is that the order emanated from
subagents of the plaintiff, and that no bona fide purchasers were ready and able to take
the commodity contracted for upon terms compatible with the contract. The answer is, in
the first place, that the contract nowhere prohibits the plaintiff to secure subagents. The
answer is, in the second place, that the orders were so phrased as to make the persons
making them personally responsible. The Ludvigsen & McCurdy order from San
Francisco begins: "You can enter our order for 6,000 tons of bituminous limestone as
per sample submitted, at $10 gold per ton, f. o. b., island of Leyte, subject to the
following terms and conditions:
* * * "(Exhibit G). The Smith order from Australia contains the following: "It is therefore
with great pleasure I confirm the booking of the following orders, to be shipped at least
within a week of respective dates: . . ." (Exhibit L). The Japan order starts with the
following sentence: "You can enter my order for 1,000 tons of 1,000 kilos each of
bituminous limestone from the quarries of the Leyte Asphalt and Mineral Oil Co. . . ."
(Exhibit W.)
But the main point of the plaintiff which the majority decision misses entirely centers on
the proposition that the orders were communicated by the plaintiff to the defendant, and
that the only objection the defendant had related to the manner of payment. To
emphasize this thought again, let me quote the reply of the defendant to the plaintiff
when the defendant acknowledge receipts of the orders placed by the plaintiff. The
letter reads: "In reply to same we have to advice you that no orders can be entertained
unless cash has been actually deposited with either the International Banking
Corporation or the Chartered Bank of India, Australia and China, Cebu." (Exhibit Y.)
Prior to the filing of suit, the defendant company never at any time raised any
questioned as to whether the customers secured by plaintiff were "responsible firms"
within the meaning of the contract, and never secured any information whatsoever as to
their financial standing. Consequently, defendant is now estopped by its conduct from
raising new objections for rejection of the orders. (Mechem on Agency, section 2441.)
The majority decision incidentally takes up for consideration assignments of error 1 and
2 having to do with either the admission or the rejection by the trial court of certain
exhibits. Having in mind that the Court reverses the court a quo on the facts, what is
said relative to these two assignments is absolutely unnecessary for a judgment, and
even as obiter dicta, contains unfortunate expressions. Exhibit 14, for example, is a
letter addressed by the plaintiff to his lawyer and probably merely shown to the counsel
of the defendant during negotiations to seek a compromise. Whether that exhibit be
considered improperly rejected or not would not change the result one iota.
The rule now announced by the Court that it makes no difference how the adversary
acquired possession of the document, and that a court will take no notice of how it was
obtained, is destructive of the attorney's privilege and constitutes and obstacle to
attempts at friendly compromise. In the case of Uy Chico vs. Union Life Assurance
Society ([1915], 29 Phil., 163), it was held that communications made by a client to his
attorney for the purpose of being communicated to others are not privileged if they have
been so communicated. But here, there is no intimation that Exhibit 14 was sent by the
client to the lawyer for the purpose of being communicated to others. The Supreme
Court of Georgia in the case of Southern Railway Co. vs. White ([1899], 108 Ga., 201),
held that statements in a letter to a party's attorney handed by the latter to the
opponent's attorney, are confidential communications and must be excluded.
Briefly, the decision of the majority appears to me to be defective in the following
particulars: (1) It sets aside without good reason the fair findings of fact as made by the
trial court and substitutes therefor other findings not warranted by the proof; (2) it fails to
stress plaintiff's main argument, and (3) it lay downs uncalled for rules which undermine
the inviolability of a client's communications to his attorney.
G.R. No. L-3572 September 30, 1952
PAULINO DUMAGUIN, plaintiff-appellant,
vs.
A.I. REYNOLDS, E.J. HARRISON and BIG WEDGE MINING COMPANY, defendants-
appellees.
Ernesto Sibal and Taada, Pelaez and Teehankee for appellant.
Juan L. Orbeta for appellee A.I. Reynolds.
Basilio Francisco for appellee E.J. Harrison.
Claro M. Recto for appellee Big Wedge Mining Company.
MONTEMAYOR, J .:
For purposes of this decision, the following facts may be said to be agreed upon by the
parties or to be without dispute. Because the plaintiff Paulino M. Dumaguin would
appear to be the central figure in this case, we shall begin by making reference to his
background and his status at the time he entered into the transactions and executed the
deeds of conveyance whose legality is now the subject of the present petition.
PAULINO M. DUMAGUIN was a teacher in the public elementary schools for a year
and a half, and from 1916 to 1918 was the Manager of the Head Waters Mining
Company in Baguio. As Manager of said mining company Paulino acquired some
knowledge of mining. On or before May 21, 1929, he was a supervising line-man of
the Bureau of Posts. On that date, (May 21, 1929) he was admitted to the Insular
Psychopathic Hospital at San Felipe Neri (now National Psychopathic Hospital),
Mandaluyong, Rizal, said to be suffering from "paranoia". On October 15, 1929, Dr.
Toribio Joson, assistant alienist of said Hospital, submitted the following memorandum:
"MEMORANDUM
To: the Alienist in Charge Insular Psychopathic Hospital, San Felipe Neri, Rizal.
Subject: Paulino M. Dumaguin. Male, married, 33 years old, Ex-
Supervising Lineman of the Bureau of Posts, admitted to the hospital at
11:25 a.m. on May 21, 1929.
1. The patient is well-behaved, oriented in all spheres, coherent in his
speech and has no more illusion or hallucinations; but is having a delusion
that one of the patients in the Hospital is trying to chloroform him. He
consequently keeps away from the said patient.
2. He is not also sure that his former officemates whom he erroneously
believed chloroformed him before, would not chloroform him anymore
when he goes home.
3. This type of insanity which Paulino M. Dumaguin is suffering from is
therefore that of Paranoia, which runs a very chronic course of usually a
lifetime, but which may show improvement as the patient grow older. (See
Exhibits 42, folio 195; Emphasis ours).
After Paulino's discharge from the Hospital on or about November 11, 1929, in
order to enable his wife to withdraw his retirement gratuity from the government,
on September 16, 1930, she filed guardianship proceedings in the Court of
First Instance of Camarines Sur. Said court relying presumably on the report of
Dr. Joson above-quoted, granted the petition and appointed her as Paulino's
guardian.
On February 2, 1931, Paulino and his guardian in a joint motion before the
Court of Camarines Sur among others alleged that
4. Que en la actualidad, el citado Paulino M. Dumaguin, ya esta
restablecido, por lo que se le ha permitido dejar el Hospital y ahora vive
con su familia en esta localidad, que es su residencia.
5. Que el mencionado Paulino M. Dumaguin ha recibido un cheque del
Gobierno por la cantidad de P412.38, como parte de su pension.
6. Que los comparecientes necesitan el importe de dicho cheque para
atender a su subsistencia, pues se hallan en la actualidad faltos de todo
necesario.
and asked that they be authorized to cash said check and use its proceeds for
their support:
"Por tanto, suplican al Juzgado que se les autorice a cambiar el referido
cheque, y disponer de su producto para su manutencion."
In 1934, the guardianship proceedings were closed.
In and before the year 1930, DEFENDANTS A.I. Reynolds and E.J. Harrison as gold
prospectors had located some mineral claims in the Itogon District, sub-province of
Benguet, Mountain Province, known as the "ANACONDA GROUP". They employed
Fructuoso Dumaguin, brother of plaintiff Paulino, in their work as prospectors.
At the beginning of 1931, Fructuoso Dumaguin was thus working for said defendants
Reynolds and Harrison relocating some of their mining claims previously located and
locating new ones, for which work he was paid P5.00 a day. About the same time his
brother Paulino M. Dumaguin, plaintiff herein, leaving his home in Camarines Sur
went up to Baguio in search of work. To help him Fructuoso got him employed by the
defendants and the two brothers worked together in the mining business for the
defendants.
The theory of the plaintiffs that he was employed only to relocate defendants' mining
claims in the Anaconda Group while the defense claims that like his brother Fructuoso,
Paulino was employed not only to relocate mining claims within the Anaconda Group
but also to stake and locate new mining claims for them. For said work Paulino was also
paid by the day by the defendants.
During the months of May, June and July of that year 1931 the two brothers
Fructuoso and Paulino staked and located ten mining claims or fractions thereof
named Victoria, Greta, Triangle, Lolita, Frank, Paul, Leo, Loreto, Arthur and G. Ubalde,
all said claims or fractions being late registered in the name of Paulino M.
Dumaguin as locator in the office of the Mining Recorder. By virtue of an instrument
(Exhibit A) entitled "Deed of Transfer" dated September 10, 1931, Paulino M.
Dumaguin conveyed and transferred to defendants A.I. Reynolds and E.J. Harrison
nine of the ten mineral claims just mentioned, and in another instrument (Exhibit B)
on the same date September 10, 1931, Paulino transferred and conveyed to
defendant Reynolds the remaining claim Victoria.
Later, Reynolds as vendee of the mining claim Victoria by virtue of a Deed of Sale
(Exhibit C) dated November 2, 1931 sold and transferred said claim to the
DEFENDANT Big Wedge Mining Company the claims Frank, Paul, Leo, Loreto, and
Arthur. In still another Deed of Sale (Exhibit J) Reynolds and Harrison sold and
transferred to the same Big Wedge Mining Co. the Greta, Lolita and Triangle fractions
or mineral claims. As a result all the ten mineral claims or fractions transferred by
Paulino to Reynolds and Harrison, with the exception of the claim G. Ubalde were in
turn sold and transferred to the Big Wedge Mining Co.. What was done to this last
claim or fraction G. Ubalde, does not appear on the record, but it must still remain in
the name of Reynolds and Harrison.
Plaintiff Dumaguin initiated this case in the Court of First Instance of Baguio by filing
his original complaint on November 5, 1934, later amending it on July 26, 1939 and
finally re-amending it on June 4, 1940. Under his re-amended complaint which contains
three case of action, he alleges that when he executed the deeds of transfer
(Exhibits A and B) he was under guardianship and did not possess the mental
capacity to contract and so asked the court that the said two deeds be declared null
and void. He also alleged that those two deed being void, Reynolds and Harrison had
no title to transmit to the Big Wedge Mining Co., by virtue of the deeds of sale, Exhibits
C and D (plaintiff evidently overlooked the deed, Exhibit J) and therefore those two
deeds of sale (Exhibit C and D) should also be declared null and void, and that he,
(Paulino) should be declared the owner of the ten mining claims or fractions in
question. Finally, he claimed that the Big Wedge Mining Co., had illegally taken
possession of the ten mining claims and profitably worked or operated them and
so he asked that said company be ordered to render an accounting of its operations
and profits made therefrom, and that the defendants should be ordered jointly and
severally to pay to the plaintiff such profits, as may have been derived by the Big
Wedge Mining Co. as shown by its accounts.
Defendants Reynolds and Harrison fled their original answers on January 30, 1935
and April 12, 1935, respectively, both superseded by their amended answers on
January 22, 1936. Defendant Big Wedge Mining Co., filed its answer on January 30,
1935 which was amended January 18, 1936 and later re-amended on February 5, 1940.
Reynolds and Harrison claimed in their answers that plaintiff Paulino and his brother
Fructuoso had been expressly employed by them to locate and stake mineral
claims, and that said two brothers staked and located the ten mineral claims in question
for them (defendants), and that there was an understanding between the two brothers
and the two defendants that the said mineral claims so located would eventually be
transferred to them. In its turn defendant Big Wedge Mining Co., followed the theory
of Reynolds and Harrison about Paulino having been employed by them and
having made the location of the mineral claims in question for their employers, and that
the company was not aware of the alleged mental incapacity of plaintiff at the time
that he executed the deeds of transfer in favor of Reynolds and Harrison, and that
even if the plaintiff was under guardianship at the time, yet he confirmed and ratified the
deeds of transfer by his acts and letters after his release from guardianship, and that
said company bought the said mineral claims in good faith and for valuable
consideration from the registered owners.
Hearing was held on July 31, 1940. The evidence submitted was mainly documentary.
Only three witnesses took the witness stand. Atty. Alberto Jamir was presented by the
Big Wedge Mining Co. to identify a copy of a decision rendered by the Securities and
Exchange Commission. Defendant Reynolds testified for the defense. For the plaintiff,
only Fructuoso Dumaguin testified for his brother. Why Paulino, the plaintiff, did not take
the witness stand, if not to support the allegations of his complaint, at least to refute the
evidence for the defense particularly that which tended to show that he was employed
by defendants Reynolds and Harrison to stake and locate mineral claims for them with
the understanding that he would later transfer said claims to his employers, is not
known to this court. After trial, Judge Jose R. Carlos before whom the hearing was held,
rendered judgment on January 16, 1941, dismissing the complaint.
Paulino Dumaguin appealed from that decision. His Record on Appeal was approved
on April 16, 1941 and the brief was filed on November 3, 1941 and the brief for the Big
Wedge Mining Co. was filed or rather is dated December 31, 1941. It is not known
whether defendants Reynolds and Harrison ever filed a brief. The fact is that the
record of the case was lost or destroyed during the war and only copies of the
record on appeal and the briefs were salvaged. As to the oral and documentary
evidence which was lost, only those portions of the transcript and documents
reproduced and appearing in the briefs are now available. But the parties have agreed
to the correctness of these portions so quoted in the briefs.
After the reconstitution of the case, the Court of Appeals which had taken charge of
the appeal found that the amount involved was beyond its jurisdiction and so
certified the case to us. Neither Reynolds nor Harrison has appeared before the Court
of appeals or before this Court. Appellant's attorney represented that Harrison's counsel
could not appear in the appeal due to lack of authority, not having heard from his client
since liberation and being of the belief that his client is dead. There was also information
to the effect that defendant Reynolds had been killed during the early part of the
occupation by the Japanese. So, only the Big Wedge Mining Co., is opposing the
present appeal.
The decisive and pivotal question here is whether plaintiff Paulino M. Dumaguin and hid
brother Fructuoso acting on their account staked and located these mining claims or
fractions in dispute for Paulino, or whether they acting as employees and agents of
defendants Reynolds and Harrison, staked and located said claims for and in behalf of
their employers. We agree with the trial court that the great preponderance of evidence
is to the effect that these claims were located for Reynolds and Harrison by Paulino
and Fructuoso AS EMPLOYEES, and that the latter were purposely employed and
paid for this work. All the expenses incident to the skating and location of said claims
and registration of the corresponding declarations of location were paid by Reynolds
and Harrison. It is true that in one part of his testimony, Fructuoso claimed that he and
his brother were employed merely to relocate the mining claims of the defendants within
the Anaconda Group but later on, he admitted in his testimony and also in his affidavit
(Exhibit 1) which was prepared before these proceedings were initiated in court that he
and his brother Paulino working together were paid by the defendants Reynolds
and Harrison to locate new mining claims outside the Anaconda Group; that as a
matter of fact, Paulino engaged in this work at the beginning, but because he
(Fructuoso) found that Paulino physically was not equal to the arduous work of climbing
up and down mountains to stake and locate claims, he was placed in charge of the
payroll of the defendants and detailed to do paper work which, it is presumed, included
in the registration of the declarations of location of the mining claims in the office of the
Mining Recorder, in his name. Fructuoso also admitted that there was an
understanding before and pending the staking and location of said mining claims that
they would eventually be transferred to their real owners, Reynolds and Harrison.
In consonance to this correct theory that these mining claims were located for
defendants Reynolds and Harrison, as counsel for appellee well observes, Exhibit A
and E are both entitled "Deed of Transfer". This conveys the idea that Paulino was
merely transferring to the real owners property which technically and in name
were registered as his own. Otherwise, if he really owned these mining claims, the
two deeds (Exhibit A and B) would have been more appropriately entitled "Deed of
Sale" and the body of said instruments should have stated that he was selling the
mining claims. On the other hand, we have the instruments (Exhibits C and D) wherein
Reynolds and Harrison sold said mining claims or fractions to the Big Wedge Mining
Co., and the documents were each entitled "Deed of Sale".
It would really be unfair, even against public policy to allow a person employed to stake
and locate mining claims for his employer to make locations on his own account and for
his own benefit tho done outside hours of work or employment, because there is an
obvious incompatibility and conflict of interest between those of the employer on the one
hand and those of the employee on the other, unless there is a clear and express
agreement to the contrary. Judge Carlos in his well-considered decision correctly states
the fiduciary relation between Paulino and his employers Reynolds and Harrison and
the sound and correct rule and public policy on this matter.
The fiduciary relation between the plaintiff and the defendants A.I. Reynolds and
E.J. Harrison, is very clear from the evidence. Fructuoso M. Dumaguin, has
clearly stated that his brother, Paulino M. Dumaguin, was working under him
while he was locating the claims in question for A.I. Reynolds and E.J. Harrison.
There can be no doubt that these claims in question were among those which
these defendants wanted staked because, according to Fructuoso Dumaguin
himself, they all adjoined the Anaconda Group, which ground he was specially
instructed to stake for the said defendants. The plaintiff, herein, therefore,
learned of the existence, especially of the fractional mineral claims, because he
was with the party who staked the rest of the claims in that locality. To permit the
plaintiff herein to assert his claim of ownership over these claims in question
would be tantamount to allowing him to violate and infringe all the sound and
age-old rules which govern principal and agent. There can be no doubt that this
relation existed because Fructuoso M. Dumaguin, the sole witness for the
plaintiff, stated categorically in his affidavit Exhibit I that all the claims subject of
this litigation, except G. Ubalde mineral claim, had been located and staked by
him for A.I. Reynolds and E.J. Harrison, though the same were recorded in the
name of his brother Paulino. It is quite evident, therefore, that even if no transfers
were made or Exhibit "A" and "B did not exist, these two defendants would still be
entitled to an assignment of the said claims. The evidence of the fiduciary
relation between plaintiff and the defendants A.I. Reynolds and E.J. Harrison was
given by none other than Fructuoso M. Dumaguin, the brother the only witness of
the plaintiff in this case.
ANY ACT OF AN AGENT, the object or tendency of which is to commit a fraud
or breach of the agency, should be discouraged. In the first place, such acts are
condemned by public policy. They are against the morals; therefore, they should
never be tolerated. An agent or trustee, or anybody who acts in a fiduciary
capacity, should never be permitted to capitalize on his fiduciary position to mulct
or take advantage of his principal or employer.
It has been the practice of miners to employ others to stake mining claims for
them. This is usually done after the prospectors have assured themselves that a
mine exists in a certain locality. The man who place the stake could easily leave
fractional mineral claims in between the claims without reporting the existence of
this fractions to his principal. Later he could stake and claim them. If this is
permitted to happen, bona fide miners can easily be held up by the very man
whom they have employed to stake their mining claims. If the mining industry
shall be protected and the exploitation of the natural resource of this country
encouraged, such practice should not be tolerated. The wrong or the damage
that can be done is unlimited. If agents or employees or laborers are permitted to
conceal or withhold certain mining claims ordered staked by their employer who
gave them specific instructions to stake the entire ground in a certain locality, the
effect will practically be the condonation and legalization of a holdup. For this
reason Mechem on Agency, Sec. 1224, said the following:
"The well-settled and salutary principle that person who undertakes to act for
another shall not be in the same matter, act for himself, results also in the other
rule, that all profits made and advantage gained by the agent in the execution of
the agency belong to the principal. And it matters not whether such profit or
advantage be the result of the performance or of the violation of the duty of the
agent if it be the fruit of the agency. If his duty be strictly performed, the resulting
profit accrues to their principal as the legitimate consequence of the relation. If
profit accrues from his violation of duty while executing the agency, that likewise
belongs to the principal, not only because the principal has to assume the
responsibility of the transaction, but also because the agent cannot be permitted
to derive advantage from his own fault.
"It is only by rigid adherence to this rule that all temptation can be removed from
one acting in a fiduciary capacity, to abuse his trust or seek his own advantage in
the position which it affords him."
In view of our conclusion and holding that these mining claims were staked and located
for the benefit of the defendants Reynolds and Harrison, the other points and questions
involved in the appeal exhaustively, in detail and with a wealth of authorities, discussed
by counsel for both appellant and appellee with ability and skill, become incidental and
not of much if any relevancy whatsoever, although we may discuss one or two of them
not so much to strengthen our decision but rather to render more clear our views.
Appellants contends that the deeds of transfer (Exhibits A and B) should be annulled for
lack of mental capacity because at the time of their execution he was under
guardianship for insanity. It is contended that altho in a case of execution of a will by a
testator who was under guardianship for mental derangement, the presumption of
insanity is only juris tantum, subject to rebuttal, and nevertheless, mental incapacity as
regards contracts, particularly those transferring property, under similar circumstances,
involves a conclusive presumption which cannot be rebutted by evidence, We have
studied the arguments and authorities adduced by both counsel on this point and we
are inclined to agree with counsel for appellee that the better rule is that even in the
execution of contracts, in the absence of a statute to the contrary, the presumption of
insanity and mental incapacity is only prima facie and may be rebutted by evidence; and
that a person under guardianship for insanity may still enter into a valid contract and
even convey property, provided it is proven that at the time if entering into said contract,
he was not insane or that his mental defect if mentally deranged did not interfere with or
affect his capacity to appreciate the meaning and significance of the transaction entered
into by him.
Section 66. Generally. Of course, not every substandard mentality or even
every mental infirmity has the effect of rendering the afflicted person disabled for
the purpose of entering into contract and making conveyance. . . . A reasonable
test, suggested by several courts for the purpose of determining whether an
infirmity operates to render a person incapable of binding himself absolutely by
contract, is whether his mind has been so affected as to render him incapable of
understanding the nature and consequences of his acts, or more exactly,
whether his mental powers have become so far affected as to make him unable
to understand the character of the transaction in question. . . . Some authorities
take a view that a grantor may be competent to execute a deed notwithstanding
his disability to transact business generally, provided he understands the nature
of what he is doing and recollects the property of which he is making a
disposition and to whom he is conveying it. Other authorities, however, take the
position that to sustain a deed, the grantor must have the ability to transact
ordinary business. In any event, if it appears that the grantor in a deed was
incapable of comprehending that the effect of the instrument, when made,
executed, and delivered, would be to divest him of title to the land covered by the
instrument, it is not binding upon him. . . . (28 Am. Jur., Insane, etc., See Sec. 66,
pp. 701-702.)
. . . Even partial insanity will not render a contract voidable unless it exists in
connection with or is referable to the subject matter of the contract. Similarly, a
delusion if unconnected with the transaction in question, is not sufficient to affect
the validity of a contract consummated by the person thus affected. Monomania
or a mental fixation or abnormality respecting a matter disconnected with the act
of conveying property will not affect the validity of the conveyance. . . . (Ibid, p.
703.)
There are many case of persons mentally deranged who although they have been
having obsessions and delusions for many years regarding certain subjects and
situations, still are mentally sound in other respects. There are others who though
insane, have their lucid intervals when in all respects they are perfectly sane and
mentally sound.
In the case of Paulino M. Dumaguin, according to the doctor who observed and
examined him, and who made his report on October 15, 1929, and that was more than
two years before Exhibits A and B were executed, he (Paulino) while in the hospital was
"well-behaved, oriented in all spheres, coherent in his speech and has no more illusions
or hallucinations; but is having a delusions that one of the patients in the hospital is
trying to chloroform him. He consequently keeps away from said patient and that he
was "not sure that his former officemates whom he erroneously believed chloroformed
him before would not chloroform him anymore when he gets home". This was in 1929.
The same year Paulino was discharged from the hospital presumably because his
condition had improved, and on February 2, 1931, Paulino and his wife in a motion
assured the court of Camarines Sur that Paulino was already re-established (ya esta
restablecido). Several months later he went to Baguio looking for work. It is to be
presumed that he was then no longer insane. It is equally to be presumed that his
brother Fructuoso would not have recommended him for employment by defendants
Reynolds and Harrison and actually let him work for them, at the beginning climbing up
and down mountains to stake and locate claims for his employers; and if Paulino was
then insane, it was not likely that Reynolds and Harrison would employ him to do the
work of staking and locating claims to say nothing of taking charge of the payroll of their
employees, and registering with the Mining Recorder the declarations of location of
mining claims. There is every reason to believe as we do and hold that at least from
about the beginning of the year 1931 when Paulino began working for his employers
Reynolds and Harrison, and when he executed Exhibits A and B, he had the mental
capacity to transact ordinary business and was mentally capable of validity entering into
a contract even conveying property to another. But even assuming that at the time of
executing Exhibits A and B, Paulino were still mentally incapacitated, still, because of
his moral and legal obligation to transfer said claims to his employers, he could through
his guardian have been compelled by the court to execute said transfer, or after
termination of his guardianship obliged personally to execute said transfer to his
employers. He acted as a trustee for his employers and the law will not allow him to
invoke insanity or mental in capacity to violate his trust.
In relation with this alleged incapacity of Paulino, it is interesting to note that when he
and his lawyers filed his first complaint in 1934, that is, about three years after executing
Exhibits A and B, they said nothing about being mentally incapacitated in 1931. They
did not ask for the annulment of the deeds of transfer (Exhibits A an B) on the ground of
lack of mental capacity. They assumed and took it for granted and led others to believe
that said deeds of transfer were valid. They only asked for the payment of damages. It
was not until five years later in the year 1939 when they filed the first amended
complaint that they raised this question of mental incapacity. It took him and his lawyers
almost five years to discover and claim that he (Paulino) was not mentally capable to
enter into a contra when he executed exhibits A and B. In view of all this, we may well
and logically presume that all the time that Paulino was employed by Reynolds and
Harrison to locate and register mining claims for them, and at the same time he
executed Exhibits A and B and for several years thereafter when he continued in their
employ, neither Fructuoso, Paulino's brother nor defendants Reynold and Harrison had
any reason to suspect, much less, to believe that Paulino was other than a sane,
responsible and mentally capable individual, able to take care not only of him and his
interest but also of the interest of his employers. Neither did the other employees of
Reynolds and Harrison to whom Paulino paid wages on pay-days, be being in charge of
the payroll, and the Mining Recorder before whom he executed proper and valid
affidavits of locations for purpose of registration, note any mental incapacity on the part
of Paulino. All this goes to reinforce the finding that Paulino was mentally sane and
capable in 1931.
Counsel for appellant next contends that Exhibits A and B should be declared void for
lack of consideration. Said two deeds each mentions P1.00 and other valuable
consideration, the receipt whereof was acknowledge, to be the consideration. We
believe that consideration is sufficient, this aside from the provision of law (Article 1277
of the Civil Code), that consideration in a contract will be presumed and that it is licit,
unless the debtor prove the contrary which Paulino in this case failed to establish.
Furthermore, according to Reynolds, in consideration of the transfer of these mining
claims, he had later paid Paulino between P3,000 and P5,000. This was not refuted by
Paulino. Moreover, under the view we take of the mining claims having been located for
the benefit of defendants Reynolds and Harrison, by Paulino in his capacity as their
employee, paid for that purpose, no consideration for the conveyances was even
necessary. He was merely fulfilling an obligation and complying with a trust.
In conclusion we find and hold that Exhibits A and B were valid conveyances executed
by one who was mentally capable. Consequently, Reynolds and Harrison had a valid
title to convey as they did convey to defendant Big Wedge Mining Co., in Exhibits C, D,
and J.1wphl.nt
In view of the foregoing, finding no reversible error in the decision appealed from the
same is hereby affirmed, with costs.

April 7, 1924
In re H. V. BAMBERGER
H. V. Bamberger in his own behalf.
Attorney-General Villa-Real for the Government.
OSTRAND, J .:
At the instance of the Attorney-General, disbarment proceedings have been
instituted against Attorney H. V. Bamberger for alleged malpractice in his
profession. The matter has been investigated by the provincial fiscal of Iloilo, aided by
an assistant attorney of the Bureau of Justice, and after receiving considerable
testimony and other evidence, and after hearing the respondent, the fiscal summarizes
the facts found as follows:
FIRST. That Mr. H. V. Bamberger was attorney for the plaintiff in the case No. 4076
of the Court of First Instance of Iloilo "S. M. Berger, plaintiff vs. Enrique de Valera,
defendant" regarding a certain sum of money. virtual law library
SECOND. That Mr. Bemberger took possession of the personal property attached
by the plaintiff in said case, as well as other personal property not attached, and the
respondent disposed of a certain amount of steel bars which the defendant Enrique de
Valera had deposited with the Chairman King Chio.
THIRD. That Mr. Bamberger, as he admitted in his answer and statement, has
disposed of a lot 83 tins of canned peas at the price of 10 centavos per tin and one
case of catchup at the price P10, without due authorization.
FOURTH. That while all the merchandise was in the possession of Mr. H. V.
Bamberger, the respondent, he collected and received the amount of P2,178.82 as he
admitted, either from debtor of Enrique de Valera, especially the Chinaman King Chio,
or for having disposed of some merchandise. It is also an admitted fact by him that he is
accountable fro P1,187 to S. M. Berger & Co.
FIFTH. That Mr. Bamberger has, on various occasions, required either by Mr. Block, in
the name of S. M. Berger & Co., or by Messrs. S. M. Berger & Co. themselves, to
render an immediate accounting which he has disregarded without any reasonable
cause.
SIXTH. That Mr. H. V. Bamberger, since the civil case No. 4076 above referred to has
been decided, on July 22, 1921, and completely determinated as per the stipulation and
agreement, Exhibit T and the answer of the defendant admitting all and every one of the
allegations in the amended complaint of the plaintiff, has not made any effort to render
an accounting to S. M. Berger nor has he been willing to send or deliver to his client the
money collected at any time.
SEVENTH. That the excuse of the respondent that he could not render an accounting to
his client because Mr. Cedrum did not give him a list of the merchandise taken by the
latter and because Mr. Berger took with him the receipt of King Chio, Exhibit H, and
certain notes in connection with King Chio's account, is not admissible:
( a) Because Mr. Cendrum declared that he furnished Mr. Bemberger with the list in
question, and the respondent made a note in his book of the merchandise turned over.
( b) Because the evidence of the complaint shows clearly that Mr. Bamberger never
asked Mr. Berger for Exhibit H and other notes he needed to render his account and if
Mr. Berger [Bamberger] had written to Mr. Berger for the papers he needed for his
accounting, Mr. Berger would have, of course, given them to him with pleasure.
( c) Because if we were true that he could not give a complete accounting in regard to
King Chio's account without such papers and notes, it is not understood why he
prepared and acknowledge before a notary the document Exhibit 2, which is an
assignment of the account owed to King Chio by the Talisay-Silay Milling Co. amounting
to P5,390. This document was executed on April 25, 1922.
Upon the facts stated the fiscal recommends that the respondent be suspended
from the practice of law.
The findings quoted are amply supported by the evidence. Whether the respondent,
after deducting proper attorney's fees, owes his client any considerable sum of money,
we need not here decide; that must be determined an another and different proceeding.
But attorneys are bound to promptly account to their clients for money or property
received by them as such, and the fact that an attorney has a lien for fees on money in
his hands does not relieve him from liability. (6 C. J., 693.) Notwithstanding repeated
demands on the part of his client, the defendant has for several years failed to render
an accounting of the money received by him on behalf of his client and the excuses
offered for his failure to do so are so inadequate as to merit no consideration. The
respondent is clearly guilty of professional misconduct in falling to account to S. M.
Berger & Co. for money received by him as attorney for the latter.
It is therefore ordered that H. V. Bamberger be and he hereby is suspended from his
office of lawyer for the period of six months beginning with the date upon which he is
notified of this order.

G.R. No. L-32502 March 18, 1903
DUHART FRERES Y CIE., plaintiff-appellee,
vs.
ERNESTO MACIAS Y CONTADOR and E. MACIAS COMMISSION IMPEX
CO., defendants-appallants.
Harvey & O' Brien and Eugenio Angeles for appellants.
C.A. Sobral for appellee.
ROMUALDEZ, J .:
This appeal taken by the defendants against the judgment of the Court of First Instance
of Manila recinding the contract Exhibit A, sentencing them to pay the plaintiffs
P5,919.11 with legal interest thereon from the date of the filing of the complaint, with
costs, and in addition, sentencing the defendant Ernesto Macias to render a detailed
account of the agency's business, is based upon the following assignment of errors as
committed by the court below:
1. The trial court erred in not dissolving the attachment upon the films belonging
to the defendants because there never existed any writ of attachment in favor of
the present plaintiffs Eugenio Duhart and Pedro Duhart.
2. The trial court erred in declaring that the contract Exhibit A or 45 was made by
the plaintiffs as managing partners of Duhart Freres & Cie., and in not declaring
that said contract was made by and the name of the partnership Duhart Freres &
Cie.
3. The trial court erred in declaring that the document Exhibit A was a contract of
agency and in ordering its rescission, and in not declaring that said document
was a partnership contract of joint account.
4. The trial court erred in sentencing the defendants to pay to the plaintiffs the
sum of P5,919.11 with legal interest from the date the claim was entered.
5. The trial court erred in not declaring that the plaintiffs has violated the terms of
the contract Exhibit A.
6. The trial court erred in ordering the defendants to pay to the plaintiff s the sum
of P5,919.11 plus legal interest, and ordering at the same time that the
defendants render an accounting of the business of the partnership.
7. The trial court erred in dismissing the counterclaim of the defendants for
damages suffered by them, and in not declaring that inasmuch as contract
Exhibit 45 or A had paying back to the defendants all the capital invested by the
defendants Ernesto Macias in the business of the partnership E. Macias Com.
Impex Co., Ltd.
8. The trial court erred in dismissing the motion for a new trial requested by the
defendants.
The change made in the names of the plaintiffs by the amended complaint filed on
October 14, 1927, substituting for the partnership "Duhart Freres & Cie.," the
names of Pedro Duhart and Eugenio Duhart, who according to said amended complaint
are the sole collective partners, and the managing partners according to the evidence,
does not constitute a substantial alternation of the party plaintiff, and does not
effect the validity and legal force of the attachment of the defendants' property, issued in
favor of said "Duhart Freres & Cie.," upon a prior complaint, which writ still subsist as
well in favor of the original plaintiff "Duhart Freres & Cie.," as for the same entity in the
persons of its own sole collective partners, the plaintiffs Pedro Duhart and Eugenio
Duhart. Whenever it happens, as in the instant case, that there is no real change of
the party plaintiff, the writ of attachment issued in favor of said plaintiff as an entry,
remains unchanged and in favor of said plaintiff as and there is no necessity for issuing
another in favor of such as may later appear in the cause as plaintiff, so long as they
are to all intents and purposes the same party plaintiff or its successors-in-interest. The
alternation thus introduced into the complaint does not amount to a real change
in the party plaintiff. Furthermore, this question has already been decided by this court
against the defendants herein in the certiorari proceedings instituted by them on
January, 1928, G.R. No. 28895.
1

The APPELLANTS contend that as the plaintiffs subscribed the contract Exhibit A
on behalf of the partnership "Duhart Freres & Cie," they cannot now sue in their
town behalf, and in the instant action must be instituted by the partnership. It was
so done in the beginning, but said defendant having demurred, and the court sustained
their demurrer, the complaint had to bee amended, naming the collective partners as
plaintiffs in favor of the original plaintiff, the partnership "Duhart Freres & Cie., It is to be
noted that the present plaintiffs, in executing and signing the contract Exhibit A, did so,
according to its own terms, "as partners of the firm "Duhart Freres & Cie." doing
business in the aforementioned city." At any rate, the DEFENDANT, Ernesto Macias,
who, in Exhibit A contracted with the plaintiffs, cannot now gainsay their right to
bring this suit as partners of said firm. As to the defendant "E Macias Commission
Impex Co., Ltd.," the parties entered into an agreement in contract Exhibit A (Clause V)
as an agency under said commercial name, and it appears from paragraph 2 of the fifth
special defense of the defendants that said defendant is an agency created and
organized in the Philippines by virtue of said contract Exhibit A. The defendants come
under the doctrine laid down by this court in Strachan & MacMurray vs. Emaldi (22 Phil.,
295).
There is no merit in the assertion that the contract evidence by instruments Exhibit A, is
a joint-account partnership contract. We are not concerned with an accidental
association confined to definite transaction, being thus free from any solemnity in its
formation (art. 240, Code of Commerce; Merchantile Law, Carreras, p. 300, 3d edition),
nor did they in the contract agree upon any capital, or that Ernesto Macias subscribed
or would contribute a part of said capital (art. 239, Code of Commerce). On the contrary,
it is the opening of an "agency," a word and an idea, repeated and explained throughout
the instrument as signifying, a commercial agency. And notwithstanding the wise sphere
of action granted to said agency, the parties does not render it any the less an agency,
which, however, agreed upon a limit, until further stipulation, as may be seen in clause
VIII of the contract, namely, "commissions,"which are one of the kinds of a commercial
agency, specifically so called in article 244 of the Code of Commerce.
We see no sufficient reason for holding that the plaintiffs violated the contract,
and therefore, we find no error in the judgment appealed from ordering the dismissal
of the defendants' counterclaim.
It appears of record that the defendant Ernesto Macias violated clauses VIII, XI, XII, and
XIII of the contract, for it has been established that if he did open a banking credit for
fifty per cent centum of the value of his orders, which were not paid, neither paid for the
credit, nor sent a monthly statement, nor kept accounts, nor forwarded to the plaintiffs a
balance and semestral inventory. All of which gives the plaintiffs a right to rescind the
contract as agreed upon in clause XIX thereof.
As to the amount awarded to the plaintiffs, we find no reason in these proceedings to
depart lower court's findings in this matter.
With regard to the order that defendant Macias render a detailed account to the plaintiffs
of the business of said agency, as prayed for in the complaint, we deem it justified. It is
simply the consequence of the recession of the contract of agency, also decreed by the
court below. Every agent must give an account of his operations, a general principle
expressly laid down in article 1720 of the Civil Code. It is no obstacle to this order to
render accounts that a sum of money has been adjudged to the plaintiffs, or that the
defendants' counterclaim has been dismissed. Both the claim of said sum of the
counterclaim are questioned raised and submitted by the parties to the court, which, in
view of the evidence, had no decide and did in fact decide, and it has not been shown
that they represent all the transactions between the parties or all the operations of the
agency.
The appeal being without merit, we affirm the judgment appealed from, with cost against
the defendants. So ordered.

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

D E C I S I O N
REYES, J.B.L., J.:
Appeal by certiorari from the decision of the Court of Appeals finding Appellant Joaquin
Guzman guilty of the crime of qualified theft.
The facts, as found by the Court of Appeals, are as follows:
That ACCUSED J oaquin Guzman was a travelling sales agent of the New Life
Commercial of Aparri, Cagayan. On March 2, 1903, Guzman left Manila with 45 cases
of different assortments of La Tondea wine, in a truck driven by Andres Buenaventura,
with Federico Cabacungan as washing (helper), on their return trip to Aparri, by way of
Ilocos Norte. Along the route, the accused made various cash sales of wine and when
they reached Ballesteros, Cagayan, at about 3 oclock in the afternoon of March 5, 1953,
said accused had in his possession the amount of P4,873.62. Here, they parked their
truck at the Sambrano Station and the accused left his companions until supper time at
past 7:00 p.m. When they retired for the night, driver Buenaventura and the accused
occupied the drivers compartment of the truck, Buenaventura lying on the drivers seat
and the accused taking the upper deck with which the truck was provided (see photograph
Exhibit A). The washing, Cabacungan, slept in the body of the truck where the wines were
kept. There was a wall between the body of the truck and the drivers compartment; and
on that night all the windows were locked from inside. In the morning of March 6, 1953,
accused Guzman told the driver that he lost the amount of P2,840.50, and his firearm
license. Upon the advice of the driver, said accused reported the matter to the Chief
of Police of Ballesteros, who gave him a certificate of loss of his firearm license. They
were proceeding to their home journey when, at the outskirts of Ballesteros, they were
met by a tax collector and policeman Mariano David who told the accused to return
to Ballesteros and execute an affidavit regarding the alleged theft. Before the accused
returned to Ballesteros, he entrusted to the driver Buenaventura, the amount of
P1,630 in cash and a check for P403.12 under the proper receipt (Exhibit C), with the
sales invoices, for delivery to the manager, Enrique Go, of the company of Aparri. Driver
and washing continued the trip and arrived at Aparri between 3 and 4 oclock in the
afternoon of the same day. The driver delivered the money and invoices to Enrique
Go and informed the latter of the loss. Go reported the matter to the Philippine
Constabulary. The PC investigators and Go picked the accused at his house at
Aparri at 8 oclock in the morning, on March 7, 1953, after having failed to see him
(accused) at Ballesteros the previous night. Questioned at the PC barracks as to how
much money he still had, the accused stated that he had only P3, in his person. On March
10, 1953, the accused wrote to Go, requesting him to defer the filing of the criminal
complaint until March 16, 1953, on which date he promised to refund the amount lost
(Exhibit G). On March 17, 1953, the said accused paid the amount of P1,500 to Go. On
April 1, 1953, the accused was prosecuted for theft for the shortage of P804.70.
(Appellants Brief, pp. 13-15.)
Appellant Guzman claims, first, that under the above findings of fact, he had committed
only the crime of estafa; and second, as the crimes of estafa and theft are essentially
different offenses, he should be acquitted of the present charge for qualified theft,
although proceedings may be filed anew against him for the proper offense.
We agree with Appellant that under the above facts, the Court of Appeals erred in
holding that he had only the material or physical possession of the said merchandise or
its proceeds, because he was not the owner thereof; he was simply holding the money
for and in behalf of his employer.
While it is true that Appellant received the proceeds of his wine sales as travelling
salesman for the complainant, for and in behalf of the latter as his principal, and that
possession of the agent is possession of the principal, AN AGENT, unlike a servant or
messenger, has both the physical and juridical possession of the goods received
in agency, or the proceeds thereof, which takes the place of the goods after their sale by
the agent. His duty to turn over the proceeds of the agency depends upon his discharge,
as well as the result of the accounting between him and the principal; and he may set up
his right of possession as against that of the principal until the agency is terminated.
The case cited by the Court of Appeals (People vs. Locson, 57 Phil., 325), in support of
its theory that Appellant only had the material possession of the merchandise he was
selling for his principal, or their proceeds, is not in point. In said case, the receiving teller
of a bank who misappropriated money received by him for the bank, was held guilty of
qualified theft on the theory that the possession of the teller is the possession of the bank.
There is an essential distinction between the possession by a receiving teller of funds
received from third persons paid to the bank, and an agent who receives the proceeds of
sales of merchandise delivered to him in agency by his principal. In the former case,
payment by third persons to the teller is payment to the bank itself; the teller is a mere
custodian or keeper of the funds received, and has no independent right or title to retain
or possess the same as against the bank. An agent, on the other hand, can even assert,
as against his own principal, an independent, autonomous, right to retain the money or
goods received in consequence of the agency; as when the principal fails to reimburse
him for advances he has made, and indemnify him for damages suffered without his fault
(Article 1915, new Civil Code; Article 1730, old).
As Appellant converted to his own use proceeds of sales of merchandise delivered to him
as agent, which he received in trust for and under obligation to deliver and turn over to
his principal, HE IS GUILTY OF THE CRIME OF ESTAFA as defined by Article 315,
paragraph 1, subparagraph (c), of the Revised Penal Code. This has been the consistent
ruling of this Court in cases where a sales agent misappropriates or fails to turn over
to his principal proceeds of things or goods he was commissioned or authorized
to sell for the latter. (U. S. vs. Reyes, 36 Phil., 791; U. S. vs. Lim, 36 Phil., 682; People
vs. Leachon, 56 Phil., 737).
The next question is whether the present information for qualified theft alleges sufficient
facts to sustain a conviction for estafa under Article 315, paragraph 1, subparagraph (b),
of the Revised Penal Code. The information reads:c
The undersigned accuses Joaquin Guzman of the crime of Qualified Theft, defined and
penalized under Articles 308 and 309, No. 3 in connection with Article 310 of the Revised
Penal Code, as amended by Commonwealth Acts Nos. 273 and 417 and Republic Act
No. 120, committed as follows:
That on or about the 6th day of March, 1953, in the municipality of Aparri, province of
Cagayan, and within the jurisdiction of this Honorable Court, the said accused Joaquin
Guzman, while in the employ of Enrique Go and with grave abuse of confidence did then
and there, willfully, unlawfully, and feloniously, with intent to gain but without violence
against or intimidation of persons nor force upon things, without the consent of the owner
Enrique Go alias Ngo Yat, take and carry away for his personal use and benefit the sum
of eight hundred four pesos and seventy centavos (P804.70) to the damages and
prejudice of said Enrique Go alias Ngo Yat, in the amount of P804.70. (Original Records
p. 22.)
Article 315, paragraph 1, subparagraph (b), on the other hand, provides:
Swindling (estafa). Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
x x x x x x x x x
(2) With unfaithfulness or abuse of confidence, namely:c
x x x x x x x x x
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any
other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving, the duty to make delivery of, or to
return the same, even though such obligation be totally or partially guaranteed by a
bond; or by denying having received such money, good, or other property;
Under the above definition of estafa, it is an essential element of the crime that the money
or goods misappropriated or converted by the accused to the prejudice of another was
received by him in trust or on commission, or for administration, or under any other
obligation involving the duty to make delivery of, or to retain the same. No such allegation
appears in the above information. Consequently, we agree with Appellant that he cannot
be convicted thereunder of the crime of estafa as defined by the article above.
Wherefore, the decision appealed from is reversed, and Appellant Joaquin Guzman
acquitted of the crime of qualified theft. Appellant should, however, be held in custody
pending the filing of another information against him for estafa under Article 315,
paragraph 1, subparagraph (b), of the Revised Penal Code. Without costs in this
instance. SO ORDERED.

G.R. No. 16492 March 9, 1922
E. MACIAS & CO., importers and exporters, plaintiff-appellant,
vs.
WARNER, BARNES & CO., in its capacity as agents of "The China Fire Insurance
Co.," of "The Yang-Tsze" and of "The State Assurance Co., Ltd.," defendant-
appellant.
Ramon Sotelo for plaintiff-appellant.
Cohn, Fisher & DeWitt for defendant-appellant.
STATEMENT
The PLAINTIFF is a corporation duly registered and domiciled in Manila. The
DEFENDANT is a corporation duly licensed to do business in the Philippine Islands,
and is the resident agent of insurance companies "The China Fire Insurance Company,
Limited, of Hongkong," "The Yang-Tsze Insurance Association Limited, of Shanghai,"
and "The State Assurance Company, Limited, of Liverpool. The plaintiff is an importer of
textures and commercial articles for wholesale.
In the ordinary course of business, it applied for, and obtained, the following policies
against loss by fire:
Policy No. 4143, issued by The China Fire Insurance
Co., Ltd., for ....................................................................... P12,000
Policy No. 4382, issued by The China Fire Insurance
Co., Ltd., for .......................................................................... 15,000
Policy No. 326, issued by The Yang-Tsze Insurance
Ass'n., Ltd., for ..................................................................... 10,000
Policy No. 796111, issued by The State Assurance
Co., Ltd., for ............................................................................ 8,000
Policy No. 4143, of P12,000, recites that Mrs. Rosario Vizcarra, having paid to the
China Fire Insurance Company, Limited, P102 for insuring against or damage by fire
certain merchandise the description of which follows, "the company agrees with the
insured that, if the property above described, or any party thereof, shall be destroyed or
damaged by fire between September 16, 1918, and September 16, 1919," etc., "The
company will, out of its capital, stock and funds, pay or make good all such loss or
damage, not exceeding" the amount of the policy. This policy was later duly assigned to
the plaintiff.
Policy No. 4382, for P15,000, was issued by the same company to, and in the name
of, plaintiff.
Policy No. 326, for P10,000, was issued to, and in the name of policy No. 326, for
P10,000, was issued to, and in the name of the plaintiff by The Yang-Tsze Insurance
Association, Limited, and recites that the premium of P125 was paid by the plaintiff to
the association, and that, in the event of loss by fire between certain dates, "the funds
and property of the said association shall be subject and liable to pay, reinstate, or
make good to the said assured, their heirs, executors, or administrators, such loss or
damage as shall be occasioned by fire to the property above-mentioned and hereby
insured," not exceeding the amount of the policy.
Policy No. 796111, for P8,000, was issued by The States Assurance Company,
Limited, to the plaintiff for a premium of P100, which was paid to the Assurance
Company through the defendant, ITS AUTHORIZED AGENT, and recites that "the
company agrees with the insured that in the event of loss by fire between certain dates,
the company will, out of its capital, stock and funds, pay the amount of such loss or
damage," not exceeding the amount of the policy, and it is attested by the defendant,
through its "Cashier and Accountant and Manager, Agents, State Assurance Co., Ltd.,"
authorized agents of the Assurance Company.
Policy No. 4143 is attested "on behalf of The China Fire Insurance Company, Limited,"
by the cashier and accountant and manager of the defendant, as agents of The China
Fire Insurance Company, Limited. The same is true as to policy no. 4382.
Policy No. 326 recites the payment of a premium of P125 by the plaintiff to The Yang-
Tsze Insurance Association, Limited, and that, in the event of loss, "the funds and
property of the said association shall be subject and liable to pay, reinstate, or make
good to the said assured, their heirs, executors, or administrators, such loss or damage
as shall be occasioned by fire or lightning to the property" insured, not exceeding the
amount of the policy, and it is attested by the defendant, through its cashier and
accountant and manager, as agents of the association "under the authority of a Power
of Attorney from The Yang-Tsze Insurance Association, Limited," "to sign, for and on
behalf of the said Association, etc."
March 25, 1919, and while the policies were in force, a loss occurred in which the
insured property was more or less damaged by fire and the use of water resulting from
the fire.
The plaintiff made a claim for damages under its policies, but could not agree as to
the amount of loss sustained. It sold the insured property in its then damaged
condition, and brought this action against Warner, Barnes & Co., in its capacity as
agents, to recover the difference between the amount of the policies and the amount
realized from the sale of the property, and in the first cause of action, it prayed for
judgment for P23,052.99, and in the second cause of action P9,857.15.
The numbers and amounts of the policies and the names of the insurance companies
are set forth and alleged in the complaint.
The answer admits that the defendants is the resident agent of the insurance
companies, the issuance of the policies, and that a fire occurred on March 25, 1919, in
the building in which the goods covered by the insurance policies were stored, and that
to extinguish the fire three packages of goods were damage by water not to exceed
P500, and denies generally all other material allegations of the complaint.
As a further and separate defense, the defendant pleads certain provisions in the
policies, among which was a written notice of loss, and all other insurance and certain
detailed information. It is then alleged
That although frequently requested to do so, plaintiff failed and refused to
deliver to defendant or to any other person authorized to receive it, any claim in
writing specifying the articles or items of property damaged or destroyed and of
the alleged amount of the loss or damage caused thereto.
That defendant was at all times ready and willing to pay, on behalf of the
insurance companies by whom said policies were issued, and to the extent for
which each was proportionately liable, the actual damage to plaintiff's goods
covered by the risks insured against, upon compliance within the time limited,
with the terms of the clause of the contracts of insurance above set forth.
Defendants prays judgment for costs.
Before the trial, counsel for the defendant objected to the introduction of any
evidence in the case, and moved "that judgment be entered for the defendant on the
pleadings upon the ground that it appears from the averment of the complaint that the
plaintiff has had no contractual relations with the defendant, and that the action has
NOT BEEN BROUGHT AGAINST THE REAL PARTY IN INTEREST." The objection
and motion was overruled and exception duly taken. After trial the court found that there
was due the plaintiff from the three insurance companies p18,493.29 with interest
thereon at the rate of 6 per cent per annum, from the date of the commencement of the
action, and costs, and rendered the following judgment:
It is, therefore, ordered that judgment be entered against Warner, Barnes & Co.,
Ltd., in its capacity as agent and representative in the Philippine Islands for The
China fire Insurance Company, Ltd., The Yang-Tsze Insurance Association, Ltd.,
and The State Assurance Co., Ltd., for the payment to the plaintiff, E. Macias &
Co., of the sum of P18,493.29, the amount of this judgment to be prorated by
Warner, Barnes & Co., among the three insurance companies above-mentioned
by it represented, in proportion to the interest insured by each of said three
insurance companies, according to the policies issued by them in favor of the
plaintiff, and sued upon in this action.
The defendant then filed a motion to set aside the judgment and for a new trial, which
was overruled and exception taken. From this judgment the defendant appealed,
claiming that "the court erred in overruling defendant's motion for judgment on the
pleadings; that the court erred in giving judgment for the plaintiff; that the court erred in
denying defendants motion for a new trial," and specifying other assignments which are
not material to this opinion, Plaintiff also appealed.

JOHNS, J .:
The material facts are not in dispute it must be conceded that the policies in question
were issued by the different insurance companies, through the defendant as their
respective agent; that they were issued in consideration of a premium which was paid
by the insured to the respective companies for the amount of the policies, as alleged;
that the defendant was, and is now, the resident agent in Manila of the companies, and
was authorized to solicit and do business for them as such agent; that each company is
a foreign corporation. The principal office and place business of the The China Fire
Insurance Company is at Hongkong; of The Yang-Tsze Insurance Association is at
Shanghai; and of The State Assurance Company is at Liverpool. As such foreign
corporations they were duly authorized and licensed to do insurance business in the
Philippine Islands, and, to that end and for that purpose, the defendant corporation,
Warner, Barnes & Co., was the agent of each company.
All of the policies are in writing, and recite that the premium was paid by the insured to
the insurance company which issued the policy, and that, in the event of a loss, the
insurance company which issued it will pay to the insured the amount of the policy.
This is not a case of an undisclosed agent or an undisclosed principal. IT IS A CASE
OF A DISCLOSED AGENT AND A DISCLOSED PRINCIPAL.
The policies on their face SHOWS THAT THE DEFENDANT WAS THE AGENT OF
THE RESPECTIVE COMPANIES, and that it was acting as such agent in dealing with
the plaintiff. That in the issuance and delivery of the policies, the defendant was doing
business in the name of, acting for, and representing, the respective insurance
companies. The different policies expressly recite that, in the event of a loss, the
respective companies agree to compensate the plaintiff for the amount of the loss. the
defendant company did not insure the property of the plaintiff, or in any manner agree to
pay the plaintiff the amount of any loss. There is no contract of any kind. either oral or
written, between the plaintiff and Warner, Barnes & Co. Plaintiff's contracts are with
the insurance companies, and are in writing, and the premiums were paid to the
insurance companies, and are in writing, and the premiums were paid to the insurance
companies and the policies were issued by, and in the name of, the insurance
companies, and on the face of the policy itself, the plaintiff knew that the defendant
was acting as agent for, and was representing, the respective insurance companies in
the issuance and deliver of the policies. The defendant company did not contract or
agree to do anything or to pay the plaintiff any money at any time or on any
condition, either as agent or principal.
There is a very important distinction between the power and duties of a resident
insurance agent of a foreign company and that of an executor, administrator, or
receiver. AN INSURANCE AGENT as such is not responsible for, and does not have,
any control over the corpus or estate of the corporate property, as does an executor,
administrator, or receiver. Subject only to the order of the court, such officers are legal
custodians and have actual possession of the corporate property. It is under their
control and within their jurisdiction.
As stated by counsel for Warner, Barnes & Co., an attorney of record for an insurance
company has greater power and authority to act for, and bind, the company than does a
soliciting agent of an insurance company. Yet, no attorney would contend that a
personal action would lie against local attorneys who represent a foreign corporation to
recover on a contract made by the corporation. On the same principles by which plaintiff
seeks to recover from the defendant, an action could be maintained against the cashier
of any bank on every foreign draft which he signed for, and on behalf of, the bank.
Every cause of action ex contractu must be founded upon a contract, oral or written,
either express or implied.
Warner, Barnes & Co., as principal or agent, did not make any contract, either or
written, with the plaintiff. The contracts were made between the respective insurance
companies and the insured, and were made by the insurance companies, through
Warner, Barnes & Co., as their agent.
As in the case of a bank draft, it is not the cashier of the bank who makes the contract
to pay the money evidenced by the draft, it is the bank, acting through its cashier, that
makes the contract. So, in the instant case, it was the insurance companies, acting
through Warner, Barnes & Co., as their agent, that made the written contracts wit the
insured.
The trial court attached much importance to the fact that in the further and separate
answer, an admission was made "that defendant was at all times ready and will not to
pay, on behalf of the insurance companies by whom each was proportionately liable,
the actual damage" sustained by the plaintiff covered by the policies upon the terms and
conditions therein stated.
When analyzed, that is nothing more than a statement that the companies were ready
and willing to prorate the amount when the losses were legally ascertained. Again, there
is not claim or pretense that Warner, Barnes & Co. had any authority to act for, and
represent the insurance companies in the pending action, or to appear for them or make
any admission which would bind them. As a local agent, it could not do that without
express authority. That power could only exercised by an executive officer of the
company, or a person who was duly authorized to act for, and represent, the company
in legal proceedings, and there is no claim or pretense, either express or implied, that
the defendant has any such authority.
Plaintiff's cause of action, if any, is direct against the insurance companies that
issued the policies and agreed to pay the losses.
The only defendant in the instant case is "Warner, Barnes & Co., in its capacity as
agents of:" the insurance companies. Warner, Barnes & Co. did not make any contract
with the plaintiff, and are not liable to the plaintiff on any contract, either as principal or
agent. For such reason, plaintiff is not entitled to recover its losses from Warner, Barnes
& Co., either as principal or agent. There is no breach of any contract with the plaintiff
by Warners, Barnes & Co., either as agent or principal, for the simple reason that
Warner, Barnes & Co., as agent or principal, never made any contract, oral or written,
with the plaintiff. This defense was promptly raised before the taking of the testimony,
and again renewed on the motion to set aside the judgment.
Plaintiff's own evidence shows that any cause of action it may have is against the
insurance companies which issued the policies.
The complaint is dismissed, and the judgment of the lower court is reversed, and one
will be entered here in favor of Warner, Barnes & Co., Ltd., against the plaintiff, for costs
in both this and the lower court. So ordered.

G.R. No. L-10919 February 28, 1958
LORETO LORCA, plaintiff-appellant,
vs.
JOSE S. DINEROS, defendant-appellee.
Pedro B. Puya for appellant.
Manuel F. Zamora for appellee.
BENGZON, J .:
This action for damages against Deputy Sheriff Jose S. Dineros was dismissed by
Hon. Pantaleon Pelayo, Judge of Iloilo, on the ground that it is the Sheriff who is
responsible, if at all not this deputy.
Such decision resulted from a motion for judgment on the pleadings. The facts are short
and simple:
Pursuant to a writ of execution issued in Civil Case No. 1062 entitled "Rosario
Suero vs. Jose Morata" Jose S. Dineros as Deputy Sheriff and in the name of the
Sheriff sold at public auction to Jose Bermejo and Rosario Suero the property
attached therein, disregarding the third-party claim of Loreto Lorca (herein
Plaintiff) who asserted ownership over said property. This suit for damages is the
result of said auction sale. Defendant, in his answer, denied liability, pointing out,
that he had merely acted for and on behalf of Provincial Sheriff, Cipriano Cabaluna.
The appellant insists here that Dineros was responsible in view of sec. 334 of the
Revised Administrative Code and sec. 15, Rule 39, Rules of Court, which provides as
follows:
SEC. 334 Right of Bonded Officer to require Bond from Deputy or assistant.
A sheriff or other accountable official may require any of his deputies or
assistants, not bonded in the fidelity fund, to give an adequate personal bond as
security against loss by reason of any wrong doing on the part of such deputy or
assistant. The taking of such security shall in no wise impair the independent civil
liability of any of the parties.
. . . and in case the sheriff or attaching officer is sued for damages as a result of
the attachment. . . .
In the light of section 330 of the Administrative Code we think the above provisions
apply where the deputy acts in his own name or is guilty of active malfeasance
1
or
possibly where he exceeds the limits of his agency. In this case it is clear from the
certificate of sale attached to the complaint as Annex C that DINEROS ACTED ALL
THE TIME IN THE NAME OF THE EX-OFFICIO PROVINCIAL SHERIFF OF ILOILO;
and no allegations of misfeasance are made. The Sheriff is liable to third persons on
the acts of his deputy,
2
in the same manner that the principal is responsible for the acts
of his agent, that is why he is required to post a bond for "the benefit of whom it may
concern," (Section 330, Revised Administrative Code) for instance the owners of
property unlawfully sold by him on execution.
3

The complaint should not have been dismissed, appellant argues, since the court could
have included the Sheriff as party defendant, in line with Rule 3, section 11 of the Rules
of Court. However, what should have been done was not "inclusion" as plaintiff asked,
nor "exclusion" under said section 11. It was "substitution" of the deputy by the Sheriff.
Anyway, the word "may" in said see. 11 implies direction of the court; and we are shown
no reasons indicating abuse thereof.
This is not the first time an action is dismissed for the reason that the agent instead
of his principal was made the party defendant. (See Macias & Co. vs. Warner
Barnes, 43 Phil., 155; Banque Generate Belge vs. Walter Bull & Co., 84 Phil., 164, 47
Off. Gaz., 138.)
Judgment affirmed, with costs against appellant.

G.R. No. 130423 November 18, 2002
VIRGIE SERONA, petitioner,
vs.
HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.
D E C I S I O N
YNARES-SANTIAGO, J .:
During the period from July 1992 to September 1992, Leonida Quilatan delivered
pieces of jewelry to PETITIONER Virgie Serona to be sold on commission basis.
By oral agreement of the parties, petitioner shall remit payment or return the pieces of
jewelry if not sold to Quilatan, both within 30 days from receipt of the items.
Upon petitioners failure to pay on September 24, 1992, Quilatan required her to
execute an acknowledgment receipt (Exhibit B) indicating their agreement and the total
amount due, to wit:
Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga
alahas kay Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para
ipagbili para ako magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa
kanya ang mga nasabing alahas kung hindi mabibili sa loob ng 30 araw.
Las Pinas, September 24, 1992.
1

The receipt was signed by petitioner and a witness, Rufina G. Navarette.
Unknown to Quilatan, PETITIONER had earlier entrusted the jewelry to one
Marichu Labrador for the latter to sell on commission basis. Petitioner was not able
to collect payment from Labrador, which caused her to likewise fail to pay her
obligation to Quilatan.
Subsequently, Quilatan, through counsel, sent a formal letter of demand
2
to
petitioner for failure to settle her obligation. Quilatan executed a complaint
affidavit
3
against petitioner before the Office of the Assistant Provincial Prosecutor.
Thereafter, AN INFORMATION FOR ESTAFA under Article 315, paragraph 1(b)
4
of the
Revised Penal Code was filed against petitioner, which was raffled to Branch 255 of the
Regional Trial Court of Las Pinas. The information alleged:
That on or about and sometime during the period from July 1992 up to September 1992,
in the Municipality of Las Pinas, Metro Manila, Philippines, and within the jurisdiction of
this Honorable Court, the said accused received in trust from the complainant Leonida
E. Quilatan various pieces of jewelry in the total value of P567,750.00 to be sold on
commission basis under the express duty and obligation of remitting the proceeds
thereof to the said complainant if sold or returning the same to the latter if unsold but the
said accused once in possession of said various pieces of jewelry, with unfaithfulness
and abuse of confidence and with intent to defraud, did then and there willfully,
unlawfully and feloniously misappropriate and convert the same for her own personal
use and benefit and despite oral and written demands, she failed and refused to
account for said jewelry or the proceeds of sale thereof, to the damage and prejudice of
complainant Leonida E. Quilatan in the aforestated total amount of P567,750.00.
CONTRARY TO LAW.
5

Petitioner pleaded not guilty to the charge upon arraignment.
6
Trial on the merits
thereafter ensued.
Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00
worth of jewelriy;
7
that at the start, petitioner was prompt in settling her obligation;
however, subsequently the payments were remitted late;
8
that petitioner still owed her in
the amount of P424,750.00.
9

On the other hand, petitioner admitted that she received several pieces of jewelry from
Quilatan and that she indeed failed to pay for the same. She claimed that she entrusted
the pieces of jewelry to Marichu Labrador who failed to pay for the same, thereby
causing her to default in paying Quilatan.
10
She presented handwritten receipts (Exhibits
1 & 2)
11
evidencing payments made to Quilatan prior to the filing of the criminal case.
Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth
P441,035.00. She identified an acknowledgment receipt (Exhibit 3)
12
signed by her
dated July 5, 1992 and testified that she sold the jewelry to a person who
absconded without paying her. Labrador also explained that in the past, she too
had directly transacted with Quilatan for the sale of jewelry on commission basis;
however, due to her outstanding account with the latter, she got jewelry from petitioner
instead.
13

On November 17, 1994, the trial court rendered a decision finding petitioner guilty
of estafa, the dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona
guilty beyond reasonable doubt, and as the amount misappropriated is P424,750.00 the
penalty provided under the first paragraph of Article 315 of the Revised Penal Code has
to be imposed which shall be in the maximum period plus one (1) year for every
additional P10,000.00.
Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to
suffer the penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of
prision correccional as minimum to TEN (10) YEARS and ONE (1) DAY of prision
mayor as maximum; to pay the sum of P424,750.00 as cost for the unreturned
jewelries; to suffer the accessory penalties provided by law; and to pay the costs.
SO ORDERED.
14

Petitioner appealed to the Court of Appeals, which affirmed the judgment of
conviction but modified the penalty as follows:
WHEREFORE, the appealed decision finding the accused-appellant guilty beyond
reasonable doubt of the crime of estafa is hereby AFFIRMED with the following
MODIFICATION:
Considering that the amount involved is P424,750.00, the penalty should be imposed in
its maximum period adding one (1) year for each additional P10,000.00 albeit the total
penalty should not exceed Twenty (20) Years (Art. 315). Hence, accused-appellant is
hereby SENTENCED to suffer the penalty of imprisonment ranging from Four (4) Years
and One (1) Day of Prision Correccional as minimum to Twenty (20) Years of Reclusion
Temporal.
SO ORDERED.
15

Upon denial of her motion for reconsideration,
16
petitioner filed the instant petition under
Rule 45, alleging that:
I
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT
THERE WAS AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN
ENTRUSTING THE SUBJECT JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON
COMMISSION TO PROSPECTIVE BUYERS.
II
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT
THERE WAS MISAPPROPRIATION OR CONVERSION ON THE PART OF
PETITIONER WHEN SHE FAILED TO RETURN THE SUBJECT JEWELRIES (sic) TO
PRIVATE COMPLAINANT.
17

Petitioner argues that the prosecution failed to establish the elements of estafa as
penalized under Article 315, par. 1(b) of the Revised Penal Code. In particular, she
submits that she neither abused the confidence reposed upon her by Quilatan nor
converted or misappropriated the subject jewelry; that her giving the pieces of jewelry to
a sub-agent for sale on commission basis did not violate her undertaking with Quilatan.
Moreover, petitioner delivered the jewelry to Labrador under the same terms upon
which it was originally entrusted to her. It was established that petitioner had not
derived any personal benefit from the loss of the jewelry. Consequently, it cannot
be said that she misappropriated or converted the same.
We find merit in the petition.
The elements of estafa through misappropriation or conversion as defined in Article
315, par. 1(b) of the Revised Penal Code are: (1) that the money, good or other
personal property is received by the offender in trust, or on commission, or for
administration, or under any other obligation involving the duty to make delivery of, or to
return, the same; (2) that there be misappropriation or conversion of such money or
property by the offender or denial on his part of such receipt; (3) that such
misappropriation or conversion or denial is to the prejudice of another; and (4) that there
is a demand made by the offended party on the offender.
18
While the first, third and
fourth elements are concededly present, we find the second element of
misappropriation or conversion to be lacking in the case at bar.
Petitioner did not ipso facto commit the crime of estafa through conversion or
misappropriation by delivering the jewelry to a sub-agent for sale on commission basis.
We are unable to agree with the lower courts conclusion that this fact alone is sufficient
ground for holding that petitioner disposed of the jewelry "as if it were hers, thereby
committing conversion and a clear breach of trust."
19

It must be pointed out that THE LAW ON AGENCY IN OUR JURISDICTION ALLOWS
the appointment by an agent of a substitute or sub-agent in the absence of an
express agreement to the contrary between the agent and the principal.
20
In the case at
bar, the APPOINTMENT OF LABRADOR AS PETITIONERS SUB-AGENT WAS NOT
EXPRESSLY PROHIBITED BY QUILATAN, as the acknowledgment receipt, Exhibit B,
does not contain any such limitation. Neither does it appear that petitioner was verbally
forbidden by Quilatan from passing on the jewelry to another person before the
acknowledgment receipt was executed or at any other time. Thus, it cannot be said that
petitioners act of entrusting the jewelry to Labrador is characterized by abuse of
confidence because such an act was not proscribed and is, in fact, legally sanctioned.
The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of
money or property received to the prejudice of the owner. The words "convert" and
"misappropriated" connote an act of using or disposing of anothers property as if it were
ones own, or of devoting it to a purpose or use different from that agreed upon. To
misappropriate for ones own use includes not only conversion to ones personal





advantage, but also every attempt to dispose of the property of another without right.
21

In the case at bar, it was established that the inability of petitioner as agent to comply
with her duty to return either the pieces of jewelry or the proceeds of its sale to her
principal Quilatan was due, in turn, to the failure of Labrador to abide by her agreement
with petitioner. Notably, Labrador testified that she obligated herself to sell the jewelry in
behalf of petitioner also on commission basis or to return the same if not sold. In other
words, the pieces of jewelry were given by petitioner to Labrador to achieve the
very same end for which they were delivered to her in the first place.
Consequently, there is no conversion since the pieces of jewelry were not devoted to a
purpose or use different from that agreed upon.
Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them
to Labrador "without right." Aside from the fact that no condition or limitation was
imposed on the mode or manner by which petitioner was to effect the sale, it is also
consistent with usual practice for the seller to necessarily part with the valuables in
order to find a buyer and allow inspection of the items for sale.
In People v. Nepomuceno,
22
the accused-appellant was acquitted of estafa on facts
similar to the instant case. Accused-appellant therein undertook to sell two diamond
rings in behalf of the complainant on commission basis, with the obligation to return the
same in a few days if not sold. However, by reason of the fact that the rings were
delivered also for sale on commission to sub-agents who failed to account for the rings
or the proceeds of its sale, accused-appellant likewise failed to make good his
obligation to the complainant thereby giving rise to the charge of estafa. In absolving the
accused-appellant of the crime charged, we held:
Where, as in the present case, the agents to whom personal property was entrusted for
sale, conclusively proves the inability to return the same is solely due to malfeasance of
a subagent to whom the first agent had actually entrusted the property in good faith, and
for the same purpose for which it was received; there being no prohibition to do so and
the chattel being delivered to the subagent before the owner demands its return or
before such return becomes due, we hold that the first agent can not be held guilty of
estafa by either misappropriation or conversion. The abuse of confidence that is
characteristic of this offense is missing under the circumstances.
23

Accordingly, petitioner herein must be acquitted. The lower courts reliance on People v.
Flores
24
and U.S. v. Panes
25
to justify petitioners conviction is misplaced, considering
that the factual background of the cited cases differ from those which obtain in the case
at bar. In Flores, the accused received a ring to sell under the condition that she would
return it the following day if not sold and without authority to retain the ring or to give it to
a sub-agent. The accused in Panes, meanwhile, was obliged to return the jewelry he
received upon demand, but passed on the same to a sub-agent even after demand for
its return had already been made. In the foregoing cases, it was held that there was
conversion or misappropriation.
Furthermore, in Lim v. Court of Appeals,
26
the Court, citing Nepomuceno and the case
of People v. Trinidad,
27
held that:
In cases of estafa the profit or gain must be obtained by the accused personally,
through his own acts, and his mere negligence in permitting another to take advantage
or benefit from the entrusted chattel cannot constitute estafa under Article 315,
paragraph 1-b, of the Revised Penal Code; unless of course the evidence should
disclose that the agent acted in conspiracy or connivance with the one who carried out
the actual misappropriation, then the accused would be answerable for the acts of his
co-conspirators. If there is no such evidence, direct or circumstantial, and if the proof is
clear that the accused herself was the innocent victim of her sub-agents faithlessness,
her acquittal is in order.
28
(Italics copied)
Labrador admitted that she received the jewelry from petitioner and sold the same to a
third person. She further acknowledged that she owed petitioner P441,035.00, thereby
negating any criminal intent on the part of petitioner. There is no showing that petitioner
derived personal benefit from or conspired with Labrador to deprive Quilatan of the
jewelry or its value. Consequently, there is no estafa within contemplation of the law.
Notwithstanding the above, however, petitioner is not entirely free from any liability
towards Quilatan. The rule is that an accused acquitted of estafa may nevertheless be
held civilly liable where the facts established by the evidence so warrant. Then too, an
agent who is not prohibited from appointing a sub-agent but does so without express
authority is responsible for the acts of the sub-agent.
29
Considering that the civil action
for the recovery of civil liability arising from the offense is deemed instituted with the
criminal action,
30
petitioner is liable to pay complainant Quilatan the value of the unpaid
pieces of jewelry.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-
G.R. CR No. 17222 dated April 30,1997 and its resolution dated August 28, 1997 are
REVERSED and SET ASIDE. Petitioner Virgie Serona is ACQUITTED of the crime
charged, but is held civilly liable in the amount of P424,750.00 as actual damages, plus
legal interest, without subsidiary imprisonment in case of insolvency.
SO ORDERED.

G.R. No. 137162 January 24, 2007
CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA, IGNACIO E.
RUBIO, THE HEIRS OF LUZ R. BALOLOY, namely, ALEJANDRINO R. BALOLOY
and BAYANI R. BALOLOY, Petitioners,
vs.
RUFINA LIM, Respondent.
D E C I S I O N
AZCUNA, J .:
This is an appeal by certiorari
1
to annul and set aside the Decision and Resolution of
the Court of Appeals (CA) dated October 26, 1998 and January 11, 1999, respectively,
in CA-G.R. CV No. 48282, entitled "Rufina Lim v. Corazon L. Escueta, etc., et. al."
The facts
2
appear as follows:
RESPONDENT Rufina Lim filed an action to remove cloud on, or quiet title to, real
property, with preliminary injunction and issuance of [a hold-departure order] from the
Philippines against Ignacio E. Rubio. Respondent amended her complaint to include
specific performance and damages.
In her amended complaint, respondent averred inter alia that she bought the
hereditary shares (consisting of 10 lots) of Ignacio Rubio [and] the heirs of Luz
Baloloy, namely: Alejandrino, Bayani, and other co-heirs; that said vendors executed a
contract of sale dated April 10, 1990 in her favor; that Ignacio Rubio and the heirs of
Luz Baloloy received [a down payment] or earnest money in the amount
of P102,169.86 and P450,000, respectively; that it was agreed in the contract of sale
that the vendors would secure certificates of title covering their respective hereditary
shares; that the balance of the purchase price would be paid to each heir upon
presentation of their individual certificate[s] of [title]; that Ignacio Rubio refused to
receive the other half of the down payment which is P[100,000]; that Ignacio Rubio
refused and still refuses to deliver to [respondent] the certificates of title covering
his share on the two lots; that with respect to the heirs of Luz Baloloy, they also refused
and still refuse to perform the delivery of the two certificates of title covering their share
in the disputed lots; that respondent was and is ready and willing to pay Ignacio
Rubio and the heirs of Luz Baloloy upon presentation of their individual certificates of
title, free from whatever lien and encumbrance;
As to PETITIONER Corazon Escueta, in spite of her knowledge that the disputed lots
have already been sold by Ignacio Rubio to respondent, it is alleged that a simulated
deed of sale involving said lots was effected by Ignacio Rubio in her favor; and that the
simulated deed of sale by Rubio to Escueta has raised doubts and clouds over
respondents title.
In their separate amended answers, petitioners denied the material allegations of the
complaint and alleged inter alia the following:
For the heirs of Luz Baloloy (Baloloys for brevity):
Respondent has no cause of action, because the subject contract of sale has no
more force and effect as far as the Baloloys are concerned, since they have withdrawn
their offer to sell for the reason that respondent failed to pay the balance of the
purchase price as orally promised on or before May 1, 1990.
For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta (Escueta for
brevity):
Respondent has no cause of action, because Rubio has not entered into a contract
of sale with her; that he has appointed his daughter Patricia Llamas TO BE HIS
ATTORNEY-IN-FACT and not in favor of Virginia Rubio Laygo Lim (Lim for brevity)
who was the one who represented him in the sale of the disputed lots in favor of
respondent; that theP100,000 respondent claimed he received as down payment for
the lots is a simple transaction by way of a loan with Lim.
The Baloloys failed to appear at the pre-trial. Upon motion of respondent, the trial court
declared the Baloloys in default. They then filed a motion to lift the order declaring them
in default, which was denied by the trial court in an order dated November 27, 1991.
Consequently, respondent was allowed to adduce evidence ex parte. Thereafter, the
trial court rendered a partial decision dated July 23, 1993 against the Baloloys, the
dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of [respondent]
and against [petitioners, heirs] of Luz R. Balolo[y], namely: Alejandrino Baloloy and
Bayani Baloloy. The [petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered to
immediately execute an [Absolute] Deed of Sale over their hereditary share in the
properties covered by TCT No. 74392 and TCT No. 74394, after payment to them by
[respondent] the amount ofP[1,050,000] or consignation of said amount in Court. [For]
failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy to execute the Absolute
Deed of Sale over their hereditary share in the property covered by TCT No. T-74392
and TCT No. T-74394 in favor of [respondent], the Clerk of Court is ordered to execute
the necessary Absolute Deed of Sale in behalf of the Baloloys in favor of [respondent,]
with a consideration of P[1,500,000]. Further[,] [petitioners] Alejandrino Baloloy and
Bayani Baloloy are ordered to jointly and severally pay [respondent] moral damages in
the amount of P[50,000] and P[20,000] for attorneys fees. The adverse claim annotated
at the back of TCT No. T-74392 and TCT No. T-74394[,] insofar as the shares of
Alejandrino Baloloy and Bayani Baloloy are concerned[,] [is] ordered cancelled.
With costs against [petitioners] Alejandrino Baloloy and Bayani Baloloy.
SO ORDERED.
3

The Baloloys filed a petition for relief from judgment and order dated July 4, 1994 and
supplemental petition dated July 7, 1994. This was denied by the trial court in an order
dated September 16, 1994. Hence, appeal to the Court of Appeals was taken
challenging the order denying the petition for relief.
Trial on the merits ensued between respondent and Rubio and Escueta. After trial, the
trial court rendered its assailed Decision, as follows:
IN VIEW OF THE FOREGOING, the complaint [and] amended complaint are dismissed
against [petitioners] Corazon L. Escueta, Ignacio E. Rubio[,] and the Register of Deeds.
The counterclaim of [petitioners] [is] also dismissed. However, [petitioner] Ignacio E.
Rubio is ordered to return to the [respondent], Rufina Lim[,] the amount
of P102,169.80[,] with interest at the rate of six percent (6%) per annum from April 10,
[1990] until the same is fully paid. Without pronouncement as to costs.
SO ORDERED.
4

On appeal, the CA affirmed the trial courts order and partial decision, but reversed
the later decision. The dispositive portion of its assailed Decision reads:
WHEREFORE, upon all the foregoing premises considered, this Court rules:
1. the appeal of the Baloloys from the Order denying the Petition for Relief from
Judgment and Orders dated July 4, 1994 and Supplemental Petition dated July
7, 1994 is DISMISSED. The Order appealed from is AFFIRMED.
2. the Decision dismissing [respondents] complaint is REVERSED and SET
ASIDE and a new one is entered. Accordingly,
a. the validity of the subject contract of sale in favor of [respondent] is
upheld.
b. Rubio is directed to execute a Deed of Absolute Sale conditioned upon
the payment of the balance of the purchase price by [respondent] within
30 days from the receipt of the entry of judgment of this Decision.
c. the contracts of sale between Rubio and Escueta involving Rubios
share in the disputed properties is declared NULL and VOID.
d. Rubio and Escueta are ordered to pay jointly and severally the
[respondent] the amount of P[20,000] as moral damages and P[20,000] as
attorneys fees.
3. the appeal of Rubio and Escueta on the denial of their counterclaim is
DISMISSED.
SO ORDERED.
5

Petitioners Motion for Reconsideration of the CA Decision was denied. Hence, this
petition.
The issues are:
I
THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION FOR
RELIEF FROM JUDGMENT FILED BY THE BALOLOYS.
II
THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE
COMPLAINT AND IN AWARDING MORAL DAMAGES AND ATTORNEYS FEES IN
FAVOR OF RESPONDENT RUFINA L. LIM CONSIDERING THAT:
A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE
BETWEEN VIRGINIA LAYGO-LIM AND RUFINA LIM.
B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA
LAYGO-LIM IS A CONTRACT TO SELL AND NOT A CONTRACT OF SALE.
C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONS
UNDER THE CONTRACT TO SELL THEREBY WARRANTING THE
CANCELLATION THEREOF.
D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING
INTO THE CONTRACT OF SALE WITH IGNACIO E. RUBIO.
III
THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND
CORAZON L. ESCUETA IS VALID.
IV
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING
PETITIONERS COUNTERCLAIMS.
Briefly, the issue is whether the contract of sale between petitioners and respondent is
valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances surrounding petitioners failure
to appear at the pre-trial and to file the petition for relief on time.
As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable
neglect, because petitioner Bayani was in the United States. There was no service of
the notice of pre-trial or order. Neither did the former counsel of record inform him.
Consequently, the order declaring him in default is void, and all subsequent
proceedings, orders, or decision are void.
Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appear
on behalf of Bayani at the pre-trial conference.
Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not
authorize Virginia to transact business in his behalf pertaining to the property. The
Special Power of Attorney was constituted in favor of Llamas, and the latter was not
empowered to designate a substitute attorney-in-fact. Llamas even disowned her
signature appearing on the "Joint Special Power of Attorney," which constituted Virginia
as her true and lawful attorney-in-fact in selling Rubios properties.
Dealing with an assumed agent, respondent should ascertain not only the fact of
agency, but also the nature and extent of the formers authority. Besides, Virginia
exceeded the authority for failing to comply with her obligations under the "Joint Special
Power of Attorney."
The amount encashed by Rubio represented not the down payment, but the payment of
respondents debt. His acceptance and encashment of the check was not a ratification
of the contract of sale.
Third, the contract between respondent and Virginia is a contract to sell, not a contract
of sale. The real character of the contract is not the title given, but the intention of the
parties. They intended to reserve ownership of the property to petitioners pending full
payment of the purchase price. Together with taxes and other fees due on the
properties, these are conditions precedent for the perfection of the sale. Even assuming
that the contract is ambiguous, the same must be resolved against respondent, the
party who caused the same.
Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio had
the right to sell his properties to Escueta who exercised due diligence in ascertaining
ownership of the properties sold to her. Besides, a purchaser need not inquire beyond
what appears in a Torrens title.
The petition lacks merit. The contract of sale between petitioners and respondent is
valid.lawphil.net
Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the
Baloloys answer to the original complaint and amended complaint, the allegations
relating to the personal circumstances of the Baloloys are clearly admitted.
"An admission, verbal or written, made by a party in the course of the proceedings in the
same case, does not require proof."
6
The "factual admission in the pleadings on record
[dispenses] with the need x x x to present evidence to prove the admitted fact."
7
It
cannot, therefore, "be controverted by the party making such admission, and [is]
conclusive"
8
as to them. All proofs submitted by them "contrary thereto or inconsistent
therewith should be ignored whether objection is interposed by a party or not."
9
Besides,
there is no showing that a palpable mistake has been committed in their admission or
that no admission has been made by them.
Pre-trial is mandatory.
10
The notices of pre-trial had been sent to both the Baloloys and
their former counsel of record. Being served with notice, he is "charged with the duty of
notifying the party represented by him."
11
He must "see to it that his client receives such
notice and attends the pre-trial."
12
What the Baloloys and their former counsel have
alleged instead in their Motion to Lift Order of As In Default dated December 11, 1991 is
the belated receipt of Bayani Baloloys special power of attorney in favor of their former
counsel, not that they have not received the notice or been informed of the scheduled
pre-trial. Not having raised the ground of lack of a special power of attorney in their
motion, they are now deemed to have waived it. Certainly, they cannot raise it at this
late stage of the proceedings. For lack of representation, Bayani Baloloy was properly
declared in default.
Section 3 of Rule 38 of the Rules of Court states:
SEC. 3. Time for filing petition; contents and verification. A petition provided for in
either of the preceding sections of this Rule must be verified, filed within sixty (60) days
after the petitioner learns of the judgment, final order, or other proceeding to be set
aside, and not more than six (6) months after such judgment or final order was entered,
or such proceeding was taken; and must be accompanied with affidavits showing the
fraud, accident, mistake, or excusable negligence relied upon, and the facts constituting
the petitioners good and substantial cause of action or defense, as the case may be.
There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The
60-day period is reckoned from the time the party acquired knowledge of the order,
judgment or proceedings and not from the date he actually read the same."
13
As aptly
put by the appellate court:
The evidence on record as far as this issue is concerned shows that Atty. Arsenio
Villalon, Jr., the former counsel of record of the Baloloys received a copy of the partial
decision dated June 23, 1993 on April 5, 1994. At that time, said former counsel is still
their counsel of record. The reckoning of the 60 day period therefore is the date when
the said counsel of record received a copy of the partial decision which was on April 5,
1994. The petition for relief was filed by the new counsel on July 4, 1994 which means
that 90 days have already lapsed or 30 days beyond the 60 day period. Moreover, the
records further show that the Baloloys received the partial decision on September 13,
1993 as evidenced by Registry return cards which bear the numbers 02597 and 02598
signed by Mr. Alejandrino Baloloy.
The Baloloys[,] apparently in an attempt to cure the lapse of the aforesaid reglementary
period to file a petition for relief from judgment[,] included in its petition the two Orders
dated May 6, 1994 and June 29, 1994. The first Order denied Baloloys motion to fix the
period within which plaintiffs-appellants pay the balance of the purchase price. The
second Order refers to the grant of partial execution, i.e. on the aspect of damages.
These Orders are only consequences of the partial decision subject of the petition for
relief, and thus, cannot be considered in the determination of the reglementary period
within which to file the said petition for relief.
Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that
the petition for relief may be granted.
14
There is no proof of extrinsic fraud that "prevents
a party from having a trial x x x or from presenting all of his case to the court"
15
or an
"accident x x x which ordinary prudence could not have guarded against, and by reason
of which the party applying has probably been impaired in his rights."
16
There is also no
proof of either a "mistake x x x of law"
17
or an excusable negligence "caused by failure
to receive notice of x x x the trial x x x that it would not be necessary for him to take an
active part in the case x x x by relying on another person to attend to the case for him,
when such other person x x x was chargeable with that duty x x x, or by other
circumstances not involving fault of the moving party."
18

Article 1892 of the Civil Code provides:
Art. 1892. The agent may appoint a substitute if the principal has not prohibited him
from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one x x x.
Applying the above-quoted provision to the special power of attorney executed by
Ignacio Rubio in favor of his daughter Patricia Llamas, it is clear that she is not
prohibited from appointing a substitute. By authorizing Virginia Lim to sell the subject
properties, Patricia merely acted within the limits of the authority given by her father, but
she will have to be "responsible for the acts of the sub-agent,"
19
among which is
precisely the sale of the subject properties in favor of respondent.
Even assuming that Virginia Lim has no authority to sell the subject properties, the
contract she executed in favor of respondent is not void, but simply unenforceable,
under the second paragraph of Article 1317 of the Civil Code which reads:
Art. 1317. x x x
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it
is ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.
Ignacio Rubio merely denies the contract of sale. He claims, without substantiation, that
what he received was a loan, not the down payment for the sale of the subject
properties. His acceptance and encashment of the check, however, constitute
ratification of the contract of sale and "produce the effects of an express power of
agency."
20
"[H]is action necessarily implies that he waived his right of action to avoid the
contract, and, consequently, it also implies the tacit, if not express, confirmation of the
said sale effected" by Virginia Lim in favor of respondent.
Similarly, the Baloloys have ratified the contract of sale when they accepted and
enjoyed its benefits. "The doctrine of estoppel applicable to petitioners here is not only
that which prohibits a party from assuming inconsistent positions, based on the principle
of election, but that which precludes him from repudiating an obligation voluntarily
assumed after having accepted benefits therefrom. To countenance such repudiation
would be contrary to equity, and would put a premium on fraud or misrepresentation."
21

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

Applying Article 1544 of the Civil Code, a second buyer of the property who may have
had actual or constructive knowledge of such defect in the sellers title, or at least was
charged with the obligation to discover such defect, cannot be a registrant in good faith.
Such second buyer cannot defeat the first buyers title. In case a title is issued to the
second buyer, the first buyer may seek reconveyance of the property subject of the
sale.
23
Even the argument that a purchaser need not inquire beyond what appears in a
Torrens title does not hold water. A perusal of the certificates of title alone will reveal
that the subject properties are registered in common, not in the individual names of the
heirs.
Nothing in the contract "prevents the obligation of the vendor to convey title from
becoming effective"
24
or gives "the vendor the right to unilaterally resolve the contract
the moment the buyer fails to pay within a fixed period."
25
Petitioners themselves have
failed to deliver their individual certificates of title, for which reason it is obvious that
respondent cannot be expected to pay the stipulated taxes, fees, and expenses.
"[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are
present, such as: (1) consent or meeting of the minds; (2) determinate subject matter;
and (3) price certain in money or its equivalent."
26
Ignacio Rubio, the Baloloys, and their
co-heirs sold their hereditary shares for a price certain to which respondent agreed to
buy and pay for the subject properties. "The offer and the acceptance are concurrent,
since the minds of the contracting parties meet in the terms of the agreement."
27

In fact, earnest money has been given by respondent. "[I]t shall be considered as part of
the price and as proof of the perfection of the contract.
28
It constitutes an advance
payment to "be deducted from the total price."
29

Article 1477 of the same Code also states that "[t]he ownership of the thing sold shall be
transferred to the vendee upon actual or constructive delivery thereof."
30
In the present
case, there is actual delivery as manifested by acts simultaneous with and subsequent
to the contract of sale when respondent not only took possession of the subject
properties but also allowed their use as parking terminal for jeepneys and buses.
Moreover, the execution itself of the contract of sale is constructive delivery.
Consequently, Ignacio Rubio could no longer sell the subject properties to Corazon
Escueta, after having sold them to respondent. "[I]n a contract of sale, the vendor loses
ownership over the property and cannot recover it until and unless the contract is
resolved or rescinded x x x."
31
The records do not show that Ignacio Rubio asked for a
rescission of the contract. What he adduced was a belated revocation of the special
power of attorney he executed in favor of Patricia Llamas. "In the sale of immovable
property, even though it may have been stipulated that upon failure to pay the price at
the time agreed upon the rescission of the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as long as no demand for rescission of
the contract has been made upon him either judicially or by a notarial act."
32

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 48282, dated
October 26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costs
against petitioners.
SO ORDERED.

G.R. No. L-31739 March 11, 1930
LEONOR MENDEZONA, plaintiff-appellee,
vs.
ENCARNACION C. VIUDA DE GOITIA, administratrix of the estate of Benigno
Goitia, defendant-appellant.
-----------------------------
G.R. No. L-31740 March 11, 1930
VALENTINA IZAGUIRRE Y NAZABAL, plaintiff-appellee,
vs.
ENCARNACION C. VIUDA DE GOITIA, ETC., defendant-appellant.
Avancea and Lata for appellant.
Ramon Sotelo for appellees.
VILLAMOR, J .:
The PLAINTIFFS, Leonor Mendezona and Valentina Izaguirre y Nazabal, filed
separate claims with the committee of claims and appraisal against the intestate estate
of Benigno Goitia y Lazaga (Court of First Instance of Manila, civil case No. 30273),
the first for the amount of P5,940, and the second, P2,376. By order of the court
dated June 16, 1927, these claims were heard by the committee. The claimants
presented their evidence, which the committee deemed insufficient and disapproved
their claims. Both claimants appealed from the report of the committee, and in
accordance with section 776 of the Code of Civil Procedure, filed a new complaint which
was later amended with the approval of the court, there being nothing in the bill of
exceptions to show that the defendant, or the administratrix of the deceased Benigno
Goitia, excepted to the court's order admitting the amendments to the complaints.
The DEFENDANT answered the amended complaints, pleading in special defense, that
not having no knowledge of the supposed management of their rights in the "Tren
de Aguadas," and , furthermore, not having seen nor received any money of the
plaintiff's from said business, she is not in a position to render an account of any sort
to the plaintiffs, either in her own personal capacity or as judicial administratrix of
Benigno Goitia's intestate estate.
By agreement of the parties, both cases were tried together, and the trial court rendered
but one decision upon them on October 31, 1928, holding it sufficiently proved, "that
defendant Encarnacion C. Vda, de Goitia has been duly appointed judicial
administratrix of the estate of her deceased husband Benigno Goitia in special
proceeding No. 30273 of this court; that Benigno Goitia was the representative and
ATTORNEY-IN-FACT OF THE PLAINTIFFS in the joint-account partnership known
as the "Tren de Aguadas" and located in the City of Manila, of which the plaintiff
Leonor Mendezona, widow of Juan Bautista Goitia, owns 180 shares worth P18,000,
and the plaintiff Valentina Izaguirre y Nazabal owns 72 shares worth P7,200; that prior
to 1915, Benigno Goitia, at that time the manager of the aforesaid co-partnership,
collected the dividends for the plaintiffs, which he remitted to them every year;
that prior to 1915, the usual dividends which Benigno Goitia forwarded to plaintiff
Leonor Mendezona each year were P540, and to plaintiff Valentina Izaguirre y Nazabal,
P216; that from 1915 until his death in August, 1926, Benigno Goitia failed to remit
to the dividends upon their shares in the "Tren de Aguadas"; that some time before
his death, more particularly, in J uly, 1926, Benigno Goitia, who was no longer the
manager of the said business, receive as attorney-in-fact of both plaintiff, the amount of
P90 as dividend upon plaintiff Leonor Mendezona's shares, and P36 upon Valentina
Izaguirre y Nazabal's stock; that from 1915 to 1926, the "Tren de Aguadas" paid
dividends to the share-holders, one of them, Ramon Salinas, having received the
total amount of P1,155 as ordinary and special dividends upon his 15 shares' that
calculating the dividends due from 1915 to 1926 upon Leonor Mendezona's 180
shares at P540 per annum, and at P216 yearly upon the 72 shares held by Valentina
Izaguirre y Nazabal, counsel for both plaintiffs filed their claims with the committee of
claims and appraisal of the estate of Benigno Goitia, and, upon their disallowance,
appealed from the committee's decision by means of the complaints in these two
cases."
The trial court likewise deemed it proven that "during the period from 1915 to 1926,
Benigno Goitia collected and received certain sums as dividends and profits upon the
plaintiffs's stock in the "Tren de Aguadas" in his capacity as representative and
attorney-in-fact for both of them, which he has neither remitted nor accounted for to
the said plaintiffs, although it has been prove that said Benigno Goitia was their
attorney-in-fact and representative in the "Tren de Aguadas" up to the time of his
death."
The court below therefore ordered the defendant, as judicial administratrix of Benigno
Goitia's estate to render a judicial account of the intestate estate of the deceased
Benigno Goitia, in special proceeding No. 30273 of this court (below), to render an
account of the amounts collected by her aforesaid husband Benigno Goitia, as attorney-
in-fact and representative of the plaintiffs Leonor Mendezona and Valentina Izaguirre y
Nazabal in the copartnership known as the "Tren de Aguadas" from 1915 to July, 1926,
within thirty days from notice of this decision; and that the defendant may see, examine,
and make a copy of the books and documents relative to the business of the
aforementioned copartnership, in accordance with the provisions of section 664 of the
Code of Civil Procedure. Without special pronouncement of costs.
On December 15, 1928, at the instance of the plaintiffs, the trial court set the 15th of
January, 1929, as the date on which the defendant should present her account of the
dividends and profits collected by the decedent, as attorney-in-fact for the plaintiffs, with
regard to the "Tren de Aguatas" copartnership, form 1915 to 1926, and the hearing was
postponed to the 7th of February, 1929.
On February 6, 1929, the defendant, reiterating her exception to the court's decision
enjoining her to render accounts, manifested that after a painstaking examination of the
books of account of the copartnership "Tren de Aguadas," and several attempts to
obtain data from Ruperto Santos, the manager and administrator thereof, she has found
no more evidence of any amount received by her late husband, Benigno de Goitia, than
a book of accounts where she came upon an item of P90 for Leonor Mendezona, and
another of P36 for Valentina Izaguirre.
In view of this report and the evidence taken at the hearing the court rendered a
suppletory judgment, upon motion of the plaintiffs dated December 3, 1928; and
taking into account chiefly the testimony of Ruperto Santos and Ramon Salinas, it was
held that, upon the basis of the dividends received by the witness Salinas on his fifteen
shares in the "Tren de Aguadas" from 1915 to 1925, it appears that the dividends
distributed for each share was equal to one-fifteenth of P1,087.50, that is P72.50. Thus
the dividends upon plaintiff Leonor Mendezona's 180 shares would be P13,050, and
upon the 72 shares pertaining to Valentina Izaguirre, P5,220; and these sums, added to
those collected by the attorney-in-fact Benigno Goitia as part of the 1926 dividends, P90
for Leonor Mendezona, and P36 for Valentina Izaguirre, show that Benigno Goitia
thereby received P13,140 in behalf of Leonor Mendezona, and P5,256 in behalf of
Valentina Izaguirre.
Wherefore, the court ordered the defendant, as judicial administratrix of the estate
of the deceased Benigno Goitia, to pay the plaintiff Leonor Mendezona the sum of
P13,140 with legal interest from the date of the filing of the complaint, and to pay the
plaintiff Valentina Izaguirre P5,256 likewise with legal interest from the date of the
filing of the complaint, and moreover, to pay the costs of both instances.
The defendant duly appealed from this judgment to this Supreme Court through the
proper bill of exceptions.
The fundamental question raised by the appellant in the first assignment of error
refers to the court's jurisdiction to admit the amended complaints whereby the plaintiffs
claim P13,680 and P5,470 respectively, whereas the claims presented to the committee
of claims and appraisal were only for P5,940 and P2,376, respectively. Appellant
contends that the plaintiffs have not perfected their appeal in accoundance with section
773 of the Code of Civil Procedure in claiming more in their complaints than in the
claims filed with the committee of claims and appraisal, by including therein, not only the
yearly dividends paid from 1915 to 1925, inclusive, but also the ordinary and
extraordinary dividends upon their shares for the years of 1915 to 1926, alleged to have
been delivered to Benigno Goitia.
The fact that the claims filed with the committee were upon the basis of annual
dividends, while those filed with the court below were on ordinary and extraordinary
dividends, is of no importance, for, after all they refer to the same amounts received by
the deceased Benigno Goitia in the name and for the benefit of the plaintiffs. The
question to be decided is whether or not in this jurisdiction a greater sum may be
claimed before the court than was claimed before the committee. It should be noted that
according to the cases cited by the appellant on pages 12 and 13 of her brief, to wit,
Patrick vs. Howard, 47 Mich., 40; 10 N. W. 71. 72; Dayton vs. Dakin's Estate, 61 N. W.,
349; and Luizzi vs. Brandy's Estate, 113 N. W., 574; 140 Mich., 73; 12 Detroit Leg., 59,
the claims passed upon by the committee cannot be enlarged in the Circuit Court by
amendment. But counsel for the appellees draws our attention to the doctrines of the
Vermont Supreme Court (Maughan vs. Burns' Estate, 64 Vt., 316; 23 Atlantic, 583),
permitting an augmentative amendment to the claim filed with the committee.
In the Maughan case, supra, the court stated:
ROWELL, J. This is an appeal from the decision and report of the commissioners
on the estate of Michael Burns. Plaintiff presented her claim to the
commissioners at $2,789.65. The ad damnum in her declaration filed in the
probate court was $3,500. In the country court she recovered $3,813.49.
Thereupon she moved for leave to amend her declaration by raising the ad
damnum to $4,000, which was granted, and she had judgment for the amount of
her recovery. The identical claim presented to the commissioners was the claim
tried above. The amount of plaintiff's recovery rested on the quantum meruit. The
jury found that she merited more than she estimated her claim when she
presented it to the commissioners. But such underestimate did not preclude her
from recovering more, if the testimony show her entitled to it, as presumably it
did, as more was found. The fact of such estimate was evidence against here
deserving more, as it was an implied admission that what she claimed was
enough; but the admission was not conclusive upon her, and did not prevent 527;
Stowe vs. Bishop, 58 Vt., 498; 3 Atl. Rep., 494; Hard vs. Burton, 62 Vt., 314; 20
Atl. Rep., 269.)
It is conceded that in common-low actions the court has power to raise the ad
damnum at any time; but it is claimed that as the probate court is not a common-
low court, but is a court of special and limited jurisdiction, and has by statue
original jurisdiction of settlement of the estates of deceased person, the country
court has no power to raise the ad damnum of the declaration filed in the probate
court. The county court has, by statue, appellate jurisdiction of matters originally
within the jurisdiction of the probate court and in such appeals it sits as a higher
court of probate, and its jurisdiction is co-extensive with that of the probate court.
It is not limited to the particular questions that arose in the probate court in the
matter appealed, but is expressly extended to matters originally within the
jurisdiction of that court. It is an appellate court for the rehearing and the re-
examination of matters not particular questions merely that have been
acted upon in the court below. (Adams vs. Adams, 21 Vt., 162) And these
matters embrace even those that rest in discretion. (Holmes vs. Holmes, 26 Vt.,
536.) In Francis vs. Lathrope, 2 Tyler, 372, the claimant was allowed, on terms,
to file a declaration in the country court, he having omitted to file one in the
probate court as required by statute. It was within the jurisdiction of the probate
court to have allowed this amendment, and, as the county court had all the
jurisdiction of the probate court in this behalf, it also had power to allow the
amendment.
However this may be, in this jurisdiction there is a rule governing the question raised in
this assignment of error, namely, section 776 of the Code of Civil Procedure, as
construed in the cases of Zaragoza vs. Estate of De Viademonte (10 Phil., 23);
Escuin vs. Escuin (11 Phil., 332); and In re Estate of Santos (18 Phil., 403). This section
provides:
SEC. 776. Upon the lodging of such appeal; with the clerk, the disputed claim
shall stand for trial in the same manner as any other action in the Court of First
Instance, the creditor being deemed to be the plaintiff, and the estate the
defendant, and pleading as in other actions shall be filed.
Just as in ordinary actions in which the pleadings may be amended, so in the instant
case, the original complaint for the same amounts claimed before the committee was
altered, increasing the amounts, and the amended complaint was approved by the court
and not objected to by the adverse party. The character of the action throughout is the
same. The action before the committee rested on the contention that as attorney-in-fact
for the plaintiffs with respect to the partnership "Tren de Aguadas," the late Benigno
Goitia had received dividends upon their shares which he failed to turn over to them; the
appeal to the Court of First Instance is founded on the same contention. When the claim
was filed with the committee, counsel for the plaintiffs merely made a calculation of the
amounts due, in view of the fact that he had not all the data from the plaintiffs, who live
in Spain; but after filing the complaint on appeal with the court of First Instance, he
discovered that his clients were entitled to larger sums, and was therefore compelled to
change the amount of the claims.
Considering the distance that separated the plaintiffs from their attorney-in-fact, the
deceased Benigno Goitia, and that the latter failed to supply them with data from 1915
until his death in 1926, it is natural that they had to resort to calculating the amounts due
them from the "Tren de Aguadas." To deny them the right to amend their complaint in
accordance with section 776, when they had secured more definite information as to the
amounts due them, would be an injustice, especially when it is taken into consideration
that this action arises from trust relations between the plaintiffs and the late Benigno
Goitia as their attorney-in-fact.
The first error is therefore overruled.
The allegation found in the second assignment of error that the plaintiffs are not in
reality interested parties in this case is untenable. It does not appear from the bill of
exceptions that the appellant demurred on the ground of misjoinder of parties, or
alleged such misjoinder in her answer. In accordance with section 93 of the Code of
Civil Procedure, the appellant has waived the right to raise any objection on the ground
that the plaintiffs are not the real parties in interest, or that they are not the owners of
the stock in question. (Broce vs. Broce, 4 Phil., 611; and Ortizvs. Aramburo, 8 Phil., 98)
Furthermore it appears from Exhibits D, E, F, and G, that the late Benigno Goitia
recognized that those shares of the "Tren de Aguadas" really belonged to the plaintiffs.
And above all, Exhibit K-1, which is a copy of the balance sheet for May and June,
1926, taken from the books of the partnership, clearly shows that Leonor Mendezona
owned 180 shares, and Valentina Izaguirre, 72 shares. Therefore the appellant cannot
now contend that the plaintiffs are not the real interested parties.
In the third assignment of error it is argued that following section 676 of the Code of
Civil Procedure, the court below had no power to order the defendant to render an
account of dividends supposed to have been received by her deceased husband. We
are of opinion that the order of the court enjoining the appellant to render an account of
all the amounts collected by her aforesaid husband Benigno Goitia as representative
and attorney-in-fact of the plaintiffs, from 1915 until June, 1926, was made for the
purpose of giving her an opportunity of showing, if she could, just what amounts the
deceased Goitia received on account of the appellees' stock. There is no reversible
error in this; for, as the complaint demanded the return of amounts alleged to have been
received by the deceased attorney-in-fact represented by the appellant, it was quite in
order to determine whether such amounts were really received or not.
The fourth assignment of error relates to Exhibits A and B, being the appellees'
depositions made before the American consul at Bilbao, Spain, in accordance with
section 356 of the Code of Civil Procedure. Counsel for the appellant was notified of the
taking of these depositions, and he did not suggest any other interrogatory in addition to
the questions of the committee. When these depositions were read in court, the
defendant objected to their admission, invoking section 383, No. 7, of the Code of Civil
Procedure. Her objection referred mainly to the following questions:
1. Did Mr. Benigno Goitia render you an account of your partnership in the "Tren
de Aguadas?" Yes, until the year 1914.
2. From the year 1915, did Mr. Benigno Goitia send you any report or money on
account of profits upon your shares? He sent me nothing, nor did he answer,
my letters.
3. did you ever ask him to send you a statement of your account Yes, several
times by letter, but I never received an answer.
The first of these questions tends to show the relationship between the principals and
their attorney-in-fact Benigno Goitia up to 1914. Supposing it was error to permit such a
question, it would not be reversible error, for that very relationship is proved by Exhibits
C to F, and H to I. As to the other two questions, it is to be noted that the deponents
deny having received from the deceased Benigno Goitia any money on account of
profits on their shares, since 1915. We are of opinion that the claimants' denial that a
certain fact occurred before the death of their attorney-in-fact Benigno Agoitia does not
come within the legal prohibitions (section 383, No. 7, Code of Civil Procedure). The law
prohibits a witness directly interested in a claim against the estate of a decedent from
testifying upon a matter of fact which took place before the death of the deceased. The
underlying principle of this prohibition is to protect the intestate estate from fictitious
claims. But this protection should not be treated as an absolute bar or prohibition from
the filing of just claims against the decedent's estate.
The facts in the case of Maxilom vs. Tabotabo (9 Phil., 390), differ from those in the
case at bar. In that case, the plaintiff Maxilom liquidated his accounts with the deceased
Tabotabo during his lifetime, with the result that there was a balance in his favor and
against Tabotabo of P312.37, Mexican currency. The liquidation was signed by both
Maxilom and Tabotabo. In spite of this, some years later, or in 1906, Maxilom filed a
claim against the estate of Tabotabo for P1,062.37, Mexican currency, alleging that
P750 which included the 1899 liquidation had not really been received, and that
therefore instead of P312.37, Mexican currency, that liquidation should have shown a
balance of P1,062.37 in favor of Maxilom. It is evident that in view of the prohibition of
section 383, paragraph 7, of the Code of Civil Procedure, Maxilom could not testify in
his own behalf against Tabotabo's estate, so as to alter the balance of the liquidation
made by and between himself and the decedent. But in the case before us there has
been no such liquidation between the plaintiffs and the deceased Goitia. They testify,
denying any such liquidation. To apply to them the rule that "if death has sealed the lips
of one of the parties, the law seals those of the other," would be to exclude all possibility
of a claim against the testamentary estate. We do not believe that this was the
legislator's intention.
The plaintiffs-appellees did not testify to a fact which took place before their
representative's death, but on the contrary denied that it had taken place at all, i.e. they
denied that a liquidation had been made or any money remitted on account of their
shares in the "Tren de Aguadas" which is the ground of their claim. It was incumbent
upon the appellant to prove by proper evidence that the affirmative proposition was true,
either by bringing into court the books which the attorney-in-fact was in duty bound to
keep, or by introducing copies of the 0drafts kept by the banks which drew them, as was
the decedents's usual practice according to Exhibit I, or by other similar evidence.
The appellant admits having found a book of accounts kept by the decedent showing an
item of P90 for the account of Leonor Mendezona and another of P36 for the account of
Valentina Izaguirre, which agrees with the statement of Ruperto Santos, who
succeeded Benigno Goitia in the administration of said partnership, to the effect that the
deceased attorney-in-fact had collected the amounts due the plaintiffs as dividends on
their shares for the months of May and June, 1926, or P90 for Leonor Mendezona, and
P36 for Valentina Izaguirre, amounts which had not been remitted by the deceased to
the plaintiffs.
Finally, the appellant complains that the trial court held by mere inference that Benigno
Goitia received from the "Tren de Aguadas" the amounts of P13,140 and P5,265 for
Mendezona and Izaguirre, respectively, as dividends for the years from 1915 to 1926,
inclusive, and in holding again, by mere inference, that Benigno Goitia did not remit said
sums to the plaintiffs.
It is a well established fact in the record that the plaintiffs had an interest or some
shares in the partnership called "Tren de Aguadas," Mendezona holding 180 shares,
worth P18,000, and Izaguirre, 72 shares worth P7,200. By the testimony of Ruperto
Santos, former secretary of Benigno Goitia and his successor in the administration of
that partnership, it appears that the deceased Benigno Goitia had received the
dividends due the appellees for the months of May and June, 1926. And according to
Exhibit K-I, the dividend for the months of May and June was P0.50 a share. And
witness Ramon Salinas, a practising attorney and one of the shareholders of the
partnership "Tren de Aguadas," testified, from a notebook which he had, that he
received from the "Tren de Aguadas" the following ordinary dividends: P45 in 1915; P45
in 1916; P45 in 1917; P45 in 1918; P45 in 1919; P90 in 1920; P67.50 in 1921, and P45
each for 1922, 1923, 4924, 1925, and 1926. By way of extraordinary dividends, the
witness testified that he received P22.50 each year from 1915 to 1918 inclusive; P45 in
1919; P60 in 1920; P37.50 in 1921, 1922, 1923, and 1924; P15 in 1925; and P22.50 in
1926. He further stated that he received P165 in 1918 as his share of the proceeds of
the sale of the boat Santolan. Summing up all these amounts, we find that the witness
Ramon Salinas, from 1915 to 1925, received a total of P1,087.50.
It further appears that Ruperto Santos assured the court that the dividends for the
period from 1915 to 1926 have been distributed among the shareholders, and that the
late Benigno Goitia received the dividends due on the shares pertaining to Leonor
Mendezona and Valentina Izaguirre, deducting them from the total distribution. In view
of these data, the court below reached the conclusion, on the basis of the dividends
received by partner Ramon Salinas, that the attorney-in-fact Benigno Goitia received for
the plaintiffs-appellees, respectively, the amounts of P13,140 and P5.256, including the
dividends for 1926, or P90 for Leonor Mendezona, and P36 for Valentina Izaguirre.
As to the interest imposed in the judgment appealed from, it is sufficient to cite article
1724 of the Civil Code, which provides that an agent shall be liable for interest upon any
sums he may have applied to his own use, from the day on which he did so, and upon
those which he still owes, after the expiration of the agency, from the time of his default.
The judgment appealed form being in accordance with the merits of the case, we are of
opinion, and so hold, that the same must be, as it is hereby, affirmed, with costs against
the appellant. So ordered.

G.R. No. L-2344 February 10, 1906
GONZALO TUASON, plaintiff-appellee,
vs.
DOLORES OROZCO, defendant-appellant.
Hartigan, Marple, Rohde and Gutierrez for appellant.
Ledesma, Sumulong and Quintos for appellee.
MAPA, J .:
On November 19, 1888, Juan de Vargas y Amaya, the defendant's husband,
executed a power of attorney to Enrique Grupe, authorizing him, among other
things, to dispose of all his property, and particularly of a certain house and lot known
as No. 24 Calle Nueva, Malate, in the city of Manila, for the price at which it was actually
sold. He was also authorized to mortgage the house for the purpose of securing the
payment of any amount advanced to his wife, Dolores Orozco de Rivero, who,
inasmuch as the property had been acquired with funds belonging to the conjugal
partnership, was a necessary party to its sale or incumbrance.
On the 21st of January, 1890, Enrique Grupe and Dolores Orozco de Rivero
obtained a loan from the plaintiff secured by a mortgage on the property referred to in
the power of attorney. In the caption of the instrument evidencing the debt it is stated
that Grupe and Dolores Orozco appeared as the parties of the first part and Gonzalo
Tuason, the plaintiff, as the party of the second part; that Grupe acted for himself and
also in behalf of Juan Vargas by virtue of the power granted him by the latter, and that
Dolores Orozco appeared merely for the purpose of complying with the
requirement contained in the power of attorney. In the body of the instrument the
following appears:
1. Enrique Grupe acknowledges to have this day received from Gonzalo Tuason
as a loan, after deducting therefrom the interest agreed upon, the sum of 3,500
pesos in cash, to his entire satisfaction, which sum he promises to pay within one
year from the date hereof.
2. Grupe also declares that of the 3,500 pesos, he has delivered to Dolores
Orozco the sum of 2,200 pesos, having retained the remaining 1,300 pesos for
use in his business; that notwithstanding this distribution of the amount
borrowed, he assumes liability for the whole sum of 3,500 pesos, which he
promises to repay in current gold or silver coin, without discount, in this city on
the date of the maturity of the loan, he otherwise to be liable for all expenses
incurred and damages suffered by his creditor by reason of his failure to comply
with any or all of the conditions stipulated herein, and to pay further interest at
the rate of 1 per cent per month from the date of default until the debt is fully
paid.
3. Grupe pledges as special security for the payment of the debt 13 shares of
stock in the "Compaia de los Tranvias de Filipinas," which shares he has
delivered to his creditor duly indorsed so that the latter in case of his insolvency
may dispose of the same without any further formalities.
4. To secure the payment of the 2,200 pesos delivered to Dolores Orozco as
aforesaid he specially mortgages the house and lot No. 24, Calle Nueva, Malate,
in the city of Manila (the same house referred to in the power at attorney
executed by Vargas to Grupe).
5. Dolores Orozco states that, in accordance with the requirement contained in
the power of attorney executed by Vargas to Grupe, she appears for the purpose
of confirming the mortgage created upon the property in question.
6. Gonzalo Tuason does hereby accept all rights and actions accruing to him
under his contract.
This instrument was duly recorded in the Registry of Property, and it appears
therefrom that Enrique Grupe, as attorney in fact for Vargas, received from the plaintiff a
loan of 2,200 pesos and delivered the same to the defendant; that to secure its payment
he mortgaged the property of his principal with defendant's consent as required in the
power of attorney. He also received 1,300 pesos. This amount he borrowed for his own
use. The recovery of this sum not being involved in this action, it will not be necessary
to refer to it in this decision. The complaint refers only to the 2,200 pesos delivered to
the defendant under the terms of the agreement.
The defendant denies having received this sum, but her denial can not overcome the
proof to the contrary contained in the agreement. She was one of the parties to that
instrument and signed it. This necessarily implies an admission on her part that the
statements in the agreement relating to her are true. She executed another act which
corroborates the delivery to her of the money in question that is, her personal
intervention in the execution of the mortgage and her statement in the deed that the
mortgage had been created with her knowledge and consent. The lien was created
precisely upon the assumption that she had received that amount and for the purpose of
securing its payment.
In addition to this the defendant wrote a letter on October 23, 1903, to the attorneys for
the plaintiff promising to pay the debt on or before the 5th day of November following.
The defendant admits the authenticity of this letter, which is a further evidence of the
fact that she had received the amount in question. Thirteen years had elapsed since
she signed the mortgage deed. During all this time she never denied having received
the money. On the contrary, she promised to settle within a short time. The only
explanation that we can find for this is that she actually received the money as set forth
in the instrument.
The fact that the defendant received the money from her husband's agent and not from
the creditor does not affect the validity of the mortgage in view of the conditions
contained in the power of attorney under which the mortgage was created. Nowhere
does it appear in this power that the money was to be delivered to her by the creditor
himself and not through the agent or any other person. The important thing was that she
should have received the money. This we think is fully established by the record.
This being an action for the recovery of the debt referred to, the court below properly
admitted the instrument executed January 21, 1890, evidencing the debt.
The appellant claims that the instrument is evidence of a debt personally incurred by
Enrique Grupe for his own benefit, and not incurred for the benefit of his principal,
Vargas, as alleged in the complaint. As a matter of fact, Grupe, by the terms of the
agreement, bound himself personally to pay the debt. The appellant's contention
however, can not be sustained. The agreement, so far as that amount is concerned,
was signed by Grupe as attorney in fact for Vargas. Pursuant to instructions contained
in the power of attorney the money was delivered to Varga's wife, the defendant in this
case. To secure the payment of the debt, Varga's property was mortgaged. His wife
took part in the execution of the mortgage as required in the power of attorney. A debt
thus incurred by the agent is binding directly upon the principal, provided the former
acted, as in the present case, within the scope of his authority. (Art. 1727 of the Civil
Code.) The fact that the agent has also bound himself to pay the debt does not relieve
from liability the principal for whose benefit the debt was incurred. The individual liability
of the agent constitutes in the present case a further security in favor of the creditor and
does not affect or preclude the liability of the principal. In the present case the latter's
liability was further guaranteed by a mortgage upon his property. The law does not
provide that the agent can not bind himself personally to the fulfillment of an obligation
incurred by him in the name and on behalf of his principal. On the contrary, it provides
that such act on the part of an agent would be valid. (Art. 1725 of the Civil Code.)
The above mortgage being valid and having been duly recorded in the Register of
Property, directly subjects the property thus encumbered, whoever its possessor may
be, to the fulfillment of the obligation for the security of which it was created. (Art. 1876
of the Civil Code and art. 105 of the Mortgage Law.) This presents another phase of the
question. Under the view we have taken of the case it is practically of no importance
whether or not Enrique Grupe bound himself personally to pay the debt in question. Be
this as it may and assuming that Vargas, though principal in the agency, was not the
principal debtor, the right in rem arising from the mortgage would have justified the
creditor in bringing his action directly against the property encumbered had he chosen
to foreclose the mortgage rather than to sue Grupe, the alleged principal debtor. This
would be true irrespective of the personal liability incurred by Grupe. The result would
be practically the same even though it were admitted that appellant's contention is
correct.
The appellant also alleges that Enrique Grupe pledged to the plaintiff thirteen shares of
stock in the "Compaia de los Tranvias de Filipinas" to secure the payment of the entire
debt, and contends that it must be shown what has become of these shares, the value
of which might be amply sufficient to pay the debt, before proceeding to foreclose the
mortgage. This contention can not be sustained in the face of the law above quoted to
the effect that a mortgage directly subjects the property encumbered, whoever its
possessor may be, to the fulfillment of the obligation for the security of which it was
created. Moreover it was incumbent upon the appellant to show that the debt had been
paid with those shares. Payment is not presumed but must be proved. It is a defense
which the defendant may interpose. It was therefore her duty to show this fact
affirmatively. She failed, however, to do so.
The appellant's final contention is that in order to render judgment against the
mortgaged property it would be necessary that the minor children of Juan de Vargas be
made parties defendant in this action, they having an interest in the property. Under
article 154 of the Civil Code, which was in force at the time of the death of Vargas, the
defendant had the parental authority over her children and consequently the legal
representation of their persons and property. (Arts. 155 and 159 of the Civil Code.) It
can not be said, therefore, that they were not properly represented at the trial.
Furthermore this action was brought against the defendant in her capacity as
administratrix of the estate of the deceased Vargas. She did not deny in her answer that
she was such administratix.
Vargas having incurred this debt during his marriage, the same should not be paid out
of property belonging to the defendant exclusively but from that pertaining to the
conjugal partnership. This fact should be borne in mind in case the proceeds of the
mortgaged property be not sufficient to ay the debt and interest thereon. The judgment
of the court below should be modified in so far as it holds the defendant personally
liable for the payment of the debt.
The judgment thus modified is affirmed and the defendant is hereby ordered to pay to
the plaintiff the sum of 2,200 pesos as principal, together with interest thereon from the
21st day of January, 1891, until the debt shall have been fully discharged. The appellant
shall pay the costs of this appeal.
After the expiration of ten days let judgment be entered in accordance herewith and let
the case be remanded to the court below for execution. So ordered.

G.R. Nos. L-33819 and L-33897 October 23, 1982

NATIONAL POWER CORPORATION, Plaintiff-Appellant,
v.
NATIONAL MERCHANDISING CORPORATION and DOMESTIC INSURANCE
COMPANY OF THE PHILIPPINES, Defendants-Appellants.

The Solicitor General, for Plaintiff-Appellant.

Sycip, Salazar, Luna Manalo & Feliciano, for Defendants-Appellants.

SYNOPSIS
Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant National
Merchandising Corporation (NAMERCO), the Philippine representative of New York-
based International Commodities Corporation, executed a contract of sale of sulfur with
a stipulation for liquidated damages in case of breach. Defendant-appellant Domestic
Insurance Company executed a performance bond in favor of NPC to guarantee the
sellers obligation. In entering into the contract, Namerco, however, did not disclose to
NPC that Namercos principal, in a cabled instruction, stated that the sale was subject to
availability of a steamer, and contrary to its principals instruction, Namerco agreed that
non-availability of a steamer was not a justification for non-payment of liquidated
damages. The New York supplier was not able to deliver the sulfur due to its inability to
secure shipping space. Consequently, the Government Corporate Counsel rescinded
the contract of sale due to the suppliers non-performance of its obligations, and
demanded payment of liquidated damages from both Namerco and the surety.
Thereafter, NPC sued for recovery of the stipulated liquidated damages. After trial, the
Court of First Instance rendered judgment ordering defendants-appellants to pay
solidarity to the NPC reduced liquidated damages with interest.

The Supreme Court held that Namerco is liable fur damages because under Article
1897 of the Civil Code the agent who exceeds the limits of his authority without giving
the party with whom he contracts sufficient notice of his powers is personally liable to
such party. The Court, however, further reduced the solidary liability of defendants-
appellants for liquidated damages.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; AN AGENT WHO
EXCEEDS THE LIMITS OF HIS AUTHORITY IS PERSONALLY LIABLE. Under
Article 1897 of the Civil Code the agent who exceeds the limits of his authority without
giving the party with whom he contracts sufficient notice of his powers is personally
liable to such party.

2. ID.; ID.; ID.; ID.; CASE AT BAR. In the present case, Namerco, the agent of a New
York-based principal, entered into a contract of sale with the National Power
Corporation without disclosing to the NPC the limits of its powers and, contrary to its
principals prior cabled instructions that the sale should be subject to availability of a
steamer, it agreed that non-availability of a steamer was not a justification for
nonpayment of the liquidated damages. Namerco. therefore, is liable for damages.

3. ID.; ID.; ID.; THE RULE THAT EVERY PERSON DEALING WITH AN AGENT IS
PUT UPON AN INQUIRY AND MUST DISCOVER UPON HIS PERIL THE AUTHORITY
OF THE AGENT IS NOT APPLICABLE WHERE THE AGENT, NOT THE PRINCIPAL,
IS SOUGHT TO BE HELD LIABLE ON THE CONTRACT. The rule that every person
dealing with an agent is put upon inquiry and must discover upon his peril the authority
of the agent would apply only in cases where the principal is sought to be held liable on
the contract entered into by the agent. The said rule is not applicable in the instant case
since it is the agent, not the principal, that is sought to be held liable on the contract of
sale which was expressly repudiated by the principal because the agent took chances, it
exceeded its authority and, in effect. it acted in its own name.

4. ID.; ID.; ID.; THE CONTRACT ENTERED INTO BY AN AGENT WHO ACTED
BEYOND HIS POWERS IS UNENFORCEABLE ONLY AS AGAINST THE PRINCIPAL
BUT NOT AGAINST THE AGENT AND ITS SURETY. Article 1403 of the Civil Code
which provides that a contract entered into in the name of another person by one who
has acted beyond his powers is unenforceable, refers to the unenforceability of the
contract against the principal. In the instant case, the contract containing the stipulation
for liquidated damages is not being enforced against its principal but against the agent
and its surety. It being enforced against the agent because Article 1897 implies that the
agent who acts in excess of his authority is personally liable to the party with whom he
contracted. And that rule is complimented by Article 1898 of the Civil Code which
provides that "if the agent contracts, in the name of the principal, exceeding the scope
of his authority, and the principal does not ratify the contract, it shall be void if the party
with whom the agent contracted is aware of the limits of the powers granted by the
principal." Namerco never disclosed to the NPC the cabled or written instructions of its
principal. For that reason and because Namerco exceeded the limits of its authority, it
virtually acted in its own name and not as agent and it is, therefore, bound by the
contract of sale which, however, it not enforceable against its principal. If, as
contemplated in Articles 1897 and 1898, Namerco is bound under the contract of sale,
then it follows that it is bound by the stipulation for liquidated damages in that contract.

5. ID.; ID.; ID.; THE LIABILITY OF AN AGENT WHO EXCEEDS THE LIMITS OF HIS
AUTHORITY IS BASED ON CONTRACT AND NOT ON TORT OR QUASI-DELICT;
CASE AT BAR. Defendants contention that Namercos liability should be based on
tort or quasi-delict, as held in some American cases, like Mendelson v. Holton, 149 N.E.
38,42 ACR 1307, is not well-taken. As correctly argued by the NPC, it would be unjust
and inequitable for Namerco to escape liability of the contract after it had deceived the
NPC by not disclosing the limits of its powers and entering into the contract with
stipulations contrary to its principals instructions.

6. ID.; ID.; ID.; LIABILITY OF THE SURETY ON THE OBLIGATION CONTRACTED BY
AN AGENT WHO EXCEEDED HIS AUTHORITY IS NOT AFFECTED THEREBY.
The contention of the defendants that the Domestic Insurance Company is not liable to
the NPC because its bond was posted, not to Namerco, the agent, but for the New York
firm which is not liable on the contract of sale, cannot be sustained because it was
Namerco that actually solicited the bond from the Domestic Insurance Company and,
Namerco is being held liable under the contract of sale because it virtually acted in its
own name. In the last analysis, the Domestic Insurance Company acted as surety for
Namerco. The rule is that "want of authority of the person who executes an obligation as
the agent or representative of the principal will not, as a general rule, affect the surety
thereon, especially in the absence of fraud, even though the obligation is not binding on
the principal." (72 C.J.S. 525).

7. CIVIL LAW; DAMAGES; IMPOSITION OF INTEREST THEREON NOT
WARRANTED WHERE THE DISPOSITION OF THE CASE HAS BEEN DELAYED
DUE TO NO FAULT OF DEFENDANTS. With respect to the imposition of the legal
rate of interest on the damages from the filing of the complaint in 1957, or a quarter of a
century ago, defendants contention that interest should not be collected on the amount
of damages is meritorious. It should be manifestly iniquitous to collect interest on the
damages especially considering that the disposition of this case has been considerably
delayed due to no fault of the defendants

8. ID.; ID.; LIQUIDATED DAMAGES; NO PROOF OF PECUNIARY LOSS IS
REQUIRED FOR RECOVERY THEREOF. No proof of pecuniary lost is required for
the recovery of liquited damages. The stipulatian for liquidated damages is intended to
obviate controversy on the amount of damages. There can be no question that the NPC
suffered damages because its production of fertilizer was disrupted or diminished by
reason of the non-delivery of the sulfur. The parties foresaw that it might be difficult to
ascertain the exact amount of damages for non-delivey of the sulfur. So, they fixed the
liquidated damages to be paid as indemnity to the NPC.

9. ID.; ID.; NOMINAL DAMAGES; NOT A CASE OF. Nominal damages are damages
in name only or are in fact the same as no damages (25 C.J.S. 466). It would not be
correct to hold in this case that the NPC suffered damages in name only or that the
breach of contract "as merely technical in character since the NPC suffered damages
because its production of fertilizer "as disrupted or diminished by reason of the non-
delivery of the sulfur.


D E C I S I O N


AQUINO, J.:


This case is about the recovery of liquidated damages from a sellers agent that
allegedly exceeded its authority in negotiating the sale.

PLAINTIFF National Power Corporation appealed on questions of law from the
decision of the Court of First Instance of Manila dated October 10, 1966, ordering
DEFENDANTS National Merchandising Corporation and Domestic Insurance
Company of the Philippines to pay solidarily to the National Power Corporation
reduced liquidated damages in the sum of P72,114.66 plus legal, rate of interest from
the filing of the complaint and the costs (Civil Case No. 33114).

The two defendants appealed from the same decision allegedly because it is contrary to
law and the evidence. As the amount originally involved is P360,572.80 and defendants
appeal is tied up with plaintiffs appeal on questions of law, defendants appeal can be
entertained under Republic Act No. 2613 which amended section 17 of the Judiciary
Law.

On October 17, 1956, the National Power Corporation (NAPOCOR) and National
Merchandising Corporation (NAMERCO) of 3111 Nagtahan Street, Manila, AS THE
REPRESENTATIVE of the International Commodities Corporation of 11 Mercer Street,
New York City (Exh. C), executed in Manila a contract for the purchase by the NPC
from the New York firm of four thousand long tons of crude sulfur for its Maria
Cristina Fertilizer Plant in Iligan City at a total price of (450,716 (Exh. E).

On that same date, a performance bond in the sum of P90,143.20 was executed by
the Domestic Insurance Company in favor of the NPC to guarantee the sellers
obligations (Exh. F).

It was stipulated in the contract of sale that the seller would deliver the sulfur at
Iligan City within sixty days from notice of the establishment in its favor of a letter of
credit for $212,120 and that failure to effect delivery would subject the seller and its
surety to the payment of liquidated damages at the rate of two-fifth of one percent of
the full contract price for the first thirty days of default and four-fifth of one percent for
every day thereafter until complete delivery is made (Art. 8, p. 111, Defendants Record
on Appeal).

In a letter dated November 12, 1956, the NPC advised John Z. Sycip, the president of
Namerco, of the opening on November 8 of a letter of credit for $212,120 in favor of
International Commodities Corporation which would expire on January 31, 1957 (Exh.
I). Notice of that letter of credit was, received by cable by the New York firm on
November 15, 1956 (Exh. 80-Wallick). Thus, the deadline for the delivery of the sulfur
was January 15, 1957.

The New York supplier was not able to deliver the sulfur due to its inability to secure
shipping space. During the period from January 20 to 26, 1957 there was a shutdown of
the NPCs fertilizer plant because there was no sulfur. No fertilizer was produced (Exh.
K).

In a letter dated February 27, 1957, the general manager of the NPC advised Namerco
and the Domestic Insurance Company that under Article 9 of the contract of sale "non-
availability of bottom or vessel" was not a fortuitous event that would excuse non-
performance and that the NPC would resort to legal remedies to enforce its rights (Exh.
L and M).

The Government Corporate Counsel in his letter to Sycip dated May 8, 1957
rescinded the contract of sale due to the New York suppliers non-performance of its
obligations (Exh. G). The same counsel in his letter of June 8, 1957 demanded from
Namerco the payment of P360,572.80 as liquidated damages. He explained that
time was of the essence of the contract. A similar demand was made upon the surety
(Exh. H and H-1).

The liquidated damages were computed on the basis of the 115-day period
between January 15, 1957, the deadline for the delivery of the sulfur at Iligan City, and
May 9, 1957 when Namerco was notified of the rescission of the contract, or
P54,085.92 for the first thirty days and P306,486.88 for the remaining eighty-five days.
Total: P360,572.80.

On November 5, 1957, the NPC sued the New York firm, Namerco and the
Domestic Insurance Company for the recovery of the stipulated liquidated
damages (Civil Case No. 33114).

The trial court in its order of January 17, 1958 dismissed the case as to the New
York firm for lack of jurisdiction because it was not doing business in the Philippines (p.
60, Defendants Record on Appeal).

On the other hand, Melvin Wallick, as the assignee of the New York corporation and
after the latter was dropped as a defendant in Civil Case No. 33114, sued Namerco for
damages in connection with the same sulfur transaction (Civil Case No. 37019). The
two cases, both filed in the Court of First Instance of Manila, were consolidated. A joint
trial was held. The lower court rendered separate decisions in the two cases on the
same date.

In Civil Case No. 37019, the trial court dismissed Wallicks action for damages against
Namerco because the assignment in favor of Wallick was champertous in character.
Wallick appealed to this Court. The appeal was dismissed because the record on
appeal did not disclose that the appeal was perfected on time (Res. of July 11, 1972 in
L-33893).In this Civil Case No. 33114, although the records on appeal were approved in
1967, inexplicably, they were elevated to this Court in 1971. That anomaly initially
contributed to the delay in the adjudication of this case.

Defendants appeal L-33819. They contend that the delivery of the sulfur was
conditioned on the availability of a vessel to carry the shipment and that Namerco
acted within the scope of its authority as agent in signing the contract of sale.

The documentary evidence belies these contentions. The invitation to bid issued by the
NPC provides that non-availability of a steamer to transport the sulfur is not a ground for
non-payment of the liquidated damages in case of non-performance by the seller.

"4. Responsibility for availability of vessel. The availability of vessel to transport the
quantity of sulfur within the time specified in item 14 of this specification shall be the
responsibility of the bidder. In case of award of contract, failure to ship on time allegedly
due to non-availability of vessels shall not exempt the Contractor from payment of
liquidated damages provided in item 15 of this specification."cralaw virtua1aw library

"15. Liquidated damages. . . .

"Availability of vessel being a responsibility of the Contractor as specified in item 4 of
this specification, the terms unforeseeable causes beyond the control and without the
fault or negligence of the Contractor and force majeure as used herein shall not be
deemed to embrace or include lack or nonavailability of bottom or vessel. It is agreed
that prior to making his bid, a bidder shall have made previous arrangements regarding
shipments within the required time. It is clearly understood that in no event shall the
Contractor be exempt from the payment of liquidated damages herein specified for
reason of lack of bottom or vessel. Lack of bottom or nonavailability of vessel shall, in
no case, be considered as a ground for extension of time. . . . ."cralaw virtua1aw library

Namercos bid or offer is even more explicit. It provides that it was "responsible for the
availability of bottom or vessel" and that it "guarantees the availability of bottom or
vessel to ship the quantity of sulfur within the time specified in this bid" (Exh. B, p. 22,
Defendants Record on Appeal).

In the contract of sale itself item 15 of the invitation to bid is reproduced in Article 9
which provides that "it is clearly understood that in no event shall the seller be entitled to
an extension of time or be exempt from the payment of liquidated damages herein
specified for reason of lack of bottom or vessel" (Exh. E, p. 36, Record on Appeal).

It is true that the New York corporation in its cable to Namerco dated August 9, 1956
stated that the sale was subject to availability of a steamer (Exh. N). However, Namerco
did not disclose that cable to the NPC and, contrary to its principals instruction, it
agreed that nonavailability of a steamer was not a justification for nonpayment of the
liquidated damages.

The trial court rightly concluded that Namerco acted beyond the bounds of its
authority because it violated its principals cabled instructions (1) that the delivery
of the sulfur should be "C & F Manila", not "C & F Iligan City" ; (2) that the sale be
subject to the availability of a steamer and (3) that the seller should be allowed to
withdraw right away the full amount of the letter of credit and not merely eighty percent
thereof (pp- 123-124, Record on Appeal).

The defendants argue that it was incumbent upon the NPC to inquire into the extent of
the agents authority and, for its failure to do so, it could not claim any liquidated
damages which, according to the defendants, were provided for merely to make the
seller more diligent in looking for a steamer to transport the sulfur.

The NPC counter-argues that Namerco should have advised the NPC of the limitations
on its authority to negotiate the sale.

We agree with the trial court that Namerco is liable for damages because under article
1897 of the Civil Code the agent who exceeds the limits of his authority without giving
the party with whom he contracts sufficient notice of his powers is personally liable to
such party.

The truth is that even before the contract of sale was signed Namerco was already
aware that its principal was having difficulties in booking shipping space. In a
cable dated October 16, 1956, or one day before the contract of sale was signed, the
New York supplier advised Namerco that the latter should not sign the contract unless it
(Namerco) wished to assume sole responsibility for the shipment (Exh. T).

Sycip, Namercos president, replied in his letter to the seller dated also October 16,
1956, that he had no choice but to finalize the contract of sale because the NPC would
forfeit Namercos bidders bond in the sum of P45,100 posted by the Domestic
Insurance Company if the contract was not formalized (Exh. 14, 14-A and Exh. V).

Three days later, or on October 19, the New York firm cabled Namerco that the firm
did not consider itself bound by the contract of sale and that Namerco signed the
contract on its own responsibility (Exh. W).

In its letters dated November 8 and 19, 1956, the New York corporation informed
Namerco that since the latter acted contrary to the formers cabled instructions, the
former disclaimed responsibility for the contract and that the responsibility for the sale
rested on Namerco (Exh. Y and Y-1).

The letters of the New York firm dated November 26 and December 11, 1956 were
even more revealing. It bluntly told Namerco that the latter was never authorized to
enter into the contract and that it acted contrary to the repeated instructions of the
former (Exh. U and Z). Said the vice-president of the New York firm to
Namerco:chanrobles virtual lawlibrary

"As we have pointed out to you before, you have acted strictly contrary to our repeated
instructions and, however regretfully, you have no one but yourselves to blame."cralaw
virtua1aw library

The rule relied upon by the defendants-appellants that every person dealing with an
agent is put upon inquiry and must discover upon his peril the authority of the agent
would apply in this case if the principal is sought to be held liable on the contract
entered into by the agent.

That is not so in this case. Here, it is the agent that it sought to be held liable on a
contract of sale which was expressly repudiated by the principal because the agent took
chances, it exceeded its authority, and, in effect, it acted in its own name.

As observed by Castan Tobeas, an agent "que haya traspasado los limites dew
mandato, lo que equivale a obrar sin mandato" (4 Derecho Civil Espaol, 8th Ed., 1956,
p. 520).

As opined by Olivieri, "si el mandante contesta o impugna el negocio juridico concluido
por el mandatario con el tercero, aduciendo el exceso de los limites impuestos, es justo
que el mandatario, que ha tratado con engao al tercero, sea responsable
personalmente respecto de el des las consecuencias de tal falta de aceptacion por
parte del mandate. Tal responsabilidad del mandatario se informa en el principio de la
falta de garantia de la existencia del mandato y de la cualidad de mandatario, garantia
impuesta coactivamente por la ley, que quire que aquel que contrata como mandatario
este obligado a garantizar al tercero la efectiva existencia de los poderes que afirma se
halla investido, siempre que el tercero mismo sea de buena fe. Efecto de tal garantia es
el resarcimiento de los daos causados al tercero como consecuencia de la negativa
del mandante a reconocer lo actuado por el mandatario." (26, part II, Scaveola, Codigo
Civil, 1951, pp. 358-9).

Manresa says that the agent who exceeds the limits of his authority is personally liable
"porque realmente obra sin poderes" and the third person who contracts with the agent
in such a case would be defrauded if he would not be allowed to sue the agent (11
Codigo Civil, 6th Ed., 1972, p. 725).

The defendants also contend that the trial court erred in holding as enforceable the
stipulation for liquidated damages despite its finding that the contract was executed by
the agent in excess of its authority and is, therefore, allegedly unenforceable.

In support of that contention, the defendants cite article 1403 of the Civil Code which
provides that a contract entered into in the name of another person by one who has
acted beyond his powers is unenforceable.

We hold that defendants contention is untenable because article 1403 refers to the
unenforceability of the contract against the principal. In the instant case, the contract
containing the stipulation for liquidated damages is not being enforced against it
principal but against the agent and its surety.

It is being enforced against the agent because article 1807 implies that the agent who
acts in excess of his authority is personally liable to the party with whom he contracted.

And that rule is complemented by article 1898 of the Civil Code which provides that "if
the agent contracts in the name of the principal, exceeding the scope of his authority,
and the principal does not ratify the contract, it shall be void if the party with whom the
agent contracted is aware of the limits of the powers granted by the principal."

It is being enforced against the agent because article 1897 implies that the agent who
acts in excess of his authority is personally liable to the party with whom he contracted.

And the rule is complemented by article 1898 of the Civil Code which provides that "if
the agent contracts in the name of the principal, exceeding the scope of his authority,
and the principal does not ratify the contract, it shall be void if the party with whom the
agent contracted is aware of the limits of the powers granted by the principal."

As priorly discussed, namerco, as agent, exceeded the limits of its authority in
contracting with the NPC in the name of its principal. The NPC was unaware of the
limitations on the powers granted by the New York firm to Namerco.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph

The New York corporation in its letter of April 26, 1956 said:jgc:chanrobles.com.ph

"We hereby certify that National Merchandising Corporation . . . are our exclusive
representatives in the Philippines for the sale of our products.

"Furthermore, we certify that they are empowered to present our offers in our behalf in
accordance with our cabled or written instructions." (Exh. C).

Namerco never disclosed to the NPC the cabled or written instructions of its principal.
For that reason and because Namerco exceeded the limits of its authority, it virtually
acted in its own name and not as agent and it is, therefore, bound by the contract of
sale which, however, is not enforceable against its principal.

If, as contemplated in articles 1897 and 1898, Namerco is bound under the contract of
sale, then it follows that it is bound by the stipulation for liquidated damages in that
contract.

Defendants contention that Namercos liability should be based on tort or quasi-delict,
as held in some American cases, like Mendelsohn v. Holton, 149 N.E. 38, 42 ALR 1307,
is not well-taken. As correctly argued by the NPC, it would be unjust and inequitable for
Namerco to escape liability after it had deceived the NPC.

Another contention of the defendants is that the Domestic Insurance Company is not
liable to the NPC because its bond was posted, not for Namerco, the agent, but for the
New York firm which is not liable on the contract of sale.

That contention cannot be sustained because it was Namerco that actually solicited the
bond from the Domestic Insurance Company and, as explained already, Namerco is
being held liable under the contract of sale because it virtually acted in its own name. It
became the principal in the performance bond. In the last analysis, the Domestic
Insurance Company acted as surety for Namerco.

The rule is that "want of authority of the person who executes an obligation as the agent
or representative of the principal will not, as a general rule, affect the suretys liability
thereon, especially in the absence of fraud, even though the obligation is not binding on
the principal" (72 C.J.S. 525).

Defendants other contentions are that they should be held liable only for nominal
damages, that interest should not be collected on the amount of damages and that the
damages should be computed on the basis of a forty-five day period and not for a
period of one hundred fifteen days.

With respect to the imposition of the legal rate of interest on the damages from the filing
of the complaint in 1957, or a quarter of a century ago, defendants contention is
meritorious. It would be manifestly inequitable to collect interest on the damages
especially considering that the disposition of this case has been considerably delayed
due to no fault of the defendants.

The contention that only nominal damages should be adjudged is contrary to the
intention of the parties (NPC, Namerco and its surety) because it is clearly provided that
liquidated damages are recoverable for delay in the delivery of the sulfur and, with more
reason, for nondelivery.

No proof of pecuniary loss is required for the recovery of liquidated damages. the
stipulation for liquidated damages is intended to obviate controversy on the amount of
damages. There can be no question that the NPC suffered damages because its
production of fertilizer was disrupted or diminished by reason of the nondelivery of the
sulfur.chanrobles.com.ph : virtual law library

The parties foresaw that it might be difficult to ascertain the exact amount of damages
for nondelivery of the sulfur. So, they fixed the liquidated damages to be paid as
indemnity to the NPC.

On the other hand, nominal damages are damages in name only or are in fact the same
as no damages (25 C.J.S. 466). It would not be correct to hold in this case that the NPC
suffered damages in name only or that the breach of contract was merely technical in
character.

As to the contention that the damages should be computed on the basis of forty-five
days, the period required by a vessel leaving Galveston, Texas to reach Iligan City, that
point need not be resolved in view of our conclusion that the liquidated damages should
be equivalent to the amount of the bidders bond posted by Namerco.

NPCs appeal, L-33897. The trial court reduced the liquidated damages to twenty
percent of the stipulated amount. the NPC contends the it is entitled to the full amount of
liquidated damages in the sum of P360,572.80.

In reducing the liquidated damages, the trial court relied on article 2227 of the Civil
Code which provides that "liquidated damages, whether intended as an indemnity or a
penalty, shall be equitably reduced if they are iniquitous or unconscionable."

Apparently, the trial court regarded as an equitable consideration the persistent efforts
of Namerco and its principal to charter a steamer and that the failure of the New York
firm to secure shipping space was not attributable to its fault or negligence.

The trial court also took into account the fact that the selling price of the sulfur was
P450,716 and that to award as liquidated damages more than eighty percent of the
price would not be altogether reasonable.

The NPC contends that Namerco was an obligor in bad faith and, therefore, it should be
responsible for all damages which could be reasonably attributed to its nonperformance
of the obligation as provided in article 2201 of the Civil Code.

On the other hand, the defendants argue that Namerco having acted as a mere agent,
was not liable for the liquidated damages stipulated in the alleged unenforceable
contract of sale; that, as already noted, Namercos liability should be based on tort or
quasi-delict and not on the contract of sale; that if Namerco is not liable, then the
insurance company, its surety, is likewise not liable; that the NPC is entitled only to
nominal damages because it was able to secure the sulfur from another source (58-59
tsn November 10, 1960) and that the reduced award of stipulated damages is highly
iniquitous, considering that Namerco acted in good faith and that the NPC did not suffer
any actual damages.chanrobles law library : red

These contentions have already been resolved in the preceding discussion. We find no
sanction or justification for NPCs claim that it is entitled to the full payment of the
liquidated damages computed by its official.

Ruling on the amount of damages. A painstaking evaluation of the equities of the
case in the light of the arguments of the parties as expounded in their five briefs leads to
the conclusion that the damages due from the defendants should be further reduced to
P45,100 which is equivalent to their bidders bond or to about ten percent of the selling
price of the sulfur.

WHEREFORE, the lower courts judgment is modified and defendants National
Merchandising Corporation and Domestic Insurance Company of the Philippines are
ordered to pay solidarily to the National Power Corporation the sum of P45,100.00 as
liquidated damages. No costs.

SO ORDERED.

G.R. No. L-19689 April 4, 1923
PHILIPPINE NATIONAL BANK, plaintiff-appellant,
vs.
WELCH, FAIRCHILD & CO., INC., defendant-appellee.
Quintin Paredes for appellant.
Ross and Lawrence for appellee.
STREET, J .:
By this action the plaintiff, the Philippine National Bank, seeks to recover of the
defendant, Welch, Fairchild & Co., Inc., the sum of $125,000, with interest from May 17,
1918, being part of the proceeds of certain insurance effected in the year 1918 upon a
ship called the Benito Juarez and collected by the defendant after said ship had been
lost at sea. Upon hearing the cause the trial judge absolved the defendant from the
complaint and the plaintiff appealed.
In the first half of the year 1918, a corporation , known as La Compaa Naviera, Inc,
was organized in Manila under the laws of the Philippine Islands, for the purpose of
engaging in the business of marine shipping. Among its shareholders was Welch,
Fairchild & Co., another corporation organized under the laws of these Islands and
having its principal place of business in the City of Manila. Of the shares of La
Compaa Naviera, Welch, Fairchild & Co, subscribed for 325 shares of the par value of
P100 each.
As La Compaa Naviera was an entirely new enterprise in the shipping world, it was
necessary for it to acquire a proper complement of vessels and adequate equipment
and as shipping values in those days were high, the company did not have sufficient
ready capital to meet all the requirements. Its officials therefore in May, 1918, applied to
the Philippine National Bank for a loan of $125,000. with which to purchase a boat
called Benito Juarez, which had been found on the market in the United States. The
necessary credit appears to have been extended by the bank in the form of a loan for
$125,000, to run for one year from May 17, 1918. Nevertheless, owing to delay in the
delivery of the vessel, the money was not then delivered and was not actually advanced
by the bank until several months later, as will presently appear.
It appears that Welch, Fairchild & Co. Was not numbered among the original promoters
of La Compaa Naviera, but its interests are to a considerable extent involved in the
general shipping conditions in the Islands and it looked with a friendly eye upon the new
enterprise. Moreover, the mercantile ramifications of Welch, Fairchild, & Co. appear to
be extensive; and its friendly offices were freely exerted in behalf of La Compaa
Naviera, not only through Welch & Co., the correspondent of the defendant in San
Francisco, but also through Mr. Geo. H. Fairchild, the president of Welch, Fairchild &
Co. who left Manila for the United States in March of the year 1918 and remained in that
country for more than a year. Upon this visit to the United States Mr. Fairchild was kept
advised as to certain needs of La Compaa Naviera, and he acted for it in important
matters requiring attention in the United States. In particular it was through the efforts of
himself and of Judge James Ross, as attorney, that the consent of the proper
authorities in Washington, D. C., was obtained for the transfer of the Benito Juarez to
Philippine registry.
In August, 1918, the Benito Juarez was on the California coast, and after the approval
of its transfer to Philippine registry had been obtained, steps were taken for the delivery
of the vessel to the agents of the purchaser in San Francisco at the price of $125,000,
as agreed; and it was understood that the delivery of the purchase money would be
made by the Anglo-London and Paris National Bank, in San Francisco, as agent of the
Philippine National Bank, contemporaneously with the delivery to it of the bill of sale and
the policy of insurance of the vessel. It developed, however, that the vessel needed
repairs before it could be dispatched on its voyage to the Orient; and it became
impracticable to deliver the bill of sale and insurance policy to the bank in San Francisco
at the time the money was needed to effect the transfer. Being advised of this
circumstance, and fearing that a hitch might thus occur in the negotiations, Welch,
Fairchild & Co., in Manila, addressed a letter on August 8, 1918, to the Philippine
National Bank, requesting it to cable its correspondent in San Francisco to release the
money and make payment for the vessel upon application by Welch & Co., without
requiring the delivery of the bill of sale or policy of insurance, "in which event," the letter
continued, "the Compaa Naviera will deliver to you here the bill of sale also the
insurance policy covering the voyage to Manila." In a letter bearing date of August 10,
1918, also addressed to the Philippine National Bank, La Compaa Naviera, Inc.
confirmed this request and authorized the bank to send the cablegram necessary to
give it effect.
In response to these communications the Philippine National Bank, on August 14, sent
a cablegram to its correspondent in San Francisco authorizing payment of the purchase
price of the Benito Juarez, without the production of either bill of sale or insurance
policy. Under these circumstances the vessel was delivered and money paid over
without the production or delivery of the documents mentioned.
After the repair of the Benito Juarez had been accomplished it was insured by Welch &
Co. to the value of $150,000 and was dispatched, in November, 1918, on its voyage to
the Philippine Islands. On December 3, 1918, the vessel encountered a storm off the
Island of Molokai, in the Hawaiian group, and became a total loss.
When the insurance was taken out to cover the voyage to Manila, no policy was issued
by any insurer; but the insurance was placed by Welch & Co. of San Francisco, upon
the instructions of Welch, Fairchild & Co., as agents of the Compaa Naviera, and it
was taken out in the ordinary course of business to protect the interests of all parties
concerned.
As would naturally happen in an insurance of this amount, the risk was distributed
among several companies, some in remote centers; and it was many months before
Welch & Co., of San Francisco, had collected the full amount due from the insurers.
However, as the money came to the hands of Welch & Co., of San Francisco, it was
remitted by draft or telegraphic transfer to Welch, Fairchild & Co. in Manila; and in this
manner practically the full amount for which the Benito Juarez had been insured was
transmitted to Manila by the last days of June, 1919.
As was perhaps but natural under the circumstances, the Philippine National Bank
appears to have exhibited no concern about its loan of $125,000 to La Compaa
Naviera, or about the proceeds of the insurance on the Benito Juarez, until after the
period of credit allowed by the bank on the loan to La Compaa Naviera had expired,
that is to say, after May 17, 1919. A short while after this date, an incident occurred
upon which the attorneys for the defendant in this case have placed great emphasis,
and it is this: In the latter part of the month aforesaid Welch & Co., having collected
$13,000 upon account of the insurance on the Benito Juarez, attempted to remit it by
telegraphic transfer to Welch, Fairchild & Co. in Manila, but by some mistake or other,
the money was remitted to the Philippine National Bank in New York, and it was not
until about a month later that authority was received by the Philippine National Bank in
Manila to pay to Welch, Fairchild & Co. the sum of $13,000 upon account of said
insurance.
When the authority for the transfer of this credit reached the Philippine National Bank,
the attention of the bank officials was drawn to the fact that the transfer related to
money forming part of the proceeds of the insurance on theBenito Juarez, and they at
first determined to intercept the transfer and without the credit from Welch, Fairchild &
Co., on the ground that the money belonged to the bank. This claim on the part of the
bank was of course based on the letter of Welch, Fairchild & Co. dated August 8, 1918,
in which the promise had been held out that, if the bank would advance the purchase
money of the Benito Juarez without requiring the concurrent delivery of the policy of
insurance, said policy would be delivered later by La Compaa Naviera in Manila.
When the determination of the bank's officials to withhold the money was
communication to Welch, Fairchild & Co., a strong protest was made, and its attorney
came at once to the bank to interview its president. As a result of this interview the
president of the bank receded from his position about the matter, and an order was
made that the money should be passed to the credit of Welch, Fairchild & Co., as was
done on July 23, 1919. A day or two later the bank further credited the account of
Welch, Fairchild & Co. with the sum of P119.65, as interest on the money during the
time it had been withheld.
In the course of the interview above alluded to, not only did the attorney of Welch,
Fairchild & Co, call the attention of the president of the bank to the doubtful propriety of
its act in intercepting a remittance of money which had been confined to its agent in San
Francisco for transmission to Welch, Fairchild & Co. in Manila, but he also pointed out
that Welch, Fairchild & Co. had acted throughout merely in the capacity of agent for La
Compaa Naviera, and he therefore insisted that Welch, Fairchild & Co. was not legally
bound by the promise made by it in the letter of August 8, 1918, to the effect that the
policy of insurance would be delivered to the bank in Manila by La Compaa Naviera;
and this contention was urged with such force that the president of the bank who was
not a lawyer acknowledged himself vanquished, and in the end said that he must
have been mistaken in his contention and that the attorney was right.
Shortly after this incident the bank which had permitted La Compaa Naviera to
become indebted to it upon inadequate security to the extent of nearly a million pesos
began to take steps looking to the betterment of its position in relation with said
company. To this end, on August 28, 1919, it went through the barren formality of
making demand upon La Compaa Naviera for the delivery of the insurance policies on
the Benito Juarez, but was informed by La Compaa Naviera that it had never received
any policy of insurance upon the Benito Juarez as the vessel had been insured in San
Francisco by Welch, Fairchild & Co. in behalf of La Compaa Naviera. A little later the
bank caused La Compaa Naviera to execute pledges to the bank upon three
steamers belonging to said company as security for its indebtedness to the bank.
Thereafter matters were permitted to drift until it became apparent that La Compaa
Naviera was insolvent; and on December 9, 1919, the bank made formal demand upon
Welch, Fairchild & Co, for the delivery of the insurance policy for $125,000 on
the Benito Juarez, basing its demand on the letter of Welch, Fairchild & Co. of August 8,
1918, already mentioned.
As the bank officials already knew that the insurance had been collected many months
previously by Welch, Fairchild & Co., it is evident that the making of demand for delivery
of a policy for $125,000 was a mere formula by which the bank intended to plant a
contention that the proceeds of the insurance, to the extent of $125,000, belonged to it.
To this demand Welch, Fairchild & Co. responded with a negative.
Meanwhile, what had become of the proceeds of the insurance upon the Benito Juarez?
That money, as we have already seen, came to the hands of Welch, Fairchild & Co. in
Manila and has there rested, having been applied by Welch, Fairchild & Co. in part
satisfaction of indebtedness incurred by La Compaa Naviera to it. This disposition of
the insurance money was made by Welch, Fairchild & Co. with the tacit approval of La
Compaa Naviera, the credits being notified to the latter by the former as the
remittances were received to Manila and entered in the accounts of both companies
accordingly.
To explain the situation which had thus arisen between the two companies, further
reference is here necessary to matters that had taken place during the preceding year.
As we have already stated, Welch, Fairchild & Co. had assisted La Compaa Naviera
in effecting the purchase and transfer of the Benito Juarez to Philippine registry. In
addition to this, Welch, Fairchild & Co. advanced in San Francisco several thousands of
pesos necessary for the repair and equipment of that vessel prior to its departure for the
Philippine Islands; and the incurring of these expenses explain why insurance was
taken out to the extent of $150,000 instead of $125,000, the latter sum being merely the
item of cost price. But the friendly offices of Welch, Fairchild & Co. were not limited to
the foregoing matters, and said company rendered practically the same service with
respect to other vessels which were purchased for La Compaa Naviera, with the result
that the advances made by Welch, Fairchild & Co., beginning in the autumn of 1918,
steadily mounted in the course of succeeding months and in the end ran up into the
hundreds of thousands of pesos. One particular incident, most disastrous to the latter
company, consisted in the operation by it, during several months in 1919, of the San
Pedro, one of the vessels belonging to La Compaa Naviera, under contract with the
latter company.
The result of these expenditures and advances of money by Welch, Fairchild & Co. was
that the indebtedness of La Compaa Naviera to Welch, Fairchild & Co. mounted
steadily during the year 1919, and said indebtedness was by no means liquidated by
the application to it of the insurance money from the Benito Juarez. In this connection
we note the following debit balances charged on the books of Welch, Fairchild & Co.
against the La Compaa Naviera as the same appear by monthly statements from
November 30, 1918, to September 30, 1919; and it will be remembered that these are
the balances appearing after credit had been given for the collections of the insurance
money. Said debit balances for the months stated are as follows: Upon November 30,
1918, P3,675.71; upon December 31, 1918, P30,627; upon January 25, 1919,
P93,961.49; upon February 27, 1919, P145,130.78; upon March 30, 1919,
P146,370.66; upon April 29, 1919, P148,542.25; upon May 30, 1919, P153,060.13;
upon June 30, 1919, P139,531.27; upon July 31, 1919, P168,724; upon August 31,
1919, P169,932.41; upon September 30, 1919, P185,651.73.
The foregoing statement of facts makes comprehensible the contentions upon which the
defense to the present action is based; and these contentions may be stated in the
following propositions: First, that, inasmuch as Welch, Fairchild & Co. acted exclusively
in the character of agent for La Compaa Naviera in the purchase of the Benito Juarez,
no obligation enforcible against it was created by the letter of August 8, 1918, and as a
consequence the bank should look exclusively to La Compaa Naviera, as principal, for
indemnification for any loss resulting from the failure of said company to deliver the
insurance policy, or policies, on the Benito Juarez, or the proceeds thereof, to the bank;
secondly, that, even supposing that the letter of August 8, 1918, created any obligation
that the defendant was bound to respect, nevertheless the bank waived and abandoned
any right that it may have had upon the facts stated; and, thirdly and finally, that, by
reason of the delay of the bank and its abandonment of its claim against the defendant,
in relation with the prejudice thereby incurred by the defendant, the bank is estopped to
assert any right that it may have had in the premises.
We are of the opinion that all of these contentions are untenable and that the plaintiff
bank has a clear right of action against the defendant, in nowise affected adversely by
any of the considerations suggested. Upon the first point, while it is true that an agent
who acts for a revealed principal in the making of a contract does not become
personally bound to the other party in the sense that an action can ordinarily be
maintained upon such contract directly against the agent (art. 1725, Civ. Code), yet that
rule clearly does not control this case; for even conceding that the obligation created by
the letter of August 8, 1918, was directly binding only on the principal, and that in law
the agent may stand apart therefrom. yet it is manifest upon the simplest principles of
jurisprudence that one who has intervened in the making of a contract in the character
of agent cannot be permitted to intercept and appropriate the thing which the principal is
bound to deliver, and thereby make performance by the principal impossible. The agent
in any event must be precluded from doing any positive act that could prevent
performance on the part of his principal. This much, ordinary good faith towards the
other contracting party requires. The situation before us in effect is one where,
notwithstanding the promise held out jointly by principal and agent in the letters of
August 8 and 10, 1918, the two have conspired to make an application of the proceeds
of the insurance entirely contrary to the tenor of said letters. This cannot be permitted.
The idea on which we here proceed can perhaps be made more readily apprehensible
from another point of view, which is this: By virtue of the promise contained in the letter
of August 8, 1918, the bank became the equitable owner of the insurance effected on
the Benito Juarez to the extent necessary to indemnify the bank for the money
advanced by it, in reliance upon that promise, for the purchase of said vessel; and this
right of the bank must be respected by all persons having due notice thereof, and most
of all by the defendant which took out the insurance itself in the interest of the parties
then concerned, including of course the bank. The defendant therefore cannot now be
permitted to ignore the right of the bank and appropriate the insurance to the prejudice
of the bank, even though the act be done with the consent of its principal.
As to the argument founded upon the delay of the bank in asserting its right to the
insurance money, it is enough to say that mere delay unaccompanied by acts sufficient
to create an equitable estoppel does not destroy legal rights, but such delay as occurred
here is in part explained by the fact that the loan to La Compaa Naviera did not
mature till May 17, 1919, and a demand for the surrender of the proceeds of the
insurance before that date would have seemed premature. Besides, it is to be borne in
mind that most of the insurance was not in fact collected until in June of 1919. It is true
that in the month of March previous about P50,000 of this insurance had been remitted
to Manila for Welch, Fairchild & Co. through the plaintiff bank, and the bank, we
assume, took notice of the source of the remittance. However, its failure then to assert
its claim to the money is not a matter of legitimate criticism, since the loan was not then
due. After May 17, 1919, the situation was somewhat different; and as we have already
seen, the bank was not slow in asserting its right to the remittance that came through
the bank in June to Welch, Fairchild & Co., consisting of $13,000 of the proceeds of this
insurance.
This brings us to consider the legal effect of the incident which culminated on July 23,
1919, when the bank abandoned its previous position with regard to this remittance and
passed the money to the credit of the defendant, with interest upon the same during the
time payment had been withheld. The most, we think, that can fairly be said about that
incident is that the bank president admitted himself to be a convert to the proposition
advanced by the attorney for the defendant to the effect that as the defendant had
merely acted as agent for La Compaa Naviera in the matter, the bank must look
exclusively to La Compaa Naviera for the fulfillment of the promise about the
insurance money. As a statement of legal doctrine that proposition was, as we have
already shown, a mistake; but of course it would have been a matter of indifference if La
Compaa Naviera had remained solvent. One consideration that must have operated
on the mind of the president of the bank in releasing this money was that it had been
remitted in ordinary course of exchange through the bank to the defendant, which was
an entirely responsible party; and even though the bank may have had the power to
intercept the remittance, the president may have considered that the commercial
integrity of the institution in matters of exchange was perhaps worth more than could be
gained by an obstinate insistence on its right to this money. There is no evidence
whatever that the president of the bank assumed to release the defendant from any
obligation which might have been incurred by virtue of the letter of August 8, 1918.
From intimations contained in the testimony of some of the witnesses presented by the
defendant it might be inferred that at some time or another an understanding had been
reached between the bank and the defendant company by which it was agreed that the
defendant should make advances of money to La Compaa Naviera and that it might
look to the proceeds of the insurance on the Benito Juarez to reimburse itself for those
outlays. No such agreement with the bank or any official of the bank is alleged in the
defendant's answer; and as one reads the testimony submitted by the defendant this
hearsay suggestion continually flits away, until it becomes apparent that no such
agreement was made. That there was some such understanding between the defendant
and La Compaa Naviera is highly probable, but to that understanding the bank clearly
was not a party.
It is insisted, however, that the attitude of the bank has been such that the defendant
has been misled to its prejudice, in that only did it give large credit to La Compaa
Naviera for sums to be recouped from this insurance money but that in reliance upon its
right to that money it refrained from taking the steps that it might have taken to save
itself from loss; and in this connection it is suggested that but for the incident in July,
1919, when the bank waived its claim to the $13,000 remitted through it to Welch,
Fairchild & Co., the defendant would have sought and would have been able to get
additional security in the form of mortgages or pledges of one or more vessels
belonging to La Compaa Naviera.
The proof in our opinion shows little or no tangible basis for these contentions; and so
far as we can see not one dollar was ever advanced by the defendant to La Compaa
Naviera upon the faith of any request, promise, or representation of the bank in that
behalf extended; and it should be noted that the large losses incurred by the defendant
for advances to that concern after July 23, 1919, were mostly incurred in the desperate
effort to retrieve its position by operating the San Pedro. The suggestion that, but for the
misleading attitude of the bank, the defendant would have been able to obtain additional
security loses much of its force when it is considered that upon December 31, 1921, the
defendant's book still showed unsecured indebtedness against La Compaa Naviera to
the amount of nearly P50,000. The idea that, but for the attitude assumed by the bank,
the defendant would have materially bettered its position, is a speculation too remote to
affect the issue of this action.
In the light of what has been said, it becomes necessary to reverse, as we hereby do
reverse, the judgment appealed from; and judgment will be entered in favor of the
plaintiff to recover of the defendant the sum of P250,000, with lawful interest from May
31, 1921, the date of the filling of the complaint. No special pronouncement will be
made as to costs. So ordered.

G.R. No. L-11442 May 23, 1958
MANUELA T. VDA. DE SALVATIERRA, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First
Instance of Leyte, Branch II, and SEGUNDINO REFUERZO, respondents.
Jimenez, Tantuico, Jr. and Tolete for petitioner.
Francisco Astilla for respondent Segundino Refuerzo.
FELIX, J .:
This is a petition for certiorari filed by Manuela T. Vda. de Salvatierra seeking to nullify
the order of the Court of First Instance of Leyte in Civil Case No. 1912, dated March 21,
1956, relieving Segundino Refuerzo of liability for the contract entered into between the
former and the Philippine Fibers Producers Co., Inc., of which Refuerzo is the president.
The facts of the case are as follows:
Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at
Maghobas, Poblacion, Burauen, Teyte. On March 7, 1954, said landholder entered into
a contract of lease with the Philippine Fibers Producers Co., Inc., allegedly a
corporation "duly organized and existing under the laws of the Philippines, domiciled at
Burauen, Leyte, Philippines, and with business address therein, represented in this
instance by Mr. Segundino Q. Refuerzo, the President". It was provided in said contract,
among other things, that the lifetime of the lease would be for a period of 10 years; that
the land would be planted to kenaf, ramie or other crops suitable to the soil; that the
lessor would be entitled to 30 per cent of the net income accruing from the harvest of
any, crop without being responsible for the cost of production thereof; and that after
every harvest, the lessee was bound to declare at the earliest possible time the income
derived therefrom and to deliver the corresponding share due the lessor.
Apparently, the aforementioned obligations imposed on the alleged corporation were
not complied with because on April 5, 1955, Alanuela T. Vda, de Salvatierra filed with
the Court of First Instance of Leyte a complaint against the Philippine Fibers Producers
Co., Inc., and Segundino Q. Refuerzo, for accounting, rescission and damages (Civil
Case No. 1912). She averred that sometime in April, 1954, defendants planted kenaf on
3 hectares of the leased property which crop was, at the time of the commencement of
the action, already harvested, processed and sold by defendants; that notwithstanding
that fact, defendants refused to render an accounting of the income derived therefrom
and to deliver the lessor's share; that the estimated gross income was P4,500, and the
deductible expenses amounted to P1,000; that as defendants' refusal to undertake such
task was in violation of the terms of the covenant entered into between the plaintiff and
defendant corporation, a rescission was but proper.
As defendants apparently failed to file their answer to the complaint, of which they were
allegedly notified, the Court declared them in default and proceeded to receive plaintiff's
evidence. On June 8, 1955, the lower Court rendered judgment granting plaintiff's
prayer, and required defendants to render a complete accounting of the harvest of the
land subject of the proceeding within 15 days from receipt of the decision and to deliver
30 per cent of the net income realized from the last harvest to plaintiff, with legal interest
from the date defendants received payment for said crop. It was further provide that
upon defendants' failure to abide by the said requirement, the gross income would be
fixed at P4,200 or a net income of P3,200 after deducting the expenses for production,
30 per cent of which or P960 was held to be due the plaintiff pursuant to the
aforementioned contract of lease, which was declared rescinded.
No appeal therefrom having been perfected within the reglementary period, the Court,
upon motion of plaintiff, issued a writ of execution, in virtue of which the Provincial
Sheriff of Leyte caused the attachment of 3 parcels of land registered in the name of
Segundino Refuerzo. No property of the Philippine Fibers Producers Co., Inc., was
found available for attachment. On January 31, 1956, defendant Segundino Refuerzo
filed a motion claiming that the decision rendered in said Civil Case No. 1912 was null
and void with respect to him, there being no allegation in the complaint pointing to his
personal liability and thus prayed that an order be issued limiting such liability to
defendant corporation. Over plaintiff's opposition, the Court a quo granted the same and
ordered the Provincial Sheriff of Leyte to release all properties belonging to the movant
that might have already been attached, after finding that the evidence on record made
no mention or referred to any fact which might hold movant personally liable therein. As
plaintiff's petition for relief from said order was denied, Manuela T. Vda. de Salvatierra
instituted the instant action asserting that the trial Judge in issuing the order complained
of, acted with grave abuse of discretion and prayed that same be declared a nullity.
From the foregoing narration of facts, it is clear that the order sought to be nullified was
issued by tile respondent Judge upon motion of defendant Refuerzo, obviously pursuant
to Rule 38 of the Rules of Court. Section 3 of said Rule, however, in providing for the
period within which such a motion may be filed, prescribes that:
SEC. 3. WHEN PETITION FILED; CONTENTS AND VERIFICATION. A petition
provided for in either of the preceding sections of this rule must be verified, filed within
sixty days after the petitioner learns of the judgment, order, or other proceeding to be
set aside, and not more than six months after such judgment or order was entered, or
such proceeding was taken; and must be must be accompanied with affidavit showing
the fraud, accident, mistake, or excusable negligence relied upon, and the facts
constituting the petitioner is good and substantial cause of action or defense, as the
case may be, which he may prove if his petition be granted". (Rule 38)
The aforequoted provision treats of 2 periods, i.e., 60 days after petitioner learns of the
judgment, and not more than 6 months after the judgment or order was rendered, both
of which must be satisfied. As the decision in the case at bar was under date of June 8,
1955, whereas the motion filed by respondent Refuerzo was dated January 31, 1956, or
after the lapse of 7 months and 23 days, the filing of the aforementioned motion was
clearly made beyond the prescriptive period provided for by the rules. The remedy
allowed by Rule 38 to a party adversely affected by a decision or order is certainly an
alert of grace or benevolence intended to afford said litigant a penultimate opportunity to
protect his interest. Considering the nature of such relief and the purpose behind it, the
periods fixed by said rule are non-extendible and never interrupted; nor could it be
subjected to any condition or contingency because it is of itself devised to meet a
condition or contingency (Palomares vs. Jimenez,
*
G.R. No. L-4513, January 31, 1952).
On this score alone, therefore, the petition for a writ of certiorari filed herein may be
granted. However, taking note of the question presented by the motion for relief
involved herein, We deem it wise to delve in and pass upon the merit of the same.
Refuerzo, in praying for his exoneration from any liability resulting from the non-
fulfillment of the obligation imposed on defendant Philippine Fibers Producers Co., Inc.,
interposed the defense that the complaint filed with the lower court contained no
allegation which would hold him liable personally, for while it was stated therein that he
was a signatory to the lease contract, he did so in his capacity as president of the
corporation. And this allegation was found by the Court a quo to be supported by the
records. Plaintiff on the other hand tried to refute this averment by contending that her
failure to specify defendant's personal liability was due to the fact that all the time she
was under the impression that the Philippine Fibers Producers Co., Inc., represented by
Refuerzo was a duly registered corporation as appearing in the contract, but a
subsequent inquiry from the Securities and Exchange Commission yielded otherwise.
While as a general rule a person who has contracted or dealt with an association in
such a way as to recognize its existence as a corporate body is estopped from denying
the same in an action arising out of such transaction or dealing, (Asia Banking
Corporation vs. Standard Products Co., 46 Phil., 114; Compania Agricola de Ultramar
vs. Reyes, 4 Phil., 1; Ohta Development Co.; vs. Steamship Pompey, 49 Phil., 117), yet
this doctrine may not be held to be applicable where fraud takes a part in the said
transaction. In the instant case, on plaintiff's charge that she was unaware of the fact
that the Philippine Fibers Producers Co., Inc., had no juridical personality, defendant
Refuerzo gave no confirmation or denial and the circumstances surrounding the
execution of the contract lead to the inescapable conclusion that plaintiff Manuela T.
Vda. de Salvatierra was really made to believe that such corporation was duly
organized in accordance with law.
There can be no question that a corporation with registered has a juridical personality
separate and distinct from its component members or stockholders and officers such
that a corporation cannot be held liable for the personal indebtedness of a stockholder
even if he should be its president (Walter A. Smith Co. vs. Ford, SC-G.R. No. 42420)
and conversely, a stockholder or member cannot be held personally liable for any
financial obligation be, the corporation in excess of his unpaid subscription. But this rule
is understood to refer merely to registered corporations and cannot be made applicable
to the liability of members of an unincorporated association. The reason behind this
doctrine is obvious-since an organization which before the law is non-existent has no
personality and would be incompetent to act and appropriate for itself the powers and
attribute of a corporation as provided by law; it cannot create agents or confer authority
on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is an
elementary principle of law that a person who acts as an agent without authority or
without a principal is himself regarded as the principal, possessed of all the rights and
subject to all the liabilities of a principal, a person acting or purporting to act on behalf of
a corporation which has no valid existence assumes such privileges and obligations and
comes personally liable for contracts entered into or for other acts performed as such,
agent (Fay vs. Noble, 7 Cushing [Mass.] 188. Cited in II Tolentino's Commercial Laws of
the Philippines, Fifth Ed., P. 689-690). Considering that defendant Refuerzo, as
president of the unregistered corporation Philippine Fibers Producers Co., Inc., was the
moving spirit behind the consummation of the lease agreement by acting as its
representative, his liability cannot be limited or restricted that imposed upon corporate
shareholders. In acting on behalf of a corporation which he knew to be unregistered, he
assumed the risk of reaping the consequential damages or resultant rights, if any,
arising out of such transaction.
Wherefore, the order of the lower Court of March 21, 1956, amending its previous
decision on this matter and ordering the Provincial Sheriff of Leyte to release any and all
properties of movant therein which might have been attached in the execution of such
judgment, is hereby set aside and nullified as if it had never been issued. With costs
against respondent Segundino Refuerzo. It is so ordered.

G.R. No. 125138 March 2, 1999
NICHOLAS Y. CERVANTES, petitioner,
vs.
COURT OF APPEALS AND THE PHILIPPINE AIR LINES, INC., respondent.

PURISMA, J .:
This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of
Appeals
1
in CA GR CV No. 41407, entitled "Nicholas Y. Cervantes vs. Philippine Air
Lines Inc.", affirming in toto the judgment of the trial court dismissing petitioner's
complaint for damages.
On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to
the herein petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for
Manila-Honolulu-Los Angeles-Honolulu-Manila, which ticket expressly provided an
expiry of date of one year from issuance, i.e., until March 27, 1990. The issuance of the
said plane ticket was in compliance with a Compromise Agreement entered into
between the contending parties in two previous suits, docketed as Civil Case Nos. 3392
and 3451 before the Regional Trial Court in Surigao City.
2

On March 23, 1990, four days before the expiry date of subject ticket, the petitioner
used it. Upon his arrival in Los Angeles on the same day, he immediately booked his
Los Angeles-Manila return ticket with the PAL office, and it was confirmed for the April
2, 1990 flight.
Upon learning that the same PAL plane would make a stop-over in San Francisco, and
considering that he would be there on April 2, 1990, petitioner made arrangements with
PAL for him to board the flight In San Francisco instead of boarding in Las Angeles.
On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco,
he was not allowed to board. The PAL personnel concerned marked the following
notation on his ticket: "TICKET NOT ACCEPTED DUE EXPIRATION OF VALIDITY."
Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract of
carriage docketed as Civil Case No. 3807 before Branch 32 of the Regional Trial Court
of Surigao del Norte in Surigao City. But the said complaint was dismissed for lack of
merit.
3

On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which
came out with a Decision, on July 25, 1995, upholding the dismissal of the case.
On May 22, 1996, petitioner came to this Court via the Petition for Review under
consideration.
The issues raised for resolution are: (1) Whether or not the act of the PAL agents in
confirming subject ticket extended the period of validity of petitioner's ticket; (2) Whether
or not the defense of lack of authority was correctly ruled upon; and (3) Whether or not
the denial of the award for damages was proper.
To rule on the first issue, there is a need to quote the findings below. As a rule,
conclusions and findings of fact arrived at by the trial court are entitled to great weight
on appeal and should not be disturbed unless for strong and cogent reasons.
4

The facts of the case as found by the lower court
5
are, as follows:
The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant)
provides that it is not valid after March 27, 1990. (Exhibit 1-F). It is also
stipulated in paragraph 8 of the Conditions of Contract (Exhibit 1, page 2)
as follows:
8. This ticket is good for carriage for one year from date of
issue, except as otherwise provided in this ticket, in carrier's
tariffs, conditions of carriage, or related regulations. The fare
for carriage hereunder is subject to change prior to
commencement of carriage. Carrier may refuse
transportation if the applicable fare has not been paid.
6

The question on the validity of subject ticket can be resolved in light of the ruling in the
case of Lufthansa vs. Court of Appeals.
7
In the said case, the Tolentinos were issued
first class tickets on April 3, 1982, which will be valid until April 10, 1983. On June 10,
1982, they changed their accommodations to economy class but the replacement
tickets still contained the same restriction. On May 7, 1983, Tolentino requested that
subject tickets be extended, which request was refused by the petitioner on the ground
that the said tickets had already expired. The non-extension of their tickets prompted
the Tolentinos to bring a complaint for breach of contract of carriage against the
petitioner. In ruling against the award of damages, the Court held that the "ticket
constitute the contract between the parties. It is axiomatic that when the terms are clear
and leave no doubt as to the intention of the contracting parties, contracts are to be
interpreted according to their literal meaning."
In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation
by the PAL's agents in Los Angeles and San Francisco changed the compromise
agreement between the parties.
As aptly by the appellate court:
. . . on March 23, 1990, he was aware of the risk that his
ticket could expire, as it did, before he returned to the
Philippines.' (pp. 320-321, Original Records)
8

The question is: "Did these two (2) employees, in effect,
extend the validity or lifetime of the ticket in question? The
answer is in the negative. Both had no authority to do so.
Appellant knew this from the very start when he called up the
Legal Department of appellee in the Philippines before he
left for the United States of America. He had first hand
knowledge that the ticket in question would expire on March
27, 1990 and that to secure an extension, he would have to
file a written request for extension at the PAL's office in the
Philippines (TSN, Testimony of Nicholas Cervantes, August
2, 1991, pp. 20-23). Despite this knowledge, appellant
persisted to use the ticket in question."
9

From the aforestated facts, it can be gleaned that the petitioner was fully aware that
there was a need to send a letter to the legal counsel of PAL for the extension of the
period of validity of his ticket.
Since the PAL agents are not privy to the said Agreement and petitioner knew that a
written request to the legal counsel of PAL was necessary, he cannot use what the PAL
agents did to his advantage. The said agents, according to the Court of
Appeals,
10
acted without authority when they confirmed the flights of the petitioner.
Under Article 1989
11
of the New Civil Code, the acts an agent beyond the scope of his
authority do not bind the principal, unless the latter ratifies the same expressly or
impliedly. Furthermore, when the third person (herein petitioner) knows that the agent
was acting beyond his power or authority, the principal cannot be held liable for the acts
of the agent. If the said third person is aware of such limits of authority, he is to blame,
and is not entitled to recover damages from the agent, unless the latter undertook to
secure the principal's ratification.
12

Anent the second issue, petitioner's stance that the defense of lack of authority on the
part of the PAL employees was deemed waived under Rule 9, Section 2 of the Revised
Rules of Court, is unsustainable. Thereunder, failure of a party to put up defenses in
their answer or in a motion to dismiss is a waiver thereof.
Petitioner stresses that the alleged lack of authority of the PAL employees was neither
raised in the answer nor in the motion to dismiss. But records show that the question of
whether there was authority on the part of the PAL employees was acted upon by the
trial court when Nicholas Cervantes was presented as a witness and the depositions of
the PAL employees, Georgina M. Reyes and Ruth Villanueva, were presented.
The admission by Cervantes that he was told by PAL's legal counsel that he had to
submit a letter requesting for an extension of the validity of subject tickets was
tantamount to knowledge on his part that the PAL employees had no authority to extend
the validity of subject tickets and only PAL's legal counsel was authorized to do so.
However, notwithstanding PAL's failure to raise the defense of lack of authority of the
said PAL agents in its answer or in a motion to dismiss, the omission was cured since
the said issue was litigated upon, as shown by the testimony of the petitioner in the
course of trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure provides:
Sec. 5. Amendment to conform, or authorize presentation of evidence.
When issues not raised by the pleadings are tried with express or implied
consent of the parties, as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment; but failure to amend
does not affect the result of the trial of these issues. . . .
Thus, "when evidence is presented by one party, with the express or implied consent of
the adverse party, as to issues not alleged in the pleadings, judgment may be rendered
validly as regards the said issue, which shall be treated as if they have been raised in
the pleadings. There is implied consent to the evidence thus presented when the
adverse party fails to object thereto."
13

Re: the third issue, an award of damages is improper because petitioner failed to show
that PAL acted in bad faith in refusing to allow him to board its plane in San Francisco.
In awarding moral damages for breach of contract of carriage, the breach must be
wanton and deliberately injurious or the one responsible acted fraudulently or with
malice or bad faith.
14
Petitioner knew there was a strong possibility that he could not
use the subject ticket, so much so that he bought a back-up ticket to ensure his
departure. Should there be a finding of bad faith, we are of the opinion that it should be
on the petitioner. What the employees of PAL did was one of simple negligence. No
injury resulted on the part of petitioner because he had a back-up ticket should PAL
refuse to accommodate him with the use of subject ticket.
Neither can the claim for exemplary damages be upheld. Such kind of damages is
imposed by way of example or correction for the public good, and the existence of bad
faith is established. The wrongful act must be accompanied by bad faith, and an award
of damages would be allowed only if the guilty party acted in a wanton, fraudulent,
reckless or malevolent manner.
15
Here, there is no showing that PAL acted in such a
manner. An award for attorney's fees is also improper.
WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated
July 25, 1995 AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.

G.R. No. 126751 March 28, 2001
SAFIC ALCAN & CIE, petitioner,
vs.
IMPERIAL VEGETABLE OIL CO., INC., respondent.
YNARES-SANTIAGO, J .:
Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French corporation engaged in the
international purchase, sale and trading of coconut oil. It filed with the Regional Trial
Court of Manila, Branch XXV, a complaint dated February 26, 1987 against private
respondent Imperial Vegetable Oil Co., Inc. (hereinafter, "IVO"), docketed as Civil Case
No. 87- 39597. Petitioner Safic alleged that on July 1, 1986 and September 25, 1986, it
placed purchase orders with IVO for 2,000 long tons of crude coconut oil, valued at
US$222.50 per ton, covered by Purchase Contract Nos. A601446 and A601655,
respectively, to be delivered within the month of January 1987. Private respondent,
however, failed to deliver the said coconut oil and, instead, offered a "wash out"
settlement, whereby the coconut oil subject of the purchase contracts were to be "sold
back" to IVO at the prevailing price in the international market at the time of wash out.
Thus, IVO bound itself to pay to Safic the difference between the said prevailing price
and the contract price of the 2,000 long tons of crude coconut oil, which amounted to
US$293,500.00. IVO failed to pay this amount despite repeated oral and written
demands.
Under its second cause of action, Safic alleged that on eight occasions between April
24, 1986 and October 31, 1986, it placed purchase orders with IVO for a total of 4,750
tons of crude coconut oil, covered by Purchase Contract Nos. A601297A/B, A601384,
A601385, A601391, A601415, A601681, A601683 and A601770A/B/C/. When IVO
failed to honor its obligation under the wash out settlement narrated above, Safic
demanded that IVO make marginal deposits within forty-eight hours on the eight
purchase contracts in amounts equivalent to the difference between the contract price
and the market price of the coconut oil, to compensate it for the damages it suffered
when it was forced to acquire coconut oil at a higher price. IVO failed to make the
prescribed marginal deposits on the eight contracts, in the aggregate amount of
US$391,593.62, despite written demand therefor.
The demand for marginal deposits was based on the customs of the trade, as governed
by the provisions of the standard N.I.O.P. Contract arid the FOSFA Contract, to wit:
N.I.O.P. Contract, Rule 54 - If the financial condition of either party to a contract
subject to these rules becomes so impaired as to create a reasonable doubt as
to the ability of such party to perform its obligations under the contract, the other
party may from time to time demand marginal deposits to be made within forty-
eight (48) hours after receipt of such demand, such deposits not to exceed the
difference between the contract price and the market price of the goods covered
by the contract on the day upon which such demand is made, such deposit to
bear interest at the prime rate plus one percent (1%) per annum. Failure to make
such deposit within the time specified shall constitute a breach of contract by the
party upon whom demand for deposit is made, and all losses and expenses
resulting from such breach shall be for the account of the party upon whom such
demand is made. (Underscoring ours.)
1

FOSFA Contract, Rule 54 - BANKRUPTCY/INSOLVENCY: If before the
fulfillment of this contract either party shall suspend payment, commit an act of
bankruptcy, notify any of his creditors that he is unable to meet his debts or that
he has suspended payment or that he is about to suspend payment of his debts,
convene, call or hold a meeting either of his creditors or to pass a resolution to
go into liquidation (except for a voluntary winding up of a solvent company for the
purpose of reconstruction or amalgamation) or shall apply for an official
moratorium, have a petition presented for winding up or shal1i have a Receiver
appointed, the contract shall forthwith be closed either at the market price then
current for similar goods or, at the option of the other party at a price to be
ascertained by repurchase or resale and the difference between the contract
price and such closing-out price shall be the amount which the other party shall
be entitled to claim shall be liable to account for under this contract (sic). Should
either party be dissatisfied with the price, the matter shall be referred to
arbitration. Where no such resale or repurchase takes place, the closing-out
price shall be fixed by a Price Settlement Committee appointed by the
Federation. (Underscoring ours.)
2

Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and
US$391,593.62, plus attorney's fees and litigation expenses. The complaint also
included an application for a writ of preliminary attachment against the properties of
IVO.
Upon Safic's posting of the requisite bond, the trial court issued a writ of preliminary
attachment. Subsequently, the trial court ordered that the assets of IVO be placed under
receivership, in order to ensure the preservation of the same.
In its answer, IVO raised the following special affirmative defenses: Safic had no legal
capacity to sue because it was doing business in the Philippines without the requisite
license or authority; the subject contracts were speculative contracts entered into by
IVO's then President, Dominador Monteverde, in contravention of the prohibition by the
Board of Directors against engaging in speculative paper trading, and despite IVO's lack
of the necessary license from Central Bank to engage in such kind of trading activity;
and that under Article 2018 of the Civil Code, if a contract which purports to be for the
delivery of goods, securities or shares of stock is entered into with the intention that the
difference between the price stipulated and the exchange or market price at the time of
the pretended delivery shall be paid by the loser to the winner, the transaction is null
and void.1wphi1.nt
IVO set up counterclaims anchored on harassment, paralyzation of business, financial
losses, rumor-mongering and oppressive action. Later, IVO filed a supplemental
counterclaim alleging that it was unable to operate its business normally because of the
arrest of most of its physical assets; that its suppliers were driven away; and that its
major creditors have inundated it with claims for immediate payment of its debts, and
China Banking Corporation had foreclosed its chattel and real estate mortgages.
During the trial, the lower court found that in 1985, prior to the date of the contracts
sued upon, the parties had entered into and consummated a number of contracts for the
sale of crude coconut oil. In those transactions, Safic placed several orders and IVO
faithfully filled up those orders by shipping out the required crude coconut oil to Safic,
totaling 3,500 metric tons. Anent the 1986 contracts being sued upon, the trial court
refused to declare the same as gambling transactions, as defined in Article 2018 of the
Civil Code, although they involved some degree of speculation. After all, the court
noted, every business enterprise carries with it a certain measure of speculation or risk.
However, the contracts performed in 1985, on one hand, and the 1986 contracts subject
of this case, on the other hand, differed in that under the 1985 contracts, deliveries were
to be made within two months. This, as alleged by Safic, was the time needed for milling
and building up oil inventory. Meanwhile, the 1986 contracts stipulated that the coconut
oil were to be delivered within period ranging from eight months to eleven to twelve
months after the placing of orders. The coconuts that were supposed to be milled were
in all likelihood not yet growing when Dominador Monteverde sold the crude coconut oil.
As such, the 1986 contracts constituted trading in futures or in mere expectations.
The lower court further held that the subject contracts were ultra vires and were entered
into by Dominador Monteverde without authority from the Board of Directors. It
distinguished between the 1985 contracts, where Safic likewise dealt with Dominador
Monteverde, who was presumably authorized to bind IVO, and the 1986 contracts,
which were highly speculative in character. Moreover, the 1985 contracts were covered
by letters of credit, while the 1986 contracts were payable by telegraphic transfers,
which were nothing more than mere promises to pay once the shipments became
ready. For these reasons, the lower court held that Safic cannot invoke the 1985
contracts as an implied corporate sanction for the high-risk 1986 contracts, which were
evidently entered into by Monteverde for his personal benefit.
The trial court ruled that Safic failed to substantiate its claim for actual damages.
Likewise, it rejected IVO's counterclaim and supplemental counterclaim.
Thus, on August 28, 1992, the trial court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered dismissing the complaint of plaintiff
Safic Alcan & Cie, without prejudice to any action it might subsequently institute
against Dominador Monteverde, the former President of Imperial Vegetable Oil
Co., Inc., arising from the subject matter of this case. The counterclaim and
supplemental counterclaim of the latter defendant are likewise hereby dismissed
for lack of merit. No pronouncement as to costs.
The writ of preliminary attachment issued in this case as well as the order placing
Imperial Vegetable Oil Co., Inc. under receivership are hereby dissolved and set
aside.
3

Both IVO and Safic appealed to the Court of Appeals, jointly docketed as CA-G.R. CV
No.40820.
IVO raised only one assignment of error, viz:
THE TRIAL COURT ERRED IN HOLDING 'I'HAT THE ISSUANCE OF THE
WRIT OF PRELIMINARY ATTACHMENT WAS NOT THE MAIN CAUSE OF
THE DAMAGES SUFFERED BY DEFENDANT AND IN NOT AWARDING
DEFENDANT-APPELLANT SUCH DAMAGES.
For its part, Safic argued that:
THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT,
DOMINADOR MONTEVERDE, ENTERED INTO CONTRACTS WHICH
WERE ULTRA VIRES AND WHICH DID NOT BIND OR MAKE IVO LIABLE.
THE TRIAL COURT ERRED IN HOLDING THA SAFIC WAS UNABLE TO
PROVE THE DAMAGES SUFFERED BY IT AND IN NOT AWARDING SUCH
DAMAGES.
THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE UNDER
THE WASH OUT CONTRACTS.
On September 12, 1996, the Court of Appeals rendered the assailed Decision
dismissing the, appeals and affirming the judgment appealed from in toto.
4

Hence, Safic filed the instant petition for review with this Court, substantially reiterating
the errors it raised before the Court of Appeals and maintaining that the Court of
Appeals grievously erred when:
a. it declared that the 1986 forward contracts (i.e., Contracts Nos. A601446 and
A60155 (sic) involving 2,000 long tons of crude coconut oil, and Contracts Nos.
A60l297A/B, A601385, A60l39l, A60l4l5, A601681. A601683 and A60l770A/B/C
involving 4,500 tons of crude coconut oil) were unauthorized acts of Dominador
Monteverde which do not bind IVO in whose name they were entered into. In this
connection, the Court of Appeals erred when (i) it ignored its own finding that (a)
Dominador Monteverde, as IVO's President, had "an implied authority to make
any contract necessary or appropriate to the contract of the ordinary business of
the company"; and (b) Dominador Monteverde had validly entered into similar
forward contracts for and on behalf of IVO in 1985; (ii) it distinguished between
the 1986 forward contracts despite the fact that the Manila RTC has struck down
IVO's objection to the 1986 forward contracts (i.e. that they were highly
speculative paper trading which the IVO Board of Directors had prohibited
Dominador Monteverde from engaging in because it is a form of gambling where
the parties do not intend actual delivery of the coconut oil sold) and instead found
that the 1986 forward contracts were not gambling; (iii) it relied on the testimony
of Mr. Rodrigo Monteverde in concluding that the IVO Board of Directors did not
authorize its President, Dominador Monteverde, to enter into the 1986 forward
contracts; and (iv) it did not find IVO, in any case, estopped from denying
responsibility for, and liability under, the 1986 forward contracts because IVO had
recognized itself bound to similar forward contracts which Dominador
Monteverde entered into (for and on behalf of IVO) with Safic in 1985
notwithstanding that Dominador Monteverde was (like in the 1986 forward
contracts) not expressly authorized by the IVO Board of Directors to enter into
such forward contracts;
b. it declared that Safic was not able, to prove damages suffered by it, despite
the fact that Safic had presented not only testimonial, but also documentary,
evidence which proved the higher amount it had to pay for crude coconut oil (vis-
-vis the contract price it was to pay to IVO) when IVO refused to deliver the
crude coconut oil bought by Safic under the 1986 forward contracts; and
c. it failed to resolve the issue of whether or not IVO is liable to Safic under the
wash out contracts involving Contracts Nos. A601446 and A60155 (sic), despite
the fact that Safic had properly raised the issue on its appeal, and the evidence
and the law support Safic's position that IVO is so liable to Safic.
In fine, Safic insists that the appellate court grievously erred when it did not declare that
IVO's President, Dominador Monteverde, validly entered into the 1986 contracts for and
on behalf of IVO.
We disagree.
Article III, Section 3 [g] of the By-Laws
5
of IVO provides, among others, that
Section 3. Powers and Duties of the President. - The President shall be elected
by the Board of Directors from their own number .
He shall have the following duties:
x x x x x x x x x
[g] Have direct and active management of the business and operation of the
corporation, conducting the same according to, the orders, resolutions and
instruction of the Board of Directors and according to his own discretion
whenever and wherever the same is not expressly limited by such orders,
resolutions and instructions.
It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde
had no blanket authority to bind IVO to any contract. He must act according to the
instructions of the Board of Directors. Even in instances when he was authorized to act
according to his discretion, that discretion must not conflict with prior Board orders,
resolutions and instructions. The evidence shows that the IVO Board knew nothing of
the 1986 contracts
6
and that it did not authorize Monteverde to enter into speculative
contracts.
7
In fact, Monteverde had earlier proposed that the company engage in such
transactions but the IVO Board rejected his proposal.
8
Since the 1986 contracts marked
a sharp departure from past IVO transactions, Safic should have obtained from
Monteverde the prior authorization of the IVO Board. Safic can not rely on the doctrine
of implied agency because before the controversial 1986 contracts, IVO did not enter
into identical contracts with Safic. The basis for agency is representation and a person
dealing with an agent is put upon inquiry and must discover upon his peril the authority
of the agent.
9
In the case ofBacaltos Coal Mines v. Court of Appeals,
10
we elucidated
the rule on dealing with an agent thus:
Every person dealing with an agent is put upon inquiry and must discover upon
his peril the authority of the agent. If he does not make such inquiry, he is
chargeable with knowledge of the agent's authority, and his ignorance of that
authority will not be any excuse. Persons dealing with an assumed agent,
whether the assumed agency be a general or special one, are bound at their
peril, if they would hold the principal, to ascertain not only the fact of the agency
but also the nature and extent of the authority, and in case either is controverted,
the burden of proof is upon them to establish it.
11

The most prudent thing petitioner should have done was to ascertain the extent of the
authority of Dominador Monteverde. Being remiss in this regard, petitioner can not seek
relief on the basis of a supposed agency.
Under Article 1898
12
of the Civil Code, the acts of an agent beyond the scope of his
authority do not bind the principal unless the latter ratifies the same expressly or
impliedly. It also bears emphasizing that when the third person knows that the agent
was acting beyond his power or authority, the principal can not be held liable for the
acts of the agent. If the said third person is aware of such limits of authority, he is to
blame, and is not entitled to recover damages from the agent, unless the latter
undertook to secure the principal's ratification.
13

There was no such ratification in this case. When Monteverde entered into the
speculative contracts with Safic, he did not secure the Board's approval.
14
He also did
not submit the contracts to the Board after their consummation so there was, in fact, no
occasion at all for ratification. The contracts were not reported in IVO's export sales
book and turn-out book.
15
Neither were they reflected in other books and records of the
corporation.
16
It must be pointed out that the Board of Directors, not Monteverde,
exercises corporate power.
17
Clearly, Monteverde's speculative contracts with Safic
never bound IVO and Safic can not therefore enforce those contracts against IVO.
To bolster its cause, Safic raises the novel point that the IVO Board of Directors did not
set limitations on the extent of Monteverde's authority to sell coconut oil. It must be
borne in mind in this regard that a question that was never raised in the courts below
can not be allowed to be raised for the first time on appeal without offending basic rules
of fair play, justice and due process.
18
Such an issue was not brought to the fore either
in the trial court or the appellate court, and would have been disregarded by the latter
tribunal for the reasons previously stated. With more reason, the same does not
deserve consideration by this Court.
Be that as it may, Safic's belated contention that the IVO Board of Directors did not set
limitations on Monteverde's authority to sell coconut oil is belied by what appears on the
record. Rodrigo Monteverde, who succeeded Dominador Monteverde as IVO President,
testified that the IVO Board had set down the policy of engaging in purely physical
trading thus:
Q. Now you said that IVO is engaged in trading. With whom does, it usually trade
its oil?
A. I am not too familiar with trading because as of March 1987, I was not yet an
officer of the corporation, although I was at the time already a stockholder, I think
IVO is engaged in trading oil.
Q. As far as you know, what kind of trading was IVO engaged with?
A. It was purely on physical trading.
Q. How did you know this?
A. As a stockholder, rather as member of [the] Board of Directors, I frequently
visited the plant and from my observation, as I have to supervise and monitor
purchases of copras and also the sale of the same, I observed that the policy of
the corporation is for the company to engaged (sic) or to purely engaged (sic) in
physical trading.
Q. What do you mean by physical trading?
A. Physical Trading means - we buy and sell copras that are only available to us.
We only have to sell the available stocks in our inventory.
Q. And what is the other form of trading?
Atty. Fernando
No basis, your Honor.
Atty. Abad
Well, the witness said they are engaged in physical trading and what I am
saying [is] if there are any other kind or form of trading.
Court
Witness may answer if he knows.
Witness
A. Trading future[s] contracts wherein the trader commits a price and to
deliver coconut oil in the future in which he is yet to acquire the stocks in
the future.
Atty. Abad
Q. Who established the so-called physical trading in IVO?
A. The Board of Directors, sir.
Atty. Abad.
Q. How did you know that?
A. There was a meeting held in the office at the factory and it was brought out
and suggested by our former president, Dominador Monteverde, that the
company should engaged (sic) in future[s] contract[s] but it was rejected by the
Board of Directors. It was only Ador Monteverde who then wanted to engaged
(sic) in this future[s] contract[s].
Q. Do you know where this meeting took place?
A. As far as I know it was sometime in 1985.
Q. Do you know why the Board of Directors rejected the proposal of Dominador
Monteverde that the company should engaged (sic) in future[s] contracts?
Atty. Fernando
Objection, your Honor, no basis.
Court
Why don't you lay the basis?
Atty. Abad
Q. Were you a member of the board at the time?
A. In 1975, I am already a stockholder and a member.
Q. Then would [you] now answer my question?
Atty. Fernando
No basis, your Honor. What we are talking is about 1985.
Atty. Abad
Q. When you mentioned about the meeting in 1985 wherein the Board of
Directors rejected the future[s] contract[s], were you already a member of the
Board of Directors at that time?
A. Yes, sir.
Q. Do you know the reason why the said proposal of Mr. Dominador Monteverde
to engage in future[s] contract[s] was rejected by the Board of Directors?
A. Because this future[s] contract is too risky and it partakes of gambling.
Q. Do you keep records of the Board meetings of the company?
A. Yes, sir.
Q. Do you have a copy of the minutes of your meeting in 1985?
A. Incidentally our Secretary of the Board of Directors, Mr. Elfren Sarte, died in
1987 or 1988, and despite [the] request of our office for us to be furnished a copy
he was not able to furnish us a copy.
19

x x x x x x x x x
Atty. Abad
Q. You said the Board of Directors were against the company engaging in
future[s] contracts. As far as you know, has this policy of the Board of Directors
been observed or followed?
Witness
A. Yes, sir.
Q. How far has this Dominador Monteverde been using the name of I.V.0. in
selling future contracts without the proper authority and consent of the company's
Board of Directors?
A. Dominador Monteverde never records those transactions he entered into in
connection with these future[s] contracts in the company's books of accounts.
Atty. Abad
Q. What do you mean by that the future[s] contracts were not entered into the
books of accounts of the company?
Witness
A. Those were not recorded at all in the books of accounts of the company, sir.
20

x x x x x x x x x
Q. What did you do when you discovered these transactions?
A. There was again a meeting by the Board of Directors of the corporation and
that we agreed to remove the president and then I was made to replace him as
president.
Q. What else?
A. And a resolution was passed disowning the illegal activities of the former
president.
21

Petitioner next argues that there was actually no difference between the 1985 physical
contracts and the 1986 futures contracts.
The contention is unpersuasive for, as aptly pointed out by the trial court and sustained
by the appellate court
Rejecting IVO's position, SAFIC claims that there is no distinction between the
1985 and 1986 contracts, both of which groups of contracts were signed or
authorized by IVO's President, Dominador Monteverde. The 1986 contracts,
SAFIC would bewail, were similarly with their 1985 predecessors, forward sales
contracts in which IVO had undertaken to deliver the crude coconut oil months
after such contracts were entered into. The lead time between the closing of the
deal and the delivery of the oil supposedly allowed the seller to accumulate
enough copra to mill and to build up its inventory and so meet its delivery
commitment to its foreign buyers. SAFIC concludes that the 1986 contracts were
equally binding, as the 1985 contracts were, on IVO.
Subjecting the evidence on both sides to close scrutiny, the Court has found
some remarkable distinctions between the 1985 and 1986 contracts. x x x
1. The 1985 contracts were performed within an average of two months from the
date of the sale. On the other hand, the 1986 contracts were to be performed
within an average of eight and a half months from the dates of the sale. All the
supposed performances fell in 1987. Indeed, the contract covered by Exhibit J
was to be performed 11 to 12 months from the execution of the contract. These
pattern (sic) belies plaintiffs contention that the lead time merely allowed for
milling and building up of oil inventory. It is evident that the 1986 contracts
constituted trading in futures or in mere expectations. In all likelihood, the
coconuts that were supposed to be milled for oil were not yet on their trees when
Dominador Monteverde sold the crude oil to SAFIC.
2. The mode of payment agreed on by the parties in their 1985 contracts was
uniformly thru the opening of a letter of credit LC by SAFIC in favor of IVO. Since
the buyer's letter of credit guarantees payment to the seller as soon as the latter
is able to present the shipping documents covering the cargo, its opening usually
mark[s] the fact that the transaction would be consummated. On the other hand,
seven out of the ten 1986 contracts were to be paid by telegraphic transfer upon
presentation of the shipping documents. Unlike the letter of credit, a mere
promise to pay by telegraphic transfer gives no assurance of [the] buyer's
compliance with its contracts. This fact lends an uncertain element in the 1986
contracts.1wphi1.nt
3. Apart from the above, it is not disputed that with respect to the 1985 contracts,
IVO faithfully complied with Central Bank Circular No. 151 dated April 1, 1963,
requiring a coconut oil exporter to submit a Report of Foreign Sales within
twenty-four (24) hours "after the closing of the relative sales contract" with a
foreign buyer of coconut oil. But with respect to the disputed 1986 contracts, the
parties stipulated during the hearing that none of these contracts were ever
reported to the Central Bank, in violation of its above requirement. (See
Stipulation of Facts dated June 13, 1990). The 1986 sales were, therefore
suspect.
4. It is not disputed that, unlike the 1985 contacts, the 1986 contracts were never
recorded either in the 1986 accounting books of IVO or in its annual financial
statement for 1986, a document that was prepared prior to the controversy.
(Exhibits 6 to 6-0 and 7 to 7-1). Emelita Ortega, formerly an assistant of
Dominador Monteverde, testified that they were strange goings-on about the
1986 contract. They were neither recorded in the books nor reported to the
Central Bank. What is more, in those unreported cases where profits were made,
such profits were ordered remitted to unknown accounts in California, U.S.A., by
Dominador Monteverde.
x x x x x x x x x
Evidently, Dominador Monteverde made business or himself, using the name of
IVO but concealing from it his speculative transactions.
Petitioner further contends that both the trial and appellate courts erred in concluding
that Safic was not able to prove its claim for damages. Petitioner first points out that its
wash out agreements with Monteverde where IVO allegedly agreed to pay
US$293,500.00 for some of the failed contracts was proof enough and, second, that it
presented purchases of coconut oil it made from others during the period of IVO's
default.
We remain unconvinced. The so-called "wash out" agreements are clearly ultra
vires and not binding on IVO. Furthermore, such agreements did not prove Safic's
actual losses in the transactions in question. The fact is that Safic did not pay for the
coconut oil that it supposedly ordered from IVO through Monteverede. Safic only claims
that, since it was ready to pay when IVO was not ready to deliver, Safic suffered
damages to the extent that they had to buy the same commodity from others at higher
prices.
The foregoing claim of petitioner is not, however, substantiated by the evidence and
only raises several questions, to wit: 1.] Did Safic commit to deliver the quantity of oil
covered by the 1986 contracts to its own buyers? Who were these buyers? What were
the terms of those contracts with respect to quantity, price and date of delivery? 2.] Did
Safic pay damages to its buyers? Where were the receipts? Did Safic have to procure
the equivalent oil from other sources? If so, who were these sources? Where were their
contracts and what were the terms of these contracts as to quantity, price and date of
delivery?
The records disclose that during the course of the proceedings in the trial court, IVO
filed an amended motion
22
for production and inspection of the following documents: a.]
contracts of resale of coconut oil that Safic bought from IVO; b.] the records of the
pooling and sales contracts covering the oil from such pooling, if the coconut oil has
been pooled and sold as general oil; c.] the contracts of the purchase of oil that,
according to Safic, it had to resort to in order to fill up alleged undelivered commitments
of IVO; d.] all other contracts, confirmations, invoices, wash out agreements and other
documents of sale related to (a), (b) and (c). This amended motion was opposed by
Safic.
23
The trial court, however, in its September 16, 1988 Order ,24 ruled that:
From the analysis of the parties' respective positions, conclusion can easily be
drawn therefrom that there is materiality in the defendant's move: firstly, plaintiff
seeks to recover damages from the defendant and these are intimately related to
plaintiffs alleged losses which it attributes to the default of the defendant in its
contractual commitments; secondly, the documents are specified in the amended
motion. As such, plaintiff would entertain no confusion as to what, which
documents to locate and produce considering plaintiff to be (without doubt) a
reputable going concern in the management of the affairs which is serviced by
competent, industrious, hardworking and diligent personnel; thirdly, the desired
production and inspection of the documents was precipitated by the testimony of
plaintiffs witness (Donald O'Meara) who admitted, in open court, that they are
available. If the said witness represented that the documents, as generally
described, are available, reason there would be none for the same witness to say
later that they could not be produced, even after they have been clearly
described.
Besides, if the Court may additionally dwell on the issue of damages, the
production and inspection of the desired documents would be of tremendous
help in the ultimate resolution thereof. Plaintiff claims for the award of liquidated
or actual damages to the tune of US$391,593.62 which, certainly, is a huge
amount in terms of pesos, and which defendant disputes. As the defendant
cannot be precluded in taking exceptions to the correctness and validity of such
claim which plaintiffs witness (Donald O'Meara) testified to, and as, by this nature
of the plaintiffs claim for damages, proof thereof is a must which can be better
served, if not amply ascertained by examining the records of the related sales
admitted to be in plaintiffs possession, the amended motion for production and
inspection of the defendant is in order.
The interest of justice will be served best, if there would be a full disclosure by
the parties on both sides of all documents related to the transactions in litigation.
Notwithstanding the foregoing ruling of the trial court, Safic did not produce the required
documents, prompting the court a quo to assume that if produced, the documents would
have been adverse to Safic's cause. In its efforts to bolster its claim for damages it
purportedly sustained, Safic suggests a substitute mode of computing its damages by
getting the average price it paid for certain quantities of coconut oil that it allegedly
bought in 1987 and deducting this from the average price of the 1986 contracts. But this
mode of computation if flawed .because: 1.] it is conjectural since it rests on average
prices not on actual prices multiplied by the actual volume of coconut oil per contract;
and 2.] it is based on the unproven assumption that the 1987 contracts of purchase
provided the coconut oil needed to make up for the failed 1986 contracts. There is also
no evidence that Safic had contracted to supply third parties with coconut oil from the
1986 contracts and that Safic had to buy such oil from others to meet the requirement.
Along the same vein, it is worthy to note that the quantities of oil covered by its 1987
contracts with third parties do not match the quantities of oil provided under the 1986
contracts. Had Safic produced the documents that the trial court required, a
substantially correct determination of its actual damages would have been possible.
This, unfortunately, was not the case. Suffice it to state in this regard that "[T]he power
of the courts to grant damages and attorney's fees demands factual, legal and equitable
justification; its basis cannot be left to speculation and conjecture."
25

WHEREFORE, in view of all the foregoing, the petition is DENIED for lack of merit.
SO ORDERED.

G.R. No. L-19001 April 30, 1964
PRUDENTIAL BANK AND TRUST Co., plaintiff-appellant,
vs.
SAURA IMPORT AND EXPORT CO., INC., defendant-appellee.
Tomacruz and Associates for plaintiff-appellant.
Saura, Magno and Associates for defendant-appellee.
PAREDES, J .:
On July 2, 1953, DEFENDANT Saura Import & Export Co., Inc., thru its President
Ramon E. Saura, opened with plaintiff Prudential Bank & Trust Co., an irrevocable letter
of credit, in the amount of $157,514.00. The Letter of Credit authorized the Bank of East
Asia, Ltd. of Hongkong, thru the Chemical Bank & Trust Co. of New York, to purchase
for defendant's account, drafts drawn by the Reiss, Bradley & Co., Ltd. of Hongkong, to
cover the importation of jute mill machineries from Hongkong to Davao City, Philippines.
In due time, the machineries were shipped to Davao City, and the shipping documents
were endorsed by appellant Bank to appellee. Reiss, Bradley & Co., Ltd., pursuant to
the terms of the Letter of Credit, drew a draft for $157,244.00 (U.S.), against the Bank of
East Asia, which endorsed the same to the order of the Chemical Bank & Trust
Company of New York. The latter Bank in turn enclosed the draft to appellant Prudential
Bank & Trust Co. and charged the amount to its account. The draft was later presented
to appellee who accepted the same, payable on October 5, 1953. In order to have the
machineries released to appellee, its President executed a Trust Receipt, dated August
6, 1953, in the amount of P317,165.51, wherein it was agreed, among others, that the
appellee will hold the machineries in trust for the Bank as the latter's property, but with
liberty to sell the same for the account of said Bank.
On May 13, 1955, plaintiff Bank filed the present complaint, claiming that defendant had
not paid the full amount of the draft there remaining a balance of P275,624.62, as of
May 12, 1955, which defendant failed and refused to pay, notwithstanding repeated
demands, and praying for judgment against the defendant for said amount with 12%
interest until fully paid; return of the machineries, subject matter of the trust receipt,
together with the expenses in bringing them to Manila, and P30,000.00 by way of
attorney's fees and the costs.
The answer of defendant Saura Import & Export Co., Inc., beside containing the usual
Admissions and Denials, asserted that a novation had taken place, with the execution of
the Trust Receipt; that from a debtor, defendant had become merely an agent of
plaintiff, whose duty was to sell the machineries subject of the Trust Receipt and the
proceeds thereof to be paid to plaintiff Bank; that at the time of the presentation of the
Answer, the machineries were not yet sold; that defendant was ready, willing and able
to surrender to plaintiff Bank the machineries originally imported by it, with the expenses
for the delivery thereof (transportation from Davao to Manila) chargeable against
defendant's marginal deposit on the letter of credit, and that notwithstanding these
circumstances, which plaintiff knew all the time, it did not cancel the trust receipt. As
counter-claim, defendant asked for P10,000.00 by way of moral damages and
P5,000.00 as attorney's fees.
Trial was held, the record showing that plaintiff adduced testimonial evidence on
September 6, 1955 and the defendant on December 8, 1960, or an interval of about
more than five (5) years. During the presentation of testimonial evidence for the
defendant, it was shown that in the intervening period (after the hearing on September
6, 1955 to December 8, 1960), the parties had entered into negotiations affecting the
machineries, foremost of which was the authority given to defendant by the plaintiff
bank to find a buyer for the machineries and an extension on the part of the buyer to
pay until 1961. The written acknowledgment of the plaintiff that they were willing to
accept P250,000.00 from Frank Halling, of the Filipinas Auto Sales Corporation, in
liquidation of the principal and interest, confirmed the fact of such negotiation. The letter
containing such acknowledgment was dated July 6, 1960, about five (5) months before
the defendant presented its oral evidence. The matter of the previous negotiations was
duly brought to the attention of the trial court, and on April 19, 1961, judgment was
rendered, the pertinent portions of which read:
Substantially the defendant admits the transactions that lead to the shipment of
the eighty-five cases of Jute Mill Machinery, but in its special defense, however,
by virtue of the negotiations that took place between the President of the
Prudential Bank and Trust Company, on one hand and one Mr. Frank Halling and
Ramon Saura representing the defendant on the other hand. The testimony of
Saura on the subsequent negotiations is as follows:
Atty. Magno:
Q Will you please explain why the machinery, inspite of the provisions of the
trust receipt, have not been delivered to the plaintiff?
A Yes, sir, because first, I found out only when we examined the records, that
the lawyers of the Prudential Bank and Trust Co. wrote us a letter demanding,
among other things, the return of the machinery, and the fellow who received it,
according to the record, was Daniel Mauguly, who left for the United States and
was there for the last five years, who perhaps due to excitement, failed to inform
me about this. Upon receipt of their complaint which says that they demanded
the machinery, we stated in our answer that we are willing and able to return the
machinery and for the cost of the Prudential Bank in taking over the machinery
we have a marginal deposit of over P93,000.00 as admitted in the complaint of
the Philippine Bank and Trust Co. as received by them, which could be applied
for the cost of transportation in bringing the machinery from Davao to Manila, but
evidently the Prudential Bank and Trust Co. notwithstanding such demand,
preferred that we pay cash should we be able to find a buyer pursuant to the trust
receipt. Therefore, negotiations were being made with Mr. Frank Halling of the
Filipinas Auto Sales Corporation, and with the consent of the Prudential Bank
and Trust Co., we were to pay the whole machinery in the trust receipt for
P250.000.00 and the Prudential Bank and Trust Co. wrote me a letter to the
effect that they are willing to accept the P250,000.00 in full payment of the
interest, the capital and even attorney's fees Mr. Halling was given time within
which to pay the same which will expire about July 1961. So, I was surprised why
they are still prosecuting the case when Mr. Halling is still raising the money, and
Mr. Halling will raise over a million pesos because in addition to the P250,000.00
which he will pay the Prudential Bank and Trust Co. he has to pay us also the
amount of P200,000.00 for interest and cost of operation. But in view of the
existing condition of the market now, it was thoughtless to give him a period until
1961, and in this case they are still continuing to harass us notwithstanding that
we were willing to give the machinery to them.
The above-quoted testimony is supported by Exh. 1, letter of the Hon. Pio Pedrosa,
President, Prudential Bank and Trust Co. and addressed to defendant Saura Import and
Export Inc.
Analyzing the evidence on record, the Court believes and so holds that plaintiff is bound
to abide by the subsequent negotiation as testified to by Ramon Saura to the effect that
Frank Halling was given time within which to make payment of the P250,000.00 for
eighty-five cases of Jute Mill Machinery. The testimony quoted above given by Saura
was not contradicted by plaintiff hence the Court has no other alternative but to accept
it.
In view of the foregoing, the Court believes and so holds that the action taken by plaintiff
is premature. The instant case is hereby dismissed without costs.
After the denial of the motion for reconsideration, plaintiff appealed directly to this Court
claiming that, the lower Court erred:
1. In holding the present action is premature, in dismissing the case in denying
the motion for reconsideration;
2. In not hooding appellee liable to appellant for P275,624.62, as of May 12,
1955 plus interest, attorney's fees and costs; and
3. In not ordering appellee to return to appellant the machineries covered by the
trust receipt.1wph1.t
We believe that the trial Court was correct in dismissing the case. It is true that at the
time the complaint was presented, there was due from the defendant the amount
described therein. However, novation had already taken place, not only with the
execution of the Trust Receipt, but also with the subsequent negotiations entered into
by the parties, such as granting the defendant-appellee the authority to find for a buyer
of the goods and the extension given by appellant to Frank Halling the buyer, within
which to pay the P250,000.00. The above circumstance appeared after the plaintiff had
adduced its evidence, before defendant took his turn to do so. At the time case wish
submitted for decision (April 19, 1961), there no real controversy, so to say, the period
of extension which was the whole year 1961, not having expired, and no proof was
adduced by plaintiff that Frank Halling could not pay within the period agreed upon. For
it is a fact, found the lower court, that before the case was submitted for decision, there
was a standing agreement that the liability defendant-appellant would be paid by said
Frank Halling. Before the termination of the year 1961, the cause of action alleged in the
complaint had lost its force and effect, there was then no justiciable issue. The other
questions posed by appellant, in view of the above conclusion reached, need no longer
be discussed.
IN VIEW OF THE FOREGOING, the decision appealed from should be, as it is hereby
affirmed, reserving the plaintiff-appellant, the right to file the action justified by the facts
and circumstances now obtaining in, and law on the case. Costs against plaintiff-
appellant.

G.R. No. L-11409 March 21, 1917
RAMON ONGPIN, as administrator of the testate estate of Roman
Ongpin, applicant-appellant,
vs.
VICENTA RIVERA, as guardian of the person of the minor, Carmen
Rivera, opponent-appellee.
Luciano de la Rosa for appellant.
Claro Reyes for appellee.
ARAULLO, J .:
Roman Ongpin died on December 10, 1912. In his will he bequeathed to Carmen
Rivera, natural daughter of Vicenta Rivera, a legacy equivalent to five per cent of the
net amount of the proceeds of the estate, to wit, P9,867.02. Probate proceedings
instituted in the Court of First Instance of this city and on June 28, 1915, the attorney of
the guardian of the minor petitioned the court to require the administrator of the
decedent's estate to deliver said legacy to Carmen Rivera, together with the fruits and
other income it had earned since the date of said Ongpin's demise, or to require the
heirs to give sufficient security to cover the value of the legacy with its income and other
products until the date of the payment. Acting upon this petition, on July 12, the court
ordered the administrator to liquidate the legacy and pay the proceeds to the minor's
guardian, but directed that delivery should not be made until the guardian of the minor's
property should increase the amount of his bond from P1,000 to P10,000.
On July 20th of the same year, the administrator deposited with the clerk of the court
P7,737.02 the remainder of the minor's legacy still in his possession; and on the 20th
of the following month of October, the court issued an order directing the administrator
to pay Carmen Rivera, besides the said amount deposited with the clerk of the court,
the additional sum of P1,160.55, as legal interest on the sum first above-mentioned at
the rate of 6 per cent per annum for the period of two and one-half years. The
administrator Ongpin excepted to said order and forwarded to this court a transcript of
the testimony taken at the trial. In his brief he assigns various error which he alleges
were committed by the court in issuing said order.
The concrete question before this court on this appeal is whether the administrator of
Ongpin's estate must deliver said legacy to the minor Carmen Rivera, and whether he
must also pay the legal interest fixed by the lower court in its aforementioned order.
From the testimony before us it appears that on June 2, 1914, the court approved the
tentative partition presented by the administrator in the probate proceedings and
authorized the executor to deliver the property to the heirs in accordance with the terms
of said partition; that prior to said date, to wit, on December 31, 1912, a few days
subsequent to the death of the administrator Ongpin, by agreement with his heirs,
monthly delivers were made to the minor Carmen Rivera of various amounts, some of
P40, others of P50, P100, and P250, up to June 30, 1915; that these sums aggregated
P2,040, there remaining, therefore, to be delivered to the legatee P7,737.02; that on
July 20th of said year, that is, twenty days after the last partial delivery, said
administrator, upon the aforementioned petition filed by the minor's legal representative
on the 28th of the preceding month, deposited with the clerk of the court at the disposal
of said minor the remainder of the legacy to wit, P7,737.02, which deposit was still in the
custody of the court when the order appealed from, dated October 20, 1915, was
issued, directing the administrator to deliver that sum to the minor, together with the
interest aforementioned.
A debtor, or the person obligated to pay to another a specified sum of money, owes
interest from the moment the debtor or said person is delinquent in the fulfillment of his
obligation. In the present case it was the duty of the administrator to deliver to the minor
legatee the legacy bequeathed to her by the deceased, amounting to P9,867.02, and to
make such delivery on June 2, 1914; and at the time the court approved the
memorandum of partition of the decedent's estate and, in accordance therewith,
ordered the delivery of the respective properties to the heirs, not only had said
administrator been making partial deliveries of the legacy to the legatee for a long time
prior to the issue of said order, that is, since a few days after Roman Ongpin's death
which deliveries amounted to P2,040 but several days the clerk of the court
P7,737.02, the remainder of the legacy, as soon as he was required by the court to
make complete delivery thereof. The said administrator was not, therefore, in any way
delinquent in the fulfillment of his obligation.
For the foregoing reasons, we affirm the order appealed from, of the date of October 20,
1915, in so far as it directs the delivery to the legatee of the remainder of the legacy,
amounting to P7,737.02, now deposited with the clerk of the court, and we reverse said
order in so far it directs that, in addition to said sum, the administrator shall pay to the
legatee, Carmen Rivera, P1,160.55, as legal interest on the sum first above-mentioned
for the period of two and one-half years, and we hold that the legatee is not entitled to
said interest. No special finding is made with respect to the costs of this instance. So
ordered.

G.R. No. 160346 August 25, 2009
PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented by
Mother and Attorney-in-Fact VIRGINIA CASTILLA), Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA OCAMPO,
EUFEMIA SAN AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTIN-McCRAE,
MILAGROS SAN AGUSTIN-FORTMAN, MINERVA SAN AGUSTIN-ATKINSON,
FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN, ISABELITA SAN AGUSTIN-
LUSTENBERGER and VIRGILIO SAN AGUSTIN, Respondents.
D E C I S I O N
NACHURA, J .:
For our resolution is a petition for review on certiorari assailing the April 23, 2003
Decision
1
and October 8, 2003 Resolution
2
of the Court of Appeals (CA) in CA-G.R. CV
No. 59426. The appellate court, in the said decision and resolution, reversed and set
aside the January 14, 1998 Decision
3
of the Regional Trial Court (RTC), which ruled in
favor of petitioners.
The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to
acquire a 246-square meter parcel of land situated in Barangay Anos, Los Baos,
Laguna and covered by Original Certificate of Title (OCT) No. O-(1655) 0-15.
4
Agatona
Genil died on September 13, 1990 while Pedro San Agustin died on September 14,
1991. Both died intestate, survived by their eight (8) children: respondents Eufemia,
Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of
Undivided Shares
5
conveying in favor of petitioners (the Pahuds, for brevity) their
respective shares from the lot they inherited from their deceased parents
for P525,000.00.
6
Eufemia also signed the deed on behalf of her four (4) other co-heirs,
namely: Isabelita on the basis of a special power of attorney executed on September
28, 1991,
7
and also for Milagros, Minerva, and Zenaida but without their apparent
written authority.
8
The deed of sale was also not notarized.
9

On July 21, 1992, the Pahuds paid P35,792.31 to the Los Baos Rural Bank where the
subject property was mortgaged.
10
The bank issued a release of mortgage and turned
over the owners copy of the OCT to the Pahuds.
11
Over the following months, the
Pahuds made more payments to Eufemia and her siblings totaling
toP350,000.00.
12
They agreed to use the remaining P87,500.00
13
to defray the payment
for taxes and the expenses in transferring the title of the property.
14
When Eufemia and
her co-heirs drafted an extra-judicial settlement of estate to facilitate the transfer of the
title to the Pahuds, Virgilio refused to sign it.
15

On July 8, 1993, Virgilios co-heirs filed a complaint
16
for judicial partition of the subject
property before the RTC of Calamba, Laguna. On November 28, 1994, in the course of
the proceedings for judicial partition, a Compromise Agreement
17
was signed with seven
(7) of the co-heirs agreeing to sell their undivided shares to Virgilio forP700,000.00. The
compromise agreement was, however, not approved by the trial court because Atty.
Dimetrio Hilbero, lawyer for Eufemia and her six (6) co-heirs, refused to sign the
agreement because he knew of the previous sale made to the Pahuds.
18
lawphil.net
On December 1, 1994, Eufemia acknowledged having received P700,000.00 from
Virgilio.
19
Virgilio then sold the entire property to spouses Isagani Belarmino and Leticia
Ocampo (Belarminos) sometime in 1994. The Belarminos immediately constructed a
building on the subject property.
Alarmed and bewildered by the ongoing construction on the lot they purchased, the
Pahuds immediately confronted Eufemia who confirmed to them that Virgilio had sold
the property to the Belarminos.
20
Aggrieved, the Pahuds filed a complaint in
intervention
21
in the pending case for judicial partition.1avvphil
After trial, the RTC upheld the validity of the sale to petitioners. The dispositive portion
of the decision reads:
WHEREFORE, the foregoing considered, the Court orders:
1. the sale of the 7/8 portion of the property covered by OCT No. O (1655) O-15
by the plaintiffs as heirs of deceased Sps. Pedro San Agustin and Agatona Genil
in favor of the Intervenors-Third Party plaintiffs as valid and enforceable, but
obligating the Intervenors-Third Party plaintiffs to complete the payment of the
purchase price of P437,500.00 by paying the balance of P87,500.00 to defendant
Fe (sic) San Agustin Magsino. Upon receipt of the balance, the plaintiff shall
formalize the sale of the 7/8 portion in favor of the Intervenor[s]-Third Party
plaintiffs;
2. declaring the document entitled "Salaysay sa Pagsang-ayon sa Bilihan" (Exh.
"2-a") signed by plaintiff Eufemia San Agustin attached to the unapproved
Compromise Agreement (Exh. "2") as not a valid sale in favor of defendant
Virgilio San Agustin;
3. declaring the sale (Exh. "4") made by defendant Virgilio San Agustin of the
property covered by OCT No. O (1655)-O-15 registered in the names of Spouses
Pedro San Agustin and Agatona Genil in favor of Third-party defendant Spouses
Isagani and Leticia Belarmino as not a valid sale and as inexistent;
4. declaring the defendant Virgilio San Agustin and the Third-Party defendants
spouses Isagani and Leticia Belarmino as in bad faith in buying the portion of the
property already sold by the plaintiffs in favor of the Intervenors-Third Party
Plaintiffs and the Third-Party Defendant Sps. Isagani and Leticia Belarmino in
constructing the two-[storey] building in (sic) the property subject of this case;
and
5. declaring the parties as not entitled to any damages, with the parties
shouldering their respective responsibilities regarding the payment of attorney[]s
fees to their respective lawyers.
No pronouncement as to costs.
SO ORDERED.
22

Not satisfied, respondents appealed the decision to the CA arguing, in the main, that the
sale made by Eufemia for and on behalf of her other co-heirs to the Pahuds should
have been declared void and inexistent for want of a written authority from her co-heirs.
The CA yielded and set aside the findings of the trial court. In disposing the issue, the
CA ruled:
WHEREFORE, in view of the foregoing, the Decision dated January 14, 1998, rendered
by the Regional Trial Court of Calamba, Laguna, Branch 92 in Civil Case No. 2011-93-C
for Judicial Partition is hereby REVERSED and SET ASIDE, and a new one entered, as
follows:
(1) The case for partition among the plaintiffs-appellees and appellant Virgilio is
now considered closed and terminated;
(2) Ordering plaintiffs-appellees to return to intervenors-appellees the total
amount they received from the latter, plus an interest of 12% per annum from the
time the complaint [in] intervention was filed on April 12, 1995 until actual
payment of the same;
(3) Declaring the sale of appellant Virgilio San Agustin to appellants spouses,
Isagani and Leticia Belarmino[,] as valid and binding;
(4) Declaring appellants-spouses as buyers in good faith and for value and are
the owners of the subject property.
No pronouncement as to costs.
SO ORDERED.
23

Petitioners now come to this Court raising the following arguments:
I. The Court of Appeals committed grave and reversible error when it did not
apply the second paragraph of Article 1317 of the New Civil Code insofar as
ratification is concerned to the sale of the 4/8 portion of the subject property
executed by respondents San Agustin in favor of petitioners;
II. The Court of Appeals committed grave and reversible error in holding that
respondents spouses Belarminos are in good faith when they bought the subject
property from respondent Virgilio San Agustin despite the findings of fact by the
court a quo that they were in bad faith which clearly contravenes the presence of
long line of case laws upholding the task of giving utmost weight and value to the
factual findings of the trial court during appeals; [and]
III. The Court of Appeals committed grave and reversible error in holding that
respondents spouses Belarminos have superior rights over the property in
question than petitioners despite the fact that the latter were prior in possession
thereby misapplying the provisions of Article 1544 of the New Civil Code.
24

The focal issue to be resolved is the status of the sale of the subject property by
Eufemia and her co-heirs to the Pahuds. We find the transaction to be valid and
enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void.
Also, under Article 1878,
25
a special power of attorney is necessary for an agent to enter
into a contract by which the ownership of an immovable property is transmitted or
acquired, either gratuitously or for a valuable consideration. Such stringent statutory
requirement has been explained in Cosmic Lumber Corporation v. Court of Appeals:
26

[T]he authority of an agent to execute a contract [of] sale of real estate must be
conferred in writing and must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing terms and
conditions which are in the contract he did execute. A special power of attorney is
necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration. The express
mandate required by law to enable an appointee of an agency (couched) in general
terms to sell must be one that expressly mentions a sale or that includes a sale as a
necessary ingredient of the act mentioned. For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so express the powers of the agent in
clear and unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be given the
document.
27

In several cases, we have repeatedly held that the absence of a written authority to sell
a piece of land is, ipso jure, void,
28
precisely to protect the interest of an unsuspecting
owner from being prejudiced by the unwarranted act of another.
Based on the foregoing, it is not difficult to conclude, in principle, that the sale made by
Eufemia, Isabelita and her two brothers to the Pahuds sometime in 1992 should be valid
only with respect to the 4/8 portion of the subject property. The sale with respect to the
3/8 portion, representing the shares of Zenaida, Milagros, and Minerva, is void because
Eufemia could not dispose of the interest of her co-heirs in the said lot absent any
written authority from the latter, as explicitly required by law. This was, in fact, the ruling
of the CA.
Still, in their petition, the Pahuds argue that the sale with respect to the 3/8 portion of
the land should have been deemed ratified when the three co-heirs, namely: Milagros,
Minerva, and Zenaida, executed their respective special power of
attorneys
29
authorizing Eufemia to represent them in the sale of their shares in the
subject property.
30

While the sale with respect to the 3/8 portion is void by express provision of law and not
susceptible to ratification,
31
we nevertheless uphold its validity on the basis of the
common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person
relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite
special power of attorney to dispose of the 3/8 portion of the property. Initially, in their
answer to the complaint in intervention,
32
Eufemia and her other co-heirs denied having
sold their shares to the Pahuds. During the pre-trial conference, however, they admitted
that they had indeed sold 7/8 of the property to the Pahuds sometime in 1992.
33
Thus,
the previous denial was superseded, if not accordingly amended, by their subsequent
admission.
34
Moreover, in their Comment,
35
the said co-heirs again admitted the sale
made to petitioners.
36

Interestingly, in no instance did the three (3) heirs concerned assail the validity of the
transaction made by Eufemia to the Pahuds on the basis of want of written authority to
sell. They could have easily filed a case for annulment of the sale of their respective
shares against Eufemia and the Pahuds. Instead, they opted to remain silent and left
the task of raising the validity of the sale as an issue to their co-heir, Virgilio, who is not
privy to the said transaction. They cannot be allowed to rely on Eufemia, their attorney-
in-fact, to impugn the validity of the first transaction because to allow them to do so
would be tantamount to giving premium to their sisters dishonest and fraudulent deed.
Undeniably, therefore, the silence and passivity of the three co-heirs on the issue bar
them from making a contrary claim.
It is a basic rule in the law of agency that a principal is subject to liability for loss caused
to another by the latters reliance upon a deceitful representation by an agent in the
course of his employment (1) if the representation is authorized; (2) if it is within the
implied authority of the agent to make for the principal; or (3) if it is apparently
authorized, regardless of whether the agent was authorized by him or not to make the
representation.
37

By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to
believe that they have indeed clothed Eufemia with the authority to transact on their
behalf. Clearly, the three co-heirs are now estopped from impugning the validity of the
sale from assailing the authority of Eufemia to enter into such transaction.
Accordingly, the subsequent sale made by the seven co-heirs to Virgilio was void
because they no longer had any interest over the subject property which they could
alienate at the time of the second transaction.
38
Nemo dat quod non habet. Virgilio,
however, could still alienate his 1/8 undivided share to the Belarminos.
The Belarminos, for their part, cannot argue that they purchased the property from
Virgilio in good faith. As a general rule, a purchaser of a real property is not required to
make any further inquiry beyond what the certificate of title indicates on its face.
39
But
the rule excludes those who purchase with knowledge of the defect in the title of the
vendor or of facts sufficient to induce a reasonable and prudent person to inquire into
the status of the property.
40
Such purchaser cannot close his eyes to facts which should
put a reasonable man on guard, and later claim that he acted in good faith on the belief
that there was no defect in the title of the vendor. His mere refusal to believe that such
defect exists, or his obvious neglect by closing his eyes to the possibility of the
existence of a defect in the vendors title, will not make him an innocent purchaser for
value, if afterwards it turns out that the title was, in fact, defective. In such a case, he is
deemed to have bought the property at his own risk, and any injury or prejudice
occasioned by such transaction must be borne by him.
41

In the case at bar, the Belarminos were fully aware that the property was registered not
in the name of the immediate transferor, Virgilio, but remained in the name of Pedro
San Agustin and Agatona Genil.
42
This fact alone is sufficient impetus to make further
inquiry and, thus, negate their claim that they are purchasers for value in good
faith.
43
They knew that the property was still subject of partition proceedings before the
trial court, and that the compromise agreement signed by the heirs was not approved by
the RTC following the opposition of the counsel for Eufemia and her six other co-
heirs.
44
The Belarminos, being transferees pendente lite, are deemed buyers in mala
fide, and they stand exactly in the shoes of the transferor and are bound by any
judgment or decree which may be rendered for or against the transferor.
45
Furthermore,
had they verified the status of the property by asking the neighboring residents, they
would have been able to talk to the Pahuds who occupy an adjoining business
establishment
46
and would have known that a portion of the property had already been
sold. All these existing and readily verifiable facts are sufficient to suggest that the
Belarminos knew that they were buying the property at their own risk.
WHEREFORE, premises considered, the April 23, 2003 Decision of the Court of
Appeals as well as its October 8, 2003 Resolution in CA-G.R. CV No. 59426, are
REVERSED and SET ASIDE. Accordingly, the January 14, 1998 Decision of Branch 92
of the Regional Trial Court of Calamba, Laguna is REINSTATED with the
MODIFICATION that the sale made by respondent Virgilio San Agustin to respondent
spouses Isagani Belarmino and Leticia Ocampo is valid only with respect to the 1/8
portion of the subject property. The trial court is ordered to proceed with the partition of
the property with dispatch.
SO ORDERED.